Source: http://www.smahate.com/islamic-classes/2012-winter/fiqh-of-islamic-finance
Timestamp: 2019-04-25 11:48:34+00:00

Document:
What are Islamic mortgages all about?
Islamic mortgages are structured through three well known business practices, they are Ijarah, Diminshing Musharakah and Murabahah. The textbook discusses them.
Shaikh is planning to invite local Islamic mortgage company (Ameen Housing) and have them available for a Q&A session after we have understood the foundations of Islamic mortgage.
Goal of this class is to make us an informed consumer. We have a shariah principle that “leave what is doubtful in favor for what is not doubtful”. Even a better position would be to learn more and understand what is going on. And then if you leave it, it is based on sound knowledge, or you might conclude that it is something permissible and if you follow it, then you have a clear mind. Clarity and knowledge is better than confusion and doubt.
Furthermore you might understand that there are some problems with some of the innovative schemes, and you might say that the need for them overrides the small issue that might be there.
We will not pass edicts that this company is haraam and this company is okay. And then you might find some other opinion. The idea here is to give us clear vision of what is going on. We will focus on US companies.
How many Shariah compliant mortgage companies are there in the US. in England?
Islamic Bank of Britain (IBB): they have different program that they offer. One is a fixed rate with up to 80% financing. Initial rate 4.19% and subsequent is 4.49%. They also offer a variable. What is this fixed mortgage? And then they also offer something called “buy-to-let”. First time when Sheikh went to london and he saw these signs, “500sq meter TOLET”. He thought it was toilets. They offer 5.49% rate on Buy-to-let program.
LaRiba: also known as american finance house (la means “the” in spanish, meant as a joke).
There are a lots of critics of Islamic mortgage and they say there are no differences b/w them and conventional mortgage. For them Islamic mortgage is branding and niche marketing. If you can just paint yourself as islamic, you have this captive market that you can tap into. Basically just a matter of tweaking and twisting and playing and looking for loopholes in the shariah.
Mahmud Al-Gamal Professor at Rice University. In the class on Gharar, the second article that was sent was by Mahmud al-Gamal, which we were quick to critique. In a Yahoo group, he quoted Taqi Usmani as saying, “what we are developing now is not fiqh al-mua’malat, rather it is fiqh of hiyal (to circumvent the shariah)”. Hiyal is loophole, tricks to go around shariah. Sheikh doesn’t know if this quote is true from Taqi Usmani. Intention of Shaykh is just to bring this as an example of critique.
The way we’re going to try to understand what’s going on, we’re going to start at the very basis of mortgage industry and what these companies are doing to the mortgage companies as a whole. We’ll also look at some of the fatawas. The whole motive behind this industry is “Can I make enough money and can I make it quick enough” that’s what they’re looking at. They are relying on standard Islamic contracts that existed long time before mortgages and tweaked them to make quick money.
Q: Are their contract completely invalid based on shariah or is there some basis?
They don’t use the murabaha for Islamic mortgages or even a simple payment over time which is one of the basic techniques of purchasing assets/goods in shariah.
To own a house is the American dream. The dream was created by the media in the 50s and 60s. The US govt has actively pursued the policy since the 30s for home ownership. This is what it means to be an American. They are actively pursuing Muslims in particular for home ownership since 9/11 and the amount of investment from government for these schemes has gone higher since then. The idea being that once you own a home, you become more integrated into the society.
The word Mort comes from the word “death”. Mort is from Spanish (and they derived it from Arabic word “Maut”) and gage is from Latin.
In order to finance some of the crusades and fighting between princes, many of the rulers would pledge their lands to a minority group (Jews) who dealt in this business. As Christians for up to last century would not deal with interest.
You get money and you pledge your land. You give your land to the Jews, they’ll use your land and you take off and fight wars etc with that money. The difference between the two is that whether the land is living or dead? In the Vif-gage the produce of the land is going to pay the debt, whereas in the mort-gage land does not pay off the debt. The people keep the land who own the mortgage. If the Christian was involved in this mortgage and the mortgage finished before he died then he can repent, if the mortgage is not finished before he dies then he goes to Hell forever. Then in few centuries materialism and secularism took root in Europe, since then the system developed and people were entangled then even Christians also stopped caring for the revealed law regarding Riba.
When you borrow money for a mortgage from a bank, do you own the house? no, the bank gives you that money and bank trusts you with this. it has restrictions, it is meant for the house. The bank gets a lien in the house. In Colorado, the bank gives you the check in your name but you do not deposit the check. On the back of the check you write “pay to the order of....” and you write the name of the person or company you are buying the house from. Then the bank starts to get the agreed upon installations.
If you are bank, you give million dollars to someone and then you wait for 30 years for return. Is this viable system? What the bank does is to sell this to a bigger bank (like Freddie Mac or Fannie Mae) and get there money. What do they sell it for? They will sell it for less interest rate then the original. (e.g. if the paper is worth $1.7M in payments over 3o year, they may sell it for $1.2M and make quick $200K on their investment) So what will the Freddie Mac or Fannie Mae do? They are going to take a whole bunch of them in one package, and sell it to the people through out the world through a securitization backed by real estate (e.g. they may sell the same paper worth $1.7M for $1.3M and make $100K quick return). The people of the world want securities so they buy such bonds for steady return. So the home ownership based on Riba becomes world wide financial economy. The end result is that there is distance between the one who owns the paper and the real house. In most cases they have no idea about these individual houses in that package as they are relying on the statistics to take care of the individual defaults of these loans. Some people get away during foreclosure when they asked the bank to prove that they own the house!
The bank is now just a front for someone who owns the house, since as soon as the mortgage contract is signed, they sell it to people all over the world. Each time the debt is sold, it is sold at a discount over the stream of payments over time. The extra money over time appears as interest to the end parties.
What about selling debt in Islam?
Let us say I have a debt for $100,000 towards person A. Can I sell this debt to somebody else for $100,000. This is allowed. Can I sell this debt of $100K for $90K? This is not allowed. Transferring debt is allowed but the selling of debt at a discount is not allowed as it falls under Riba al Fadl (see last quarter’s notes).
Considering the overall picture of the mortgage industry, what do you feel?
Every Islamic mortgage company is right there in this picture (as Bank in the diagram above).
A person who used Islamic Mortgage, even before his first payment, it was sold to Wells Fargo and he made his first payment to them.
Ameen Housing does not do what is described in the above picture and we will discuss them later.
Q: For the house buyer, what the bank is doing....does it really matter? Are they responsible for the wrong actions being done by the bank (of Riba al-Fadl)?
A: HSBC Amana got a fatwa that says that one who buys the house has nothing to do with the source of financing whether it is halaal or not. In general if someone buys something from you from money through illegal or haram sources you are not required to investigate. However, if you know that you are getting funding from questionable sources and you know that they are muslims then you should care.
Prophet (saws) did business, buying and selling with the Jews (and they might have had questionable sources of income), but he did not become partner in business with them. But here we are dealing with Muslims and they are doing it on your behalf.
Freddie and Fannie Mac were created for securitizing mortgage debt, which is one way to bring more funds into the market. Fraddie Mac was recently promoting a Minority and Poor Man home ownership program and said we have $100M fund for this purpose as long as someone meets these criteria we will buy his loan.
Q: Does it matter if the Muslim who owns the house and the buyer is getting his money through conventional mortgage?
If the Islamic institution is nothing but a conduit or a middle man between you and the traditional banks, are you still comfortable with them? In general when doing day to day transactions with the store one does not worry about the transaction, since you are just buying stuff from the store even if the store is dealing with other transactions which are haraam since the other transactions of the store is not on your behalf. Here in the case of Islamic banks, they are doing this haraam on your behalf. So here it is not the same as a regular store transaction.
This Islamic Mortgage started back in 1980s in UK by a bank called ‘Barakah’, then came united bank of Kuwait. In the USA first Islamic Mortgage was on a house in Madison-Wisonsin in 1987 by American Finance House now known as La Riba.
The United bank of Kuwait came to the US in 1998 and it closed in 2000. Ameen Housing began in 1998.
The United bank of Kuwait did something very important in the US and England. The office of the comptroller of the currency (OCC) is responsible for the currency markets. After Clinton started the de-regulation of the financial industry and that is where much of the mortgage difficulties started that we see even today.
United bank of Kuwait was able to convince the OCC that Islamic mortgages are consistent with the local law and consistent with the conventional mortgages and got them approved. Once the Islamic mortgage were approved, the payments were scheduled like interest on a regular mortgage and now you are qualified for the tax deductions that arise due to mortgage payments.
How could it map directly to mortgage and not be the same?
“Guidance” used the analogy of potato chips, they could be made with lard or not with lard. Both the potato chips look the same, but one is haraam and the other is halaal.
United bank of Kuwait (UoK) hired lawyers and made Islamic mortgages accepted as a legal financial transaction in the US and England. What they did was good and bad. Good for Islamic Mortgage industry as they paved the way for them. bad in the sense that they are regulated by the same local laws related to mortgages and have to make their contract exactly look like standard mortgages.
A: Even if one or two foreclose, there are many more in the tranche. Sukook (Islamic Bonds) are based on the same principles but they issue it for shorter duration.
Even though the actual interest rate is low, but since the mortgage is for a longer term, the (technical term missing over here) for the complete rate of return is much higher and it is purposely kept higher than the rate of inflation.
Many of these so called Islamic Mortgage Contracts are proprietary, so banks will not give it to you to read on your own. Through indirect means the ones Sh. JZ read, they clearly state an interest rate (of return).
