analysis from perspective of maqasid financing by …
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ANALYSIS FROM PERSPECTIVE OF MAQASID
ACHIEVEMENT: CASE STUDY TO HOME
FINANCING
BY
WAHIDAH BINTI SHARI
A dissertation submitted in fulfilment of the requirements
for the degree of Master of Islamic Banking and Finance
Institute of Islamic Banking and Finance
International Islamic University Malaysia
SEPTEMBER 2013
ii
ABSTRACT
Islamic banks offer various banking products and services with different nature to
meet the different needs of the customers. Yet, the Islamic banking product offered by
the Islamic banks must be in line with the Sharīʿah objectives (maqāṣid al-Sharīʿah)
which are centralized on the objectives of accomplishing the development of both the
spiritual and social-economic well-being. The main objective of this study is to
analyze the debt-based (bayʿ bithaman ājil) and equity-based financing (mushārakah
mutanāqīṣah) from perspective of maqāṣid achievement. Although there have been
many literatures discussing the debt-based financing (bayʿ bithaman ājil) and equity-
based financing (mushārakah mutanāqīṣah), analysis on maqasid achievement is still
lacking. Bayʿ bithaman ājil and mushārakah mutanāqīṣah concepts normally being
applied in home financing facilities. However, bayʿ bithaman ājil is said to be most
popular in Malaysia country as compared to the mushārakah mutanāqīṣah. It also
considered as a most debated Islamic financing modes among Sharīʿah scholars
locally and internationally in term of its validity and Sharīʿah compliance. The aim of
this paper is to review the contract, structure, features, procedures and also the issue
pertaining to both Islamic contracts. This study also intends to measure the maqāṣid
achievement towards the products using four specific Sharīʿah objectives: Sharīʿah
compliant, fair and transparency, maintaining harmony and marketability. Semi-
structured interview and survey questionnaire will be conducting to achieve the
research objectives. The findings of this thesis indicate that, mushārakah mutanāqīṣah
home financing achieves higher level of maqāṣid because the mean score for each and
every parameter is relatively higher than the bayʿ bithaman ājil contract.
iii
لبحثا ملخص
لها والخدمات التي متنوعة من المنتجاتمجموعة تقدم لمؤسسات المصرفية الإسلاميةاالمنتجات ومع ذلك، يجب أن تكون .العملاء المختلفة احتياجات مختلفة لتلبية خصائص
على أساس الشرعية المقاصد المعروفة باسم الشريعة اف أهد بما يتماشى مع المصرفيةالمقدمة هذه الدراسة من الرئيسي وكان الهدف. الازدهار الاقتصادي و الروحية فتحقيق التنمية هد
والتمويل القائم على حقوق المساهمين ( البيع بثمن آجل) القائم على الديون التمويل لتحليل كثير من النقاش حول اكال وإن كان هن. المقاصد تحقيق من منظور( مشاركة متناقصة)
البيع من المفهوم. المقاصد منظور تحليل البيع بثمن آجل ولكن تفتقر إلى و متناقصة مشاركةومع ذلك، . تمويل الإسكان منشأة مشاركة متناقصة لازما يشيع استخدامها في و بثمن آجل
بالإضافة إلى و متناقصة مشاركة مقارنة ماليزيا شعبية في قال البيع بثمن آجل المشهور الأكثر ليين والمح للمحل جدل كبير بين العلماء المفهوم الإسلامي من ذلك، كما أنها واحدة
العقد، هو استعراض من هذه الرسالة والغرض. الشريعة الامتثال و صحة من حيث الدوليينالمنتجات المصرفية القضايا ذات الصلة على حد سواء الإجراءات و هيكل، وميزات و
أربعة أهد المنتج باستخدام المقاصد قياس مدى تحقيق هدفت هذه الدراسة إلى. الإسلامية و نزيهة وشفافة، والحفاظ على التناغم و المتوافقة مع الشريعة الإسلامية من محددة اف
أهد تحقيق اتل والاستبيان( كل هي مقابلات شبه)اتشبه منظمة مقابل سيتم إجراء. التسويقكل دلل مع تحقيق أعلى متناقصة تمويل الإسكان مشاركة وأظهرت النتائج أن. اف البحث
.البيع بثمن آجلتمويل الإسكان في معلمة مما
iv
APPROVAL PAGE
I certified that I have supervised and read this study and that in my opinion, it
conforms to acceptable standard of scholarly presentation and is fully adequate, in
scope and quality, as a research paper for the degree of Master of Science in Islamic
Banking and Finance
………………………………….
