SS 16: Commercial Papers
What this standard is about
The standard covers commercial papers: bills of exchange, promissory notes, and cheques. Dealing in them is permissible because they function like hawalah (transfer of debt), qard (loan), or suftajah (a demand note payable in another town). These instruments were used and accepted by the companions of the Prophet.
Why it exists
Commercial papers are everyday payment tools. The standard confirms their validity in Islamic law. At the same time, it blocks the interest-based practice of discounting them — selling a debt paper for less than its face value before it matures.
The key rules, simply put
- Issuing and using commercial papers for genuine debts is permissible.
- A paper cannot be sold to a third party for less than its face value before it matures. That discount is a form of riba (interest).
- Collecting a paper on someone's behalf for a service fee is permissible.
- The paper must represent a real, confirmed debt.
An everyday example
A supplier holds a $10,000 promissory note due in 90 days. They cannot sell it today for $9,500. That $500 discount would be riba. They must wait for maturity and collect the full $10,000, or have someone collect it for a service fee.
Words to know
- Commercial papers — written payment instruments such as cheques, bills of exchange, and promissory notes.
- Suftajah — a demand note written in one town and payable in another.
- Hawalah — the transfer of a debt from one debtor to another.
- Riba — interest; any guaranteed extra on a loan or debt. Not allowed in Islamic finance.
- Discounting — selling a debt paper below its face value before maturity.
Source
- AAOIFI Shariah Standard No. 16 — https://islamicmarkets.com/index.php/publications/commercial-papers-appendix-b-the-shariah-basis-for-the