The bottom line is that you can create a fully shariah compliant home buying schemes, but these are not attractive enough for these large institutions, as lot of these co-op schemes remain very small because the transaction rate is very small (<10 homes per year). So now if you want to be part of the “system” then you have to follow the laws of DRE (dept of real estate) and FHA to make your contract look like standard mortgage. Otherwise the government does not care how I buy and sell my house, it is only when you are doing it under a regulated industry then they care.
The quote from Taqi Usmani’s statement that we discussed last time; it is not known to Sh. if that statement can be attributed to Usmani. He could not locate it as quoted by Mahmud al-Gamal. However in another paper (from more reliable source) it is quoted that he said this at a conference in Dubai in 2004. There is even stronger quote from Ibn Uthaymeen on him saying (in meaning) that modern day banking has Riba of deception. The sheikh feels that this quote from ibn Uthaymeen is not true, as he was not able to locate it in his known works on this topic.
We are in the process of understanding how Islamic Mortgages work. So we are discussing the sources of capital for the companies themselves. We discussed Fannie Mae and Freddie Mac. Some students did not know about them, so we will learn more about them.
Federal National Mortgage Association started in 1930 during the great depression. It is a gov’t sponsored enterprise and its goal is to expand the secondary mortgage market. They split up the mortgages into securities and by doing so, they are able to increase the amount of capital that is available in the market. They are publicly traded. Their goal is to make it easier for Americans to buy homes.
Federal Home Mortgage Association. More recent than Fannie Mae, was chartered by Congress in 1970. These both has the same purpose; to buy mortgages on a secondary market, pool them and sell them on a securities market as mortgage-backed securities. Their goal was to arrange for mortgages for minorities and poor people; they are basically the ones who are backing the possibility for these lower income group to get homes.
They have a targeted group. With relation to Islamic Mortgages; in 2001 Freddie Mac made agreement with La Riba to buy their contracts worth $1M. Up to 2011 they have invested about $46M in La Riba. In 2002 the guidance financial was incorporated based on initial commitment of $200M from Freddie Mac.
Why are they interested in Islamic mortgages?
It is due to their focus on minority markets and to “Americanize” the Muslims. For example with respect to Devon Bank, when you apply, they send you two applications to you: one of these is Uniform residential loan application, look at the small print, it is Freddie Mac form 168 and Fannie Mae form 1003. They have to make sure that you qualify for the Fannie Mae or Freddie Mac loan. Because they have to sell it to FNMA and FM.
In general FMAC or FMAE don’t inject capital or give money to these Islamic banks, they commit money. If you find a client that qualifies our criteria we will buy their mortgages. As soon as the Islamic mortgage company completes the process these papers are bought immediately by FMAC. There is a big benefit to this. If these companies are not going to provide capital, then the waiting list to buy houses will be a long one. This additional capital allows these Islamic mortgage companies to go National and increase the volume of their business for the benefit of their share holders.
For example, lets say this class gets together to buy a house and collects $1M, in Santa Clara you may be able to buy one house with this and then we have to wait for the repayment of the mortgage over 30 years before we can reinvest this capital. Freddie Mac and Fannie Mae are selling those securities on the world market and they are bringing capital into the mortgage market.
The banks are out to make money. Bank of America who originated the loan, they might consider it profitable to sell it. Freddie Mac buys this debt which is backed by the mortgage, which has a real asset behind it. before this crash the real asset was worth more than the value of the paper, so there was minimal risk for the investors even when the mortgagee defaults. When you foreclose, they take the property and what ever payments have been made so far. They buy many mortgages and they create a pool of securities. They are a reliable commodity with a fixed stream of income every month. They sell these securities with a promise of certain payments per month.
Islamic sukook work the same way. They have a payment stream that represents real transactions (based on Murabaha contracts) they estimate these payments and package at a constant rate for clients. We will talk about it later.
The mortgage backed securities are sold on the world market and this is how capital is injected into the US Mortgage market.
You find a home for $50,000 and also a Shariah Compliant Islamic Financing that are Innovative (SCISI we made up this acronym, it is not used by anybody, stands for Shariah Compliant Innovative Scheme Inc). They go and buy the home for you. The Shariah compliant Islamic financing gets a piece of paper that represents debt when you sign a contract with them. Let us say this paper is worth $80,000 and you will repay it over one year (for simplicity sake). They sell it to Freddie Mac for $70,000, they have immediately made $20,000. Freddie Mac is going to make money on it by repacking it into a pool and sell it as a security. e.g. they may sell the same paper in parts with a total worth of $75,000, make $5000 instant profit. The end holders of those securities will receive $80,000 in one year by paying $75,000 now.
Freddie Mac is insured through other organizations that in turn have insurance. At some point there will be a perfect storm where the insurer’s insurances won’t be able to pay.
Quote: A system that is meant to collapse. This was in reference to the losses after natural disasters and the insurance companies waiting for payments from re-insurance companies.
If you want to be national you need a lot of capital, one source of capital is gov’t sponsored institutions (FNMA, FMAC) where these Islamic Shariah Compliant get their money. HSBC got a fatwa that the individual has no responsibility with respect to the capital raised by the banking institution. Hence they are marketing to end clients that you should not worry how we raise our capital.
4.) SCISI (innovative Islamic Financing schemes) that have the buyer arrange the loan with a mortgage company (Funny it is not!). This company is called the IjaraLoans.
There is a scholar whose name is Ma’in al Qudah. He gets a letter to ask for fatwa saying there is a new company IjaraLoans they are getting loans from the regular bank and are intermediary ... and the scholar responses that without reading the contract it is hard to determine the status of the loan … the company is a broker and not a financier in the market, the client arranges the loan from the bank.... this loan is haram and is nothing but Riba. The company requires signing the paper with the conventional bank and IjaraLoans at the same time. which means that buyer goes out to find the bank, the one who will fund the loan and then Ijaraloans creates the trust and takes over the transaction.
On the Ijara website (in meaning): “[Our transaction adds the following document to the traditional mortgage document.]” They give the impression that Ma’in al Qudah have approved of this transaction. Shaikh knows Ma’in al Qudah and he is sure that he has not approved their business model. In conclusion buying the house through IjaraLoans is not allowed.
There is one other source of capital and that is internal source. One is called Ansar Financial and another is Ameen Housing Corporation, where their members invest in order to buy a house. There is a long waiting list and you know that their source is halaal for the most part. We will discuss them later.
Our goal is to understand what is happening in Islamic Mortgages. People ask shaikh for fatwa. And as you can see this issue that we are discussing is not easy to analyze even when you get a Islamic Mortgages. But #4 is definitely haraam, most scholars will say #3 is haraam but some might consider it makrooh or permissible. So it depends on your taqwa and how you approach Islamic Mortgage. You should ask for their funding. If they don’t tell you, then it is problematic.
What about #2, is it halaal, haraam, doubtful, makrooh?
Most of the class voted Haraam (Sh. Jamaal does not feel comfortable and considers it Haraam). Sometimes a Mufti (even though he does not like it himself) may think that for “ease of the Ummah” may give Fatwa calling it permissible. He may say that even though this is makrooh or doubtful but I don’t see a solution for people living in the west to own houses, so he may say it is ok. (word of caution, you should not blast a mufti the minute you hear something that you think seems to be too lax, as they are under a lot of pressure when making these ruling) But people, the moment they hear this, consider it to be a freedom to go and involve in it without figuring out what was involved in giving the Fatwa. Fatwa is a big responsibility and one needs to be careful in both giving it and reading it. You don’t want someone to do something haram on your behalf and also make money off of it. A bank in USA is not allowed to own a property except in foreclosure.
So far we have not even discussed the various innovative schemes at the front end. We are simply discussing their source of capitals and it has made us unsure. So what will happen when we discuss their schemes. It will become more murky.
On Feb 26th, Br Humayan Suhail will be here as guest speaker. He is from Ameen Housing.
Question from Student: Is it permissible to rent from someone who is paying a conventional mortgage on that house that I am renting, if you consider (La riba type) Islamic Mortgages are Haram then how about the above case.
Answer: In one case (i.e. buying the house) the loan/mortgage(or source of money) is on your behalf. In the case of renting he is not paying mortgage on your behalf. So this is the basic difference between two cases. Second, necessity to have residence (in the form of rent) is greater than the need to buy.
Q: why the credit for credit sale is haram?
A: There is ijmah that buying credit for credit is haram. There is a hadith that covers this topic, however, the hadith has some weakness to it. On the other hand the hadith of Riba al-fadl covers this case also. Riba al-fadl dictates that the gold for gold (money for money) transaction has to be spot and equal amounts. The credit for credit sale violates both conditions. Loaning someone money is not a spot transaction, however, loan is considered a brotherly act and is not under the laws of bai’ (sale transactions). Selling credit for credit is a bai’, so it has to be a spot transaction in equal amount. There is no harm in transfer of the credit for the same amount.
There are basically 3 ways that these SCISI companies arrange to sell homes to you.
Conventional Mortgage (the non-Islamic way): You loan the money based on a promise that you are going to take the money and buy a house with it. It is more than a lien, they will have a mortgage on your property. Which means that they have the right to foreclosure in case of default. If they foreclose, the bank completely own the whole house and all the equity is lost. Depending on the kind of loan that you have, if after selling the house they still have some money then they can go after you to get the remaining money.
