ARTICLE 1

Title:
Analysis of Changes in the Implementation of Rebate in Malaysia Islamic Financing

Author:

1. Muhamad Zuhaili bin Saiman

Date of review:

13 May 2024

Key Highlight of Article:

1. One-sided rebate provisions' uncertainty may lead to problems with rebate practices'
transparency.
2. Setting precise rules, standards, and procedures for calculating rebates is crucial for
improving justice and transparency in rebate policies.
3. The development of rebate practices in Islamic finance has been impacted
throughout time by shifting judicial rulings and court judgements.

ARTICLE 2

Title:

Rebate in Islamic sale-based financing contracts: Bank Negara Malaysia guidelines on ibraʾ
versus conventional finance practice

Author:

1. Islam Kamal

Date of review:

12 May 2024

Key Highlight of Article:

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 1. The impact of conventional financial approaches on Islamic finance is one of the
main reasons.
2. Time value of money can be accepted in some sales transactions (like delayed or
installment sales) under Islamic finance, but not in charity transactions (like loans).

INTRODUCTION

Ibra’ means elimination, release and removal of something. Ibra’ in Islamic finance
means a rebate that was given to someone that had done early settlement in a financial
contract. It is a waiver that was granted based on the institution’s benevolence. Ibra is also a
form of debt relief. The process will create loyalty toward the customers as they get rewards.
This rebate is a form of charity given by the bank after the full value was set at the beginning
of the contract. The current value that needs to be paid will get reduced as the customer
successfully pays within the time. Therefore, in this long term financing transaction, the
financial investor and also the customer will get benefit. Ibra’ can release someone’s burden
as they get to pay less than what they need to pay. Through a sharing in holy Quran, surah
Al-baqarah, 280, If it is difficult for someone to pay back the debt, then postpone it until he is
in better situation, And if you waive it as an act of charity, that will be the best for you, if you
know (you also will get a reward later). That part showed us that when someone is in a hard
situation to pay a debt, you need to give him a time until he is in a better situation, and the
act of waiver with creditor right is one of the charities that they can do to get a reward that
will benefit in the afterlife world. There are 2 kinds of ibra in sale contract which are unilateral
and bilateral contracts.

ISSUES
Lately, the issue arises from the customers is whether the rebate that was
implemented is guaranteed that the benchmark rebate is actually applied and enables
Islamic banking to compete with conventional banking. According to Dasuki et al. (2010) as
cited by Muhamad Zuhaili (2019), the argument that began this was that different Islamic
banks offer different refunds from one another (Dasuki et al., 2010). There is still a problem,
even if BNM (2013 & 2019) has established a new resolution regarding the status and
implementation of rebates. From literature in article 2, the conventional finance had
influenced islamic finance on rebate practice. So, is rebate in islamic finance really differ
from conventional and allowed? Thus, we will see the guidelines that allow mandatory
bilateral rebate.

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CAUSES

The cause relating to the issue of rebate computation in islamic sale-based financing
that are confusing the customers for the similarity with the conventional are firstly, the
influence from conventional practice to islamic practice. The use of interest rate in islamic
practice is nearly the same with the conventional one. As we know, the conventional practice
currently does not care about the impact of riba. But in islam, it is obviously illegal. But the
difference is the riba will go to the charity instead of the bank. In this situation, people keep
arguing whether the rebate computation will be the same with conventional practice.
Besides, lack of differentiation. There is a blurry differentiation of rebate for charity and
rebate for sale-based transaction. The usury concerns in sale-based financing contracts will
make people curious and talk about it. On the other hand, the court cases and changing
judicial decisions is evidence of the evolution of islamic financial practice that has been
influenced by rebate used in conventional financial practice. This evolution reflects the
dynamic of islamic finance and the continuous effort to set the practice aligned with shariah
principle while embracing changes in market demands and authority regulations. In shaping
the application of islamic financial practice including the rebate used, court plays a vital role
.The rulings and the judicial decision will determine on how the implementation of rebate
works.

DETAIL ISSUES

The detail issue debated in this paper are the agreements with one-sided rebate
terms that are based only on discretion have given rise to disagreements, especially when
there is default. The fairness and transparency of refund procedures may be impacted by
this confusion and dispute possibility. When the rebate clause involved in the agreement is
only sided to one side and subject to the discretion of the bank, it can lead to
misunderstanding and dissatisfaction. They will feel unfair and deceived as the process is
arbitrary. One-sided rebate provisions can make conflicts worse in cases when there is
default. Customers can challenge the bank's refund decision-making procedure, particularly
if the conditions are not made clear or disclosed up front. Tensions and legal issues could
escalate as a result of this lack of transparency.

