The Rights To Use And Not Yet Ownership Of Vehicles

Our first impression when buying vehicles through hire-purchase agreements is that such vehicles are ours in terms of ownership. But the reality is not. The simple explanation that until we have paid all the installments under the hire-purchase agreements, the ownership of such vehicles is in the hand of financial institutions. We just merely have the rights to use the vehicles. The status of ownership is similar between conventional and Islamic hire purchase contract. The other similar characteristic is in term of the existence of two separate contracts. The first contract is the contract of hire and the second one is the contract of purchase. Thus, we have an option at the last installment either to purchase or return back the vehicles. The main different is the term charges existed in conventional hire purchase contract which is not allowed under Islamic hire purchase contract.

Takaful or Islamic Insurance: Part A

Conceptual Explanation

The concept of takaful or Islamic insurance is to encourage individuals to help one another. Thus, the concept manifests the principle of mutual help or indemnity. Interestingly, those who enter into takaful contract are actually considered as an insurer and insured person at the same time. Not only that they contribute some amount of money to help another person involved in the contract, but at the same time they are also entitled to receive assistance from those involved in the contract.

Historical Explanation
There were two situations which indicate that takaful or Islamic insurance was actually practised by the previous Muslim communities. The first situation concerned the practice of ‘aqilah or blood money and qasamah or collective blood money. For instance, when a member of Family A committed a murder against a member of Family B, the murderer could not be found, normally Family A would pay Family B qasamah. The second situation concerned the practice of the second righteous caliph of Islam, ‘Umar al-Khattab (r.a). During his caliphate, there were dawawin or agencies such as post office, military, and merchant. For instance, in military each officer was required to make contribution every month through deduction of monthly salaries in order to help those who were injured or dead in battlefields.

Fatwa or Religious Decree
There is fatwa or religious decree indicating that conventional insurance is prohibited under the Islamic law. For instance, conventional life insurance was prohibited under the Islamic law through a fatwa issued in 1972 based on a reason that the insurance embraces the element of gharar or uncertainty which generally invalidates a contract.

Legal Authority

Legal authorities for takaful or Islamic insurance are based on evidence from the Holy Qur’an through al-Ma’idah, verse 2, the practice of the second righteous caliph of Islam, ‘Umar al-Khattab (r.a), and various fatwa or religious decree.

Basic Features of Islamic Banking

A review of Islamic banking in Malaysia reveals specific features which are different to conventional banking. The first feature is interest free. Interest (al-riba) is totally prohibited under the Islamic law. Nevertheless, the Islamic law recognises contract of sale (al-bay’). Thus, the Holy Qur’an for instance clearly recognises contract of sale and prohibit interest (wa ahal Allah al-bay’ wa harram al-riba). This is different to conventional banking which recognises interest for instance in money-lending. The second feature is free of uncertainty. Uncertainty (al-gharar) in contract is prohibited under the Islamic law based on evidence from the Holy Qur’an and the Sunnah. For instance, one of the Sunnah indicates that the Prophet Muhammad (s.a.w) prohibited contract of sale of fishes in the sea without firstly ascertaining the amount due to uncertainty. Thus, such contract may involve negative elements such as fraud, misrepresentation, and undue influence. The third feature is profit and loss sharing. Profit and loss sharing can be proved by referring to the management of Islamic banking. The management provides products which involve profit and loss sharing such as al-wadi’ah, al-mudharabah, and al-bay’ al-muajjal. For instance, in al-mudharabah it involves profit and loss sharing between the investor (rab al-mal) and the manager (al-mudharib). The fourth feature is fixed in payment. For instance, in one of the Islamic banking products known as deferred payment sale (al-bay’ bi thaman ajil), the profit margin must be fixed unless there are exceptional circumstances allowed under the Islamic law. Nevertheless, under conventional banking the margin is not fixed and changeable based on current worldwide economic turbulent. The fifth feature is free of lender borrower relationship as adopted by conventional banking. This is to ensure that Islamic banking is interest free. Thus, a new relationship may be created as allowed under the Islamic law such as investor manager relationship. In short, the above features are changeable and can be varied to suit times and changes because the Islamic Banking Act allows such change and variety. Nevertheless, features under conventional banking are fixed and cannot be changed because the Banking and Financial Institution Act prohibits such change and variety.

Evidence on the Origin of Islamic Banking and Finance

1. Evidence in the Modern Era: Earliest evidence manifesting the recognition of Islamic banking and finance in the modern era is the existence of Islamic banking and finance in Dubai and Islamic takaful in Sudan in 1979. Thus, now there are many countries practising Islamic banking and finance such as Malaysia.
2. Evidence in the Previous Era: The previous Islamic civilisation did have Islamic banking and finance activities but there was no existence of banks. The civilisation could not also enhance itself if there was no Islamic banking and finance practised by the people back then. Thus, money was indeed important for management of various facilities such as agriculture. Examples of Islamic banking and finance instruments articulated by orientalists such as Abraham Udovitch existed in the era were balusah (letter of credit) and suftajah (bill of exchange) which were found to be practised during the first century of hijrah. Another example of the instruments is cheque which can be extracted from Islamic law literature such as al-Muwatta' of Imam Malik. Some orientalists such as Joseph Schacht further indicates that Islamic law was the first legal system to introduce cheque.
3. Conclusion: Islamic banking and finance is also recognised by some orientalists as an established practice. Thus, evidence on its origin is very clear.