Understanding Islamic Finance - Doha Academy of Tertiary Studies

232 Understanding Islamic Financedilatory tactics with a view to cause delay in decision of the case and in discharging liabilities andfrom the amount of such penalty a smaller or bigger part, depending upon the circumstances, canbe awarded as solatium to the party who is put to loss and inconvenience by such tactics. Theamount of penalty can be received by the State and used for charitable purposes and in the projectsof public interest, including the projects intended to ameliorate economic conditions of the sectionsof society possessing little or nothing, i.e. needy people/peoples without means”. 64Therefore, courts or any resolution committees appointed by the State or the regulatorscan determine compensation for the actual damage but not for the loss of income calculatedon the basis of the conventional concept of opportunity cost. If any part of the penalty isnot allowed for the bank by a court, the proceeds must be utilized for charitable objectivesonly and cannot be made available as compensation to the bank.Going further ahead on the path of Ijtihad, a Fatwah of the Sharī´ah board of Al Baraka,Sudan, authorizes Islamic banks to impose late fees to be taken as the bank’s income onthe basis of a profit rate actually gained by it during the period of default, as if the delayedmoney had also earned that profit if received by the bank. 65 However, the idea of charginga realized rate of return is more akin to the conventional concept of opportunity cost andit would be very difficult to differentiate Murabaha contracts with such stretched Ijtihadfrom Western trade financing involving interest. For the credibility of the Islamic financialsystem, such differentiation is necessary.9.9.5 Rebates on Early PaymentDepending upon the cash flow, some clients may wish to pay earlier than the due dateand demand a prepayment rebate as in the case of conventional banking. However, themajority of contemporary Sharī´ah scholars do not allow remission for earlier payment inMurabaha operations by banks. This issue has been discussed in detail in Chapter 7. TheOIC Fiqh Academy, the Shariat Appellate Bench of the Supreme Court of Pakistan, Sharī´ahcommittees of Islamic banks in the Middle East and Sharī´ah scholars in general consider thatit would be similar to interest-based instalments sales techniques. The AAOIFI’s Sharī´ahStandard on Murabaha, however, allows a rebate if it is not already stipulated in the Murabahacontract. 66 Therefore, if the customer makes early payment and there is no commitment fromthe bank in respect of any discount in the price of Murabaha, the bank has discretion inallowing the rebate or not. But, it should not be made a practice and any such case shouldbe decided on merit in consultation with the Sharī´ah advisor.9.9.6 Rollover in Murabaha“Rollover” in Murabaha means booking another Murabaha against receivables of any previousMurabaha, payment in respect of which has not been made by the client. Further mark-up isadded to the receivable in default by a client. This is explicit Riba, as the bank is not entitledto any amount over and above the debt created in a Murabaha transaction, as a result of whichownership of the sold goods had already been transferred to the client. Now the bank has no rightof re-pricing. Rescheduling is allowed, but re-pricing and, therefore, rollover is not allowed.64 Shariat Appellate Bench, 2000, pp. 477, para. 24 in the court order; Council of the Islamic Fiqh Academy, 2000, pp. 251, 252;AAOIFI, 2004–5a, pp. 122, 132.65 Fatwah translated into English, cf. Ray, 1995, pp. 182, 183.66 AAOIFI, 2004–5a, p. 132.