Clients dealing with Islamic banks in the UAE are accusing them of cheating and misleading them into investing their money without their knowledge, saying this has inflicted losses on them, according to a newspaper.
But bankers denied such accusations, saying customers signing Murabaha contract are bound to accept the fact that this contract gives banks the right to define the commodity to be purchased as an investment for those clients.
The Dubai-based Arabic language daily Emarat Alyoum quoted one client as saying she had obtained a loan of Dh100,000 from an Abu Dhabi-based Shariah-compliant bank in line with the Murabaha system.
“I signed a contract for the loan in English….after a while, I received a text on my mobile phone saying the bank has agreed to my request to buy 107,222 shares in Al Dar (real estate company for around Dh99,714),” Sahar Al Nawaji said.
“I was of course surprised…but I then waited for 12 days before the bank told me it would no sell the shares because of the decline in their market price…I insisted on the sale and I was surprised again that they were sold for Dh98,642, which was transferred into my account…they later chopped some fees, commissions and a fixed Dh1000 fee off my account.”
Another client said he was approached by an Islamic bank manager in Sharjah in 2010 to contribute to a gold investment portfolio and that he was told it yielded a return of 24 per cent in the previous year.
“I invested Dh500,000 in that portfolio for one year after signing a contract in English language… I was told I can pull out without any charges…when I received a report on the fund’s performance in 2011, I found that it had yielded a return of 12 per cent,” said Khalid Ali, an Emirati.
“I then told them I want to pull out because the return was far below what they promised…but the surprise was that I found out later that the investment fund did not involve gold but shares (70%) and cash (30%)… I was also charged Dh40,000 for leaving that portfolio… I felt that I was misled.”
He said he was later told by the bank manager that the head of the portfolio was forced to quit his job for cheating other clients to maximize his commission.
The paper quoted another dealer, Mohammed Ismail, as saying he had obtained a loan from an Islamic bank and had to pay a large sum in fees and commissions, which the bank said involved “share dealing charges.”
According to an Islamic banking expert, all personal loans provided by Shariah-compliant banks are made on the basis of Murabaha or commodity contracts.
“In case of Murabaha, the bank acts as an agent for the client by buying a certain commodity on his behalf then selling it to make profit for him…the bank can organize a Murabaha for any type of commodity except gold, sliver and cash,” said Mufti Abdul Rahman, head of the Sharia division at Maward Finance.
“The contract signed by the client authorizes the bank to define the investment commodity, which could be already present in the bank’s vaults or is bought from the metals bourse in London…the bank is bound to such a contract.”
He said the commodity is normally sold within one or two days from the date of the purchase which means that the “dealer will get the same purchasing value after deducting the London bourse purchase commission.”
“The dealer could either profit or lose in Murabaha in case of a decline or an increase in the price of the commodity purchased by the bank.”