Granting Facilities in Islamic Banking (Book): Difference between revisions
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== Exchange Contracts == | == Exchange Contracts == | ||
Exchange contracts (Uqud Mubadala'i) are a category of contracts in which a fixed profit rate can be determined, meaning that in exchange contracts, the bank, in return for paying a financial grant, can deduct a fixed and definitive percentage of its profit regularly from the customer's account. | [[Exchange contracts]] (Uqud Mubadala'i) are a category of contracts in which a fixed profit rate can be determined, meaning that in exchange contracts, the bank, in return for paying a financial grant, can deduct a fixed and definitive percentage of its profit regularly from the customer's account. | ||
=== | === Lease-to-Own Contract === | ||
Based on the author's viewpoint, one of the most important contracts used by banks for granting facilities is the lease-to-own contract (Aqd Ijarah bi-Shart al-Tamlik or Leasing). In this contract, it is stipulated that the lessee becomes the owner of the leased object at the end of the lease period and upon adherence to the provisions of the contract. Although the main goal of this contract is the development of service, agricultural, industrial, and mining activities, banks often apply it in the housing sector. The determination of the rent (Mal al-Ijarah) is also based on the cost price, the bank's expected profit, and the duration of the lease, and the duration of the lease must not exceed the useful life of the leased object (pp. 68-72). | Based on the author's viewpoint, one of the most important contracts used by banks for granting facilities is the [[lease-to-own contract]] (Aqd Ijarah bi-Shart al-Tamlik or Leasing). In this contract, it is stipulated that the lessee becomes the owner of the leased object at the end of the lease period and upon adherence to the provisions of the contract. Although the main goal of this contract is the development of service, agricultural, industrial, and mining activities, banks often apply it in the housing sector. The [[determination of the rent]] (Mal al-Ijarah) is also based on the cost price, the bank's expected profit, and the duration of the lease, and the duration of the lease must not exceed the useful life of the leased object (pp. 68-72). | ||
'''Critique of Banking Lease-to-Own Transactions:''' According to the researcher, there is little inclination among applicants to receive facilities in the form of a lease-to-own contract. The main reason for this reluctance is the imbalance in the bargaining power of the parties; because the bank, as a capitalist institution, tries to gain the most profit with the least risk, while the other party, namely the customer, due to financial inability, is forced to accept the bank's conditions. This situation has caused unfair conditions to be imposed in the contracts (p. 74): | '''Critique of Banking Lease-to-Own Transactions:''' According to the researcher, there is little inclination among applicants to receive facilities in the form of a lease-to-own contract. The main reason for this reluctance is the imbalance in the bargaining power of the parties; because the bank, as a capitalist institution, tries to gain the most profit with the least risk, while the other party, namely the customer, due to financial inability, is forced to accept the bank's conditions. This situation has caused unfair conditions to be imposed in the contracts (p. 74): | ||
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* The determination of the lessee's violation is placed upon the bank, and the lessee has no right to object. | * The determination of the lessee's violation is placed upon the bank, and the lessee has no right to object. | ||
* The responsibility for any loss, without transgression or negligence (Ta'addi wa Tafrit), is upon the lessee, and the bank determines the amount of the loss. | * The responsibility for any loss, without transgression or negligence (Ta'addi wa Tafrit), is upon the lessee, and the bank determines the amount of the loss. | ||
* The right of cancellation (Haqq al-Faskh) is stripped from the lessee and reserved unilaterally for the bank. | * The [[right of cancellation]] (Haqq al-Faskh) is stripped from the lessee and reserved unilaterally for the bank. | ||
* In case of not paying even one installment, the contract is cancelled and the leased object is taken back. | * In case of not paying even one installment, the contract is cancelled and the leased object is taken back. | ||
* All costs of insurance, registration, and the attorney fee (Haqq al-Wikalah) for cancellation are also imposed on the lessee (pp. 75-77). | * All costs of insurance, registration, and the [[attorney fee]] (Haqq al-Wikalah) for cancellation are also imposed on the lessee (pp. 75-77). | ||
==== The Nature of the Lease-to-Own Contract ==== | ==== The Nature of the Lease-to-Own Contract ==== | ||
