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MODERN ISSUES IN
ISLAMIC JUDICIARY - Extract
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HIS EMINENCE AYATULLAH
SEYYID ABUL QASIM al-KHUI
TRANSLATED BY KAMBER
ASADI
PREFACE
In the name of Allah, Most Gracious, Most Merciful.
Praise be to Allah, the Cherisher and Sustainer of the
worlds, Master of the Day of judgment, the one who guides us to
the Straight Path, and Peace be upon His Messenger, the Owner of
the Great Trusted Legislation and Organizer of the Straight Path
as well as on his Progeny.
With the development of world in all spheres of life, it
has become necessary for individuals and societies to keep up
with the modern changes which affect the day-to-day activities.
These changes have raised several question pertaining to
various aspects of Islamic economy and other principles in
relation to the modern issues, and we deemed it necessary to
publish this booklet providing clarifications on several
subjects, under the title “Modern Issues”
We trust the believers will find this booklet useful and
that it will remain forever a treasure for all of us.
BANKING &
EXCHANGE
Banking and Exchange institutions
fall under the following three categories:
- National
– This can be either individual or public shares company;
- Government
Bank – This is purely financed by the state;
- Company
– This is financed by Government and Public.
National Bank:
1.
It is forbidden to borrow from
Bank on interest. It
is, however, permitted to buy goods on credit from bank for
which the payment is to be made after a specified period with an
agreed percentage above market value on the understanding that
the bank will re-purchase the said goods on spot at a reduced
value and pay cash.
This
transaction takes the form of purchasing and selling goods and
the amount paid to the bank in excess of the actual value is the
bank’s profit and not usury.
In such
cases, the amount involved must be commensurate with the actual
value of the goods. For
instance. Purchasing a matchbox for Dh. 100/- to repay
Dh. 120/-
after a period of two months, is considered usury, although it
was business transaction.
2.
Depositing money in the bank in
fixed deposit, savings account or current account which offers a
fixed rate of interest, as agreed upon, is forbidden.
However, receiving interest without any prior arrangement
with the bank, is allowed.
Government Bank:
3.
Interest received on deposit
accounts is to be utilised in accordance with the instructions
of the Imam or his representative after obtaining his
permission.
4.
Borrowing money on interest is
considered usury, whether it is throughOverdraft or under
mortgage. One can,
however, borrow under the pretence of
“unknown Owner” after consulting the Imam or his
representative and with
his permission.
5.
Depositing money in any form of
account in the bank, with the intention of receiving interest,
is forbidden. If,
however, there was no prior agreement with the bank with regard
to rate of interest and if at the same time, one has no
intention of claiming the interest even if the bank does not
pay, then in such cases, receiving interest is permitted under
the pretence of “Unknown Owner” after obtaining permission
of the Imam or his representative.
The same rule applies to Company Banks as well.
A Brief Explanation of
“Unknown Owner”
As we all know. Bank’s
activities are not limited to lending money on interest but
extend to various other transactions such as buying and selling
currencies, importing goods for clients etc.
On which the bank earns interest.
The amount which the bank pays as interest, may well have
been the profit earned by the bank on such transactions.
These are the rules for dealing with Islamic banks.
In dealing with non-Islamic Banks, be it private or
public shares (company), it is permitted to receive interest and
utilise it, without having to obtain permission from Imam.
There are no restrictions on borrowing money from these
banks.
Letter of Credit for Importing:
To import goods, the importer is required to establish
Letter of Credit with the bank and request them to make payments
to the supplier on his behalf and in return he guarantees the
bank to pay when the transaction is completed or he may have to
refer to the locally appointed agent of the said supplier who
demand from the importer to make part payment in advance through
the bank and the said goods will be shipped in the name of the
agent and when the goods arrive, the agent will deliver the
goods after receiving the balance of the values.
Letter of
Credit for Exporting:
To export goods, the exporter has to establish a letter
of credit and the bank on his behalf deliver the goods to the
importer and receive the value as has been agreed upon; the bank
will then pay the exporter the said amount.
Therefore. Letters
of Credit, be it for import or export, have the same purpose,
i.e. to hand over goods and recover values from the client.
There is however another method of recovering value of
the goods sold. Here,
the exporter or importer sends
a set of invoices through a bank without prior
arrangement. The
bank offers the invoice
to a customer and if he accepts it, then he establishes letter
of Credit. The bank
acts as a mediator until that transaction is completed.
6.
Establishing Letter of Credit with
the bank and appointing the bank as agents to perform
transactions on one’s behalf, is permitted.
