ISLAMIC HIRE PURCHASE IN MALAYSIA

Islamic Hire Purchase or AITAB (Al-Ijarah Thumma al-Bay’) is unfortunately lacking in Shariah regulatory framework. Thus, any dispute arising from the transaction will be referred to the conventional regulations, and such inclination can be due to :

(a) Absence of Islamic hire-purchase regulation, thus practitioners in AITAB transaction have no other legal recourse except the conventional hire-purchase law; Hire-Purchase Act 1967 (HPA).

(b) The basic operation of AITAB in effect is similar to conventional hire-purchase, i.e., determination of fixed rate, standard documentation, and formation of agreement ; the only difference is in the issue of interest (riba) and issuance of acceptance (‘aqd) letter.

(c) Conventional hire-purchase business has been in the market for quite a long period of time and has established its rules and policy, thus its operation appears to be much easier in practice.

(d) Jurisdiction of civil courts also covers Islamic banking transactions. Since there is no legal authority for AITAB transaction, any case connected to it will be referred to HPA.

ISLAMIC CREDIT CARD

An Islamic Credit Card adopts three Shariah contracts, namely:

- Bai Inah

- Wadiah

- Qardhul Hassan

Bai Inah comprises of two agreements: in the first one, the issuing bank sells a property to the customer at an agreed price. While in the second contract, the Bank re-purchases the property from the Client at a lower price. The difference should be the determined maximum profit for the bank.

Wadiah: The Bank will disburse the cash proceeds of the second agreement into the customer's Wadiah account created and maintained by the bank. The customer can use his/her account for cash withdrawals like the classic credit card, except that each payment will be backed by the cash held in his/her Wadiah account.

Qardhul Hassan is a facility granted during an emergency or difficult situation, which make the cardholder able to utilise higher than the available limit. The Qardhul Hasan amount would not be levied with any charges or fees.

The differences between Islamic and conventional credit cards:

No money lending

Since the transaction of credit card is based on trade (Bai'), the element of usury will be eliminated from the loan transaction that is applied in the conventional money lending

Non-compounding of profits

Profit margin for the cardholders is fixed for the whole period (between 35 and 60 months) and the profit is charged based on the remaining balance. The profit is calculated on a monthly basis, based on a outstanding due or monthly total transactions

Control on transactions/merchants

Islamic credit card users are allowed to carry out only halal, or shariah compliant transactions. Declined are transactions for six categories of non-halal related activities, including bars, discos, night clubs, purchase of beers and gambling.

Possible issues

Free rate on cash advance

If you withdraw cash advance from your credit cards, there shall be charges on the outstanding balance until fully settlement is made. If not, the charges (or interest) will accumulate throughout. The question is whether Islamic credit card is ready to forgo charges on the cash advance withdrawal. If that possible, Islamic credit card is offering free cash line to the customer. However looking from the bank’s view, this option is expensive due to the asset and liability management conflict. In other words the return rate for the deposit is higher than the interest rate charged to the credit facility. This may cause liquidity mismatch.

Late charges

Sometimes late charges are imposed to customer who delays payment. Is this acceptable? In the case of Al-Taslif credit card, there shall be no charges for late payment which is outstanding not more than 30 calendar days. In our opinion, if the late charges become effective due to administrative costs to maintain problematic credit facilities, then it is acceptable. But if it is meant as a means of interest then it is haram. Nonetheless, the question is why late charges computation is by multiplying the percentage (%) with outstanding balances, not by imposing flat and fixed rate? Although the Banks claims that the late charges are for maintenance costs, it does not make any sense, why the computation is done in percentile. Maintenance costs should be fixed and does not depending on the amount of outstanding. The value of the outstanding should not be the baseline to compute the late charges fee. Does it make any administrative differences whether the unsettled minimum payment is RM1 million or RM 200?

Control

There is risk in lack of validation the parties involved in the contract of exchange may pose some security issues. As example, nowadays purchasing online is easy by using credit cards. In the sale and purchase in e-commerce, the parties involved in the transaction has never met and don’t know each other. What happens if a minor committed in the transaction without the consent of the credit card owner (e.g. parents)? Is the transaction valid? In common situation the transaction is valid so long the service has been rendered and the benefits of the service have been utilized by the purchaser. But how can we minimize this unethical conduct?

Bonus points and rewards

Many banks which bonus points and rewards system in the credit card in order to maintain loyal customers and as well as increasing total sign ups. Are bonus point and rewards not permissible?