Dear Mufti Saheb
Assalamu Alaikum Wa Rahmatullahi Wa Barakaatuh.
This is my 4th submission for the question.
May Allah bless your efforts in guiding the Ummat. May Allah make the Ummat follow the rightly guided Ulama.
I would like to inform you that Fatwa, was issued by Hazrat Mufti Taqi Usmani Saheb in 1989 for ICHC allowing their scheme as permissible for Muslims living in Canada and the west. Please find attachment enclosed in urdu of that fatwa.
I also forwarded this email and all attachments to Mufti Taqi Usmani sb Secretary Rauf Farooqi to keep him in loop so that Mufti Taqi Usmani sb is also aware of the discussion at hand.
I am attaching the Fatwa for your reference. In the last two lines Mufti Taqi Usmani Saheb has clearly stated the context and reasoning for permitting.
Before initiating my home purchase with ICHC/ACHC in 2005, I personally spoke to Mufti Taqi Usmani Saheb in 2005 in regards to MOST of the points you have outlined as being impermissible, as to why and how Mufti Sb allowed ICHC/ACHC to implement in the transaction. After I spoke with Mufti sb and his explanation, only then I continued my home purchase with ACHC.
Please note that a lot of god fearing Muslims, such as Late Col.
Ameeruddin Saheb and others were/are investors with ICHC/ACHC based on the Fatwa of Mufti Taqi Usmani Saheb approving ICHC/ACHC.
From finance point of view the deal with buyer is of declining partnership, but the status of the buyer is of OCCUPANT. This is the premise on which certain clauses are stated in Contract.
The points raised by you in basing the argument that ICHC/ACHC is Not Shariah Complaint, I would like to state the following:
1. ACHC stipulated a ratio of loss in the event of Sale.
Please note the premise of the Contract is to encourage purchasing of the homes as principle residence and not as investment opportunity for members. In the event of completion of home buyout, the buyer will always be owning more than 50% of the shares, since only per clause H
(i) for completion of the house ownership, the buyer will have to accumulate shares equivalent to the cost of the housing (thats the original cost of the housing) PLUS one class ‘G’ preferred share.
So before the buyer reaches the point of buying class G shares he would have accumulated shares more than 90% of the cost of the housing.
The issue in question is for buyer having less than 50% shares of the cost of the housing (the original cost of the housing) and the loss percentage not being proportional.
Please note this scenario arises, only when the buyer is exiting the contract and wants to sell the house. In which case if there is a loss buyer will incur 50% of the loss and if profit is encountered will have 80%. So the buyer has broken the commitment to buy and is effectively terminating the contract, thus having less than 50% of share ownership the agreement is the above.
In read your document of mushrakah-mudarabah document, on page 29, that in case of termination, shariah allows them to have a mutually agreed terms. So why is this being made impermissible ? Again the whole premise of entering the deal with ICHC is principal residence home ownership.
One needs to consider the fact that if the buyer doesn’t close the house purchase and exits the plan any time is basically breaking the contract.
So as per Shariah with mutual consent portion of profit and loss can be set.
Further we also know when two people engage in a business, one as an investing partner and another as a working partner and they mutually agree for a 30% 70% profit/loss, then this is un-equal ratio. We know Shariah permits this kind of unequal distribution as percentage.
2. Your statement on the penalty of $5000 charge being impermissible.
I refer to the “Islamic Finance” book of Mufti Taqi Usmani Saheb, in which he has disallowed interest charges but has allowed admin fees/penalty to discourage buyers from making mockery of the deals with Financial Institution.
3. ACHC does not share in the expenses of maintaining the property including taxes.
I personally asked this question to him, and he said to me in 2005, the reason for allowing this exemption from tax for ICHC/ACHC is because the benefit of taxes (fire/ambulance/police/city services etc.) are to the OCCUPANT and not to the FINANCER, thus it is fair to ask the occupant to pay these. Similar is the case of maintenance expenses. Please note the major improvements and expansions costs will be included in the price of the house at the time of transfer. This is stipulated in Clause (H) (iii). Mufti Taqi Usmani Saheb, told me if we had asked ACHC to share your taxes then as a landlord (if we base the argument of landlord/tenant), in Canada landlords are allowed ~2% of increase in rent by rental board in Ontario (year 2020 was 2.2%, year 2018/2019 was 1.9%, year 2017 was 1.5% year 2016 2.0%), so in over the years the rent would become prohibitive and whole transaction will become meaningless.
