DOCUMENTED SHARI’AA – JURISPRUDENCE –
A Group of Pioneering Scholars Headed by His Eminence Sheikh Dr.
Yusuf Al-Qaradawi – Algiers, Algeria – 1990, originated
this series of Fatwas
Translated from Arabic by Professor Mahmoud Elgamal – The
First Ever Chair of Islamic Banking, Economics & Finance in
the History of the US, Rice University Houston Texas
1.1. Translation of Selected Fatwa of Al-Baraka
Seminars - Seminar 6: --(pp.77-78) Algeria 5-9 Sha’baan 1410
A.H. - 2-6 October 1990 C.E.
The sixth Baraka seminar was held in Algeria during the period 5-9
Sha’baan 1410 A.H., 2-6 October 1990 C.E. In addition to the
scholars whose names are listed below, representatives of Al-Baraka
and other Islamic banks were invited.
During those five days, the seminar program covered the practices
of Al-Baraka Bank, London, including issues raised by the environment
within which the Bank has to operate. The goal of this review was
to find appropriate Shari’aa solutions to said issues. In
addition, branch managers raised a number of questions, which were
also addressed by the scholars.
The participating scholars in this seminar have issued a number
of fatwas for the relevant issues, based on the explanations of
specialists and documents prepared by the Bank management team in
London The committee of scholars in this seminar included the following,
after appointing Sheikh Abdul-Hamid Al-Sa’ih as chairman,
Dr. Sami Homoud as secretary, and Dr. Abdul-Sattar Abu-Ghuddah as
- Dr. Yusuf Al-Qaradawi.
- Dr. Abdul-Sattar Abu-Ghuddah.
- Dr. Muhammad Al-Mukhtar Al-Salami.
- Dr. Yusuf Qasim.
- Sheikh Abdul-Hamid Al-Sa’ih.
Special circumstances prevented Dr. Al-Siddiq Muhammad Al-Amin
Al-Darir from participating in the seminar deliberations. However,
he had sent his suggested answers to the paused questions, which
answers were distributed to all participants along with the other
seminar papers. In the event, his opinions were utilized in composing
the final fatwas.
1.2. (6/2) – pp.81-82 Using the term “interest”
as an alternative to the term “profit” or “rate
of return” when interest payments can relieve the payers of
certain financial obligations
Is it possible to use the term “interest” instead of
the term “profit” or “rate of return”, without
meaning in fact the essence of interest, to benefit from the financial
advantages granted by the relevant authorities in the West to interest
payments in the cases of deposit and financing?
The committee has reviewed some of the legal benefits that the British
tax system gives to paid and received interest in bank dealings.
Applying the principle for reviewing transactions stipulating that
what matters in contracts are intentions and substance – not
words and forms – we have reached a consensus that there is
no objection to using the term “interest” as an alternative
to the term “profit” or “rate of return”.
This opinion is based on the view that what is intended here is
not to effect Riba, which is forbidden in Shari’aa. Thus,
following our deliberations, we reached the following conclusion:
“Despite the fact that interest, as conventionally used in
banking transactions, coincides precisely with the Riba that is
forbidden in Shari’aa to pay or receive, and regardless of
whether the underlying transaction is a consumption or production
loan, we have found that there is no objection to the use of the
term “interest” in the cases related to those dealing
with Al-Baraka Bank, London, aiming to benefit from the financial
advantages given to interest in various cases of deposits and financing.
In this regard, it is imperative to ensure that the term “interest”
in the sense described above is used only in the forms required
by entities other than the bank, e.g. tax declaration forms for
depositors, or special forms used in various financing cases. However,
if the intent is to change the nature of the transaction to make
it an interest-bearing loan, then such transaction will be fundamentally
1.3. (6/4) – pp.84-87 - The Al-Baraka, London,
Home Financing Contract Language
The contractual relationship between the proposed partner and the
Bank on the basis of mutual possession of real estate for sale in
accordance to the proportions advanced towards the purchase price.
Those proportions are expressed in terms of shares, the value of
each of which is agreed upon at the inception of the contract as
This value remains constant throughout the contract period. Moreover,
the real estate remains eligible for sale, to allow the Bank to
sell its shares on a periodic basis (e.g. monthly) to the buyer,
or vice versa.
Accordingly, ownership of the property is transferred gradually
to the buyer over the agreed-upon period. In addition, since the
buyer controls the usufruct of the property, he pays the bank a
rent corresponding to said usufruct. This rent is labeled “profit”
in the contract, and its amount is determined by the Bank’s
share in ownership.
In this regard, the rental value of the property is determined each
year according to a fixed and agreed-upon rule, relying on rental
values in London as a baseline for determining the rental of purchased
property. Correspondingly, the amount of rent paid by the buyer
to the Bank declines in proportion to the decline in the Bank’s
ownership and corresponding buyer’s increased ownership, as
the latter buys a pre-determined number of ownership shares each
year, until he ultimately becomes the sole owner of the property
at the end of the period [of financing].
