Forum for Group Discussions on Economic Issues
The eleventh meeting of the Forum for Group Discussions on Economic Issues (FGDEI) jointly organized by Sahulat Microfinance Society and Radiance Viewsweekly was addressed by Dr. Muhiuddin Ghazi Sharia AdvisorinDar-Al-Shariaa subsidiary organization of Dubai Islamic Bank, who was on a visit to India. The topic of discussion was "An Overview of Services Charge Practices in Islamic Financial Institutions – A Global Perspective". He described the various products of IFIs and placed financings provided by them in that perspective.
The products of IFIs are generally of three types; Investment products, Financing products and Loan (Qardh Hasan) products. Investment products create a type of trust while financing products create debts. The trust created in the case of the former product is meant for investment.
The learned scholar described in a simple and lucid manner the legal position of these products. He informed the house that the IFIs are using either mudharabat, musharakat and investment agencies as their products for equity participation in the nature of Amanat (trust) while they have designed products for financing either out of murabaha, ijara, istisna and salam or branches of these four transactions.
He further described the difference between the debt created and the Amamnt (equity). Amanat may increase or decrease which is not possible in the case of a debt. Debt is guaranteed for payment whereas no such guarantee exists in Amanat. Payment of debt is necessary and it shall be done even out of the inheritance left by any departing debtor. The case of negligence resulting in any total or partial loss of Amanat amount is quite different because negligence always creates the indemnity of making good the loss.
The speaker took the stand that IFIs basically do not exist for providing loans because as profit making entities loan cannot be their business. That is why IFIs these days tend to convert loans too into transactions in the nature of service ijara, salam and commodity murabaha.
However, in the cases where loans have to be provided it is possible to recover service charges subject to the condition that it is not a source of profit to the financing agency. The speaker cited the recommendations of different international Fiqh (jurisprudence) committees and said that service charges should be fixed and not correlated to the amount of loan. No indirect expenses or notional future expenses can be included. Further, service charges should not be bifurcated into slabs.
The presentation followed a lively intervention by other speakers. Arshad Ajmal raised the case of cooperative credit societies where the persons taking loans too are shareholder. To this the learned speaker explained that this will not make any difference, because the borrower even though he is shareholder in the cooperative society, however he borrows on his personal capacity for his personal use. He suggested to seek some support from the takaful (Islamic Insurance) model where reimbursement of losses are treated as donations by the group and are jointly shared by all in the ratio of their respective shareholdings.