Abdulazeem Abozaid –
Rules governing contracts should serve the purpose of fulfilling the contractors’ needs in a just, positive and productive manner.
Therefore, contractors in Sharia are not allowed to make personal stipulations that may annul the contract rules.
Naturally, a contractor, when given an absolute right in making stipulations, tends to tilt the scale to his favour probably at the expense of the other contractor.
However, we find in some cases, especially in Uqud Al-Ezan (contracts of subjection) where only one party of the contract formulates the contract, that some contracts rules are indirectly neutralised by adjusting some clauses or incorporating new ones as in the following example.
A good example
Being a contract of lease, Ijarah Muntahia Bittamlik in the Islamic banking application is supposed to fulfill the following basic Sharia structural conditions:
The leased asset requested for financing is valuable from Sharia perspective and not declared by the client to be used for Haram (unlawful) purposes. This would exclude, for example, financing clients in acquiring machineries that process tobacco products.
The leased asset is clearly identified by the parties and the rent is specified in the contract. If there is any gharar (uncertainty) involved with respect to the asset or the rent, then it shall not be excessive, for Sharia tolerates minor gharar only.
The leased property remains in the ownership of the lessor for the duration of the Ijarah period, and then it is transferred to the lessee by virtue of a completely independent contract, like sale or gift.
The bank, as lessor, bears all liabilities related to ownership, as property taxes and major maintenance required for keeping the asset valid for usage by the client.
The lease period commences from the date on which the leased asset has been delivered to the lessee.
Consistent compliance
These are the basic rules of Ijarah Muntahia Bittamlik, and a general investigation of any of its contracts in Islamic banks will prove consistency and full abidance.
However, some apparently valid clauses are added to this contract, leading to the deactivation of some of these basic rules and thus to the negligence and distortion of the Ijarah essence.
One clause relates to the division of lease rental into three elements: fixed, variable and complementary. The problem, however, lies with the complementary rent and to a certain extent with the variable rent. The complementary rent represents any cost the bank as owner has incurred in the past Ijarah period.
Abdulazeem Abozaid is Associate Professor of Islamic Finance Programme at Qatar Foundation, Qatar. The above is the fourth of several parts of the Paper that he presented at the 11th Conference of Western Economic Association International hosted by Victoria University and Massey University at Te Papa Museum, Wellington from January 8 to 11, 2015. Emails: aabozaid@qfis.edu.qa; abozaid.abdulazeem@gmail.com
