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Friday, February 26, 2010

The Islamic commercial law principles and rules that govern the sales on credit (buyu’al-Aajal) and the discussion of whether “Da’ wa ta’ajjal” which is known in Islamic legal literatures as “give discount and receive sooner” can be practiced by parties in Islamic transactions in the context of rebate and debt-discounting

Buyu’al-Aajal also known as Bai’ Bithaman Ajil (BBA) in Malaysia, is a sale contract in which the payment of the price is deferred and payable at a certain particular time in the future. It is a trading at cost plus specified mark-up. It is basically a variation of murabahah (cost plus) whereby the deferred payments would be in the form of instalments whereas for murabahah, the deferred payment would be paid lump sum in the specific time in the future. In general, the majority of Islamic jurists are unanimous in allowing the activity of BBA. 

The BBA is one of many ‘uqud al-mu’awadat contracts (commutative contracts) under the heading of ‘contract of sale’. The ‘uqud al-mu’awadat contracts contain exchange of counter values from both the contracting parties such as sale, ijarah (hiring), sarf (money changing), sulh (composition), loan contract, salam, istisna’ contract, muzara’ah (cultivation) and musaqah.

According to the majority of jurists, increasing the price of BBA due to the deferment in payment is allowed because the increment in price is against the commodity, not against money. On the contrary, those who against BBA argued that BBA opens the back door to interest based transactions. They argued that if the difference between spot and deferred prices of a commodity is to be recognised, logically the increased in price is in direct relations to the concept ‘time value of money (TVM)’ (where the western economists usually used the TVM as the justification for the necessity of interests ).

The ‘uqud tabarru’at contract is a gratuitous contract. The main feature of these contracts is donation of property. The donor transfers ownership of that property to a party without consideration. Following contracts that falls under this category hibah (gift), wasiyyah (bequest), waqf (endowment), kafalah (guarantee), ariyah (commodate loan) and ibra’. Ibra’ refers to the act of surrendering one’s claims and rights, such as creditor writing off the debts of a debtor. Da’ wa ta’ajjal or ‘reduce and hasten payment’ is a form of ibra’. Da’ wa ta’ajjal is the action of creditor writing off part of the debt when the debtor settles the balances of his debt earlier. The contemporary jurists differed in their views on da’ wa ta’ajjal.

Generally, there are three (3) main views regarding this issue. The first (1st) opinion is that the da’ wa ta’ajjal is permitted. The advocating this view were Ibnu ‘Abbas, al-Nakha’i, Zufar, Ibnu al-Qayyum and Ibnu Taimiyyah. Their argument was based on the hadith (prophet says, actions and silences). In addition, Ibnu Qayyim reinforced view of group permitting da’ wa ta’ajjal bay saying that riba (usury) is something that increases whereas this does not happen under this doctrine. The proponents of da’ wa ta’ajjal were also asserted that the Holy Prophet (pbuh) had instructed Bani Nadir to reduce the amount owed to them and receive immediate payment. It was reported that when Bani Nadir were evicted from Madinah, a group of them came to the Holy prophet (pbuh) with a complaint that they had been evicted at a time people owed to them money, whose payment were not yet matured. The Holy Prophet (pbuh) advised them to reduce the amount owed to them and demand prompt payment.

The OIC Fiqh Academy (the 7th conference at Jeddah on 9-14 May 1992) deliberated the issues on reduction of debts due to early settlement before the due date in the context of bai’ bi taqsit. They have resolved that reducing the debt in arrears due to early settlement whether at the request of the creditor of the debtor referred to as da’ wa ta’ajjal is permissible by Shariah and does not include interest which is prohibited if it is not based on a prior agreement and only involves two parties that is debtor and creditor. If it involves a third party, then it is not allowed as it falls under the law of hasm auraq tijariah (discounts on trade bills). If it was agreed upon earlier then it will be considered as hilah ribawiyah (a means of allowing a transaction that has the element of interest) whereby hilah is not permissible.

In Malaysia, the concept is agreed, employed by Shariah Advisory Council (SAC) for Securities Commission (SC) and the Central Bank of Malaysia (Bank Negara Malaysia or BNM) to be applied in the capital market and in the Islamic banking environment. Generally, an ibra’ clause in a contract under Islamic financing, may be construed as a form of inclusion of a condition in a contract. Under Islamic law, the inclusion of a condition in a contract, such as sale and purchase contract is allowed if the inclusion is for the purpose of safeguarding the interests of the parties under the contract and it does not contradict the principle of sale and purchase. The ibra’ clause under Islamic financing is a form of pregareed condition between the two parties to the contract. The SAC generally allows da’ wa ta’ajjal without having to look whether an element of preagreement exists between the parties or otherwise.

The second (2nd) opinion is the opponents against the permissibility claim the similarity lies between concept of da’ wa ta’ajjal and riba. This is look from the perspectives of accepting the money ahead of time in lieu of discount on his principal amount and this is similar to the present day practice of discounting of trade bills in the banks. The majority of Muslim jurists subscribe to this opinion. They put forward following arguments in favour of their standpoint:

1.      A discount on the original amount for hastening the payment is similar to taking excess on the original amount. This is because in both cases, time is assigned with a monetary value. If the time results in an increase price, vice versa, reduction in time results in a reduction in price. The real significance of da’ wa ta’ajjal referred to in the hadith whereby the Holy Prophet (pbuh) had instructed the Jews to give up their claims of interest or excess over and above the principal amount and take back original amounts only before the time of maturity. In summary, Holy Prophet (pbuh) allowed them to receive their delayed debts before time of maturity on the condition that they will reduce the amount of debt. The hadith according to this interpretation does not suggest reduction in the original amount in return of immediate payment.

2.      The hadith of da’ wa ta’ajjal (discounting) came before the prohibition of riba. The event of Bani Nadir took place in fourth year after Hijrah, and then in sixth year after Ghazwah Khayber came the prohibition of riba al-fadl. Thereafter, in the tenth year after Hijrah, the verses relating to riba were revealed which contain final and conclusive prohibition of riba. Thus, the hadith of discounting is abrogated by the subsequent revelations of riba.

The third (3rd) opinion suggests that discounting is permissible if it is affected without the condition of immediate payment. This means that if the debtor repaid his deferred debt before time of maturity and the creditor reduced some amount without its being a contractual obligation, then it is permissible, because former is not condition for latter.

1 comment:

  1. Assalamualaikum,

    I bought my car using BBA concept from Bank Islam, a four year loan. Majority of jurist agree that BBA is valid and permissible,right?
    Pls correct me if I am wrong.Does this mean da’ wa ta’ajjal in BBA makes it less permissible? What if deferred payment are paid as scheduled by contract. If I pay earlier the debt and bank gives me reduction in amount i need to pay, is it wrong? I am purposely paying a bit more each month so my loan payment will complete within 46 months instead of 48 months.I don't know how the bank will reduce its amount..how much reduction they will give me.

    In Malaysia shariah allows it , does it mean in other countries it is not allowed ....why the difference ? I don't really understand .Islamic law are supposed to be equal every where, right?

    Can you shed some light on this...?Thank you