Moratorium in Islamic Hire Purchase Financing: A Shariah Perspective

Abstract

This study examined the implementation of moratorium in the Islamic hire purchase financing based on Al-Ijarah Thumma Al-Bay’ (AITAB) from the Shariah perspective. The implementation of moratorium by Bank Negara Malaysia (BNM) is a new practice in the banking and finance industry in Malaysia. Implementing the moratorium causes several changes to the AITAB contract such as the extension in contract tenure and the increase in the total payment obligation due to the profit charged on the outstanding principal. This study analysed these changes from the Shariah perspective by using the al-takyif al-fiqhi methodology. The results of the analysis confirm the practice of moratorium by IFIs is in line with the Shariah requirements as long as it is agreed by the parties to the contract - which are the bank and the customer. Needless to say, both Ijarah Policy Document and Hire Purchase Act 1967 allow any forms of amendments including profit compounding when the AITAB contract is restructured, provided that such amendments are agreed between the contracting parties. Despite this permissibility, IFIs are still required to comply with the new ruling issued by SAC BNM that prohibits the practice of profit compounding during the COVID-19 crisis. Although, in principle, the ruling is based on the concept of ihsan (beneficence) which is not compulsory (wajib) but rather recommendation (istihbab) from the Shariah perspective; however, from the regulatory perspective the ruling is compulsory for IFIs to comply pursuant to section 28(1) and 28(2) of Islamic Financial Services Act 2013 (IFSA) that stated compliance with Shariah means compliance with any ruling of the Shariah Advisory Council. The moratorium is seen as a manifestation of the concept of ihsan (beneficence) towards the customers affected financially due to the COVID-19 pandemic. This commendable effort should be encouraged and continued by the Islamic financial institutions in upholding the Shariah principle of maslahah and lifting of difficulties (raf al-haraj), particularly in the current outbreak of COVID-19 and the impact of MCO.