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THE APPLICATION OF CONSTRUCTIVE POSSESSION (QABD HUKMI) IN ISLAMIC FINANCIAL CONTRACTS
By
ABDUL WAFI BIN SAMSURRIJAL
Research Paper Submitted
to College of Business, Universiti Utara Malaysia, in Partial Fulfilment of the Requirement for the
Master in Islamic Finance and Banking
PERAKUAN KERJA KERTAS PENYELIDIKAN (Certification of Research Paper)
Saya, mengaku bertandatangan, memperakukan bahawa (I, the undersigned, certified that)
ABDUL WAFI BIN SAMSURRIJAL (827993) Calon untuk Ijazah Sarjana
(Candidate for the degree of)
MASTER IN ISLAMIC FINANCE AND BANKING (MIFB) telah mengemukakan kertas penyelidikan yang bertajuk (has presented his/her research paper of the following title)
THE APPLICATION OF CONSTRUCTIVE POSSESION (QABD HUKMI) IN ISLAMIC FINANCIAL CONTRACTS
Seperti yang tercatat di muka surat tajuk dan kulit kertas penyelidikan (as it appears on the title page and front cover of the research paper)
Bahawa kertas penyelidikan tersebut boleh diterima dari segi bentuk serta kandungan dan meliputi bidang ilmu dengan memuaskan.
(that the research paper acceptable in the form and content and that a satisfactory knowledge of the field is covered by the research paper).
Nama Penyelia : DR. AHMAD KHILMY BIN ABDUL RAHIM (Name of Supervisor)
Tandatangan : __________________
(Signature)
Tarikh : 29 MAC 2021
(Date)
i
PERMISSION TO USE
In presenting this research paper in partial fulfilment of the requirements for a Post Graduate degree from the Universiti Utara Malaysia (UUM), I agree that the Library of this university may make it freely available for inspection. I further agree that permission for copying this research paper in any manner, in whole or in part, for scholarly purposes may be granted by my supervisor(s) or in their absence, by the Dean of Islamic Business School where I did my research paper. It is understood that any copying or publication or use of this research paper or parts of it for financial gain shall not be allowed without my written permission. It is also understood that due recognition shall be given to me and to the UUM for any scholarly use which may be made of any material in my research paper.
Requests for permission to copy or to make other use of materials in this research paper in whole or in part should be addressed to:
Dean of Islamic Business School Universiti Utara Malaysia
06010 UUM Sintok Kedah Darul Aman
ii Abstract
Qabd (taking possession) is a fundamental element to acquire the subject matter in sale and purchase contracts as well the other financial contracts. Qabd represents an integral part in any exchange-based contract (‘uqud al-mu’awadhah) and charity-based contract (‘uqud al-tabarru’at) in which a failure to accomplish this important part will hinder the completion of a contract due to the invalid possession of respective subject matter.
Given the nature that contemporary transactions are mostly applicable to constructive possession (qabd hukmi) and not widely applicable to the real possession (qabd haqiqi).
However, the actual practice of constructive possession encounters several cruxes of issues that threaten its validity such as the impediment on the right of disposal (haq al- tasarruf), partial of takhliah and tamkin (relinquishment and full access) and unparallel concept between physical and constructive possession that hit the nature of Islamic finance and banking. The research carries objectives to examine the meaning of qabd hukmi from the view of fiqh, its application in the contemporary Islamic financing products and the issues arise upon the implementation of qabd hukmi. This research was assisted by in depth examination on classical fiqh literatures as its basis to extract the intended meaning of qabd hukmi. A qualitative approach was used as the research method and the data collected is gained through the interview. The data was classified and arranged to the respective themes through the coding methods. Ultimately, the research provided suggestions and recommendation that have been seen as a mechanism from the researcher’s perspective to resolve the dispute in the case of constructive possession and encourage the stakeholders of the Islamic finance and banking to evaluate, mitigate and improve the related matters.
Keywords: Constructive Possession, Qabd Hukmi, Islamic Financing Products, Shariah, Relinquishment
iii Abstrak
Qabd (pegangan dan perolehan) ialah suatu elemen utama untuk memperolehi barangan yang ditransaksikan dalam kontrak jual beli dan juga kontrak kewangan yang lain.
