The concept and application of ḍamān al-milkiyyah (ownership risk): Islamic law of contract perspective

Lutfi Abdul Razak; Muhammad Nabil Saupi Article The concept and application of ḍamān al-milkiyyah (ownership risk): Islamic law of contract perspective ISRA International Journal of Islamic Finance Provided in Cooperation with: International Shari'ah Research Academy for Islamic Finance (ISRA), Kuala Lumpur Suggested Citation: Lutfi Abdul Razak; Muhammad Nabil Saupi (2017) : The concept and application of ḍamān al-milkiyyah (ownership risk): Islamic law of contract perspective, ISRA International Journal of Islamic Finance, ISSN 2289-4365, Emerald, Bingley, Vol. 9, Iss. 2, pp. 148-163, https://doi.org/10.1108/IJIF-06-2017-0002 This Version is available at: https://hdl.handle.net/10419/236907 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ The concept and application of  dam an al-milkiyyah (ownership risk) Islamic law of contract perspective Lutfi Abdul Razak International Centre for Education in Islamic Finance (INCEIF), Kuala Lumpur, Malaysia, and Muhammad Nabil Saupi International Shari’ah Research Academy for Islamic Finance (ISRA), Kuala Lumpur, Malaysia Abstract Purpose –The purpose of this paper is to elucidate the concept of  dam an al-milkiyyah (ownership risk) and to assess its application in contemporary Islamic financial products and services. Design/methodology/approach –The methodology adopted is that of descriptive research. Findings –From an Islamic law of contract perspective, the concept of  dam an al-milkiyyah is central to legitimate profit-making transactions and hence must be adhered to in practical applications of Islamic finance. Research limitations/implications –This study should help motivate further investigation into the position of  dam an al-milkiyyah among different parties in existing Islamic financial products and services. Practical implications –Policymakers and regulators should ensure that Islamic financial products and servicesarestructuredinawaythat does not allow parties to profit without adequately bearing the liability for potential loss. Social implications –The condition of  dam an al-milkiyyah as a source of legitimate profitreflects the idea that the role of finance in Islam is to promote and ensure social benefits. Originality/value –This paper emphasizes the importance of  dam an al-milkiyyah as a fundamental condition for profit in Islamic financial transactions. Keywords Risk, ownership, uncertainty, liability, responsibility,  dam an al-milkiyyah Paper type Research paper Introduction Throughout the passage of time, economic systems have grappled with the concept of ownership and its characteristics. Regardless of the social organization in place –feudalism, socialism or capitalism –ownership is fundamental to any economic system. To understand the practical applications of an Islamic economic system, one must understand the Islamic © LutfiAbdul Razak and Muhammad Nabil Saupi. Published in the ISRA International Journal of Islamic Finance. Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode IJIF 9,2 148 Received 5 June 2017 Revised 29 September 2017 8 October 2017 10 October 2017 Accepted 11 October 2017 ISRA International Journal of Islamic Finance Vol. 9 No. 2, 2017 pp. 148-163 Emerald Publishing Limited 0128-1976 DOI 10.1108/IJIF-06-2017-0002 The current issue and full text archive of this journal is available on Emerald Insight at: www.emeraldinsight.com/0128-1976.htm notion and conceptualisation of ownership. Similar to secular economic systems, an Islamic economic system places strong emphasis on the protection of private property rights. However in Islam, private property rights are not limited to private benefit but are also intended to promote and ensure social benefits. This paper argues that the source of any legitimate and profitable economic activity rests with the concept of  dam an al-milkiyyah (ownership risk). This concept will be described in detail in the second section, followed by its practical applications in the third section. The final section concludes the discussion. The concept of  dam an al-milkiyyah To adequately address the concept of  dam an al-milkiyyah, this section is divided into three subsections. The first two subsections comprise separate descriptions of al-milkiyyah (ownership) and  dam an (liability), and this is followed by an explanation of  dam an al-milkiyyah in the third subsection. Al-milkiyyah From an Islamic perspective, mankind is the khalīfah (vicegerent) of this world, and the ownership of all things belongs to Allah (SWT). This is consistent with the Qūrʾanic