An Insight into Shariah Contracts Used to Structure Current Accounts of Islamic Banks

Transcription

1. 54 Journal of Islamic Banking and Finance April – June 2019 An Insight into Sharī‘ah Contracts Used to Structure Current Accounts of Islamic Banks By Muhammad Abu Bakar Abstract Purpose- The purpose of this research is to present a comprehensive analysis of Sharī‘ah contracts, used for structuring current accounts of Islamic banks, and find out the impermissible practices. Precisely, this paper attempts to discuss Qard, wadī‘ah and tawarruq contracts and potential Sharī‘ah issues with regard to their applications in current accounts of Islamic banks. Design/ methodology/ approach-Library-based research are adopted. In this regard, the classical fiqh literature, writings of scholars, resolutions and standards from International organizations and Sharī‘ah councils and policy documents of Bank Negara Malaysia were carefully analyzed. Findings–Our research finds that wadī‘ah is only used for trust-based safekeeping originally. Therefore, it is not suitable for guaranteed current accounts. Furthermore, this research finds that the structure of tawarruq for the current account is not acceptable according to the majority of scholars including AAOIFI. That’s why, it is suggested that the Qard shall be used for structuring current accounts rather than Wadī‘ah and Tawarruq. In addition, it is argued that the current practice of hibah/gift to current accounts holders is not advisable as it would tantamount to riba. Originality- To the best of our knowledge, this research is a valueadded contribution to the existing literature on Islamic financial  Author: Muhammad Abu Bakar, Shariah Auditor at MCB Islamic Bank, Pakistan, E-mail: mabubakar.pak@gmail.com
2. An Insightofinto Sjhari 'ah Contracts Used toApril Structure....... Journal Islamic Banking and Finance – June 2019 55 contracts as it gives some important suggestions and implications in order to improve the Sharī‘ah compliance of contemporary applications. Keywords:- Current accounts, Qard, Wadī‘ahyad al-damanah, Tawarruq. Wadī‘ahyad al-amanah, Paper type: Research Paper 1. Introduction Deposits are considered the main sources of funds for banks whether they are Islamic or conventional. There are different types of deposits such as current, saving, term and investment deposits etc. This paper attempts to explain the underlying Islamic contracts which are used to structure current deposits/accounts of sixteen Islamic banks in Malaysia and discuss the relevant issues and concerns from Sharī‘ah perspective. All Islamic banks operate current accounts on behalf of their clients whether they are individuals or companies. These accounts are operated for the purpose of safekeeping and for the convenience of customers to withdraw their money whenever they need. According to Haron et al. (2008), the current accounts are designed for transaction purposes. If the current account holder is individual, his main concern is to meet the household expenditure and if the current account holder is a businessman, he wants to hold money to carry on his business activities. The purpose of this research is to present a comprehensive analysis of Sharī‘ah contracts, used for structuring current accounts of Islamic banks, and find out the impermissible practices. Precisely, this paper attempts to discuss Qard, Wadī‘ah and tawarruq contracts and potential Sharī‘ah issues with regard to their modern applications in current accounts of Islamic banks. 2. Literature Review There are three contracts namely Qard, Wadiah and Tawarruq which are used as underlying contracts for current accounts of Islamic banks in Malaysia. In this section, a comprehensive literature review will be presented from classical literature as well as from the writings of contemporary scholars and researchers which will provide a better understanding of three contracts with regard to their applications in current accounts. 2.2 Qard as the Underlying Structure for Current Accounts 2.2.1 Definition of Qard The Arabic word “Qard” refers to loans which literally means “cutting of the portion”. In a Qard contract, the lender gives the portion of his property to borrower (Al-Zuhayli, 1998).Technically, it is defined by Accounting and Auditing Organization in Islamic financial institutions that “Qard is the transfer of ownership in fungible wealth to a person on whom it is binding to return wealth similar to it”. (AAOIFI, 2010)
