(8.1) Achieved profit for each year

(8.1) Achieved profit for each year

Question (1):

Please provide the Shari'ah opinion regarding realizing profits in Murabaha sales transactions for the purchase orderer and profit of each fiscal year.

Since Murabaha sales, to the purchase orderer, are executed in the bank on the basis of payment obligations by the clients within periods ranging between (3) months to (24) months, in return for a percentage of profits to be obtained by the bank in direct proportion with the length of the repayment period.

Currently the bank calculates the whole profit at contracting following the conclusion of Murabaha sale with the customer. The profit is calculated and recorded in a separate account.

Hereunder a practical hypothetical example:

a) On 31/ 03/1980 a client approached the bank to purchase him goods through Murabaha.

b) On 30/04/1980 the documents of the same goods were received and delivered to the client. The cost of these goods amounted to (2400) Jordanian Dinars. On the same date the subsequent contract had been concluded and the sale transaction had been completed on installments to be paid over (24) months. The bank obtained a profit rate of 10% (240 JD) and the goods were sold in the amount of (2640 JD).

The amount of (2640 JD) had been divided into (24) equal installments to be paid monthly. The first installment was due on

31 / 05 / 1980 and the last installment on 30/04/1982. On 30/04/1980 (the date of subsequent contracting) the amount of

profit (which is 240 JD had been recorded to the bank investment revenues account.

Please provide the Shari'ah opinion regarding the following points: • Are the profits shown in the example above (that amount to

240 JD) considered profits achieved in 1980 only?

• Or should those profits be distributed to match installments

which the buyer is bound to repay and thus be distributed among the years: 1980, 1981, 1982 as follows:

1) (80) Dinars as profits of 1980.

2) (120) Dinars as profits of 1981.

3) (40) Dinars as profits of 1982. Please kindly provide the Shari'ah opinion on the above mentioned

matter, so that the bank can implement Shari'ah compliant financial procedures prior to the end of the current fiscal year?

Answer:

The answer to this question is related to paragraph (C) of Article (19) of the Code of the Islamic Bank of Jordan (No. 13) for the year 1978 as well as related to the understanding of Figh texts stipulated in the chapter of Murabaha in Shari'ah references.

Whereas Paragraph (C) provides that the profit of Murabaha is achieved at subsequent contracting. However, subsequent Whereas Paragraph (C) provides that the profit of Murabaha is achieved at subsequent contracting. However, subsequent

Figh texts indicate that the transaction contains two contracts: the first contract concerns selling of the subject matter possessed by the Second Party according to the cost plus a profit basis, whereas the second contract concerns the purchase of the item ordered by the purchase orderer, and in the latter contract an agreement will be made to pay the price in cash or deferred. In the case of defer if the buyer paid the agreed upon price or on installments before the maturity date he is entitled to recover from the price an amount equal or proportionate to the remaining period?

Figh principles which are followed by ancient jurists stipulate that: If the debtor paid the debt before its maturity date then the creditor has nothing to be paid to him for the remaining period, because he has voluntarily paid prior to the payment due date. However, the contemporary Jurists stated that if the debt becomes due because of the death of the debtor or it is paid before the maturity date then the

Murabaha should be confined to the elapased days, saying that it is better for both parties.

Thus the aforementioned paragraph supports the point of view of ancient jurists who considered the profit to be realized when a subsequent contract is concluded, because he has to obtain nothing even if the debt is paid before the due date, thus the debt is considered as a loan that must be paid to the bank on its due date.

However, there are two matters to be clarified before answering the question:

First: The bank Act is drafted by a group of trusted jurists on the basis of the provisions and rules of the Islamic principles and Shari'ah.

Second: If the Governor (Wali Al-Amr) has issued an order, other than disobedience of Allah, he should be obeyed as declared by scholars.

Since an order was issued by the Governor for the execution of paragraph (C) of the Act, yet it is not leading to the disobedience of

Allah and not prohibited by Shari'ah rules then it is a duty to be applied.

