Absolution (Ibra’) from Discretion to Regulations: The Malaysian Experience

The paper is a critical examination of the recent judicial and regulatory developments in Malaysia which saw the transition of absolution (ibra’) from a discretionary power of the creditor to a mandatory rebate governed by the Central Bank’s regulations. It compares and contrasts the Malaysian Regulations on ibra’ with the resolutions issued by the Council of the Islamic Fiqh Academy and offers a critical evaluation of juristic opinions on ibra’ and da’ wata’jjal. The jurisprudential methods of analogy (qiyas) and juristic preference (istihsan) are employed to examine the application of ibra’ to long-term home financing contracts. The paper argues that claiming full credit price upon termination of contract due to early settlement or default is not fair to the customers of Islamic banks. The paper concludes that a mandatory ibra’ provided by the regulatory authorities such as central banks is different from the controversial conditional ibra’ stipulated by the contracting parties.