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THE SHARIA’AH AND LEGAL ISSUES ON ITS APPLICATION AS A FINANCING FACILITY :
THE MALAYSIAN EXPERIENCE
ADVANCE FIQH MUAMALAT (IFE705)
CONTENTS
1. INTRODUCTION
2. LEGAL EVIDENCE OF AL-BAI BITHAMAN AJIL
FROM AL-QURAN AND SUNNAH OF RASULULLAH SAW
3. THE OBJECTIVES OF AL-BAI BITHAMAN AJIL
4. PILLARS AND CONDITIONS OF AL-BAI BITHAMAN AJIL
5. TRANSACTION OF AL-BAI BITHAMAN AJIL
6. SHARI’AH ISSUE RELATING THE APPLICATION OF
AL-BAI BITHAMAN AJIL
7. AL-BAI BITHAMAN AJIL PRACTICE BY ISLAMIC BANK IN MALAYSIA
8. SHARI’AH ISSUES OF AL-BAI BITHAMAN AJIL AS
A FINANCING FACILITY IN MALAYSIA
9. CONCLUSION
2
INTRODUCTION
“Al Bai Bithaman Ajil” (BBA)
(i) Literally means “to make something into a known portion or
pieces”.
(ii) Technically, means“to defer the payment into several portions for a
different time period, and every portion that is due is called al-qist”.
BBA a sale of contract in which the payment of the purchase price is
payable at a certain particular time in the future.
BBA is also known as -
(i)Bay’ al-Nasiah which means as “waiting”;
(ii)Bay’ al-Taqsit which means as “installment”;
(iii) Bay’ Muajjal which means “deferred payment sale”; or
(iv) Al-Bay’ Li Ajal: If the payment is deferred as one lump sum towards
the end of a particular period.3
INTRODUCTION
In the middle east countries, the term used is Bay’ al-Taqsit
Bank Negara Malaysia defines :
“BBA as deferred payment sale whereby the property requested
by the client is bought by the financier, who subsequently sells the
goods to the client at an agreed price, including a mark-up
(profit) for the Islamic bank. The selling price is fixed and agreed by
both parties and will remain unchanged until the end of the
payment period. The ownership of the property purchased will be
under the claim of the financier and will be handed over to the
customer upon full payment.”.
4
LEGAL EVIDENCE OF AL-BAI BITHAMAN AJIL FROM AL-QURAN AND SUNNAH OF
RASULULLAH SAW
(i) Al-Quran from surah Al-Baqarah, 2: 282.:
ه البيع وحرم الر با وأحل اللـ
‘And Allah has permitted trade and forbidden riba’.’
ين آمنوا إ ذا تداينتم ب دين إ لى أجل مسمى ذ فاكتبوه يا أيها ال
‘O you who believe! Whenever you give or take credit (tadayantum)
for a stated term, set it down in writing.’
(ii) Al-Quran from surah Al-Nisa, 4: 29:
ل إ وا أموالكم بينكم ب الباط ين آمنوا ل تأكل نك يا أيها الذ ن ترا م ا م ل أ تكو ت
‘O you who believe! Eat not up your property among yourselves in
vanities; by way of trade based on mutual consent.’
5
LEGAL EVIDENCE OF AL-BAI BITHAMAN AJIL FROM AL-QURAN AND SUNNAH OF
RASULULLAH SAW
(a) It is reported in a Hadith by a Companion, Jabir, that the Rasulullah
SAW bought a camel from him outside the city of Madinah
whereby the payment was settled later on in Madinah.
(b) In another Hadith, it was narrated by Aisha RA that the Rasulullah
SAW bought a meal from one Jew with deferred payment, and
Rasulullah SAW mortgaged his iron shirt which is made from iron.
6
THE OBJECTIVES OF AL-BAI BITHAMAN AJIL
The objectives of BBA -
(i) providing financing for the purchaser who could not afford make thefull payment of the purchase price of the purchased goods upfront soas to reduce the hardship and burden for the purchaser in providingthe full payment of purchase price to purchase the goods;
(ii) attracting potential purchaser by offering payment by way of credit forthe purchaser to purchase the goods for the immediate usage andmake payment on affordable installment over an agreed period ofpayment which eventually lead to interest free sale transaction; and
(iii) providing flexible modes of payment as under BBA, the deferredpurchase price would be settled by the purchaser through variousmodes of agreed installment payment between the seller and thepurchaser and thus, leads to smooth business transaction between theseller and the purchaser.
7
PILLARS AND CONDITIONS OF AL-BAI BITHAMAN AJIL
Seller and purchaser, where both of them must be of sound mind,
attain age of puberty and intelligent;
Subject matter, exist during the time of purchase, known by the seller
and the purchaser, lawful and permissible or halal under Shari’ah, the
seller is the owner of the subject matter and the subject matter could
be delivered to the purchaser which include the transfer of
ownership; (BBA is subjected to the condition for transaction for non-
ribawi items only. If involve ribawi items, the ribawi items have to be
of different categories and types).