Zaharuddin Bin Abdul Rahman
Supervisor
This dissertation was submitted to the Kulliyyah of Institute of Islamic Banking and
Finance and is accepted as a partial fulfilment of the requirements for the degree of
Master of Science of Islamic Banking and Finance
…………………………………..
Ahamed Kameel Bin Mydin Meera
Dean, Kulliyyah of Institute of
Islamic Banking and Finance
v
DECLARATION
I hereby declare that this dissertation is the result of my own investigations, except
where otherwise stated. I also declare that it has not been previously or concurrently
submitted as a whole for any other degrees at IIUM or other institutions.
Wahidah Binti Shari
Signature………………………… Date……………………………..
vi
INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA
DECLARATION OF CORYRIGHT AND AFFIRMATION OF
FAIR USE OF UNPUBLISHED RESEARCH
Copyright © 2013 by Wahidah Binti Shari. All right reserved
CREATIVITY IN PRIMARY SCHOOL STUDENTS IN
NATIONAL AND ISLAMIC RELIGIOUS SCHOOLS
I hereby affirm that The International Islamic University Malaysia (IIUM) hold all
rights in the copyright of this work and henceforth any reproduction or use in any
form or by means whatsoever is prohibited without the written consent of IIUM.
No part of this unpublished research may be reproduce, stored in a retrieval
system, or transmitted in any form or by means, electronic , mechanical,
photocopying, recording or otherwise, without prior written permission of the
copyright holder.
Affirm by Wahidah Shari
…………………………… ……………………..
Signature Date
vii
ACKNOWLEDGEMENT
All praise due to Allah and salutations upon His Holy Prophet Muhammad (SAW). I
thank to Allah for having inspired me to tread and path of the acquisition of Islamic
learning. I pray that this humble effort be accepted by Him, Inshallah.
First of all, I wish to express my deep and abiding gratitude to my king and
considerate supervisor, Assistance Professor Dr Zaharuddin Abdul Rahman. His
guidance and erudition permeates the pages of this thesis. May the almighty showers
His richest blessings upon Him. Special thanks to my husband Mohamad Hanif, my
son Mohamad Aqil Hasif, my parents whose constant encouragement and support
inspired me to overcome all obstacles. Thank you for your boundless patience.
Finally, my sincere gratitude goes to the University for having afforded me this
opportunity to continue my studies.
23rd
July 2013
viii
TABLE OF CONTENTS
Abstract ………...………………………………………………………….. ii
Abstract in Arabic …………………………………………………………. iii
Approval Page ……………………………………………………………... iv
Declaration Page …………………………………………………………... v
Copyright Page ……………………………………………………………. vi
Acknowledgement ………………………………………………………… vii
List of Tables ……………………………………………………………… x
List of Figures ……………………………………………………………... xi
List of Abbreviations………………………………………………………. xii
CHAPTER ONE: INTRODUCTION ………………………………….. 1
1.0 Introduction …………………………………………………... 1
1.1 Background of Study …………………………………………. 1
1.1.1 Problem Statement …………………………………….. 4
1.1.2 Objective of the Study ………………………………… 6
1.1.3 Research Questions ……………………………………. 6
1.1.4 Contribution of Study …………………………………. 7
1.1.5 Organization of Study …………………………………. 8
1.2 Literature Review …………………………………………….. 8
1.2.1 Institutional Level ……………………………………... 9