7.
Is it permissible for bank to
charge interest form a person who established Letter of Credit ?
Apparently, it is allowed, as explained below:-
(a)
The person established the letter
of Credit was hiring the services of the bank, to act on his
behalf and as such, the amount charged by bank is considered
hire charges.
(b)
This transaction can be considered
as
Sale
since bank pays for the goods in foreign exchange which the bank
purchases at a profit added in the exchange.
The difference between the original cost and the amount
charged by the bank is considered the bank’s profit.
Therefore, it is allowed.
8.
The bank takes some profit on the
amount paid to the supplier on behalf of the importer, for a
specified period. Is
this allowed. Apparently,
it is allowed. The bank, in this case,
is not lending money to the LC opener; the LC is
established for the benefit of the beneficiary, at his request. Therefore,
it enters under “Guarantee Disposal Law” and not usury
However, if the bank was to lend money to the
LC opener for
the benefit of receiving interest and also received such amount
on behalf of the supplier, then it is forbidden unless the
amount was received in lieu of a job done or a service rendered.
Storing Merchandise:
The bank may store goods for the account of importer if
there is such an agreement between the bank and the exporter and
when the bank pays for the goods.
On arrival of such goods, the bank hands over relative
documents to the importer with intimation or arrival of goods.
If the client fails to receive the goods at given time,
the bank takes over the goods and stores it for the client’s
account with specific rental without prior arrangement or
agreement, the bank may store the goods for the account of the
exporter and may offer the goods to other merchants for
disposal.
9.
In both the above cases, the bank
is allowed to receive commission for such services if it is
stipulated in the agreement or requested by parties concerned;
otherwise, the bank is not allowed to receive such
commission. There
may be cases where the bank auctions goods which the importer
failed to take delivery of, inspite of reminders from the bank
can a bank auction such goods and receive the values thereof?
Is a person allowed to buy such auctioned goods?
Apparently, it is allowed.
In such
instances the bank performs the duty of an agent of the owner of
goods and in accordance with the agreement entered into between
them. Therefore, selling is allowed and so is purchasing.
Bank
Guarantee:
Bank guarantee is an undertaking of payment by the bank
in favour of a person for
the benefit of
another person or company to compensate for possible loss or
damage arising out of beneficiary’s failure to fulfill his
obligations. For
example, a contractor is usually required to produce a bank
guarantee to the client for a specified amount which will be
utilised in the event the contractor fails in the event the
contractor fails to meet his contractual obligations resulting
in loss to the client.
a)
Such guarantee
is correct and allowed. Obligations by words are to be
fulfilled by actions, just as a debtor is obliged to honour his
words and repay his debts.
b)
The contractor is obliged to
honour his guarantee and if he fails to fulfill this, the client
can approach the bank and demand utilisation
of the said guarantee and in return, the bank recovers
the amount form the contranctor.
c)
Is it permissible for bank to
charge commission for such guarantee?
Apparently, it is allowed, as this can be considered as
fees for the
guarantee.
Selling
Shares:
Public companies may ask the bank to act as their agents
for selling their shares and to negotiate on their behalf and
charge a specified fees for their services.
10.
This is permitted.
It can be considered rental charges since the company
hired the bank for a job; it can also be considered wages for
the job done by the bank; in both cases, the transaction is
correct.
11.
The bank is allowed to deal in
selling and buying these shares, if it public shares, but if the
shares are to be used for usury, then it is not permitted to
deal in it, even though it is in the name of a company.
Bank Draft __ (Local & Overseas):
a)
Banks issue draft against payment
of the value of the draft plus bank’s commission, in
favour of their client for a specified amount payable at
the bank’s branch
or their correspondent, locally or overseas. The bank is
entitled to receive commission on such drafts, as the bank can
very well refuse to honour its obligation by not repayint the
amount and since they have forfeited the right of refusal, they
are entitled to the commission.
b)
The bank issues a draft to a
customer on loan basis if he did not have fund to cover the
draft. In this case, the bank is lending money to the other
party at the request of the customer and as such, the bank is
entitled to profit, as this falls under services.
Moreover, if the draft is made payable overseas, then
foreign currency is also involved.
The bank, having forfeited the right of refusal of
payment, is allowed to receive commission.
c)
A person who is not an
account-holder gets draft from the bank by paying cash for the
value of he draft and commission.
In this case also, commission is allowed.
Explanation:
a)
The bank is selling a local
currency against foreign currency; therefore, the bank is
allowed to receive commission.
b)
Usury is forbidden in lending.
