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Shariah Articles


Zakah Liability Of Clients in respect of Islamic Financial Instruments

1.    Current Account: الحساب الجاري. A current account is characterized in Shari’ah as a loan by the client to the bank, which is repayable by the bank on demand. In this sense , the repayment of the principal is guaranteed by the bank under all circumstances, on the analogy of a regular loan. On this basis, the credit balance is a strong debt, دين قوي , with the result that Zakah must be payable on the credit balance , as at the passing and completion of the lunar Zakah year عند تمام الحول ( “ the Zakah valuation date”) together with the aggregate value of any other Zakaatable assets, equal to nisaab.

2.    Investment Account : الحساب الاستثماري : the  cash amount invested by the client رب المال constitutes the capital of the special partnership in profit known as  Mudarabah. In terms of this  contractual arrangement, the client and the bank share the profits and losses of the Common Mudarabah Pool in a pre- agreed ratio. Zakah is accordingly payable  by the client on his or her invested  capital , together with any accrued profits thereon , as at the Zakah valuation date, irrespective of the duration of the investment, because the client is at all times the owner of the capital together with his or her share of the accrued profits, as reflected in  the relevant statement of account.( see Al - Mughni of Ibn Qudamah : vol2 : par :1929)

3.    Investment Sukuk : صكوك الاستثمار : these are certificates of equal value which represent a pro rata undivided share of beneficial ownership in the underlying assets of the portfolio . The owners of the certificates must pay Zakah , based on the Zakaatablity of the underlying assets which the certificates represent, as at the Zakah valuation date. يزكيها حملتها بحسب الموجودات التى تمثلها

4.    Take the following examples.

5.    Ijarah Sukuk : the holders of  Sukuk certificates own the underlying assets in pro rata undivided shares, through the conduit of a special purpose vehicle. The  jointly owned assets in turn are leased to third parties to generate returns for investors in proportion to  their investment. No Zakah is payable on the value of the underlying assets, because they do not constitute trading stock. Zakah is only payable on the net  unexpended income  , held as at the Zakah valuation date.

6.    Murabahah Sukuk : the Sukuk holders beneficially own the underlying tangible assets which are purchased and sold , on a Murabaha basis to third party purchasers. The tangible assets  for sale are deemed to be trading stock and Zakah is accordingly payable on the market value thereof, together with a pro rata share of any cash in the portfolio, so held as at the Zakah valuation date.

7.    Security Deposit : هامش الجدية: this represents an agreed amount paid by the client to the bank ,in advance of and prior to entering into a Shari’ah compliant financing transaction , held by the bank in trust,  on behalf of the client, as security for the fulfillment of the client’s  binding promise to enter into the financing contract. If the client reneges on his promise, the bank is entitled to recover any actual out of pocket loss arising from the breach of promise , limited to the difference between the proceeds of the sale of the relevant commodity to a third party, and the original higher price paid by the bank to the supplier, under the first sale between the supplier and the bank. The client must pay Zakah on the security deposit  held on it’s behalf, as at the Zakah valuation date, on the capital together with any accrued profits, if so held in an investment account. هامش الجدية: و هو المبلغ المقدم تاكيدا للوعد الملزم لتغطية ضرر النكول عنه

8.    Takaful : the monthly contributions paid  by members to a non- profit Takaful Fund ,  are deemed to be purely gratuitous. These contributions of members are received and are owned by the Fund , as a separate legal person, are managed in accordance with its rules, with the result that no Zakah is payable thereon by the member, in the absence of ownership. لعدم تحقق الملك التام :   فان محفظة التأمين لا زكاة فيها

9.    Bank Guarantee : خطاب الضمان له غطاء كامل : this refers to the situation where the bank , acting as agent of the client, holds  the client’s own funds , as collateral; the bank issues an on - demand undertaking, in favor of a third party beneficiary , to pay a specified amount upon the occurrence of a specified event, according to its terms. On this basis, the client must pay Zakah on the funds held on it’s behalf by the bank in a current or investment account, if so held as at the Zakah valuation date.

And Allah Knows Best
M S Omar
22 May 2022

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I personally know the honourable Shaykh Mahomed Shoaib Omar for over thirty years. I found him to be an ardent seeker of knowledge, quick of mind &  constantly devoted to the study of the books of fiqh &  has written himself a number of papers. He has been amongst the foremost participants in drafting the Muslim Personal Law for S.Africa, so that it may be enforced there; and the majority of local Ulama have endorsed this.

~ Mufti Taqi Uthmani

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