1.2.2 Individual Scholars ……………………………………. 11
1.2.3 Industry Players ……………………………………….. 15
1.3 Research Methodology ……………………………………….. 17
1.3.1 Research Objectives …………………………………… 17
1.3.2 Research Design ……………………………………….. 18
1.3.3 Application of Sekaran’s Operational Method ………… 18
1.3.4 Data Collection ………………………………………... 19
1.3.5 Sampling ………………………………………………. 20
1.3.6 Data Analysis ………………………………………….. 23
CHAPTER TWO: MAQASID AL-SHARI’AH ………………………… 24
2.0 Introduction …………………………………………………... 24
2.1 Maqasid Al-Shari’ah ………………………………………………. 24
2.2 Maqasid Al-Shari’ah in Islamic Home Financing ……………. 25
2.2.1 First Parameter: Shari’ah Compliant ………………….. 26
2.2.2 Second Parameter: Justice and Transparency …………. 32
2.2.3 Third Parameter: Harmonious Relationship ..…………. 35
2.2.4 Fourth Parameter: Marketability ………………………. 38
ix
CHAPTER THREE: CURRENT PRACTICE OF BBA AND MM …... 42
3.0 Introduction …………………………………………………… 42
3.1 Debt-Based and Equity-Based Financing …………………….. 42
3.2 Bay’ Bithaman Ajil (BBA) …………………………………… 43
3.2.1 Current Practice of BBA Home Financing …………….. 44
3.2.2 Specific Elements and Conditions of BBA ……………. 46
3.2.3 Issues in BBA …………………………………………. 48
3.3 Musharakah Mutanaqisah (MM) …………………………….. 51
3.3.1 Current Practice of MM Home Financing ……………… 52
3.3.2 Specific Elements and Conditions of MM …………….. 54
3.3.3 Issues in MM …………………………………………... 57
CHAPTER FOUR: FINDING …………………………………………... 59
4.0 Introduction …………………………………………………... 59
4.1 Data Collection and Response Rate ………………………….. 59
4.2 Respondents Profile ………………………………………….. 59
4.2.1 Demographic Characteristics ………………………….. 60
4.4.2 Home Financing History ………………………………. 61
4.4.3 Islamic Financing Knowledge ………………………… 63
4.3 Validity and Reliability Test ………………………………….. 65
4.3.1 Validity Test …………………………………………… 65
4.3.2 Reliability Test ………………………………………… 65
4.4 Comparison From Perspective of Maqasid Achievement …….. 66
4.4.1 Frequency Analysis Result ……………………………. 66
4.4.2 Descriptive Analysis Result …………………………… 72
CHAPTER FIVE: CONCLUSION ……………………………………... 75
5.0 Introduction …………………………………………………... 75
5.1 Objectives and Results ……………………………………….. 75
5.2 Summary ……………………………………………………… 77
5.3 Suggestion and Recommendation ……………………………. 78
BIBLIOGRAPHY ……………………………………………………… 80
APPENDIX ………………………………………………………………... 85
x
LIST OF TABLES
Table No. Page No.
1.1 Research objectives and Research questions 6
1.2 Islamic Financing by Concept (as at end of May 2012) 16
1.3 List of local Islamic bank based on the concept used in 22
Islamic home financing
1.4 The distribution of the target samples 23
for the questionnaires
4.1 Demographic Characteristics 60
4.2a Have you ever bought a house 62
4.2b Which banking institutions would be the option 62
to finance your dream house
4.3 Do you know how BBA and MM contract 64
works in Islamic home financing
4.4 Reliability Statistics 66
4.5a Providing fair dealing 67
4.5b Having a valid offer and acceptance (‘aqad) 68
4.5c Fulfill valid condition from Shari’ah perspective 69
4.5d Free from interest element 70
4.5e Providing Islamic home financing with affordable price 71
4.5f Best alternative to conventional housing loan 72
4.6 Descriptive Statistics for BBA and MM 73
xi
LIST OF FIGURES
Figure No. Page No.