Therefore, I opine that: the total profits are to be considered in the year in which the subsequent contract has been concluded, and here it is 1980.

Source:

Jordan Islamic Bank for Finance and Investment, Book of Fatwas, Parts (1), and (2), Fatwa No. (7).

Question (2):

The bank is buying and financing particular goods at the request of the partner (who is the purchase orderer at the same time) where the partner sells the goods and receives part of the price in cash and the other part is sold in installments spreading over (24) months. The process of settlement of accounts with the partner takes place after the conclusion of the last contract of sale with the last buyer and after the partner hands over the cash amount and the remaining amount in promissory notes to the bank.

Practical hypothetical example:

The bank financed a Murabaha Partnership Transaction with a customer in the amount of (1000 JD). The partner sold the goods in the amount of (1240 JD), out of which the buyer paid an amount of (340 JD) in cash and the remaining value of (900 JD) to be paid in installments at (24) equal monthly installments. The first

installment will be due on May 31 st , 1980 and the last installment on April 30 th , 1982.

The bank, out of this accounting process, obtained a profit of (120 JD) that was deposited in of investment revenues account.

Therefore, Shariah opinion is sought with regard to the following to enable the bank to conduct Shari'ah compliant financial procedures prior to the end of the current fiscal year:

First: Are the profits shown in the example above (that amount to 120 JD) considered profits achieved in 1980 only?

Second: Or shall those profits be distributed to match the cash

amount received at settlement time as well as the amount received at settlement time as well as the

Answer:

The contract that you have mentioned does not apply to Mudharabah contracts, Murabaha contracts or even to contracts known along the history of Islamic Shariah, but it is a new kind of contracts although it bears some elements and features of Mudharabaha and some signs of Murabaha contracts, however, this does not preclude it from being a partnership established on trade and profit, where the profit is not specific and no specific share, so there is nothing included in it that makes it prohibited as indicated in my written answer dated 08/01/1980 which you referred to in the letter. Hence, based on your request, the question is limited to how you can calculate the profit.

From the scenarios mentioned in the latter it was found that the bank purchases and finances specific goods, at the request of the partner who sells the goods to another person, and receives part of the price in cash and the remainder will be divided into From the scenarios mentioned in the latter it was found that the bank purchases and finances specific goods, at the request of the partner who sells the goods to another person, and receives part of the price in cash and the remainder will be divided into

From this it is clear that during the accounting process, the profit had been identified for the bank and that the rest of the price becomes a debt deferred for a specific date or terms, and due to the bank at maturity dates. This situation is covered by the opinions of Sheikh Al-Islam Ibn Taymiah that according to the opinions held by Imam Ahmad that if two partners settled their accounts without sorting, then that will be considered as sharing, even if the money is lost after that, the (loss) will not be compensated by profit. Although this type of contract is not Mudharabah but has some similarities to it, as I mentioned to earlier, the profits can therefore

be measured in this contract based on what is stated in Paragraph (a) of article 19 of the articles of association of the Islamic Bank whereby the profit is realized upon exercise of accounting which is be measured in this contract based on what is stated in Paragraph (a) of article 19 of the articles of association of the Islamic Bank whereby the profit is realized upon exercise of accounting which is

It is also understood from Paragraph (2) of article (526) of the Jordanian Civil Act No. (13) of 1976, which its provisions are based on Islamic Figh, principles and norms (that the rest of the price in the event of a defer is considered a deferred debt against the buyer).

Therefore, the acceptance of the seller to defer the price drops his right to withhold the sold item and he undertakes to deliver it to the buyer as shown in the second paragraph of Article (523) of the aforementioned Civil Code.

Hence, it is permissible to register the achieved profits at the completion of accounting between the two partners in 1980 which is not related to the rest of the deferred debt due on the last buyer.

Source:

Jordan Islamic Bank for Finance and Investment, Book of Fatwas, Parts (1), and (2), Fatwa No. (8).