verse: “To Allah belongs the dominion of the heavens and the earth and all that is therein”[5:120].In Islam, al-milkiyyah (ownership) refers to the legal relationship between a human being and property that renders the property specifically attached to him. This relationship confers upon the owner the right to deal in that property in the absence of a legal impediment to a specific dealing (Al-Zuhayli, 2003b). Ownership and other legal rights can only be established through an Islamic legal recognition of that right. These rights are derived from the sources of Islamic law. Legal rights are granted to the vicegerents of property, who are entrusted to utilize property in accordance with Islamic teachings. Classical jurists consider the protection of property rights to play a major role in an Islamic economic system. Al-Zuhayli (2003b) considers the best definition of ownership provided by jurists to be “an exclusive association of the owned item with its owner, which gives the owner the right to deal in what he owns in any way that is not legally forbidden”. Thus, the acquisition of a property in a legal manner grants the exclusive right of use and dealings to the owner as long as no legal impediment applies to his dealings, for example, insanity or childhood. This exclusivity of ownership forbids others from utilizing the property or dealing in it without legal authorization such as guardianship or agency. A young child or an insane person is still considered to be the owner of his or her property, although he or she is forbidden from using it. Once the legal impairment to their rights is removed, their legal right to deal in that property is to be fully reinstated. The concepts of legal and beneficial ownership define how the process of guardianship and agency works. In both cases, legal ownership is held by the guardian and agent, whereas beneficial ownership remains with the original owner. Despite the incapability of a young child or insane person to manage hihe/sher own wealth, his/her right as the owner is preserved. Al-Zuhayli (2003b) proceeds to outline in detail various issues that concern ownership including eligibility for private ownership, the types of ownership as well as the permissible means of establishing total ownership in Islam. This comprehensive treatment highlights the importance that Islam has given to ownership and to defining property rights. Drawing on the work of the  Hanbalījurist Ibn Taymiyyah, Islahi (1996) states that each of three agents –the individual, the society and the state –has a rightful claim (ownership) on property rights. He explains that the property rights of these agents should not come into conflict with one another and the exercise of those rights by any one of the three agents should not jeopardize the exercise of rights by any of the others. Habachy (1962) argues that Concept and application of  dam an al-milkiyyah 149 any infringement on the property and the rights of another person is considered to be not only a trespass against the law but also sinful in Islam. He notes that according to Ibn Taymiyyah, “the first duty of the state is to scrupulously respect private property”. This is further supported by Imam Sh afiʿī, who refused to recognize the right of the sovereign to fix a fair price, even in the case of scarce necessities. He reports that Imam Sh afiʿīsaid: People are masters of the things they own, and nobody has the right to take over these properties, totally or partially, without the consent of their owner, except in cases which are clearly specified in the law. Therefore, it is prohibited to transgress on private property that has been legally acquired. Islam has stipulated various punishments for theft, usurpation, cheating and other injustices and ordered transgressors to compensate the owners of damaged properties. The state possesses the right to intervene, confiscate and return properties which have been illegally acquired to their rightful owners, whether those properties are mobile or immobile. Furthermore, the state is allowed to limit or eliminate legally acquired private ownership rights on the condition that equity and social benefits dictate it. This is consistent with the Qūrʾanic verse “O you who believe: Obey Allah, obey His Messenger (peace be upon him) and obey those charged with authority among you”[4: 59]. Islam does not prohibit private ownership and allows individuals to benefit by engaging in economic activity through buying and selling. Beyond this, however, it is also incumbent upon those with property to contribute to social welfare through the redistribution of wealth and to contribute to economic stability through contributions to the state. This is reflected in several Qūrʾanic verses, for example: “O you who believe, do not consume one another’s wealth wrongfully; rather, let there be trade by mutual consent”[4: 29]; also “And in their wealth and possessions are rights of the needy”[51: 19]. Therefore, there is an obligation or social responsibility embedded in private ownership which needs to be fulfilled.  