Question 14: The practice of Ujrah is widely accepted by Muslim scholars. Discuss the concept and practice of this product in the Muslim world.

LAW 737Question 14: The practice of Ujrah is widely accepted by Muslim scholars. Discuss the concept and practice of this product in the Muslim world.Prepared by:Ainul Mardiyah Bt Mohd Ali 2012816858Tunku Erika Nabila Bt Tunku Hishammudin 2012593153Zamriah Zarifah Bt Aris 2012638436IntroductionThe definition

Ujrah refers to rental or fees for usage of labour and benefits. In the current economic context, it may be applied to salaries, wages, fees and commission.

The ResolutionThe SAC, in its 77th meeting dated 3 July 2008 and 78th meeting dated 30 July 2008, has resolved that the proposed credit card structured based on the concept of ujrah is permissible subject to the following conditions:

Islamic financial institutions shall ensure that the ujrah is imposed as a consideration for the provision of actual or non-fictitious services, benefits and privileges that are permissible under Shariah;The imposition of different amount of ujrah on various types of credit cards that offer different kind of services, benefits and privileges is permissible;The imposition of ujrah on the services, benefits and privileges which are not related to qard , deferment of debt and exchange of cash with cash at a different value is permissible; and The imposition of ujrah on the services, benefits and privileges relating to qard , deferment of debt and exchange of cash with cash at a different value is not permissible. However, charges may be imposed to cover the actual management cost (nafaqah/taklufah).

Basis of the rulingUjrah refers to a fee that is permissible in Islam based on sources from the verse of al-Quran and hadith as follows: Allah SWT says:... the best of men for you to hire is the strong, the trustworthy. A hadith of Rasulullah SAW provides:Pay the worker his wages before his sweat dries off. Surah al-Qasas, verse 26

Muslim scholars opinion about UjrahCustomers utilization of credit financing given by bank;The Hanafis have ruled that any loan that results in a benefit to the lender is forbidden if the benefit was stipulated as a condition. However, they ruled that if the benefit was not stipulated as a condition and was not expected based on the convention, there is no harm.The Malikis ruled that any loan that results in a benefit to the lender is defective (fasid) since it constitutes riba thus, it is forbidden to benefit from any property of the borrower.The Shafiie and Hanbalis also ruled that any loan that results in a benefit to the lender is not permitted. There is an example of hadith of forbidden of loans beneficial which narrated that Ubay Ibn Kaab, ibn Masud and Ibn Abbas:-

All forbade any loan that results in a benefit to the lender al-Sunan al-KubraThe concept of UjrahAccording to Dr Wahbah al-Zuhayli, the loans are permitted as a form of charity, where the lender gives up the usage of the goods for the period of the loan. Loans are forbidden if they do not serve such a charitable cause. For example if the lender gets some benefit out of extending a loan. Ibn Abbas narrated a hadith:

"Lending something twice is better than giving (once and for all) it in charity"

The product of UjrahCredit card or better known as Islamic credit card is one of the alternative to banking products introduced by Islamic financial institutions in Malaysia to substitute the conventional banking products. Bank Negara Shariah has been recognized Islamic credit card as the Shariah compliant product by Advisory Council. It was established by Bank Negara Malaysia under the Guidelines of Islamic Credit Card dated on 1st August 2004.

On 29th June 2007, Bank Negara reported that, until May 2007, the total financing given by Islamic banking institutions through the Islamic credit card product had reached RM577 million. It could be said that Islamic credit card has played a vital role in the development and success of Islamic banking in Malaysia.

Generally, a number of products have been adopted to produce the Islamic credit card in Muslim country which is based on bay al-inah, tawarruq, hiwalah, ujrah, kafalah and wakalah. The Islamic credit card in Malaysia is executed by using the contract of bay al-inah, tawarruq and ujrah.Practice of UjrahIn the Islamic banking, guarantees are intended to protected obligations and protect the failure to pay the amount of debts. Such guarantees may take the form of written documents, attestations, personal guarantees and pledges. The Shariah scholars of Malaysia and Gulf Cooperation Council (GCC) countries approve the practise of charging ujrah (fee) for a guarantee.

Shariah scholars of GCC countries are of the opinion that the fee should not exceed the actual expenses while Malaysian scholars do not stipulate that as a condition, which means that the guarantor may charge more than the actual expenses.

Under this structure, the bank manages and maintains the Islamic credit card facility for the customer and charges fees (ujrah) for the services. Other contractual principles applicable in the structure are guarantee (kafalah) and advancement of money (qar).

