I intend to purchase a property from the University Islamic Financial Corp.

Answer

We have checked the muraabahah contract and have found several irregularities from the Islamic perspective. If the bank is just a bit more considerate it can very easily rectify the contract and the sale will be permissible.

A Muraabahah sale according to the Shariah is a simple transaction consisting of the cost price plus the mutually agreed profit. In the example presented by the bank, the cost price of the property to the bank is

$200,000 The bank's profit added is

$266,992 The purchase price to be paid by the buyer $466,992 The purchase price is payable in 360 fixed monthly instalments as detailed in the Monthly Allocation Schedule. If the deal is structured in this simple form, it will be permissible. It will be a valid Muraabahah transaction. However, the following are some of the salient haraam factors: (a) Clause 2 of the Contract states: "The Murabaha Vendor acknowledges that it has previously received from the Purchaser a down payment of $50,000 towards the purchase price of the Property. Such amount shall not be deemed to be part of the Original Purchase Price owed under this Agreement and secured by the Mortgage."

This stipulation is stupid, deceptive and haraam. It is stupid because in the same breath its avers that the $50,000 is part of the Purchase price and also NOT part of the Purchase price. Then in order to deceive the simple buyer, the purchase price is divided into two sections: an Original Purchase Price, and another purchase price for which no specific designation has been coined.

According to the Shariah there can be only one fixed Purchase Price, and that price in the example is $466,992.It appears that the $50,000 is over and above the $466,992. Thus it is Riba – haraam interest.

To overcome this, the bank should simply add it to the $466,992 to make the Purchase Price $516,992 (b) Clause 4 of the Contract reads:

"If the Murabaha Vendor has not received the full amount of any monthly payment by the end of 15 calendar days after the date it is due, the Purchaser shall pay a $50 administrative charge to the Murabah Vendor's servicing agent………"

This $50 charge is haraam Riba. To cover any such eventualities, the Murabaha Vendor may simply increase the Purchase Price by a couple of hundred dollars and work it into the monthly instalments.

(c) Clause No.6 states: "The Purchaser may make a full Prepayment or partial Prepayments………. However, the Murabaha Vendor may apply the Purchaser's Prepayment to the accrued and unpaid Profit on the Prepayment amount, before applying the Purchaser's Prepayment to reduce the O r i g i n a l P u r c h a s e Price……" This condition is baatil and haraam. We have understood that a Prepayment in the context means a payment made in advance. The Murabaha Vendor is under Shar'i compulsion to deduct the Prepayment from the Purchase Price, that is from the $466,992, in this example. It may not utilize any amount from it for any other cost or charge.

(d) The following occurs in Clause 7:

"…..the Purchaser agrees that it shall either pay or reimburse the Murabaha Vendor for all costs, charges and expenses incurred in connection with the sale by the original seller to the

Murabaha Vendor,……….." This is totally unacceptable and haraam. The transaction between the Murabaha Vendor and the original seller has absolutely no relevancy to the Purchaser of the property, i.e. the one who buys the property from the Murabaha Vendor.

(e) In Clause No.12 the following appears:

"If the Purchaser is in default………..the Murabaha Vendor may require the Purchaser to pay immediately the full amount of the Original Purchase Price which has not been paid and all Profit that the Purchaser owes on that amount."

This stipulation is in conflict with the Shariah, hence not permissible. The Murabaha Vendor has the right to only demand payment of the arrears, not of the full outstanding amount.

While there are other stipulations in conflict with the Shariah, the aforementioned are some of the salient haraam features of the contract. If the bank rectifies these, then the sale will be permissible otherwise not.