3. 56 Journal of Islamic Banking and Finance April – June 2019 2.2.2 Legality of Qard The scholars are unanimously agreed on the legitimacy of Qard contract. It has been derived from Qur’an, the Sunnah of the Prophet (pbuh) and the consensus of the Muslim jurists. Allah (swt) says in the Qur’an: “Who is it that would loan Allah a goodly loan so He may multiply it for him many times over? And it is Allah who withholds and grants abundance, and to Him you will be returned” (Surah Al- Baqarah: 245) This verse of Holy-Qur’an has explained the general permissibility of Qard contract. Qard is regarded as a noble act. Because, the person who gives loans, does not take any material benefits. He wants to help his brother who is in need of cash. Therefore, it is highly encouraged and recommended in Islam. The Prophet (pbuh) explained in various Ahadith that lender will be rewarded from Allah (swt) because of his gratuitous act. It is narrated by Anas that Prophet (pbuh) reported to have said: “On the day I ascended to heaven, I saw writing on the door of paradise that read: ‘Every charity is rewarded ten-fold, and every loan is rewarded eighteen-times’. I said: ‘O Jibr¯ ıl, why is a loan rewarded more than charity?’ He said: ‘because a person may ask for charity when he does not need it, but the borrower only borrows in cases of dire need’.”(Ibn Majah, 2007) In another hadith, Ibn Masud narrated to have said: “Lending something twice is better than giving once it in charity” (Ibn Majah, 2007). Based on these Ahadith, the scholars said that Qard is highly recommended (mandub) for the lender and permissible for the borrower. (Al-Zuhayli, 1998). The Muslim jurists have reached the consensus (Ijma) on the permissibility of Qard. (Al Mausu'ah Al Fiqhiyyah Al Kuwaitiyah, 1983) 2.2.3 Legal Status (hukum) of Qard It is clear from the above discussion that Qard is a voluntary practice and an act of charity in a normal situation. Therefore, the lender gets rewards on this act of charity from Allah (swt). However, this hukum or legal status changes in different circumstances and situations. Abdullah (2015) has classified the legal status of Qard in four categories. Wajib (mandatory): It would be wajib or mandatory on the lender, if someone needs desperately like he is in starvation need and lender has enough sources to help him. Haram (prohibited): If the lender knows clearly that borrower needs money in order to spend in haram things such as buying alcohol, he is not allowed to give him Qard.
4. An Journal Insight of into Islamic Sjhari 'ah Banking Contracts and Finance Used toApril Structure....... – June 2019 57 Makruh (abominable): If the borrower is known in spending money extravagantly and indulging in Isrāf, then it is Makruh for the lender to provide loan to such person. Mubah (permissible): if the borrower has enough money for his basic necessities and he seeks more, then it is permissible to advance a loan to him. 2.2.4 Mechanism of Qard in Current Accounts The current accounts of Islamic banks are widely structured on Qard in different parts of the world such as GCC, South Asia and Europe. The Central Bank of Malaysia has issued a policy document on 3rd August -2016 for Islamic financial institutions to revise their Wadī‘ahyaddhamanah based products into Qard by 31st july-2018(QardBNM, 2016).The mechanism of Qard-based current account and some important salient features are explained briefly in the following:  The customer and Islamic bank enter in to a Qard-contract where the customer is a creditor and an Islamic bank is a debtor.  The deposited money is treated as a benevolent loan to the bank. Therefore, the bank is entitled to utilize this money for its own purposes as long as it does not contravene Sharī‘ah principles.  The bank owes the principal amount on demand of depositor.  As a nature of loan-contract, the principal amount is guaranteed by the bank in all circumstances even if there is loss of wealth without the negligence of the bank.  No dividends are due in these deposits. (Dusuki, 2011) 2.3.1 Wadī‘ah as the Underlying Structure for Current Accounts 2.3.2 Definition of Wadī‘ah The term wadī'ah is derived from the verb "wada'a" which intends to leave, lodge or deposit. Accordingly, wadī‘ah in the literal sense means leaving something to somebody’s custody. In a legitimate sense, Muslim jurists have explained different definitions of wadī'ah. The Hanafi scholars have defined wadī'ah as the empowerment to someone for keeping the owner’s wealth explicitly or implicitly. However, the Shafi‘is and Malikis are of the view that wadī'ah is the representation in keeping possession of private good in a specific manner (Lahsasna, 2013). In light of the above definitions, it can be stated that wadī'ah in the legitimate sense means a thing endowed to the care of another. The proprietor of the thing is known as mudi'(depositor), the individual endowed with it is known as muda' (trustee) and the property saved is wadi'ah. In this manner, its keeping is a worthy representation to a man who releases the privilege of trust, and without a violation of the limits. The limit, as it were, is that the trustee has no privilege to utilize the cash in exchange or speculation. In
