Abstract
Purpose This paper aims to investigate sale with the temporary exclusion of usufruct, a format debated in classical Islamic jurisprudence. More specifically, it examines the application of this sale format in the diminishing partnership arrangement used by American Finance House LARIBA to finance house purchases. It analyzes the Sharīʿah issues and assesses the risks involved. Design/methodology/approach The research is qualitative, surveying and critically analyzing classical fiqh literature and contemporary juristic resolutions, as well as LARIBA’s financing documents. Finally, it systematically surveys the associated risk factors, first qualitatively, and then by quantifying them. Findings The research concludes that sale with the temporary exclusion of usufruct is a valid contract in Islamic law. When the usufruct is priced at market rate, the financing arrangement is genuinely Islamic and brings added value. Moreover, it is very effective in addressing risks for Islamic banks, particularly in countries with legal systems not designed to accommodate Islamic finance. Originality/value This study systematically examines all aspects of a contract that has not received sufficient academic attention, that has been underutilized by the Islamic finance industry and that is more fitting for implementation than many of the contracts currently being used.
Highlights
Modern Islamic finance was founded on the Quranic distinction between interest-based loans, which are prohibited, and deferred-payment sales with mark-ups, which are© Abdulbari Mashal, Amer Hajal, Om Kalthoum Majoul and Mir Riaz Ansary
Acceptable exception of the usufruct, as implemented by LARIBA, are acceptable according to the analysis above
Sale of an asset with the temporary exclusion of the usufruct is a promising tool for modern Islamic finance
Summary
Modern Islamic finance was founded on the Quranic distinction between interest-based loans, which are prohibited, and deferred-payment sales with mark-ups, which are. © Abdulbari Mashal, Amer Hajal, Om Kalthoum Majoul and Mir Riaz Ansary. Published in the ISRA International Journal of Islamic Finance. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode
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