DOCUMENTED SHARI'AA – JURISPRUDENCE – OPINIONS
A Group of Pioneering Scholars Headed by His Eminence Sheikh Dr. Yusuf Al-Qaradawi – Algiers, Algeria – 1990, originated this series of Fatwas
Translated from Arabic by Professor Mahmoud Elgamal – The First Ever Chair of Islamic Banking, Economics & Finance in the History of the US, Rice University Houston Texas
1.1. Translation of Selected Fatwa of Al-Baraka Seminars - Seminar 6: --(pp.77-78) Algeria 5-9 Sha'baan 1410 A.H. - 2-6 October 1990 C.E.
The sixth Baraka seminar was held in Algeria during the period 5-9 Sha'baan 1410 A.H., 2-6 October 1990 C.E. In addition to the scholars whose names are listed below, representatives of Al-Baraka and other Islamic banks were invited.
During those five days, the seminar program covered the practices of Al-Baraka Bank, London, including issues raised by the environment within which the Bank has to operate. The goal of this review was to find appropriate Shari'aa solutions to said issues. In addition, branch managers raised a number of questions, which were also addressed by the scholars.
The participating scholars in this seminar have issued a number of fatwas for the relevant issues, based on the explanations of specialists and documents prepared by the Bank management team in London The committee of scholars in this seminar included the following, after appointing Sheikh Abdul-Hamid Al-Sa'ih as chairman, Dr. Sami Homoud as secretary, and Dr. Abdul-Sattar Abu-Ghuddah as assistant-secretary:
- Dr. Yusuf Al-Qaradawi.
- Dr. Abdul-Sattar Abu-Ghuddah.
- Dr. Muhammad Al-Mukhtar Al-Salami.
- Dr. Yusuf Qasim.
- Sheikh Abdul-Hamid Al-Sa'ih.
Special circumstances prevented Dr. Al-Siddiq Muhammad Al-Amin Al-Darir from participating in the seminar deliberations. However, he had sent his suggested answers to the paused questions, which answers were distributed to all participants along with the other seminar papers. In the event, his opinions were utilized in composing the final fatwas.
1.2. (6/2) – pp.81-82 Using the term "interest" as an alternative to the term "profit" or "rate of return" when interest payments can relieve the payers of certain financial obligations
Is it possible to use the term "interest" instead of the term "profit" or "rate of return", without meaning in fact the essence of interest, to benefit from the financial advantages granted by the relevant authorities in the West to interest payments in the cases of deposit and financing?
The committee has reviewed some of the legal benefits that the British tax system gives to paid and received interest in bank dealings.
Applying the principle for reviewing transactions stipulating that what matters in contracts are intentions and substance – not words and forms – we have reached a consensus that there is no objection to using the term "interest" as an alternative to the term "profit" or "rate of return". This opinion is based on the view that what is intended here is not to effect Riba, which is forbidden in Shari'aa. Thus, following our deliberations, we reached the following conclusion:
"Despite the fact that interest, as conventionally used in banking transactions, coincides precisely with the Riba that is forbidden in Shari'aa to pay or receive, and regardless of whether the underlying transaction is a consumption or production loan, we have found that there is no objection to the use of the term "interest" in the cases related to those dealing with Al-Baraka Bank, London, aiming to benefit from the financial advantages given to interest in various cases of deposits and financing.
In this regard, it is imperative to ensure that the term "interest" in the sense described above is used only in the forms required by entities other than the bank, e.g. tax declaration forms for depositors, or special forms used in various financing cases. However, if the intent is to change the nature of the transaction to make it an interest-bearing loan, then such transaction will be fundamentally impermissible."
1.3. (6/4) – pp.84-87 - The Al-Baraka, London, Home Financing Contract Language
The contractual relationship between the proposed partner and the Bank on the basis of mutual possession of real estate for sale in accordance to the proportions advanced towards the purchase price. Those proportions are expressed in terms of shares, the value of each of which is agreed upon at the inception of the contract as £1 only.
This value remains constant throughout the contract period. Moreover, the real estate remains eligible for sale, to allow the Bank to sell its shares on a periodic basis (e.g. monthly) to the buyer, or vice versa.
Accordingly, ownership of the property is transferred gradually to the buyer over the agreed-upon period. In addition, since the buyer controls the usufruct of the property, he pays the bank a rent corresponding to said usufruct. This rent is labeled "profit" in the contract, and its amount is determined by the Bank's share in ownership.
In this regard, the rental value of the property is determined each year according to a fixed and agreed-upon rule, relying on rental values in London as a baseline for determining the rental of purchased property. Correspondingly, the amount of rent paid by the buyer to the Bank declines in proportion to the decline in the Bank's ownership and corresponding buyer's increased ownership, as the latter buys a pre-determined number of ownership shares each year, until he ultimately becomes the sole owner of the property at the end of the period [of financing].
What is the ruling in Islamic Jurisprudence regarding this form and contract language for financing the purchases of homes and real estate?
The participating scholars discussed the method of financing homes and real estate followed by Al-Baraka Bank, London, in light of the Laws governing this type of transactions. The scholars recognized the need for Muslims to own appropriate homes to meet their needs.
In this regard, the scholars considered the following related points:
- Registering the home's title in the partner's (customer seeking to purchase the property) name from the inception of financing
- Making the partner responsible for all fees and costs associated with registering said title.
- Insurance premiums for the home.
- The method of calculating annual rents.