In standard mortgage you pay a fixed payment (there are other variations such as ARM) the portion of that payment is for interest and a portion pays the principal. Each month the amount of Interest drops and the amount of principle increases (amortization). Most mortgages allow a balloon payment, e.g. if you have 30 year mortgage and after 10 years you win a lottery then you can payoff the remaining principal in one payment (without incurring additional interest on the left over balance).
1) Murabaha: over time of 30 year loan, you’ll be paying fixed amount every month. Technically speaking, that fixed amount should be x amount in 30 years by 12 months. In reality they work it out such that the original payment covers part of principal and +plus components. In a typical conventional mortgage, when you pay your monthly payment, portion of that is going to go towards your principal. Principal is how much money the bank lent you to buy the house. Each month some part of that goes towards the principal and then you have the interest terms. In cost plus sale, is that you going to tell them I’m going to buy the house from you, they will say it is cost of house + some markup. So for a 30 year loan, your monthly payment should be able to figure out based on total cost. They’re not going to do that, the way they do it, part of it is princpal and part of it is cost+. They’ll have a mortgage exactly as the bank. There’s a reason for that. In murabaha, in Islamic situation, when someone declares bankruptcy in a pure Islamic state. And you pay for the house in 1 year, $1k dinar a month. After 6 months you can not afford to pay. In Islamic state, the judge can force you to sell that house, so I (bank) can get the balance of what you owe me. Not so I (bank) can get the house, keep the cost of the house and keep what you pay me. In Islamic case, you don’t lose your equity (what you’ve already paid), why should you lose what you’ve already paid? that’s the difference b/w mortgage and Islamic system. In pure islamic murabaha, you get to keep your equity. But in SCISI, it’s something else we’ll see.
2) In the case of Ijara, rent to own.The one who’s buying the house, makes a payment of 2 things, a payment towards the principal as well as the Fair Market rent of the property. As you pay, you begin to own more and more of the house. So if you are paying fixed monthly payment, in later year more goes toward your principal and less for the rent.
3) Diminishing Musharaka: Diminishing partnership, you form a corporate partnership with the entity that owns the property. And then overtime you buy out the shares of the other partners. Buying out the shares of the other partner, usually the way they do it, they include profit payment or admin fee.
Typically the way they work out in terms of numbers. You buy a house for $150k let’s say. You put 20% down payment ($30k). Basically what you’re borrowing, is $120k. If it is a mortgage, and interest rate is 5%, 15 year-term. In the case of Ijara, rent is $1000. In the case of diminishing musharaka, profit rate is 5%. Total amount you pay at the end of 15 years (amount above what you’re borrowing). Conventional mortgage would be around ~$50k extra just to pay the interest over 15 year period. Anytime you’ve a mortgage loan, unless you’ve a real big payment, over a period of time you’re going to owe more.
Standard way murabaha is done (cost plus of 5%), similar to mortgage interest rate, over time you’ll be paying them, ~$50k as well. In diminishing musharaka, with profit rate of 5, you’ll end up paying ~$50k. In the case of ijara, ~$86k.
Bay’ al-Murabaha. Also known as Bay’ al-amanah (bay’ of trust). Rabh means profit. What they mean by Bay’ al-murabaha is I’m buying from you and giving a profit. Bay’ al-amanah is sale of Trust. Idea and how it originally started is much different now. It was approved by some of the scholars, however, Imam Ahmed himself and some of the malikis still dislike it. It was for someone who does not know the market conditions, you don’t know what is a good price to pay for something, you go to the salesman and you tell him, look I know you spend money to buy all this stuff, I’m willing to buy it from you for what you pay for + an agreed profit. That’s why the word amanah, because there’s trust and requires salesman to be honest and tell you what he paid for. That’s why Imam Ahmed didn’t prefer bay’ al-amanah, he said you don’t have to force him to tell you his cost you can just tell a price (and not worry about the honesty factor).
1. The cost has to be known upfront.
2. The first purchase has to be complete and valid.
3. It was always a spot transaction (originally), how much did you pay for it, I’ll pay you that + 5%.
By the time of Imam Shafi, two things begin to develop now. One is, the eventual buyer tells the supplier, I want such and such, if you buy it, I’ll pay you, cost +. (Murabaha with an order to buy). In the original murabaha, the guy owned the computers before he could sell it. With the modified murabaha Jalal comes to me and says, If you go and buy 20 computers, I’ll pay you the cost of 20 computers + 5%. This is called Murabaha on order. You cannot sell what you don’t own. Those fungibles crops etc, you can make salam otherwise generally you cannot sell what you don’t own. So the above is not a concluded contract. The other thing that they introduced, I sell you the computer and you pay me over time (no more spot transaction). Introduced a new concept (pay over time).
Now put all together, I don’t have the items, he comes and pays +5% and will be paying over time.
In this modified murabaha you go and tell SCSI I want to buy this house, they will buy the house with your promise that you will buy from them at cost+markup. If certain conditions are met, it can and should be ok. Before we get to those conditions, we’ll see how SCISI actually operates this murabaha and got it approved by the US govt.
Letter comes from, SCISI company A. Original letter is coming from a Muslim SCISI company who wants their Murabaha scheme approved by the comptroller of the currency of the national bank. First thing to notice, this scisi company is identifying itself as a bank. Now Ameen housing, we’re not talking about them. They write a letter to the Comptroller General/cash comptroller of National Banks to have their scheme approved. What you get in return is an interpretive letter, and then tell you why it’s acceptable or not. This letter they sent is a BEAUTIFUL description of how it is done. This letter is for murabaha (sheikh will send out a copy).
Customer will identify the property. They enter in a purchase agreement with the seller of the house and a murabaha contract with their customer at the same time. As soon as they buy the house, they sell it to Muslim customer. That is because, banks are not allowed to own a property in US. Even in Saudia (ar-rajhi), Saudi govt based on international banking treaties and agreement, told them, you’ve to be either a bank or investment house. In all cases, the customer will not pay less than 25% of down payment and balance over time. SCSI will not close the purchase of the house unless the customer has already paid 25% down. The relationship b/w them and the muslim that’s buying, is going to be pure mortgage relationship. That’s why they’re requiring people to pay for the insurance. They’re saying, they will take no risk whatsoever other than the risk of default. Basically, not taking any risk at all. Basically, they’ll never purchase the property. Mo Money!
Regarding Letter from the comptroller: interesting, these SCISI companies are begging the government to recognize the fact it’s nothing different from finance/mortgage and on the other hand they’re showing themselves to their customers to be fully shariah compliant.
Statement from ibn Qayyim on contracts as a whole: “The issue is not with respect to the name, what we call the contract, or the shape that the contract takes. But the issue is with respect to it’s reality, it’s goals and it’s substance”. What he means by that, you could arrange different kinds of contract and each one in itself maybe looks good by itself. But when you’re putting it all together, it all comes clearly that you’re trying to get around the prohibition of riba.
Murabaha as a means of financing can be done in a permissible way. We’ll talk about those conditions and compare and contrast two of the statements about legal standings and requirements about murabaha. Let’s first discuss the process that they do b/w the company and the one who buys.
1. first they have you go out and choose the house you want to buy.
2. Once you have chosen, the next step that they (SCISI) do is, they do not go and buy the house (you’d think that’s what they would), make you sign a binding promise that you’re going to buy that house from them. They don’t own the house. The shariah does not permit them to sell something that they don’t own. What they do instead is they make you sign a promise, agreement that you’re going to buy a house from them.
3. Many of these companies, maybe not all, in addition, the next step they do they’re not going to buy the house again, they’ll make sure they get deposit money from you. They’ve binding promise and the deposit from you now. Before they buy the house, they give you the form that Fannie/Freddie will buy for them (this probably takes place before the first step above).
4. Now they buy the house, as you can see in the letter to comptroller, as soon as they buy the house, they sell it to you. As instantaneous as possible.
Why are they want to sell the house to you at the same time they buy the house? #1) they want to be a bank. So they have to comply with the regulations of being a bank. That right there should be a red-flag. They’re banks and banks aren’t allowed to own property. What do banks do? Banks lend money. And what do they want back? they want Mo Money. Sounds like riba. #2) they don’t want to own the property. NO RISK. Avoid any risk. Is it prudent for investor to avoid risk? in general, yes. Is it allowed in shariah to completely avoid risk and still get a profit? No risk, no reward. This is a fiqh Qaidah. For you to get profit, you need to have risk. They’re avoiding any risk. And when you avoid risk, you can fix the rate of return. The reason they want to be a bank, to take advantage of being a bank (scale, funding liquidity).
Lets start with this binding promise that they make you make. One of the very important aspect in all of these schemes today is this aspect of binding promise. It is used in murabaha, ijarah, it is used in diminishing musharaka. This question of whether or not that promise you make is binding on you, is a big issue to all Islamic financing schemes. It goes back to a well-known question in fiqh, is a promise (w’ad) legally binding.
BTW, in US law, is a promise legally binding? In legal terms in US, a promise has 2 meanings. One is the promise to do something (not legally binding), the other is a promise to effect a contract (this latter case is legally binding). Another question is if we say a promise is legally binding, is a promise morally binding? What’s the difference between the two? If it is morally binding and you don’t do it, you’re committing a sin, but no one can take you to court and sue you. If something is legally binding (which implies morally binding as well), you can be taken to court to fulfill it and also incur a sin.