Dam an  Dam an is an important concept in fiqh literature throughout various areas of Sharīʿah (Islamic law). In the context of Islamic commercial transactions, Jaffar (1994) states that  dam an forms one of the most complicated subject matters in the Islamic law of obligation. In the literal sense,  dam an refers to security or bail. In the practical sense,  dam an has various connotations including responsibility, accountability and surety.  Dam an is sometimes synonymous with kaf alah (surety) but is much wider in scope. In the general expression,  dam an is perceived as an obligation to provide indemnity and reparation or ghurm.In particular,  dam an is accepted as the holding of the guarantor’sdhimmah (responsibility or liability) in respect of  huqūq(rights). The term  dam an is not used in the Qurʾ an, and the occurrence of the word kaf alah on numerous occasions cannot be taken as sufficient proof for the legality of  dam an in the Qurʾ an. Nevertheless, the use of the term  dam an is treated extensively in the Sunnah of the Prophet (peace be upon him), as well as other synonymous terms (Wizarah al-Awqaf wa as-Shu’uun al-Islamiyyah Kuwait, 2006) such as kaf alah (surety or guarantee), zaʿ amah (guarantee through political status), qab alah (guarantee through collateral proceeds) and  ham alah (guarantee in blood money). Elgari (2003) explains that the word  dam an carries numerous meanings in the terminology of jurists. On the one hand, Sh afiʿī,M  alikīand  Hanbalījurists use the word  dam an to mean kaf alah in the context of the fulfilment of one’sdhimmah by another. On the other hand,  Hanafījurists use the term  dam an in the context of obligation as financial compensation for injury or damage caused to another. Nevertheless, the majority of jurists use the term to mean bearing the burden, liability or responsibility in the event of IJIF 9,2 150 destruction of goods sold, and they deem this to be a condition for the validity of a sale after purchase. Additionally, for the majority of jurists, the purpose of possession is the transfer of  dam an, i.e. the liability for bearing the loss due to destruction, from the seller to the buyer. Thus, a sale with an unknown subject matter is prohibited unless it is determined, as it provides surety. This enables transfer of ownership to the buyer through offer and acceptance, with the liability resting with the seller. Therefore,  dam an should not be defined as “risk”in the conventional sense. In conventional finance, risk is commonly referred as a situation in which two or more outcomes are possible. Hence, circumstances are said to bear no risk if only one outcome is possible. However, the term risk is often used analogously with uncertainty. This is a longheld misconception, as Knight (1921) warned: [...] uncertainty must be taken in a sense radically distinct from the familiar notion of risk, from which it has never been properly separated [....] The essential fact is that ‘risk’means in some cases, a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far-reaching and crucial differences in the bearings of the phenomena depending on which of the two is really present and operating [....] It will appear that a measurable uncertainty, or ‘risk’proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all. Therefore, in conventional economics, Knightian uncertainty is defined as risk which is unmeasurable or not possible to calculate. This Western confusion notwithstanding, the conventional concepts of risk and uncertainty, measurable or otherwise, bear closer resemblance to gharar than  dam an in fiqh terminology. Literally, gharar means uncertainty which signals danger and deception. Technically, gharar refers to something with concealed or uncertain characterisitic. Although the prohibition of gharar is not explicit in the Qūrʾan, it is well established in the Sunnah. For example, Ibn Masʿūd (may Allah be pleased with him) narrated that the Prophet (peace be upon him) said: “Do not buy fish in the water, for it is gharar”.Al-Zuhayli (2003a) explains that a gharar sale is the sale of that: which is not known to be in existence or otherwise; whose measure is not known to be large or small; or which is undeliverable. Generally, the majority of jurists allow for gharar yasīr(minor uncertainty) and prohibit gharar f a hish (excessive uncertainty). In an Islamic economic system, therefore, risk or uncertainty is to be minimized in financial transactions and should not be manipulated to become a source of profit. Profiting from excessive uncertainty is ruled as unjustified income, as it promotes injustice and does not preserve the right of the seller. Therefore, the concept of  dam an in the context of  dam an al-milkiyyah refers not to risk in the conventional sense but more accurately refers instead to the liability or responsibility arising from ownership.  