Introduction
According to article one of the United Arabs Emirates federal law number six of 1985 regarding financial institutions and investment companies, Islamic Banking and Finance refers to financial institutions which are committed to abide their conduct and activities to the Islamic Shari’ah Law (Lahsasna, 2014). Therefore, Islamic banking are banking institutions which provide banking services such as: provision for funds for investment and trade, saving and current accounts, honoring and issuing of loans in accordance with the provisions and rules of the Shari’ah principles, theories and law of the Islamic economics. Despite the fact that Islamic banking began with the Islam religion principles, it evolved through two phases before it later developed into the present era institutional practices (Bai, 2011). The two major phases included: prophetic Era and the modern Islamic banking and finance. The work will endeavor to identify and explain the main components and principle of Islamic Banking and Finance and how they have transformed the Islamic Mortgages in the United Arab Emirates. “The study will cover the Shari’ah Framework and the legal Framework of the instrument, as well as its modus operandi. A one-to-one interview will also be conducted for the verification of the information that is provided by the available literatures.”
Literature Review
According to the prophetic era, the general public used to carry out safe keeping practices of their personal properties, money and valuable items to the holy prophet SAW for safekeeping as a result of his trust and confidence they had upon him. Nevertheless, the process never developed into an institutional practice but it remained as trustworthiness and honesty exercise. As a result, the holy prophet decided to establish a public treasury which was referred to as Bayt al-mal for the purpose of managing and safekeeping the public properties and resources. The accumulated resources in the public treasury were used for the general public purposes such as: public services financing, military wages payment and public constructions. The Bayt al-mal treasury was developed into an institution that would extend financing services to the general public. At the time, the Bayt al-mal was providing funds to individuals for trading on profit sharing agreements basis. The profit sharing agreement (al-mudharabah) is a principle of partnership contract that is basically being used in the modern Islamic financial institutions.
Unlike the convectional banks the Islamic banks are prohibited from charging profits or interests to its clients because they are required to establish an investor entrepreneur relationship rather that creditor-debtor relationship associated with the convectional banks. Moreover, the Islamic banking and finance prohibited unreasonable risks and speculations because both leads to hoarding of the essential commodities and goods. The Islamic banking and finance prohibits its clients from engaging in gambling or lottery, the bank is restricted from financing immoral and unethical practices such as production of weapon and ammunition, alcohols brothel business (Bragge, 2006). Nonetheless, the Islamic bank is subjected to the Sharia’h law and regulation. The Shari’ah board of finance is mandated to audit and review the products and the practice of the Islamic bank. The board approval is pre-requisite of all activities and operations of the bank. Despite the fact that the Islamic banking might differ with the convectional banking, the two institutions are similar because they both operates on the same template of investment products and deposit products, both of them are structured in a similar manner because they are subject to the regulations and licensing of the central bank (Lahsasna, 2014).
Sharia’h Framework of Islamic Mortgages in the United Arab Emirates
According to the Sharia’h framework of Mortgages in the United Arab Emirates, Riba (Al-Ziyadah) which is believed to be growth, expansion, addition or an increase in the amount charged on mortgages are prohibited. Technically, interest (Al-Ziyadah) is believed to be unlawful gain on mortgages. The Islamic banking sectors in United Arabs Emirates are prohibited from dealing or operating based on interest on mortgages. The Islamic banks are only allowed to purchase or sell contract on the bases of profit and loss sharing platform (Cally, 2013). The interest on the mortgages in the United Arabs Emirates is restricted by the judgement of the Supreme Court of Pakistan, Opinion of majority of scholars, Sunnah and the holy Qur’an. The Holy Qur’an prohibits the United Arabs Emirates Islamic Banking sector from charging interest on mortgages on the basis of unjustified and unlawful enrichment (akl amwal al-Nas bi al-batil), acquisation of the monetary advantages in the business transactions without the just counter value, avoidance of risk and exploitation of the business transactions.
Islamic banking and financing institutions usually provides the financial services such as the mortgages in accordance with the Shari’ah law and regulation. The Islamic Mortgages in the United Arab Emirates necessitates the Islamic financial institutions in the region to ensure that the services being provided emphasize fairness, equity and ethical for the general good of the whole society. The sharia’h law recognizes the Holy Qur’an as the source of financial knowledge that goes beyond human innovation, intuition and scientific methods. The Shari’ah considers the finance services such as the mortgages offered by Islamic banks in United Arab Emirates as an act of devotion to the almighty Allah (Chow, 2007). The financial services by the banks in the United Arab Emirates are believed by Shari’ah tends to establish altruism, empathy, cooperation, justice and entrepreneurship. The Holy Qur’an believes that the fundamental goal of the Islamic finance should never aim at maximizing their profits or interests. The commercial law segment of Mortgages offered by Islamic Financial institutions in United Arabs Emirates is believed to be part of the Shar’iah Law. The Shar’iah law generally means the path of guidance in terms of values, prohibitions and commands.