5. 58 Journal of Islamic Banking and Finance April – June 2019 return, the depositor has no right to claim any loss or damages on the trusted property in as much as the trustee did not violate the fundamental rule of trusteeship in Islam. However, as it is evident in the contemporary practices of wadī‘ah (specifically in Malaysia) that the trustee i.e. the banks, are empowered by the banking laws to authoritatively received the deposits and use it as its own money, invest it in any form and makes profits from it. The terms and conditions of these deposits are assumed to be established between the bank and the clients but the case is in the opposite direction. The bank is the sole producer of the standards and controls that oversee the time of stores and present it to the clients (Lahsasna, 2013). 2.3.2 Legality of Wadī'ah The contract of wadī'ah isn't particularly specified in the Qur'an. Notwithstanding, to the extent trust is concerned about this issue, there are a few signs on this concept which can be seen in the accompanying verses: “Those who are faithfully true to their trusts (amanah) and to their covenants. And those who strictly guard their prayers. These are indeed the inheritors” (Surah alMu’minun:8-10). “Verily, Allah commands that you should render back the trusts to those, to whom they are due.” (Surah al-Nisa: 58) In the previous Surah, Allah reveals to us that among the individuals who might acquire the Firdaus (heaven) and abide in that eternity are who keep their trusts and agreement, while in the last verse, Allah summons that the trusts come back to their legitimate proprietors. This order incorporates the privileges of Allah on His workers, for example, imploring, fasting, giving zakat, and so forth and in addition the privileges of the hirelings on each other, for example, what they depend on each other with, including the cases that are not recorded or reported. Along these lines, the word trust or 'Amanah' is utilized as a part of the above verses to demonstrate the significance of satisfying a wide range of trusts including that of care (wadi'ah). In the Sunnah, there are several reported traditions that justify the permissibility of wadī‘ah in Islamic law. Accordingly, these traditions indicated that the return of deposited property to their owners is compulsory. On the authority of Amar bin Shuayb from his father from his grandfather, he said: the Apostle of Allah (Pbuh) said: he who accepts trust property (as a trustee) has no liability (Ibn Majah, 2007). The above tradition signifies the first known wadī‘ah as practiced by the Arabians before Islam and as it was retained by the Islamic civilization through permissibility of the Prophet (pbuh) as an original source of Islamic law. Furthermore, subsequent narrated Prophetic traditions indicated that, there is no reason for using the wealth which is on trust that it is better to return it rather than becoming liability intentionally.
6. An Insight Sjhari 'ah Contracts Used to Structure....... Journal of into Islamic Banking and Finance April – June 2019 59 2.3.3 Types of Wadī‘ah The contract of Wadi‘ah can be classified into two types: a) Wadī‘ahyad al-amanah(safekeeping based on trust) The wadī‘ahyadamanah is referred to as a type of custodianship which is based on trust. That’s why it is regarded as a charitable and benevolent contract like Qard. The custodian is not allowed to use the deposit / Wadī‘ah for any purpose and take care of it as he takes care for his own property. Whenever depositor requests for the asset, the custodian has to return that. However, this contract is based on amanah and trust. Therefore, the custodian would not be responsible in normal cases if any loss or damage to asset occurs. But, if loss or damage happens due to his negligence or misconduct, then he will be responsible for that. b) Wadī‘ahyad al-damanah (Safekeeping with Guarantee) Wadī‘ahyad al-damanah is another type of Wadī‘ah which actually is a combination of two contracts namely Wadī‘ah (safekeeping) and Daman (guarantee). If the custodian guarantees to return the asset on demand of the depositor, then it is regarded as wadī‘ahyad al-damanah. The scholars have explained various situations in which the normal wadī‘ah asset become a liability on the custodian. For example. if custodian takes asset in the first type of Wadī‘ah (amanah-based) and use it by his own purpose or mix it with his own property, then the contract will be changed towadī‘ahyad al-damanah by default of custodian in wadī‘ahyadamanah (Dusuki, 2011). 2.3.4 Mechanism of Wadī‘ah in Current Accounts The contract of wadī‘ah is used as an underlying structure for current accounts in various Malaysian Islamic banks. The bank as custodian gives safekeeping services to his client and guarantees that deposit will be returned on demand of the depositor. As the amount is used by the bank in for his own purpose, therefore the underlying contract is wadī‘ahyad al-damanah which allows the custodian to use the asset. There is no significant difference between wadī‘ahyad al-damanah based current accounts and Qard based current accounts. The customer is not entitled to any return in both types of deposits and he is free in terms of deposits and withdrawals. 3. Tawarruq as Underlying Contracts for Current Accounts 3.1. Definition of Tawarruq Tawarruq is derived from the rood word tawarruq. The word “tawarruq” is used for animals which eat leaves. Furthermore, the word “wariq” used for silver coins whether it is minted in the form of dirhams or non-minted (Ibn Manzur, 1968). Technically, tawarruq refers to a type of contract which is the combination of two sales in two different stages. In the first stage, the commodity is purchased from the seller in credit. In the second stage, the commodity is sold by the buyer to the third party for cash (Hasan, 2011).
