“Ustaz, I have tried to seek financing from Islamic banks but they rejected it. Would it be sinful to get a riba-based financing from a conventional bank and would it be considered as dharurat?” a man asked me.
Is it dharurat or hajiat if my application is rejected?
It is not necessarily dharurat. The argument would be the Fiqh maxim:
إنما أبيح للضرورة وإنما تستيقن الضرورة بعد الطلب
“Indeed, what is permissible under dharurat indeed needs confidence of the existence of the situation after attempts (to find what is halal).”
Hence in this case, is it dharurat or hajiat if an application is rejected by one Islamic bank? You must have applied to all Islamic banks and Islamic windows in Malaysia, before claiming that you are in difficulty and desperate to get involved with conventional banks. Here is a list of Islamic Banks and Islamic windows that are available in Malaysia:
Full-fledge Islamic banks:
1. Affin Islamic Bank Berhad
2. Al Rajhi Banking & Investment Corporation (Malaysia) Bhd
3. AmIslamic Bank Berhad
4. Asian Finance Bank Berhad
5. Bank Islam Malaysia Berhad
6. Bank Muamalat Malaysia Berhad
7. CIMB Islamic Bank Berhad
8. EONCAP Islamic Bank Berhad
9. Hong Leong Islamic Bank Berhad
10. Kuwait Finance House (Malaysia) Berhad
11. RHB ISLAMIC Bank Berhad
Conventional banks with Islamic window operation:
1. ABN Amro Bank Berhad
2. Alliance Bank Malaysia Berhad
3. Citibank Berhad
4. HSBC Bank Malaysia Berhad (The Islamic department is called HSBC Amanah)
5. Malayan Banking Berhad
6. OCBC Bank (Malaysia) Berhad
7. Public Bank Berhad
8. Standard Chartered Bank Malaysia Berhad (The Islamic department is called Standard Chartered Sadiq)
Note: All these banks offer Islamic financing products that have been certified by their Syariah council.
Other financial institutions that offer Islamic products and services are :
1. Bank Perusahan Kecil & Sederhana Malaysia Berhad
2. Bank Kerjasama Rakyat Malaysia Berhad
3. Export-Import Bank of Malaysia Berhad
4. Bank Pertanian Malaysia
5. Bank Simpanan Nasional Berhad
If all these banks rejected your application because you are not qualified or are black listed, you can try several co-operative institutions that offer Islamic financing (but it is only for those who qualify, such as public sector employees).
For Islamic Insurance or Takaful, you must find protection from Takaful companies that are recognized, such as:
1. CIMB Aviva Takaful Berhad
2. Hong Leong Tokio Marine Takaful Berhad
3. HSBC Amanah Takaful (Malaysia) Berhad
4. MAA Takaful Berhad
5. Prudential BSN Takaful Berhad
6. Syarikat Takaful Malaysia Berhad
7. Takaful Ikhlas Sdn Bhd
8. Takaful Nasional Sdn Berhad
Source: BNM, as at July 2007
Every bank and Takaful organizer has their own credit evaluation process. Banks also have their own target market and may not offer a full spectrum of financing. For example, Asian Finance Bank does not offer car financing, Bank Islam Malaysia Berhad does not finance used car purchases while RHB Islamic Bank offers financing for used car but limited to certain brands. Hence, a rejected application at one Islamic bank does not imply that other Islamic banks will also reject your application.
If all the financial institutions above rejected your application, then the method of hajiat or dharurat can be applied, but in a limited context:
ما أبيح للضرورة يقدر بقدرها
“Whatever permitted because of dharurat, it is still limited to certain boundaries.” 114
It stipulates minimum usage and has certain limitations i.e. this means it has to be limited to the amount and to the rate that is needed only and not for excess. In the context of house financing for example, the usage of dharurat should be limited only for the first home and not
for investment through leasing and others.
How does an Islamic bank evaluate applicants?
Every bank has its own method, and I am unable to explain all of their methods, as they are characteristically technical. In general, the banks will review:
1) Your monthly income and debts from other banks.
Known as ‘Margin of Repayment’ and ‘Aggregated margin of repayment’. Every Islamic bank will set a specific percentage representing the customers’ ability to repay according to the bank’s credit standard. For example, a bank’s credit policy may require its customers to have 50 percent of their income free from any existing debt obligation.
Calculation of the formula:
Installment payment of Bank A + B + C = less than 50 percent
Total Monthly Gross Income
For example, Mr. Karim, who earns a monthly income of RM5 000, has a house with gradual payment of RM1 000, two cars for RM550 and RM600 respectively. Now he wants to buy
another house, hence the bank will assess his income strength based on this:
RM 1000 + RM 550 + RM 600 = 43%
As his total obligation compared to his monthly income is less than 50 percent, Mr. Karim’s application will be approved. If it is more than 50 percent, Mr. Karim might need to find a guarantor or joint applicant to strengthen his financial capability in his application to the bank.
