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Resolution No. 13(1/3)

CONCERING QUESTIONS SUBMITTED BY THE ISLAMIC DEVELOPMENT BANK(IDB)

Quote: "The Council of the Islamic Fiqh Academy holding its third session, in Amman, Hashemite Kingdom of Jordan, From 8 to 13 Safar 1407 H (11 to 16 October 1986),

After intensive discussions and lengthy deliberations on alL the questions submitted to the Academy by the Islamic Development Bank(IDB);

RESOLVES
A - Regarding service fee for IDB loans

1.      It is allowed to charge a fee for loan related services.  The said fee should be within the limit of the actual expenses.
2.      Any fee in addition to the actual service related expenses is prohibited (haram) because it is considered as Riba (usury).

B-Regarding Lease Transactions

First:      The IDB promise to lease the equipment to the client, after it has owned it, is acceptable from Shari'a point of view.

Second: The appointment , by IDB, of one of its clients as its agent, for the purchase, in the name of the bank, of equipment and tools, of given specifications and price, with the intention for the Bank to lease the purchased items to this client after the latter has received them, is a valid agency appointment.  It is preferable however, that the purchasing agent be different from the beneficary client, if this condition can be easily met.

Third: The lease agreement should be implemented after actual acquisition and possession of the equipment and should be entered into by a separate contract than the agency contract or the promise.

Fourth: The promise to donate the equipment at the end of the lease period is permissible if such a promise is made under a separate contract.

Fifth: The risk of loss and manufacturing defects rests  with the Bank, in its capacity as the owner of the equipment, unless it is due to deliberatetempering or negligence of the lessee, in which case the liability will fall then on him.

Sixth: The premium for the insurance, contracted as much as possible through Islamic Insurance Companies, is to be borne by the Bank.

C - Regarding future sales on instalments:

First: The IDB promise to sell the equipment to the client, after it has owned it, is acceptable from Shari'a point of view.

Second: The appointment, by IDB, of one of its clients as its agent, for the purchase, in the name of the bank, of equipment and tools, of given specifications  and price, with the intention for the Bank to sell the purchased items to this client after the latter has received them, is a valid appointment from Shari'a point of view.  it is preferable however, that the purchasing agent be different from the beneficiary client, if this
condition can be easily met.

Third: The Sale agreement should be concluded after actual acquisition and reception of the equipment and should be entered into by a separate contract.

D - Regarding Foreign Trade Financing

The principles applicable to these transactions are the same as those applicable to future sales in instalments.

E - Regarding the interests generated from its deposits in foreign Banks

It is forbidden for the bank to use the interests generated by its deposits in foreign banks, to protect the real value of its assets from the effects of currency fluctuation.  Therefore, the said interest amount should be spent on general welfare, such as training, research, helping those in calamity, providing financial and technical assistance to member countries.
Furthermore, it may be given to academic establishments, institutes, schools and that which is associated with spreading Islamic knowledge.

Verily, Allah is All-Knowing" - unquote

(From the Book "Resolution and Recommendations of the Council of the Islamic Fiqh Academy (1985-2000)":

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