There is a difference of opinion whether it (i.e. Is the promise is morally binding) is Wajib or Mustahab or lesser. Let’s say the promise is morally binding, and now SCISI wants you to fulfill the promise. So one should try to fulfill it but if it is beyond your capabilities then you are not responsible. The most of the boards of these banks which support Murabaha make this concession and they say that the promise is legally binding. Lets say i find a house, I go to SCISI and i say give me $100k and then i will pay you more. Scisi cannot sell the house to me since they do not own it. So Scisi locks you up into the house, so now you have to buy it from Scisi. To Scisi house means nothing to them, but they just want to make more money from you on the $100k. With this binding promise, the house is just a place holder, they are just loaning you money to make more money. The promise and the contract to buy the house has been separated here to avoid the issue of two contracts in one.
Bai’ Al-Eenna is Haram: Say A buys a bag of rice for $100 from B. Then A sells it to B for $120 overtime without anything happening to the bag of rice (the bag not even moving from its place). This is Al-Eenna, i.e. a transaction which leads to Riba. Al Eenna is a mechanism used to avoid the appearance of riba, but it ends in Riba. Majority of scholars consider Al Eenna to be haram, if there is prearragement for this transaction then there is no doubt that it is absolutely haram.
Promise is supposed to be: “Showing the intention to do some good for someone else.” It has nothing to do with business transactions. This is the point Bakr abu Zaid made at OIC that this is not a place for promises. In Majma al Fiqhi (which is much respected org) they bring a lots of Shuyukh from all over the world and they debate the issue and then conclude with a resolution.
1. The promise has to be one sided i.e. there is no offer and acceptance.
2. The promise must have caused the promisee to incur a liability. Example based on Maliki fiqh: A promises B to assist for his marriage. B starts with the marriage arrangement and incurs a debt of $1,000. Then A should help B with the incurred cost based on his promise. Sheikh’s feeling: they are taking a personal rule and applying it to business.
3. If the promise is to purchase something, then the actual transaction has to take place at the promised time and that is where the contract takes place. The promise is not binding in of itself as a contract, the contract is only that which takes place on the day promised.
4. If the promisor backs out of the promise; the court may force him to either fulfill the promise or pay the damages to the promisee. Damages are to be actual liabilities only and not opportunity costs.
Because of this conclusion, you get banks that are in a position to show us that what they do is Halal. But this has many issues.
2. Dr Yusuf Al-Shubaily -- spent years in the USA.
3. Dr Abdulaziz Al-Fawzaan -- spent years in the USA.
4. Muhammad b. Saud Al-Usaimi -- spent years in the USA.
Shaikh spent about 10 years with with Dr Al-Usaimi. He used to work for Al-Rajhi Bank. Then these people tried to form Bank Al-Bilaad. Their goal was to clean up the industry and create a true Islamic alternative. However, due to the non-Islamic bank’s Islamic windows wiping out the competition, there has been a lot of pressure on this company to change its operations.
- It is not permissible for the contract to involve either one-sided or two-sided promises.
- It is not permissible for the bank to have a binding contract from the buyer that the buyer will buy the item from them.
- It is permissible for the bank to make a partnership with the buyer and then bank can sell its part to the buyer over time.
- It is not permissible for the bank to buy the item from the buyer and then sell it back to the buyer over time (al-Einaa as discussed earlier).
- the bank is not allowed to sell anything based on Murabaha before they own it (taking the possession of the item in both real and legal terms), they cannot sign a contract of Murabaha with the buyer before their contract of buying the house is done and they have taken the possession of it.
There are 47 points that they came up with. The above are just a few selected ones that we mentioned.
The bank of Al Bilaad’s criteria was in contradiction to the Bank al Rajhi’s criteria because they were trying to do something “more” Islamic. They were “younger” sheikhs. But it didn’t have as big an impact such as AAOIFI.
- The customer’s wish to purchase an item does not constitute a promise, it is not binding until duly signs any document.
- It is acceptable for the customer to prepare a single set of documentation that includes both his wish to purchase the item and the contract of the sale.
- It is permitted for the institution for the party who has a blood relationship or a marital relationship to sell the item provided this is not for the purposes of A‘inah.
- It is not permissible to have a Murabaha contract for gold and silver where the payment is over time.
- It is not acceptable to have a two-way promise in a way that is binding.
- If the institution has other opportunities to sell the item, the promise not required.
- A bilateral promise is only acceptable if cancellation is an option.
- It is permissible for both the institution or the customer after the purchase but before the execution they can change the terms of the contract.
- It is permissible for the institution in the case of a binding promise by the customer to take a sum of money as a security deposit. This is to be paid by the customer as evidence of financial capability and to cover any damages that may be incurred.
- In case of a breach by the customer, it is not allowed to keep the deposit, but only extract the damages incurred by the bank.
Shaikh is going to read from the email of al-Usaimee. Shaikh is reminding us that we are discussing the conditions of Murabaha contract of Bank al Bilaad written by M. Al-Usaimee and Sh. Ammar And in response to those conditions, Shaikh al Usaimee wrote about it.
As a result, he is no longer in this field and now he is back to teaching.
people do not really know what’s going on behind the scenes and what these organizations are really doing. E.g. the letter to the comptroller that explains what they are doing -- they are not hiding it, but they are not putting it up front. So the people are duped into thinking that the deals are Islamic.
Until the Muslim masses as a whole start demanding only things which are halaal according to the shariah, they are willing to hold their money or take some loss as well, there will always people who want to exploit this. Until the Muslim ummah gets to that point the supply will exist for the shady products. The main reason behind this is that lot of people want to make money no matter what it takes. Even the non Muslim banks are more than happy to offer Islamic windows, because they know that what they are offering is different and there is a market for it. We should even consider getting rid of this term “shariah compliant” as it is grossly misused and in some cases is used just as a marketing line.
So until people are willing to say I don’t care how much money I have to give up/sacrifice, I will do whatever it takes to get a truly halal option. Q: Isn’t knowledge issue and supply and demand issue are related? A: They are in some sense, but in the former case there are lot of people who are duped and this can be solved by having knowledge and for the latter case there are lot of people who wants to make money.
Shaikh is inquiring whether any of us visited the AAOIFI website http://www.aaoifi.com/aaoifi/.
We are discussing the murabaha contracts. And the criteria of AAOIFI is different from that of Bank Al-Bilaad.
- And they can use that security deposit to cover any actual damage as the result of breach of contract by one who is promised.
- They do say the for acquisition of Assets, the institution must purchase the asset before selling it.
- The SCISI is supposed to buy the item from Original supplier.
- They say that it is obligatory to separate the liability of customer and liability of institution (i.e. SCISI).
- There must be some time between when they buy the item from the original supplier and when they sell it to their customer. i.e. the two transactions should not be back to back.
Q: Does shariah puts any limits on the time between these two transactions for the murabaha to be valid?
A: Shariah does not specify any time limit. What is needed is some exposure to risk to claim that return on your investment is halal.
When the AAOIFI make a resolution, they do give the details of the meetings they had, and they also give you an appendix at the back which covers the basis of their Shari’ah rulings.
1. Why Murabahah in itself is legitimate.
2. Then they talk about promise. AAOIFI does not discuss in its paper the reason or basis for why the promise is binding.
3. Item cannot be bought from a relative, they give the reasons that no gold, silver or currency can be traded under this contract.
4. Original promise has to be from the original buyer (customer) to the institution. The promise has to be one sided only. They do not discuss the basis of making this promise binding.
5. The basis of the security deposit is given that it is a form of guarantee to cover the damages that may occur. This is really not a shariah basis for their decision!
The reason Bank al Bilaad do not think it is appropriate to take a deposit because of the principle that a person should not sell something that they do not own.
6. The basis for not selling the commodity before owning is the hadith “you cannot sell what you do not own”.
These are major points of difference. The bottom line is that Murabahah is an acceptable transaction in of itself even on-demand murabaha and payment over time have been accepted by the scholars. Most of these issues are not problematic, but when you start adding other things to it, it becomes nothing more than finance (with a return) instead of trade. When it becomes finance with a return, then it is nothing but Riba.
It is very easy to fix these murabaha contract to make them halal, the main reason these SCISI are doing it in US is that these institutions want to act as bank. Hence all of the restrictions come with being a bank, the main one being that they are not an investment house anymore and cannot own a real property in their books.
Q: Is AAOIFI considered Ijma?
A: No! There are many scholars who disagree. Even in the majma’ al fiqhi, they publish the articles and they also publish the discussion and then they have the resolution at the end. They are human beings and are also what you might call establishment scholars -- if you work for an organization or you are paid by an organization or government, sometimes you are not really that free. In addition some scholars have more weight than others. Sometimes, there are many objections etc and you don’t understand how you got to a particular conclusion.
Sh was part of one of these majma’s and it wasn’t that transparent. Some people noted their objections but they aren’t captured (the opposite of US Supreme Court opinions where each opinion is represented in written form).
Ijma’ is a BIG thing, if we have Ijma (a true consensus in the ummah), then that means it’s binding. Also according to shariah principles the ijmaa’ cannot contradict a definitive text of the Quran.
Your level of knowledge is going to determine what your level of accepting a fatwa. Even people who are on committees don’t always agree with these orgs ijtihaad. There’s a big difference between disagreeing with someone’s ijtihaad and something that disagrees with the Qur’an and Sunnah.
One of the sheikh’s biggest issues is that they are not presenting it honestly. They present it as a “Shariah compliant” and they know that it’s not really so (e.g. in the comptroller letters).
Why won’t halal Murabaha happen in the USA? Because they are banks, not investment companies. And that’s how they got it approved. The reason they are banks is because they want Freddie Mac and Fannie Mae’s money.
Sometimes the people who own these companies are not even Muslims.