ACHC doesn’t change the original occupancy charges for the occupant.
So Mufti Taqi Usmani Saheb told me this is the reason we allowed ACHC not to share the taxes and other expenses with occupant, stating some allowance for OCCUPANT and some allowance for ICHC/ACHC
4. ACHC obliges occupant to take conventional insurance.
The insurance required is third-party liability insurance and ACHC contract clearly states in Clause (F) that third party insurance premiums paid by members will be shared by the Co-operative. Please note this is defensive insurance, if some damage happens to neighbor’s property, I can assure you 99.9% of the home owners in our country cannot pay the losses to neighbors. This defensive purpose (third party
insurance) is also taken by Masajid all over North America. Again Insurance for Masajids is not legal requirement. If such is the case that defensive insurance is not allowed, then per your argument all Masjids in North America will be considered Non-Sharia compliant. Will salah be valid in such Masajids. Such is the case of Dewsbury Madarsah.
In Toronto, Canada when Tabligh Markaz was being built there was a discussion on whether Markaz should take third party liability insurance, and at that time Hafiz Patel Saheb (RA) son (Maulvi Saeed) was visiting Toronto and he clearly stated that in England Ulama have permitted the use of Third party insurance as a defense Insurance.
5. ACHC stipulates the agreement will be binding on the heirs.
But in the same clause the contract has stated the freedom is provided for the heirs to continue or sell off. So why this is a problem, since there is no compulsion.
In Clause 10: aforesaid premises by Members/Occupants does not create any landlord and tenant relationship between them.
You have stated that ACHC is Mustajir for the portion they own. Yes Islamically ACHC/ICHC is mustajir. But within the context ICHC/ACHC contract the term landlord/tenant is being referred to in legal Canadian landlord/tenant agreement sense.
Please note landlord/tenant agreements are governed by Landlord/Tenant Board. I think everyone agrees that is not the case, else If Landlord/Tenant Board is to be involved then the rights of OCCUPANTS and ACHC will be dictated by the board which cannot be the case since the contract does not involve them. So this is for more legal perspective, to avoid the confusion for the OCCUPANT in case they think they are tenants in legal sense.
If I compare the arguments given in your Fatwa making ICHC/ACHC Non-Shariah Complaint and the arguments given by Mufti Taqi Usmani Saheb making ICHC/ACHC Shariah Compliant, it resembles the case of that woman whose husband said “I divorce you if you are not more beautiful than the moon” and when she asked the ulema everyone said the divorce has taken affect. Imam Abu Hnifah (RA) stated the divorce has not taken affect, because Human being is the best creation (fee ahsani taqweem) and the marriage was up intact.
Mufti Saheb, what is concerning and bothersome is the confusion Ummat is facing now. Zero Mortgage is showing sample Contracts to buyers with Mufti Ismail Ebrahim Desai name, although in your view it is Not-Shariah Complaint.
To add to this confusion is the recent, 29 Jul 2019, Fatwa issued by Darul Ulooom Deoband permitting to take interest bearing loan from bank (in case of hardship and no other option) to buy homes. Please see the link here:
You have now declared ICHC/ACHC is Non-Shariah Compliant and Darul Ulooom Deoband issued Fatwa to take interest bearing bank loan for buying first home. Ummat-e-Muslimah is getting torn apart between such conflicting Fatwas and this compels our young generation and common Muslims especially in the western world to develop aversion to Islamic principles due to conflicting messages given in these fatwas, and consequently take the easy path to Interest based loans from Banks.
I believe, before a Fatwa is given, due consideration needs to be given considering the context, the conditions with a deeper look on the minor allowances made within the context of buying a principle residence while avoiding usury (which is a major sin). The other extreme is in front of us where Darul Ulooom Deoband now allowing interest based loan for buying the first home.
Please forgive me if I have been blunt in my presentation herewith. My intentions is to bring about the facts with regards to ICHC/ACHC and that caution needs to be exercised keeping the context and the bigger picture of avoiding usury before declaring it non-shariah compliant.