Qabd juga merupakan bahagian asas dalam mana-mana kontrak serah-terima (‘uqud al-mu’awadhah) dan kontrak kebajikan (‘uqud al-tabarru’at) yang kegagalan dalam memenuhi elemen ini akan menghalang kesempurnaan kontrak kerana barang yang didagangkan itu tidak diperoleh secara sah. Melihat kepada transaksi kontemporari, ia lebih sesuai menggunakan pegangan dan perolehan secara tersirat (qabd hukmi) dan dilihat tidak begitu sesuai menggunakan pegangan dan perolehan secara fizikal dan nyata (qabd hakiki). Walaubagaimanapun, praktis sebenar qabd hukmi ini berhadapan dengan beberapa masalah utama yang akan menggugat kesahannya seperti wujudnya halangan dalam hak penggunaan barang (haq al-tasarruf), pelepasan hak pemilikan barang dagangan (takhliah dan tamkin) yang tidak penuh dan ketidaksamaan konsep antara qabd hukmi dan qabd hakiki yang menyelebungi suasana kewangan dan perbankan Islam. Kajian ini mengandungi beberapa objektif iaitu untuk menganalisa makna sebenar qabd hukmi melalui sudut pandang fiqh, perlaksanaannya dalam produk pembiayaan Islam kontemporari dan isu-isu berbangkit dalam perlaksanaan qabd hukmi ini. Kajian ini juga menjadikan teks turath klasik sebagai tunjang untuk memperolehi makna sebenar qabd hukmi yang dikehendaki. Kaedah kajian kualitatif pula digunapakai sebagai kaedah kajian dan data telah diperoleh melalui kaedah temubual. Data tersebut juga telah diklasifikasikan dan disusun mengikut tema-tema yang bersesuaian melalui kaedah koding. Tuntasnya, kajian ini membentangkan beberapa cadangan dan buah fikiran yang dilihat sebagai satu mekanisme disisi perspektif pengkaji bertujuan menguraikan konflik perdebatan yang berlaku dalam qabd hukmi serta menggalakkan pihak berkepentingan dalam kewangan dan perbankan Islam untuk menilai semula, mengurus risiko dan memperbaiki perkara yang berkaitan.
Kata kunci: Pegangan dan perolehan secara tersirat, Qabd hukmi, Produk pembiayaan Islam, Syariah, Pelepasan hak pemilikan barang
iv
Acknowledgement
First and foremost, I would like to express my ultimate gratitude to Allah Subhanahu Wa Ta'ala that all praises belong to Him as The Creator. By His Grace and countless Blessings, He continuously endows me taufiq and ability that enabled me to complete this research. Prayers and peace be upon to the Prophet Rasulullah sallahu’alaihi wasallam, his family and all of his companions.
I am extremely beholden to my lovely parents, Samsurrijal Hj. Abdul Latip and Salmah Arifin. Regardless of their endlessly love towards me, they had also motivated me and always prayed for me to complete the journey that is lengthy and full with hardship. To my siblings Siti Rumaizah, Nazahiyah, Siti Fatimah, Nurul Hidayah and Nur Laili, their supports and guides are so meaningful in which no words could best describe it.
Furthermore, I would like to express a big thankfulness to my mentor and supervisor, Dr Ahmad Khilmy Abd Rahim, a Senior Lecturer in Islamic Business School, College of Business, Universiti Utara Malaysia (IBS, COB, UUM), who had showed me courtesy by willingly to accept me as his mentee throughout this research and frequently helped me with his best guidance in respective to this purpose. Thank you for assisting me since the very beginning of this research until it is completed.
In addition, I am also greatly thankful to all participants who have voluntarily participated in my interview as a method to collect data. Their time and effort to attend the interview session and share their views regarding the application of constructive possession (qabd hukmi) in Islamic financial contracts are priceless.
