LAW

Published on
Islamic Contract Law – Does Agency Eliminate Risk in Murābaḥah?
1. What agency is supposed to do (in theory)
  • The customer acts as the bank’s agent to purchase the asset.
  • Once purchased:
    • Title passes to the bank
    • The bank becomes owner (even if briefly)
👉 In principle:
  • The bank should bear ownership risk during that period.


2. When agency DOES eliminate risk (problematic structure)
Agency becomes an issue when it’s combined with protections that leave the bank exposed to no real loss.
Common features:
  • Customer signs a binding promise to buy before the bank purchases
  • Bank buys only after being fully protected
  • Immediate back-to-back sale
  • Clauses shifting loss to customer
Example (problematic):
  • Customer (as agent) buys a car for the bank
  • Customer has already signed a binding undertaking to buy it
  • If the car is damaged or the deal fails:
    • Customer still must pay
👉 Result:
  • Bank’s ownership = purely technical
  • Risk = effectively zero
❌ This is what critics mean by “form without substance”


3. When agency does NOT eliminate risk (acceptable structure)
Agency can still be valid if real exposure remains with the bank.
Key conditions:
  • Customer’s promise is not absolutely binding (or limited)
  • There is a genuine gap between purchase and resale
  • Bank bears risk during ownership:
    • Damage
    • Price fluctuation
    • Customer default
Example (better structure):
  • Customer (agent) buys a house for the bank
  • Ownership passes to the bank
  • Before resale:
    • Customer decides not to proceed
👉 Result:
  • Bank must:
    • Find another buyer
    • Possibly sell at a loss
✅ Real market risk exists


4. The real issue: Legal vs Economic Risk
  • Legal position
    • Yes, the bank owns the asset
  • But Islamic law asks:
    • Did the bank face a real chance of loss?
👉 If NOT:
  • Then:
    • Profit becomes questionable


5. Core Principle
  • “Al-ghunm bil-ghurm”
    (Profit comes with risk)
👉 If agency structure removes:
  • Risk
    Then:
  • It undermines the justification for profit


Final Judgment (Balanced View)
  • ✔ Agency itself is not the problem
  • ❌ The problem is when agency is used to:
    • Eliminate all meaningful risk


One-Line Answer
  • Agency can eliminate risk if abused,
    but it is acceptable if the bank still bears real ownership risk in substance, not just on paper.







Picture
0 Comments

Author

Learn the fact about law