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Commercial Papers & Bank Cards

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Bank cards are currently regarded as one of the mainstream payment options. Being alternative mode for cash payments, and easy to manage and carry, it is regarded as the most secure and convenient option to pay for goods and services. Shariah recognizes the needs of human being and thus it permits using the bank cards. However there are certain issues that Shariah prohibits and shows us the alternative ways. This presentation will look after the issues carefully.

On the other hand, commercial papers are convenient tools to secure debts and those papers are traded on discount. Shariah permits the first, while becomes cautious about the latter. The presentation will detail the issues that need to be addressed.

Publié dans : Économie & finance, Business
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Commercial Papers & Bank Cards

  1. 1. SHARIAH POINT OF VIEW Bank Cards & Commercial Papers YOUSUF SULTAN Deputy Mufti, Jamia Shariyyah Malibag 2 6 T H T R A I N I N G C O U R S E O N I S L A M I C B A N K I N G & F I N A N C E , A R R A N G E D B Y C E N T R A L S H A R I A H B O A R D F O R I S L A M I C B A N K S O F B A N G L A D E S H , 1 2 T H J U N E , 2 0 1 4
  2. 2. Bank Cards
  3. 3. Topic Outline - Bank Cards  What is a Bank Card?  Why Cards?  Different Types of Cards  How Cards Work?  What does Shariah say?  Credit & Shariah  Examples of Islamic Credit Cards  Other Shariah Issues in Bank Cards
  4. 4. What is a Bank Card?  A bank card is typically a plastic card issued by a bank to its clients that performs one or more of a number of services that relate to giving the client access to funds, either from the client's own bank account, or through a credit account. - Wikipedia
  5. 5. Why Cards?  Alternative mode to Cash transactions  Immediate transfer of Funds  Instant Cash withdrawal from ATM  Pay for goods and services easily  Easy to carry, handle and manage  Earn bonus points, gifts or get Cash back  Other benefits like Insurance Coverage etc.
  6. 6. Different types of Cards Debit Card Credit Card Charge Card
  7. 7. Characteristics Debit Card Credit Card Charge Card Issued to Customer with available funds Y N N Cash Withdrawal Y Y/N Y Pay for goods and services Y Y Y Credit facility N (except overdraft) Y (certain ceiling) Y (certain ceiling) Revolving Credit N Y (within credit limit) N (full payable within credit period) Interest charged N (except in case of overdraft) Y Y (for delay in repayment) Yearly Fee Y/N
  8. 8. Visa/ MasterCard/ American Express  Payment networks that connect merchant payment terminals with Issuer bank’s credit card department.  Third party networks to process transactions.  They do not issue cards. They make money by processing transactions between the point of purchase and the issuer bank.
  9. 9. HowCardsWork
  10. 10. What does Shariah say? According to AAOIFI Shariah Standard No. 2 Debit Cards • Permissible • Condition: the cardholder does not exceed the balance available on his account (overdraft) and no interest charge arises out of the transaction. Charge Cards • Permissible • Condition: The cardholder is not obliged to pay interest in the case of delay in paying the amount due. Credit Cards • Not Permissible • Because of interest-bearing revolving credit facility.
  11. 11. Credit & Shariah  Credits are generally discouraged.  A dead person was brought to the Prophet ( ‫ﷺ‬) so that he might lead the funeral prayer for him. He asked, "Is he in debt?" When the people replied in the negative, he led the funeral prayer. Another dead person was brought and he asked, "Is he in debt?" They said, "Yes." He (refused to lead the prayer and) said, "Lead the prayer of your friend." Abu Qatada said, "O Allah's Messenger ‫ﷺ‬ I undertake to pay his debt." Allah's Messenger ‫ﷺ‬ then led his funeral prayer. – (Sahih al-Bukhari: 2295)
  12. 12. Credit & Shariah  Credits are generally discouraged.  All the sins of a Shahid (martyr) are forgiven except debt. – (Sahih Muslim: 1886)  Beware of debts! Their beginning is a worry and their end is destitution. – Umar Ra. -(Muatta Malik, Book 37, Hadith: 1465)  Qard-Hasan is encouraged  Who is he that will give Qard-Hasan to Allah? For (Allah) will increase it manifold to his Qard (credit), and he will have (besides) a liberal Reward. – Al-Qur’an (57:11). See also 64:17, 57:18, 2:245
