Company A enters into an agreement with company B to purchase barrels of petrol for £10m in total. The delivery date of the barrels is fixed to the 1st of June of next year. The number of barrels will be determined according to the price of a barrel on the delivery date.
For example, on the 1st of June, the price of a barrel is of £50. The number of barrels to be delivered will be according to the following equation:
£10m divided by £50 equals to 200,000 barrels.
Is this agreement permissible?
This agreement is impermissible as there is an element of uncertainty on the number of barrels the buyer will receive on the delivery date. One of the conditions for forward contracts to be valid, is that the amount/number of the underlying asset must be known, at the time of creating the contracts.
This is the opinion of many contemporary scholars such as Dr Darir, Sheikh Nazih Hammah and Dr Rafiq Yunus.
However, another group of scholars are of the opinion that this sort of agreement is permissible. Among them, Dr Ali Qaradaghi, Sheikh Yusuf Shubayli, and Sheikh Abdullah Al ‘Amar.
And Allah knows best!
(Mufti) Billal Omarjee