Dealing with a company that buys and sells currencies

Firstly: 

The Muslim should beware and be very cautious about dealing
with foreign companies, especially when he is dealing with them from a
distance, because he does not know about the people he is dealing with or
about their business activities. He may be deceived and cheated, or he may
be dealing with people who do not care about applying the rulings of
sharee’ah to their dealings, and they may be concealing the true nature of
their dealings in order to attract Muslim wealth so that they can invest it
according to what they think is good and not according to what is permitted
by Islam. 

Secondly: 

Dealing in currencies is a permissible kind of trade, but
that permissibility is conditional upon the exchange being made on the spot
in the same meeting as the deal is done. 

It was narrated that ‘Ubaadah ibn al-Saamit (may Allaah be
pleased with him) said: The Messenger of Allaah (peace and blessings of
Allaah be upon him) said: “Gold for gold, silver for silver, wheat for
wheat, barley for barley, dates for dates, salt for salt, like for like,
same for same, hand to hand. If any of these types are different, then sell
however you like, so long as it is hand to hand.” Narrated by Muslim
(1587). 

Currencies come under the same ruling as gold and silver with
regard to zakaah and with regard to the stipulation that the transaction be
done hand-to-hand when selling them. The hadeeth clearly states that the
hand-to-hand transaction is essential when selling gold for gold and silver
for silver. Based on that, it is not permissible to sell one currency for
another unless the exchange is made on the spot in the same meeting as the
deal is done. 

Shaykh ‘Abd al-‘Azeez ibn Baaz (may Allaah have mercy on him)
said: 

One currency should not be sold for another unless it is done
hand to hand, like for like. If one currency is sold for another, such as
riyals for dollars, or pounds sterling for another currency, it is
permissible to sell them hand to hand, without any delay, even if the
amounts differ. Islamically acceptable means are available and are
sufficient – praise be to Allaah – and the people have no need of riba, but
the shaytaan calls them to that and makes quick earnings by means of riba
attractive to them. 

Majmoo’ Fataawa al-Shaykh Ibn Baaz
(7/294, 295). 

Shaykh ‘Abd-Allaah al-Jibreen (may Allaah preserve him)
said: 

There is nothing wrong with dealing in currencies, which
means selling one currency for another, but that is subject to the condition
that the exchange be made before parting, whether one pays actual currency
and receives something that takes the place of currency, such as certified
cheques, in return, and whether the two parties are acting on their own
behalf or on behalf of someone else. If the custom is not to do it in this
manner, then it is not permissible and the one who does that is sinning
thereby and lacking in faith. 

Fataawa Islamiyyah (2/364). 

Exchanging currencies hand to hand over the phone or via
internet when the two parties are far away from one another is impossible.
Hence the contemporary scholars stated that it is permissible to sell
currencies by phone or internet if there is something that takes the place
of hand-to-hand exchange, which is immediate transfer of funds from the
account of the seller to the account of the buyer, or if the buyer’s agent
takes possession of certified cheques made out to the other party. This is
the view of the Islamic Fiqh Council. There follows the text of their
statement: 

The Islamic Fiqh Council, which convened during its sixth
conference in Jeddah in the Kingdom of Saudi Arabia between 17-23 Sha’baan
1410 AH (14-20 March 1990), after studying the research presented to the
Council concerning the issue of Hand to hand exchange: forms thereof,
especially newly invented forms, and rulings thereon, and after listening to
the discussions that took place on this topic, determined the following: 

Firstly:

As the exchange of wealth may be done physically in a
hand-to-hand transaction, or by measure or weight in the case of food, or by
transfer of the purchased goods to the possession of the purchaser, it may
also be achieved in other ways, by giving it up and putting it at the
disposal of the purchaser, even if the exchange does not take place
physically. The way in which the exchange takes place may vary according to
the situation and customs with regard to receiving the value.  

Secondly:

Among the non-physical forms of receiving the value that are
permissible are the following: 

1.Transferring money into the
agent’s account in the following ways:

a.When it is deposited into the
agent’s account, directly or via wire transfer

b.When the agent makes
arrangements between himself and the bank to receive the money in the case
of buying one currency for another, so that the money will automatically be
transferred to the agent’s account

c.When the bank – on the
instructions of the agent – deducts money from one account to another
account of his in a different currency, whether it is in the same bank or a
different one, in the interests of the beneficiary or another agent. The
banks should pay attention to ensuring that these arrangements are in
accordance with the principles of Islamic banking.

The delay in transferring the money before the beneficiary is
actually able to take possession of it may be overlooked for the usual
amount of time that such transfers take in the banking system, but it is not
permissible for the beneficiary to dispose of the currency during this grace
period, until after the money has been transferred and actually received. 

2.Receiving a cheque, provided it
is covered and withdrawable in the currency written on it when it has been
received and deposited into the account.

Majallat al-Majma’ (issue no. 6,
1/453), Qiraaraat wa Tawsiyaat Majma’ al-Fiqh al-Islami (p. 113,
114). 

Scholars who specialize in contemporary financial dealings
have pointed out that selling currencies via the internet is not a
transaction in which hand-to-hand exchange can take place, so it is haraam
according to sharee’ah. 

Moreover, there is another reason for forbidding the
transaction asked about here, which is that the company gives investors
profits of between 8 and 12% on a weekly basis, and this renders the
investment contract invalid, because what is required in the case of an
investment contract is that profits should be distributed by percentage
among the partners, so each partner should get a specific share of the
profits, such as one half or one quarter and so on; taking a fixed
percentage based on the capital invested is not permissible. 

To sum up: 

Selling currencies via this method is not permissible for two
reasons: 

1-Selling currencies via the
internet is not a transaction in which hand-to-hand exchange can take place

2-The investment contract
stipulates that the profits should be shared among the partners as a
percentage, and it is not permissible for that percentage to be calculated
only on the basis of the capital invested.

We should point out that it is not permissible to borrow from
these middlemen or agents in what is called the “margin system”, which is
where you required to deposit part of the value of the loan you give them
with them so that they can deal on the stock exchange – and especially with
currencies – and these agents make deals worth many times more than what you
gave them, and any losses will be deducted from the money you have deposited
with them. 

You should know that dealing with the margin system is haraam
according to sharee’ah and it is not permissible for anyone to deal with it.
Many people – even non-Muslims – have warned against it because of the bad
effects it has on financial dealings in the stock exchange. One of the main
causes of the collapse of the New York Stock Exchange on “Black Monday” was
dealings with the margin system, because of commands to sell that were
programmed into brokers’ computers, telling them to sell in the event that
prices dropped to a certain level. When the prices actually fell, the
commands to sell were triggered automatically, which led to an unprecedented
flooding of the market when there was no demand, and this is what led to the
collapse. In Kuwait and elsewhere, many economists called for an abolition
of this system. 

What concerns us here is the ruling of Allaah on this system
and others, which is haraam for several reasons, including the fact that it
is a riba-based loan in the form of a permissible transaction, and that
buying currencies is not done hand-to-hand in accordance with sharee’ah, and
that it involves risk which makes it a form of gambling. 

Our advice to you is to refrain from dealing with these
remote strangers, because the Muslim does not know what they are doing with
his money. And beware of falling into haraam things. 

And Allaah knows best.