January 8, 2009

Open season for Islamic finance sceptics in Malaysia?

There was a High Court judgement last July in Malaysia which had basically questioned the validity of the Bai' Bithamin Ajil concept which is widely use by Islamic banks in Malaysia for financing of housing properties. There is also a misconception by various people that the concept that these banks have been using is wrong due to this judgement. Its not going to be easy to convince people otherwise as the judgement is still being appeal and still to be decided by a higher court in the land. The judge who made the judegment had made a few other judgements which question the validity of the same instrument and he had made a few judgements which tweak the amount that the bank could get from the customer.

I am not going to comment on these judgements as the only people who are really interested in it will be the lawyers who are handling the case, who will be more knowledgeable about the matter than me. This blog is more of a personal opinion, unless stated otherwise, like my post on What is Islamic finance?, which you can read it here - http://kruel-legalcat.blogspot.com/2008/11/what-is-islamic-finance-1st-posting.html, in which I will delve into the the matter seriously. This post is more of what happen at work recently.

I am a panel of a bank which one of the job which had been entrusted to us is to do debt collection for them. One of their popular product is personal loan which is lending money without any collateral to individuals with secure jobs especially with government or government agencies. They have expanded this offer to include public companies. It is called a loan by definition but is not a loan in all actuallity as in Islamic finance there must be a transaction between the two parties involve.

The basic of the personal loan is under a concept called Bai' Al-Inah or Sale buyback. You sell something to the bank and the bank gives you money in cash, then you buy back the subject matter, then you gives back the money in instalments. Sounds confusing? Let us not question its rational or Islamic explanation. It has been approved to be permissible in Malaysia under our Mazhab Shafie. It may not be permissable elsewhere but it will be easier to be understood that in Islam, you are allow to agree to disagree as long as you hold to the Quran and the Hadith.

As a legal practitioner, I am at the front of a kind of upheaval due to the earlier judgement that I mention. I had just finished a discussion with my litigation lawyer who is well trained in commercial matter but not in Islamic finance per se. I had to crash course him through the words such as ibra', riba' and the concept of bai' al-inah itself. And also I have to give it to the defendant who has chosen a good lawyer to question basically every issue in the document of contract and even whether the contract is permissible in Islam.

Its not that I am not prepared for this as making a stand on something for a client is a nut and bolt of a lawyer's business. Its just that I am wondering whether how far will this be a turning point for Malaysian Islamic finance aspiration which need to adapt itself to be more accepted internationally.

Maybe that judge, whether he intend it or not, had just done the Islamic banking community a favour...

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