Islamic financing has changed throughout the ages, just as Western or other ways of conducting business have. Some aspects of early Muslim financial practices, such as Suftajah, still remain in modern business practices, and in some Muslim countries, the ancient form of this financial transaction is still is use.

Basically, Suftajah is considered a bill of exchange. In Islamic finance practices today, however, it is not necessary for the amount of money that is transferred through this practice to retain its identity, nor does payment have to be in the same type of currency as was used in the original transaction.  Even with these changes, however, using the bill of exchange method is still a fairly easy transaction.

In the early days of Muslim history, in particular the time period referred to as the Abbasids period, which occurred from 749 to 1258 AD, using Suftajah as a form of Islamic finance, involved actually exchanging an item that could be considered a banking instrument. This could be a coin or other type of currency, although other things could have been used, just as long as the transactions themselves adhered to the guidelines of this specific transaction.

The person who possessed a banking instrument could use it for a number of reasons. Most often, it was used for tax collection, disbursement of government dues, and the transfer of funds.

Traveling merchants were the ones who used Suftajah the most, although, again, it was a common practice and part of Islamic finance. Its ease of use made it possible for merchants and customers alike to conduct business in a timely manner, even if the transaction occurred in different countries or regions.

In order for the ancient practice of Suftajah to occur, there had to be three parties involved so that a payer, a payee, and a transmitter could all be represented. The roles of those involved are easy to discern—someone accepted the money, someone paid the money, and someone else handled any transmission of the funds.

Payment terms for this of Islamic finance could vary, depending on the agreement reached by all parties. Full payment could be due at the time of the initial transaction, or the parties could agree that the payment could be made at a later time.

Further, under this early form of Islamic financing, endorsements could be made between one party and another party. This was a common practice among Arab merchants, who had been using this for many years prior to the Abbasids period.

If you have questions about this form of Islamic financing, both its ancient and modern-day usage, the representatives at our company will be happy to assist you.