7. 60 3 .2 Journal of Islamic Banking and Finance April – June 2019 Types of Tawarruq In general, tawarruq is divided into two types: Individual tawarruq (or classical tawarruq) and organized tawarruq (or tawarruq al-munazzam or banking tawarruq). 3.2.1 Individual Tawarruq Individual tawarruq is a sale where one party buys a commodity for a deferred price and then sells it to the third party on cash which is normally lower than the original (purchase) price. The objective of this sale is to get cash and not to get benefits from the asset (Dusuki, 2010). 3.2.2. Organized Tawarruq Organized tawarruq refers to a situation in which the seller of the first sale arranges the whole process for the cash seeker. In the first stage, the seller sells the commodity to cash seeker on deferred payment basis and in the second stage, the seller (of the first sale) sells the same commodity to a third party on a cash basis on behalf of cash seeker. This can be illustrated in current Islamic baking practices. For instance, in personal financing, the customer just approaches the Islamic bank for personal financing; the bank arranges it from the international/local market to a certain broker on credit. It is mutually agreed between bank and customer that bank will sell the commodity as an agent of the customer in the market to another broker. The main difference between classical tawarruq and organized tawarruq is the prearrangement from the seller of the first sale to sell the commodity as an agent of cash seeker to a third party and provide cash to him as Islamic bank does on behalf of the customer. 3.3 Legality of Tawarruq The well-known Sharī‘ah scholar Sheikh MuftiTaqiUsmani has discussed the legality of tawarruq and views of jurists in detail in his book“Bhoos fi Qadayafiqhiyaamua’asira”. He stated that the term “Tawarruq” is commonly used in writings of Hanafi jurists. As far as the other jurists such as Hanfis, Shafis and Malikis are concerned, they discussed the concept under “bay al-inah”. He summarized that the preferred view in four schools of Islamic law is permissibility of classical tawarruq. However, we may find a few of scholars from Hanbali and Hanafi schools who considered it makrooh (Usmani, 2013). But the legality of organized tawarruq as practiced by the Islamic banks is still debated. It is highly criticized by various scholars and academicians. The Islamic fiqh academy of Organization of Islamic Cooperation had resolved in its 15th meeting held in 1998 that tawarruq transaction is permissible based on the original ruling that trade is permissible. But then the Islamic fiqh academy of OIC has changed this pervious ruling in its 17th meeting held in 2003 that current tawarruq arrangement which is widely practiced by Islamic banks is not permissible as it has become fictitious transaction due to the enforcement of Wakalah and artificial commodity possession and risk. The Resolution of OIC fiqh Academy States:
8. AnJournal Insightof into Islamic Sjhari 'ah Banking Contracts and Finance Used to April Structure....... – June 2019 61 “It is not permissible to execute both organized and reverse tawarruq because simultaneous transactions occur between the financier and the Mustawriq (the party seeking finance), whether it is done explicitly or implicitly or based on common practice, in exchange for a financial obligation. This is considered a deception, i.e. in order to get the additional quick from the contract. Hence, the transaction is considered as containing the element of riba.” This resolution objects the current practices of Islamic banks where both the transactions of sale and purchase of tawarruq commodity take place between bank and customer. They just make netting arrangements in order to demonstrate the use of third parties or brokers. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has put stringent conditions for the validity of banking tawarruq in its Sharī‘ah Standard No. 30: “(4/7) The client should not delegate the institution or its agent to sell, on his behalf, a commodity that he purchased from the same institution and, similarly, the institution should not accept such delegation. (4/8) The institution should not arrange proxy of a third party to sell, on behalf of the client, the commodity that the client purchased from the institution.” However, Bank Negara Malaysia has issued a policy document which allows organized tawarruq. 