ISSUES IN THE HOUSE FINANCING THROUGH BAY’ BITHAMAN AL-AJIL (BBA) – PART TWO

SUGGESTIONS

In facing the above problems, the following are suggested:

1)      The practice of BBA should be abolished. Instead, Islamic financial institutions should use other modes of transaction such as musharakah and ijarah in house financing. This would prevent the possibility of occurrences of riba’ and gharar transactions and other problems associated with BBA as illustrated above;

2)      The new modes in house financing, such as musharakah and ijarah, must also provide sufficient terms in the protection of the interests of purchasers if abandonment or otherwise inevitably occurs; or

3)      If the practice of BBA is to resume, it must substantially be revamped to the effect of protecting the rights of the stakeholders. The following are suggested in this respect:

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 purchaser/customer;

b)      The rebate should be substantial if the borrowers were to settle earlier 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)      To avoid any possible occurrence of abandoned housing projects and the grievances and problems consequent to it altogether, the Islamic Bank should only apply BBA for financing houses which have been duly completed only, not for financing houses pending completion;

d)     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 if 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 pay all incidental compensations consequential to the abandonment and above all to ensure that the bank shall be fully responsible to 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 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 (SDBA, UBBL, the requirements for obtaining the CCC or CF, as the case may be and the guarantee that the title to the property can be registered into the purchasers’ name on 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 action 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)      In the case of the charge as a security to the BBA which involves incomplete purchaser’s ownership (equitable/beneficial ownership) of the house, it is proposed that such a practice should be abolished. This is also to avoid gharar. In replace of this kind of charge, the purchaser/customer shall have to create third party legal charge or 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) and the interests and rights of the purchasers/customers.

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