KUALA LUMPUR (Oct 3): Bank Negara Malaysia's Shariah Advisory Coucil said the contract session for bai` al-sarf refers to the period when contracting parties enter into a contract, commencing with an offer (ijab), followed by an acceptance (qabul) to exchange monies between each other.

In a statement today, Bank Negara said Bai` al-sarf refers to a contract for money exchange. According to the central bank, the delivery of money in bai` al-sarf shall take place during the contract session.

"The practice of the delivery of money in bai` al-sarf, for instance on day two after transaction date (T+2) is construed to have taken place after the contract session. 

"However, this practice may be allowed due to established customary business practice (‘urf tijari) arising from operational constraints. In addition, the delivery of money beyond the contract session may also be allowed in the event of unexpected disruptions," Bank Negara said.

According to Bank Negara, bai` al-sarf contracts end by the "disengagement of the contracting parties physically or constructively."

Bank Negara said it is necessary to clearly define the contract session for bai` al-sarf in the context of current banking operations and to
ascertain whether the delivery of money at T+2 is considered to have taken place during or after the contract session.

According to the central bank, this is important to ensure that foreign exchange trading activities undertaken by Islamic financial institutions are Shariah compliant.

"The effective date of this ruling is subject to the effective date of policy document on Bai` al-Sarf, which is expected to be issued by end of 2017," Bank Negara said.