To end, I want to use this chance to thank my close friends, Ayna Abdul Wahab, Aimi Sakinah Saiful, Nur Syahirah Mansor and everyone who has directly or indirectly supported my journey to complete this study. Their courtesies are invaluable and I pray Allah SWT will bless them with the best health, wealth, guidance and success in the world and hereafter. God willing, may Allah grant all of you with the heaven of al- Firdaus al-A’la. Ameen.
v
Table of Contents
Permission to Use ... i
Abstract ... ii
Abstrak ... iii
Acknowledgement ... iv
Table of Contents ... v
List of Tables ... viii
List of Figures ... ix
List of Appendices ... x
List of Abbreviations ... xi
CHAPTER ONE: INTRODUCTION ... 1
1.0 Introduction ... 1
1.1 Background of Study ... 2
1.2 Problem Statement ... 7
1.3 Research Questions ... 9
1.4 Research Objectives ... 9
1.5 The Significance of the Study ... 10
1.6 Scope of Study ... 10
1.7 Definition of Key Terms ... 11
1.8 Organization of the Study ... 11
CHAPTER TWO: LITERATURE REVIEW ... 13
2.0 Introduction ... 13
2.1 Islamic Financial Contracts... 13
2.2 Elements of Islamic Financial Contracts ... 16
2.2.1 Al- ‘Aqidan (Contracting Parties) ... 17
2.2.2 Sighah Al- ‘Aqd (Form of The Contract) ... 18
2.2.3 Ma’qud ‘Alaih (Subject Matter of The Contract) ... 20
2.3 Meaning of Possession (Qabd) ... 21
2.3.1 Evidences on Qabd ... 26
2.3.2 The Impact of Possession (Qabd) on The Islamic Financial Contracts ... 28
2.4 Classification of Qabd to Haqiqi and Hukmi ... 30
vi
2.5 Current Practice of Constructive Possession in Islamic Banking Products ... 31
2.6 Issues ... 33
2.6.1 Concept Dissimilarity between Physical and Constructive Possession ... 34
2.6.2 The Existence of Excessive Ambiguity (Gharar) ... 34
2.6.3 Incomplete Possession and Shariah Non-Compliant Subject Matter in Tawarruq Concept Financing ... 35
2.7 Summary ... 38
CHAPTER THREE: METHODOLOGY ... 40
3.0 Introduction ... 40
3.1 Research Design... 40
3.1.1 Type of Study ... 41
3.2 Instrumentation ... 42
3.2.1 Development of Interview Protocol ... 43
3.2.1.1 Theme: Concept of The Constructive Possession (Qabd Hukmi) from the View of Fiqh ... 43
3.2.1.2 Theme: Application of Qabd Hukmi in Contemporary Islamic Financing Products... 44
3.2.1.3 Theme: Issues... 44
3.3 Expert Review ... 44
3.4 Preliminary Fieldwork ... 45
3.4.1 Access to the Informants ... 45
3.5 Sampling ... 49
3.6 Data Collection Procedure ... 50
3.6.1 Entry Stage ... 51
3.6.2 During Interview ... 52
3.6.3 After the Interview ... 53
3.7 Reliability and Validity of the Data ... 53
3.8 Data Analysis Technique ... 55
3.9 Summary ... 55
CHAPTER FOUR: RESULTS AND DISCUSSION ... 56
4.0 Introduction ... 56
4.1 The Concept of Constructive Possession (Qabd Hukmi) from the View of Fiqh . 56 4.1.1 Legal Indirect Possession ... 56
4.2 Application of Qabd Hukmi in Contemporary Islamic Financing Products ... 59
vii
4.2.1 Customary Business Practices ... 59
4.3 Issues ... 61
4.3.1 Operational Issues ... 62
4.3.1.1 Non-Compliance to the Governance ... 62
4.3.1.2 System Malfunction ... 64
4.3.1.3 Impediments in the Right of Disposal (Haq al-Tasarruf) ... 65
4.3.2 Shariah Issues... 66
4.3.2.1 Divergence of Opinion in Constructive Possession (Qabd Hukmi) .. 66
4.3.2.2 Excessive Ambiguity (Gharar) and Shariah Non-Compliant Asset. 67 4.4 Suggestions to Overcome the Issues ... 70
4.4.1 Corporate Due Diligence ... 70
4.4.2 Constant Education ... 72
4.5 Summary ... 73
CHAPTER FIVE: CONCLUSION AND RECOMMENDATION ... 75
5.0 Introduction ... 75
5.1 Summary of Findings ... 75
5.1.1 Objective One ... 75
5.1.2 Objective Two ... 76
5.1.3 Objective Three ... 79
5.2 Suggestions to Overcome the Issues ... 81
