DOCUMENTED SHARI’AA – JURISPRUDENCE –
Sheikh Muhammad Taqi Usmani is a world-renowned scholar who specialized
in Islamic Riba-Free Financing over the past generation. He authored
a book that was published in 1998 on the subject. The step-wise
approach and methodology were the same as the ones described above
and authored in 1990 in the form of a series of Fatwas (Religious
Decree) by a group of pioneering teachers and Shari’aa experts
headed by His Eminence Sheikh Yusuf Al-Qaradawi.
Following are excerpts from Sheikh Taqi Usmani book titled:
An Introduction to Islamic Finance
Muhammad Taqi Usmani
Idaratul Ma’arif, Karachi, Pakistan, 1998
Pages 85 to 91
“House financing on the basis of diminishing Musharakah (Joint
The proposed arrangement is composed of the following transactions:
1. To create joint ownership in the property (Shirkat-al-Milk)
2. Giving the share of the financier to the client on rent.
3. Promise from the client to purchase the units of share of the financier.
4. Actual purchase of the units at different stages.
5. Adjustment of the rental according to the remaining share of the financier
in the property.
Let me discuss each ingredient of the arrangement in a greater detail:
i. The first step in the above arrangement is to create a joint ownership
in the property. It has already been explained in the beginning of this
chapter that “Shirkat-al-Milk” (joint ownership) can come
into existence in different ways including joint purchase by the parties.
This has been expressly allowed by all schools of Islamic Jurisprudence.
Therefore no objection can be raised against creating this joint venture
ii. The second part of the arrangement is that the financier leases his
share in the house to his client and charges rent from him. This arrangement
is also above board because there is no difference of opinion among the
Muslim jurists in the permissibility of leasing one’s undivided
share in a property to his partner. If the undivided share is leased out
to a third party its permissibility is a point of difference between the
Muslim Jurists. Imam Abu-Hanifa and Imam Zubair are of the view that the
undivided share cannot be leased out to a third party, while Imam Mali
and Imam Shafi’, Abu Yusuf and Muhammad Ibn Hasan hold that the
undivided share can be leased out to any person. But so far as the property
is leased to the partner himself, all of them are unanimous on the validity
iii. The third step in the aforementioned arrangement is that the client
purchases different units of the undivided share of the financier. This
transaction is also allowed. If the undivided share relates to land and
building, the sale of both is allowed according to all Islamic schools.
Similarly, if the undivided share of the building is intended to be sold
to the partner, it is also allowed unanimously by all Muslim jurists.
However, there is a difference of opinion if it is sold to the third party.
It is clear from the foregoing three points that each one of the transactions
mentioned hereinabove is allowed per se, but the question is whether this
transaction may be combined in a single arrangement. The answer is that
if all these transactions have been combined by making each one of them
a condition on the other, then it is not allowed in Shari’aa, because
it is a well settled rule in the Islamic legal system that one transaction
cannot be made a pre-condition for another. However, the proposed scheme
suggests that instead of making two transactions conditional to each other,
there should be one sided promise from the client, firstly to take share
of the financier on lease and pay the agreed rent and secondly, to purchase
different units of the share of the financier of the house at different
stages. This leads us to the fourth issue, which is, the enforceability
of such a promise.
iv. It is generally believed that a promise to do something creates only
a moral obligation on the promisor, which cannot be enforced through courts
of law. However, there are a number of Muslim jurists who opine that promises
are enforceable, and the court of law can compel the promisor to fulfill
his promise especially, in the context of commercial activities. Some
Maliki and Hanafi jurists can be cited, in particular, who have declared
that the promises can be enforced through courts of law in cases of need.
The Hanafi jurists have adopted this view with regard to a particular
sale called “bai-bilwafa.” This bai-bilwafa is a special arrangement
of sale of a house whereby the buyer promises to the seller that whenever
the latter gives him back the price of the house, he will resell the house
to him. This arrangement was in vogue in countries of central Asia, and
the Hanafi jurists have opined that if the sale of the house to the original
seller is made a condition for the initial sale, it is not allowed. However,
if the first sale is affected without any condition, but after effecting
the sale, the buyer promises to resell the house whenever the seller offers
to him the same price, this promise is acceptable and it creates not only
a moral obligation, but also an enforceable right of the original seller.