Leasing can also be a form of financing -- big companies engage in leasing, for example when purchasing capital equipment or other assets. Why? Because they do not need cash up front. And other side benefits eg. tax.
Ijarah in the Arabic comes from the root AJR (اجر), which means wages, compensation, consideration, value, hiring, renting. Ijara is like a lease, or also like “ If I hire you for an hour” It also means compensation, consideration(I give to you in consideration to what you give to me).
In contract theory, Ijarah means hiring or renting an asset or commodity for its usufruct. Ijara itself is definitely permissible according to Quran and Sunnah and has a number of conditions to it though.
Original Ijara contract is for rent only and we will introduce something called as rent-to-own (Ijaara Muntahia Bi-Tamleek) .
e.g. You can sign a rental contract for 3 years lease term with 1st year amount $1000 and 2nd year $1200 and 3rd year $1500 but the amounts of change are agreed upon at the time of the contract itself.
When you lease something do you end up owning that? No, However a common lease for Cars - where you have lease with the option to buy at the end of the contract.
e,g, in a car lease let us say the value of the car is $10000, they treat it like they want to lend you $10000, and they want to get a return on it. The payment is like principal + Interest.
Therefore at the end of the lease period they will have recovered the cost and that is the reason why they are ready to sell you at the end of the contract.
It also depends on the equipment as well, e.g. for a very heavy industrial equipment for longer lease, 10 years, they have already recovered all of their cost and can easily offer the lessee to get the equipment for free at the end of lease period.
This is the reason why car lease or lease like car lease is considered as finance - like a loan.
Is all interest haram? Yes - What about implicit interest, is it haram? No, according to Majority. See the case of $10K car we discuss below. The implicit interest here is not in the meaning of Riba, hence it is not considered haram.
Let us say we have a $10000 car for sale and the buyer does not have $10000 and offers to buy it and pay it overtime, and the seller says you can buy it from me but it will cost you. Let us say $12000. Is this Halal? Yes, this is the majority opinion. The minority opinion is that it is haram, as they are concerned about even the implicit riba. However, the majority opinion is correct as there is no other evidence to show otherwise. Shariah accepts the time value of money. However shariah puts conditions on this kind of sale with payment over time. e.g. the seller cannot say that it is $10000 now or $12000 in one year. Each contract option is treated independently. e.g. he offered his car for $10K and the buyer says I don’t have the money and cannot pay cash, the offer of $10K is gone, now we sign a new contract which says $12K for fixed amount of one year. Obviously in this transaction there is implicit interest which the seller computes based on the opportunity cost of not having $10000 in his posession now.
Q: is it allowed to take into account interest while computing the payment for Ijarah.
A: The lessor is allowed to take into consideration various factors while computing the payment, he can calculate what is the normal rent of something based on wear and tear of that asset, he can also take into consideration the lost opportunity cost of the underlying capital of the asset. In most cases he may look at the going interest rate in the market to arrive at the additional amount on top of base rent. So all this calculation is permitted to arrive at the total payment amount which is offered to the lessee who has the option to either take the lease or walk away.
For buying vs. leasing the important distinction is the change of ownership, if I sell you something and the tornado hits next day and wipes it away next day you loose, if I lease you something and the tornado hits the next day I loose. This is an important distinction between these two contracts and we will come back to it later. Bottom line is that in the lease contract, the maintenance, upkeep and damages are my responsibility unless the damages is caused by lessee in which case he has to take care of thees damages.
In the lease contract we have to avoid Gharar and Jahala.
Shaikh had sent out a handout on the Murabaha contract as used by AAOIFI. This was to give us an idea of the contract and what is required to stipulate haraam or halaal and to make the contract legally binding etc. You have to see and go through the contract as there are many things a contract has to meet to be called shariah compliant. Until you actually receive the contract, you won’t be able to understand what is involved. Next week Ameen Housing will be here so please be prepared with your questions.
What are the key factors to know about lease contracts terms? Terms of the contract, who owns the item being leased, who is responsible for the maintaining the item being leased, etc. Very simple and straight forward, no objections from scholars on the plain ijarah contrats.
Rent-to-own: Leasing is one thing and selling is something else. How are you going to combine the two in one contract.
On the authority of Abu Hurairah it is recorded by Ahmad, Abu Dawood, al-Tirmidhi, al-Nasaaee.
On the authority of ibn Umar, it has also been recorded by Ahmad and others.
On the authority of Abdullah ibn Amr ibn al-As, it has been recorded by Ahmad.
Al-Albaani has described it as hasan sahih.
The reason the two transactions are prohibited in one contract is that it is easiest way of getting around the riba. Since renting and selling cannot be combined in one contract, it is introduced as an option.
3) They sell it to you at the amount they paid for it.
The amount you pay at the end of the contract will be exactly the same in all three scenarios.
Is that stipulation in the contract binding, saying that they will give it to you as a gift? A gift is just a promise, it is not legally binding stipulation. Would you believe when they say that at the end of the lease, we will give it to you as a gift, out of the goodness of our heart?
In case of (1) and (2) above, this payment is made up of rent and interest/amortization payments. The residual is how much they did not get out of you. In reality this is nothing but a form of financing, they look at the residual value and decide on how much they should charge you each month to get back their principal and interest for the period.
In case of (3), payment is composed of rent and a payment into a trust fund. You are required by lease contract to make your payment to a trust fund. Part of the money is in the trust fund. Legally they cannot touch the trust fund. But many of the innovative schemes, take the trust fund and invest it into money market and they are making interest on the money that you have deposited. At the end of the lease, the amount in the trust fund happens to be the price of the property they paid for and at the end of the lease, they transfer the money legally over to themselves.
If you signed a lease for 20 years, does the rent have to be predetermined? What happens if the rent is not pre-determined?
Mohammed Ayub describes it in the text book (p. 284), in order to eliminate gharaar or jahala for both parties in rent to own contract, the scholars say that the payment should be subject to ceiling or ....... So they are saying that the rent can fluctuate but must be capped during the lease term upon signing to avoid gharar and jahalah for the buyer and SCISI.
Mortgage is lending of money for money with property for security. So if house is destroyed then you lose the house, while the loan stays on your shoulders.
Lease means house is not your property, if house is destroyed then the lease comes to an end gracefully.
The rent-to-own is the most problematic contract from Shariah perspective. More on this in coming lectures.
Shaikh Jamaal read the comptroller’s report addressed to UBK (United Bank of Kuwait) regarding their lease to own contracts while they were operating in the US. The letter is addressed to Steven T. Thomas (aka Steven Abdul Qadir Thomas) he was the GM of UBK. UBK does not have any branches or operations in the US, but their report is still being used by many of the innovative schemes. The report basically shows to the US government that their net lease is nothing more than a ordinary financial lending transaction as practiced in the US, it shows that the underlying principle is for lending money to buy equipment or property with various stipulations. And the bank does not own the equipment or property, the person leasing it is responsible for upkeep, taxes etc.
The banking industry in US is different than the investment institutions. In Clinton’s time they started financial deregulation that led to this mortgage bubble. During this deregulation they allowed banks to expand to multiple states. However to control their expansion the banks were required to separate and distinct from the investment houses so that they should not control both sides of the transaction, lending money as well selling houses from their inventory at the same time. So the problem with all these SCISI schemes is that they are trying to be bank and hence they have to resort to these innovative schemes.
Q: Can you explain how there are two business transactions in rent to own leases?
A: One contract is for leasing equipment or property and the other contract is to buy the equipment or property with gradual payments over the lifetime of the lease and the decreasing of residual value.
Ulemah look down upon Ijaarah much more than they do for murabaha. Sheikh believes that none of shariah boards may think that these are 100% halal, because of the need or necessity they are willing to compromise on something.
It is very importanat to understand the law of necessity in shariah and highlight the difference between need and necessity. Scholars are agreed that you cannot take advantage of haram lidhatihi (haram in of itself) in case of need, e.g. you cannot resort to zina in case of need. Uncovering Awrah is not haram in of itself, but it is haram lighairihi due to the fact that it can lead to zina which is haram lidhatihi. So in case of need, e.g. to see a doctor you can uncover your awrah. So the thinking of some of these scholars on the shariah boards is that these borderline things such as two contracts in one are not haram in of itself, but lead to haram (riba) so these can be justified based on need also and not only necessity. (principle: Haram lighairihi can be resorted to in case of need, but haram lidhatihi can only resorted to in case of necessity).
However, another point related to this discussion is that whether owning a house can ever be called even a need? For most people it is simply a “want/desire” which is much lower than need. The people who claim that they cannot rent house because of credit has a weak argument as they would not even qualify for buying the house. In some cases they can get relief through SCISI taking advantage of special financing programs from Freddie Mac for underprieveleged classes. The people who even qualify to call owning a house a need is very small portion of the population (bigger family). Sheikh mentioned about his older brother and sister who are non-Muslims, but they don’t even want to own the house and are happy in renting as it is less headache.
Q: Why are the ulemas on the boards of various innovate schemes trying to deceive people into believing that they are offering valid Islamic compliant contracts?
A: Shaikh Jamaal was very upset at this question, he cautioned not to jump to conclusions and to say that they are practicing deception. Even though he disagrees with them, you should not say that they are causing deception. This is a very strong term. Just like the Modernism movement in Islam that is trying to reform Islam in the 21st century, this modernism movement is sometime driven by good intended people who are hugely misguided. They are thinking like the Christianity had a lot of human involvement, the same applies to Quran and Sunnah and we can adjust them as well. Similarly with these innovative Islamic schemes, they are trying to bring financial schemes which they think are for the betterment of Muslims.