1.1 Operationalizing the concept of achievement maqāṣid 19
3.1 Modus operandi of BBA home financing 45
3.2 Modus operandi of mushārakah mutanāqīṣah home financing 53
4.1 What are the preferred criteria in selecting home financing facility 62
4.2 Do you know various Islamic concepts used 64
in Islamic home financing
4.3 Comparison between BBA and MM 74
From maqāṣid al- Sharīʿah perspective
xii
LIST OF ABBREVIATIONS
AAOIFI Accounting and Auditing Organization for Islamic Financial Institution
BAFIA Banking and Financial Institution Act
BBA Bayʿ Bithaman Ājil
BIMB Bank Islam Malaysia Berhad
BNM Bank Negara Malaysia
C Concept
c. Copyright
D Dimension
E Element
et al. (et alia): and others
IBIs Islamic Banking Institutions
IDMAC International Development Management Conference
IIUM International Islamic University Malaysia
ISRA International Shari’ah Research Academy
JAKIM Jabatan Kemajuan Islam Malaysia
MM Mushārakah Mutanāqīṣah
n. d. No date
OIC Organization of the Islamic Conference
PLS Profit and Loss Sharing
PPA Property Purchase Agreement
PSA Property Sale Agreement
SAC Shari’ah Advisory Council
SC Shari’ah Committee
Sd. Standard Deviation
SPSS Statistical Package for the Social Sciences
v Verse
1
CHAPTER ONE
INTRODUCTION
1.0 INTRODUCTION
The first chapter intends to give a brief description of this study. This chapter will be
sectioned into three headings: background of study, literature review and research
methodology. Section 1.1 will explain the background of study, the problem
statements, and the objectives of the study, research question, contribution and
research organization. Meanwhile, section 1.2 will review past literature related to this
research topic. The literature has been written by three categories of researchers such
as institution, individual scholars and industry players. Final section will determine
the method that will be adopted in this study.
1.1 BACKGROUND OF STUDY
Economy is an essential element in the development of a country that eventually
affects the social well-being. Sudin & Wan Norsofiza1 defines economy as a branch of
knowledge about the ways people use existing resources to create products and
services for their use. A wise choice of limited resources to meet unlimited needs will
lead to economic justice. The Islamic economic system has been in existence since the
earlier prophets. The Islamic economic system aims to promote equality in wealth
1 Sudin & Wan Norsofiza, Islamic finance and banking system: philosophies, principles & practices
(Selangor: McGraw Hill, 2009).
2
distribution because Allah strongly condemns the monopoly of wealth by a particular
group.
Currently, Islamic banking industry plays a significant role towards the growth
of the economy worldwide. Although the Islamic banking industry began with
conventional banking that existed about 420 years ago (Homoud, 1986) it has shown a
gradual change since 1963 with the establishment of Islamic bank in Egypt namely
MitGhamr Local Saving Bank. The vast development of interest-free banking system
becomes clearer by offering a wide range of products and services in accordance with
Sharīʿah principles in the industry.
In Malaysia, Bank Islam Malaysia Berhad (BIMB) was the first Islamic bank
established in 1983 to spearhead the introduction of Islamic banking products and
services (International Sharīʿah Research Academy [ISRA], 2011). The establishment
of BIMB aims to cater to the needs of the Muslims in Malaysia by offering banking
products and services which are commonly available at conventional banks. Even
though on the surface, an Islamic bank offers similar range of products found in
conventional bank, the legal structure are free from the elements of ribā, gharar, and
maysīr. Good response among the Muslims to the Islamic banking product and
services has driven the conventional banks to offer Islamic banking products and
services through the Islamic banking windows, and to also branching into operating
Islamic subsidiary.
Islamic banks offer various banking products and services with different nature
to meet the different needs of the customers. Yet, the Islamic banking product offered
by the Islamic banks must be in line with the Sharīʿah objectives (maqāṣid Sharīʿah)
which are centralized on the objectives of accomplishing the development of both the
spiritual and social-economic well-being (Asim Anuar, Ezry Fahmy &Jhordy, 2009).
3
The Guidelines on Introduction of new products produced by Bank Negara Malaysia
(Bank Negara Malaysia [BNM], 2012) state that,
The new Sharīʿah -compliance products must
meet the following condition: a) the products
(including its accompanying documentations)
must be approved by the financial institution’s
Sharīʿah Committee (SC), b) the product’s
underlying Sharīʿah contract, structure and
features must be similar to the products that have
been approved by the SAC; and c) the product
must be consistent with the SAC resolutions.
