Adjustment of debt Receivable as Price of Goods Purchased
What is your Shar’i opinion on the following case whether it is permissible?
It is permitted to sell a monetary debt for a commodity with spot delivery. For example, XYZ Bank extended Murabaha facilities to number of its customers. The aggregate value of Murabaha receivables is BD 300,000/. XYZ Bank wants to exit from the transaction because of delinquency issues. QRS Bank is willing to acquire these facilities for BD 275,000/-. Both the banks understand that sale of debt against cash is not allowed. Hence, QRS Bank will purchase specific commodities worth BD 275,000/-, and then it sells the commodity to XYZ Bank on spot Murabaha basis wherein the Murabaha price will be the Murabaha cost (BD 275,000/-) plus Murabaha profits (BD 25,000/-). XYZ Bank transfers its ownership claim in the underlying debt to QRS Bank and takes possession of the purchased commodity. XYZ Bank liquidates the commodity, as per its wish, and generates liquidity. Since the commodity will be sold, most likely, at the cost price, so XYZ Bank will realize BD 275,000 as sale proceeds. Kindly guide in the case as per Shariah principles.
Questioner: Muhammad Akmal, Lahore (March 15, 2023 / Shaʻban 23, 1444 AH)
Yes the asked case is allowed as per shariah principles if the said case is completed in following process flow.
Scinario-1 – Debt Receivable
XYZ Bank (Creditor) and BD 300,000/ is its debt receivable that was resulted from credit Murabaha transaction. The client who purchased the asset on Murabahah is the debtor.
Scinario-2 – Debt adjustment as price
QRS Bank buys an asset worth BD 275,000/-, and then it sells the same asset to XYZ Bank on Murabaha (Purchased price BD 275,000 + Murabaha profits BD 25,000 = BD 300,000/. XYZ Bank takes the possession on asset and adjust its debt receivable BD 300,000/ as a price through transfer (Hawalah). To keep itself on secure side, QRS bank may stipulate the clause of recourse in case of non-payment from the debtor party of Scinario-1. This stipulation will enable QRS Bank to recourse the price BD 300,000/ from XYZ Bank.
Scinario-3 – Tawarruq
After buying the asset from QRS Bank, the XYZ Bank is allowed to sell the asset in market for any price, say, BD 275,000 to third party only which will be anonymous. It is known as tawarruq. If it is sold back to QRS Bank then it will be buy-back arrangement which is prohibited in Shariah. AAOIFI Shariah Stranded no. 30, article 4/5 stated that “commodity (object of Tawarruq) must be sold to a party other than the one from whom it was purchased on a deferred payment basis (a third party) so as to avoid Inah”
In Shariah perspective, debt receivable is an asset and is subject to Zakat (see AAOIFI Shariah standard no. 35, clause 5/3/1). Debt can become the price of a commodity. As mentioned in AAOIFI Shariah standards “if a guarantee is not stipulated in the agency contract and the agent voluntarily provides a guarantee to his clients independently of the agency contract, the agent becomes a guarantor in a different capacity from that of agent. In this case, such an agent will remain liable as guarantor even if he is discharged from acting as agent.”” (Shariah Standard no. 5, Clause: 2/2/2). Hence, debt can be adjusted as a price of a goods purchased. Allamah Ibn-e-Abdin Shami (AR) says that:
قَالَ الْحَمَوِيُّ فِي شَرْحِ الْكَنْزِ نَقْلًا عَنْ الْعَلَّامَةِ الْمَقْدِسِيَّ ۔۔۔: إنَّ عَدَمَ جَوَازِ الْأَخْذِ مِنْ خِلَافِ الْجِنْسِ كَانَ فِي زَمَانِهِمْ لِمُطَاوَعَتِهِمْ فِي الْحُقُوقِ، وَالْفَتْوَى الْيَوْمَ عَلَى جَوَازِ الْأَخْذِ عِنْدَ الْقُدْرَةِ مِنْ أَيِّ مَالٍ كَانَ لَا سِيَّمَا فِي دِيَارِنَا لِمُدَاوَمَتِهِمْ الْعُقُوقَ
It was impermissible to receive anything else in repayment of debt during the time of the Mashaikhs (ancestor jurists), because they were unanimous in their rights. Nowadays, the fatwa is that when one is able to recover one’s debt, whether it is in any form but belong to debtor’s property, it is permissible to collect it.
[Ibn-e-Abdin Shami, Rad al-Muhthar Ali Al-Dur al-Mukhtar, (Dar al-Fikr, Beirut, 1992), Vol. 6, P: 151]
هذا عندي وماتوفيقي الا بالله
Dr. Muhammad Abubakar Siddique
March 15, 2023 / Shaʻban 23, 1444 AH