An Arabic term (البيع الآجل) denotes refers to sale on credit or credit sale. By definition, it is an Islamic mode of trading which constitutes an absolute sale, i.e. the sale of “asset for price”. More specifically, this sale involves the delivery of a commodity by the seller to the buyer whereby the title and possession are transferred to the buyer with the understanding that the agreed-on price will be paid at a specific future date. The deferred price is usually higher than the cash (spot) price.

In the event of default by the buyer/ debtor for whatever reason, it is impermissible in Islamic finance for the seller to charge him any additional amounts over the principal because that is tantamount to riba. Instead, it is permissible to stipulate a penalty in case of default provided that the money is paid out for charity.