Sale of Non-Existent Goods- Futures Contracts

Islamic Shari’ah is a rational and just code which is flexible enough to be interpreted according to needs of the time. It promotes trading as long as it is not based on speculation or uncertainty or unnecessary risk. The scholars have allowed sale of non-existent goods in Islamic contracts if the terms of the contract define the final product in abundant details and contracting parties understand and agree on the terms. The seller does not necessarily have to be in physical possession of the merchandise at the time of sale. However, the buyer must be assured of delivery at agreed upon time. The goods either must exist or, in case of good to be produced, they should be defined in such a way that there is no chance of ambiguity or argument at the time of delivery.

Salam and Istisna’a are examples of trades where goods are not existent at the time of delivery, yet they are accepted modes of trade according the Shari’ah.Salamis a sales agreement where the seller promises to provide the buyer with an agreed product at a future date in exchange for an advanced payment at the time of contract.Istisna’a is a sale where a product is sold before it comes into existence usually applicable to construction financing or manufacturing. The payment amount or series of payments are fixed in the agreement. The manufacturer or the builder is paid for the raw material, production effort and a profit. The seller is able to use the advance money he gets for production of the goods at a future date. The final products to be delivered in both contracts are well defined and are expected to be delivered as per the contract.

In modern contracts minute details of goods or services to be delivered are specified in the contract. As long as these contracts are free of gharar which deals with uncertainty or unknown events, an advance payment can be made for a product that does not exist yet and it is accepted mode of trade in Islamic Finance.