Murabahah - Appendix D The Shariah Basis For The Standard

Transcription

1. Shari ’ah Standard No. (8): Murabahah Appendix (D) The Shari’ah Basis for the Standard Preface on the Permissibility of Murabahah Definition of Murabahah Murabahah is selling a commodity as per the purchasing price with a defined and agreed profit mark-up. This mark-up may be a percentage of the selling price or a lump sum. This transaction may be concluded either without a prior promise to buy, in which case it is called an ordinary Murabahah, or with a prior promise to buy submitted by a person interested in acquiring goods through the Institution, in which case it is called a “banking Murabahah” i.e. Murabahah to the purchase orderer. This transaction is one of the trust-based contracts that depends on transparency as to the actual purchasing price or cost price in addition to common expenses. Permissibility of Murabahah The authorities for the permissibility of Murabahah are authorities on the permissibility of sale. Among them is the saying of Allah, the exalted: {“...Allah has permitted trade...”}. } (3) Some scholars has also cited to support the permissibility of Murabahah the saying of Allah, the Exalted: {“It is no crime for you to seek the bounty of your Lord,”}(4) arguing that the bounty mentioned here means profit. The Murabahah is also analogous to a form of sale called Tawliyyah (which means to sell as per the purchasing price without making profit). This is because the Prophet (peace be upon him) purchased a she-camel from Abu Bakr to use it as a transportation to immigrate to Medina. Abu Bakr wanted to give it to the Prophet (peace be upon him) free of charge, but the Prophet refused (3) [Al-Baqarah (The Cow): 275]. (4) [Al-Baqarah (The Cow): 198]. 221
2. Shari ’ah Standard No. (8): Murabahah saying: “I will preferably take it at the acquisition price”. price” The majority of scholars agreed, in principle, on the permissibility of Murabahah. Promise from the Purchase Orderer ■ The basis for the permissibility of responding to the application of the customer that the Institution buys the commodity from a particular supplier is because such a demand will not affect the acquisition of the commodity by the Institution, especially in view of the fact that this demand is not binding. The Institution is entitled to acquire the commodity from another supplier provided the commodity complies with the desired specification. The customer may be forced to fulfil his obligation on the basis of general sources of the Qur`an and Sunnah that require fulfilment of obligation and undertaking. The International Fiqh Academy has issued a resolution endorsing a unilateral binding promise.(5) The same was adopted in a fatwa for Kuwait Finance House,(6) Qatar Islamic Bank,(7) and others. ■ The basis for allowing price quotations be submitted in the name of customer is because such an act has no contractual effect if there is no acceptance by the customer. The basis why it is preferred that the quotation be submitted in the name of the Institution, is to avoid confusion and this is what was endorsed by the Fatwas of Qatar Islamic Bank,(8) and Kuwait Finance House.(9) ■ The basis for not allowing a Murabahah deal when the customer accepts the deal directly from the supplier is because, by this, a sale contract has taken place between the customer and the supplier in which case the commodity enters into ownership of the customer. This ruling will not be affected whether or not the customer has paid the price. This is because payment is not a condition for the permissibility and conclusion of a contract as payment of the price is but a consequence of a contract and is not principal requirement or a condition for regarding a contract valid. (5) International Fiqh Academy Resolution No. 40-41 (2/5 and 3/5). (6) Fatwa No. (49). (7) Fatwa No. (8). (8) Fatwa No. (35). (9) Fatwa No. (87). 222
3. Shari ’ah Standard No. (8): Murabahah ■ The basis for the requirement that there must not be any contractual commitment between the customer and the supplier is to safeguard against the contract being a mere interest-based financing. Therefore, the lack of any commitment between the customer and the supplier is a basic condition for the permissibility of executing a Murabahah by the Institution. ■ The basis for the requirement that the customer must not have any (business) connection with the supplier is to avoid involving in a ’Inah (sell and buy back) transaction that is prohibited by Shari’ah. ■ The basis for the permissibility that the supplier may be a relative of the customer or a husband or wife to the customer is because both parties have independent legal liability unless it has come to be that they are involved in a ’Inah Inah transaction, in which case the transaction is prohibited. This is to defeat a potential intentional arrangement to evade formalities of the transaction. The Fatwa of Kuwait Finance House supports this.