Ibn `Abbas used to practice the right murabahah, which means that the bank should have bought and owned already the asset car (stock of cars); it does not have to wait until the buyer comes to the bank and ask for the car.
Once the customer is presenting to purchase the car from the bank, the bank has to hold the bills of cars. Or the bank must show to the potential buyer the bill and bargain the surplus (ribh) with him. Am I Right?
Answer
Wa `alaykum as-salamu wa rahmatullahi wa barakatuh.
In the Name of Allah, Most Gracious, Most Merciful.
All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.
In this fatwa:
Each Muslim should fully observe his/her financial dealings making sure that they are all Shari`ah-compliant.
In his response to your question, Prof. Dr. Monzer Kahf, Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies, states:
You are right when murabahah is done by a car dealer. A car dealer knows what cars to buy and have already studied the market. He buys cars on his own initiative (this can be true at the time of Ibn Abbas) and wait for a customer who likes this car and start negotiating with him.
But life and economic and financial relations have developed and overgrew that situation. Now we have a new function in the economy called financial intermediation- an institution which collects the savings from surplus units and gives it to deficit economic units that need them in their business or for their consumption goods.
In other than this context, we can argue and prove that this function is very useful, rather necessary in any economy of a large number of people as it is today everywhere. Financial intermediaries cannot be expert in all trades.
And even if they still cannot buy all goods that all businesses and consumers may need be financed, and even if they could buy all that, it is wrong to do it because they play with the money of depositors and doing that means taking a big overload of risk which is a kind of betrayal of the depositors.
The question is: if this function is to be done in accordance with Shari`ah whereby the Islamic bank is an agent (mudarib) of depositors, it must reduce risk to a minimum without losing Shari`ah legitimacy.
Let us ask, what legitimizes return: is it ownership or price risk and liquidity risk (taken by a merchant when he buys goods on own decision and waits until the customer comes like Ibn Abbas as you said)?
Let me put the question in a different way: if I can separate price and liquidity risks from ownership, does that make me not the owner or does that make the price I sell for not legitimate?
The answer is: only property risk, not price risk, and liquidity risk, are what make profit legitimate. This is why IBs only buy after they get request and promise, i.e., they secure a buyer and a price. This is fully and completely Shari`ah-compliant because ownership is the cause of profit not price risk or liquidity risk.
Allah almighty knows best.
Editor’s note: This fatwa is from Ask the Scholar’s archive and was originally published at an earlier date.