REVIEW OF FATWAS ISSUED DURING ALBARAKA BANKING GROUP

SYMPOSIUMS

(THE SECOND COLLECTION)

Prepared by His Excellency, Al-Shaikh Abdullah bin Sulaiman Mannea, member of

the Council of Eminent Ulama‟, Kingdom of Saudi Arabia and member of the Shariah

Supervisory Board, Albaraka Banking Group.

The 29th Albaraka Banking Group Symposium on Islamic Economics was held in

Hilton Hotel, Jeddah, from 6 – 7 Ramadhan 1429 AH, corresponding to 6 – 7

September 2008.

Praise be to Allah and may His mercy and peace be upon the His messenger, The

Holy Prophet Muhammad s.a.w., as well as his relatives and companions, all of

them. Subsequent to this, I am often delighted with the view of the general

secretariat of the Albaraka Banking Group to call for a review of the fatwas issued in

these symposiums, so that they may serve as a contribution, in affirming the pillars

of maqasid al-shari’ah and the general principles of Islamic law, and as a way of

reducing the frequent application of rukhsah, while upholding the principles of

a’zimah. This happened after the Islamic banking system went through a blessed

trend (providing Shari’ah-compliant financing), led by the players themselves.

The factor that drove the general secretariat towards this blessed dimension is that

the customers of the Islamic banks started gradually, in upholding the principles of

rukhsah, which were permitted in temporary fatwas, which have some reservations,

except that, these reservations cannot be extended to that which legalizes what is

illegal or illegalizes that which is legal.

They are only obscures (shubhah), in which abstinence from them entails purification

to the dhimmah (the liability for one to account for his actions) and purification of the

personality. May Allah give His gratitude to the general secretariat, in its

cautiousness of Allah and assist it (the general secretariat) in actualizing its blessed

goals in verifying, deepening, searching and reviewing what has been seen as a

pressing need or necessity or inconveniencing or probability at the expense of

competition from the conventional banks. This type of procedure has been one of the

ways to reform and establish Islam (in the early years of Islam). During that time,

those whose hearts have been (recently) reconciled (to the Truth, i.e. Islam) are part

of the beneficiaries of zakah.

The Prophet s.a.w. used this method (giving zakah to individuals with the propensity

towards Islam) to reconcile the souls and in curbing antagonistic factors from leaders

of various tribes. The rightly guided Khalifah Abu Bakar Al-siddiq (may Allah be

pleased with him) also followed the model of the Prophet s.a.w. Then, after Islam

has gotten its strength, charisma and power, the Amir Mukminin at that time, Umar

bin Al-khattab (may Allah be pleased with him) stopped giving zakah to unbelievers

who are interested to embrace Islam. He supported his view by saying that Islam is

no longer needs to reconcile the hearts, because it has become strong and powerful.

Now, Alhamdulilah, Islamic banking, with its strength, has grown beyond the local

spectrum and extended to non-Muslim societies. These societies have witnessed the

transparency and honesty of the Islamic banks in running its transactions and

avoiding the act of acquiring other people‟s properties through false means, i.e.

through dealings based on uncertainty, manipulation, ignorance of subject matter,

interest and commercial transactions that are combined with mere imagination and

form, and disposal of properties before taking possession of the properties (in which

the seller does not have the right of disposal of the properties). It ought to be noted

that fatwas change in accordance with the changing conditions, circumstances, time

and place. This occurred to Imam Shafie (may Allah be pleased with him), for his

opinions on a certain matter changes as the locality changes (in this case, from Iraq

to Egypt).

This issue (changing fatwas in accordance with the change in conditions,

circumstances, and place) was discussed by Ibnu Al-qayyim in his book „I’lam Al-

muwaqiin an Rab al-alamin’. He said that the yardstick is the achievement of

maslahah and maqasid al-shari’ah. They (Imam Shafie and the Ibnu al-qayyim),

while doing this, were in concordance with the model of the Prophet s.a.w. In this

regard, it is cited that two men came to the Prophet s.a.w One of them was a young

man and the other was an elderly man, asking him about the permissibility of kissing

one‟s spouse while fasting. He (the Prophet s.a.w.) permitted it for the elderly man

but did not permit it for the young one. This was due to the consequences of kissing.

May Allah grant His gratitude to the secretariat in its deed and grant prudency to it in

this review and the correction of mistakes. All of us often commit mistakes, but the

best are those that repent from their mistakes. Allah is the One we implore for help.

The general secretariat requested me to review the following fatwas:

1. Fatwa no. 1/15: The Shari’ah ruling on agents representing the two parties to

a contract;

2. Fatwa no. 6/7: Shari’ah ruling on murabahah mudawarrah;

3. Fatwa no. 6/15: Shari’ah ruling on selling commodity before taking

possession;

4. Fatwa no. 2/8: Shari’ah ruling on taking reward (payment) for issuing letter of

guarantee; and

5. Fatwa no. 5: Terms of real estate financing in London.

The following is the presentation of the abovementioned fatwas and then followed by

my comments on them, in accordance to what I see as the Shari’ah view, i.e. either

supporting or opposing or restricting what is too loose. Allah is the One we implore

for help.