(10) ■ The basis for not allowing a partner to promise to buy the shares of another partner on a Murabahah basis is because this will lead to the buyer guaranteeing the share of other partner, which is Riba. ■ The basis for not allowing dealings in gold, silver and currencies on deferred Murabahah basis is the saying of the Prophet, peace be upon him, in respect to exchange of gold with silver that such exchange take place “hand to hand”;(11) i.e., without delay in delivery, and the rules of currencies are subsumed under the ruling for gold and silver. This ruling is endorsed by the resolution of the International Fiqh Academy.(12) ■ The basis for the prohibition of Murabahah tradable securities or refinancing of a Murabahah transaction is because these fall under the heading of sale of debt that is prohibited by Shari’ah. ■ The basis for not allowing a bilateral binding promise is because it amounts to a contract prior to acquisition of the item to be sold. The International Fiqh Academy has issued a resolution in this respect.(13) ■ The basis for the permissibility of the agreement to amend the terms of the promise is because a promise is not a contract and as such the amend amendment ment (10) (11) (12) (13) Fatwa No. (55). The Hadith has been related by Muslim in his “Sahih” “Sahih”.. International Fiqh Academy Resolution No. 63 (1/7). International Fiqh Academy Resolution No. 41(3/5). 223
4. Shari ’ah Standard No. (8): Murabahah ■ ■ ■ ■ ■ ■ ■ ■ of the profit margin and the duration will not amount to rescheduling of debt which is prohibited by Shari’ah. The basis for using options when buying on Murabahah is the case of Hibban Ibn Munqidh when the Prophet (peace be upon him), said to him: “If you buy, a condition that there is no cheating and that you have a three day period for any of the goods bought. If you are satisfied, then keep it and if you are not satisfied, return it to the buyer.”(14) The ruling on the application of option in Murabahah is endorsed by a resolution issued during the second Fiqh Forum organised by Kuwait Finance House. The basis for the impermissibility of a commitment fee is because such a fee is in exchange for the right to contract, which is a mere intention and wish that is not a subject of exchange. The basis for the impermissibility of a facility commission is because it is not allowed to receive commission in the event of giving out a loan facility itself. It is therefore a logical conclusion to disallow commission for a mere readiness to finance the customer on a deferred payment basis. The basis for allowing that the expenses of preparing the document of contracts between the Institution and the customer be borne by the two parties is because both parties will equally benefit from this, and moreover there is no any impermissible act involved. The basis for the permissibility that these expenses may be borne by one of the parties is because this is a form of condition that is permissible. The basis for the permissibility of the customer guaranteeing the good performance of the supplier is because this guarantee secures rights and does not adversely affect any rules of the Murabahah transaction. The basis for not allowing that the customer guarantee the risk of transportation of the goods is because the safety of the goods is the responsibility of the owner and the customer is not the owner. Hence, the owner must bear the risk since the right to profit is associated with bearing risk. The basis for the permissibility of Hamish Jiddiyyah (security deposit) is because it is a form of guarantee for any financial damage that may occur. The basis for the permissibility of obtaining the earnest money to secure performance is the practice of Umar Ibn Al-Khattab (may Allah be pleased (14) The Hadith has been related by Ibn Majah, “Sunan Ibn Majah” [2: 789]. 224
5. Shari ’ah Standard No. (8): Murabahah with him) in the presence of some companions of the Prophet, peace be upon him,(15) which has been permitted by Imam Ahmad. A resolution has been issued in connection with the permissibility of ’Arboun (Earnest Money) by the International Islamic Fiqh Academy.(16) Acquisition of Title to, and Possession of, the Asset by the Institution or its Agent ■ The basis for the prohibition of selling a commodity before taking possession is the saying of the Prophet (peace be upon him): “Do not sell what you own not”(17) and the Hadith in which the Prophet (peace be upon him) prohibits a person from selling what he does not own.(18) The basis for preferring that the Institution appoint an agent other than the purchase orderer in case of the need to do so is to avoid a fictitious transaction that shows on paper that the acquisition is made on behalf of the Institution. This is necessary in order that the Institution appear as the real purchaser and in order to demarcate the liabilities of the parties, the liability of the Institution and the liability of the purchase orderer after the sale contract. ■ The basis for the requirement that the Institution must pay the supplier directly is to avoid the risk of the contract degenerating into mere interestbased financing. ■ The basis for the requirement that the liabilities of the parties -in case the Institution acquires the goods through agency- is to demarcate the two liabilities. ■ The basis for the requirement that documents must be directed to the Institution is because the purchase is taking place on behalf of the institution. ■ The basis for the requirement that the agent must explain to the supplier his agency status is to control the transaction and to determine the party to be referred to for the execution of the contract. (15) (16) (17) (18) The source of the Hadith has been stated earlier. Resolution No. 72 (3/8) in respect of ’Arboun (Earnest Money). The Hadith has been related by Al-Tirmidhi “Sunan al-Tirmidhi” [3: 534]. The Hadith has been related by Al-Tabrani in “Al-Mu’jam Al-Awsat” [5: 66], Dar AlHaramayn, Cairo, 1415 A.H. 225