Since the lender receives more from the borrower.
However excess amount which the borrower takes from the
lender is permitted as this does not fall under the Usury.
c)
Bank demands commission for
transferring amount from one bank to another, be it local or
overseas. Is this
allowed? Yes, but on
two conditions: First,
the transfer of amount should involve selling local currency and
buying foreign currency; i.e. receiving in local currency and to
pay in foreign currency. Second,
commission to be paid to the bank on consideration of non-refund
by the bank to fulfill their obligation in a different country
where the payment was made to them.
This is applicable to individuals as well.
12.
There is no difference in rules
regarding funds used for draft or transfers, whether a person
deals in his own funds or borrowed from the bank.
Bank Prizes:
The bank at times runs lottery and offers prize to the
winner.
13.
Is the bank allowed to run such
lotteries? If the
bank is conducting the raffle without any conditions from their
customers, but only to promote their business, then there is
nothing wrong with it and whoever wins is allowed to receive the
prize amount, as this falls under Unknown Owner after obtaining
the consent of the Imam or his representative, in case of
Government banks or Company banks.
In case of Public or individual banks. This permission is
not required. However,
such raffle is not allowed if the prize amount is paid to a
customer under an agreement for loan etc. even if amount is paid
after winning the raffle, as this was previously promised by the
bank.
Discounting Promissory Notes:
One of the services of the bank is negotiating Promissory
Notes with a party for the benefit of their customer.
The bank notifies the party the due date of Payment,
amount and the number of Promissory Notes and when the bank
receives the amount they credit their customer’s account with
this amount or pay the sum in cash. The
bank charges a commission for this service.
Similar service is also available for customers on
promissory notes from overseas parties.
Sometimes, a customer requests bank to receive amount on
his behalf without promissory note which the bank does and
charges a commission thereon.
14.
This is permitted provided the
bank receives the value of the Promissory Notes but if it
includes money earned on interest as well, on the promissory
note, then it is not allowed.
Commission charged by bank is considered as wages for
their services.
15.
Drawer of a Promissory Notes
approaches his bank for negotiating the Promissory Note to the
Bank on due date for payment.
In this case, the bank is not entitled to any commission.
If the
beneficiary of a Promissory Note approaches his bank for
negotiating the Promissory Note, the bank is entitled to
commission as mentioned earlier.
If a
Promissory Note is accepted by a customer although he is not the
drawer then in such cases, the bank is allowed to charge
commission.
Buying & Selling Foreign Currencies:
Banks activities include buying
and selling currencies in order to make currencies
available for use of public and also to make profit.
16.
It is permitted for the bank to
buy and sell currencies on profit or loss or at percentage .
Current
Account:
Customers
operating current account with the bank allowed to draw amount
up to the level of their deposits with the bank.
However, sometimes, with the consent of the bank , they
are allowed to draw amount in excess of this up to a specified
limit for which bank charges interest.
17.
Is the bank allowed to charge
interest? Obviously,
this is not permitted since this falls under usury; but if one
abides by the rule mentioned in
No. 1 then it is permitted.
Bonds or Hire Purchases:
This falls under two categories:-
First:
To be beneficial in purchasing on Hire Purchase such as
food, beverages, dresses etc.
Second:
To attach value by those who are authorized to give value
such as the
government who gives value to bank notes, stamps etc.
(This pertains to Bond.)
18.
There are advantages in selling
over lending.
First: In
purchases, ownership exists.
The seller transfers the ownership to the purchaser and
demands value of the goods in return.
Debt develops by owning a thing and promising to pay
later on either in the form of the same thing or its cost.
Second:
Exchange between commodity and its value is sale.
Without this there cannot be sale or legality of debt.
Supposing you sell 100 eggs in return for 120 eggs there
has to be positive distinction in quality of the original and
the substitute commodity, to make up for the difference in
quantity of eggs in return is more.
Otherwise it becomes usury which is forbidden.
Third:
Purchase is different from borrowing on interest.
In borrowing, any increase in the amount to be repaid,
takes the form of usury which is forbidden unlike purchases.
It is unlawful purchase when the article offered in sale
and the article given in return are identical yet different in
size measure or weight. This
is considered usury. For
example, if a person borrows one hundred eggs to return one
hundred and twenty eggs of the same size after two months, this
is usury but if the eggs sold were bigger and the 20 extra eggs
are to make up for the difference in size, then it is lawful.
Fourth:
Selling on interest is forbidden whereas borrowing on
interest is legal except that the added part which covers the
interest is illegal, but the original loan is legal.