This clearly shows that, each and every Islamic banking product must go through
various processes before being introduced in the industry. It is to ensure the ability of
Islamic banking products to compete with the conventional banking instruments and
become the best alternatives available to the Muslim community to substitute the
interest-based loan.
However, as we can see that, there are a number of Islamic banking products
being in dispute both in theories and applications among the Sharīʿah scholars. One of
the controversial products argued by the Sharīʿah scholars is Islamic home financing
which uses the contract of bayʿ bithaman ājil (deferred payment sale)2. Most of the
Islamic banks in Malaysia adopt the contract of bayʿ bithaman ājil (BBA) in Islamic
home financing compared to muḍārabah or mushārakah (partnership) contract. The
bayʿ bithaman ājil contract, however is not accepted in the Middle East countries such
as Saudi Arabia, Bahrain, and Dubai because of the structure of the contract is similar
with bay’ al-ʿīnah which involves the sale and buy back. The dominant contract that
are used in the Middle East country for Islamic home financing are mushārakah
2 Dzuljastri Abdul Razak&Fauziah Md. Taib, “Diminishing Partnership Home Financing Concept as an Alternative to Bai Bithaman Ajil (BBA): Empirical Evidences from the Perceptions of Shari’ah Scholars and Bankers” (2009) The 3rd ISDEV International Islamic Development Management Conference (IDMAC 2009): Islamic Capital Market.
4
mutanāqīṣah, ijārah muntahiyah bit tamleek, istiṣnā, and Forward ijārah (Kuwait
Finance House Research Ltd, 2010).
With regard to the dispute raised by the various Sharīʿah scholars pertaining to
the BBA home financing (debt-based financing), I realizes the importance and the
needs to further investigate the products to ensure it is complying with the objectives
of Sharīʿah (maqāṣid Sharīʿah) from every aspect. Researcher like Eddy Yusof et al.,
(2009) suggest that, debt-based financing (bayʿ bithaman ājil) is against the maqāṣid
Sharīʿah as there is no equality between poor and rich, while the equity financing
(mushārakah) may be evidenced to offer a better spectrums of customer regardless of
their financial capability. However, this suggestion maybe misleading, hence will be
discussed in this thesis. Furthermore, to what extent the mushārakah contract is
claimed to achieve the maqāṣid Sharīʿah? It is therefore, the aims of this research to
look into the maqāṣid aspect and how the debt based financing and the equity based
financing can fulfill the Sharīʿah objectives.
1.1.1 Problem Statement
Like any conventional bank, an Islamic bank is a financial intermediary between
surplus and deficit unit. Islamic bank also offers various products which are normally
available at conventional bank. What should distinguish an Islamic bank from the
conventional is that the Islamic bank aims to establish distributive justice free from all
sorts of exploitations (Elmelki anas, 2009). Furthermore, Islamic banks should not
only base on profit maximization, but they must also be concerned with social
welfare. In achieving the goal to establish distributive justice, each and every Islamic
financial institution must ensure that all products offered by them are not only
Sharīʿah compliance in their form but also their substance. On the other hand, the
5
product and services must also target to achieve the highest objectives of Sharīʿah
(maqāṣid Sharīʿah) which benefit the people and remove hardship from the
community (Mohd Herwan & Mohd Hawari, 2011).
Based on the statistic from BNM3, bayʿ bithaman ājil can be regarded as the
most popular Islamic financing contract in Malaysia, though it is not accepted by
many Sharīʿah scholars. In Malaysia, bayʿ bithaman ājil has been taken as the
underlying concept for most of the Islamic financing products in the last two decades.
In most cases, bayʿ bithaman ājil is being applied for home financing. However, there
are number of cases decided in Malaysian court of law which are normally on the
validity of bayʿ bithaman ājil contract and its implementation. In the verdict made by
the court in the case of Affin Bank v Zulkifli Bin Abdullah4 bayʿ bithaman ājil gives
the burden to the customer when it carries a higher financing balance compared to
conventional banks particularly when the customer is in default or at an early
settlement. As a result, some of the Islamic banks had introduced another asset
financing contract namely mushārakah mutanāqīṣah (diminishing partnership) as an
alternative to bayʿ bithaman ājil (Nooraslinda, Rohana, Rafidah, Roshayani,
Mardiyyah & Abdul Razak, 2011). This issue motivates the researcher to look at the
structure of a bayʿ bithaman ājil and the extent to which it brings benefits to society.