6. Shari ’ah Standard No. (8): Murabahah ■ The basis for the requirement of possession before a sale contract is to ensure that the Institution becomes liable for the risk of destruction of the commodity before it is entitled to sell it. ■ The basis for separating an agency contract from a Murabahah transaction is to be sure that there is no any intentional arrangement to connect the two contracts. ■ The basis for the rule that constructive possession is sufficient to meet the requirement of possession and that possession is according to the nature of the items is because the Shari’ah did not state a particular form for possession. Rather this is left to the customary practices. Again, the purpose of possession is to enable one to have control over something. Therefore, any procedure that serves this objective would be regarded as possession. ■ The basis for the requirement that the contract of agency be separate from the contract of sale on a Murabahah basis is because of the risk that the contracts may be connected to each other. ■ The basis for the rule that the Institution bear the expenses of insurance is because these expenses follow ownership of the goods. Conclusion of a Murabahah Contract ■ The basis for the rule that the Institution is entitled to compensation in case of breach of a binding promise by the customer to buy the goods is because of the damage that may be inflicted on the Institution due to the act of the customer. This is because the customer has caused the Institution to enter into a deal that it would not have concluded in the absence of the promise. The International Islamic Fiqh Academy has issued a resolution in this respect.(19) ■ The basis for the rule that the Institution’s rights are limited, in case of breach of promise, to the difference between the cost of the item to the Institution and its selling price to a third party is because the lawful right in a guarantee is limited to the amount that compensates for the damage suffered and because the Institution’s right to recover loss of its mark-up is irrational since there is no mark-up unless there is actually a Murabahah transaction and in this case there is no such transaction. (19) International Islamic Fiqh Academy’s resolution No. 40-41 (2/5 and 3/5). 226
7. Shari ’ah Standard No. (8): Murabahah ■ The basis for the requirement of transparency as to the cost price is because Murabahah is a trust related contract that requires disclosure of the amount and the currency of the cost price because a price in a deferred payment sale is higher. ■ The basis for allowing normal expenses to be included in computing the selling price of the commodity is because these expenses are paid to a third party. ■ The basis for entitlement of the buyer to benefit from the discount acquired by the Institution is because Murabahah is a mark-up sale. Therefore, if the previous purchasing price decreases then the cost price is the amount that remains after the discount and this price is the cost price for the purpose of the Murabahah. ■ The basis for the requirement that the price and the profit in Murabahah must be determined is to avoid uncertainty and lack of knowledge. ■ The basis for the requirement that the profit must be separately disclosed from the cost price and that it is not allowed to be calculated as a single amount for the customer is because Murabahah is a sale with a profit margin. Therefore, it is necessary this profit be disclosed separately to ensure that the customer will agree to it. ■ The basis for the permissibility of instalment payment is because Murabahah is one of the sale contracts that are subject to spot payment, deferred payment or instalment payment. The basis for the impermissibility of requesting an additional sum of money for delay in payment is because this is the prohibited Riba. ■ The basis for the permissibility of stipulating a defect exclusion item is because a buyer is entitled to require guaranteeing hidden defects which are related to the sold commodity by the seller. However, the buyer may relinquish this right by agreeing to a defect exclusion item, as stated by a number of scholars.(20) ■ The basis for the permissibility of stipulating that the contract would be terminated for default in payment is because the original princi(20) See Al-Kasani, “Bada`i’ Al-Sana`i’” [5: 276]; Al-Mawwaq, “Al-Taj Wa Al-Iklil” [4: 439]; Al-Shirazi, “Al-Muhadhdhab” [1: 284]; Ibn Qudamah, “Al-Mughni” [4: 129]; and AlBuhuti, “Kashshaf Al-Qina’” [3: 228]. 227
