A commercial paper (CP) is a tradable certificate representing pecuniary rights whereby the issuer is under obligation to pay at sight or after a short notice. Basically, it is an instrument of payment (means of exchange) and serves as a substitute for cash in commercial transactions. These papers, being debts receivable, cannot be sold or purchased below or above par. Any commercial paper entitles the holder to receive a specified amount of money from the issuer, but it cannot be negotiated from a shari’a perspective. The only way it can be traded is to transfer it at face value (i.e., without discounting). At a corporate level, commercial papers are issued by corporations to finance their working capital requirements on a short-term, rollover basis. Shari’a permits using commercial papers in transactions on the condition that they don’t end up with any contravention of shari’a principles and precepts.

The above point of view is mainly held by Islamic finance practitioners and fuqaha in the Arabian region. In East Asian countries, some institutions are already in the business of trading commercial papers. A product dubbed “Islamic commercial paper” (ICP) is issued (for maturities ranging from 1 month to 12 months) and traded in the interbank market and may either be sold or purchased at a discount, at par or premium to the face value. Prices depend mainly on the credit-worthiness of the issuer. ICPs have their own credit rating assigned by rating agencies.

Notwithstanding, shari’a doesn’t permit trading in debts on the basis that it amounts to ba’i al-dayn and as such it is feared it would fling the door open to the explicit payment or receipt of riba. In essence, discounting commercial papers is, per se, not permissible because it involves the sale of debt to a third party for a price lower than its face value. Likewise, a commercial paper can’t be sold on a murabaha basis.