Question Summary:
If a vehicle is sold to you at the market price which is also obviously the market value of the vehicle, you finance the item through an Islamic Bank who technically purchase the vehicle from the dealer and sell it to you at a profit.

Question Detail:

If a vehicle is sold to you at the market price which is also obviously the market value of the vehicle, you finance the item through an Islamic Bank who technically purchase the vehicle from the dealer and sell it to you at a profit. The market value of the item is say R100,000 which is also the selling price from the dealer, the bank then adds /-25% 'profit' to the deal which now means that they far exceeding the market related price of the item. This in my opinion is unethical as are incidents related about the Sahaba's (R.A) who abstained from this type of business. Does then mean that it is not permissible to finance from an Islamic Bank, and if so, is it permissible to be employed by an Islamic Bank working with this type of system?

Answer :

In the name of Allah, Most Gracious, Most Merciful
Assalaamu `alaykum waRahmatullahi Wabarakatuh
The process mentioned in the query is commonly referred to as the Murabahah mode of financing. Murabahah contextually refers to the sale of a commodity at a price higher than the cost price. Hence, it is a particular type of sale, and not a mode of financing that fulfils the real economic objectives of Islam. However, contemporary Scholars have permitted the use of murabahah as a mode of financing, to save Muslim businessmen and investors from being involved in interest. They advice Islamic banks to use it only as a transitory step in the process of creating products based on pure Islamic principles.
Selling a commodity at a rate much higher than the market rate is referred to in Shari’ah as ghabn fahish. The reason for the prohibition of ghabn fahish is deceipt; thus, it has been mentioned in the books of Islamic jurisprudence that ghabn fahish will render a sale invalid only when the purchaser is unaware of the actual price and is deceived. On the contrary, if the purchaser is aware of the market price and value of the commodity, but agrees to pay a higher price due to an external factor, the sale will be permissible.
وفي الصيرفية اختار عماد الدين الرد بالغبن الفاحش إذا لم يعلم به المشتري ، وكذا في واقعات الجصاص ، وعليه أكثر روايات المضاربة ، وبه يفتي ، واختاره النسفي وأبو اليسر البزدوي ، وقال الإمام جمال الدين جدي إن غره فله الرد ، وإلا فلا.
(Al-Bahr al-Raiq Vol.6 Pg.116 – Maktabah Raheediyah)
On the basis of the abovementioned, a person will be permitted to sell his commodity at whatever price he wishes, as long as he neither deceives the purchaser nor compels him to purchase the commodity. Therefore, it will be permissible for him to set a higher price when selling his commodity on the basis of credit, on condition that the price is fixed at the time of sale and does not fluctuate due to delay in payment.
Working in an Islamic Bank will be permissible as long as the transactions carried out by the bank are in accordance to the principles of Shari’ah.
And Allah knows best
Wassalam
Ml. Abu Yahya,
Student Darul Iftaa
Checked and Approved by:
Mufti Ebrahim Desai
Darul Iftaa, Madrassah In'aamiyyah