Dam an al-milkiyyah The concept of  dam an al-milkiyyah is best understood through two legal maxims: “al-khar aj bi al-  dam an”(benefit goes with liability) and “al-ghurm bi al-ghunm”(liability accompanies gain). These are among the most important maxims with regard to Islamic financial transactions, as they embody one of the fundamental principles governing financial transactions: justice and fairness for all contracting parties (Laldin et al., 2013). Concept and application of  dam an al-milkiyyah 151 The general meaning of the first maxim, “al-khar aj bi al-  dam an”, is that the benefitofan asset is the right of the one who indemnifies it if it is damaged (Laldin et al., 2013). For example, a buyer who has an option or khiy ar to return a purchased asset to the seller due to the non-disclosure of a defect is entitled to the benefit of that asset during the option period as compensation for his liability to indemnify it in case the asset is damaged. In another example, a debtor can enjoy the benefits of money borrowed because he is liable to return the principal under all circumstances. On the other hand, the lender who bears no liability is not entitled to any gain as qar  d(loan) transfers ownership to the borrower. Nevertheless, this maxim only applies to the liability that comes from lawful possession. An asset’s possession is regarded as lawful when ownership transfer takes place through trade or the owner’s permission when the possessor takes possession for his own benefit(Laldin et al., 2013). Therefore, although a thief and a usurper are both liable for any damage that occurs to the property when it is in their possession, they have no right to any yield from it, as they are transgressors. This is because no legal ownership is recognized from their illegitimate possession. Thus, it can be deduced that possession of an asset does not necessarily justify the gain received. In Sharīʿah, any gain received can only be deemed lawful when ownership comes with liability. Hence, the yield of an asset is only justified to the one who owns the asset and bears liability. The following conditions must also be fulfilled for this concept to apply: the benefit of the asset is separate from the principal, whether it is generated from the asset or otherwise; and the additional benefit comes into existence after the ʿillah (cause) of ownership was concluded. The general meaning of the second maxim, “al-ghurm bi al-ghunm”, is that the owner of an asset has to bear all the losses and costs that attend ownership of the asset because he is entitled to enjoy any benefit resulting from it (Laldin et al., 2013). This maxim decrees that one party in a venture cannot shift all risk to another party and still maintain a legitimate right to the profits generated. Thus, legitimacy of the profit generated from any business is associated with the risk borne by the business owner. These two maxims support one another, as one can be thought to be the inverse of the other. The Sharīʿah legitimacy of profit has been extensively discussed in the literature. For example, according to the M alikī jurist Ibn al-Arabi, “Every increase devoid of an equivalent countervalue (ʿiwa  d)isrib a”. This explains the idea of trade, where an exchange of countervalues transfers the liability and ownership of both. By contrast, in rib a-based (interest-based) transactions, liability remains with the borrower, as there is no recognized countervalue. Hence, the absence of an equivalent countervalue would delegitimize any profit gained. More recently, Rosly (2001) explains that an equivalent countervalue must consist of three main elements: namely, ghurm (market risk), saʾy(effort) and  dam an (liability). Similarly, Laldin et al. (2013) state that jurists have identified three factors that the Sharīʿah recognizes as justifying profit: m al (capital), ʿamal (labour) and  dam an (liability). Thus, the  dam an that arises from milkiyyah (ownership) can