(5 – 1) Default in Payment of Murabaha debt

(5 – 1) Default in Payment of Murabaha debt

Question (1):

Is it permissible to have compensation for damages resulting from the delay in payment of Murabaha installments?

Answer:

The Committee had been briefed on Fatwa issued by the majority in the Third Symposium of Al-Baraka held in Turkey regarding the permissibility of compensation. It also tackled the submitted questions and listened to the explanations of some of the directors of banks, where some members confirmed this Fatwa while the opinion of others is to reconsider the subject, then it has been decided to defer the matter for further research up to the coming symposium as well as the preparation of new researches regarding this subject.

Source:

Dallah Al-Barakah Group, Department of Development and Research, "Book of Fatwas In Economics" Al-Barakah Fifth Symposium, Fatwa No. (4).

Question (2):

What are Shariah modes that may be applied in dealing with banks' customers who default in payment of installments of Murabaha at their due dates?

Answer:

The answer to your question on the above subject can be summed up in that the dealers with the bank through Murabaha, default in payment of their debts when they are due, and that this may be intended for the reasons you mentioned and not as the result of force majeure that prevented them from paying. You requested us to provide you with the Shariah view of the methods that would ensure the preservation of the legitimate rights of the bank, our advice is as follows:

First: Further to our earlier discussion, it is advisable to adopt a policy that would reduce the volume of transactions through the Murabaha dealings as a prelude to abandon it completely at suitable time.

Second: Instead of buying and selling goods in Murabaha with a deferred payment of price, which may result in those risks you have mentioned, the goods should be kept in possession of the bank at bank-owned stores and to provide the dealer with irrevocable authorization, for a given period of time, to sell the goods at a specified price that includes the suitable margin of profit to be set forth by the bank, in the light of market conditions. Provided that, any amount in excess of this offer should be credited to the sales agent as a commission or remuneration, based on the fact that agency against remuneration is Shariah permissible. Yet, whereas such remuneration is calculated as a certain percentage of the sales price, profit, or the value in excess of the price to

be determined by the principal, hence it has been approved by a variety of scholars of the Sahaba and followers as be determined by the principal, hence it has been approved by a variety of scholars of the Sahaba and followers as

(A) It is not a financing transaction, as purchase is conducted in the name of the bank, and the goods are sold for its account through the agent. This procedure enables to avoid the restrictions imposed by the Central Bank such as requirements for credit guarantees and the limit set for the amount to be awarded to each customer.

(B) This method ensures the rights of the bank, since the release of the goods can only be conducted after paying for them, or after ensuring the solvency and trustworthy of the client.

(C) In case of appropriate awareness and proper explanation of this method, many of the customers will prefer it as it achieves for them the required profit (C) In case of appropriate awareness and proper explanation of this method, many of the customers will prefer it as it achieves for them the required profit

be taken from the authorized agent who is in charge of sale against amounts under his liability which he might usurp. Hereunder is the explanation of "Al- Bukhari" of this method:

It has been stated in the book of "Fath Al-Bari Sharh Sahih Al-Bukhari": 357 that "Ibn Abbas" said: "it doesn't matter to say: "Sell this garment, and if you got more than the hereto specified amount it would be yours". Further more "Ibn Sirin" argued that: No objection to say: "sell this item at X price and any profit obtained thereof is yours or (Fifty-fifty)". Our

Prophet said: "Muslims abide by their terms and conditions". The explanation showed that some scholars interpreted the permissibility of "Ibn Abbas" as a wage that resembles loan grantor. This opinion has been confirmed by Ahmed and Isehaq besides what is said by "Ibn Sirin" which resembles a case of loan guarantor rather than broker.

Third: Some goods might be sold in Murabaha transactions provided that such goods should be mortgaged against their price or otherwise sale transaction automatically be cancelled in case of non-payment of installments and the goods be returned to the bank.

Fourth: taking necessary measures to make the compensation condition effective. We have shown in a previous note the permissibility of compensation and its Figh basis as well as the elements of compensation and the way to collect it.

Source:

International Islamic Bank, "Book of Shari'ah Fatwas on Banking Transactions", Publisher, Movement of Islamic Economy, Fatwa No. (4).

Question (3):

Is it permissible to terminate the arrears of Murabaha debt?

Answer:

First: If the buyer did not pay the due debts in Murabaha at due date then the bank is entitled to purchase the item that has been sold to the client under Murabaha or any part of it at an immediate price to be receivable from the Bank, if a period of time has passed after the sale of Murabaha during which prices typically vary depending on the commodity, (this is the so-called by scholars markets' assignment). However, this should not be considered as prohibited Ayna sale. With this purchase the bank could satisfy its debt, in whole or in First: If the buyer did not pay the due debts in Murabaha at due date then the bank is entitled to purchase the item that has been sold to the client under Murabaha or any part of it at an immediate price to be receivable from the Bank, if a period of time has passed after the sale of Murabaha during which prices typically vary depending on the commodity, (this is the so-called by scholars markets' assignment). However, this should not be considered as prohibited Ayna sale. With this purchase the bank could satisfy its debt, in whole or in

Second: The bank then has the right to dispose of the goods or equipment or assets purchased from the customer as it deems the best to achieve its interests either with the same customer or others in accordance with Shariah permissible modes, such as Musharakah or Mudharabah based on their own requirements and conditions or through normal rent or lease ending in ownership provided that the bank should not resale them in credit to the customer at a price more than the price of purchasing, since this is considered as reversal of Ayna sale which is called (exchanging of debt with another debt), which is Shariah prohibited.

Third: It is impermissible to reschedule the debts of Murabaha or other debts by increasing the amount and the term of debt.

Source:

Dallah Al-Barakah Group, Development and Research Department, Resolutions & Recommendations of AlBaraka Symposia on the Islamic Economy, (The First, Second and Third Seminar), fatwa No. (5).