- Means of liquidating the partnership and releasing the Bank's lien on the property in cases where the property's price is insufficient.
After a long discussion of those topics, we reached the following consensus:
- That registering the home's title in the partner's name, based on trust, from the inception of the contract is permissible under Shari'aa. Registering the property's title in this manner does not contradict the agreed upon partnership, especially since the partner's ability to sell the home is restricted until his full ownership of the property is established. In this regard, we took into consideration the fact that this registration of title is a form of documentation insured by the officially established lien on the property according to the conditions agreed-upon with the partner.
- Making the partner alone responsible for all registration, survey, and other documentation costs associated with the jointly owned property from the inception of the contract, and absolving the bank from responsibility for such costs, is permissible if the partners agreed accordingly. This is particularly appropriate since the partner will ultimately become the sole owner of the property at the end of the financing contract.
- With regards to insurance, the default ruling would require both partners to bear responsibility for insurance premiums, as a shared burden of the jointly owned property. However, the bank may take that into consideration when determining the rental of its share of the property to include appropriate compensation for the appropriate share of insurance costs.
- The default ruling in joint ownership is sharing in profits and losses in proportion to ownership, based on the principle that entitlement to profit must be commensurate with risk exposure. In this regard, since the regulatory framework requires that the Bank should not be exposed to the possibility of losses when the partnership is dissolved, the model should be altered such that the order of the transaction proceeds as follows:
a. The Bank and the customer share in purchasing the home according to the agreed-upon proportions.
b. The Bank sells his share in the physical property ownership (milk al-raqabah) to its partner, while retaining his share of ownership of its usufruct (milk al-manfa`ah) until the time its partner pays the remaining portion of the price.
c. The Bank collects an annual rent in accordance with the actually paid portion of the property's price.
d. If the partner is delinquent in paying the installments for which he is obligated, the Bank has the right to keep the sale agreement intact, and collect its right to the remaining portion of the price according to the obligatory performance clauses of the lien; or the Bank may void the initial sale and take full ownership the property if the partner agrees. In the latter case, the Bank should pay back to the partner whatever he had paid previously, as a revocation of the sale from its inception. (Item d. was agreed-upon by a majority of the participating scholars).
1.4. Seminar 9: --pp.149-150 - Jeddah 5-7 Ramadan 1414 A.H., 15-17 February 1994 C.E. (The third Jurisprudence Symposium on contemporary banking issues)
All praise and thanks are to Allah, and prayers and peace upon the Messenger of Allah (peace be upon him) and upon all his family and companions, then:
In the framework of the activities of the research and development group in Dallah Al-Baraka group, the ninth Al-Baraka seminar (the third Jurisprudence Symposium) was held to discuss some banking issues, during the period 5-7 Ramadan 1414 A.H., 15-17 February 1994 C.E. in Jeddah (Dallah Tower). The following scholars participated in this seminar:
1. Sheikh Dr. Ahmad `Ali `Abdallah.
2. Sheikh Dr. Al-Siddiq Muhammad Al-Amin Al-Darir.
3. Sheikh Dr. `Abdul-Sattar 'Abu-Ghuddah.
4. Sheikh Dr. `Abdullah bin-Sulayman Al-Manee`.
5. Sheikh Dr. Muhammad Sulayman Al-'Ashqar.
6. Sheikh Dr. Muhammad Al-Mukhtar Al-Salami.
7. Sheikh Mustafa Al-Zarqa'.
8. Sheikh Dr. Yusuf Al-Qaradawi.
To discuss the following issues:
After lengthy detailed discussions, and after listening to the explanations of relevant practitioners, the scholars reached the following recommendations:
1.5. (9/4) – p.155 Establishment of pro forma ligatures or contracts, or formation of sister or branch special purpose entities to benefit from tax advantages given to Ribawi interest
1. Islamic banks should be wary of writing pro forma Ribawi contracts or ligatures with pro forma Ribawi interest to benefit from tax or other advantages legally offered to Ribawi interest.
2. There is no harm done if Islamic banks use language in their financial statements to explain the nature of permissible profit. For instance, the Bank may say that [such profit] is "the Islamic alternative for interest in the Ribawi system" or that "it is the return on investment" if such language will allow them to benefit from the tax advantages offered by Ribawi systems. However, the terms "Riba" or "interest" must never be used in any financial statement issued by the Islamic bank.
This fatwa is considered complimentary to the third fatwa of the sixth Al-Baraka seminar (#51), according to the view that the earlier fatwa was restricted to forms that are not issued by the Islamic bank.
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PLEASE NOTE THAT THIS INFORMATION IS PUBLISHED HERE TO EDUCATE THE MUSLIM USER WHO WANTS TO REMOVE RIBA FROM HIS/HER LIFE. THEY DO NOT DIRECTLY OR INDIRECTLY IMPLY THAT THE MENTIONED SCHOLARS HAVE SPONSORED, GIVEN DIRECT FATWA OR THE LIKE REGARDING LARIBA. We at LARIBA believe that it is the RESPONSIBILITY OF THE EDUCATED MUSLIM TO READ, COMPREHEND, ANALYZE & COMPARE then make his/her own decision.
WHILE LARIBA HAS IT IS OWN SHARI'AA ADVISORS IT'S OUR POLICY NOT TO USE THE EMINENCE & SCHOLARLY STATURE OF OUR SCHOLARS TO "MARKET" OR "SELL". WE RELY ON THE MIND OF THE EDUCATED MUSLIM. WE ASK ALLAH TO ACCEPT.