be considered as the cornerstone of any legitimate and profitable economic activity. An owner cannot transfer his liabilities while still retaining ownership rights if he seeks to profit from any economic activity. The legality of the two maxims is derived from the following  hadīth.Im  am Sh afiʿī,Im  am A hmad, the compilers of the four Sunan and al-  H akim recorded by way of ʿUrwah from ʿĀʾishah (may Allah be pleased with her) that a man had purchased a slave during the time of the Prophet (peace be upon him), and he remained with him for some time according to the will of God. Thereafter, he returned him on the basis of a defect that he found. The Prophet IJIF 9,2 152 (peace be upon him) judged in favour of his return on the basis of the defect. The person against whom the decision was given said, “But he benefited from him”. The Prophet (peace be upon him) then replied: “Al-khar aj bi al-  dam an”(Elgari, 2003). The majority of jurists support this  hadīth, although some have disagreed about the chain of transmission as well as its legal content[1]. Some jurists such as Im am A  hmad restricted the meaning of the tradition to food, whereas others disagreed about the jurisprudence of the tradition. Elgari (2003) argues that “al-khar aj bi al-  dam an”is not a general principle nor is it inviolable. He bases this view on the  hadīth about musarr a h[2] and the  hadīth on reducing the price on account of calamities. However, these examples appear to be mere exceptions to the rule rather than general rules in themselves. In general, these maxims illustrate the importance of  dam an al-milkiyyah and appear to be relevant to all nominate contracts of Islamic finance such as mur aba  hah,mush akarah, mu  d arabah,ij arah and others. Having described the concept of  dam an al-milkiyyah, the next section will turn to the applications of the concept in Islamic banking and finance from an Islamic law of contract perspective. The application of  dam an al-milkiyyah Islamic banking and finance have emerged and developed over the past four decades to become an increasingly important segment of the financial system in many parts of the world, particularly in the Middle East and Southeast Asia. The main reasons for its emergence are the widespread involvement of rib ain the conventional system and the perception that the conventional system is not set up towards achieving maq a sid al-Sharīʿah (the objectives of Islamic law) (Siddiqi, 2006). The literal meaning of rib ais increase. According to the majority of scholars, the technical definition of rib arefers to any contractually stipulated addition given or taken above the amount borrowed or lent. The relationship between  dam an al-milkiyyah and the prohibition of rib ais clear. When a sum of money is lent, ownership of that same sum of money is transferred to the borrower, who is entitled to benefit from its usage. However, to have that benefit, the borrower must be liable for any possible damages to the sum of money. The prohibition of rib aimplies that the lender is not allowed to profit from the loan because the  dam an rests with the borrower. In other words, the borrower is liable to repay the principal in all circumstances. Because the lender no longer has ownership of the sum of money, he is not liable for any loss that occurs to it. As such, the lender is merely entitled to receive the principal sum from the borrower. The development of Islamic banking and finance has led to the proliferation of various Islamic financial products and services to meet the needs of contemporary society. The applications in Islamic banking, Islamic capital markets and tak aful will be discussed in the next two subsections in the context of  dam an al-milkiyyah. Islamic banking The conventional banking business model is based on the interest rate spread, which is the difference between lending and deposit rates. As interest is prohibited, Islamic banks need to operate under a different business model. This business model requires the use of Sharīʿah-compliant deposit and financing products, which are derived from various salebased, lease-based, partnership, fee-based and benevolent contracts. Different rules and conditions govern the different types of contracts to facilitate financial transactions. Concept and application of  dam an al-milkiyyah 153 Deposit products Generally, there are two types of deposits: savings[3] and investment deposits. While the underlying contracts used must be Sharīʿah-compliant, they must also be aligned with the intention of the depositor to attain the muqta  d a al-ʿaqd (fundamental effects of the