19.
Bank Notes can be sold for lesser
value since it is not weighed or measured in transaction. For
example if one has “I owe you”
note from someone for Dh. 100/- he can sell it to another
person for Dh. 80/-
20.
Promissory Notes which are
negotiated between merchants do not carry the same value as bank
notes. It is only a
document proving the debt of a person who purchased goods on
credit. When the
purchaser pays against a promissory note he is paying for the
goods which he purchased on credit
and if promissory note is destroyed, the dept still
exists and has to be paid by the debtor unlike the bank note
which, if destroyed, is lost.
21.
Promissory Notes fall under two
categories:-
a)
Admitting actual debt;
b)
Pretance
of accepting
a dept which does not exist.
In
case of the first category, the creditor is allowed to sell the
dept to another part for a lesser amount;
i.e. the creditor holds a promissory note from someone
for Dh. 100/- he is allowed to sell it to another person for Dh.
80/- However, he is
not in permitted to sell that debt for another debt.
In case of the second category the creditor can not sell
the promissory note since it does not cover any actual debt but
is merely a promises of payment such promissory notes are called
“Cordial Promissory Notes” and my cover a commission or
similar amounts. In
such cases, the Payee can ask the drawer to sell him the said
promissory note for a lesser amount, but discounting is not
permitted as there never was any actual debt on the drawer.
Banking
Activities:
Banking
activities can be categorized as follows:-
a)
Business in usury. This is
forbidden and one must not participate in any form of this
activity and must not receive wages on such activity.
b)
Permissible:
It is permitted to participate in activities which does
not involve usury and can receive wages.
22.
Law of usury is same, be it an
Islamic or non-Islamic Bank.
However, in case of Islamic Bank, the available amount
falls under ‘Unknown Owner’
and must not be utilized without the prior consent of the
Imam or his representative.
But amount available in non-Islamic Banks should be takes
as Savior which does not require permission from Imam or his
representatives.
Bills of Exchange:
A bank makes payment to a supplier upon instruction from
their client, of an amount due by him to cover the cost of goods
he has received. The
client may ask the bank ether to debit his account with them or
pay cash to cover the bill.
In both cases, the deal is legal and correct.
23.
Is the bank allowed to receive
commission for such service?
The answer is : Yes, since the bank has refrained from
using the ‘Right of Rejection’ they are allowed to charge a
fee.
24.
There is no difference in the rule
relating to Bills of Exchange with any bank, be it Islamic or
non-Islamic, since negotiations of bills of exchange are all one
and the same.
Insurance:
Insurance policy is an agreement
between an insurance company and an individual whereby the
insurer undertakes to compensate for loss or damage of the
subject of insurance for a specified period, against payment of
annual, halfyearly, quarterly or monthly premium by the insured.
25.
Insurance may cover life,
property, vehicles, aeroplane or ships, against partial or total
loss
26.
The insurance has to request the
insurer for insurance cover, giving details of the subject to be
insured and mode of payment of premium etc.
The insurer then accepts the proposal.
27.
The insurer then considers the
insured’s request and accepts the risk.
They specify the premium for the value of the risk
covered and issues the insurance policy.
28.
Insurance is allowed in all its
forms. The insurer
is taking the risk of compensating loss and the insured is
paying for this.
29.
If the insurance company fails to
fulfill its obligation, the insured can cancel the policy and
demand refund of premium.
30.
If the insured fails to pay the
Premium as agreed upon, the insurer is not liable to honour any
claim or refund any premium paid by the insured.
31.
Insurance cover is for a specified
period as agreed by both parties.
Goodwill:
It is customary in some countries to charge goodwill on
property deals. At
times, a tenant refuses to pay increased rent and instead of
vacating the premises, he hands it over to another tenant after
receiving a goodwill amount, without the consent of the
landlord. This is not allowed since the property negotiated by
the tenant, does not belong to him.
If, however, the landlord has no right to increase the
rent, or demand the place to be vacated, theTenant is then
allowed to negotiate with a new tenant and receive goodwill from
him.
32.
If there exists a rent control law
enforced by the state, the landlord will have no right to
increase rent or to demand the property to be vacated.
In case the tenant, taking advantage of these
restrictions, negotiate and receive goodwill from a new tenant,
it is forbidden.
33.
If there is no rent control law,
the landlord may charge a lower rent than the prevailing ate,
but takes goodwill while promising of maintain the same rent at
renewal. In such
cases, the tenant is allowed to negotiate with a new tenant and
receive proportionate amount of goodwill.
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