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Islamic Contract Law – Why Risk Differs (Hire Purchase vs Murābaḥah)
1. Core Principle to Remember
👉 In Islamic law:
“Risk follows ownership” (al-ghunm bil-ghurm)
2. Hire Purchase (Conventional)
Ownership Position
Risk Allocation (in practice)
Why this is problematic
3. Murābaḥah (Islamic Structure)
Stage 1: Before Sale (Important part of your question)
Example
Stage 2: After Sale
4. Why the Difference Exists
In Hire Purchase
❌ Artificial structure
In Murābaḥah
✅ Consistent with Islamic law
5. Simple Side-by-Side
6. Key Insight
Final Answer
One-Line Understanding
1. Core Principle to Remember
👉 In Islamic law:
“Risk follows ownership” (al-ghunm bil-ghurm)
- Whoever owns the asset:
- Must bear:
- Damage
- Loss
- Liability
- Must bear:
2. Hire Purchase (Conventional)
Ownership Position
- Financier:
- Holds legal title
- Customer:
- Has possession and use
Risk Allocation (in practice)
- Customer bears:
- Damage
- Maintenance
- Insurance
- Loss
- Customer is NOT the legal owner
Why this is problematic
- Risk is placed on:
- Non-owner (customer)
- Financier:
- Earns profit
- Without real risk
3. Murābaḥah (Islamic Structure)
Stage 1: Before Sale (Important part of your question)
- Bank:
- Buys asset
- Becomes owner
- Bank must bear:
- Damage risk
- Loss risk
Example
- Bank buys a car
- Before selling to customer:
- Car is damaged
- Bank bears loss
- Bank = owner
Stage 2: After Sale
- Ownership transfers to customer
- Customer bears:
- All risks
4. Why the Difference Exists
In Hire Purchase
- Risk is:
- Contractually shifted to customer
- Even though:
- Financier owns asset
❌ Artificial structure
In Murābaḥah
- Risk follows:
- Actual ownership stage
✅ Consistent with Islamic law
5. Simple Side-by-Side
- Hire Purchase
- Financier owns
- Customer bears risk ❌
- Murābaḥah (before sale)
- Bank owns
- Bank bears risk ✅
- Murābaḥah (after sale)
- Customer owns
- Customer bears risk ✅
6. Key Insight
- Islamic law is not concerned with:
- Who uses the asset
- Who owns the asset at that time
Final Answer
- In murābaḥah:
- Before transfer:
- Financier bears risk because:
- It is the true owner
- Financier bears risk because:
- Before transfer:
- In hire purchase:
- Risk is shifted to customer even before ownership
- This:
- breaks the link between ownership and risk
One-Line Understanding
- Islamic law requires:
👉 “Who owns must bear risk” - Hire purchase breaks it
- Murābaḥah (properly done)
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