MURABAHA BASED PRODUCTS AND CONSUMER RIGHTS.

Islamic banking has benefited a lot from the knowledge and experience of individuals who have worked in conventional banks. However, it has never being a perfect experience since some are faster to unlearn conventional banking practices and learn Islamic banking contract rules while other are reluctant to embrace the fact that there is huge knowledge gap between what they knew of bank operations or products and what they need to learn and change when they are working in Islamic banks.
It must be known that Islamic banks operates within it own internal Shari'ah rules which are set by in -house Shari'ah scholars and global standard setting bodies. Learning these rules and applying them in banking operations is the cornerstone of Islamic banking.

Fundamentally, Shari'ah contracts provides rights, responsibilities and obligations between contracting parties which must be well known by those working in Islamic banks. Take for example, Murabaha contract which is widely used by Islamic banks. Under this contract, bank as seller has rights and obligations and so are the customers-a buyer. The bank is obliged to disclose the cost and profit in Murabaha transactions, right to change profit rate before conclusion of sale, sale what it has constructively or physically possessed, collect installments as per agreed payment plan. The customer has a right to refuse to buy or enter into a sale with bank , customer has right to pay full price earlier than the agreed plan without any pre-payment penalty, customer has a right to request for rebate in case of earlier repayment (the bank not obliged to honor it except in some jurisdiction like Malaysia where Shari'ah board at BNM requires rebate must be given), customer has a right to start paying the bank upon physical or constructive possession of the asset sold.

In comparison with on conventional loan, the customer start to be charged interest the moment bank is out of pocket. Can Islamic banks do the same? It will be fundamentally in breach of customer right under Shari'ah if Islamic bank under Murabaha based product, starts to collect profit and principal even before the customer has acquired constructive or physical possession of the asset. Individuals coming from conventional banking and not aware of Murabaha rules, must unlearn the conventional practice and appreciate that in Islamic banking money is not commodity, hence any profit paid by the customer must be directly linked to an asset that is sold. In other words, profit is derived from asset sold and not money being out of the bank pocket or by mere grant of access to customer.

What if, when the agency contract is used and customer given cash to buy an asset but due to unavoidable circumstances the customer could not utilize the funds given for a month or two and ultimately, customer expressed interest to discontinue with agency followed by instruction to the bank to take her money back? The Islamic bank is obliged to take only her money without imposing any penalty for out of pocket period of one or two months. Why? there was no asset sold, hence no profit to be earned.

Finally, both the bank and the customer must be aware of their rights, responsibilities and obligations provided under the contracts. Ideally, Individual working in Islamic banks should be protectors and educators of customers rights in every contract but if this does not happen customer must inquire for their rights, responsibilities and obligation under the contract before entering into one to prevent conflicts or injustice to any party.