It’s a Sale ( Commentary on Bai’ Bithaman Ajil Part II)
One really has to grasp the principle or we can get confused and mixed up with a conventional term loan. A conventional loan is a loan of money, the lender is not really concerned what you do with the money, just pay the regular interest or agreed repayments and they are happy. They also do not wish to know what difficulties you are facing, just pay as agreed and let’s get on with our lives, that seems to be the attitude.
If for some reason you are unable to pay they will hit you with penalty interest and this can go on forever and there is no end to the amount of money they can demand from you. That’s a conventional loan, not much different from a Chettiar really except that this one is more organized and the workers wear ties; an up market Chettiar if you like.
Now a Bai Bithaman Ajil transaction is a sale of an asset by the bank to you. If it’s a Sale then the first limitation of a Sale is that the seller cannot claim more than the Selling Price from you. If you default in paying the Selling price instalments of a sale and purchase transaction then what has happened is that you have defaulted on paying the rest of the Selling price. The Seller will have the right to institute legal proceedings against you to recover the rest of the Selling Price but that’s it, the maximum they can claim from you is the Selling price. Unlike a conventional loan where the claim can be endless and limitless.
Of course the Islamic Bank are allowed to claim court and legal expenses on top of the Selling price. Even then the Islamic Bank will rebate to you the balance of the Selling Price not due. How does this arise? Well when they first priced the Sale they took into account you will take 20 years to pay. Let’s say you default in year 10 and they win court judgment for you to pay up the rest of the Selling Price immediately. Inside this amount is a profit portion to the bank for the second 10 years ; they will rebate this to you.
That was the issue in the infamous Affin Bank case recently when the Judge exclaimed Islamic Financing is cruel! What happened was Affin Bank sued their customer for the full Selling Price when he defaulted in year 5 of the 20 year housing facility and forgot to file an undertaking to the Court to rebate the amount not due to the bank. Affin Bank meant to rebate ; they forgot to undertake, you wonder sometimes at the quickness of people to run down Islamic Financing. Anyway the judge was right, based on the wrong advice he received. The matter has since been rectified but sadly the slur on Islamic Financing still remains.
Why do Islamic banks usually sue for the full Selling Price and not just the amount due? Well in practice they know it will take a year or so between date of judgment and the date the bank receives the money. So rather than go the Court again to ask for higher amount, its better to sue for the full Selling price and rebate what’s not due.
Is it incumbent on the Islamic bank to check your financial position before proceeding with legal action? The answer is yes, that’s the injunction of the Quran, check whether the debtor is in true financial difficulties or deliberately refusing to pay or unconscionably not making your dues a priority to pay. Is the check being done? There is no such written policy in today’s Islamic Banks. In some banks there is a perceived higher tolerance but this is more of an unwritten rule.
Islamic banks really have to start assuming the moral courage to be different from conventional banks ; if Syariah says you ought to do certain things then just do it even if conventional wisdom says otherwise. Believe in the wisdom of Allah for Islam and its champions have always taken little scant of, and cast aside conventional wisdom in their utter reliance and belief in the words of Allah. If the debtor is in true financial difficulties grant them relief till they are able to pay. But this does not mean the Islamic bank have to incur a loss, terminate and restructure a new 'akad with a longer tenor commensurate with the debtor’s ability to pay. No Fiqh ruling will fault you on this for as a bank you are also answerable to the true owner of the money, the depositors and the shareholders. On the other hand the debtors also ought to remember and uphold the injunctions of the Religion in the matter of settling debts ; the Religion does look very poorly on people who do not assume the moral responsibilities to settle their debts.