contract), whether it is for saving or investment purposes. Savings deposits should be based on the wadīʿah (trust) or qar  d(loan) contract, which allows for the safe-keeping of the deposited asset. Technically, an Islamic bank is allowed to charge a fee for the safe-keeping service based on the costs incurred. Wadīʿah can be of two types: wadīʿah yad am anah, which refers to property deposited on the basis of trust, and wadīʿah yad  dam anah, which refers to savings with guarantee or safe-keeping (Qaed, 2014). In a wadīʿah yad am anah contract, the bank is not responsible for any damages except due to its own negligence or wrong-doing. This is due to the fact that such contract is trustbased. The bank bears no responsibility nor ownership of the deposit. Hence, it is not entitled to gain from the deposits made and is obliged to return the savings upon demand by the depositor. In contrast, in a wadīʿah yad  dam anah contract, the principal amount deposited is guaranteed by the bank, which will bear the liabilities in the event of any losses incurred. The reason of such liability is due to the trust contract made earlier which has been breached by the bank’s utilization of the money. Thus, the contract now mimics the characterisitic of qar  dexcept that legal ownership remains with the depositors. Now, the bank has the right to profit from the utilization of the deposited asset (ISRA, 2016). Similarly, the use of a qar  dcontract also provides the depositors with guaranteed safekeeping of the amount deposited and, at the same time, allows the bank to utilize it for its banking and business activities as ownership and liability now reside with the bank. Therefore, in the case of wadīʿah yad am anah, the funds are deposited on the basis of trust and are not to be utilized by the bank for economic activity. However, for wadīʿah yad  dam anah and qar  d, although the funds can be utilized for economic activity by the bank, the depositor does not bear  dam an or responsibility of the utilized funds. Hence, in line with the concept of  dam an al-milkiyyah, the depositor is not entitled to any return from the principal sum. Nevertheless, the bank may choose to pay hibah (a customary gift) at its own discretion. However, it is not allowed for the bank to declare nor promise any form of return to its depositors. The rationale for Islamic banks to do this is to stay competitive with conventional banks, who typically pay a positive rate of interest on savings deposits[4]. Investment or term deposits are typically accepted for a fixed period of time, during which no withdrawals are allowed. The most suitable contracts for Islamic investment deposits are partnership contracts such as mush arakah or mu  d arabah. Under a mush arakah contract, depositors share the profits and losses in a joint enterprise. Under a mu  d arabah contract, the mu  d arib (entrepreneur) supplies labour and the rabb al-m al (investor) supplies capital. If the venture yields a loss under mu  d arabah, the entrepreneur loses his time and effort, whereas the investor loses his capital. Under both contracts, the depositors are considered to be partners and thus bear ownership and hold liability of the specified venture. Hence, the depositor is entitled to returns from the investment deposit, in line with the concept of  dam an al-milkiyyah. In other words, the risk or liability due to each depositor from his or her contribution entitles them to a legitimate share of the profits. Thus, the profit or loss due to each party is dependent on the performance of the venture. However, this may be unattractive to depositors who may be accustomed to having guaranteed returns and capital protection under conventional term deposits. Such guaranteed returns and capital protection are deemed to be impermissible according to Islamic law and run counter to the concept of  dam an al-milkiyyah. Jurists of all schools have reached ijm aʿ(consensus) over the centuries that pre-specification of investment profits in any form of partnership is not IJIF 9,2 154 allowed, whether it is a certain amount or a percentage of the capital (Laldin et al.,2013). This ruling is based on the view that such a pre-specification guarantees the principal capital, which violates the essence of partnerships (silent or otherwise), which is profit-andloss sharing. This consensus is well established amongst jurists, and no dissent has been reported. In practice, however, investment or term deposits have often utilized a commodity mur aba  hah structure. This is a deferred sale or instalment credit sale which uses a commodity as an underlying asset for the