Abstract
This article review Islamic law quoted from jurists’ opinion and legal experts on the use of auction trading theory in the collateral sale. Every financial transaction in Islamic banking required a guarantee. It is intended to save bank funds if the customer defaults. Based on constitutional act Number 4 of 1996 of mortgage rights, Islamic banks have the right to confiscate the asset (guarantees) of a customer who has reached the due date without intention to pay. However, the bank cannot carry out unilateral execution to make direct sales. The formal procedures which banks must follow to disburse funds from customer guarantees are usually long and often meet various obstacles. This article analyzes normatively and empirically the bail auction guarantees implementation on Islamic banking in Aceh based on the Islamic law concept from the al Quran, Hadith, and the scholars’ Ijma’. Although conventional law is still used in the auction rules, the implementation of guarantees as applied to Islamic banking has adopted many Islamic laws. However, in the practice, there are still many problems that arise from the Islamic law scope which uphold the philosophy of maslahah and the concept of justice. The paper, therefore, employs qualitative approach and secondary date to investigate Shariah perspective against execution of collateral auctions on Islamic banking institutions in Aceh, Indonesia.
Highlights
The relationship between the debtor and the creditor as regards loan is often accompanied by a guarantee
Procedure for Auctioning Guarantee Executions on Islamic Banking Regarding the provisions of the imposition of a security interest in the collateral for loans, the state has issued legal regulations to Act No 4 of 1996 concerning mortgage rights on land and objects related to land
Third-party guarantee and collateral both serve the same objective forms of financing as security for Islamic finance and banking require from the customers during the documentation process before funding. This prerequisite is utilized as a support document to fall upon in the event of a transaction or borrowers’ inability/default to fulfil commitments. in Islamic banking, customer’s are motivated towards prompt repayment obligations
Summary
The relationship between the debtor and the creditor as regards loan is often accompanied by a guarantee. A non-performing loan is a potential loss suffered by the bank in relation to the provision of financing facilities to customers Such risks can occur at any time (Kodithuwakku, 2015). As a collateral object that is controlled by the bank as its securities, the bank does have the right to unilateral execution, to seize collateral on maturing financing while the debtor does not have the good faith to pay it off This is based on Law Number 4 of 1996 concerning Mortgage Rights and Execution of Guaranteed Goods, the creditor can immediately request execution of the collateral object if the debtor customer defaults on paying debts, through auction sales execution (Muljadi, & Widjaja, 2007; Nurul Musjtari, Riyanto & Setyowati, 2018). The methodology employed for sample size determination is Non-Probability Sampling techniques with Purposive Sampling namely the sample chosen deliberately with various considerations
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