5.3 Contribution and Implication of the Study ... 82
5.3.1 Shariah Theoretical Aspect ... 83
5.3.2 Industry Practical Aspect ... 83
5.4 Recommendation ... 84
5.5 Conclusion ... 86
References ... 87
viii List of Tables
Table 2.1: The Classification of Islamic Financial Contracts ... 16 Table 2.2: Modes of Possession Based on Schools of Law ... 24 Table 2.3: Financing Concepts of Islamic Banks in Malaysia in Home and
Automobile Financing ... 36
ix List of Figures
Figure 2.1: Modes of Constructive Possession ... 33 Figure 3.1: Triangulation Method Within Triangulation Method. ... 54 Figure 4.1: Modus Operandi for Tawarruq House Financing Contract ... 68 Figure 5.1: The Application of Qabd Hukmi in Contemporary Islamic Financing
Products ... 79
x
List of Appendices
APPENDIX A Interview Schedule ... 93 APPENDIX B Letter Of Permission To Collect Data ... 95 APPENDIX C Interviews Transcript And Coded Analysis ... 97
xi
List of Abbreviations
PBUH AAOIFI
Peace Be Upon Him
Accounting and Auditing Organization for Islamic Institution
BNM Bank Negara Malaysia
SAC Shariah Advisory Council
SNC IFs
Shariah Non-Compliant Islamic Financial Institutions
UUM Universiti Utara Malaysia
1
CHAPTER ONE:
INTRODUCTION
1.0 Introduction
Jurists with a different background school of thoughts have made an early discussion regarding the issue of qabd (taking possession) as a fundamental element to acquire the subject matter in sale and purchase contracts as well the other financial contracts.
Bearing in mind that the basic pillars and conditions of any contract must be fulfilled at the first place, qabd represents an integral part in any exchange-based contract (‘uqud al-mu’awadhah) and charity-based contract (‘uqud al-tabarru’at) in which a failure to accomplish this important part will hinder the completion of a contract due to the invalid possession of respective subject matter (al-‘Audhi, 2018). On the other hand, once it is completed it will grant a full exercise of ownership to the buyer and he owns the access to the goods without any restrictions.
Despite that, the original and classical literatures of Islamic commercial law encompass different views on qabd for variety of goods. Obviously, jurists had come to classify qabd into qabd haqiqi (real or physical possession) and qabd hukmi (constructive or beneficial possession). Given the nature that contemporary transactions are mostly applicable to constructive or beneficial possession and not applicable to the real possession. Hence, a customary practise plays a major role in determining an accurate mode of the possession. In the actual practice of constructive possession, somehow, the issues such as the impediment on the right of disposal (haq al-tasarruf), partial of takhliah and tamkin (relinquishment and full access) and unparallel concept between physical and constructive possession hit the nature of Islamic finance and banking.
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APPENDIX A INTERVIEW
SCHEDULE
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Interview Schedule
THE APPLICATION OF CONSTRUCTIVE POSSESSION (QABD HUKMI) IN ISLAMIC FINANCIAL CONTRACTS
The Concept of Qabd Hukmi from The View of Fiqh 1. What is the definition of qabd?
2. What is the type of qabd exists in fiqh?
3. Is there any evidence from Quran or Sunnah related to concept of qabd?
4. What is the definition of qabd hukmi?
5. Why qabd hukmi is very crucial in Islamic financial contracts?
The Application of Qabd Hukmi in Contemporary Islamic Financing Products 6. In which sectors (financing/deposit/investments/takaful) the qabd hukmi is
applied in Islamic finance?
