Posted: 25 Sep 2011 08:51 AM PDT
In facing the above problems, the following are suggested:
1) The current practice of the Malaysian style of BBA should be abolished. Instead, the Islamic financial institutions should use other modes of transactions, such as musharakah, ijarah or a modified BBA in house financing. In order to illustrate this, in musharakah, the Islamic Bank enters into an agreement with the customer/purchaser that both (the Bank and the customer/purchaser as partners) agree to jointly purchase a duly completed housing accommodation. The customer/purchaser will pay certain portion of the purchase price to the vendor developer and the balance of the purchase price shall be paid by the Bank to the vendor developer. The ownership of the house will be shared by both on the execution of the sale and purchase agreement with the vendor developer. The whole ownership will be transferred by the Bank to the customer/purchaser, on the customer/purchaser paying the full balance purchase price, together with the profit margin (in installments for certain duration or in lump sum), which the bank stipulated to the customer/purchaser, insofar as it is equitable and fair. The Bank undertakes to give certain rebate if the customer can settle earlier the balance purchase price together with the profit margin. Similarly, this illustration is likewise applicable in ijarah transaction. The Islamic Bank will pay the full amount of the purchase price of the duly completed house to the developer. Later, the bank leases it to the customer/purchaser for certain duration. The whole progressive rental payment paid in installments for certain duration by the customer/purchaser are considered as a settlement of the full price, together will the profit margin set by the Bank, of the house. Under the ijarah mode, the customer/purchaser also enjoys equitable rebate if he can settle the full purchase price and the profit margin earlier. This would prevent the possibility of the occurrences of riba' and gharar al-fahish transactions and other problems associated with the BBA, as illustrated above;
2) The new modes in house financing, such as musharakah and ijarah, if involved the purchases of houses pending completion, must also provide sufficient terms to protect the interests of purchasers if abandonment or otherwise inevitably occurs; or,
3) If the current practice of the Malaysian style of BBA is to resume, it must substantially be revamped to the effect of protecting the rights of the stakeholders. This is also in accordance with the principles of sadd al-dhari' (preventing losses). Thus, the following proposals should be adopted by the Islamic banking and financial institutions, viz:
a) the profit margin should be reduced to a more acceptable and equitable amount so as to avoid riba' commensurate with the period of occupation and enjoyment of the house by the purchasers/customers to avoid any unconscionable and inequitable modes of transaction prohibited under Islamic law as enshrined in the Quranic verses above), if the customer/purchaser defaults on the installment payment before settling the full sale price;
b) the rebate should be substantial if the customers/purchasers/borrowers were to make early settlement or where the borrowers default during the repayment period as far as the rebate is commensurate with the period of enjoyment of the house and the total installments which have been paid to the bank and as far as this is equitable to the bank and the purchasers/borrowers;
c) The Islamic Bank should only apply BBA for financing houses which have been duly completed only (with CCC and title ready for transmission to purchaser on full settlement), not for financing houses pending completion to avoid any possible occurrence of abandoned housing projects, as well as grievances and problems consequent to it altogether;
d) If the BBA is applied for houses pending completion, the terms in the BBA should provide for the responsibilities and duties of the Islamic bank as the owner of the houses in the course of construction of the houses and for the position where the construction of the houses is terminated and the project is abandoned. The duty is to ensure that rehabilitation can be carried out. If rehabilitation of the houses is impossible, the duties are to return back all the moneys paid by the purchaser and to pay all incidental compensations consequential to the abandonment and above all, to ensure that the bank shall be fully responsible for the purchasers if abandonment is inevitable in the protection of the purchasers' interests and rights. Similarly, as the owner of the property (effected through the PPA and PSA), the Islamic bank in the BBA transaction must observe the duty to deliver the house on time, failing which late delivery damages may be chargeable on them, the duty to observe defect liability period and the duty to ensure that all the requirements under the laws (Street, Drainage and Building Act 1974 (SDBA), the Uniform Building By-Laws 1984 (UBBL), the requirements for obtaining the Certificate of Completion and Compliance ('CCC') or Certificate of Fitness for Occupation ('CF'), as the case may be and the guarantee that the title to the property can be registered in the purchasers' name upon full settlement of the loan) relating to the construction of the houses have been duly and fully complied with. If the Islamic bank (as the owner to the purported houses under BBA) fails to adhere to these requirements, the purchasers/borrowers shall have every right to take actions against the bank for specific performance and claim damages in lieu of specific performance, as well other equitable relief insofar as they are just and expedient;
e) Under the current BBA practice, there should be no charge created over the land and the property under construction, i.e. involving incomplete purchaser's ownership (equitable/beneficial ownership) of the house and the property of which is being the subject matter of the sale. This suggestion is to avoid gharar. In replace of this kind of charge, the purchasers/customers shall have to create a third party legal charge or the first party legal charge on other property belonging to him, or there must be some guarantors to the BBA, or a special Islamic insurance (Takaful) should be introduced to guarantee repayment of the purchase price by the purchaser, if the purchaser later defaults on the BBA repayment. If the purchaser defaults, these means can be used to settle the outstanding BBA repayment;
f) Above all, the terms and conditions in the BBA should strike a balance between the interests of the bank (i.e. profit-oriented interests), as well as the interests and rights of the customers (to have houses purchased be duly completed and all losses due to the abandonment should be compensated by the defaulting developer).
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