By Sami Zaptia.
London, 23 October 2019:
Libya’s Jumhouria bank yesterday launched a new product whereby it offers to sell cars to clients through an Islamic-compliant “Simple Murabaha” basis.
The Bank’s Director of Marketing, Fawzi Al-Shweish, told the state news agency, LANA, that his bank intends to offer a financial product to sell saloon and medium-transport cars, to individuals, companies and entrepreneurs, at all branches of the bank.
He reportedly went on to say that the bank is working on a ‘‘diversity of product offerings to the Libyan market, in order to meet the wishes of customers for all segments of society’’.
The new offer by Jumhouria bank, the largest Libyan and state bank, reflects a new outlook by the huge state banks that dominate Libya’s banking sector. In part it is in reaction to demand and in part it is in reaction to the stiff competition that the private sector Libyan banks such as Bank of Commerce and Development and Assaraya (ATIB), for example, are putting up.
The sector is experiencing a mini revolution with the introduction of e-payments services by most banks and a move towards Islamic-compliant banking, hence Jumhouria bank’s new product offer was called a ‘’Simple Murabaha’’ product.
What Is Murabaha Islamic banking?
It will be recalled that the term Murabaha in Islamic banking refers to what is also referred to as ‘‘cost-plus financing’’, in Islamic financing structures. This is where the seller, in this case Jumhouria bank, provides the cost and profit margin of an asset.
Murabaha is not an interest-bearing loan (qardh ribawi) but is an acceptable form of credit sale under Islamic law. As with a rent-to-own arrangement, for example, the purchaser does not become the true owner until the loan is fully paid.
In a murabaha contract of sale, the client petitions the bank to purchase an item for them. The bank establishes a contract setting the cost and profit for the item, with repayment typically in instalments.
Because a set fee is charged rather than riba (interest), this type of loan is legal in Islamic countries. Islamic banks are prohibited from charging interest on loans according to the religious tenet that money is only a medium of exchange and has no inherent value; so banks must charge a flat fee for continuing daily operations.
Many see Murabaha as simply another method of charging interest. However, the difference lies in the structure of the contract. In a murabaha contract for sale, the bank buys an asset and then sells the asset back to the client with a profit charge. This type of transaction is valid, according to Islamic Sharia.