PARALLEL FORWARD BUYING CONTRACT AND ITS ROLE IN ECONOMIC ACTIVITY: A COMPARATIVE LEGAL STUDY

Abstract

Non-analogically, forward buying is allowed in Islam. However, the seller may enter into another forward buying contract where the item is similar to the earlier item in the first contract. Here, one wonders: is the first seller allowed to fulfill his commitment in the second contract using the item sold in the first contract and stipulate that in the second contract? What is the ruling if he does not put that as a condition while the item in the second contract is not the same as in the first contract, yet it bears the same description? This paper stresses that – according to the adopted view – the sold item in the second contract may not be the same item in the first contract. Yet, both items may bear the same attributes. Thus, the buyer, who is the seller in the first contract, may fulfill his commitment in the second contract regarding this item received from first forward buying contract. This type of transaction helps promote economic activity by hedging the financial liquidity needed for production. It also secure good margin of profit, taking into account the price difference between both transaction. As such, financial institutions – mainly those with financial surplus - need to pay more attention to this type of business dealing. This study has adopted the inductive and comparative approaches while defining the parallel forward buying, its pillar, conditions and role in boosting economic activities.