An Islamic bank has launched a product after getting it approved by the bank’s Shariah board for financing the construction of residential villas for its individual customers

Fatawa Question

An Islamic bank has launched a product after getting it approved by the bank’s Shariah board for financing the construction of residential villas for its individual customers. Following are the main features of the product : Customer submits the complete specifications of the villa it requires to be financed by the Islamic bank ; Bank invites quotations from various contractors with same specifications along with the cost and the time for completion of construction and estimated date of delivery. Alternatively, the customer could also bring the quotation in the bank’s name from the contractor of its choice ; Islamic bank issues a local purchase order in contractor’s favor to starts the construction work ; At the same time the Islamic bank enters into an agreement with the customer to deliver the completed villa with same specifications, but with a higher price and deferred payment terms commencing one month after the delivery date ; Keeping in view any possible delay by the contractor, the bank sets the delivery date for the contractor to be after one month from the delivery date agreed with the contractor. In the normal situation the above modus operandi works well. However, it gets complicated where delivery by the contractor is delayed for any reason by more than one month. Shariah guidance is required on how to deal with already agreed-upon schedules of payment with the customer in such cases.

Fatwa

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Publisher

Islamic Finance News

Publication Date

2014-11-19

Country of Publication

Malaysia

Main Subjects

Economics & Business Administration
Islamic Studies

Data Type

Fatawa

Language

English

Record ID

BIM-783168

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• AMA