15-09-2008: Industry players mixed on High Court judgment on BBA
(Extracted from The Edge Financial Daily - author Ellina Badri)
Industry players are mixed on the impact of a recent High Court ruling that the application of Al-Bai’ Bithaman Ajil (BBA) as an Islamic house financing facility is contrary to the Islamic Banking Act 1983.
Last month, High Court Judge Datuk Abdul Wahab Patail, in a collective judgment for 11 cases involving Bank Islam Malaysia Bhd and Arab-Malaysian Finance Bhd as plaintiffs, had ruled the sale element in the BBA was “not a bona fide sale”.
An industry player told The Edge Financial Daily that the judgment would have no impact on the Islamic banking industry, as it did not affect the banks’ ability to claim money owed by customers.
“My guys are doing a detailed analysis of the judgment, but as far as we’re concerned, it will have no impact whatsoever on the industry, as banks can still claim the money owed by their customers,” the industry player said, disagreeing with the court judgment.
He said the Islamic Banking Act 1983 highlighted that transactions should be carried out according to Islamic principles, and hence the application of BBA by banks, which was not contradictory to Islamic principles, was not contrary to the Act.
“We will not have to restructure our BBA product,” he added.
Monash University Malaysia school of business, director of banking and finance, Professor Bala Shanmugam, however, expected banks to restructure their BBA products following the High Court ruling.
He added that the many interpretations of the application of syariah principles required banks to be innovative while faced with the challenge of competing with conventional banking.
Meanwhile, an industry observer said while Abdul Wahab had made a good point, the solution prescribed was questionable.
In his judgment, Abdul Wahab had said: “This court holds that where the bank purchased directly from its customer and sold back to the customer with deferred payment at a higher price in total, the sale is not a bona fide sale, but a financing transaction, and the profit portion of such Al-Bai’ Bithaman Ajil facility rendered the facility contrary to the Islamic Banking Act 1983 or the Banking And Financial Institutions Act 1989, as the case may be.”
He also said under Section 66 of the Contracts Act 1950, the plaintiffs were entitled to return the original facility amount they had extended.
“Notwithstanding that the properties may, where no title had been issued, have been assigned absolutely to the plaintiffs, by virtue of the fact the assignment was as security, it is equitable that the plaintiffs must seek to obtain a price as close to, if not more than, the market price as possible, and account for the proceeds to the respective defendants,” Abdul Wahab said.
My Comment :
All the industry players went berserk after the judgement, however what bothers me is that why Bank Negara Malaysia (the Central Bank) remains mum about the issue. After all, BNM has their own Shariah Supervisory Council that definitely have their own opinion on this matter, especially as this issue pertains to Islam, our national religion.
Translation – Bahasa Melayu
Industri perbankan umumnya memberi reaksi yang berbeza berkenaan penghakiman yang diberikan oleh Mahkamah Tinggi di mana didapati bahawa penggunaan Bai Bithaman Ajil (BBA) sebagai suatu produk pembiayaan pembelian rumah adalah bertentangan dengan Akta Perbankan Islam 1983.
Bulan lalu, Hakim Mahkamah Tinggi Datuk Abdul Wahab Patail, dalam suatu penghakiman kolektif (11 kes) membabitkan Bank Islam Malaysia Bhd dan Arab-Malaysian Finance Bhd sebagai plaintif, telah mendapati bahawa elemen jualan dalam BBA bukanlah dilakukan secara “bona fide”.
Seorang ahli perbankan memberitahu bahawa penghakiman ini tidak akan member sebarang impak kepada industry perbankan Islam, kerana ia tidak mempengaruhi kemampuan bank untuk menuntut hutang dari para pelangan. Beliau juga mengatakan bahawa Akta Perbankan Islam 1983 menyebut bahawa transaksi yang dijalankan haruslah berlandaskan prinsip-prinsip Islam, oleh itu perlaksanaan konsep BBA oleh bank-bank adalah tidak menyalahi prinsip-prinsip berkenaan, yang tidak bertentangan dengan Akta tersebut.
Komen saya:
Para pengamal perbankan Islam khasnya memang terkejut selepas penghakiman dibuat tetapi apa yang memusykilkan saya adalah kenapa Bank Negara Malaysia bersikap berdiam diri – BNM mempunyai Lenbaga Syariah yang semestinya mempunyai pendapat tentang isu ini terutamanya ia melibatkan perihal agama Islam, iaitu agama rasmi negara ini.
