Undoubtedly murabahah and bank loan are two concepts that can be misconstrued by many non-experts in the field of Islamic economy system. The extent of this has led to hot debate among the promoters of Islamic financial system. The explicit distinction between murabahah and bank loan is consequently obscured in the existing body of knowledge in the recent. It is on this basis that this paper attempts to bridge this gap by making clarification in an explicit way. Since Islam promotes sale and prohibits interest, it is essential to elucidate and clarify both concepts especially by establishing its position from Islamic perspective.
Islamic legal system provides or covers all aspects of human endeavors such as socio economic development. There are different economic theories like partnership (musharakah) developed from Islamic perspective on financial and economic matters. Also, murabahah is another Islamic economic concept which emphatically stresses on sale which murabahah as an Islamic economic concept gives priority to value of time with money (Usmani, 2015). It is an economic paradigm that is distinctive from interest-based finance such as loan in conventional practices. In this regard, Islamic banking and finance has been growing to provide alternatives to conventional system in order to fulfill the prime objectives of the Shari'ah as literature expounds (Khan & Mirakhor, 1987).
Undoubtedly, there is a misconception with respect to the use and application of murabahah because it is equated with the practice of interest by conventional banks. However, from the view-lens on Shari'ah, bank can use murabahah but some essential conditions of Shari'ah must be fulfilled. It is essential to give justification for the practice of murabahah transaction either by Islamic banks or Islamic private institutions which has been demonstrated in the theoretical framework of murabahah transaction.
Onwards, Classical and modern discourse on the concept of murabahah transaction is explored. In addition, payment in murabahah transaction is explicated in this paper. Different arguments with the practice of murabahah by Islamic banks are underscored and the practice of interest by conventional banks is also comparatively explored alongside with the explanation of murabahah. The paper draws conclusion from various arguments by the promoters of Islamic financial system and recommendations are made.
This paper explores related literature for conceptualization of murabahah and the practice of bank loan in the contemporary time. The literature is sectionalized into various sub-headings such as:
Theoretical framework of murabahah transaction;
Classical and modern concept of murabahah transaction;
Payment in murabahah transaction;
Practices of murabahah by Islamic banks and interest by conventional banks.
Each of these is elaborated in the subsequent sub-headings.
This section underscores the theoretical framework of this paper. Theoretically, Islamic legal system or Islamic jurisprudential rules provides a framework for the practice of murabahah as a distinctive entity different from the practice of interest by conventional banks (Yousef, 2004). This framework considers the justification from both the Qur'an and Hadith of the Prophet. Similarly, the viewpoints of promoters of Islamic finance in the contemporary time are lucidly explicated in connection with the Maqasid al-Shari'ah of Ibn Ashur. The financial transaction under the explanation of Maqasid al-Shari'ah by a contemporary Muslim scholar known as Ibn Ashur is directly or indirectly linked with the concept of murabahah and it is consequently used as a theoretical framework of this paper. Ibn Ashur (2006) offers several Qur'anic and prophetic injunctions that wealth is considered as a preservation of human social order (Ibn & El-Mesawi, 2006). Ibn Ashur's theory of expanding the scope of Maqasid al-Shari'ah is relevant to this paper because murabahah is used as a mechanism for fulfilling human needs (Ibn & El-Mesawi, 2006).
In addition, the importance of wealth in Islam is to foster the well-being of the individual; hence, murabahah transaction can be instrumental in this regard. In addition, protecting wealth of individuals and fulfilling the needs of individuals are important according to the explication of Ibn Ashur. This is so because; fulfillment of individual needs contribute immensely to the paradigm shift on the discourse of Maqasid al-Shari'ah according to Ibn Ashur (Ibn & ElMesawi, 2006). It should be further stressed that murabahah may be considered as an individual benefit rather than collective or communal benefit. Nonetheless, it should be posited that, Ibn & El-Mesawi (2006) contends that individual's financial transaction is consequentially considered as useful to the entire community according to Ibn Ashur. Thereby, it is one of objectives of Shari'ah to regulate the management of the wealth distribution or circulation. It is on this note that, the Islamic banks that operate murabahah transaction possess guiding principles for purchasing a particular product to the customer through the mechanism of murabahah. It not doubtful to say that the main target or purpose of murabahah transaction is to indirectly help an individual fulfill or satisfy his/her basic needs that he/she cannot ordinary fulfill with cash at the period of involving in murabahah transaction as a result of waiting for payment of one's labour.
It is noteworthy to say that, one of the requisites of murabahah is that, Islamic banks that operate murabahah should have full possession of a particular product to be purchased. This position is in line with the explanation of Ibn Ashur (2006) that, the paramount principle of owning is an exclusive possession of a particular commodity which is an essential underlining dimension for humans to struggle for in obtaining their needs. It should be reiterated that, transparency and equity are important in murabahah transaction specifically the Islamic bank that intends to purchase a particular product to the customer should encourage this since financial activity is being encouraged and promoted according to the objective of Shari'ah. It should be reiterated that there is need for benchmark for Islamic interbank in order to authenticate Shari'ah compliance of different concepts of Islamic financial system such as murabahah as literature explicates. The subsequent sub-heading provides the detail explanation of classical and modern concept of murabahah.
Classical and Modern Concept of Murabahah Transaction
The word murabahah is of Arabic extraction which literarily refers to profit while technically the term murabahah is commonly used in Shari'ah to refer to a contractual sale of a particular commodity whereby there would be a clear agreement between the buyer and the seller (Ismail, 1997). Also, the term has been commonly used in modern time ascribed with the Islamic banks because it is regarded as Shari'ah compliant. This is due to the fact that, it allows the finance of a product on the request of a customer whereby the customer is permitted to make deferred payment.
It is explicit that, the extra charge added at the initial time of purchase of a particular product is not prohibited in Islam, but failure to pay the agreed amount on the fixed date by the buyer is undeniably regarded as forbidden usury. This has been clearly stated in the Qur'an that:
"Allah has allowed sale and forbidden usury" (Q 2:275).
Apart from the aforementioned Qur'anic injunction that permits the sale, it is evidently shown that that Prophetic narration allows transaction of credit sales like murabahah. More importantly, literature such as Farooq (2009) contends that, the Prophet (S.A.W.) himself engaged in transactions of credit purchase. Usmani (2015) further buttresses that all scholars of four Sunni schools of thought that...