7. How qabd hukmi is applied in Islamic financing products?
Issues
8. What are the operational issues in implementing qabd hukmi?
9. What are the Shariah issues in implementing qabd hukmi?
10. What are the suggestions to overcome the issues?
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APPENDIX B LETTER
OF
PERMISSION TO
COLLECT
DATA
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APPENDIX C INTERVIEWS TRANSCRIPT
AND
CODED
ANALYSIS
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Code- Ownership transferring/ subject matter possession/
acceptance/ right of using property Interviewer 1. What is the definition of qabd?
Informant 1 Qabd or possession is an ownership transferring.
Informant 2 A possession of a subject matter in accordance to the requirements of customary practice.
Informant 4 Qabd is acceptance/ownership/possession entitled over something.
The acceptance in the contract of transaction which allow the using of the property (right of using the property). Hence someone will have the right to manage or to use the property. Or can be said as capability to transact with the property due to the effect of transaction (muamalah transaction) - Control mechanism and ownership/possession of the property
Informant 5 Qabd is about getting ownership by sale and purchase contract, for instance. Basically, as long there is uncompletion of sighah, the ownership is yet to be transferred.
Code- Physical possession/ Constructive/ Benefit Interviewer 2. What is the type of qabd exists in fiqh?
Informant 1 Qabd haqiqi and hukmi. The physical or a direct possession and constructive possession
Informant 2 Qabd Hakiki and Qabd Hukmi Informant 3 Qabd Haqiqi and hukmi
Informant 4 (a) Haqiqi – Physical possession over the property
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(b) Hukmi/Maknawi – Constructive possession – benefit Informant 5 Qabd haqiqi and qabd hukmi
Code- Prohibition of selling before qabd/ SAC BNM resolution/
AAOFI standard/ Resolution of Islamic Fiqh Academy of Jeddah Interviewer 3. Is there any evidence from Quran or Sunnah related to
concept of qabd?
Informant 1 (Informant does not answer this question)
Informant 2 I am not qualified to answer this question. May refer from SAC BNM’s resolutions or SAC SC’s resolution, AAOIFI standards and Resolution of Islamic Fiqh Academy of Jeddah.
Informant 3 I am not aware about the dalil.
Informant 4 Based on Sunnah of Prophet Muhammad SAW:
Hadith 1: It was narrated that the Prophet s.a.w. had forbidden a man from selling food he had not yet received. Ibn Abbas was asked as to its form. He answered; dirham with dirham, and food after it had been procured.’
(Hadith narrated by Bukhari, Muslim and Tirmizi)
Hadith 2: The Prophet s.a.w. said: ‘Whoever buys food, he should not resell it before he has received it.’ (Hadith narrated by Bukhari and Malik)
Informant 5 Regarding the evidence, it just not came across to my mind.
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Code- Legal indirect possession/ Access of disposal/relinquishment/legal right/ ownership documentation Interviewer 4. What is the definition of qabd hukmi?
Informant 1 The constructive possession is opposite to actual possession in which the real possession, the owner receives the subject matter physically or by hand. Qabd hukmi is a legal possession although he does not receive it physically but at the same time, he is granted with the access of disposal or he can exercise its right freely on the subject matter. Qabd hukmi is something that a one does not possess the subject matter directly. The classic and contemporary scholars such AAOIFI, Majma’ Fiqh, Shariah Advosiry Council of Bank Negara Malaysia recognize that qabd hukmi is at par with qabd haqiqi as long there is element of takhliah and tamkin (relinquishment and full access) by delivering the key, by cheque or voucher or credited to the bank account. Qabd hukmi as a mechanism of ownership transferring however, first is subjected to ‘urf tijari (customary business practices), market practices or legal rulings. Second, it must not contradict with the rulings especially in the case of ribawi items in which qabd in this case requires qabd mu’ajjal (spot possession). if it is not the case, it is not recognized even though it is claimed to be made through qabd hukmi.
Informant 2 Constructive possession. Possession can be made constructively by law through relinquishing the subject matter from a person (seller) that enables the other person (buyer) to act free in the subject matter, even if no physical possession is taken into place.