3.4 Mechanism of Tawarruq in Current Accounts We have found three Islamic banks in Malaysia out of sixteen which are using tawarruq to structure current account deposits. The Sharī‘ah Advisory Council of Bank Negara Malaysia has approved the following mechanism of tawarruq as the underlying structure of deposits: “(i) The customer (depositor) appoints the bank as an agent to purchase the metal commodity from metal trader A seller on a cash basis in an established metal commodity market; (ii) The bank will thereafter purchase the metal commodity from the customer on a deferred sale at a cost price plus profit margin; (iii) Next, the bank will sell back the metal commodity to metal trader B in the metal commodity market. (iv) As an agent to purchase the metal commodity on behalf of the customer, the bank receives cash from the customer for the price of the commodity which is deemed as deposit in the bank’s account. As a result of the transactions (ii) above, the bank assumes liability (the cost price of the commodity plus profit margin) to be paid to the customer on maturity or demand of the depositor.” (Sharī‘ah Resolutions – BNM, 2010).
9. 62 Journal of Islamic Banking and Finance April – June 2019 4. Shariah Issues in Qard-based Contracts 4.1 Excess Benefits for the Lender As we mentioned earlier that Qard is a benevolent loan and charitable contract, therefore, the stipulation of any benefit or excess from the borrower to a lender is prohibited whether it is in the form of cash or tangible things. This is because it will change the charitable and gratuitous nature of Qard and make it rebawi / usurious. However, Islamic banks give different facilities to their customers without any compensation in Qard-based current accounts such as free ATM card and free cheque book etc. The question arises what is the basis of this kind of facilities from an Islamic back to the customer who is a lender in this case. The AAOIFI resolved this issue in its Sharī‘ah Standard No. (19) on Qard and declared it permissible. According to AAOIFI, these additional benefits are common for both parties and not only accrued for the customer who is a lender. So, benefits are both parties will set off against each other and there would be no more issue of riba. Furthermore, the issuance of cheque book or ATM card for the lender is not a benefit which is separate from Qard without any compensation. But they are means for the satisfaction of loans as the bank provides these ways to every lender to get back its loan whenever he demands. So, it is the way of repayment rather than a separate benefit for the lender. (AAOIFI, 2010). 4.2 Administrative Charges Another issue which may arise in contemporary practices of Qard or Wadī‘ah based deposits that sometimes Islamic financial institutions charge administrative fee or service charges from account holders on various facilities provided to them. Now the question is whether it is allowed to charge administrative fee or service charges from account holders. If it is acceptable in Sharī‘ah, then how much Islamic banks can charge as an administrative fee. The majority of contemporary scholars are of the view that it is permissible to take administrative charges or service fee in a loan transaction provided that it should not exceed from an actual cost. (Hasan, 2011). AAOIFI Sharī‘ah standard No.19 on “Qard” has discussed the issue of service charges in some details. The standard states: It is permissible for a lending institution to charge for services rendered in loans equivalent to the actual amount directly spent on such services. It is not permitted to the institution to charge an amount in excess of service charge. All charges in excess of the actual amount spent are prohibited, and it is necessary to ensure precision in the determination of the actual charges so that they do not lead to an excess that can be deemed a benefit. ……. Indirect expenses incurred in rendering services for loans are not included in actual expenses, like the salaries of the employees, the rentals of space, assets and means of transport as well as other management and general expenses of the institution” (AAOIFI, 2010). 4.3 The Practice of Hibah in Qard Based Deposits Another similar issue which arises in Qard based deposits of some Islamic banks especially in Malaysia that they give Hibah (Gift) in the form of monetary rewards to