As quoted by Moghimi'an, one of the most important challenges and criticisms raised regarding the execution of the lease-to-own contract in the banking system is the disagreement over the nature of this contract. Some believe that in the event of a dispute or problem during the execution of the contract, there are no specific rulings and solutions to resolve it. From the perspective of this group, only two clear effects can be identified in this contract: one is the "initial transfer of ownership of the benefit" (Tamlik Ibtida'i Manfa'at) and the other is the "final transfer of ownership of the entity" (Tamlik Naha'i 'Ayn), and its other legal effects are ambiguous and unclear (p. 82). Regarding the nature of this contract, three viewpoints have also been raised. Some consider it merely a lease contract (Aqd al-Ijarah) in which the parties have stipulated that the transfer of ownership of the entity will take place in the future. Another group believes this contract is, in truth, a kind of sale (Bay'), and the lease is merely a cover for paying the transaction price in installments. The third viewpoint considers this contract a kind of independent and specific contract that is not a combination of lease and sale. Nevertheless, Moghimi'an considers the correct view to be that very first assumption and believes the main nature of this contract is a lease (p. 84). | As quoted by Moghimi'an, one of the most important challenges and criticisms raised regarding the execution of the lease-to-own contract in the banking system is the disagreement over the nature of this contract. Some believe that in the event of a dispute or problem during the execution of the contract, there are no specific rulings and solutions to resolve it. From the perspective of this group, only two clear effects can be identified in this contract: one is the "initial transfer of [[ownership of the benefit]]" (Tamlik Ibtida'i Manfa'at) and the other is the "final transfer of ownership of the entity" (Tamlik Naha'i 'Ayn), and its other legal effects are ambiguous and unclear (p. 82). Regarding the nature of this contract, three viewpoints have also been raised. Some consider it merely a lease contract (Aqd al-Ijarah) in which the parties have stipulated that the transfer of ownership of the entity will take place in the future. Another group believes this contract is, in truth, a kind of sale (Bay'), and the lease is merely a cover for paying the transaction price in installments. The third viewpoint considers this contract a kind of independent and specific contract that is not a combination of lease and sale. Nevertheless, Moghimi'an considers the correct view to be that very first assumption and believes the main nature of this contract is a lease (p. 84). | ||
=== | === Reward Contract (Ju'alah) === | ||
Based on the author's findings, reward (Ju'alah) is one of the deep-rooted institutions in Islamic jurisprudence and civil law, by virtue of which the rewarder (Ja'il or employer) commits to paying a specific amount (Ju'l) in exchange for the performance of a specific act. Banks in the usury-free banking system can, in the form of a Ju'alah, provide the necessary economic facilities as the agent (Amil) or, when necessary ('Ind al-Iqtida'), as the rewarder (pp. 85 and 90). Ju'alah, due to its applicability in all economic sectors, can be a complement or alternative to Mudharabah, which is exclusively applied in the field of trade. The breadth of subjects that can be encompassed and the ease of the conditions of this contract have caused some to refer to it as the "Mother of Contracts" (Umm al-'Uqud); because any act that is considered valuable from the perspective of rational people ('Uqala) can be the subject of a Ju'alah contract (p. 85). | Based on the author's findings, [[reward]] (Ju'alah) is one of the deep-rooted institutions in Islamic jurisprudence and civil law, by virtue of which the rewarder (Ja'il or employer) commits to paying a specific amount (Ju'l) in exchange for the performance of a specific act. Banks in the usury-free banking system can, in the form of a Ju'alah, provide the necessary economic facilities as the agent (Amil) or, when necessary ('Ind al-Iqtida'), as the rewarder (pp. 85 and 90). Ju'alah, due to its applicability in all economic sectors, can be a complement or alternative to Mudharabah, which is exclusively applied in the field of trade. The breadth of subjects that can be encompassed and the ease of the conditions of this contract have caused some to refer to it as the "Mother of Contracts" (Umm al-'Uqud); because any act that is considered valuable from the perspective of rational people ('Uqala) can be the subject of a Ju'alah contract (p. 85). | ||
'''Critique of Banking Ju'alah Transactions:''' Relying on the author's discussions, the granting of facilities in the form of Ju'alah by banks faces numerous flaws and shortcomings, some of the most important of which are mentioned in this section. First, the legal relations existing in the Ju'alah contract are very complex and intertwined, such that even for individuals familiar with legal concepts, a correct understanding of these relations is not easily possible; while the general public, who often constitute the applicants for these facilities, lack the necessary awareness to precisely understand these relations. Since the realization of the intention (Qasd) and will (Iradah) of the parties is a condition for the validity of any contract, and this matter depends on being aware of the provisions and subject of the contract, it is clear that in such a complex structure, the realization of the creative intention (Qasd Insha'i) is difficult and, consequently, the possibility of the contract being void (Batil) also exists (p. 95). | '''Critique of Banking Ju'alah Transactions:''' Relying on the author's discussions, the granting of facilities in the form of Ju'alah by banks faces numerous flaws and shortcomings, some of the most important of which are mentioned in this section. First, the legal relations existing in the Ju'alah contract are very complex and intertwined, such that even for individuals familiar with legal concepts, a correct understanding of these relations is not easily possible; while the general public, who often constitute the applicants for these facilities, lack the necessary awareness to precisely understand these relations. Since the realization of the intention (Qasd) and will (Iradah) of the parties is a condition for the validity of any contract, and this matter depends on being aware of the provisions and subject of the contract, it is clear that in such a complex structure, the realization of the [[creative intention]] (Qasd Insha'i) is difficult and, consequently, the possibility of the contract being void (Batil) also exists (p. 95). | ||
