Question

Assalaamu Alaikum wa Rahmatullah wa Barakatuhu

Our esteemed Sheikh, I would like to request from you that you clarify the hukm (ruling) on dealing with Islamic banks, specifically the issue of profit sales (murabaha) such as buying a car or house through the Islamic bank. I know that it is haram but when I give advice to someone regarding this I cannot explain the matter in details. I would like to give an example from our reality that people say it resembles the Islamic Bank in how they deal... where we reside you can make an agreement with the building companies to build a complete house for you in payment instalments (checks) while they contract welders, carpenters, cement...etc. for a specific rate for the materials (e.g.15%), and while they do not own the house, is there any difference between this transaction and that?

Answer

Wa Alaikumu Assalaam wa Rahmatullah wa Barakaatuhu

1. Islamic banks transactions which are called profit sales are transactions contradictory to the Shari', as highlighted in the following:

First: The bank conducts the contract of sale with the buyer before it buys the car or refrigerator. The Prophet (saw) prohibited selling of that which you do not own, from Hakeem Ibn Hizam, said:

قَالَ: قُلْتُ: يَا رَسُولَ اللَّهِ، يَأْتِينِي الرَّجُلُ يَسْأَلُنِي الْبَيْعَ، لَيْسَ عِنْدِي مَا أَبِيعُهُ، ثُمَّ أَبِيعُهُ مِنَ السُّوقِ فَقَالَ: لَا تَبِعْ مَا لَيْسَ عِنْدَكَ

I said: "O Messenger of Allah, a man comes to me to buy (a product), but I do not have what he asks for, I sell it to him later from the market". He (saw) said: "Do not sell that which you do not own". [Narrated by Ahmad]

This man asked the Prophet (saw) about the buyer who comes to buy a product from him which he does not have, so he goes to the market and buys it then sells it to him.

The Prophet (saw) prohibited him from this unless the product is with him and he presents it to the buyer, if the buyer wishes to purchase or not.

To elaborate further: The one who asks the bank for a financial loan, he will be questioned by the bank for the reasons for borrowing the loan or money. The borrower will say that it is to buy a refrigerator or car or washing machine, the bank will conduct the deal with him to buy the product for him and then sells it to him in instalments for a certain price.

This agreement becomes binding even before the bank purchases the refrigerator for the person; the person cannot back down from buying the refrigerator from the bank, because the agreement with the bank has taken place before the product became the possession of the bank, the contract is conducted before the bank owns the refrigerator.

It is incorrect to say that the bank sells the product to the buyer after the bank have bought it, because the contract between the bank and the buyer was conducted on a binding basis before the bank purchases the product with the proof that the buyer cannot refuse to buy it after it has been purchased by the bank for him, because the contract was conducted on a binding basis before the bank have purchased the product.

If the bank had a warehouse with products e.g. refrigerators inside and it showcases them for the person then he chooses to buy or not just like with any other sellers, then the sale in cash or in instalments is permitted.

Second: It is not permitted to increase the value of the instalments if the buyer delays the payment of one instalment, i.e. the value of the debt increases; because this is Riba and it is called accrued interest (riba an-nassi'a) and this was practiced during the Jahiliya time if the time for payment arrived and the debtor was unable to re-pay due to the assigned date and the increase in debt which Islam came to prohibit absolutely, and granted the debtor who is facing hardship no increase in the value of the debt

((وَإِن كَانَ ذُو عُسْرَةٍ فَنَظِرَةٌ إِلَىٰ مَيْسَرَةٍ وَأَن تَصَدَّقُوا خَيْر لَّكُمْ إِن كُنتُمْ تَعْلَمُونَ))

"And if someone is in hardship, then [let there be] postponement until [a time of] ease. But if you give [from your right as] charity, then it is better for you, if you only knew" [Al-Baqara: 280]

According to what is mentioned above, this transaction with the bank is not allowed.

2. As for what you have mentioned in terms of contractors, the situation is different. There is no contract of sale for a house which is not owned by the contractor, the situation is that the land owner makes an agreement with the contractor for a leasing contract to build the house according to the criteria for a wage that the house owner gives to the contractor in instalments to finish the job, it is not a contract of sale for a house in the air that is not owned by anyone.

If the reality is that it is the selling of a flat which is not built yet and the contactor does not have a correct ownership of it then the sale is not permitted.

Your brother,
Ata Bin Khalil Abu Al-Rashtah

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