The Islamic Jurisprudence (Fiqh) is a philosophical branch of the shari’ah law that guides the offering of the mortgages by the Islamic banks in United Arabs Emirates. The scholars and the jurists of the Shari’ah law are responsible for interpreting the laws guiding the strategies and approaches which must be respected before finance assistance such as mortgages are offered (Junseng, 2004). The law adopted while offering mortgages must be in compliance with the values and scientific principles established by the Shari’ah law. The interpretation of the Shari’ah Law while offering financial services such as mortgages human effort must be involved but must be subjected to eventual amendment. In addition, the Shari’ah while dealing with mortgages in United Arabs Emirates must be deduced in its objective conformity.The main objectives of Shari’ah law in guiding how the mortgages in United Arabs Emirates must be offered include: Necessities, Need’s and Ornamentations (Junseng, 2004). Prior to the Islamic financial banks decide to offer mortgages to its customers and clients they must preserve the Islam religion, preservation of life, preservation of property, preservation of procreation and intellect.
The reasons the Islamic financial institutions in United Arabs Emirates are prohibited from charging interests on mortgages is because the Shari’ah objectives is to preserve and protect the public interest in all segments and aspects of life. The Shari’ah law believes that by allowing the Islamic institutions such as Banks in the United Arabs Emirates to charge interests on mortgages would be repelling harm while at the same time seeking benefit. The foundation of the Islamic fiancé practices in the United Arabs Emirates region is the Shari’ah objectives which aim at benefiting the society rather than the financial institutions offering mortgages as well as other financial services (Lahsasna, 2014). The shari’ah objectives of preserving the society’s wealth and property by prohibiting the Islamic banking sector in the United Arabs Emirates is to attempt to abide by its principles and rules (Kasri, 2014). Nevertheless, the Shari’ah law also recognizes the human perception and cognitive ability in the process of interpreting the rules and principles which must be followed while offering the mortgages to clients in United Arabs Emirates. the Islamic financial institutions which offers mortgages in United Arabs Emirates and which are fuandamentally required to observe the rules and principles of the Shari’ah law understand that the public interest must be given the first priority followed by the personal interest. The Shari’ah law which guides how the mortgages in United Arabs Emirates believe that in order to create harmony between the Islamic and the convectional knowledge common grounds must be established.
The Accounting and auditing organization for Islamic Financial Institution was established in 1991 in Bahrain. The mission for the AAOIFI harmonizes and standardizes the international Islamic financial reporting and finance practices in accordance with the Shari’ah rules and regulations. The vision for the AAOIFI Standards is to guide the Islamic Financial market operations in accordance with the shari’ah laws, rules and principles. In addition, the AAOIFI standards normally provide the Islamic Financial Institutions which offers financial services such as mortgages with the guidelines and standards which support the growth of the industry. The AAOIFI Shari’ah standards have been made compulsory regulatory requirement for the Islamic Institutions in United Arabs Emirates offering financial services such as mortgages (Kojima, 2009). The AAOIFI Shari’ah standards have been adopted by a multilateral institution which is Islamic Development Bank Group. The standards have been used voluntarily in these Islamic financial institutions as an internal guidance structure. Nevertheless, the AAOIFI standards in terms of auditing, ethics and governance are believed not to be the compulsory regulatory necessity for Islamic finance. Basically, these standards are normally used voluntarily by the Islamic financial Institutions as Islamic finance jurisdictions. The AAOIFI Shari’ah standards are aimed at establishing solid regulatory and supervisory landscape for the Islamic financial institutions industry in the globe. The function is embedded in its professional development standards in the areas of governance, auditing, accounting and ethics all of which must be in compliance with the Shari’ah rules and principles.
Recently, the United Arabs Emirates AAOIFI signed a memorandum of cooperation with the UAE’s Securities and Commodities Authority. The two parties aimed at exchanging expertise and mutual cooperation relationship in the areas of professional building and development, shari’ah principles awareness and the financial instruments and products available and relevant in the financial markets (Lahsasna, 2014). The AAOIFI standards in relation to the mortgages in United Arabs Emirates may be considered relevant for investment benchmarking and mobilization for excellence business. In addition, the Securities and commodities Authority usually support the Islamic finance development both in United Arab Emirates and the globe at large. The AAOIFI standards have been applauded by many Muslims seeking Mortgage assistance in United Arabs Emirates because it fosters the strong technical and professional ties which are constructive strategic partnership (Lahsasna, 2014).
The Islamic Financial Services Board is an organization with the mandate of setting international standards which enhances and promotes the Islamic Financial Services stability and soundness in United Arabs Emirates and the globe. The Islamic Financial Services Board usually uses the global prudent standards and principles in the financial industry to define the banking procedures, insurance sectors and capital markets. In addition, the Islamic Financial Services Board usually coordinates initiatives and conduct research on the issues related with the industry. It also organizes conferences, seminars and roundtable discussions with the relevant stakeholders (Lahsasna, 2014). As a result both The Islamic Financial Services Board and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) are important components which guides the way in which the mortgages in United Arabs Emirates must be offered in accordance with the rules and principles of Shari’ah law.
