 In this module, we shall study a rather controversial application of Salem as an Islamic mode of financing. It is called currency Salem. Before we go into the details of currency Salem, it is important for us to refresh our memories with some important rules governing trading in currencies. Trading in currencies is different from trading in commodities. If I buy or sell a candle, there are many different laws regarding this. If I buy or sell any currency, dollars or pounds, these rules are known as ahkamus sarf and they are stricter than rules governing trading in commodities. So, before we attempt to explain the rather controversial currency Salem structure, it is important for us to understand what are some basic tenets governing trading in currencies. Now, the most important aspect of trading in currencies is that currencies can be traded only on spot. On spot means, This is not possible. So, trading in currencies is allowed only on a spot basis. This is the most important aspect of trading in currencies. So, no deferment of delivery of one or two currencies is allowed. Hence, there is no forward or futures contracts allowed to deal in currencies. So, this is an important aspect which has been established in Islamic law for centuries. So, just to simplify the things, if this party A has got US dollars, this party B has got GBP pounds and if this party delivers or pays these dollars to party B on Monday, September the 20th today and party B in exchange gives pounds on Monday, September the 27th after one week, this is not allowed. This is not allowed in Islamic law. Both the currencies should be exchanged on spot. So, if party A has got money, US dollars, it should deliver US dollars on Monday, September the 20th at 10.30 am and party B should be delivering pounds on Monday, September the 20th at 10.30 am It is so difficult that you have to see the time in this. This is not allowed after one week, after one month, with deferment, give another currency. This is not accepted in Islamic law. Now, keep this in mind and let us look at the product of this currency. In Pakistan, quite a few banks are offering and I call it as a controversial product because this negates some very well-established rules on trading in currencies. What is the objective of this product called currency salam? The objective is for a bank to extend financing to its customer in rupees in one currency and receiving the financing amount back from the customer in another currency. Why the bank would like to do this? Some banks have their currency exposures. They would like to manage their currency exposures by way of offering a product like currency salam. This is the main kind of rationale behind offering currency salam product by Islamic banks in Pakistan and some conventional banks offering Islamic financial services as well. This type of product is not acceptable anywhere in the world except in Pakistan where Sharia scholars somehow have come up with an exception. Because this is being offered in the market as an academician, it's important for me to present this structure to you as an application of salam as an Islamic mode of financing in Islamic banking and finance. Let us look into details. Step one, at T-NOT, now customer and bank enter into a master salam agreement, pursuant to which the customer agrees to deliver various amounts of a foreign currency on future dates against the advance payments at the start of each and every individual salam contract. So in stage one, basically step one, the customer receives money in rupees. This is the salam price, rupees received by the customer from the bank. That is the salam price for a foreign currency which the customer would be delivering to the bank on a future date. So this is step one. Step two, when the future date comes at T-1, customer delivers the required amount of foreign exchange or foreign currency dollar to the bank. How? By actually buying it from the market. So he gives the dollar. Now what happens in that? What is happening in this? The customer receives rupees from the bank today and the next 30 days you have used this money. If this customer happens to be a businessman or business, then of course this money would be used for day-to-day kind of business expenses. And future, when the money was given to the bank, at that time they bought foreign currency from the market to the bank. This is how this happens. Actually a structure which is a kind of advanced form of this one is that the customer even doesn't have to buy the currency by itself. Rather it appoints the bank as its agent to buy the foreign currency on a future date on the behalf of the customer and delivers it to itself. So this is a currency-salam arrangement which is being used in Pakistan. This is a product offered by Islamic banks and conventional banks offering Islamic financial services in Pakistan. This is in use. However, this remains highly controversial.