Price, must be known by the seller and purchaser where the payment
must be made in the currency agreed by both of them; and
Aqad which are ijab and qabul, must be absolute, decisive and
definite language to be made in one session.8
TRANSACTION OF AL-BAI BITHAMAN AJIL
The selling price offer by the seller to the purchaser is either in
form of -
(i) Bay’ Musawwamah (normal contract of sale); or
(ii) Bay’ Mudharabah (cost plus contract)
BBA is not applicable for Bay’ Salam
Diagram 1 : The transaction flow of Al-Bai Bithaman Ajil
9
SHARI’AH ISSUE RELATING THE APPLICATION OFAL-BAI BITHAMAN AJIL
Al-Bai Bithaman Ajil Resembles Riba Nasiah
The increment of the purchase price due to the delay in payment of full
purchase price of the goods, in the fixed future date as agreed between the
purchaser and the seller, which is by way of deferred payment of the full
purchase price by way of installment.
Majority of jurists, including the 4 mazhabs and Al-Kasani, Ibn Abidin and Al-
Nawawi were of the view that the price may be increased based on
deferment. Ibn Rushd of the opinion that the time has been given a share in
the price and hence, the increment of price is not a riba’ and is justifiable.
Hadith of Rasulullah SAW in one event where
“Rasulullah had ordered Amru Ibn Al-`As to prepare the army for a battle. He
then purchased a camel in exchange for a delayed payment of two camels”
The Majma` al-Fiqh al-Islamy (Academic Fiqh of OIC) has issued a resolution
number 7/2/65 stating that Bai’ al-Taqsid is permissible to be transacted as an
Islamic contract. 10
SHARI’AH ISSUE RELATING THE APPLICATION OFAL-BAI BITHAMAN AJIL
Issue on Guarantee
The seller is allow to request from the purchaser to provide and
appoint a guarantor in the event the purchaser defaulted in his
installment payment
Most of the Shari’ah scholars of the opinion that no fee could be
charged by the guarantor to the purchaser for providing the
guarantee services but the guarantor is permissible to claim actual
secretarial expenses incurred in offering the guarantee services.
The guarantor would only undertake to pay on behalf of the original
purchaser in the event he defaults of installment. If there is no default
on part of the purchaser. It would be unjust for the guarantor to
charge any fee for the guarantee service he provides for the
purchaser.
11
SHARI’AH ISSUE RELATING THE APPLICATION OFAL-BAI BITHAMAN AJIL
Rebate On Early Settlement
Discount or rebate to the purchase price when a purchaser make an
early settlement of the full purchase price. Would this early settlement
of the full purchase price amounting to breach of contract.The issue
is known as ‘da’ wa taajal’ or “give discount and receive soon”.
Some jurists of the opinion that this arrangement is permissible, but
the majority of the jurists, including the four schools of law, do not
allow it if the discount is held to be a condition for earlier payment.
Islamic Fiqh Academy of OIC took the same view.
12
SHARI’AH ISSUE RELATING THE APPLICATION OFAL-BAI BITHAMAN AJIL
Views Of Bank Negara Malaysia Shari’ah Advisory Council On Rebate –
Ibra`clause In Financing Agreement
The Shari’ah Advisory Council in its 24th meeting, held on 24th April
2002/11 Safar 1423 resolved that Islamic banking institution may
incorporate the clause on undertaking to provide ibra` to customers
who make early settlement in the Islamic financing agreement on
the basis of public interest (maslahah). This clause shall be stipulated
under the method of payment.
With the inclusion of ibra` clause in the financing agreement, the
bank is bound to honor that promise. This approach mirrors the
concept of giving discount on price or reducing the debt of the
customers who make early settlement based on the concept of dha`
wa ta`ajjal which is acceptable in Shari’ah. The confusion on the
issue of uncertainty in price (gharar) does not arise if the clause on
promise to give ibra` is stated clearly in the financing agreement.
•
13
SHARI’AH ISSUE RELATING THE APPLICATION OFAL-BAI BITHAMAN AJIL
Views Of Bank Negara Malaysia Shari’ah Advisory Council On Rebate –
Ibra` in Variable Rate Al-Bai Bithaman Ajil Product
The Shari’ah Advisory Council in its 32nd meeting on 27th February
2003/25th Zulhijjah 1423 resolved that granting of ibra` in a variable
rate BBA product is permissible. In this context, the bank is the party
who offered the ibra` (unilaterally promise to give ibra`) to the
customers and the bank may decide to give ibra` in any manner it
feels appropriate. If the bank has promised (binding promise) to give
ibra` to its customers, the bank bound to fulfill its promise.
Based on the mutual agreement in the contract, the financing
period for the customer can be extended without the need to
execute fresh contract provided that both parties fulfill all conditions
in the agreement and the final price charged on the customers shall
not exceed the original selling price (based on the ceiling profit rate)
contracted earlier.