I agree there may be improvements ICHC/ACHC could make, but the bigger question now is
1. Whether in the light of the allowances made by Mufti Taqi Usmani sb, render it Haram for Canadian muslims to buy homes from ICHC/ACHC and
2.Is it HARAM for a muslim to be an investor with ICHC/ACHC ?
OR as Mufti Taqi Usmani Sb said, keeping the conditions of muslims in Canada it is permissible to buy home from ICHC/ACH.
Appreciate your time and guidance.
In the name of Allah, Most Compassionate, Most Merciful,
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
We apologize for our belated response.
We will address your query in the following order
1) Addressing your objections,
2) Hazrat Mufti Taqi Uthmani Sahab’s fatwa regarding ACHC, and
3) The community’s concern.
1.Addressing Your Objections
We have no doubt on your sincerity in reaching out to us with your objections. However, with due respect, we feel that you have anincorrect understanding on the structure of a diminishing musharakah. You have referred to Hazrat Mufti Taqi Usmani’s book on multiple occasions. However, a proper understanding of the book would reveal direct conflict to your reference of the book. Nonetheless, we will address your concerns.We would also like to clarify that we consulted ACHC’s regulations and their occupancy agreement when conducting our review.
You state “From finance point of view the deal with buyer is of declining partnership, but the status of buyer is of OCCUPANT. This is the premise on which certain clauses are stated in contract.”
Response:We understand that the main agreement that is signed between both parties is the occupancy agreement. However, it is incorrect to assume only one status for the entire agreement. In principle, a diminishing musharakah is a mode of financing that incorporates three separate and independent transactions. Thus, for the validity of a diminishing musharakah, the laws of shirkat, ijarah (leasing), and buy and sale, must be considered independent from one another. It is for this reason that although the financier is only entering the contract on the premise that the client will rent out his share, it is prohibited to stipulate the rental agreement as part of the partnership agreement.
Accordingly, each agreement must be independent of each another. The client does not hold only one status. Rather, he is a partner in acquiring the property, a tenant in renting out the partner’s share, and a buyer in purchasing the financier’s share in equity. The status in one transaction will not affect the rules in another independent transaction.
You state:“…on page 29, that in case of termination, shariah allows them to have a mutually agreed terms. So why is this being made impermissible ?”
Response: It seems you have misunderstood the process of terminating a partnership. In principle, there are two ways of terminating a partnership. (a) By selling the jointly purchased asset and splitting the proceeds between the partners and (b) by purchasing the other party’s share. In scenario (a), the partnership ends once the proceeds have been split, while in scenario (b) the partnership ends upon acquiring the other party’s share.
The reference on page 29 refers to scenario (b). If one party wants to dissolve the partnership while the other is not in favor, the party that is not in favor may sellhis partnership stake to the other party at whatever price mutually agreed. This is the meaning of “mutually agreed terms.” Once this sale occurs, the purchasing party now becomes the sole owner of the asset. The price of the partnership stake becomes a debt on the purchasing party. Hence, once the asset is sold, the proceeds fully belong to the selling party. The purchasing party is not liable to pay anything beyond the debt accrued from the sale between both parties.
As for scenario (a), when both parties agree to jointly sell the asset, the proceeds will be divided between them proportionately. Once the proceeds are split, the partnership will end.
You state “So as per Shariah with mutual consent portion of profit and loss can be set.
Further we also know when two people engage in a business, one as an investing partner and another as a working partner and they mutually agree for a 30% 70% profit/loss, then this is un-equal ratio.We know Shariah permits this kind of unequal distribution as percentage.”
It is clear from the foregoing three points that each one of the transactions mentioned hereinabove is allowed per se, but the question is whether this transaction may be combined in a single arrangement. The answer is that if all these transactions have been combined by making each one of them a condition to the other, then this is not allowed in Shari‘ah, because it is a well settled rule in the Islamic legal system that one transaction cannot be made a pre-condition for another. (p.60)
Response: It seems you have misunderstood the laws of profit and loss sharing. While Shariah allows partners to stipulate profit that is disproportionate to their investment, it is prohibited to stipulate a disproportionate ratio of loss. See the following excerpt from the same portion you have attached.
