Bai- as-Sarf is a contract of exchange of money for money. This contract is tightly regulated under Shari`ah because it can be easily manipulated for the purpose of producing an interest-bearing loan, which is prohibited in Islam.
In pre-Islamic times gold was exchanged for gold, silver for silver and gold for silver or vice versa. In Islamic law such exchange is regarded as sale of price for price and each price is consideration of the other. It also means sale of monetary value for monetary value i.e. currency exchange.
Ibn Rushd examines the three forms of sale that can arise in a market where goods and money are in existence:
"When two commodities are exchanged, one may serve as a currency and the other as a priced commodity, or both may be currencies. When a currency is exchanged for a currency the sale is called 'sarf', and when a currency is exchanged for a priced commodity, the transaction is sale property ('bay'). Similar is the sale of a priced commodity for another priced commodity (barter)"
In respect of Bank, Bai-as-Sarf is a contract/agreement between the Bank and the Client under which the Bank purchase the foreign currency against the Foreign documentary bill in advance from the Client at specified/agreed exchange rate.
“Bai-as-Sarf (FDB) ” is practiced for providing post shipment finance facility against Foreign Currency export Bills and “Bai-as-Sarf (FCD) ” is done for providing advance finance facility against Foreign Currency Cheque /Draft
Objectives for Introduction of Bai-As-Sarf
- To perform the post-shipment finance under shariah compliant mode.
- To meet up the exporter’s urgent need to run the business smoothly.
- To meet up the urgent need of Foreign Currency Cheque /Draft holders.
Area and Eligibility of Bai-As-Sarf
- 100% export oriented industries/farms having limit of Bai-as-Sarf or availing working capital limit.
- Valued Client who receives Foreign Currency Cheque /Draft from home and abroad against sales proceeds or services.
- NRBs who remit the Foreign Currency from abroad through Foreign Currency Cheque /Draft.
- The client who have valid export registration certificate.
- This is a post-shipment finance mechanism under Bai mode.
- Bai-as-Sarf means‘sale of price for price’ and each price is consideration of the other. It also means sale of monetary value for monetary value i.e. currency exchange.
- This is also known as purchase/sale of Foreign Currency to earn Exchange income under the Bai-as-Sarf agreement.
- Usually exchange of one currency into another currecy is dealt under Bai-as-Sarf mode.
- The related foreign currency will be received by the bank as the client sold out the same to the bank at agreed upon exchange rate
- Since no law in this regard is prevalent in Bangladesh to govern such Bai- As-Sarf agreement, the relationship between the Client and the Bank shall be treated as seller and buyer
- In case of any dispute arising out of Bai-As-Sarf agreement or regarding the terms and conditions of the agreement, the Banks decision shall be final and binding upon the parties
- In the event of the Client's failure to repatriate the export proceeds by any consequence even for which the client is not responsible, the Client shall be liable to pay back the amount paid to him in connection with the said documents with Compensation/Fine/Penalty to the Bank