Fatwa no. 1/15: The Shari’ah ruling on agents representing the two parties to a

contract

A fatwa was issued, i.e. it is permitted for a bank to appoint its customer as an agent

to purchase commodity and then the same customer will offer the commodity for

sale, while he is in his capacity as an agent for the bank. However, if the customer

sells to himself, whereby he is taking charge of both sides of the contract, it is

permitted if the price is specified by the principal (in this case, the bank).

This fatwa is related to two issues:

1. First: If the agent sells the commodity which he has purchased to a third party,

by virtue of the agency conferred to him by the principal who asked him to do

so, there are no disputes among the scholars against its validity; and

2. Second: If the agent sells the commodity to himself, whereby he is taking

charge of two sides of the contract, this issue is argued among the scholars.

Some scholars permitted it, if there are no doubtful elements, while some did

not permit it, on the grounds of purification of the personality. Ibnu Qudamah

said in Al-muqni’, “It is not permitted for one who is appointed as an agent in a

sale to sell to himself. He said in the Hashiyah, this is the madhhab (of

Hanbali) and the majority also ruled the same. He further said, that in the

Hashiyah, “This is because the custom in sale is that one sells to another

person, so it is in a wakalah contract. Also, he is subject to suspicious in

selling, so it is in buying for himself.”

In another version reported from Imam Ahmad, it is permissible for an agent to take

charge of both sides of the contract, if there are no doubtful elements. He said in Al-

muqni, “It is also reported from him, that is Imam Ahmad that, it is permitted for an

agent to sell to himself, if he adds to the normal price, with which the sale was done

by auction, or he appoints another person as an agent and he will be one of the

buyers”. He mentioned in the Hashiyah about the permissibility of the agent to sell to

himself; if he was permitted, then it is permissible and he represents the two sides of

the contract. This is the most authentic view”.

However, having observed that representation of the two sides of a contract by a

customer in the banking transaction has predominantly become mere form (not the

actual purpose of the contract), a situation whereby neither buying nor selling was

executed by the agent and at the same time, he obtains actual profit margin through

ribawi (interest-based) terms. It is representation by an agent of both sides of the

contract that served as a justification for the prohibition of tawarruq, as practised by

the banks.

In order to preserve the reputation of Islamic banking, I am of the view that there is a

need to review the arrangement of an agent taking both sides of a contract. It should

be prevented, in consideration of transparency and to prevent criticisms that Islamic

banks are involved in interest based-transactions and factors that have the

probability to lead to form in transaction.

There are many examples to support that it is permissible to declare something as

lawful and then recommend that it should be prevented on the grounds of precaution

and avoiding ambiguities. One example is  bai’ inah , in which its procedures are in

accordance with a valid sale, but having observed that there is a trick to attract riba,

the majority of the scholars disallow it. Similarly, the case of riba al-fadhli (riba, which

is addition to the original amount borrowed), having seen it as a means that leads to

riba al-nasiah, the majority of scholars prohibited it.

Another example is the tradition reported by „Aishah, may Allah be pleased with her,

who said that, Sa‟d bin Abi Waqas and Abdu bin Zam‟ah reported to the Prophet

s.a.w. in dispute that occurred between them. Sa‟d said, “O you the Apostle of Allah,

this son belongs to my brother called U‟tbah bin Abi Waqas. He gave me a testate

that he (the son) is his child, you can see his resemblance. Indeed, the Prophet

s.a.w. saw a manifest resemblance with U‟tbah, but ruled by saying “he is yours O

you Abdu bin Zam‟ah”. “A child belongs to the bed while the adulterer owns nothing”.

“O you Saudah the daughter of Zam‟ah, veil yourself from him. She („Aishah) said,

he never saw Saudah throughout. In this verdict, the Prophet s.a.w. attributed the

child to the bed owner as that is the original presumption, and he attributed him to

who is not the owner of the bed on the grounds of precaution, in order not to violate

principle of maharam (degree of consanguinity either by birth or breast feeding,

precluding marriage).

The Prophet s.a.w. combined both the original presumption and precaution when he

saw a strong resemblance with the one who is not the bed owner. Here, we can

observe the fatwa that ruled that the sale is valid if the agent sells to himself, at a

specific price, as determined by the principal. It is apparent that when the principal

determines the price for the agent, it is not considered as agency in sale, because

the act of determining the price by the principal is considered as offer to sell, made

by him to the agent. If the agent communicates his acceptance, then, the contract

has been concluded by offer and acceptance made by the eligible parties. There is

neither an agent nor principal in the contract, but all that took place is that the

contract was concluded between the two parties of a valid contract, who are the

seller and the buyer.