HSBC dropped their Ijaarah scheme because of complaints about too many issues with Ijaarah, so Ijaarah (rent-to-own) should be avoided.
A: Murabaha if practiced properly could be completely legal transaction but not as it is practiced by banks. If they own the house and sell it to you at their cost plus profit it would be completely halal transaction. The problem is that they do not own the house and they have to combine two contracts in one.
Even when you want to buy foreclosed homes from a conventional bank, you can approach them to hava a murabah like contract, but they will not sell it to you like that for couple of reasons. First of all they are banks, and they are much happy in financing and lending than selling, even when they own the foreclosed house, they will arrange a mortgage loan for you so that they can resell the mortgage to Freddie Mac. They don’t want to be a seller to wait for 30 years to get their return on investment.
The major problem with rent to own leases is that the banks do not own the equipment or property being leased, they do not share any of the risks, basically they are trying to lend money in order for you to gradually make payments and at the end of the lease you can buy the equipment by either having paid all of the cost or pay the residual cost at the end of the lease. So the problem is mixing of lease and a promise to buy the equipment or property at the end of the lease. These two contracts are signed at the same time, you first promise to make payments and then the innovative schemes promise to hand over complete ownership at the end of the lease, using one of the three options discussed earlier, either as a gift, or as payments made to the bank or payments made to a trust fund.
Email from Shaikh Jamaal Zarabozo about the hadith that prohibits combining two business transactions into one.
to the General Manager of the United Bank of Kuwait in response to a request from the General Manager to the Comptroller for their opinion on the permissibility of offering residential Net Lease home finance products.
This responds to your letter and subsequent telephone discussions requesting our opinion regarding whether the National Bank Act permits The United Bank of Kuwait PLC (“UBK” or “Branch”), a Federal branch located in New York, New York, to offer a residential Net Lease home finance product as part of the business of banking, pursuant to 12 U.S.C. § 24(Seventh) and 12 U.S.C. § 371.
The Branch currently has an active mortgage lending business and wishes to have the flexibility to offer Net Leases to meet the special needs of its customers who adhere to the principles of Islam. The religious prescriptions of Islam or other faiths prohibit home purchasers from borrowing money where the lender charges interest and, therefore, effectively prohibit such individuals from purchasing homes by executing standard mortgages. The Branch proposes an alternative arrangement to help Islamic customers purchase residential real estate. The Branch will finance the home purchase contingent upon the Branch and the customer executing a Net Lease and Purchase Agreement. UBK argues that the economic substance of the Net Lease will be functionally equivalent to secured real estate lending. UBK further represents that its proposal satisfies accounting requirements so that the Net Lease will be characterized as financing rather than leasing. UBK anticipates that the Internal Revenue Service (“IRS”) will treat its proposal as financing rather than leasing. As discussed below, we conclude that UBK may conduct the activity based upon the facts and circumstances described herein.
UBK will structure the residential home financing arrangement as follows. The Lessee will contract with the Seller to buy a single family residence and will tender a down payment toward such purchase. Before funding the remainder of the purchase price, UBK and the Lessee will simultaneously enter into a Net Lease Agreement and a Purchase Agreement (collectively “the Agreements”). The Lessee will accept the property “as is” and UBK, as lessor, will make no representations or warranties regarding the property or its suitability. Then, UBK will supply the remainder of the funds to purchase the property from the Seller under the sales contract. UBK will have “legal title” to the property. UBK will record its interest in the property in the same manner as it would record a traditional mortgage.
UBK will not purchase or maintain an inventory of properties to sell to customers. Instead, the customer will be required to find the property that he or she wishes to purchase and negotiate the terms of the purchase with the Seller. The Branch also will not serve as a real estate broker or agent.
The Net Lease will convey to the Lessee occupancy rights in and to the property for a specified number of years. The Net Lease will require that the Lessee maintain the property, and pay charges, costs and expenses attributable to the property that an owner or purchaser would ordinarily otherwise pay. Monthly lease payments will be sufficient to cover principal and interest, and pay insurance and property taxes. The Lessee will amortize the entire principal by the end of the lease term.
The Lessee will automatically become the legal owner of the property upon fulfilling the terms of the lease. Once the Lessee pays the final lease installment, the Lessee will not have to take any additional steps to acquire title to the property. The Purchase Agreement will also provide that the Lessee may acquire title to the property anytime before the expiration of the lease by prepaying the remainder of the purchase price.
In case of a material default under the lease, UBK will have remedies against the Lessee for nonpayment similar to these available to a lender on a “traditional” non recourse mortgage. UBK will provide notice of default to the Lessee and give the Lessee an opportunity to cure the default. If the Lessee cannot cure the default within a specified time, UBK will treat the property as if it had been acquired in foreclosure.
UBK’s residential real estate financing proposal is functionally equivalent to or a logical outgrowth of secured real estate lending or mortgage lending, activities that are part of the business of banking.
At first glance it might appear that UBK’s Net Lease proposal is contrary to 12 U.S.C. § 29 because UBK will have legal title to the real estate. But such a narrow view of the statute 2 would elevate form over substance because, in this case, having legal title is largely cosmetic and the actual indicia of ownership are borne by the Lessee. The Branch does not, and will not, actually hold real estate. It will not operate the property, pay taxes, insurance, and other charges, maintain upkeep of the premises, make repairs when necessary, assume liability for injuries or other accidents on the property, or otherwise exercise dominion and control over the property. The Lessee, and not the Branch, will bear these responsibilities. Although the Branch will have legal title to the property, it will not take actual possession of the property at any point during the lease term. The Branch will only take possession of the property if the Lessee defaults or upon termination of the lease. If the Branch does take possession of the property, it will take the property as OREO within the meaning of 12 U.S.C. § 29. Thus, despite the cosmetic appearance of the Branch holding real estate, the substance of the transaction shows that the Branch and the Lessee will have an arms-length, mortgagor-mortgagee relationship.
While UBK’s Net Lease proposal is unique, the concept is not. The OCC has supported this concept in at least three contexts in which national banks had legal title, but were not in violation of 12 U.S.C. § 29 because the substance of the transactions showed that the banks were not holding real estate. They buttress our view that analysis of 12 U.S.C. § 29 does not end with the form of the transaction.
UBK’s Net Lease proposal is also similar to “riskless principal” securities transactions in which a broker executes a purchase (or sale) only if it can conduct an offsetting sale (or purchase). See OCC Interpretative Letter No. 371, reprinted in [1985-1987 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85, 541 (June 13, 1986) (bank’s subsidiary may act as broker of securities of foreign issuers where customer’s order to purchase a security is offset by an order to sell the same security). A “riskless principal” transaction occurs when a broker, after receiving an order to buy (or sell) a security from a customer, purchases (or sells) the security to offset a contemporaneous sale to (or purchase from) the customer. See Id. See also OCC Interpretative Letter No. 626 reprinted in [1993-1994 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 49, 101 (July 7, 1993) (bank permitted to act as broker for the sale of preferred equity and investment grade-rated debt securities on behalf of institutional investors in secondary market transactions). The OCC approved such transactions because the bank did not assume any of the customer’s risk of loss, did not assume any liability as guarantor or endorser of the value of the securities, and did not have any beneficial ownership of the securities. In looking at the substance of the transactions, we recognized that riskless principal transactions were functionally equivalent to securities brokerage, and that the bank assumed the responsibilities and obligations ordinarily assumed by a securities broker, i.e., risk of customer default at settlement.
Here, UBK’s will function like a “riskless principal” because it will not purchase any real estate until the Lessee requests that it do so, and the Lessee enters into a Net Lease to occupy the property immediately and a Purchase Agreement to take title to the property at the end of the lease term. Once UBK purchases the real estate from the Seller, it will transfer all indicia of ownership to the Lessee. The Lessee will be the beneficial owner of the real estate. UBK will assume no greater risks than it already assumes when it underwrites a traditional mortgage. UBK will not purchase real estate for its own portfolio. UBK will not hold itself out as a real estate broker or agent. UBK will not maintain an inventory of real estate for sale to customers. If a Lessee defaults on the Agreements, UBK will consider the property to be OREO and dispose of it in a manner consistent with 12 U.S.C. § 29 and 12 C.F.R. Part 34.
Guest lecturer Br. Humayun Sohail from Ameen Housing Corporation (AHC), one of the alternatives for Islamic Finance for Housing.
Initial discussions for interest free alternatives started in early 1990s. They discussed some models. They attended the ISNA conference in 1995, there were many scholars at this conference, Manzoor Ghauri, Sh. Abdullah Idris, etc . They discussed with Shaikh Abdullah Idris about actionable items and they discussed some firm plan of action for interest free financing using the model used by him in Toronto. After six months they were able to buy a house.
Earlier they started with something which was coming from Sh. Abdullah Idris’s cooperative scheme in Toronto and they were told that Sh. Taqi Usmani has reviewed these contracts and have approved them, so they took them w/o any due diligence. Eventually, Sh. Salah as Sawi helped out with the final version of the contract.
It is legally a corporation, it files 1120 for taxes. Br. Sohail is not the prime decision maker, it is some one else on the board of directors. The only full time employee is an accountant, who prepares all of the statements of dividends and shares of members. They used to have a marketing employee, but not anymore. The Shariah aspects are basically beyond the board members. The Shariah aspect is basically being fulfilled by the outside scholars (e.g. Sh. Jamaal or Sh. Salah as Sawi may advice if he sees something wrong in the contract). Many questions Br Sohail can also handle as he has grown in knowledge over the years on the most frequently asked questions.