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Informant 4 Constructive possession – where the person does not have actual possession (physical possession) on the property/asset, but has the legal rights to control the property/asset.
Informant 5 Qabd hukmi can be simply said that we take the ownership but the asset is yet to be delivered. In the case of deposit commodity murabahah, the customer will appoint the bank as his agent to buy the commodity and afterward, the customer will sell back the commodity to the bank with a murabahah (cost plus sale). The bank will pay to the customer by a deferred payment at the time the customer wants to withdraw his deposit added with profit payment.
So, in this case, the customer does not receive the barrel of CPO, plastic raisin or other commodities that he bought but when the customer acquires the possession; his ownership only takes the form of documentation. The Shariah Advisory Council (SAC) of BNM resolution in this case does not care whether it is haqiqi or hukmi as long you are recognized as the possessor and you are fully granted to exercise your full right on the commodity. In a conclusion, through qabd hukmi is the ownership is transferred but it is not physically transferred like the case of buying stuff at the supermarket. Occasionally, the customer only receives the ownership documentation on the commodity.
Code- Efficiency/ proof of ownership/ownership right
Interviewer 5. Why qabd hukmi is very crucial in Islamic financial contracts?
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Informant 1 (Informant does not answer this question) Informant 2 (Informant does not answer this question)
Informant 3 Commodity Murabahah is widely used in financing and deposit.
Most of the Islamic bank in Malaysia use commodity murabahah. So, we have to prove that there is sale and purchase of the commodity goings on from the broker 1, selling it to the customer and bank as agent to the customer sells the commodity to the second broker. The proof that the ownership is transferred is by executing qabd hukmi.
Informant 4 If we only rely on the qabd hakiki (physical possession) and ignoring qabd hukmi (constructive possession), it actually limited the development of Islamic financial contract. As we know the important is ‘possession’ regardless of hakiki or hukmi. As long as we know that this property/asset belongs to this person. For example, letter of ownership for vehicle. The owner has the legal right even though the car is using by other (such as in the case of rental). Also in certain place, such qabd hukmi is practiced by the community and it is something good to smooth the transaction particularly financial transaction. Then this is not against the Islamic principle and acceptable practice by such community (‘urf muhakkamah). The most important is, we know that the transaction is made by the owner of the property or by his valid agent with his permission to conduct such transaction. So, qabd hukmi is crucial to the current Islamic financial contract for the sake of the smooth development of Islamic financial industry. If not, this industry will be lagging behind compare
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to its counterpart. It also able to avoid skeptical from public that Islamic law is unable to facilitate the current needs.
Informant 5 It is crucial because it is commonly used in tawarruq and sukuk especially sukuk ijarah, let’s say that the building is leased and the ownership is granted to the investors and occasionally, the furniture in the building is also leased to the issuer but the investors actually do not possess it by hand to lease it to the issuer. This is the application of qabd hukmi. Then, in the case of financing, customer pledge a collateral. Let’s say that it is his house. In the case or default, the bank wants to acquire the house but the bank does not take an actual possession, either but it only occurs on paper. At the time to sell the house, the possession also by paper or legally ownership transferring. Next, qabd hukmi also Important because it is administratively easy. For instance, once the CPO is being taken out from its storage, the quality by times will be impacte. Thus, it is not a proper mechanism to use qabd haqiqi here. So, we use qabd hukmi that approve the ownership transferring and it attains the right of disposal on the commodity or the subject matter. Time sensitive in finance product so that’s why we use qabd hukmi. For example, in personal tawarruq financing, customer want to use the money as fast as it could be for instance, in a period of one week.
Let’s say that the commodity Is at oversea, we have to bring it here and after all of that, we executed the contract. For sure, it is not applicable and not appropriate.
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Code- All sectors/ financing/ deposit/ investments/ takaful Interviewer 6. In which sectors (financing/deposit/investments/takaful) the
qabd hukmi is applied in Islamic finance?
Informant 1 Financing and deposit
Informant 2 All sectors. In contemporary Islamic finance transactions basically, the constructive possession is utilized.
Informant 3 Commodity Murabahah is widely used in financing and deposit.
