Abstract
PurposeThis paper aims to compare the rebate computation in Islamic sale-based financing contracts as proposed by Bank Negara Malaysia (BNM) in its guidelines on ibrāʾ (rebate) – with the rebate computation in conventional finance that is applicable to conventional loans, thus examining if there is a significant difference between the two approaches.Design/methodology/approachThe paper employs the qualitative analysis method, involving review and discussion of relevant literature. Subsequently, a quantitative analysis is utilized to compare both rebate computations: the one proposed by BNM for Islamic sale-based financing contracts and the conventional finance computation that is utilized in conventional loans.FindingsBNM's rebate computation for debts resulting from sale-based financing contracts does not differ from the conventional finance rebate computation applied to conventional loans; such similarity may raise the usury concerns that the conventional finance rebate computation raises.Research limitations/implicationsThe paper focuses only on the fixed profit rate rebate computation proposed by BNM guidelines.Practical implicationsThe results highlight the need for seeking another rebate computation to be applied in Islamic financial institutions in the case of mandatory bilateral rebate for sale-based financing contracts – a computation that differs from the practice utilized in conventional loans in order to avoid any usury implications associated with conventional finance computation.Originality/valueThe paper examines the rebate practice proposed by BNM for sale-based financing contracts. Forcing a predetermined rebate computation in sale-based financing contracts could be plausible as BNM requires; however, the suggested computation might be questionable because it resembles conventional finance computation.
Highlights
Bayal murabahah is considered one of the major Islamic finance contracts that represents_ a significant percentage of transactions carried out by Islamic financial institutions (IFIs) (Gregory and Stuart, 2004)
Rebate acceptance has taken two different directions: the first is accepting rebate as a unilateral practice without a predetermined computation; and the second direction is to allow a bilateral rebate by specifying a predetermined rebate computation in the contract to be employed in the early settlement of the debt
The predetermined estimate proposed by Bank Negara Malaysia (BNM) was greatly influenced by the pattern of loan amortization practice implemented in conventional finance
Summary
Bayal murabahah (cost-plus sale) is considered one of the major Islamic finance contracts that represents_ a significant percentage of transactions carried out by Islamic financial institutions (IFIs) (Gregory and Stuart, 2004). The sale-based financing contract employed in IFIs is a regular instalment sale that discloses the cost of the good sold to the buyer and adds an agreed-upon profit mark-up on the cost (Hanif, 2016). Instalment sales are often conducted in conventional finance through instalment loans, whereby the cash loan corresponds to the cost of the good sold, and repayment instalments correspond to the deferred selling price. Published in ISRA International Journal of Islamic Finance. The full terms of this licence maybe seen at http://creativecommons.org/licences/by/4.0/ legalcode
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