Primarily the contract at Ameen Housing is Musharaka contract.
They have approximate 450 members. The board is elected, and it has 7 members and the selection is 2 year terms with Staggering terms. So the whole board does not change at once. These board members have things called regulations. If a member is interested in buying a house, he has to bring 20%+ of the investment towards the pool. So lets go with two party model: AHC (Ameen Housing Corp) and HO (home-owner). The expected contribution from HO is 30% and br. Sohail bases it on his long experience in the field, that even when the home prices start declining the 30% is enough to cover the risk of AHC in the most cases. Most members put 30% down and 70% financing.
Why such a large down payment?
This is one of FAQ to AHC. People ignore the fact that even in conventional mortgages when they were getting mortgages at 0% down, there were actually two different loans, the primary loan by Freddie Mac and Fannie Mae where they cover up to 80% of the loan and is on reasonable interest terms. The secondary loan used to cover the other 20%, with very high interest rate and a very high mortgage insurance. The reason they require such terms on second loan is that the primary interest is help by the first loan holder and in case of sale of the property below the loan amount, the second loan holder gets wiped out. After the financial market collapse, now even the non-Muslim banks are requiring 20-30% down payment for financing, so they are following the same model as Ameen Housing in terms of down payment required to buy a home.
They have lots of knowledge about how much should be the rental value of a property. If there is a disagreement between the buyer and them, they try to arrive at an agreement about how much it should be. They use a pool of rent appraisers and ask for at least two opinions. If there is large difference between the two estimates or the HO objects to the appraised rental value they can get an independent opinion but it has to be verifiable.
So if the rental is $2000 then AHC’s share is $1400 and HO is 600. The Return of Investment (ROI) is 1400 and this 600 is buying of the shares of AHC.
Even in down market their return has been at least 4%, but this is not enough for savvy investors. Investors are not interested in anything less than that, since they say that 2% is for zakat and 2% for depreciation so if less than 4% it is a loss for those savvy investors. Now AHC is also trying to own houses that gives them better ROI, 8-10% which may attract more investors.
They do the shares adjustments of AHC and HO at the end of year. There were lot of questions on why it is done at the end of year rather each month. The response was that it was decided to ease the amount of accounting required. They give HO the option that if they provide more rental then their minimum amount, e.g in the above model if they fund $1000 each month instead of $600 their shares may be adjusted every month. One student called this haram, their response was it is not a big deal.
There are two separate contracts. One is for the share holder agreement in order to get their equity. There is another separate contract for rental agreement. There was a lot of discussion on why they have two contracts and whether it violated the shariah principle of two contracts in one. Br. from AHC was trying to convince that it should not be viewed as two contracts, as w/o rental portion the whole deal does not make any sense, how else the HO is going to buy back shares from AHC. They currently do not allow the 3rd party rental, only in exceptions when the original HO has to move they may rent out the property to another person and get their ROI as well as payment of shares from HO to AHC.
Rental value is not readjusted every year, because of the amount of effort required. Rental value is re-evaluated under three conditions, one if the Ameen Housing feels that rental market has gone up or down, or if renters feel that the rental market has cooled down and they can send a request to re-evaluate which is done at the end of year only.
Due to many student questions, we were off the topic for quite a while. They used to have title of the property only in the name of AHC, but based on push from members they have adopted a joint title between AHC and HO, where the musharka contract specifies their respective sahres.
Then we go over the years until the AHC = 0 and the HO = 200k. Historically, at that point AHC does the appraisal of the propery. AHC says that if the property has now appreciated to say $300k than AHC has some share of that gain. They used to ask 20% of appreciation (so 20k in this case). There were lot of complaints from community and Sh. Salah as Sawi looked into the problem and concluded that AHC has lost the right to their appreciation if AHC share reaches 0. So based on advice from Sh. Salah as Sawi the appraisal is done at AHC = 30% and HO = 70%. At this point the AHC asks for 30% of the gain on appraised value. HO can pay AHC the appreciation value and continue with the deal. So AHC now has 90k (60K+30K of gain) and HO has 210k (140k+70k of gain) if appreciation is to 300k. According to Sh. Salah for musharaka contract the profits can be distributed at any agreed rate among the parties, however, the loses has to be accounted for according to their share of investments. So if the home price declines at that point. they would redistribute the shares according to the actual loss. After this point of appraisals the payments will continue till AHC share goes to 0 and the title is transferred to HO.
Next week this class will be from 6:00 to 7:15 PM PST.
Shaikh is not involved with Ameen Housing so there is no conflict of interest between what is presented in the class and Ameen Housing. We will be coming to the Diminishing Musharakah very soon (right after we finish Ijara).
Note that the OCC has no letter about diminishing musharakah -- indicating that it is not a “financial” (riba) transaction.
Q: Difference between innovative Islamic financing leases and standard US contract leases.
Q: What is the issue with a standard car lease?
A: There are two contracts in one, one for lease and one to buy it. As such these contracts are not proper according to the shariah. These contracts should be avoided, but if due to some hypothetical need to lease a car, then they should forgo the second part about buying the car. Leasing by itself is like renting and you can benefit from it, but avoid the second contract of purchase with residual value.
Q: Is the contract a promise to buy the car at the end of the SCISI lease?
A: It is still the promise of the lessor to sell you the car at some amount at the end of the lease, it is not a promise of the lessee. So the issue is that this promise is a legally binding contract, it is no longer just a promise.
Murabaha itself is a fine way for doing business, but the additions become problematic. So is the case with ijara, which by itself is good, but the way they (innovative) structure the contract it is the least well liked way of buying property.
Majmaa al-faqihaa of OIC met twice to discuss the rent to own contracts. In the first meeting they said that we are not going to discuss it but we discourage from buying the property this way. In the second session they (OIC) discussed it and said that the main condition that makes it prohibitive is that you have two contracts in one (i.e leasing and selling in the same contract).
The Kibara al ulama says in Saudi Arabia, that you have two transactions for the item and you have neither of them, as you are mixing it without any basis for it. Now if the buyer is buying then the ownership is now, and then I am paying rent to you overtime but I own the property then why should i give rent to you. (even if I buy from you and decide to pay you overtime, the ownership transfers at the time of signing of contract). If you are renting it to me then why are you selling it to me at the same time. Rental fees are calculated in monthly or yearly terms such that at the end of the rental term you have paid the whole price of the item, but the seller calls it rental payments and they forbid you from selling it until you have completed all of the payments. So it is not a diminishing contract. Let us say you have to default after five years of rent, then they say that technically it is rent and they say that you have no equity built into the contract. They say this is confused contract.
Sh. Salah al Saawi was also asked about rent to own. He said that he purchased property with rent to own in Egypt and the problem was that payments are considered rent .... He says that it could be fixed by making the two contracts as separate and they take place one after the other. In other words, the contract should say that it is rented to you with all rules of rental agreement. After that a new separate contract is made that when the rental agreement ends, the owner sells you at some nominal price, or some market value or gives it to you as a gift. However if you conduct the contract as I say, then there is no sin upon you.
The criticism of Sh. Salah’s two separate contracts is who is going to sign these two separate contracts and enforce the parties to agree on these terms. If first contract is just rent payment only and does not include part of the principal and the other contract says to pay me say $100K (price of the house) at the end of the rental period, the buyer will say if I have that kind of money why can’t I buy the house in the first place. So it is not a very practical way of solving the problem.
AAOIFI in their criticism of ijara say that transfer of ownership cannot be made with a sale contract within ijarah, but ownership can be transferred by making a promise to sale at a token value, or as a gift or contingent upon an event (making all of the rent payments). So even this amendment is really trying to somehow tie these two contracts, but they are calling it a binding promise.
Based on all these complications, HSBC decided to drop the ijaarah financing option from their Islamic window as it was a mere headache for them to justify all these loopholes.
There is another model for ijaarah, where the payment is composed of two parts, one part pays the rent and the other part goes into a trust fund. So in this case legally speaking if you default in the middle of the period, you can claim that the trust fund be transferred to you, which is your equity, but shaikh is not sure if it is done in practice or it is just a proxy fund.
Conclusion: Ijaara is the worst model there is for purchasing property.
So we have studied two models and next we will move to the final model which is diminishing musharakah.
Mushaarakah means partnership. What is a partnership? Capital and effort partnership are separate (called Mudharaba) and they have their own rules, we are not discussing them here, so what partnerships are we discussing here?
Sharikat-al-aqd (شركة العقد) or contractual partnership, which is an agreement between two parties to combine their assets, labor and risks in order to make a profit.
Sharikat al abdaan (شركة الأبدان) where two people share their labor and work together to make money.
1. How are we going to divide the profits?
Suppose we start a company and one party puts $80,000 and the other party puts $20,000 how should they share their profits?
Profits should be shared according to agreement and not necessarily in proportion to their share of the capital. Why would they do it this way? This is allowed as no one is forced into entering into this partnership if they think they are not getting the fare share of the profit.
2. Losses on the other hand have to be shared according to percentage of their ownership. Profits are based solely on agreed upon contract and there are no obligations to split profits based on how the assets are shared.
Financial institutions are not allowed to buy the house in Western law. So they have to wait for you to go and pick a property to finance. So this is a big problematic step. In diminishing returns, does the same problem exist?
