Understanding Islamic Finance - Doha Academy of Tertiary Studies

Loan and Debt in Islamic Commercial Law 171out of the sale proceeds. To avoid any possible trouble and expense, the creditors may havean irrevocable power of attorney to sell the security on behalf of the pledger to recover theirdues from the proceeds and remit the extra amount, if any.7.15.2 Benefits from PledgeA Hadith of the holy Prophet (pbuh) guides us on this aspect of pledge, according to whicha pledged animal can be used for riding and its milk consumed in return for what is spent(on it) and its maintenance rests with him who rides it and consumes its milk. 93 This revealsthat the pledgee has the right to benefit from the security as it is in his possession and hehas to maintain it. No permission of the pledger is required in this regard. However, thereis a difference of opinion among jurists as to who should derive benefit from a pledge orsecurity.Some of the Hanafi jurists hold that it is not at all permissible for the pledgee to benefitfrom the pledge, even with the permission of the pledger, for it amounts to Riba, but themajority of them maintain that benefit may be derived by the pledgee with the permissionof the pledger, provided it is not so stipulated at the time of contract. 94According to the Shafi‘e school, it is the right of the pledger to derive benefit from thesecurity, as he is the owner of it. The security should remain in the possession of the pledgeeexcept for the periods when it is made use of by the pledger. 95According to the Maliki school, the pledger is entitled to benefit from the pledge and itsaccession. But it is also possible for the pledgee to have such benefit provided that (i) theloan for which security is given is not of the nature of Qard but has resulted from a saletransaction, (ii) the benefit for pledge is stipulated at the time of contract and (iii) that theperiod of such benefit is specified. 96 Hanbali jurists allow use by the pledgee subject to thepermission of the pledger. 97Study of the arguments of various schools of Fiqh reveals that the difference of opinion isdue to the fact that some jurists attach more weight to the possession by the pledgee, whileothers lay greater emphasis upon the ownership of the pledge. It is said that permission isnecessary to derive benefit, while in certain cases it is not, and again no permission willgive the right to benefit when the security is for a loan of the nature of Qard. The benefit isin return for the expenditure on maintenance. Some of the jurists say that the benefit shouldbe in proportion to the expenditure, otherwise it would amount to Riba. 98 This does notlead to any hard and fast rule, because the Prophet, while allowing benefit of the pledgedanimal, did not mention the minute aspect of equating expenses with the benefit. Puttingany condition in the loan contract that the pledgee has the right to benefit from the pledgeis not valid. 99 However, to the extent that is possible, any extra income, i.e. over and abovethe expenses incurred, should go to the pledger.On this analogy, an Islamic bank as a pledgee may derive benefit from a pledge inreturn for its maintenance by it. A house, for instance, requires maintenance and the93 Bukhari, 5, pp. 143, 144; Ibn Qudama, 1367 AH, 4, p. 326.94 Al Jaziri, 1973, pp. 672–675; Zuhayli, 1985, 4, pp. 725, 726; Jassas, 1999, pp. 563–567.95 Al Jaziri, 1973, pp. 669–671.96 Al Jaziri, 1973, pp. 667, 668.97 For details of all schools Ibn Qudama, 1367 AH, 4, pp. 385–391; Al Jaziri, 1973, 2, pp. 675, 676.98 Jassas, 1999, 2, p. 555.99 Ibn Qudama, 1367 AH, 4, p. 386.