Questions regarding Manzil Murabaha financing

In the Name of Allah, the Most Gracious, the Most Merciful. 

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

Brother in Islam, 

We will address your query in the following order:

1. The concept of risk in Islamic financial transactions
2. The concept of rahn
3. The issue of SPV

1.You are correct that an intrinsic element of Islamic financial transactions is the presumption of risk. However, the type of risk required slightly differ from transaction to transaction. For instance, in a Musharakah, both partners are liable to their respective proportions throughout the entire duration of the venture against any loss that occurs beyond their control. However, in a lease-to-own, although the lessee will eventually come to own the commodity, the lessor will solely bear all risks. Hence, keeping this in mind, it is important to understand what risks are required for the permissibility of a Murabaha transaction.

In principle, a Murabaha transaction falls under the category of a regular buy-and-sale transaction. Profit in Arabic is translated to Ribh. As such, it has been termed “Murabaha” as the seller discloses the amount he has paid to acquire the commodity as well as his mark-up (ribh). Being a regular transaction, the condition of validity rests on two factors, ownership, and possession. If both are found, then as a valid sale, the profit will be halal. The time for ownership is not limited to a specific time frame. Rather, a moment of time is sufficient. Consider the following example:

Zaid goes to a shop at 11:00 AM and purchases the last phone they have in stock. Zaid receives the phone at 11:05 AM and proceeds to exit the store. At 11:06 AM, Amr walks in and finds that there are no phones available. Amr pleads Zaid to sell him the phone. Zaid informs Amr the amount he has paid, and marks-up the price by nearly double the price. Amr accepts the offer and purchases the phone at 11:08 AM. Although, Zaid’s possession and ownership lasted for three minutes, such a transaction will be permissible.

Although this time frame seems insignificant, the risks are still very great. For one, if the item gets damaged or destroyed in the interim, the seller will be fully liable without being able to have any claim against the potential buyer.

2. Following our discussion above, we understand that a Murabaha transaction is a regular sale transaction. Hence, when the buyer has stipulated a delay for repayment, this creates a creditor and debtor relationship. Accordingly, Shariah does not mandate a person to assume creditor risk. Rather, they can use permissible methods to mitigate that risk. One such method is by means of a rahn. There are ample evidence in the Qur’an and Hadith that allude to the permissibility of stipulating a security in a credit based transaction. 

It is important to note, that a Musharakah and Ijarah are trust based transactions and not credit based. 

3. Although some have elected to term the mechanism used to purchase the property as an SPV, it is inaccurate to use the standard definition in this case. For further details, you may contact Manzil directly for further clarification. 

In any case, the primary purpose of such a mechanism is to avoid double taxation. In view of the impracticality of double taxation, Manzil has adopted a method through which they purchase the property on their name, assume the risk, and sell the property to the client. 

If you have any further questions regarding our fatwa, you may revert to us. 

And Allah Ta’āla Knows Best

Mirza-Zain Baig

Student - Darul Iftaa

Montréal, Québec, Canada

Checked and Approved by,

Mufti Ebrahim Desai.