The summary of this fatwa is as follows:

1. It permitted for a client of the bank to represent the bank in an agency

capacity, to buy the commodity required by the client of behalf of the bank,

and then the client buys the commodity from the bank, after the bank has

taken possession of the commodity. For this type of transaction, there are no

disputes among the scholars;

2. It is not permitted for a client to take charge of the two sides of the agency

contract, whereby he purchases the commodity for the bank and in turn sells it

to himself, on behalf of the bank. The impermissibility is upheld, in order to

avoid doubtful elements and protect the Islamic banking system against

accusations that its products are merely tools to justify riba;

3. A group of ulama prohibited an agent from taking charge of both sides of a

contract; agent of his principal in buying and selling on behalf of the bank.

Even though some ulama permit it, if there are no doubtful elements,

suspicious of form is in existence and it is more dangerous than the

suspicious involved by way of negligence, if he buys or sells at less than the

normal price; and

4. It is not considered as taking charge of both sides of the contract if the

principal sets the price, in which case it is considered as offer and if accepted

by the client, the sale is completed primarily from the seller and buying from

the client. In this regard, there is neither agent nor principal. The contract was

concluded by its primary parties, i.e. the seller and the buyer.

Fatwa no. 6/7: Shari’ah ruling on murabahah mudawarrah

Its form: The bank appoints the client as their agent, to purchase for the bank and

sell to himself, whereby, the client takes charge of two sides of the contract, with a

pre-determined profit, which is mutually agreed upon. The fatwa ruled that this form

of transaction is permitted.

I have nothing to oppose the permissibility of this contract. It is not because this type

of contract is within the category of the dual role of agents (agent takes charge of

both sides of the contract), but it is part of the sales that are concluded by the banks.

In this type of sale, the bank confers possession of the commodity to the client, after

they have taken possession of the commodities and offered it for sale, at cost price

plus profit margin, of which the margin was mutually agreed upon by the bank and

the customer/agent.

Similarly, they also mutually agreed upon the mode of settlement; either by cash or

deferred payment or by instalment payments. This is how murabahah contracts are

concluded, in accordance with adherence to the agreement between the bank and

its clients, in continuous bargains, as mentioned in the question.

Nothing in the question says that the client sells to himself, in his capacity as the

agent of the bank. Taking charge of both sides of the contract by the agent has been

discussed in the preceding fatwa no. 1/15. Allah knows best.

Fatwa no. 6/15: Shari’ah ruling on selling commodity before taking possession

It is permissible to sell something that is not yet in one‟s possession, provided the

said items are not food. This is because the prohibition of selling something that is

not yet in one‟s possession only applies to eatables.

The scholars disputed on the permissibility of disposing a commodity, prior to taking

possession of the commodity. Majority of the scholars did not permit disposal of

commodities before possession takes place. Sale is one of the ways to dispose

commodities. The proponents of this view adduced the following hadith as evidence

of their stand, i.e. the Prophet s.a.w said that, “Anyone who bought food should not

sell it until he has taken possession of the food”. Ibnu Al-qudamah said in the book of

Al-mughni, “I have not found any dissenting opinion on this, except the dissenting

opinion reported from Al-batty. However, Ibnu Abdul Bari gave a ruling that rejects

the opinion reported from Al-batty, by virtue of the Prophetic tradition and other

proofs.”

However, according to some ulama, for things like house, cars and animals, the

condition of possession does not apply, i.e. one can sell it even before possession

takes place. Ibnu Al-qudamah said that this is the prevailing view of the two views

reported from Imam Ahmad (on this issue). Among those that permitted it is Uthman

bin Affan (may Allah be pleased with him), Saed bin Musayyib, Al-hakam, Hammad,

Al-auzai and Ishaq. Also, in the book of Al-insaf by Al-mardawi, it is said that, if the

subject matter is not something that is weighed or measured, then one is permitted

to dispose it before taking possession of it. This is the view of the madhhab (school

of law) of Imam Ahmad ibnu Hanbal.

Ibnu Al-qudamah also supported this view, by citing the hadith, in which the Prophet

s.a.w. bought camel from Jabir and in turn gave the camel to him (Jabir), before he

(the Prophet s.a.w.) takes possession of the camel. In another hadith, it was reported

that the Prophet s.a.w. bought a camel from Umar bin al-khattab. Then, before taking

possession of the camel, the Prophet s.a.w. gave the camel as a gift to Umar‟s son,

Abdullah.

Conceptually, a sold product is considered to be within the reach of the buyer,

except in a situation where the seller refuses to deliver it to the buyer. As long as the

sold product is within the reach of the buyer and within his guarantee (he is

responsible for it – daman), he has the right to dispose product before taking

possession of it, let alone after he has taken possession of it.