Another flaw is that based on jurisprudential and legal rules, the determination of the reward amount is upon the rewarder (employer); but in the current banking system, the bank appears in the position of the agent while at the same time determining the reward amount itself, which is incompatible with the legal structure of Ju'alah (p. 99). Also, the method of banks gaining profit through the difference between two Ju'alah contracts—one in the position of the agent in the primary contract and the other in the position of the rewarder in the secondary contract—is based on the difference in the reward price between these two contracts. This method of gaining profit, from a jurisprudential and ethical perspective, is not considered a proper method for securing banking interests (p. 96). | Another flaw is that based on jurisprudential and legal rules, the determination of the reward amount is upon the rewarder (employer); but in the current banking system, the bank appears in the position of the agent while at the same time determining the reward amount itself, which is incompatible with the legal structure of Ju'alah (p. 99). Also, the method of banks gaining profit through the difference between two Ju'alah contracts—one in the position of the agent in the primary contract and the other in the position of the rewarder in the secondary contract—is based on the difference in the reward price between these two contracts. This method of gaining profit, from a jurisprudential and ethical perspective, is not considered a proper method for securing banking interests (p. 96). | ||
=== | === Installment Sale Contract === | ||
In the author's belief, installment sale | In the author's belief, installment sale is a new phrase for an old transaction, because it is a type of credit sale (Bay' Nasi'ah) where the sold object (Mabi') is sold now and all or a portion of the price (Thaman) is paid later in known installments and over a specified period. It is clear that the price of a credit-sold object is higher than a sold object that is sold in cash; this contract is considered one of the most widely used facilities in the banking facility granting system (pp. 102-106). | ||
'''Critique of Installment Sale Transactions in the Banking System:''' From the perspective of this research, the rate of installment sale (credit) could, due to two characteristics—the profit being known and its being definitive—be introduced as the best alternative to the interest rate. However, determining the installment sale rate in practice based on the interest rate has seriously challenged this optimism (p. 109). According to the executive directive for housing installment sales, banks are obligated to receive an amount as a down payment in cash before the contract, whereas before the contract, an advance receipt will have no relation to a transaction that will be carried out later (p. 110). | '''Critique of Installment Sale Transactions in the Banking System:''' From the perspective of this research, the rate of installment sale (credit) could, due to two characteristics—the profit being known and its being definitive—be introduced as the best alternative to the interest rate. However, determining the installment sale rate in practice based on the interest rate has seriously challenged this optimism (p. 109). According to the executive directive for housing installment sales, banks are obligated to receive an amount as a down payment in cash before the contract, whereas before the contract, an advance receipt will have no relation to a transaction that will be carried out later (p. 110). | ||
=== | === Forward Sale (Bay' Salaf) === | ||
The researcher introduces forward sale (Bay' Salaf or Salam) as the opposite of credit sale (Nasi'ah), and in this regard says, a forward sale is buying a fungible entity (Kulli) with a term, in exchange for a cash price, contrary to credit sale, and the subject of the forward sale transaction consists of the cash advance purchase of products from production units in the industrial, mining, or agricultural sectors (pp. 112 and 114). | The researcher introduces [[forward sale]] (Bay' Salaf or Salam) as the opposite of credit sale (Nasi'ah), and in this regard says, a forward sale is buying a fungible entity (Kulli) with a term, in exchange for a cash price, contrary to credit sale, and the subject of the forward sale transaction consists of the cash advance purchase of products from production units in the industrial, mining, or agricultural sectors (pp. 112 and 114). | ||
'''The Problem with Salaf Transactions in the Banking System:''' Despite the positive effects that the Salaf contract has on the economy and in aiding producers, in practice, banks do not greatly welcome concluding this contract for various reasons. Among these reasons are: paying the entire price of the sold object before receiving the sold object might not be economically viable, the market for the goods might not be in the bank's favor in the future, there is a possibility that the goods are perishable, and banks must pay costs such as warehousing and insurance (p. 117). | '''The Problem with Salaf Transactions in the Banking System:''' Despite the positive effects that the Salaf contract has on the economy and in aiding producers, in practice, banks do not greatly welcome concluding this contract for various reasons. Among these reasons are: paying the entire price of the sold object before receiving the sold object might not be economically viable, the market for the goods might not be in the bank's favor in the future, there is a possibility that the goods are perishable, and banks must pay costs such as warehousing and insurance (p. 117). | ||