10. Islamic Banking and Finance – June 2019 AnJournal Insightofinto Sjhari'ah Contracts Used toApril Structure....... 63 their depositors as a token of appreciation. There are differences of opinions among scholars regarding the permissibility of this Hibah. The Sharī‘ah Advisory Council (SAC) of BNM have discussed this issue its 35th and 55thmeetings. The ruling for both Wadī’ahyadamanah and Qard based deposits are the same as the former is equivalent to later in terms of Sharī‘ah rulings. They are of the view that the practice of giving hibah is permissible as long as it is not contractual or conditional. They argue that it is not allowed to stipulate any benefit for the lender in the loan contract. However, it is recommended for the borrower to give hibah to the lender at its own discretion. They supported their view with the following Hadith of the Prophet (pbuh) which is reported by Imam Bukhari: “‫”ان ﺧﻴﺎرﮐﻢ اﺣﺴﺴﻨﮑﻢ ﻗﻀﺎءا‬ “The best person among you is the one who is best in repaying”. (Sharī‘ahResolutions-BNM, 2010) On the other hand, many scholars have raised serious concerns on such practice. They said that even this hibah is not stipulated in the agreement. But when banks give these gifts to their depositor on a certain rate without fail, then customers would have clear expectations for returns. In result, this would be tantamount to riba. (Obaidullah, Islamic financial services). Furthermore, in that situation where banks provide hibah without fail, it would become normal practice and urf. There is a famous legal maxim: "‫"اﳌﻌﺮوف ﻋﺮﻓﺎ ﻛﺎﳌﺸﺮوط ﺷﺮﻃﺎ‬ “It means what is known as common practice or norm is similar to stipulated condition” (Al-Zarqa, 1998). According to this legal maxim, such a practice would lead to riba. Therefore, the current practice of giving Hibah to account holders is not advisable. 4.4 Shariah Issue in Wadiah Based Current Account As it is stated earlier that the contract of wadī‘ah is used to structure current accounts in various Malaysian Islamic banks. It may be argued from Sharī‘ah perspective that the contract of wadī‘ah is not suitable for the nature of current accounts as the main objective of wadī‘ah is to place some assets to the reliable custodian who will take care of the wadī‘ah asset like his own property. It is the basic condition in wadī‘ah that custodian neither uses it for his own purpose nor mix it with other funds. It is an act of charity and benevolence and the custodian will be rewarded in the hereafter. That’s why; the custodian is not responsible for any loss or damage when it happens without the negligence or misconduct of him. But when Islamic banks practice it as an underlying contract for current accounts, they violate the basic conditions of wadī‘ah and use these deposits for his own purpose and consequently they guarantee to return them on demand of the depositors. Therefore, it is called wadī‘ahyad al-damanah. If we look into classical fiqh literature, the asset/deposit in wadī‘ah contract is not guaranteed because of its benevolence nature. And custodian has to keep it only for safekeeping and he is not
11. 64 Journal of Islamic Banking and Finance April – June 2019 allowed to use it for his own purpose. If he violates these conditions, then wadī‘ah asset becomes a liability on it. It means wadī‘ahyad al-damanah is not an actual contract, but it comes into effect because of violation in actual wadī‘ah contract. The well-known scholar Sheikh Mufti Taqi Usmani argues that current accounts of banks are a loan rather than wadī‘ah deposits as permission to use the asset and guarantee of the asset upon demand are the two main conditions of Qard contract rather than wadī‘ah. He supported his view from the story of Zubair bin al-Awwam which is narrated by Imam Bukhari that people used to come to Zubair bin al-Awwam to place their deposits with him for safekeeping as amanah. But he used to tell their depositor that I will treat your deposit as loan and I will return you whenever you want. It is clear from this hadith that when a custodian is given permission to use the deposit and it is guaranteed, then it will be treated as Qard/ loan form Sharī‘ah perspective. Therefore, the OIC fiqh academy has stated in its resolution No. 86 that deposits in current accounts banks are treated as loans when they are guaranteed and banks are allowed to use them. (Usmani, 2013, OIC Resolution, 1995) It may be concluded form this discussion that even wadī‘ahyad al-damanah is treated as Qard from a fiqh perspective. However, it is advisable to structure the original contract for current accounts which is more suitable for the requirements and features of current accounts. In this manner, the Bank Negara Malaysia (BNM) has given the ruling to Malaysian Islamic banks to make the transition from wadī‘ah to Qard until 31st July 2018. The BNM policy document states (p: 5): “A wadi`ah contract shall be construed as a qard contract and shall be governed by the principles of qard if the wadi`ah asset is a fungible asset (mal mithli) such as money; and the custodian is allowed to utilize the asset” (BNM – Wadī‘ah, 2016). 