(Extracted from The Edge Financial Daily - author Ellina Badri)
Industry players are mixed on the impact of a recent High Court ruling that the application of Al-Bai’ Bithaman Ajil (BBA) as an Islamic house financing facility is contrary to the Islamic Banking Act 1983.
Last month, High Court Judge Datuk Abdul Wahab Patail, in a collective judgment for 11 cases involving Bank Islam Malaysia Bhd and Arab-Malaysian Finance Bhd as plaintiffs, had ruled the sale element in the BBA was “not a bona fide sale”.
An industry player told The Edge Financial Daily that the judgment would have no impact on the Islamic banking industry, as it did not affect the banks’ ability to claim money owed by customers.
“My guys are doing a detailed analysis of the judgment, but as far as we’re concerned, it will have no impact whatsoever on the industry, as banks can still claim the money owed by their customers,” the industry player said, disagreeing with the court judgment.
He said the Islamic Banking Act 1983 highlighted that transactions should be carried out according to Islamic principles, and hence the application of BBA by banks, which was not contradictory to Islamic principles, was not contrary to the Act.
“We will not have to restructure our BBA product,” he added.
Monash University Malaysia school of business, director of banking and finance, Professor Bala Shanmugam, however, expected banks to restructure their BBA products following the High Court ruling.
He added that the many interpretations of the application of syariah principles required banks to be innovative while faced with the challenge of competing with conventional banking.
Meanwhile, an industry observer said while Abdul Wahab had made a good point, the solution prescribed was questionable.
In his judgment, Abdul Wahab had said: “This court holds that where the bank purchased directly from its customer and sold back to the customer with deferred payment at a higher price in total, the sale is not a bona fide sale, but a financing transaction, and the profit portion of such Al-Bai’ Bithaman Ajil facility rendered the facility contrary to the Islamic Banking Act 1983 or the Banking And Financial Institutions Act 1989, as the case may be.”
He also said under Section 66 of the Contracts Act 1950, the plaintiffs were entitled to return the original facility amount they had extended.
“Notwithstanding that the properties may, where no title had been issued, have been assigned absolutely to the plaintiffs, by virtue of the fact the assignment was as security, it is equitable that the plaintiffs must seek to obtain a price as close to, if not more than, the market price as possible, and account for the proceeds to the respective defendants,” Abdul Wahab said.
My Comment :
All the industry players went berserk after the judgement, however what bothers me is that why Bank Negara Malaysia (the Central Bank) remains mum about the issue. After all, BNM has their own Shariah Supervisory Council that definitely have their own opinion on this matter, especially as this issue pertains to Islam, our national religion.
Translation – Bahasa Melayu
Industri perbankan umumnya memberi reaksi yang berbeza berkenaan penghakiman yang diberikan oleh Mahkamah Tinggi di mana didapati bahawa penggunaan Bai Bithaman Ajil (BBA) sebagai suatu produk pembiayaan pembelian rumah adalah bertentangan dengan Akta Perbankan Islam 1983.
Bulan lalu, Hakim Mahkamah Tinggi Datuk Abdul Wahab Patail, dalam suatu penghakiman kolektif (11 kes) membabitkan Bank Islam Malaysia Bhd dan Arab-Malaysian Finance Bhd sebagai plaintif, telah mendapati bahawa elemen jualan dalam BBA bukanlah dilakukan secara “bona fide”.
Seorang ahli perbankan memberitahu bahawa penghakiman ini tidak akan member sebarang impak kepada industry perbankan Islam, kerana ia tidak mempengaruhi kemampuan bank untuk menuntut hutang dari para pelangan. Beliau juga mengatakan bahawa Akta Perbankan Islam 1983 menyebut bahawa transaksi yang dijalankan haruslah berlandaskan prinsip-prinsip Islam, oleh itu perlaksanaan konsep BBA oleh bank-bank adalah tidak menyalahi prinsip-prinsip berkenaan, yang tidak bertentangan dengan Akta tersebut.
Komen saya:
Para pengamal perbankan Islam khasnya memang terkejut selepas penghakiman dibuat tetapi apa yang memusykilkan saya adalah kenapa Bank Negara Malaysia bersikap berdiam diri – BNM mempunyai Lenbaga Syariah yang semestinya mempunyai pendapat tentang isu ini terutamanya ia melibatkan perihal agama Islam, iaitu agama rasmi negara ini.
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