Although there have been many literatures discussing the debt-based financing
(bayʿ bithaman ājil) and equity-based financing (mushārakah mutanāqīṣah), analysis
on maqāṣid achievement is still lacking. This presents the gap in the literature. This
study raises the question on how the maqāṣid Sharīʿah can be achieved through these
two products.
3 Bank Negara Malaysia, Monthly Statistical Bulletin September 2012 at [XLS, 63K], <http://www.bnm.gov.my> viewed on 27 November 2012. 4 See Affin Bank Bhd v Zulkifli Abdullah [2006] 1 CLJ 438 for the detail cases
6
1.1.2 Objective of the Study
The main purpose of this study is to measure the maqāṣid achievement towards the
current practice of home financing. Main objective is expected to be achieved at the
end of the study through supplementary objectives listed below:
i. To examine the characteristic of maqāṣid Sharīʿah in two Islamic home
financing products namely bayʿ bithaman ājil (BBA) and mushārakah
mutanāqīṣah (MM)
ii. To examine the current practice of home financing in Islamic banking
industry.
iii. To compare between bayʿ bithaman ājil (BBA) and mushārakah mutanāqīṣah
in the perspective of maqāṣid achievement.
iv. To suggest any improvement in the current practices of Islamic home
financing in order to achieve the Sharīʿah objectives.
1.1.3 Research Questions
For the purpose of achieving those research objectives, research questions have been
outlined in table 1.1 below:
Table 1.1
Research objectives and Research questions
No. Research objectives Research Questions
i. To examine the characteristic of
maqāṣid Sharīʿah in two Islamic
home financing products
namely bayʿ bithaman ājil
(BBA) and mushārakah
mutanāqīṣah (MM).
a. What are the characteristics of
maqāṣid Sharīʿah?
b. What type of maqāṣid Sharīʿah
needs to be achieved in Islamic
banking products?
7
ii. To examine the current practice
of home financing in Islamic
banking industry.
a. What is the Modus operandi of
debt-based (BBA) financing and
equity financing (mushārakah
mutanāqīṣah) practiced by modern
Islamic banking institutions?
b. Is the practice considered as
Sharīʿah compliant?
c. Does the current practice able to
achieve maqāṣid Sharīʿah?
iii. To compare between bayʿ
bithaman ājil (BBA) and
mushārakah in the perspective
of maqāṣid achievement.
a. To what extent bayʿ bithaman ājil
and mushārakah achieve the
Sharīʿah objectives?
b. Which is more ideal to be practiced
in modern Islamic Banking from
perspective of maqāṣid al-
Sharīʿah?
iv. To suggest any improvements in
the current practices of Islamic
home financing in order to
achieve the Sharīʿah objectives
a. What is the drawback of the Islamic
home financing?
b. How it can be improved to ensure
that it achieves the objectives of
Sharīʿah?
1.1.4 Contribution of Study
Proper discussion throughout this paper will contribute to the body of knowledge as
this study address the issue pertaining to the maqāṣid al-Sharīʿah from a different
angle. The nature of the study helps the reader to have a better understanding of the
concept of maqāṣid al- Sharīʿah by highlighting the different definition and opinion of
maqāṣid al-Sharīʿah from various scholars. Besides, this study also presents the
specific characteristic of Sharīʿah objectives as a yardstick to measure the level of
maqāṣid achievement based on the Islamic banking products.
In addition, new perspective of study relating to the maqāṣid achievement on
debt-based financing (bayʿ bithaman ājil) and equity based financing (mushārakah)
8
brings about the awareness among the practitioner and the public to look for the best
alternative for asset financing to be practiced in the future. The finding of this study
would also provide the starting point for Islamic banking institutions to move forward
in line with the Sharīʿah principle so as to ensure the survival and growth of the
Islamic banking industry.