4.5 Shariah Issues in Tawarruq-based Current Accounts As we have explained earlier that the majority of scholars are not satisfied with the current practices of tawarruq. In that regard, Mansoori (2011) says that tawarruq as personal financing product is only a legal device to circumvent riba and make it halal. It is an interest-bearing loan transaction rather than a sale contract. He went on to say that various conditions for real sale such as possession of commodity, risk of ownership and liability etc. are not fulfilled in this fictitious transaction. Narun et al., argue that the prearrangement from the bank to sell the commodity as an agent of customer distinguishes this practice from classical fiqh tawarruq. This involvement of the bank makes this transaction more similar to bay al-inah and just legal trick to make interest-bearing loan transaction halal. (Mohamed et al., 2014). The AAOIFI has allowed the usage of tawarruq in Islamic banking, but with the condition that the client does not delegate Islamic bank to act as an agent on behalf of him to arrange the whole process. In our analysis, the pre-arrangement mechanism in tawarruq-based current accounts is not in line with guidelines of AAOIFI. Therefore, we are of the view that tawarruq should not be used as an underlying structure for current accounts.
12. An Journal Insight into of Islamic Sjhari 'ah Banking Contracts and Finance Used to Structure....... April – June 2019 5. 65 Conclusion and Recommendations In this paper, we have examined the underlying contracts of Sharī‘ah which are being used for structuring the current accounts of Islamic banks i.e. Qard and Wadī‘ah. The legitimacy of these contract in Sharī‘ah, their salient features and important conditions are also presented in some details. In this manner, the paper attempts to discuss some potential Sharī‘ah issues in contemporary practices of current accounts in Islamic banks: (1) usage of wadī‘ah and tawarruq as an underlying contract for current account, (2) excess benefit to the lender, (3) administrative charges and (4) practice of hibah to account holders. It may be concluded that the usage of wadī‘ah to structure current accounts is not suitable as originally wadī‘ah is only used for trust-based safekeeping in which the custodian is not allowed to use the asset of wadī‘ah. However, it becomes guaranteed when custodian defaults in fulfilling the conditions of wadī‘ahyadamanah. Therefore, it is advisable to use a Qard contract for structuring current accounts in Islamic banks. Likewise, the usage of organized tawarruq as an underlying contract for current account deposits is not permissible due to pre-arrangement, enforcement of Wakalah and artificial commodity possession and risk based on the majority of Scholars as the current tawarruq arrangement is not in line with AAOFI guidelines. Therefore, the tawarruq based current account deposits should be transferred towardsQard which is widely used and acceptable contract for current accounts. Another issue which is tackled in this paper is whether it is allowed for Islamic banks to give different facilities such as ATM card and cheque book etc. free of cost to current account holders who are lender from Sharī‘ah point of view. Can it be regarded as an excess benefit to the lender which is riba and hence prohibited? It is shown with reference to AAOIFI that if the facilities or benefits are not accrued to the only lender, but they are common for both parties, then they are permissible as the benefits to both parties will set off against each other. Another potential Sharī‘ah issue which is addressed is charging a service fee as administrative charges. According to the majority of scholars, it is permissible to take administrative charges in loan transaction provided that it must not exceed from the actual cost. The paper attempts to tackle the contemporary practice of Malaysian Islamic banks to give hibah (gift) to current account holders as a token of appreciation. It can be summarized after a comprehensive discussion of different opinions of scholars that such practice is not advisable from Sharī‘ah point of view as it may lead to riba if it becomes normal practice.
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