2) CTOS: This report normally indicates the customer’s legal status; eg. Fines, bankruptcy, any court cases and others matters related to the law. According to CTOS Sdn Bhd, they update their database every day based on publicly available information from the National Insolvency Department, newspapers etc.
Recently however, their services have sparked controversy as the information on their database was not updated properly and many applications were rejected by the banks.
3) Central Credit Reference Information System (CCRIS):
Currently the system has information on 5 million borrowers and customers of banks in Malaysia. A bank can obtain the payment track record of an applicant via this system. Banks will know whether the applicant has defaulted on any debts with other banks, be it a credit card, house or car debt. If the applicant is a bad paymaster, he will have difficulty getting approval.
4) Type of car and the year manufactured (for a car acquisition) and the developer (for acquisition of a house under construction)
Some cars have a weak competitive advantage and are difficult to re-sell in the market. An Islamic bank may be reluctant to finance the acquisition of these cars as there is a higher risk of default.
This requirement is also applicable to the developer and location of the house that you are buying. Not all Islamic banks may review it, but in general, it is analyzed to assess the risk profile of the transaction. The information highlighted above is only a general overview of what an Islamic bank evaluates to decide whether to approve or reject an application.
CAN AN ISLAMIC BANK REJECT MUSLIM APPLICATION?
After looking at the assessment process, one may ask if it is reasonable for a bank to refuse an application of a customer who is looking for a permissible way to own a car, a house etc.?
First: As explained before, Islamic banks are business entities. They certainly would not want to expose themselves to excessive risk by providing financing to an individual who is considered a financial risk (according to their requirements).
Consider a simple example: You are planning to rent out your apartment for RM800 as you are paying the bank RM750 in installment. A man is interested in leasing it but does not have a secure job. Will you lease it to him? In this case, you have to prepare a proper budget in order to profit and at the same time ensure you meet the monthly payment to the bank.
The same applies to a bank. A bank is responsible for ensuring their investors receive good returns. To ensure they are making profit surely the bank would have to select the customers it is willing to finance.
In conclusion, the decision to lease your house to a customer or not will depend on the standard that you have set. If you review books written by financial experts, they will recommend leasing the asset to someone that has reliable financial capacity.
Second: From the Islamic perspective, if someone would like to borrow, it is recommended you evaluate the debtor’s honesty and capability in repaying the debt in the near future, unless you intend to donate to the borrower in his time of need.
Allah s.w.t. said:
وَإِن كَانَ ذُو عُسْرَةٍ فَنَظِرَةٌ إِلَى مَيْسَرَةٍ وَأَن تَصَدَّقُواْ خَيْرٌ لَّكُمْ إِن كُنتُمْ تَعْلَمُونَ
“If the debtor is in difficulty, grant him time till it is easy for him to repay. But if you remit it by way of charity, that is best for you if you only knew.” [2:280]
To remit the debt as charity to a borrower is indeed a noble act and it is highly recommended to help others. However, for business entities such as Islamic banks, giving away thousands of ringgit in debt could have devastating effects to its operation. Hence, if we do not intend to consider the debt as charity or give more time to the borrower during his time of need, then it is better if we do not give the debt at all because it will cause the borrower to sin as stated in this hadith:
The Prophet states:
إن الرجل إذا غرم حدث فكذب , ووعد فأخلف
“If a person is in debt, he tells lies when he speaks, and breach his promises when he promises.” (Narrated by Al-Bukhari, 1/214)
Also, in another hadith:
مطل الغني ظلم
“Postponement of debt repayment by a competent person is cruelty.” (Al-Bukhari, 3/55)
The scholars have ruled that someone who purposely delays his debt repayment should be punished according to takzir. Imam Al-Haithami also stated that a person who is capable of paying but postpones it on purpose is considered committing a big sin. 115
In conclusion, giving debt to a person who does not qualify could cause them to commit one of these three sins:
a. Speaks and lies
b. Promises and deceives
c. Has the money but postpones paying, then he is included in the
‘Mumatil’ and is considered cruel by the Prophet s.a.w. Therefore, it is not appropriate to accuse Islamic banks of being inconsiderate if our application is rejected, because from the Islamic perspective, they have to prioritize their business decisions and prevent customers from defaulting. For effective financial planning, try to make sure that your debt obligation is less than 50 percent of your income. This is a good financial practice.
Academicians at universities are proposing Islamic micro-credit financing which focuses more on lower income individuals who struggle to obtain financing. However, the problem is that we lack rich individuals and companies that are willing to let go of profitable opportunities and provide micro financing that offer small profits but big rewards. Thus, the academicians’ proposal remains a theory.