Question

1. Aerocon group of companies purchased a production plant from Emaan Bank Pakistan on a cost plus markup price of PKR 10, 00,000 for a deferred payment of 5 years. This was later adjusted by the bank to 11, 00,000 based on the floating rate concept. Rectify whether this transaction is Shari’ah complaint. If no, discuss the reason.

Answer 1

No, this transaction is not Shari'ah complaint because Islamic banking are based upon the philosophy of Sharia law which will be advocating that there is no concept of interest in Islam and if interest are accepted it is not according to the Islamic banking because interest is considered haram in Islam.

So, Floating rate concept is based upon variable interest rates fluctuations and interest rate is not considered in Islamic banking and hence this transaction is not according to the law of Shari'ah and that is completely violating the Islamic finance.