=== | === Loan Contract (Aqd al-Qardh) === | ||
According to the author's statements, stipulating a benefit (Naf') in a loan (Qardh) is considered usury (Riba), and the condition of excess, whether mentioned in the contract or stated implicitly within it, is usury and forbidden (Haram), and it makes no difference whether the excess is an entity ('Ayn), a benefit (Manfa'at), or an attribute (Sifah); in any case, it is usury and forbidden. The distinguishing point in this contract is that the capital in a loan is always circulating and, through this contract, is placed in the hands of someone who needs it (pp. 124 and 120). | According to the author's statements, stipulating a benefit (Naf') in a loan (Qardh) is considered usury (Riba), and the condition of excess, whether mentioned in the contract or stated implicitly within it, is usury and forbidden (Haram), and it makes no difference whether the excess is an entity ('Ayn), a benefit (Manfa'at), or an attribute (Sifah); in any case, it is usury and forbidden. The distinguishing point in this contract is that the capital in a loan is always circulating and, through this contract, is placed in the hands of someone who needs it (pp. 124 and 120). | ||
'''Critique of Loan Transactions in the Banking System:''' A considerable volume of the author's material is dedicated to critiquing the performance of banks in granting interest-free loan (Qardh al-Hasanah) facilities. The author believes that in many cases, the service fees received by banks exceed the real cost of the services; while according to the Usury-Free Banking Operations Law, costs must be calculated precisely and separately. Also, despite the determination of a customary fee rate between 2 to 4 percent by the Money and Credit Council, some banks receive up to 26 percent; an issue that some jurists consider an instance of usury (pp. 132 and 133). | '''Critique of Loan Transactions in the Banking System:''' A considerable volume of the author's material is dedicated to critiquing the performance of banks in [[granting interest-free loan]] (Qardh al-Hasanah) facilities. The author believes that in many cases, the service fees received by banks exceed the real cost of the services; while according to the Usury-Free Banking Operations Law, costs must be calculated precisely and separately. Also, despite the determination of a customary fee rate between 2 to 4 percent by the Money and Credit Council, some banks receive up to 26 percent; an issue that some jurists consider an instance of usury (pp. 132 and 133). | ||
The author also criticizes the lack of transparency in announcing the amount of the service fee and writes that in many cases, banks do not announce the exact amount of the fee before concluding the contract. This matter, since there is a possibility of the applicant withdrawing if informed of a high fee, conflicts with the principle of the parties' consent and leads to a contract involving risk/uncertainty (Aqd-e Gharari) (p. 133). Receiving a late payment penalty is also lacking a religious foundation in the author's view; because this penalty is considered a kind of discretionary punishment (Ta'zir), the determination of which is solely at the discretion of the religious ruler (Hakim al-Shar'), and its funds must be allocated to the public treasury (Bayt al-Mal), not deposited into the banks' accounts (p. 133). | The author also criticizes the lack of transparency in announcing the amount of the service fee and writes that in many cases, banks do not announce the exact amount of the fee before concluding the contract. This matter, since there is a possibility of the applicant withdrawing if informed of a high fee, conflicts with the principle of the parties' consent and leads to a [[contract involving risk/uncertainty]] (Aqd-e Gharari) (p. 133). Receiving a late payment penalty is also lacking a religious foundation in the author's view; because this penalty is considered a kind of discretionary punishment (Ta'zir), the determination of which is solely at the discretion of the [[religious ruler]] (Hakim al-Shar'), and its funds must be allocated to the public treasury (Bayt al-Mal), not deposited into the banks' accounts (p. 133). | ||
Subsequently, the author points to other flaws such as the incomplete allocation of interest-free loan resources, the condition of opening an account and blocking a part of the deposit, deceptive advertisements with prizes, and strictness in granting loans to needy strata, and considers them contrary to the spirit of usury-free banking (pp. 131–136). | Subsequently, the author points to other flaws such as the incomplete allocation of interest-free loan resources, the condition of opening an account and blocking a part of the deposit, deceptive advertisements with prizes, and strictness in granting loans to needy strata, and considers them contrary to the spirit of usury-free banking (pp. 131–136). | ||
[[Category:Fatemeh Moghimi'an Books]] | [[Category:Fatemeh Moghimi'an Books]] | ||
[[Category:Books about Bank Facilities]] | [[Category:Books about Bank Facilities]] | ||
[[fa:اعطای تسهیلات در بانکداری اسلامی (کتاب)]] | [[fa:اعطای تسهیلات در بانکداری اسلامی (کتاب)]] | ||
[[Category:Bibliography Articles]] | |||