  13. 13. Credit & Shariah  Any type of Interest is prohibited  Allah has permitted trade and forbidden Riba. - Al-Qur’an 2:275  The Messenger of Allah ( ‫ﷺ‬) cursed the one who accepts Ar-Riba (the usury) and the one who pays it. -Muslim  The narration in At-Tirmidhi adds: And the one who records it, and the two persons who stand witness to it.
  14. 14. CreditCardDebtinAmerica
  15. 15. CreditCardDebtinAmerica
  16. 16. Qard-Hasan  Helping the people in need  No interest is charged for late or in-time payment  A tool for business with Allah, not with the debtor
  17. 17. Shariah Compliant Credit Card  Credit based on Qard-Hasan  No interest fee for late payment  Any compensation for late payment to be added to charity fund.  A fixed reasonable monthly / yearly service fee (Ujrah) can be charged for the services involved for credit advances.  No excess can be charged. Fees should be determined by Shariah Supervisory board.  For cash withdrawals, it is necessary that the charges imposes be certain and reasonable, excluding profits. Not permitted to link the charge to the amount withdrawn. - AAOFI Shariah Standard No. 19, Clauses 9/1 and 10/3/2 and Standard No. 2
  18. 18. Examples of Islamic Credit Cards Qard-Hasan and Ujrah Local :  IBBL (Khidmah Card)  Prime Bank (Hasanah) International:  Dubai Islamic Bank (Al Islami Credit Card)  Kuwait Finance House (Al-Tayseer)  Standard Chartered Bank (Saadiq Credit Card) • Fixed monthly & Annual fees • Fixed Cash withdrawal fee • Fixed Late payment charge, used for charitable clauses, not added to bank’s income. Murabaha and Ujrah Local :  Exim Bank Ltd.  SIBL • Yearly x% Mark-up Profit will be charged with the purchase price of Goods and Services • All other fees are generally fixed
  19. 19. Examples of Islamic Credit Cards Tawarruq/ Bai Inah  Bank Islam Malaysia Berhad  Many other banks in Malaysia Shariah Issues in Organized Tawarruq and Bai ‘Inah
  20. 20. Other Shariah Issues in Bank Cards Name of Service/ Contract Permissible? Shariah Basis Membership of international card regulatory organizations (pay membership fees, service charges and other fees) Yes Ujrah Commission to the card issuer payable by merchants accepting the card Yes Ujrah Fees charged by the institution to the cardholder (membership, renewal & replacement | Reasonable) Yes Ujrah Purchasing gold, silver and currency with cards Yes (with debit cards and charge cards, where payment is settled without delay) Constructive Possession (International Islamic Fiqh Academy – Resolution No. 53)
  21. 21. Other Shariah Issues in Bank Cards Name of Service/ Contract Permissible? Shariah Basis Cash withdrawal using a card (reasonable fixed fee) Yes Ujrah Cash withdrawal using a card (variable fee) No Riba Privileges granted by card issuing parties that are prohibited by Shariah No Helping in Haram (At-tawawun alal Ithmi wal Udwan) Privileges granted by card issuing parties that are permitted by Shariah Yes Tabarru AAOIFI Shariah Standard No. (2) Debit Card, Charge Card and Credit Card, International Islamic Fiqh Academy Resolutions: 108 & 139
  22. 22. Questions?
  23. 23. Commercial Papers
  24. 24. Topic Outline – Commercial Papers  Definition  Types  Shariah Rulings  Bai-al-Dayn  Alternatives
  25. 25. Definition  Commercial paper is a money-market security issued by large corporations to obtain funds to meet short- term debt obligations, and is backed only by an issuing bank or corporation's promised to pay the face amount on the maturity date specified on the note. - Wikipedia
  26. 26. Types  Bill of exchange  Promissory note  Cheque - Geneva Uniform Convention on the Law of Commercial Papers, Issued on 1349-1350 H corresponding to 1930-1931 and adopted by a large number of countries. (According to AAOIFI Sharia Standard No. (16) Commercial Papers)
  27. 27. Bill of Exchange  A bill of exchange is a certificate issued in a particular legal form. It consists of an order from a person (known as the drawer) to another person (known as the drawee) to pay a certain sum of money at sight, or at a particular or determinable date, to a third person (called the beneficiary).
  28. 28. Promissory note  A promissory note is a legal instrument, in which one party promises in writing to pay a determinate sum of money to the other, either at a fixed or determinable future time or on demand of the payee, under specific terms.
  29. 29. Cheque  A cheque is a document that orders a payment of money from a bank account.
  30. 30. Bill of Exchange – an example