transaction. Commodities used should be nonperishable, freely available and can be uniquely identified. Typically, this structure utilizes metals from the London Metal Exchange or crude palm oil from Bursa Suq al-Sila in Malaysia. The mark-up from the deferred sale is used to provide a fixed return over the term deposit period. This structure however, is not uncontroversial. Although widely practiced in Malaysia and other countries, it is frowned upon in the majority of other jurisdictions as the genuine transfer of constructive ownership may not actually take place (Dusuki, 2010). If transfer of ownership does not take place, then the depositor never bears any liability ( dam an) from the commodity mur aba  hah programme. Therefore, from an Islamic law of contract perspective, the depositor would only be entitled to receive the mur aba  hah mark-up if he sufficiently takes on  dam an al-milkiyyah. Financing products The lender-borrower mindset of a conventional loan sets the ground of debt-based financing, where interest is the main source of profit. However, the only type of financial debt explicitly acknowledged in Islam is qar  d hasan, which is a benevolent loan. This refers to a non-interest loan which does not have a compulsory term of repayment. Loans in Islam are a form of charity, which explains why interest is irrelevant here. On the other hand, the borrower is perpetually obliged and liable to return the amount borrowed unless waived by the lender himself. In return for the liability he holds, the borrower is entitled to the ownership of the amount borrowed and is thus rightfully entitled to any gain. Due to the prohibition of interest, Islamic banks are required to seek other means of benefiting from financing activities. They are required to bear ownership risks such as price risk or the risk of destruction of an asset to legitimize their returns from financing activities. Although conventional banks providing rib a-based loans are exposed to risks related to default and delinquency, such risk exposure is not sufficient for Islamic banks (Obaidullah, 2005). It is here that the distinction between risk and liability is helpful in clarifying the concept of  dam an al-milkiyyah. For a loan, it is the debtor who is the bearer of the  dam an and can, therefore, benefit from using the money. Because the creditor or Islamicbankisfreefrom  dam an, then stipulating higher repayment above the principal amount is not merited. Various financing products have been introduced to facilitate the development of Islamic banking and meet the needs of contemporary societies. The more popular financing products resemble debt with predetermined payments and are structured on sale-based contracts such as mur aba  hah (cost-plus sale) and bayʿbi-thaman  ajil (BBA or deferred payment sale) and lease-based contracts such as ij arah (leasing). Less popular financing products include other types of sale-based contracts such as salam (deferred delivery sale), isti sn aʿ(manufacture sale), istijr ar (recurring sale), as well as equity-based financing products such as mu  d arabah (trustee partnership), mush arakah (joint venture) and mush arakah mutan aqi sah (diminishing partnership). Furthermore, Islamic banks also provide fee-based commercial banking products and services such as wak alah (letter of Concept and application of  dam an al-milkiyyah 155 Al-Zuhayli, W. (2003b), “Financial transactions in Islamic jurisprudence (Volume II)”, in El-Gamal, M. A. (Ed.), Islamic Jurisprudence and Its Proofs, Dar Al-Fikr, Damascus. 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Wizarah al-Awqaf wa as-Shu’uun al-Islamiyyah Kuwait (2006), Al-Mausu’ah Al-Fiqhiyyah AlKuwaitiyyah, 2nd ed., Dar al-Salasil; Dar al-Safwah; and Wizarah al-Awqaf wa as-Shu’uun alIslamiyyah, Kuwait. About the authors LutfiAbdul Razak is currently a PhD candidate at the International Centre for Education in Islamic Finance (INCEIF), Kuala Lumpur, Malaysia. He has a Masters degree in Economics from the University of Warwick. Previously, he was a lecturer at the Sultan Sharif Ali Islamic University (UNISSA) and a research assistant at the Centre for Strategic and Policy Studies (CSPS) in Brunei Darussalam. LutfiAbdul Razak is the corresponding author and can be contacted at: lutfi.abdul. [email protected] Muhammad Nabil Saupi is a Management Trainee at the International Shari’ah Research Academy for Islamic Finance (ISRA). He holds a degree in Sharīʿah from the Islamic University of Madinah, Saudi Arabia. Currently, he is completing his internship at HSBC Amanah Malaysia. 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