1.1.5 Organization of study
This paper consists of five chapters. The first chapter offers the layout of this research.
This chapter has been divided into three sub-sections which briefly explain the
background of the study, literature review and the research methodology adopted in
this thesis. The next chapter will focus on the objectives of the Islamic law (maqāṣid
al- Sharīʿah) in the perspective of Islamic home financing. Then the following chapter
will elaborate on the current practice of Islamic home financing using two Islamic
principles termed as bayʿ bithaman ājil and mushārakah mutanāqīṣah. It also
discusses some issues or arguments arise in these products. Meanwhile, chapter four
will offer the research finding to evaluate the variables. Finally, in Chapter 5, I will
conclude the whole research study and also to see whether each research objectives
has been achieved or not. I will also provide some recommendation for future
research.
1.2 LITERATURE REVIEW
Extensive researches have been done by the academician, practitioner and scholars
related to the topic of this study. In this section, I will classify the literature into three
categories of researchers. The immediate category will view on the research done by
the institutional level. Later, followed by the discussion carried by individual scholars
9
and final category will be focusing on the discussion by the industry players or
practitioners.
1.2.1 Institutional level
Literature review under the institutional level will be classified into two sub-topics.
The first literature consists of discussion on mushārakah mutanāqīṣah, while the other
will focus on bayʿ bithaman ājil.
a) Mushārakah mutanāqīṣah
Among the literature reviewed under the mushārakah mutanāqīṣah is research entitled
mushārakah mutanāqīṣah and Its Sharīʿah Parameters by Dr. ‘Abd al-Sattar Abu
Ghuddah. The paper was presented at the 15th
session of the International Islamic Fiqh
Academy of the Organization of the Islamic Conference (OIC), in 2004 held in
Musqat, Oman. The presentations lead to the resolution issued by the institution as
follow:
Mushārakah mutanāqīṣah is permissible, if the
laws of partnership are observed and the following
rules are taken into consideration: a) Non-
existence of undertaking for either of the partners
to purchase the shares of the other partner at cost
price. b) Non-existence of stipulation for one of
the partners to bear the entire insurance or
maintenance expenses. The expenses should
instead be borne in proportion to each partner’s
shares. c) Profit should be distributed based on the
profit sharing ratio. d) Detailing the contract and
obligations involved in the mushārakah
mutanāqīṣah transaction. e) There should be no
stipulation to prevent either of the partners to
withdraw his contribution (funding).5
5 ISRA, Al-mushārakah Al-mutanaqisah And Its Shari’ah Rules (Resolution No. 136 (15/2) 2004 by The International Council Of Fiqh Academy) <http://www.isra.my/fatwas/topics/commercial-banking/financing/mushārakah/item/> viewed on 16 January 2013
10
The other issue arising in the implementation of mushārakah mutanāqīṣah has
been discussed by Sharīʿah Advisory council of Bank Negara Malaysia in its 56th
meeting held on 5th
February 2006. The discussion resolved that:
In implementing mushārakah mutanāqīṣah
contract, it is permissible for the contracting
parties to: a) combine the two contacts of
mushārakah and ijārah in one document of
agreement, as long as both contracts are concluded
separately and clearly not mixed between each
other; and b) impose a pledge on the shares owned
by the customer because the right of beneficial
ownership is recognized by Sharīʿah.6
For the purpose of helping the Islamic financial services industry to identify,
understand, apply and distinguish the contract of mushārakah mutanāqīṣah from other
contract prevalent in the industry, Sharīʿah Advisory Council of Bank Negara
Malaysia has issued a draft of Sharīʿah Parameter for mushārakah contract in 2010.
The parameter highlights various financial instruments including mushārakah
mutanāqīṣah, mushārakah financing and mushārakah investment. In particular,
specific features of mushārakah mutanāqīṣah were outlined in the parameter.7The
existence of parameter support two resolutions regarding the mushārakah
mutanāqīṣah made by the International Islamic Fiqh Academy of the Organization of
the Islamic Conference (OIC) and Sharīʿah Advisory council of Bank Negara
Malaysia.
