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Subject : The Sharia Evidence on Linking Rent with a Changing Margin in the Closed-End Lease of the Arab Islamic Bank

Fatwa Number : 1871

Date : 21-06-2011

Classified : Current Financial Issues

Fatwa Type : Search Fatawaa


Question :

The contract of the Arab Islamic Bank, approved by your Department (Iftaa`), includes a clause called "the changing margin" (JODIBOR). What is the Sharia evidence allowing this Bank to adopt this margin? Moreover, according to the banking sector, this margin refers to the interest income adopted in ten conventional banks while, according to the contract of the Arab Islamic Bank, it is the Murabaha income. What is the difference between these two?



The Answer :

All perfect praise be to Allah the Lord of the Worlds. May His peace and blessings be upon our Prophet Mohammad and upon all his family and companions.

The monthly installments paid by the client of the Arab Islamic Bank through the closed-end lease are divided into two parts: One through which the client purchases a part of the property and another through which he/she rents the bank`s share in that same property.

According to Sharia, the rent should be known and specified. At the same time, the bank wants to guarantee its right in case of change in prices, so the contract should stipulate renewing the lease contract annually along with informing the client about the new "Rent amount" based on price changes in the market. However, the client has the right to accept or refuse and sell his/her share of that property. 

This way, the rent becomes known and there is no room for risk or uncertainty concerning the contract because the lease contract is renewed on annual basis and the rent is changed only with the approval and signature of the client. Thus, changing the amount of the rent based on the "JODIBOR" or other indicators doesn`t affect the ruling of Sharia in this regard. This is because the stipulation that the client should be informed about the new amount of the rent is achieved by his approval of renewing the lease contract annually, and this completes the pillars that make this contract Sharia-compliant.

Rather, the bank`s adherence to the "JODIBOR" at the end of every year is actually in favor of the client. This is in order to make sure that the bank doesn`t increase the rent as much as it likes, although its right according to Sharia, and thus the client finds himself obligated to terminate the contract. Therefore, linking the rent amount with a known indicator and stipulating the approval of the client concerning the annually renewed lease contract suffices as guarantee for the rights of the lessee.

However, We (Iftaa` Department) call upon Islamic economic institutions to function in separation from the markets of usury. Rather, We call upon them to adopt true indicators to measure the markets with the normal measure of Sharia. And Allah the Almighty knows best.

Note: According to the Association of Banks in Jordan, the JODIBOR is the Jordan Jordanian Dinar Interbank Offered Rate. This indicator was adopted for short-term loans to constitute a paradigm shift and an important step for the development of the monetary market in Jordanian Dinar. It was introduced in November 2005 as an outcome of cooperation between the Society of Banks in Jordan and all banks of Jordan as well as the support and cooperation of the Central Bank.




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