When the customer uses the card to make purchases, the bank provides a guarantee to the merchants on payments.

How Ujrah benefited people?The bank will give the credit facility to the customer through the credit card account and maintains the credit card facility and charges the fees (ujrah) for the services. The customer will pay the charges according to the usage of the card.

Example:-The cardholder who pay in full on or before the payment due date of the previous months statement will enjoy management charge-free period of 20 days for all retail transactions for current month only. Furthermore, the cardholders who only partially settle their previous months outstanding balances on or before the payment due date will be charged an actual management charge as per applicable tiered structure for all retail transactions from posting date of the said retail transactions.

The practice of Ujrah in MalaysiaCIMB Islamic defines Ujrah concept as payment in exchange for services, benefits and privileges offered to the cardholders and they offered CIMB Islamic MasterCard to its customer. Maybank Islamic Berhad also converted the underlying Shariah principle of all their Islamic credit cards from the Bai' Inah to Ujrah concept. Maybank Islamic Berhad defines Ujrah as payment fee on service in exchange for services rendered.

Ujrah concept in education financingThe National Higher Education Fund Corporation (PTPTN) provides the services, benefits and privileges to borrower by giving the service (i.e loan) in advance and the borrower has to pay fee on service in exchange for services rendered.

Currently, PTPTN has begun implementing education financing using the Ujrah concept. PTPTN is in the process of offering the exchange of 3% loan to 1% Ujrah loan in stages. The loan exchange process period from 3% & 5% to 1%. The 1% is a flat rate and will not be burdensome to the borrower to pay back their loan.

Special Muzakarah (Conference) of the Fatwa Committee National Council of Islamic Religious Affairs MalaysiaThe Committee have agreed with the service charge imposed by PTPTN to the students on the concept of ujrah (hire) and the amount charged must not be burdensome on students.

The PTPTN can impose tawidh (penalty) to those who already have a job and are financially capable to pay back the loan but intentionally refuse to repay the loans. For those who are still jobless and are not financially capable, penalty should not be imposed.

The PTPTN should give rebate (ibra) to students who managed to completely repay their loans earlier than the agreed date.

Last but not least, they agreed with the proposal to implement the PTPTN based on the concept of ujra at every level of education and applicable to all students irrespective of their religion and race.

Practice of Ujrah in other countriesPractice in Indonesia

The pioneer of the development Islamic credit card in Indonesia is Syariah Division of Bank Danamon. On July 18th 2007, a collaborative product between Bank Danamon and MasterCard launched the first Islamic credit card in Indonesia, called Dirham Card. Bank Danamon acts as a guarantor (kaafil) for the card holder. It will guarantee all the payments coming from all transactions which may come from buy and sale transactions between merchants and card holder or from cash withdrawal from Bank Danamons ATM or other banks which have strategic partnership with it. For example, a card holder bought a bag at Vincci by using Dirham Card. Vincci as the merchant will confirm to bank Danamon as card publisher. Then, the bank will guarantee that the customer can pay the price. If the payment time is due, the customer will pay the price to the bank.The bank, which offer guarantee of payment, has a right to collect fees (ujrah kafalah). DSN MUI stated that, cards publisher as the payments service provider the card holder. For this ijarah, card holder will be charged by the membership fee.

Practice in BruneiBank Islam Brunei Darussalam Berhad (BIBD) is Bruneis largest Islamic financial institution. BIBD is a full-service bank, providing Islamic financial services to its entire customer. BIBD also offers only Shariah Compliant financing card and in this case, the cardholder enters a contract with BIBD, allowing the bank to perform transactions on customers behalf and the same transaction will apply whereby the customer has to pay the pay fee on service in exchange for services rendered.

ConclusionIt is argued that the high management charges for the services rendered (Ujrah) which are benchmarked with the conventional credit cards does not reflect the actual fees of services. This high fee shows that Islamic credit card aims at making revenue and profit and not to become alternatives to the conventional credit card, but to compete with it instead.It is suggested that the applied structures of Islamic credit card and its operations should be revised from time to time to make sure that it complies with the Shariah principle.

RecommendationAnalyzing the structures of Islamic credit card, it is suggested that the business operations and the models should be reviewed from time to time towards shariah complaint. In light, diligent shariah complaint inspection and audit are necessary.The applied structures of Islamic credit card and its operations should be revised from time to time to make sure that it complies with the Shariah principles.

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