But in the case of loss, all the Muslim jurists are unanimous on the point that each partner shall suffer the loss exactly according to the ratio of his investment. Therefore, if a partner has invested 40% of the capital, he must suffer 40% of the loss, not more, not less, and any condition to the contrary shall render the contract invalid. There is a complete consensus of jurists on this principle.(p.24)
Dear brother, the essential element that distinguishes a person from a creditor and a partner is the assumption of risk. This is why Hazrat Mufti Taqi Sahab has explained that a clause to the contrary renders the contract invalid.Not assuming complete risk is tantamount to guaranteeing one’s investment. It is as though one guarantees, that in all circumstances, one will receive 80%/90% of their initial investment. Thus, such a transaction resembles a loan and not a partnership. If that is the case, then one cannot take any monetary benefit from a loan. Consider the following principle:
العبرة للمعاني لا للفظ
Translation: Consideration is given to substance over form.
You state I refer to the “Islamic Finance” book of Mufti Taqi Usmani Saheb, in which he has disallowed interest charges but has allowed admin fees/penalty to discourage buyers from making mockery of the deals with Financial Institution.
Response: Your reference is not correct. Hazrat Mufti Taqi Usmani Sahab discusses the concept of penalties in the context of payment default. To avoid dishonest clients from taking advantage of getting away without a late payment fee, due to their haram nature, Mufti Taqi suggests that the client should undertake to pay a certain amount in charity. Furthermore, Mufti Sahab has made it clear that it is forbidden for institutions from benefitting from such charges, as this fee is levied to avoid abuse and not to benefit. Otherwise, benefitting from fees is riba. Muft Taqi further states:
“Since the penalty undertaken by the client is originally a self -undertaken vow, and not penalty charged by the financier, the agreement should reflect this concept. Therefore, the proper wording of the penalty clause would be on the following pattern
‘The client hereby undertakes that if he defaults in payment of any of his dues under this agreement, he shall pay to the charitable account/fund maintained by the Bank/Financier a sum calculated on the basis of …% per annum for each day of default’”
In the case of ACHC, there is no such undertaking, rather, ACHC benefits from that full amount. Furthermore, in the case of default, when there is an actual loss, if shariah has not permitted benefitting from any fees, then it is evident that one should not benefit from any fees when there is no actual quantified loss.
Our response regarding shared expenses:As we have mentioned above, the validity of a diminishing musharakah is dependent on the validity of three separate and independent transactions. As the diminishing musharakah agreement incorporates the aspect of ijarah, it is important that it complies with the laws of ijarah. We understand that ACHC does not create a formal and legal landlord and tenant agreement, however, the premise that allows them to benefit from the rent of the property is that they are leasing out their share. Hence, the shar’i laws of ijarah must be adhered to. According to the laws of ijarah,the distribution of expenses will be dependant on the norms of that society. Thus, we need to examine, in a normal rental agreement, what expenses are borne by which party? Looking at the norm of Canadian society, the landlord is primarily responsible for condominium fees, taxes and insurance. Therefore, it is not unreasonable to ask ACHC to contribute for these expenses.
You have stated, “in Canada landlords are allowed ~2% of increase in rent by rental board in Ontario”. This does not make it compulsory on them to increase. Thus, we do not understand how this prevents them from sharing in taxes.
Hazrat Mufti Taqi Sahab may have given this allowance in 1989, as it may not have been the norm of the society of that time. However, it has been 31 years, and the norms of the society continue to change. It is the job of an Islamic financial institution to continuously improve their product so that it may be in complete conformance with shariah.
You state: the benefit of taxes (fire/ambulance/police/city services etc.) are to the OCCUPANT and not to the FINANCER, thus it is fair to ask the occupant to pay these.
Our response:In principle, there are two types of expenses. (1) Those expenses that emerge due to ownership, and (2) those expenses that arise due to the use of the property. According to shariah, all expenses that emerge due to ownership are the responsibility of the landlord. Accordingly, in Canada, property taxes and condominium fees are liabilities that emerge due to ownership, it does not have any connection with usage. It is explicitly for this reason that landlords in Canada are responsible for paying the taxes of a property, despite the fact that the tenant is the one who uses the property.
