ISLAMIC REPUBLIC OF AFGHANISTAN

1. ISLAMIC REPUBLIC OF AFGHANISTAN Ministry of Rural Rehabilitation and Development Afghanistan Rural Enterprise Development Program Islamic Finance Product DevelopmentThe Use of the Order-to-Purchase Murābahahto Finance the Acquisition of Goods -Case Studiesprepared by Alberto G Brugnoni - AREDP

2. QUESTIONS 1 AND 2 • Question 1: What are the conditions of permissibility of different modes of murābahah? • fiqhhas a famous rule that the essential factor in contract is about the purposes and meanings and not words and phrases • clearly stipulates in its special form the nature of the goods which the bank sells as to their kind, origin and other description that must be mentioned in order not to leave in the contract any kind of vagueness and ambiguity which lead to dispute between the contractors • it must also state the amount of benefit granted to the bank out of the value of the contract and to determine the duration of maturity and amount of installments • contracts with prices that are different due to advance or deferred payment as well as due to different lengths of the periods of the contract are not valid • Question 2: What is the Shariah ruling with regards to the purchase of a certain service and then its resale to a client? For example, if the bank were to pay a contractor to finish a building, and then sell the service to its client by means of murābahahpayable in installments? • the sale of services by means of murābahahas envisioned in this question is not lawful. Rather, what is lawful is for the bank to complete the transaction as a contractor itself, or by entering into a contract of manufacture (istisna’)

3. QUESTIONS 3AND 4 • Question 3: Some people have raised questions concerning the lawfulness of murābahahsales on credit for a term because these involve issues that resemble interest? What is your opinion? • ausurious transaction of exchange in a loan on interest takes place when like commodities are exchanged. A lender, for example, will loan a hundred AFN for a certain period of time and will receive in exchange a hundred and ten AFN. In a murābahahsale on credit, however, the exchange is between unlike commodities, like goods and cash. Therefore, how can a murābahahsale be compared to a usurious transaction? • it should further be noted that in a murābahahsale, even though the profit is fixed, the seller may still suffer a loss if market prices rise; and if market prices go down, the buyer may suffer a loss. All of this is a function of supply and demand in regard to the commodity, rather than the supply of and demand on cash • Question 4: Is it lawful for the bank, when it sells equipment to a company on the basis of murābahah, to add the costs of installation to the selling price? • It is lawful for the bank to conclude such a deal, provided that the price mentioned in the contract is clearly described as the price of the equipment plus the costs of installation

4. QUESTIONS 5AND 6 • Question 5: What is the Shariah ruling in regard to the financing the purchase and sale of cigarettes through murābahah? • in view of the differences of opinion in regard to the ruling on smoking, and its prohibition, we will advise the bank to refrain from all such equivocal transactions. The Prophet, upon him be peace, said, "The lawful is self-evident, and the unlawful is self-evident; but between the two lie matters of ambiguity not readily understood by many people. Thus, those who avoid such matters will preserve their religion and reputations. But those who become involved with the ambiguous will (eventually) become involved with the unlawful." It should therefore be clear that the bank should have nothing to do with the likes of these dubious ventures • Question 6: May an Islamic bank finance the purchase of shares of stock in a company that deals in lawful trade, by means of murābahah? • there seems to be no legal impediment to the bank's purchasing shares and then selling them to a third party by means of murābahah, if the company's cash assets are not in excess of its material value, and on condition that the company's business is in no way involved in the unlawful, such as usury, or intoxicants, or pork, or the like

5. QUESTIONS 7 AND 8 • Question 7: What is the Shariah ruling in regard to the murābahahproject for gold mining? • this project is unacceptable because it includes the sale of gold on credit, and in addition does not specify a dale of delivery. Under the circumstances, other alternatives should be studied by the bank; including the establishment of a joint stock company with shares representing material assets, thereby allowing shareholders to earn profits from the mining of gold. • Question 8: Is it lawful for the bank to purchase goods from a seller, a third party for the purpose of selling those goods to the bank's client, the second party, by means of murābahah, and then have the bank authorise the second party to take delivery of the goods from the third party directly? • it is lawful for the bank to purchase goods from a third party in order to resell the same lo its client by means of a murābahah sale. After the goods have been sold lo the client, the second party, the bank may authorise its client to take delivery of the goods from the third party, but only after the goods have been sold to the bank and the hank has taken legal possession of them such that the goods have become the bank's responsibility • if however such legal possession has not taken place, and the bank has not become liable for the goods, it will not be lawful