6 BNM, Resolution of Shariah Advisory Council of Bank Negara Malaysia, <http://www.bnm.gov.my/guidelines/01_banking/04_prudential_stds/07_shariah_resolution.pdf> viewed on 23 January 2013, page 10/37 7 Draft of Shariah Parameter Reference 4: Mushārakah contract, http://www.bnm.gov.my/guidelines/05_shariah/04_draft_shariah%20parameter_spr4.pdf viewed on 23 January 2013
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b) Al-bayʿ bithaman ājil
Another research area is the issue of ibrāʾ (rebate) in bayʿ bithaman ājil contract.
Sharīʿah Advisory council of Bank Negara Malaysia in its 24th
meeting (24th
April
2002) resolved that the Islamic banking institutions are allowed to provide ibrāʾ to the
customers who make early settlement and the clause shall be stipulated under the
method of payment.8 In addition, the council in its 101
st meeting on 20
th May 2010
decided that:
IBIs are required to grant ibrāʾ to all customers
who settle their financing before the end of their
financing tenure, but is not limited to the
following situations: a) customer who makes an
early settlement including those arising from
prepayments, b) settlement of the original
financing contract due to restructuring exercise, c)
settlement by customers in the case of default, d)
settlement by customers in the event of
termination of financing before the maturity date.9
The guidelines issued also include the calculation of ibrāʾ together with illustrations
on the implementation of ibrāʾ. This is because, ibrāʾ is one of the issues arises in the
bayʿ bithaman ājil contract being discussed in most Islamic banking cases in
Malaysia. Another issue will also be included in this thesis.
1.2.2 Individual Scholars
There are some other literature under reviewed were conducted by individual scholars
who aware on the issues and attempted to resolve it for the benefit of the Islamic
financing industry and the Muslim community. As for the individual scholars, the
8 BNM, Resolution of Shariah Advisory Council of Bank Negara Malaysia, <http://www.bnm.gov.my/guidelines/01_banking/04_prudential_stds/07_shariah_resolution.pdf> viewed on 23 January 2013, page 31/37 9 BNM, Guidelines on Ibrāʾ (Rebate) for Sale-Based Financing, <http://www.bnm.gov.my/guidelines/01_banking/04_prudential_stds/ibra.pdf> viewed on 25 February 2013, Page 6/21.
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researcher has sub-divided the literature into two categories. Bayʿ bithaman ājil and
mushārakah mutanāqīṣah represent the first category, while the maqāṣid Sharīʿah
represents the second category.
a) Al-bayʿ bithaman ājil and Mushārakah mutanāqīṣah
The most recent article written by Apnizan Abdullah entitled ‘Does Our PLS (Profit
and Loss Sharing) Paradigm Resemble Its True Concepts?’ was published in ISRA
bulletin in December 2012. In the article, the writer stresses that the true profit and
loss-based financing (muḍārabah and mushārakah) concept was not correctly
implemented. He further argues that, although the mushārakah mutanāqīṣah connotes
the PLS paradigm, the corresponding substance is virtually a debt-based instrument.
However, in my opinion, the argument is unfounded because writer does not give any
proof to support the argument.
In section two (Islamic banking products) of a book written by Saiful azhar
Rosly,10
one issue of bayʿ bithaman ājil contract is addressed. The issue addressed is
“what type of bayʿ bithaman ājil to offer – a fixed rate or a flexible rate bayʿ bithaman
ājil?” He further explains that the floating rate bayʿ bithaman ājil is a better option to
the bank only if the interest rate goes up. Otherwise, it will cause the Islamic bank to
suffer losses if the interest rate declines. The writer suggested partnership contract
known as mushārakah mutanāqīṣah as it can solve the problem of choice in uncertain
economic condition.
In other sub-topic under the same section, the writer argues on the availability
of ‘iwad (equivalent counter value) in the profit generated from the contract of bayʿ
10 Saiful Azhar Rosly, Critical issues on Islamic Banking and Financial Markets: Islamic Economics, Banking and Finance, Investments, Takaful and Financial Planning, (Kuala Lumpur: Dinamas Publishing, 2005), 141.