I read an article by Mahadzir Ahmad in the August 2009 edition of Personal Money with great interest. The article is entitled "Islamic banking and the BTS 10-90 - Islamic financing contracts should help protect house buyers from ending up without a property". Mahadzir Ahmad is an Islamic financial planner (IFP) and an Islamic finance senior consultant with HeiTech i-Solutions.
In his article, he highlighted the plight of house buyers which are burdened with abandoned housing projects which led the government to introduce the Build-Then-Sell 10-90 concept. With conventional banking, house buyers still have to settle their housing loans regardless whether the house is complete or not. Sounds fair? This certainly has affected thousands of house buyers who had to suffer in silence.
He cited an example of using Bai Bithaman Ajil (BBA) contracts by Islamic banking to mitigate abandoned projects which cause distress to house buyers. BBA is a sale contract. He highlighted the fact that if a house is not completed and abandoned, the buyer has the right to cancel the purchase and stop making further payments. The Islamic bank should be the one responsible in delivering the house. To me, this is a fair responsibility to the Islamic banks since they have all the resources to determine whether the housing project is liable and the developer is reliable to complete the project. After all, they are the one who will finance the housing project.
Unfortunately according to him, the role of Islamic banks has yet to reach an ideal situation where they take responsibility in delivering the house and yet at the same time house buyers are protected from the risk of abandoned project. Apart from pursuing the BTS 10-90 concept, another way to mitigate risks of abandoned project is by entering into a BBA financing contract with an Islamic bank.
He cited a recent decision by the Court of Appeal in a case involving Bank Islam (BIMB) which confirmed that BBA contracts are syariah-compliant and valid. A BBA contract is a sale transaction and it differs from a loan transaction of a conventional bank. Although there are issues pertaining BBA which is widely accepted in Malaysia but not in the Middle East, this is an issue to be discussed another day. The bottom line is we don't have to look far for solutions when the answer is actually right in front of our face.
Isn't this a good enough reason for us to change to Islamic banking?
Thursday, October 8, 2009
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Bank Negara must help defaulters of Islamic banking: CAP
By TUNKU SHAHARIAH
GEORGE TOWN: Bank Negara Malaysia should help defaulters of the popular ‘Bai Bithaman Ajil’ (BBA) home financing so that consumers who have put their faith in Islamic financing are not short changed.
Consumer’s Association of Penang (CAP) president S. M. Mohamed Idris said presently the defaulters ended up worst than defaulters of other conventional housing loans as BBA was an Islamic home financing where interest was not allowed to be charged.
International Islamic University Malaysia’s Dean of the Institute of Islamic Banking and Finance Prof Ahmed Kameel Mydin Meera said under the BBA, the borrower was initially deemed to have sold the property to the bank under the loan agreement.
“This poses potential problems when the property is still under construction. The consumer then ‘buys the property back from the bank at a very much higher price as it includes the profit element for the bank (known as the Bay al-Inah concept).
“The consumer then makes monthly payments based on the price sold to him by the bank,” he told a press conference at CAP office here Tuesday.
Prof Ahmed said as the BBA was a sales contract that included profit, the borrower could in the event of a default, owe more than the original financing amount taken.
“A few of the customers who were unhappy with the astronomical sums they were asked to pay have taken their banks to court,” he added.
He added, in 2008 High Court judge Datuk Abdul Wahab Patail had argued that the BBA sale was not a genuine sale as the profit charged by the banks was nothing more than the interest payment in a conventional loan.
“Since the profit element of the BBA was a sham, the contract had gone against Shariah principles.
“However in April 2009, the Court of Appeal ruled that the BAA contract is shariah compliant and therefore binding. It also stated that the BBA is a sales transaction and should not be compared to a loan transaction,” he added.
Mohd Idris urged Bank Negara to protect Islamic banking by regulating the rebates the banks could give to BBA defaulters so that their outstanding balance could be significantly reduced given the current global financial meltdown where more people were expected to default on loans in the coming months. - Bernama
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