Informant 4 Islamic banking and finance; Islamic investment; takaful.
Informant 5 Once, the banks use tawarruq, the qabd hukmi is applied. Investment account and takaful do not use tawarruq. Deposit uses tawarruq
Code- Customary business practices/ relinquishment/ full access/
deposit payment/ beneficial ownership/ ownership documentation/ consumption
Interviewer 7. How qabd hukmi is applied in Islamic financing products?
Informant 1 In financing product, it can be said that qabd hukmi is used.
However, it can be grouped to taslim mabi’ (delivering subject matter), and taqdim saman (by payment). Whatever it is, it is a must to confer the owner an access without restrictions on the financing object. Delivering the house key, car key, geran (grant) and ownership documentation are considered as qabd. Qabd hukmi is a beneficial and legal ownership that approve the access. The Important things are takhliah and tamkin must exist.
Informant 2 If one buys a currency from a bank with another currency, while he settles the payment to the bank, which takes from him a check instead
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of the cash that will be drawn on the bank, then taking the check would be considered the constructive possession of what it contains, and accordingly that would be similar to the possession of both subject matters before dispersal. In Home financing product namely BBA (Bai Bithaman Ajil or Bai Mua’jjal). In BBA application, the beneficial ownership is transferred among the parties involved, i.e., developer, financier and purchaser, through constructive possession. For Tawarruq transactions the purchaser shall take possession of the asset before the asset can be sold to a third party.
Nevertheless, possession of the asset shall either be in the form of (physical possession) qabd haqiqi or (constructive possession) qabd hukmi. This is the resolution by Bank Negara Malaysia.
Informant 3 Qabd hukmi certified the ma’qud alaih (subject matter) is transferred. If we deal with bursa Malaysia, it will generate certificate. That certificate for instance, consists details of the commodity murabahah processes. The bank will purchase the commodity and it is certified as the owner of the commodity. Then, the bank sells it to the customer and it is certified that the customer is the owner and so on. This documentation must be secured by bank.
It might be printed and filing to mitigate system breakdown.
Informant 4 Example in the case of Islamic hire-purchase contract (AITAB). A qabd rental exists first when the tenant occupies the rented premises.
Then, when the premise is sold to the tenant, qabd hukmi takes place although the qabd hakiki is after the sale and purchase aqd (binding
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act, contract). Other examples are the issuance of cheques, bank drafts, credit and debit card payment.
Informant 5 Product that uses tawarruq usually uses qabd hukmi. Almost 90%
banking product use tawarruq. The moment Islamic banks adopt tawarruq concept, then qabd hukmi is applied. Investment acc and takaful do not use tawarruq.deposit uses tawarruq. Ijarah in home and car financing for example, the possession only happens on paper or documentation. To add, the financed home and car are actually not seen by the bank.
Code- Non-compliance to the governance/ system breakdown/
fraud/ proper governance/ / wrong information
Interviewer 8. What are the operational issues in implementing qabd hukmi?
Informant 1 Due to the nature of qabd hukmi there is potential of fraud, having no access and no subject matter exist. Those emerge because the qabd hukmi is executed differently from qabd hakiki. On occasion, there is delay of takhliah and tamkin until a certain registration of mortgaged asset that might take a long time to complete.
Informant 2 No proper governance on this qabd. The establishment of a proper SOP, manual, policy, guideline in ensuring the possession of the subject matter happens in the operations. It is an issue of complying with the governance.
Informant 3 We use system in buying commodity. In the presence of wrong information, for example, of financing amount RM10,000 but we accidentally inserted RM100,000. So, the commodity amount that is
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documented is wrong. The amendment we made is sending an email to the commodity broker, let’s say Bursa Malaysia team. They will amend to the right amount of financing as well the commodity amount but we cannot ensure the team is taking action or reflect to it or not. On occasion, it is not happened on the ground and the bank does not know about it.
Informant 4 The possession status by the institution (Islamic bank/Islamic financial institution) not clear due to lack of right to transact and to control the asset even though they possess the status of qabd hukmi..