•
14
AL-BAI BITHAMAN AJIL PRACTICE BY ISLAMIC BANKS IN MALAYSIA
BBA financing could be utilised by the Islamic bank to provide the
customers with medium and long term financing to acquire such
items as the following:
a) houses/shop houses;
b) land;
c) motor vehicles;
d) consumer goods;
e) shares;
f) overdraft facility;
g) education financing package;
h) personal financing;
i) other suitable and acceptable goods.
15
AL-BAI BITHAMAN AJIL PRACTICE BY ISLAMIC BANKS IN MALAYSIA
Agreements for BBA financing facility -
(a) The Property Purchase Agreement (PPA), Islamic bank purchase the property
from the purchaser at the purchase price, which usually the amount of
financial facility required by the purchaser.
(b) The Property Sale Agreement (PSA), the customer undertake and guarantee
to re purchase of the financed property for the Islamic bank at the agreed
selling price between the Islamic bank and the purchaser.
(c) Some other important documents to be executed by the purchaser for the
Islamic would be the security documents for securing the installment
payment of the facility amount are as follows –
(i) Legal Charge, for the property with individual titles; or
(ii) Deed of Assignment and Power of Attorney executed by the purchaser
in favour of the Islamic bank, for the property under master title and has
yet to be issued with individual titles; and
(ii) any other Islamic financing documents as required by the Islamic bank,
for instance, takaful on the property or the provision of guarantors by the
purchaser.
16
Diagram 2 : Al-Bai Bithaman Ajil flow for financing facility from Islamic bank in Malaysia. 17
AL-BAI BITHAMAN AJIL PRACTICE BY ISLAMIC BANKS IN MALAYSIA
SHARI’AH ISSUES OF AL-BAI BITHAMAN AJIL AS A FINANCING FACILITY IN MALAYSIA
Issue Of Ownership, Is Al-Bai Bithaman Ajil Is A Lending Transaction Disguise As A
Sale?
Issue of payment for stamp duty for the following agreements by the
purchaser only -
i. Sale and Purchase Agreement between the developer and purchaser;
ii. Property Purchase Agreement between the purchaser and the Islamic bank;
and
iii. Property Sale Agreement between the Islamic bank and the purchaser.
Dato’ Nik Mahmud b Daud (Appellant) v Bank Islam Malaysia Berhad
(Respondent) [1998] 3 CLJ 605.
Al-Bai Bithaman Ajil is actually does not involve of actual transfer of ownership
between the islamic bank and the purchaser but merely a right to registerable
interest of the Islamic bank in the property. All the agreements between the
Islamic bank with the purchaser is only a procedure required by the Islamic
bank to provide financial facilities to the purchaser. Thus, the whole
transaction is still a lending of money transaction rather than a sale
transaction as intended to be.
18
SHARI’AH ISSUES OF AL-BAI BITHAMAN AJIL AS A FINANCING FACILITY IN MALAYSIA
Issue Of Gharar Or Uncertainty
• In BBA the issue of gharar or uncertainty could arises involving property which
is still under construction and not for the property to be purchased is already
in existence. The issue of gharar arises because the property to which the
facility is covering is to be constructed or yet to exist, the validity of BBA facility
is questionable as the property is not completed yet because one of the pillar
under a valid contract of sale under the Shari’ah, with the exception of bai’
salam and bai’ istisna, the subject matter must be in existence.
• Affin Bank Bhd v Zulkifli b Abdullah [2006] 1 CLJ 438.
• The total amount payable by the defendant throughout 216 months at
RM3,582.80 would be RM773,884.80. However the documents signed between
the bank and the defendant stipulated the bank's selling price at
RM466,847.28. Two purchase price in one transaction.
19
SHARI’AH ISSUES OF AL-BAI BITHAMAN AJIL AS A FINANCING FACILITY IN MALAYSIA
The Of The Selling Price: Concept Of Justice
The primary principle of Shari’ah law is to provide justice. Any transactionthat is burdensome or oppressive to someone is absolutely prohibited.
Under BBA it could at some extent causing hardship to the customer. Thisissue is explained by the judgment of Arab Malaysian Finance Bhd vTaman Ihsan Jaya Sdn Bhd [2009] 1 CLJ 419; [2008] 5 MLJ 631 case, wherethe court found that, the facility given is far more burdensome in terms ofthe price of the property sold to the customer. This is because thepurchase price ascertained by the bank does not reflect the prevalentmarket value. It is in fact doubled or may be tripled than the amount thatthe customer received out of selling the property (the amount of facilitygiven) or even more than the amount that a customer of conventionalloan has to pay.
20
CONCLUSION
There are many legal and shari’ah issues arise in the BBA as to its
function as mode for financing facility because BBA in the first
instance is not a financing facility, it is a contract of sale. So many
aspects to be examined and studied, from the shari’ah and
Malaysian legal system, prior extending BBA function from a contract
of sale per se into a shari’ah compliance financing facility.
It is suggested that if BBA is to continue its role as a mode of
financing facility, the modus operandi and the standard operating
procedures for the application and management of BBA should be
reviewed by the Islamic banks or the authority so as to ensure that it is
in conformity with the true essence of Shari’ah principles and the
Malaysian legal system as well.
21