Extracts from authentic writings on Islamic Banks’ use of fake
Murabaha and Bai Muajjal and earning disguised interest.
‘Introduction to Islamic Finance' by M. Taqi Usmani:
It should never be overlooked that originally Murabaha is not a mode of financing. It is onlya device to escape from
and not an ideal instrument for carrying out the realeconomic objectives of Islam.
2. 'Elimination of Riba from the Economy' by Prof. Khurshid Ahmed:
The confusion has arisen only from the fact that in case of a credit sale, some people thinkthat the price of time which appears in the form of a higher price is lawful because thetransaction is not that of a loan but of trade. In trade, both the parties are free to agree totransact a business at any price provided they agree to it by their free will. In this case, goesthe argument, both the parties agree at a price, which may be higher than the cash price.Therefore, there should be no objection if the credit price is higher or lower than the cashprice. But this argument leaves out of focus the shariah condition that the price should beagreed by free will of the two parties. We understand that in this case there is ahidden coercion. Why would a person like to pay a higher price if he can buy a certain thingfor a lower price? In this case he agrees to do so because he does not have ready cash.Some people have tried to argue that the difference in the cash and credit prices isallowed since the shariah recognizes
by aconsensus. In fact this argument ismisplaced.
means that the sale can take place on the condition that the buyerwill pay the price later on. It does not necessarily mean that the seller has a right to sell thecommodity at a price which is higher than the price he is charging for a cash sale.It emerges that practically it is impossible for large banks or the banking system to practicethe modes like mark-up,
, buy back, murabaha etc in a way that fulfils the Shariaconditions. But in order to make themselves eligible to a return on their operations, thebanks are compelled to play tricks with the letters of the law. They actually do not buy, donot possess; nor actually sell and deliver the goods; but the transaction is assumed to havetaken place. By signing a number of documents of purchase, sale and transfer they mightfulfill a legal requirement but it is by violating the sprit of prohibition.Unfortunately, the current practice of buy-back on mark-up is not in keeping with theconditions on which
are permitted. What is being done is afictitious deal which ensures a predetermined profit to the bank without actually dealing ingoods or sharing any real risk. This is against the letter and spirit of Shariah injunctions.
3. Federal Shariat Court Judgment of 14-11-1991
There is a genuine fear among Islamic circles that if interest is largely substituted by 'mark-up' under the PLS operations it would represent a change just in name, rather than insubstance. PLS under the mark-up system is in fact the presentation of the old system of