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. | ||
=== 1. Lease-to-Own Contract === | === 1. 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). | ||
=== 3. Reward Contract (Ju'alah) === | === 3. 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). | ||