Islamic Finance

 

Shariah Compliant Business Campaign

(SCBC)

 

A believer’s focus in all aspects of life is on accountability in the court of Allah. It is this consciousness that keeps a believer straight and upright in his religious obligations. Rasulullah Sallallāhu Alayhi Wasallam is reported to have mentioned:

 

لا تزول قدما ابن آدم يوم القيامة من عند ربه حتى يسأل عن خمس عن عمره فيما أفناه وعن شبابه فيما أبلاه وعـن ماله من أين أكتسبه وفيـم أنفقه وما عمـل فيما علم ) وفي لفظ من حديث أبي برزة الأسلمي ( لا تزول قدما عبد يوم القيامة حتى يسأل عن عمره فيما أفناه وعن علمه فيم فعل وعن ماله من أين اكتسبه وفيم أنفقه وعن جسمه فيم أبلاه

 

“The two feet of the son of Adam will not move from near his Lord on the Day of Judgment until he is asked about five (matters):

 

1. About his life – how he spent it;

2. About his youth – how he took care of it;

3. About his wealth – how he earned it; and

4. Where he spent it; and

5. About that which he acted upon from the knowledge he acquired.” (Tirmidhi)

 

It is clear from the Hadith that monetary issues are a crucial determination for a person’s eternal success or destruction. The Darul Iftaa has thus embarked on a Shariah Compliant Business Campaign to educate people on Shariah Compliancy in monetary issues. Our approach is a positive one in which we:

 

  • Encourage people through virtues of business in light of the Quran and Ahadith and inspirational incidents.
  • Identify unislamic practices in the business sector and advise on the Shariah alternative.
  • Empower people with a daily email on one business related issue.
  • Mediate/Arbitrate in Commercial related disputes and issue a settlement/decree respectively according to Shariah.
  • Shariah auditing on Business.

 

Alhamdulillah, the Darul Iftaa has conducted 10 Business Campaigns with an average of 700 people per session. The campaign has generated a huge interest in people and created a realization of Shariah Compliance in monetary issues.

 

Rasulullah Sallallāhu Alayhi Wasallam said:

طلب كسب الحلال فريضة بعد الفريضة

“Seeking of Halal sustenance is an obligation after an obligation” (Mishkaat)

Economic Crisis: How can Islamic Finance Help?

 

The Global Financial Crisis has triggered an unprecedented wave of action calls from various financial institutions, reserve banks, economists and bankers across the World. The European Sovereign Debt Crisis has increased the urgency of this call of action. How do we prevent such an event occurring in the future?

It is critical and fundamentally important that we determine the primary causes of the crisis. It is an undeniable fact that the fundamental cause of the crisis was excessive and imprudent lending by the banks and financial institutions. Over leveraging, deceptive brokerage, derivatives, mezzanine financing and deregulation all played a role in the crisis.

 

The U.S. Financial Crisis Inquiry Commission reported its findings in January 2011. It concluded that "The crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels."1

 

While economists are struggling with solutions and mechanisms to avert the possibility of a future meltdown, they have failed to realize that the inherent structure and system of the conventional economic system is flawed.

 

Islamic Finance

 

Islam provides the solution in establishing a just and equitable economic system. Classical Shariah Law has addressed the concepts of financial schemes, equity funds, cession, surety, collateral, debentures, future sales, etc.

 

The Shariah provides various solutions to contemporary and modern day economics. One of the key elements of an Islamic Economy is that of asset financing. Islamic Finance is backed by physical goods and services while conventional institutions merely deal in financial papers and debt financing. Islam does not consider money as an object of trade. Money is merely a medium of exchange having no intrinsic utility. Much of the global crisis was caused through the sale of debt in the form of derivatives, CDO’s, CDS’s, etc. This would have never happened in an ideal Islamic Economy.

 

The most ideal forms of Islamic Financing are the profit and loss sharing modes of Mudaraba (Commenda) and Musharaka (Equity Partnership). In both cases, both the transacting parties share in the profits according to any mutually agreed upon ratio. In the case of Mudaraba, the financier bears the loss while both the parties share the loss according to total the amount of financing in the case of Musharaka.

 

We must continue searching for the solutions and answers through Shariah in realizing a just and equitable economic system.

 

ghuraba

 

Question:

I was told that Mufti Ebrahim Desai is the main scholar backing the Islamic Mortgage in Canada that is known as Zero Mortgage: http://www.zeromortgage.ca/ with a financial institution, Think Financial: http://www.thinkfinancial.ca/?&mkwid=sgaF3aOjd|dc&pcrid=93004652792&pkw=think%20financial&pmt=e&gclid=CKzTsO7ontACFRCqaQodQnIGnw#think-financial

I just wanted to confirm that Mufti Ebrahim Desai is actually backing this Halal Mortgage. I have attached the Musharakah agreement that i was given by them. Along with this, we are required to sign a second document from the Financial institution stating that we will be paying interest where the interest rate is the same as the Rent payment of the Halal Mortgage. 

 

Answer:

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

I have studied the Musharakah Home Financing Agreement of Zero Mortgage whose offices are based in suite 2408, Emirates Financial Towers(South), Dubai International Financial Centre(DIFC), Dubai.

I understand the contract to be a Diminishing Musharakah Contract which comprises of three separate steps,

1)    Partnership of the house between the client and Zero Mortgage.

2)    The client hires Zero Mortgages portion of the house.

3)    The client will gradually purchase Zero Mortgages share of the property as units.

The document refers to a Musharakah Agreement. The concept of Diminishing Musharakah is deduced from the last paragraph of the contract after clause 16 in which there is reference to Ijarah and the client buying Zero Mortgages share. The Shariah Compliance of a Diminishing Musharakah depends on the Shariah Compliance of each one of the three transactions in references. Those contracts are not attached. Furthermore, in the Musharakah Contract clauses 7,8 and 11 do not reflect the laws of Musharakah. It is also important to note that the sequence of the various transactions is vital in determining the Shariah Compliancy of the transactions. That too is not attached here for my observations.

I also have difficulty in understanding the deal being done in Canada and Clause 14 which state, `This agreement shall be governed by the laws of United Arab Emirates, and the parties hereto agree to the exclusive jurisdiction of the courts of United Arab Emirates.’

Accordingly, and according to the document in reference, it is my submission that the Musharakah Home Financing Agreement of Zero Mortgage does notreflect a proper Shariah Compliant Musharakah and Diminishing Musharakah. If I am provided with further conclusive details of the contract, I will review my opinion at that stage.

- MUFTI EBRAHIM DESAI

 

    Shariah Auditing & Consultation

     

    The Darul Iftaa conducts free Shariah Consultations and Auditing of Financial Institutions, Investment Corporations and Business Houses.

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