I want to purchase a house through Murabaha sale contract from a financial institution, but the latter stipulates non-concession of the property until after paying the last instalment. Is this forbidden?
All perfect praise be to Allah the Lord of the Worlds. May His peace and blessings be upon our Prophet Mohammad and upon all his family and companions.
There is no sin in Murabaha sale transaction if the bank/financier abides by the conditions of Murabah set up by the scholars of Sharia in this regard; some of which are:
First: The bank/financier must take possession of the commodity from its first seller.
Second: The bank/financier must actually receive the commodity.
Third: The bank/financier must sell the commodity to the purchase orderer.
Fourth: It is imperative to make sure that the Murabaha sale documents, signed by the purchase orderer, are free of any violations of Sharia, and this requires thorough examination of these contracts. You (Asker) may send them to the General Iftaa` Department in order for it to perform this task. However, it isn`t permissible for the bank/financier to stipulate that the purchase orderer keeps the house/property in its possession until all instalments are paid because this condition contradicts with this sale transaction. But, it is permissible to stipulate non-concession of the property till making the last payment. This is along with granting documents to the purchaser proving his right in the ownership of that property. Nonetheless, it is better that the bank/financier suffices with mortgaging that property under its name after allowing the purchaser to take possession of it.
Standard No. (8,5/4) (P.97) of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) states: "It isn`t permissible to stipulate non-transfer of commodity to the client until after paying its price. However, it is permissible to delay registering the commodity in the name of the client to guarantee his payment of its price. This is along with obtaining an authorization from the latter to sell the commodity in case he failed to pay on time and the bank/financier must grant the client official documents proving his ownership of that commodity. Moreover, in case the bank/financier sold the commodity because the client couldn`t make payments on time, then it is entitled to the unpaid instalments and return what remains to the client." For more details, kindly check Fatwa No. (683). And Allah the Almighty knows best.