In his book, Islamic Finance,Mufi Taqi Usmaani explains that the
western concept of a legal entity or juridical person (the company)
with its effect of limited liability is permissible in Islam. In
terms of this concept the partners in a business are not responsible
for all the debts they incur. They are committed for only the initial
capital of the company. Their private assets cannot be acquired by
the creditors if the company's assets are insufficient to settle the
debts. Please comment.
Hadhrat Mufti Taqi Saheb has erred in his opinion on this matter.
Islam does not recognize the concept of a fictitious person called
`juridical person'. Islam also holds the debtors liable for their
full debt. They cannot escape their liabilities, responsibilities and
obligations under cover of the kuffaar company-concept. The creditors
will have the right to demand their Huqooq even in Qiyaamah. We have
written a refutation of the view presented by Hadhrat Mufti Taqi
Saheb. Anyone interested in the detailed discussion may write to us
for a copy. Please send a stamp of R3. People from other countries
should not send stamps. Stamps of other countries cannot be used in
Also in his book, Mufti Taqi legalizes interest on late payment of
instalments. He calls it a `penalty' payment. But this is interest
called by another name. What is the Shariah's ruling on this question?
Interest called by any name remains haraam. The `penalty' mentioned
is haraam riba. The arguments which Hadhrat Mufti Taqi Saheb
presented in his book are exceedingly weak, in fact spurious. This
opinion militates against all the Nusoos (categoric Qur'aanic aayaat
and Ahaadith of the Mutawaatir category). There is no scope for this
`penalty'. Insha'Allah, we are in the process of preparing a
refutation in response to the arguments which Hadhrat Mufti Taqi
Saheb has presented in substantiation of the legality of interest on
late payment of instalments.
Note: Read "Penalty of Default" in the books sections of this website
for a detailed discussion.
Our opinion, based upon the above-mentioned substantiations, is that
purchasing shares is not permissible and receiving proceeds upon them
will be Riba. We urge the public to refrain from investing in such
ventures. There are other permissible income generating alternatives.
Thus, we advise looking into other alternatives as a means of saving
one's income from Haram wealth. May Allah Ta'ala grant us all the
courage to remain steadfast upon all the injunctions of Shariah.
"ISLAMIC BANKS AND RIBA"
The Al-Baraka Islamic Bank charges a 'penalty' on late payment of
instalments. Is this not like the interest which non-Muslim banks
charge when an instalment is not met on due date? Al-Baraka claims
that Mufti Taqi Usmani of Karachi Darul Uloom, Pakistan has given the
okay for this 'penalty'. Please comment.
The `penalty' which Al-Baraka allegedly charges on overdue
instalments is haraam riba. Interest cannot be legalized by changing
its name and calling it penalty. Whether interest is described as
penalty, profit, dividend, service fee, etc., it remains haraam riba.
We do not know what question Al-Baraka has posed to Mufti Taqi Saheb
and in which way the question was adorned nor have we seen the
Mufti's fatwa or opinion. But, even if Mufti Taqi Saheb has issued a
`fatwa' of permissibility, it is a grievious blunder and not a fatwa
of the Shariah. It will be his personal opinion which has no validity
in the Shariah.
The modernists who are anti-Taqleed and who have shrugged off the
Taqleed of the Math-habs, are quick to hide behind the skirts of
liberal-minded scholars like Mufti Taqi Saheb who generally presents
his personal opinion on contemporary issues. Mufti Taqi Saheb's
opinions are becoming increasingly contradictory of the Shariah.
Hence, we cannot attach much importance to what he says. In view of
his liberal attitude and quick presentation of opinion we find
modernists like Judge Navsa of the MPL committee and modernists
attached to banks and similar institutions looking up to him for such
"fatwas" which depart from the Shariah and which are widely divergent
from Shar'i views which have been reliably transmitted to us from the
Akaabireen. There is no doubt in the prohibition of the interest
which Al-Baraka charges and which it tries to conceal under
subterfuge of the misnomer, `penalty'.
When buying a vehicle through Al-Baraka Islamic Bank, they insist
that we take out insurance. Is this permissible. We have all along
understood that insurance is haraam. How can an Islamic bank
stipulate that a Muslim client takes out insurance?
Al-Baraka and similar other Muslim banks are far from Islamic. They
generally operate in the same way as the non-Muslim banks. People are
confused and misled with the many Islamic terms they use to describe
their transactions and deals. The fact that they deal in interest and
impose haraam riba insurance on Muslim clients testify to the
hollowness of their claims. Insurance is haraam. It is haraam for a
Muslim bank to stipulate insurance.