8. Shari ’ah Standard No. (8): Murabahah ple in respect to stipulations is validity and permissibility. In addition, this item does not render permissible an impermissible act or prohibit a permissible act. Hence, this item falls under the Hadith that says: “Muslims are bound by the conditions they made, except a condition that renders permissible an impermissible act or prohibits a permissible act.(21) Guarantees in Murabahah and Treatment of Murabahah Receivables ■ The basis for the condition that all instalments will become due if there is delay in payment is the Hadith of the Prophet, peace be upon him: Muslims are bound by the conditions they made, and because payment on a deferred basis is the right of the buyer, and the buyer may choose to pay before time and relinquish the deferral of the date of payment entirely or make payment of all instalments contingent on default on payment of one instalment. ■ The basis for demanding collateral to secure payment is because such a requirement does not affect the contract; rather, it consolidates performance and such guarantees are relevant to contracts involving credit. ■ The basis for not allowing a stipulation that delays transfer of ownership is because such a stipulation is against the effect of a sale contract, which is immediate transfer of ownership. The basis for allowing the Institution to hold up registering the commodity in the name of the customer until payment is realised is that such an action does not affect the transfer of ownership to the buyer. ■ The basis for the permissibility of stipulating a condition, whereby the debtor in case of default is obliged to donate a sum of money in addition to the amount of the debt to be spent by the Institution on charitable causes, is because this has been considered as an instance of the commitment to make a donation, which is well established in the Maliki school of law. This (21) This Hadith has been reported by number of the companions. It has been related by Ahmad in his “Musnad” [1: 312]. Ibn Majah through a good chain of transmission in his “Sunan” [2: 783], Mustafa Al-Babi Al-Halabi edition, Cairo, 1372 A.H./1952 A.D.; Al-Hakim in his “Mustadrak” “Mustadrak”,, Hyderabad edition, India, 1355 A.H.; Al-Bayhaqi in his “Sunan” [6: 70 and 156] and [1: 133], Hyderabad edition, India, 1355 A.H.; and Al-Daraqutni in his “Sunan” [4: 228] and [3: 77], Dar Al-Mahasin Lil-Tiba’ah edition, Cairo, 1372 A.H./1952 A.D. 228
9. Shari ’ah Standard No. (8): Murabahah is the opinion of Abu Abdullah Ibn Nafi’ and Muhammad Ibn Ibrahim Ibn Dinar, among the Maliki jurists.(22) ■ The basis for the prohibition of additional payment over the principal debt in consideration for extension of time is because such action is a pre-Islamic form of Riba. ■ The basis for the permissibility of discount or rebate for earlier payment is because discount for early payment is a form of settlement between the creditor and the debtor to pay less than the amount of the debt. This is among the settlement that are endorsed by Shari’ah as stated in the case of Ubay Ibn Ka’b (may Allah be pleased with him) and his debtor where the Prophet (peace be upon him) suggested to him in words: “write off a portion of your debt.”(23) The International Islamic Fiqh Academy has issued a resolution in support of this rule.(24) ■ The basis of the permissibility of payment of debt in another currency is that this would entail the settlement of the debt by discharging it. This does not involve any prohibited transaction pertaining to debts either with regard to sale or purchase. As for some of the forms mentioned in the standard, there are texts to support them, inter alia, the Hadith reported on the authority of Ibn Umar (may Allah be pleased with him) who said: “I have met the Prophet (peace be upon him) at the house of Hafsah (may Allah be pleased with her), and I said to him: ‘O Prophet of Allah, I would like to ask you: ‘I sell a camel in Al-Baqi’ for a price quoted in dinar but I take dirham, and I sell for a price quoted in dirham but I take dinars, I take this from this and I give this from this.’ The Prophet (peace be upon him) replied: ‘There is no objection to your taking the other currency based on the price of the day, provided you do not leave each other with something remaining owed as a debt between you’.”(25) Some of the forms in the standard are a kind of set-off and this is permissible. (22) See the book entitled: “Tahrir Al-Kalam Fi Masa`il Al-Iltizam” by Al-Hattab. This rule has been endorsed by the resolutions and recommendations of the Fourth Fiqh Forum organized by the Kuwait Finance House. (23) The Hadith has been related by Al-Bukhari: “Sahih Al-Bukhari” [1: 179] and [2: 965]. (24) The International Islamic Fiqh Academy Resolution No. 64 (7/2). (25) Related by Abu Dawud, Al-Tirmidhi, Al-Nassa`i, Ibn Majah and Al-Hakim, who deemed it a sound Hadith. Al-Dhahabi agreed with Al-Hakim. It was also narrated without a chain of narrators, quoting only Ibn Umar: “Al-Talkhis Al-Habir” [3: 26]. 229