SS 49 · Options and promises

SS 49: Unilateral and Bilateral Promise

What this standard is about

In Islamic finance, many deals start with a promise rather than a contract. A customer promises a bank he will buy an item the bank is about to purchase. A bank promises a customer it will gift him a leased car once he finishes paying. This standard explains what a promise (wa'ad) is and when it can be enforced.

It covers two kinds. A unilateral promise is made by one side only: "I firmly intend to do this for you, and you may take me up on it." A bilateral promise is two promises back to back, each side promising the other to do something in the future about the same matter.

The standard also lists the main real-world uses in Islamic banks and the misuses that are forbidden.

Why it exists

Promises are the backbone of modern Islamic banking products. A murabaha (cost-plus sale) only works because the customer first promises to buy. But a promise is not the same as a contract, and treating every promise as binding would create deals that hide interest (riba) or trickery. This standard draws the line: it protects people who relied on a promise and spent money because of it, while blocking promises used to disguise forbidden transactions.

The key rules, simply put

Keeping a promise is a religious duty. Breaking one without a good excuse is a sin. But a promise is not automatically enforceable in court.
A promise becomes legally binding when the promisor causes the other side to spend money or take on a liability because of it. Example: a customer asks a merchant to buy a specific item and firmly promises to buy it from him. If the merchant buys it relying on that promise, the customer must buy it or cover the merchant's actual loss.
Actual loss means the difference between what the item cost and what it fetched on resale. It does not include lost profit or opportunity cost.
A binding promise binds only the promisor. The other side may demand performance or let it go.
A promise to do something forbidden is itself forbidden, including promises designed as a trick to get around the ban on interest (riba).
A promise attached to a loan that gives the lender any extra benefit beyond repayment of the debt is prohibited, even if it is written in a separate document.
A promise that creates a buyback sale ('inah), such as buying on credit and promising to sell back for cash at a lower price, is prohibited, whether the promise is inside the contract or separate, and whether or not a third party is used as a middleman.
A bilateral promise is binding only in narrow cases where a real deal cannot happen without it because of law or normal business practice, and the aim is not simply to provide financing. Examples are documentary credits in international trade and supply agreements.
A general framework or master agreement for future deals binds no one. Each deal is entered into by choice, and the framework's terms apply only once a deal is actually concluded by offer and acceptance.
A promise is not a contract. Even a binding promise does not create the contract by itself; the contract must still be made later through a proper offer and acceptance.

An everyday example

A customer wants a laptop the bank does not own. He firmly promises the bank: "Buy this laptop and I will buy it from you at cost plus markup." Relying on that promise, the bank buys the laptop. The customer then refuses. Under this standard, the customer's promise is legally binding because the bank spent money relying on it, so the customer must buy the laptop or make up the bank's actual loss if it is resold for less.

Words to know

Wa'ad — a promise; a firm statement of intent to do something in the future.
Promisor — the person who makes the promise.
Promisee — the person who receives the promise.
Riba — interest; any guaranteed extra charged on a loan. Forbidden in Islam.
'Inah — a buyback trick: selling on credit then buying back for cash at a lower price, used to disguise an interest-bearing loan.
Murabaha — a cost-plus sale: the seller discloses the cost and adds an agreed markup.
Ijarah muntahia bittamleek — a lease that ends with ownership transferring to the lessee.

Source

AAOIFI Shariah Standard No. 49 — full text in the 2015 Shariah Standards book — https://aaoifi.com/download/24233/