A vehicle nowadays is a necessity. Even if it is not solely for
business purposes, those who are observant of Purdah find it
extremely difficult to move from place to place without their own
vehicle. Beside that proper purdah cannot be observed when using
public transport, there are too many dangers. There is no need to
explain these. The only way most people can acquire a vehicle is
through the banks. But the banks all deal in interest. Is there any
way in which a bank deal could be made to conform to the Shariah?
Undoubtedly, all banks, even the so-called `Islamic' banks deal in
riba. But there is a way in which a deal could be made to conform to
the Shariah even if the bank is a non-Muslim one. It is really a
simple issue. The only requirement is that the bank be made to
understand that the contract should be correctly worded. Firstly, the
bank has to purchase the vehicle. This is what the bank in any case
does. The bank being the owner of the vehicle sells it to the client.
The price of the vehicle (not the cash price) should be clearly
stated in the contract. The price will be the sum of the deposit and
all the instalments. This full amount should be recorded so that the
client is fully aware of the purchase price at the time of the
transaction. The client should not obtain insurance. Insurance is
haraam. The bank should take out insurance if it wishes. The bank
should pay for the insurance. It being a non-Muslim institution, it
can do as it pleases. The bank knows the total amount it wants for
the vehicle at the end of the day. The total amount the bank wants
comprises of the cash price, the finance charges (interest), the
insurance and whatever other charges there may be. The buyer of the
vehicle should be concerned with only the end figure which is his
purchase price. This end price must be stated at the time of the
transaction. The buyer simply purchases the vehicle for this final
amount which is paid in a specified number of fixed monthly
The bank should work its charges, etc. into the price and present a
final single figure to the buyer. The following example illustrates
Cash price of vehicle ... R100,000
Insurance paid by the bank... 30,000
Finance charges, etc. ... 70,000
The purchase price is R200,000. This is the amount which the contract/
agreement should state. The buyer knows now that he is buying the
vehicle for R200,000. It does not matter how the bank structures its
calculation to reach this figure. It can do this as it pleases. The
buyer is interested in only the R200,000 which he will pay in 60
equal monthly instalments. In fact, the instalments need not be
equal. Any amounts could be agreed on as long as the instalments are
fixed and known.
There should be no interest (`penalty') charged for any late payment
of instalments. The bank has to take into consideration all these
factors and the "rate of interest" over the 60 months. There should
be no hidden charges which will later surface in the statements. If a
bank agrees to this simple system, buying a vehicle or even a
property in this way will be permissible irrespective of the bank
being a non-Muslim bank or a so-called `Islamic' bank.
If a bank is made to understand the practicality of this simple
method, it will in fact render itself a favour.. There is no need for
the fancy religious sounding terms of muraabahah, mudhaarabah,
mushaarakah, etc., etc. Buying a vehicle or a property on credit is
the same as buying a loaf of bread or any item on credit.
The bank may be required by law to follow certain procedures to
satisfy certain acts such as the Usury Act, etc. That is the non-
Muslim bank's problem. The bank can draw up its usual agreement to
satisfy the law. But as far as the buyer of the vehicle/property is
concerned, there are only two elements in the transaction:
The fixed purchase price which is declared at the time of the
The specified number of fixed monthly instalments into which the
purchase price is divided.
There is nothing else. No insurance, no penalty (interest) for late
payment and no hidden charges which would cause the instalments to
fluctuate. Such a deal is valid and permissible in the Shariah.
To secure its interests, the bank can pass an interest-free bond over
the item (the vehicle or property, etc.), or have what they term a
Leasing a vehicle or any equipment from a bank can also be validly
transacted. Leasing in fact may be simpler than purchasing. only the
monthly rental has to be agreed on. The rental will be fixed monthly
payments and the lease term has to be specified. There should be no
ambiguity and no hidden charges. The bank has to work all its charges
into the fixed monthly rental payment. At the end of the lease term,
the bank (the lessor) and the lessee can enter into a sale agreement.
The bank can sell the vehicle/equipment, etc. to the lessee for a
price which will be mutually agreed on. This should pose no problem
as presently the banks sell the leased vehicle to the lessee for a
nominal price at the end of the lease term.
However, in the leasing system, it cannot be stipulated that the bank
is obliged to sell the vehicle to the lessee at the end of the term.
The sale is voluntary.