The Muslim jurists allowing this arrangement have based their view on
the principle that “Arabic Stated Rule meaning: (the promise can
be made enforceable at the time of need.)
Even if the promise has been made before affecting the first sale, after
which the sale, after which the sale \has been effected without a condition,
it is also allowed by \certain Hanafi jurists.
One may raise an objection that if the promise of resale has been taken
before entering into an actual sale, it practically amounts to putting
a condition on the sale itself, because the promise is understood to have
been entered into between parties at the time of sale, and therefore,
even if the sale is without an express condition, it should be taken as
conditional because a promise in an express term has preceded it.
This objection can be answered by saying that there is a big difference
between putting a condition in the sale and ma\king a separate promise
without making it a condition. If the condition is expressly mentioned
at the time of sale, it means that the sale will be valid only if the
condition is not fulfilled in the future; the present sale will become
void. This makes the transaction of sale contingent on a future event,
which may or may not occur. It leads to uncertainty (Gharar) in the transaction,
which is totally prohibited in Shari’aa.
Conversely, if the sale is without any condition, but one of the two parties
has promised to do something separately, then the sale cannot be held
to be contingent or conditional with fulfilling of the promise made. It
will take effect irrespective of whether or not the promisor fulfills
his promise. Even if the promisor backs out of his promise, the sale will
remain effective. The most the promise can do is to compel the promisor
through court of law to fulfill his promise and if the promisor is unable
to fulfill\ the promise, the promise can claim actual damages he has\
suffered because of the default.
This makes it clear that a separate and independent promise to purchase
does not render the original contract conditional or contingent. Therefore,
it can be enforced.
On the basis of this analysis, diminishing Musharakah may be used for
House Financing with following conditions:
a) The agreement of joint purchase, leasing and selling different units
of the share of the financier should not be tied-up together in
one single contract. However, the joint purchase and the contract
of lease may be joined in one document whereby the financier agrees
to lease his share, after joint purchase, to the client. This
is allowed because, as explained in the relevant chapter, Ijarah
can be effected for a future date. At the same time the client
may sign one-sided promise to purchase different units of the
share of the financier periodically and the financier may undertake
that when the client will purchase a unit of his share, the rent
of the remaining units will be reduced accordingly.
b) At the time of the purchase of each unit, sale must be effected
by the exchange of offer and acceptance at that particular date.
c) It will be preferable that the purchase of different units by the
client is effected on the basis of the market value of the house as
prevalent on the date of purchase of that unit, but it is also permissible
that a particular price is agreed in the promise of purchase signed
by the client.
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THIS IS NOT A FATWA BY HIS EMINENCE
SHKH. TAQI USMANI. THESE ARE QUOTATIONS FROM HIS BOOK.
PLEASE NOTE THAT THIS INFORMATION
IS PUBLISHED HERE TO EDUCATE THE MUSLIM USER WHO WANTS TO REMOVE
RIBA FROM HIS/HER LIFE. THEY DO NOT DIRECTLY OR INDIRECTLY IMPLY
THAT THE MENTIONED SCHOLARS HAVE SPONSORED, GIVEN DIRECT FATWA
OR THE LIKE REGARDING LARIBA. We at LARIBA believe that it is
the RESPONSIBILITY OF THE EDUCATED MUSLIM TO READ, COMPREHEND,
ANALYZE & COMPARE then make his/her own decision.
WHILE LARIBA HAS IT IS OWN SHARI’AA ADVISORS IT'S OUR POLICY
NOT TO USE THE EMINENCE & SCHOLARLY STATURE OF OUR SCHOLARS
TO “MARKET” OR “SELL”. WE RELY ON THE
MIND OF THE EDUCATED MUSLIM. WE ASK ALLAH TO ACCEPT.