Lets say we start a partnership 70% to 30% contribution ratio towards purchase of a property. We jointly buy the property and then 70% shareholder rents it to 30% shareholder. Do I have to buy out the shares of the other partner according to this partnership agreement? No, according to the original agreement we decided to buy something based on 70/30 ownership ratio. Here again we are running into two contracts. One is of partnership and the second is how the 30% shareholder plans to buy out the shares of the 70% shareholder over a period of time while still renting the property, isn’t this two contracts in one?
Does one shareholder have the choice to stay at his ownership level when the formed the partnership?
It looks like Ameen Housing will not like it since they are in the business of selling and not owning. Shaikh cautioned us to not use Ameen Housing as our example, they were kind enough to come and spend time with us, from now onwards we will refer to this type of purchase agreements without necessarily referring directly to Ameen Housing.
What am I going to pay for the 70% share? Does that need to be specified in the contract?
Can I offer you $100K for your 70% share for which you originally paid $70K? this is allowed. Can you later ask for more money, saying that now my share is worth more than we initially agreed on? This is problematic.
What about if I offer you $100K for your 60% share, leaving 10% of your share at the end of the contract, paying it 1% at a time. Then you come around and say that my 60% share is worth 10x more than we agreed.
What if you go into default in the middle of this contract? Do you loose everything or do you have the option to sell the house and get your equity back? The investment company has a larger share and probably would not allow the smaller shareholder (one with 30% stake) to sell the property freely. The larger stakeholder should get the first right of refusal and you should not harm the other shareholders by your actions, but as the contracts are structured, the smaller stakeholder is under contractual obligation to not sell the property or in worst case situations is forced by other stakeholders to buy off his shares.
It took time for the students to truly understand the two contracts in one, which involves the gradual buyout of the larger shareholder by the smaller shareholder while renting the property. So two contracts in one is not one being partnership contract and the other being the rental contract, as the AHC said that they do this completely separately. They make you sign one diminishing musharika contract and the other rental contract available from Costco. The problem is that diminishing musharika is itself two contracts in one.
What about property tax and maintenance? should not both partners share these costs according to their ratio of investment? this is not how it is done actually, the one living in the house end paying for all of these expenses.
Some of the criteria of AAOFI: This document will come as email from Shaikh Jamaal.
1. They define Sharika al-ana’an as two or more parties entering into an agreement to contribute specific amount of money. Profit is distributed according to the agreement and the losses are born according to the share of partnership (capital).
2. It is permissible to enter into partnership with non-Muslim or a commercial bank unless it is obvious that the funds are obtained through illegal means.
3. Can amend the partnership at any time, they can make changes to their ownership ratios, they can agree it to be managed by one of the property, however he cannot get the payment for management while getting profit at the same time.
4. It is permissible for a partner to issue to a binding promise to buy the item at the end of the agreement.
To sum up in diminishing musharika one of the partner promises to buy the shares of the other partner until title is transferred. It is there necessary that this buying and selling should not be stipulated in the partnership contract. How to fix this contract?
This is the last class for this quarter. We are discussing the diminishing musharaka model for Islamic financing. We discussed the AAOFI requirements for it.
Diminishing musharaka cannot be simply an arrangement for payments over time. Since you have a partnership agreement where each party puts in two different amounts and you have to agree out one partner over a period of time, the problem is that you cannot force the partner to buy you out, since by definition it is an agreement. How will this buyout occur? You have to agree on the price on how you will buyout and it has to be a separate contract, it cannot be simply a binding promise.
They way the innovative schemes get around the sharia rules by not differentiating between sharikah al mulk and sharikah al aqd.
Sharikah al mulk is for joint ownership of something and it is a result of something that the partners did not do something themselves, for example two brothers inheriting a property and they are now joint partnership of the inherited property.
Sharikah al aqd is for partnership. This is created on its own and therefore its principles are different from sharikah al mulk.
Delay between when the partnership is formed and when the transfer of property occurs.
Some people claim that diminishing musharaka should be considered as sharikah al mulk since the goal is for one partner to live in the property and there is no profit involved in transfer of property. But this claim is not sound, since the bank will not enter into this type of transaction unless they intend to make a profit.
One of the advantages of diminishing musharaka is that since you are paying rent to the other party and that rent belongs to the other party and is not held in trust, and they are free to use it anyway they want it. Whereas in the ijara, the rent is owned by a trust and cannot be used by the other party.
We have discussed the main schemes used by the innovative islamic financing. And we can see that there are two constraints placed by the shariah, and you are in sense creating a riba contract without calling it riba.
One constraint is having two contracts into one and the other constraint is that a promise is not a legally binding contract.
If you play with these two restrictions, then you are creating riba contracts without calling it riba.
OCC approves them based on how they work around those two restrictions???
Ibn al Qayyim says what is important is not the form of the contract but what is involved the intent of the contract and ....???
And hence these innovative schemes are not halal. Any company can present their model and let people think that they are shariah compliant since people do not know what questions to ask.
1. Asking if they are a financial institution.
This is for the US, other countries have their own laws. (Ameen Housing is not a financial institution.) By definition a financial institution is not allowed to buy and sell and they are only allowed to finance. Ijara, La-Riba etc. are all financial institutions. You might ask them a question and they might give you circular answers.
2. Ask whether they deal with Freddie Mac or Fannie Mae.
This is very close to question 1 above. If they say yes, then their loan is interest based. They have a mandate to deal with mortgages but they do not have mandate to deal with anything else.
3. What kind of promises do I have to make and are these promises going to be legally binding?
4. Who is responsible for maintenance of the property, insurance, tax etc?
If you are partners then it is not right for one partner to be responsible for it completely. Especially how can it be on the buyer when he owns only a small portion. This is a sign that they are not fair to the buyer.
Another clue is if you have to buy PMI or Private Mortgage Insurance. Banks were not allowed to give loans with less than 30% equity, until the sub-prime mortgages. So PMI is insurance on that equity. Shaykh read the Guidance Document in class, where they finally show that they are not by-passing PMI but they claim earlier they do.
5. In the case of murabaha, is the innovative shariah compliant Islamic financing company (e.g. SCISI) going to be responsible??? for the house?
If the seller’s name is not the same as the financing company (e.g. the contract has name Joe Brown and not SCISI), then it means you are not buying it from them. If the seller is somebody else, then it is not a murabaha contract.
The sheikh read an excerpt where Guidance contract compares “halal” potato chips and potato chips that contain lard; both can be priced the same and one will not have lard (a very strange analogy).
6. In the case of musharaka, am I obliged to buy your portions of the shares?
If it is a legally binding promise, then they are violating the shariah restriction about binding promises.
Rent to own can easily be made halal if they are willing to share the risks with the buyer. The innovative companies are looking out for the larger shareholders at the expense of the buyers. They are making profit and they should be willing to take risks.
We have venture muslim capitalists and they take on risk, then why not the same with helping out muslims to buy property? They should be willing to invest into Islamic financing for property at the same time willing to take risk.
In response to a question: Salah al Sawi, br. Ashraf and Shaikh were discussing some basic issues and it became quite heated. They did not look into details. missed what was being discussed?????
Making a contract is not the problem for shariah compliant financing. The real problem is that banks and financial institutions cannot sign those contracts since they have to make profit in the guise of interest only and that they cannot legally own the property and take on risks with the property according to the laws.
There is risk involved in any business.
Our current real estate situation is unusual, usually they do make profits and Muslim capitalists should be willing to help out Muslims to buy property in truly halal ways.
People are so conditioned to think in terms of riba, that they are unable to think outside of the limits of riba. This is unfortunate. This was in response to a question about what happens when you enter a partnership and then are unable to make payments and have to terminate the partnership before you buy out the other partner. In this case the other partner can force you to sell.
7. In the case of partnership, what will be the arrangement for sharing the profit and loss from the sale of the property?
If there are co-owners then there has to be sharing of loss not just profit. And co-owners have to be responsible for some of the costs with the property and not just the buyer of the property.
Is it halal to start an Islamic bank with initial involvement in interest but with intention that overtime the interest dealings will be stopped? (Shaykh worded similar questions with same meaning).
Ulema who are giving fatwa that these kind of transactions are halal, shaikh then paused to read the fatwa and emphasized the following statement, “given the prevalent conditions in the US, it is considered to be halal...” These type of statements are why some people cannot understand on what basis they made this fatwa.
They cannot state on unequivocally that they are halal, they specifically state to circumstances in the US and that is the reason why they claim it is halal and that people should take advantage of it? A statement similar to the above statement was from Taqiuddin Usmani. All of the fatwas claim need or necessity in order to rule that these contracts are halal when in fact they violate the basic rules of riba or the two restrictions that we discussed earlier.
Hence the above philosophical question, should banking be completely avoided until we are able to formulate truly Islamic banks? Is it that necessary for us to own homes?
You cannot make any statement about the individual scholar’s imaan or waraa? They are making these statements for the others and you cannot jump to conclusion about their imaan. Shaikh was very upset when somebody made this statement.
Even with all of these evils of riba, it will be impossible to get rid of riba in the western economy.
So is it necessary to own a house? It is not a need or necessity to own a house. It is a choice and if it is a choice then it is hard to prove that we need such fatwas that claim exemption based on needs or conditions.
Since it is a choice, they can rent. And shaikh does not buy the ideology of those fatwas.
Shaikh feels that truly Islamic compliant schemes are viable and that they will become more prevalent, he highlighted Ameen Financing since it has the potential to become the most correct overtime.
We have to understand the basic foundations before we discuss them in detail.

References: § 24
 § 371
 § 29
 § 29
 § 29
 § 29
 § 29