Q. 1. The bank
would purchase the land-or property from the vendor and sell it to the
would be buyer on an installment basis. Each installment would act as
an increasing participation by the tenant in the property until such time
as all the insta- llments have been paid. At that time the tenant would
contractually be given ownership of the property. The bank would profit
from the sale of the land or property togather with an arrangment fee
part of which would be rebateable conditional on the buyer making the
installment of the purchase in accordance with the terms of the contract.
Family security (Aman al-Osra) would form an integral part of this product
possibly on the basis of a group policywith collective participation.
This facility may also be used for the construction of new houses.
We have submitted that the type of product we have described affords a
strong social benefit to elements of society and at the same time is consistent
with the provisions of Islam. How does it seem to you?
For the bank to be able to undertake such a scheme it must obtain special
dispensation from the central bank.
AUTO FINANCE
Q. 2. The auto finance is, I believe fairly simple to do under
a forfeiting approach through a third party- the dealer. In this way ownership
is retained untill all the rental have been paid under Ijara wa Iktina
principle.
CREDIT CARDS
Q. 3. We are most interested in your comments about a credit card.
If you have any more information we would be pleased to have it.
(Ali Hasan Ali, Director General Institute of Islamic Banking and
Insurance, LONDON)
Answer. At first place you have asked for the instrument of decreasing
partnership and its use in house financing. Generally speaking the concept
of decreasing partnership is acceptable in Shari'ah subject to certain
conditions. The general fram- work of this arrangment should be on the
following lines:
The land or property should be purchased jointly by the financier and
the ultimate beneficiary who may contribute to its price on whatever minimum
ratio. For example, he can contribute 10 percent of the price. The rest
of 90 percent shall be contributed by the financier and the property will
be owned jointly by the two parties, then the property should be divided
into different units e.g. each unit may be 5 percent or 10 percent of
the whole property. The ultimate beneficiary may use the 90 percent of
the property owned by the financier for a specific rent charged by him.
At the same time the beneficiary can purchase the units owned by the financier
gradually within the agreed period. Whenever the beneficiary purchases
a unit from the financier, the rent is reduced to that extent. For example,
if he has purchased 5 units, the ownership of the financier will be reduced
to 85 percent and he will pay a rent for this 85 percent units only and
so on. In this way the ulti- mate beneficiary will be purchasing the units
owned by the financiar gradually untill all the units are purchased and
owned by him, and the whole property becomes exclusively owned by the
ultimate beneficiary.
This agreement is allowed in Shari'ah and can be usefully utilised not
in house financing only, but also in financing to acq- uire any other
fixed assets or vehicles. If you wish to know the details of this arrangment,
as well as the Shari'ah justifica- tion of such an instrument, you can
consult my Arabic Book : "Discussions on Contemporary Juristic Issues"
in which I have dealt with this instrument in detail.
Your second question relates to the issue of Auto Finance. you have suggested
that it should be on the basis of hire pur- chase. The concept of hire
purchase is not fully in accordance with Shari'ah. The acceptable form
of such a finance should be either on the basis of leasing where at the
end of the period of lease the lessor would be at liberty either to repossess
the asset or sell it to the lessee himself or to any other party. The
price of the sale can be determined at that stage by mut- tual consent.
It may be its depriciated value or a nominal value or whatever price they
may agree upon. The second acce- ptable form of Auto finance may be on
the principle of decreasing partnership as explained in my reply to your
first ques- tion. Your third question is about the Shari'ah ruling about
the credit cards.
The credit cards prevalent in the market today are of different kinds.If
the card holder has an account in the bank, which has issued the card
and the bills of his purchases are directly debited to his account, there
is no problem with such an arrangement, because there is no possibility
of the charge of interest because the bank charges interest only in case
where the card holder defaults in the payment of bills. In the case of
direct debit there is delay but if the card is not obtained on the basis
of direct debit system, some contemporary scholars are of the view that
this type of card should not be used by a Muslim for the reason that it
may happen that the card holder delays in the payment of the bill of the
issuer of the card (the financial institution) whereby he will be liable
to pay interest. But in my personal view as well as in the view of some
other Scholars, if a card holder is confident that he will pay the bills
within the specified period without fail he can avail of this credit card
and should always be cautious pay to bill promptly before any interest
is due thereon.
As for the initial fee or the annual fee charged by the issuer of the
card, it cannot be taken as interest because it has no relation with the
amounts of the bills actually paid by the bank. It is a service charge
for undertaking certain service facili- ties to the card holders, hence
they are permissible in Shari'ah. The third aspect of the credit card
is that the issuerof the card charges a certain discount from the merchant
who accepts a credit card. Some contemporary Scholars are of the view
that it is analogous to discounting of the bills of exchange but my view
is different, which is also supported by the view of many contemporary
Scholars.
I feel that this discount or commission charged by the issuer of the credit
card is analogous to commission charged by a broker. It is evident that
the card facility brings a large numbers of customers to the merchants.
Had he not entered into such an arrangment with the issuer of the card,
those customers would have not come to him, therefore, the issuer or the
card is the basic cause for securing good customers for the merchant and
he can rightfully charge a commission on this service rendered to the
merchant.
This is my view about the general credit cards i.e. American Express,
Master Card etc.
I hope these explanations will answer your questions.
|