What is the ruling in Islamic Jurisprudence regarding this form
and contract language for financing the purchases of homes and real
The participating scholars discussed the method of financing homes
and real estate followed by Al-Baraka Bank, London, in light of
the Laws governing this type of transactions. The scholars recognized
the need for Muslims to own appropriate homes to meet their needs.
In this regard, the scholars considered the following related points:
- Registering the home’s title in the partner’s (customer
seeking to purchase the property) name from the inception of financing
- Making the partner responsible for all fees and costs associated
with registering said title.
- Insurance premiums for the home.
- The method of calculating annual rents.
- Means of liquidating the partnership and releasing the Bank’s
lien on the property in cases where the property’s price
After a long discussion of those topics, we reached the following
- That registering the home’s title in the partner’s
name, based on trust, from the inception of the contract is
permissible under Shari’aa. Registering the property’s
title in this manner does not contradict the agreed upon partnership,
especially since the partner’s ability to sell the home
is restricted until his full ownership of the property is established.
In this regard, we took into consideration the fact that this
registration of title is a form of documentation insured by
the officially established lien on the property according to
the conditions agreed-upon with the partner.
- Making the partner alone responsible for all registration,
survey, and other documentation costs associated with the jointly
owned property from the inception of the contract, and absolving
the bank from responsibility for such costs, is permissible
if the partners agreed accordingly. This is particularly appropriate
since the partner will ultimately become the sole owner of the
property at the end of the financing contract.
- With regards to insurance, the default ruling would require
both partners to bear responsibility for insurance premiums,
as a shared burden of the jointly owned property. However, the
bank may take that into consideration when determining the rental
of its share of the property to include appropriate compensation
for the appropriate share of insurance costs.
- The default ruling in joint ownership is sharing in profits
and losses in proportion to ownership, based on the principle
that entitlement to profit must be commensurate with risk exposure.
In this regard, since the regulatory framework requires that
the Bank should not be exposed to the possibility of losses
when the partnership is dissolved, the model should be altered
such that the order of the transaction proceeds as follows:
a. The Bank and the customer share in purchasing the home
according to the agreed-upon proportions.
b. The Bank sells his share in the physical property ownership
(milk al-raqabah) to its partner, while retaining his share
of ownership of its usufruct (milk al-manfa`ah) until the
time its partner pays the remaining portion of the price.
c. The Bank collects an annual rent in accordance with the
actually paid portion of the property’s price.
d. If the partner is delinquent in paying the installments
for which he is obligated, the Bank has the right to keep
the sale agreement intact, and collect its right to the remaining
portion of the price according to the obligatory performance
clauses of the lien; or the Bank may void the initial sale
and take full ownership the property if the partner agrees.
In the latter case, the Bank should pay back to the partner
whatever he had paid previously, as a revocation of the sale
from its inception. (Item d. was agreed-upon by a majority
of the participating scholars).
1.4. Seminar 9: --pp.149-150 - Jeddah 5-7
Ramadan 1414 A.H., 15-17 February 1994 C.E. (The third Jurisprudence
Symposium on contemporary banking issues)
All praise and thanks are to Allah, and prayers and peace
upon the Messenger of Allah (peace be upon him) and upon all
his family and companions, then:
In the framework of the activities of the research and development
group in Dallah Al-Baraka group, the ninth Al-Baraka seminar
(the third Jurisprudence Symposium) was held to discuss some
banking issues, during the period 5-7 Ramadan 1414 A.H., 15-17
February 1994 C.E. in Jeddah (Dallah Tower). The following
scholars participated in this seminar:
1. Sheikh Dr. Ahmad `Ali `Abdallah.
2. Sheikh Dr. Al-Siddiq Muhammad Al-Amin Al-Darir.
3. Sheikh Dr. `Abdul-Sattar ‘Abu-Ghuddah.
4. Sheikh Dr. `Abdullah bin-Sulayman Al-Manee`.
5. Sheikh Dr. Muhammad Sulayman Al-‘Ashqar.
6. Sheikh Dr. Muhammad Al-Mukhtar Al-Salami.
7. Sheikh Mustafa Al-Zarqa’.
8. Sheikh Dr. Yusuf Al-Qaradawi.
To discuss the following issues:
After lengthy detailed discussions, and after listening to
the explanations of relevant practitioners, the scholars reached
the following recommendations:
1.5. (9/4) – p.155 Establishment of pro forma ligatures
or contracts, or formation of sister or branch special purpose
entities to benefit from tax advantages given to Ribawi interest
1. Islamic banks should be wary of writing pro forma Ribawi
contracts or ligatures with pro forma Ribawi interest to benefit
from tax or other advantages legally offered to Ribawi interest.
2. There is no harm done if Islamic banks use language in
their financial statements to explain the nature of permissible
profit. For instance, the Bank may say that [such profit]
is “the Islamic alternative for interest in the Ribawi
system” or that “it is the return on investment”
if such language will allow them to benefit from the tax advantages
offered by Ribawi systems. However, the terms “Riba”
or “interest” must never be used in any financial
statement issued by the Islamic bank.
This fatwa is considered complimentary to the third fatwa
of the sixth Al-Baraka seminar (#51), according to the view
that the earlier fatwa was restricted to forms that are not
issued by the Islamic bank.
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