  31. 31. Shariah Rulings for Commercial Papers Bill of exchange • Permissible •Hawala or Qard, or in the meaning of suftaja (demand note). • Abdullah ibn Abbas RA used to take silver from traders at Mecca and write down a demand note for them to be paid at Kufa. -Al-Bayhaqi in Sunan al-Kubra 5/352 Promissory Note • Permissible, as it’s a document acknowledging a debt •Allah SWT says, “O you who believe! When you deal with each other, in transactions involving future obligations in a fixed period time, reduce them to writing.” (Al Baqara: 282)
  32. 32. Shariah Rulings for Commercial Papers Cheque • Permissible • Hawala (Transfer of Debt) • The muhil (transferor) is the account holder, the muhal is the beneficiary and the muhal 'alayh (transferee) is the drawee bank. Collection of the amount of commercial papers • Wakalah (Agency)
  33. 33. Discounting of Commercial Papers Discount commercial papers (to a third party) • Not Permitted • Amounts to a loan with interest. Pay an amount that is less than the value of the paper to the first beneficiary prior to the date of maturity • Permitted, • Condition: Not based upon an agreement concluded prior to the date of maturity. -AAOIFI Shariah Standard No. 16 (Commercial Papers); -The Council of the Islamic Fiqh Academy, Resolution No. 64/2/7
  34. 34. Various use of Commercial Papers Sell commercial paper that has not become due for an amount similar to its value • Not Permitted • Riba al-nasi'ah Sell commercial paper that has not become due for an amount that is more than its value • Not Permitted • Riba al-nasi'ah plus fadl Purchase goods to be delivered later (on the date of maturity of the paper), and after the debt is established as a liability • Permitted • The holder of the paper transfers the claim of his creditor to his debtor through this paper. In such a case, the transaction amounts to hawala.
  35. 35. Bai’ al Dayn (Sale of Debt) Sale of debt in exchange of debt • Prohibited according to majority Fuqaha • Rasul SM prohibited to sell debt in exchange of debt (Bai’ Kali bil Kali’ ) - Recorded by Hakim in Mustadrak 2/65, Daraqutni 71, Baihaqi 5/290 Sale of debt to the debtor in spot (i.e. Zayd took 500 taka from Omar. Zayd says to Omar, buy my book in exchange of the debt I owe you) • Permitted according to majority Fuqaha
  36. 36. Bai’ al Dayn (Sale of Debt) Sale of debt to a third party Hanafi, Hanbali, Zahiri: • Not Permitted • Hawala is permitted (for hawala, recourse to the original debtor is there. But in a sell, no recourse to original debtor) Shafi’e: • Permitted • Condition: Debt must be recovered within the session. Maliki: • Permitted • Conditions: Many. Among them, debtor must be present, and he must admit about the debt.
  37. 37. Bai’ al Dayn (Sale of Debt) Opinions of Contemporary Scholars The Council of the Islamic Fiqh Academy: • Not permissible • because this results in Riba (usury) -Resolution No. 101 (4/11) Shariah Advisory Council, Malaysia: • Permissible with some conditions - 14th meeting dated 8 June 2000, Shariah Resolutions In Islamic Finance, Bank Negara Malaysia
  38. 38. Alternatives to Discounting of Bills Musharaka • Trader will enter into Musharaka with the Bank before exporting goods. The return is known, so no difficulties for bank. Bank will advance money to the trader, and upon maturity date, it’ll receive the debt and keep its profit. • i.e. 10% return is known to both parties. Bank will advance the money with 5% profit to the trader. And upon maturity Bank will get the rest 5%. This 5% is Bank’s profit. • Nearby example in practice: MDB (Musharaka Documentary Bill) in IBBL and other Islamic Banks
  39. 39. Alternatives to Discounting of Bills Wakalah and Qard- Hasan There will be two contracts. • Wakalah: The exporter will appoint the bank as his agent to collect receivables on his behalf. The bank can charge a fee for this service • Qard-Hasan: The bank will provide an interest free loan to the exporter, which is equal to the amount of the bill, and the exporter will give his consent to the bank that it can keep the amount received from the bill as a payment of the loan. • The two contracts will be separate and none of them will be linked with the other. • The agency fee will not vary with the maturity date, rather it’ll be fixed and reasonable. • The agency fee must not be excess for advancing qard-hasan, as this will constitute benefit in exchange of qard, which is Riba.
  40. 40. Sources  AAOIFI Shariah Standards No. 2 (Debit Card, Charge Card and Credit Card), 16 (Commercial Papers) and 19 (Loan/ Qard).  Bai’ Dayn details and alternatives to it are taken from Taqi Usmani, Bai’ al Dayn, Issue 11, Islamic Fiqh Academy Journal
  41. 41. Questions?
  42. 42. Thank you. Yousuf Sultan Deputy Mufti, Jamia Shariyyah Malibag E-mail: myousufs@gmail.com Web: www.yousufsultan.com

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