Is the hysteria over Elena Kagan’s comments on Islamic finance misplaced fear or cynical politicking?

The Guardian – Michael Tomasky, August 2010

Every so often, I confess (elitism alert!), I wonder how smart and intellectually curious people can even be conservatives. What I mean here is this. You hear about a problem in the world. It sounds shocking and offensive to common sense. You get outraged. Then you look into it a little, or maybe a lot if you’re so inclined, and you see that the problem is usually far more complicated than you first thought. Your initial reactions, based on scant information, weren’t really correct or fair.

This closer examination need not, of course, make a person a liberal. But it ought to make a person take more considered views.

I say all this apropos the recent “controversy” over Elana Kagan, now confirmed to the Supreme Court by the Senate, and her “support” for sharia law. Now let’s stop right here. That sounds just awful, doesn’t it? The mind quite naturally speed to the darkest vectors of this allegation. What, did she once support the stoning of an uppity woman? A cliterodectomy? Is she some agent of Allah?

Fatwa on Zakah on Islamic House Purchase Plans

Question:

Respected Al Qalam Scholars

In the name of the Allah, The Beneficent, The Merciful

In recent years, Muslims living in the UK have been fortunate in being able to have access to Shari’ah compliant home purchase plans as an alternative to an interest bearing mortgage. A question arises over how these are to be treated for zakat purposes. Many Muslims assume Islamic home purchase plans are considered to be a debt, and debts are normally deducted from assets, with zakat payable on the net balance.

Also there are three main types of Shari’ah compliant home purchase plan on offer; Murabaha, Ijarah and Diminshing Mushrakah:

1. Murabaha plans allow the bank to own the entire property and sell it on a deferred basis over a number of years to the customer.

2. Ijarah plans are constructed so that part of the property is owned by the client and part of the property owned by the bank. The customer pays the bank a rental on the banks share in the property. In addition to paying rent every month, part of the monthly payment is an ‘on account’ payment which builds up over time in a separate bank account. At the end of the term (usually 25 years) the customer uses the value of the on account payments to repurchase the bank’s share in the property

3. With a Diminishing Musharaka agreement, the process is similar to Ijarah, with the key difference being the on account payments are used by the customer to instantly purchase an additional share in the property. Therefore the customer buys back a small share in the property every month rather than buying back the whole bank share in one go at the end of the term. Some providers, do not allow the customer to buy back a share every month, but less frequently, say every six months. In this case, the on account payments build up for the six months and are then used to buy a larger share on the six month anniversary.

Virtually all home purchase plan providers in the UK at present offer only the Diminishing Musharaka product. However, this product was developed after the initial introduction of the Murabaha and Ijaarah products back in the late 1990s. Therefore, customers who took home finance a few years ago would be using the older Ijarah and Murabaha products.

In light of the above scenarios, please can the Al Qalam Shari’ah scholar panel advise on the following questions:

1. Are Shari’ah compliant home purchase plans considered a debt?

2. Is the customer able to deduct any future rental installments due to the bank from their zakatable assets?

3. Is zakat payable on the value of on account payments?

4. What is the Shari’ah position with regards to zakat on Murabaha home purchase plans?

5. What is the Shari’ah position with regards to zakat on Ijarah home purchase plans?

6. What is the Shari’ah position with regards to zakat on Diminishing Musharka home purchase plans?

Jazakallah Khair

Answer:

As many people are giving their Zakah now in Ramadhan and with the huge costs that some Islamic Charities have to bear with in order to keep up the excellent work that they undoubtedly do, we still need to be cautious on the nature of these expenses and ensure that it doesn’t adversely affect our normal Sadaqah donations and more importantly our Zakah.

This whole issue has come to a head not just with the mass amount of money raised this year from the wider community for the Niger Famine and Pakistan Floods, but also an investigation by the BBC’s Newsnight team a few days ago which can be seen here that showed worrying evidence of just how much money can sometimes be “wasted” in the fundraising stage.

This is not to cast aspersions on any of the Islamic charities that are carrying out a vital job for desperate people around the world: being part of the DEC or big enough to carry themselves ensure they receive enough gift aid and tax relief from the government from taxpayer’s donations (as long as they tick the box!) to cover admin costs. Others ensure that their admin costs covered by separate income that comes from specific donor investments. And some even work on a completely charitable basis.

Below is an important fatwah by Shaykh Mufti Taqi al-Uthmani on the issue of our Zakah being used for such admin costs by the various charities we give to.