The next issue that has been a big problem that was discussed in this paper is the
confusion of two kinds of rebate which is rebate for charity contract and sale-based rebate.
People were concerned about the usury concept of these rebates. As islamic does not
accept the time value of money concept in charity transactions like loan but accepted in sale
transactions like deferred sale (Islam Kamal, 2021). The usury concept became a worry for

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customers as they felt the unfairness will exist. That is a problem that makes the banks and
regulator afraid as it will make the customers dissatisfied, distrust and seek for refund. To
prevent it, further solutions are needed to encourage better understanding of rebates used in
both financial institutions. The rebate computation is also on fire as people keep asking the
way how it will be calculated as we know the interest that is implied in islamic practice has
been influenced by conventional. In conventional finance, the time value of the money
component in each installment is calculated by applying the credit interest (necessary rate of
return) to the loan starting amount. The remaining instalment value is allocated towards loan
repayment. Money is treated like a commodity in this computation, rented for a
predetermined amount of time at a predetermined rate. According to Islamic rules and
beliefs, this practice is termed usury as the rent (interest) paid grows as the amount of the
commodity (money) borrowed increases.

SOLUTION

Firstly, the clear distinction of rebate for charity and rebate for sale-based financing
contract is a must. As Islamic finance does not agree with the time value of money in
charitable transactions such as loans but in the situation for sale transaction like instalment
is allowed then it is vital to let the people know the use and definition of each rebate. The
concept of daʾ wa taʾajjal was not accepted by the majority of early Islamic jurists, who
prohibited rebate compensations for early debt settlement without distinguishing between
debts resulting from loans and debts from deferred sales. This meant that rebates for debts
resulting from charitable contracts (unilateral rebate) were not allowed (Islam Kamal, 2021).

Furthermore, according to Abdul Khir (2016 as cited in Islam Kamal, 2021), to settle
the problem of unfairness between customers, the authority could implement the bilateral
clause in the agreement that ties both parties, which is the customers and the bank, to gain
justice. This strategy seeks to fairly protect the interests of all parties involved in the
transaction, guaranteeing that the refund procedure is open and advantageous to both. Both
the bank and the customers will have clear understanding on the terms and conditions
relating to rebate provision by inserting bilateral clauses. This situation helps both parties'
interest to be protected and respected during the rebate process. As it implements better
understanding, any dispute led to misunderstanding will be settled.

On the other hand, Islamic financial institutions should be more careful in the future in
determining specific items in the banking sector by avoiding usury sources to evaluate and
making up new methods or decisions. To guarantee justice and welfare of the customers, it

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is a must to adhere to the principle of Shariah to implement rebate in islamic finance. In
today's finance, rebates are viewed as an example of welfare and justice for the consumer,
particularly in considering the fact that they lessen the burden on the customer when the
calculation of the profit rate that has not yet been accumulated and is included in the total
price at the start of the count-based contract base rate is rejected. Customers find it
attractive to make an early settlement from a long-term period since the price reduction
based on computed count is guaranteed with the rebate. As a result, providing
rebates—which are both discretionary and mandated by the agreement clause—fulfils the
requirements of the maqasid al-shariah, as it ensures both justice and the welfare of the
consumer by relieving them of the burden of overpayments and unfair profit rates. As it is
able to solve the problem of default payment, it is also an advantage for the bank.

COMMENTS

In my opinion, islamic institutions should be more careful when applying conventional

concepts to avoid usury. Rebates should be a good thing to encourage customers to keep
saving and using the bank for financial purposes such as loans and so on. To preserve
Islam’s interest and reputation, differentiate the conventional principle is essential from
Islamic concept to gain the customer’s trust that Islamic institutions in Malaysia are working
well and andhere the Shariah principle. I would suggest any problems relating to islamic
finance need to be taken to the Shariah court to gain fair judicial decisions as we want the
Islamic institution to become the institution that is perfect with islamic rules.

CONCLUSION

To conclude, we have discussed the issue relating to rebates that are not allowed in
islam and allowed in islam. The differences have been shared to settle the confusion among
customers that felt unfair and concerned about usury principles. We can see that the
conventional principle is trying to influence islamic practice day-by-day. Although BNM
already gives authority the power to observe Islamic growth, Islamic institutions need to work
on the usury principle that comes from conventional financial institutions. I hope that Islamic
financial institution in Malaysia could be the best islamic bank that governs muslim’s
customer for us to have a fair advantage that Islam provides as Islam does not burden the
believer.