In 1997, the Shari’ah Advisory Council of Securities Commission Malaysia resolved that the crude palm oil characteristics were in accordance of the Shari’ah Principles. The resolution was touchy because it conflicted with the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) (Kojima, 2009). Despite the fact that Malaysian Shari’ah Resolution conflicted with the IFSN standards, AAOIFI Shari’ah Standards and the Shari’ah scholars rule, the SAC argued that it was permissible for the transaction to continue and be permissible on the foundation of public interest and the Malaysian trading regulations. Therefore, despite the fact that the crude palm oil contract was conducted in accordance with the Sharia’h rules and regulations it violated some of the principles and rules of Shari’ah standards which aimed at benefiting the general public (Kojima, 2009).
Legal Framework of Islamic Mortgages in the United Arab Emirates
The Islamic Financial Business Law Number 13 of 2014 is the foundation for the basis for the Islamic financial business in United Arabs Emirates. The Shari’ah rules and regulation do not allow the financial institutions in United Arabs Emirates to charge interests on mortgages. Nevertheless, the general concepts and principles may be adopted and be amended in order for them to conform to the shari’ah law (Lahsasna, 2014). Due to the economic growth and efficiency needs of the modern businesses and economies across the globe and the United Arabs Emirates region, the principles and regulations of Shari’ah law must be adjusted in order for them to match with the convectional knowledge.
Despite the fact that the Shari’ah Law prohibits the financial institutions in United Arabs Emirates from charging interest or “Riba” on mortgages, the institutions together with the Shari’ah law should realize the concept of time value of money which is a crucial concept in the conventional finance (Kojima, 2009). The Islamic Finance Institutions must understand that one Dirham today is worth than a Dirham to be received in the future due to the personal preference for current consumption, risk, investment opportunities forgone and the reduced purchasing power caused by inflation. To a small extent, the Shari’ah law recognizes the concept of time value of money as a fundamental value for production and consumption activities. Nevertheless, the Islam believes that lending and mortgage offering by the financial institutions is a righteous Act. Therefore, since the lender makes a sacrifice in offering the mortgage to the debtor, the lender should never force the debtor to pay the amount in excess not unless the debtor voluntarily decided to pay interest on the mortgage. The Shari’ah Law disregards the concept of time value of money because money is no longer treated as a commodity in Shari’ah law (Kojima, 2009). Hence, the characteristics of the mortgages offered by Islamic financial institutions in United Arabs Emirates might include: application of the general laws of permissibility on the financial and banking systems. The Shari’ah law restricts any kind of undertaking that may be termed harmful to mankind, prohibits Riba because it is one way used by financial institutions to multiply their money and prohibits risky transactions and unreasonable speculations (Lahsasna, 2014).
The Modus Operandi of Islamic Mortgages in the United Arab Emirates
The fact that Islamic Financial Institutions prohibits interest on mortgages and financial services, they do recognize financing and deposits products. The two products are normally recognized as either in the surplus or the deficit sectors. The deposit products are the methods and facilities for safekeeping of money in the banking sector. The money may be kept in the checking account, saving account and money market account (Olowe, 2010). The account holder has the mandate to withdraw the deposit according to the agreement of the conditions governing the account. The Islamic saving account is normally framed in al-mudarabah contract which is the profit sharing between the bank and the account holder. Therefore in attempt for the Islamic financial institutions to protect the interests, necessitates and needs of the general public it ensures that the Islam religion is preserved, there is preservation of procreation, property, life and intelligence (Van, 2009). In addition, in attempts to prohibit the Islamic Financial institutions from charing interest on financial services they provide to an individual or an institution, they restricts: betting, moderate Shai’ah law interpretation, ban unjust acquisition of wealth, necessitates commitment to payment, promotes Haram and Halal, creates a believe that everything is created for mankind and makes the Muslim come to understand that God is the owner of everything. Above all, the Shari’ah law prohibates the institutions and individuals from investing on certain prohibited activities and requires the followers of the law to be committed to the social responsibilities as expected by Allah and the environment
Conclusion
The “Introduction to Islamic Banking and Finance” is a fundamental component as far as the Islamic mortgages in the United Arab Emirates is concerned because it introduces the researcher to the contentious debate of Shari’ah law that guides and prohibits the Islamic financial institutions from taking interest on financial services such as mortgages from individuals or institutions. Shari’ah Law believes that interest on mortgage is prohibited by both the Holy Qur’an and Prophet S.A.W. Therefore, in case charged on mortgages or loan borrowed from the financial institutions in the United Arab Emirates, it shall be going against the will of God because it shall be harming and injuring mankind.
References
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