Informant 5 No issues in implementing qabd hukmi unless we use qabd haqiqi. It is because we do not involve with physical delivery and so on.
Operational aspect is easier with qabd hukmi. However, Qabd hukmi happens on paper and how about there is system breakdown in which the sequences of the contracts are not followed. In the case of tawarruq, buying the commodity would be a hassle if the commodity possessed by certain contracting party is yet to be sold but others had bought the commodity. Therefore, the subject matter possession is not happened. It will cause an invalid contract.
Code- Gharar (excessive ambiguity)/ Shariah non-compliant subject matter/ unapproved by legal/ divergence of opinion Interviewer 9. What are the Shariah issues in implementing qabd hukmi?
Informant 1 The shariah issue here if the qabd hukmi applied is not accepted as the market practice or not legally accepted. Sometimes, the fees of
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possession on whom it will be burdened in the case of actual subject matter delivery, if it occurs could be said that it is a Shariah issue.
Informant 2 Anything which prevents the possession, such as the imposition of T&C which are considered as excessive ambiguity (gharar), ignorance, etc. makes the sale null and void.
Informant 3 Nonexistence of commodity. We depend merely on systemically process. There was a case, we conducted the review process and the commodity transacted was not there. The other issue is non Shariah compliance commodity to be transacted such as unused iron filings.
Others, branches disburse the financing but the transaction of the commodity is yet to happen.
Informant 4 Divergence opinion from Shariah perspective to accept the practice of qabd hukmi due to the meaning of the hadith.
Hadith 1: It was narrated that the Prophet s.a.w. had forbidden a man from selling food he had not yet received. Ibn Abbas was asked as to its form. He answered; dirham with dirham, and food after it had been procured.’ (Hadith narrated by Bukhari, Muslim and Tirmizi)
Hadith 2: The Prophet s.a.w. said: ‘Whoever buys food, he should not resell it before he has received it.’ (Hadith narrated by Bukhari and Malik). Gharar issues such as the subject matter might not be delivered due to damage or other factors.
Hadith 2: The Prophet s.a.w. said: ‘Whoever buys food, he should not resell it before he has received it.’ (Hadith narrated by Bukhari and Malik).
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Gharar issue – such as might not be delivered due to damage or other factors.
Informant 5 In the case of tawarruq, for example, there is new commodity broker and it is not well established so when we use qabd hukmi whereby the asset is not delivered to us. So, there is potential issue of gharar and nonexistence of the asset. I have encountered the case that the commodity broker sells a rusty steal in which it is not a valid subject matter in Shariah contract so it will lead to illegal contract.
Code- Corporate due diligence/ education/ system development Interviewer 10. What are the suggestions to overcome the issues?
Informant 1 The bank must adopt the best corporate due diligence, having an assurance of completed payment and so forth. We cannot force the parties to understand the rulings but instead we have to control and perform a continuously inspection. Awareness and education are ongoing solution.
Informant 2 Understanding the 4 important theories in Muamalat, Theory of Ownership, theory of right, theory of property and theory of contract (‘qad). These are the basic theories that all must comprehend in order to understand the operational aspect of qabd, be it haqiqi or hukmi.
Informant 3 I would suggest to develop a system that can ensure the non-skip sequence before financing disbursement. Especially for cooperatives under Suruhanjaya Koperasi Malaysia (SKM) because they also offer financing but lack of budget develops such system. Shariah
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executives also must involve in system development to ensure Shariah compliance. Next, Shariah review, audit and risk team must strengthen the shariah governance on policy document, guidelines, or even Shariah Advisory Council of Bank Negara Malaysia resolution. The last one, Shariah advisory as well the Shariah research must vigorously develop a new concept to be used other than tawarruq. Our Islamic banks are to rely on it.
Informant 4 For the operational issue, it is a must to clearly explain the possession status. Then, the Shariah issue, we have to clearly explain the divergence of opinion of Muslim scholars (Tarjih) suitable to the practice in Malaysia considering the’ urf).
Informant 5 I suggest that we must have a sort of control and review to ensure the compliance. Thereafter we can start to use qabd hukmi. It is about due diligence. An ongoing due diligence.