Some scholars supported their view of impermissibility of disposing a sold property

before possession takes place, citing the following hadith as evidence, i.e. it was

reported that the Prophet s.a.w. prohibits taking profit from a commodity that you are

not responsible for (daman). Some groups of scholars said that if possession of the

sold product has transferred to the buyer through a sale contract, then it is

considered to be within the reach of the buyer, except if the seller refuses to deliver

the product.

It was reported in Mudawwanah of Imam Malik, while discussing about the issue of a

commodity that is within the reach of the buyer, that Abdurahman bin Auf bought a

horse from Uthman bin Affan for 12,000 silver dirham. In addition to that, he paid

4,000 dirham to Uthman, as consideration for the horse to remain as the liability of

Uthman, until he sends his representative to take possession of the horse. Uthman

accepted the offer. Later, the horse died under the custody of Uthman and he paid

12,000 dirham to Abdulrahman bin Auf. This is because he had accepted to be liable

for the period the horse remains with him.

Fatwa no. 2/8: Shari’ah ruling on taking reward (payment) for issuing letter of

guarantee

The eight symposiums did not issue a fatwa on this issue. Rather, the issuance of a

fatwa was postponed until a more thorough understanding of the processes of

issuing LGs is obtained. I hope that the postponement will not be for long, as there is

a pressing need to know the Shari’ah ruling on the existing practice of issuing letters

of guarantee, both in the Islamic and the conventional banking sector.

To give guarantee to someone is an obligation and the letter of guarantee is the

basis of the guarantee. So, is it permissible to charge a fee for the obligation being

discharged by the bank?

It is necessary to expedite the research on this issue, so that a fatwa can be issued.

For this matter, Allah‟s help is implored.

Fatwa no. 5: Terms of real estate financing in London

In my observation, this fatwa is related to musharakah mutanaqisah. Its nature is that

the bank will have an agreement with its client, to purchase and jointly own several

units of houses. In terms of the capital contribution for this musharakah venture, the

bank will undertake to provide more capital than the customer, e.g. 90% against

10%.

Then, the bank will make a binding promise to sell their own shares of the houses to

the client, on periodical basis, which is based on a predetermined price that is

agreed upon by both parties. Thereafter, the sharikah will lease the houses to a third

party and share the returns on a pro rata basis, until the bank‟s shares is totally

transferred to the client.

The client, who is the musharakah partner of the bank, may, at the same time, be the

lessee. In this regard, the bank owns 90% of the house, until the client has fully

acquired the house. The initial fatwa ruled that this product is permitted. I have no

remark on the ruling in general, except that I have some observations on the fatwa,

as follows:

First

When the client is the lessee, the present practice makes him responsible for all the

financial requirements of the house. Such financial requirements are fees, taxes and

basic expenditure of the house. This is invalid, because the client will not be

responsible, except for his own shares of the musharakah. The client is nevertheless

responsible for the operational expenses (e.g. maintenance) of the house. This is

because he is also the lessee. I suggest that this be reviewed.

Second

Regarding buying insurance policy for the asset, the authentic view is that the

partnership bears the cost of the insurance policy. On this basis, each of the partners

will bear the cost of insurance, in proportion to his share of the asset. Thereafter,

they will recover the insurance premium paid from the asset‟s yield, provided that it is

stipulated in the contract. However, I disagree with the suggestion that the bank may

add the cost of the insurance to the rental, in order to recover the insurance

premium. This, in reality, constitutes using tricks, in order to mimic the conventional

banking concept. For this reason, it is incumbent upon the responsible Shari’ah

authority to state clearly the truth and the right direction of the Shari’ah and avoid

using tricks. It is the responsibility of the Islamic banks to search for replacements

and alternatives (Shari’ah-compliant products). They should also abide by the

requirements of Islamic banking.

Third

If there is a probability that the client may default in paying the shares of the bank, it

is permitted for the bank to hold the client‟s shares in the musharakah as pawn. In

the event of default, the bank may sell the pawned shares of the client, at the market

price, so that they can recover the receivables. This is more just for both parties, as

opposed to forced mutual rescission, which is unjust to the client.

In conclusion, I am comfortable with this good view, which was issued by the general

secretariat in the Al-barakah banking group. It is true that the Al-barakah banking

group symposium has a magnitude of fatwas, most of them are based on ijtihad. It is

alright to change ijtihad, if something more authentic appears. I hope this exercise of

reviewing the fatwas of the Al-barakah banking group will be part of the activities for

future symposiums. This will assist us in ensuring the authenticity and correctness of

the maqasid al-Shari’ah, without violating any text from the Quran, Prophetic

traditions and ijma‟, because a legal maxim says, “Where there is a text, there is no

ijtihad. Allah is the One implored for help.