By Suheil al-Ahmad

The nature of profits returned in a Murabaha product to the purchase order for Islamic banks ` clients in case of early loan settlement

This matter is shown in a case where an agent who is in debt to the Islamic bank for a period of time, initiates, whenever he has financial liquidity, to pay the loan before the payment due date. As the agent wants to benefit from the financial liquidity, he offers the bank( lender) that he expedites paying the debt  provided that the bank deducts part of the loan.

 The bank may refuse and holds on to the  debt installments. As the borrower is willing for early loan settlement, the bank ( lender) accepts to drop portion of debt  in return for prepayment.

Among examples of how profits are returned in case of early settlement in the products offered by the Islamic banks, is product of Murabaha sale for purchase order. This is reflected in that  the Islamic Bank  buys goods and services from the owner with a defined price, then the Bank resells these goods for the agent with a deferred price along a specific defined Murabaha percentage.  Two types of sale: The sale between the owner of goods and the Islamic Bank, and in this case the seller receives the agreed price completely from the Islamic Bank. As a result, the goods enter in the Bank’s property and guarantee. The second sale: Between the agent and the Islamic Bank as installment sale with a specific defined annual increase in Murabaha, as Jurists have approved this sale as trust sale.

In the context of profits and prepayment of loans, Islamic Banks may be reluctant to apply such method and adopt jurists ` opinion that financial losses may occur when dropping portion of the loan.

If we assume that the value of financing  is 10 000 JDs  and the loan is installed over five years with a Murabaha percentage of 5%, the debt for the bank is the capital of ( 10000 JDs) added to it Murabaha percentage over a time period of 5 years (25%) that is 2500 JDs, so the total debt is 12,500 JDs. If the borrower pays the last two years installments in the first three years, the debt will be 11,500 JDs , that is less than 1000 JDs for the borrower, since he prepays the debt installments. We notice that the amount dropped from the debt constitutes Murabaha percentage for the last two years (10%). This amount is considered a feature of financial loss Banks would avoid.

Faculty of Law -al-Ahliya Palestine University-Member of Higher Committee for Shari’ah Supervisory-Monetary Authority.