Our response to the obligation of conventional insurance.
It remains the view of the Darul Iftaa that all types of conventional insurance are haram, even if it be third-party insurance. As for the Canadian context, the Darul Iftaa revisited the issue prior to receiving your query. We understand that companies that acquire community funding from investors are under legal obligation to safeguard the interests of the investors. Thus, mandating insurance can be regarded as an indirect obligation on the client to insure the property.
In any case,although this particular issue may be overlooked, there are still other issues that render this product non-shariah compliant.
You state: But in the same clause the contract has stated the freedom is provided for the heirs to continue or sell off. So why this is a problem, since there is no compulsion.
Our response: The clause from ACHC’s occupancy agreement is the following:
- This Agreement enures to the benefit of and is binding upon the heirs, executors, administrators, successors, and permitted assigns of the parties hereto. This Agreement is not assignable by the Members/Occupants without the written permission by the Co-operative.
The clause on the contract does not stipulate any freedom to the heirs. Rather, it explicitly states “Binding” upon the heirs. You have not attached any document to support your claim that there is no compulsion.
Our response to Clause 10:As you will have noticed, this was not listed as a reason for non-shariah compliance. It was mentioned in our review, as it raised a question as to why this agreement did not create a landlord/tenant relationship.
- Mufti Taqi Uthmani’s Fatwa
The fatwa of Hazrat Mufti Taqi Usmani Sahab (hafizahullah) you attached was available to us when we initially issued a fatwa. We spoke to prominent ulema in the GTA area that also expressed similar concerns regarding ACHC. Furthermore, Hazrat Mufti Taqi Usmani Sahab has explicitly mentioned on his website that he is not a part of any Canadian organization. Nonetheless, we contacted Hazrat Mufti Sahab regarding his initial fatwa, and this was his response.
میںنے۱۹۸۹میںبیشکایکفتویدیاتہالکنبعدمیںکبہینہانکےطریقکارکودیکہنےکاموقعملانہکوئرابطہرہا- لہاذامیںنےپروزنسیمصاحبکولکہدیاتہاکہابمیرےاسفتویکواستعمالنہفرمائیں -چنانچہانہوںنےہاوسنکفائنانسسےمیرانامہڈادیاہے۔ انصارصاحبسےمجہےامیدتہیکہانہوںنےکہدیاہوگالکنشائدانہوںنےمیریباتکواپنیحدتکہیمحدودرکہا- بہرحال! ابمیرایہخطانہیںدکہادیںکہبراہکرموہمیرےفتوےکواباستعمالنہفرمائینکیونکہمیرےلئےپچہلےتقریباتیسسالسےانکےطریقکاراورحالاتکاعلمنہیںہےاورنہمیرےلئےاسکینگرانیممکنہےینگرانیممکنہے
Translation: I had indeed issued a fatwa in 1989, however, I never saw their procedure, nor was I in contact with them after that. Thus, I wrote to Parvez Naseem Sahib that they should not use my fatwa anymore. Since then, my name has been removed from their House Finance scheme. I had hoped that Ansar sahib would have conveyed this, but he might have kept our conversation to himself. Anyway! Please show them this letter of mine, that please do not use my fatwa anymore. This is because it has been thirty years, and I am not aware of their procedures or situation, and neither is it possible for me to monitor them.
In light of the explanation above, as well as taking Hazrat Mufti Taqi Sahab’s retraction, our fatwa regarding ACHC stands as stated. ACHC is not Shariah compliant. We understand the challenges and concerns of the residents of Canada in acquiring a Halal way to purchase their homes. However, we are bound to provide answers that conform with Shariah.
It is imperative to understand that the diminishing musharakah model is not a model found in the classical books. Rather,it was designed by joining three independent transactions, so that it may be a halal mode of financing. Thus, it is of utmost importance that the product conforms to the laws of each transaction so that the diminishing musharakah model does not become another name for an interest-bearing loan.
Those individuals who have purchased their homes through ACHC or have invested with them, should raise these concerns with the responsible individuals. The Darul Iftaa is willing to assist in making the product Shariah compliant.
Please note, for constructive and academic reasons, we have only responded to fiqhi related issues. We did not find it appropriate to address unrelated and emotional issues.