6. QUESTIONS 9 AND 10 • Question 9: Charitable organisations generally present charitable projects to those desirous of assisting them and of establishing charitable trusts for Muslims. Examples of such projects are the digging of wells in African villages, or building mosques, or the printing and free distribution of books or the Qur'an, and the like. Is it lawful for a company to purchase these charitable services, and then sell them, through murābahahsales, to persons who want to buy them, the main aim being to make a profit? • what may lawfully be possessed may lawfully be bought or sold; as the possessions of an individual or a group of individuals may be disposed of by the owner or owners as he or they please; like the digging of a well, and the like • moreover, what may not lawfully be possessed may not lawfully be bought or sold, like a mosque, or land bequeathed as a religious endowment, or a similarly bequeathed well, or anything else that may not be bought or sold • Question 10: What is the Shariah viewpoint concerning the purchase of tickets for travel and their resale, on a murābahahbasis, to clients, by means of a special arrangement between the bank and the airline • it is lawful for the bank to purchase tickets from an airline, and then to sell them on the basis of murābahahto its clients, provided that the agreement between the bank and the airline, and the details of how the transaction is to be carried out, are scrutinized beforehand by the Fatwa Council of the bank before the plan is implemented

7. QUESTIONS 11 AND 12 • Question 11: with regards to murābahahsales, documents will be handed over to the purchaser so as to enable him to take delivery of the merchandise. At times, there will be demurrage charges on the merchandise, or a fine that is to be paid to customs owing to a delay in clearing the merchandise. The question is, who is to pay the fine? The purchaser, or the Finance House? • if the fine was brought about owing to a shortcoming on the part of the seller, the Finance House, then it will be responsible for paying the demurrage. If it was brought about by the buyer, however, he will be responsible • Question 12: What would be the ruling where a bank is offered a deal to purchase a brick factory, including what was owed to the factory and what it owed. The purpose of this procedure is that the bank would later sell the factory in a murābahahsale.But the one difficulty that remained in the process is that the factory is being held as security for a debt, and that it would remain as such until the bank took possession of it. What would be the Shariah boards decision in this case? • from a Shariah perspective, you are not permitted to buy other than what is actually present in the factory. Its financial responsibilities do not enter into the deal. If the physical plant, however, is pledged as security, the sale is permitted and the pledge will continue in the interests of the pledgee

8. QUESTION 13 • Question 13: In the event of default of payment, the customer will be black-listed and his name circulated to all other banks and financial institutions. In accordance with the blacklisting rules the names will appear in the blacklist for a certain period of time even if the customer arranges settlement at a later date". I would like to know whether such conditions imposed in murābahah agreement is permissible under the Shariah: • the problem of default in Islamic banks has become very serious. In the interest-based loan system if the debtor defaults the interest keeps on increasing automatically which serves as a deterrent against default. But in the case of Islamic bank no extra charge can be imposed after the due date. It is, therefore, suggested by some circles that the defaulters should be blacklisted so that the apprehension of being blacklisted may serve as a deterrent against willful default. This is an arrangement made on the basis of expedience which is not impermissible in Shariah • even if this arrangement is not expressly mentioned in the agreement of murābahahthe government may act according to it. However, this should be done only in cases of willful defaults, but if the debtor has faced a genuine hardship because of which he could not pay on time he must be given respite as expressly mentioned by the Holy Quran • moreover, this penalization should not be exercised in cases where the debtor has paid shortly after the due date. It is therefore advisable that blacklisting is resorted to after a considerable time subsequent to the due date so that it may be ascertained whether the default was willful and without a genuine reason

9. QUESTIONS 14 AND 15 • Question 14: What is the Shariah ruling with regards to a bank seeking kafalah(surety) from a purchase orderer in murābahahsales, guaranteeing the safe arrival of goods in working and acceptable condition? • kafalah(surety) is lawful from a Shariah perspective because it is a voluntary sort of contract, and may be entered into before any right is established. In this case, the surety given will be as a guarantee against loss • Question 15:what is the Shariah ruling in regard to tawarruq? What is our responsibility in regard to a person who came to the bank and evinces his desire to make a murābahahpurchase of a certain commodity, on sell it and then make use of the cash for his other mercantile needs: • in the terminology of fiqh, tawarruq is a stratagem for generating cash, when goods are purchased on a deferred payment, and then sold for less than the agreed price. Thus, the buyer goes into the deal knowing that he will lose, but accounting the cash worth the loss • among the classical schools of fiqh, the only one to approve of such a transaction was the Hanbalischool • there is no legal bar to this form of sale, though certain scholars have disliked it, particularly if someone habituates this sort of transaction.