Halal Duck

One of USA's largest duck producers has a Halal offering in its line:

Halal Whole Duck (5-5.5 lbs) 
$15.99
015010050DPCS 

I mentioned earlier Costco was carrying whole Halal lamb.  With 1/4 of mankind to serve, this should be good business.

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Is KMart Rent-to-Own Halal?

KMart and its parent Sears is cutting into the definitely usurious practices of those rent-to-own companies with a program that might just be halal.  Before we get into that, they are targeting the same customers, people, whose credit is bad, who want things they do not need.  So although the KMart plan may be halal, it doesn't mean it is right.  On the other hand, for someone who is busted due to no fault of his own may find a halal method of buying tools to start a ditch-digging business or to replace a income-generating computer just ruined by a spilt pot of tea, the deal may be creative and unitive.

The KMart program looks pretty bad given the press reports of how under the program a $300 TV ends up costing $415 at the end of the 18 month term.  Here is an example in the article:

In an example provided by Sears, customers could buy a $400 item or group of items by making 10 biweekly payments over five months of $33, then decide whether to keep making payments, return the merchandise, or spend $220 to buy out the lease for a final cost of $553. That would be the equivalent of a 114 percent annual rate, according to Mierzwinski.

Here are some typical if rather liberal rules among the scholars of Islamic finance:

Murabahah: In this type of transaction, the bank purchases the property and then re-sells it to the buyer at a fixed profit. The property is registered in the buyer's name from the beginning, and the buyer makes installment payments to the bank. All costs are fixed at the time of the contract, with the agreement of both parties, so no late payment penalties are permitted. Banks usually ask for strict collateral or a high down payment in order to protect against default. 

Ijarah: This type of transaction is similar to real estate leasing or rent-to-own contracts. The bank purchases the property and retains ownership, while the buyer makes installment payments. When payments are complete, the buyer gains 100% ownership of the property.

Those two options seem pretty straightforward, but the devil is in the details.  Did the buyer get the very best deal on the property?  Are the payments above market rent?  Is usury just built into the deal under another name?  As one Moslem remarked, often these deals are "pork labelled beef."

The KMart offer as it stands is not halal, so it is contrary to Christian rules as well.  They have two contracts regarding one event, and ownership does not truly pass.

Why the KMart deal above might be made halal if it were more clearly worded.  Note that KMart considers it a sale, but one has the right to return it.  If you can return it, then you never owned it, you were renting it.  So why does KMart not just call the first part a rental for a 5 month term?  That would be contract one.  One may extend the rental just like any other rental.

At the end of the five month rental, KMart may offer a new and separate contract: would you like to buy what you are renting for $220?  Since the option currently is yes or no without recourse, then just make that a second separate contract.  So far, still halal.  The offer is two separate contracts, with the same options.  Also, the costs are based on the very best price the companies otherwise offer. So far so good.

If the rental price is well above market, then it is not halal.  But what is the market for an assortment of tools or the rental of a computer?  Should KMart discover an unknown market for rentals of a popular item, competitors are free to step in and compete to the benefit of the renters.

The second contract is to buy the goods at a residual price, which is probably higher than the market price, but it is in any event a voluntary transaction.  On a $300 TV there is no market, for used TVs at any price.  Even GoodWill will not take them, and you have to pay to recycle them in most places.  So that item is not a good example.  A man who has built up a good ditch digging business with the tools on rental may very well be willing to pay the price since he is used to those particular tools.  In any event, he is free to go buy other used tools elsewhere.

And the same thing with the computer.  A used $500 computer may very well has a resale value of $50 after 5 months, but that computer may be priceless to he who created his tools of the trade and put them on that machine.  Of course he can send the computer back and buy a used $50 machine, but who knows, the point is in both instances, the prospective buyer is not obliged, therefore it is fair.

It seems to me the KMart deal is as a practical matter halal, although as described it is haraam, quite the reverse to normal problems.  Since it seems the one contract can be divided into two separate unrelated contracts, each usury free, then it should be no problem to make this deal halal.

If KMart declines, this opens up an opportunity for entrepreneurs to get into the business.

I invite criticism of my reading of the deal.

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Building Business Through Ijara

As I mentioned, the reason I began researching islamic finance a few years ago was for the simple reason In wanted to open my opportunities among 1/4 of the world’s population. In my research I found the Christianity also forbids usury, what we commonly call interest today.  Yes, the ban is so widely ignored that the topic does not even show up in the West.  In Islam, the debate is fully engaged.

There is a reason religion makes the ban, and that is usury does damage.  The flip side is avoiding usury promotes the good.  I think that needs to be demonstrated, hence the course studying the topic.

Now, with what little I really know about Shariah finance, I managed to put together my first “shariah compliant “ deal.    Many small businesses, even well -established ones, are struggling.

I am consulting with a home furnishings business whose product is very high end.  In their 75 plus year history they never extended a lease option, since their wealthy customers have always simply paid cash for this product.

Now the average price point is $4000.  This younger generation is consumeristic, not materialistic.  They do not think in terms of a lifelong use of a fine home furnishing, with a view to passing it on to another generation. For them they may want a $10,000 item for their home today, they want it now and do not want it for a long term.  Therefore, a lease makes sense for this emerging market.

So, the 3rd generation owners of this business are working up a lease facility to offer their high end product to this particular market.  And as you know, a western lease is unacceptable in Shariah law.  Given that the Seattle area, where I live, has many young wealthy muslims, I proposed the following parallel lease program, the ijara.  To wit:

As part of the leasing program, you should have a Shariah-compliant program to make news, enhance the image and grow the biz among Moslems.

Elements:

1. Think essentially rental, not lease, with some twists.  A fixed term is set.

2. If loss occurs while on lease, negligence is lessee problem, act of God is lessor problem.  In any event:

a. lease payments stop

b. loss is YOUR BUSINESS not lessees, 

i so insurance is at lessors expense, not lessee

ii to maintain Shariah compliant, insurance must be what is called takaful.***

3. lease payments only start upon placement of the item.

4. Lessor must own the item, since in essence lessee is just renting it.

5. There can be a buyout at the end, but it must not be conditional (two contracts in one is forbidden).  The buyout price must be market value, no discount or premium.

6. There can be no late fees, or such, just repo on noncompliance.

7. The profits taken must be for rent, not in interest.  There can be no interest.

8. The rug must have residual value after the term of the lease.

9. The rental payments are fixed, they cannot be changed (say if interest rates go up).

***Takaful: a mutual aid society, for profit.  Like a  co-op, profits a distributed to members.  Lessor could buy this insurance as a member of a takaful group, and pass the fee on to the lessee.

http://www.scribd.com/doc/50588928/Comparison-Between-Ijara-and-Conventional-Leasing

To this the young owner replied, no, too complicated.

The next customer to enter his business was wearing a hijab.  She took notes with her iPhone and said she’d be back with her husband.  That evening he saw Costco offers whole halal lamb, $3.19 per pound.   Hmmmmmm....

He has agreed to offer Shariah compliant leasing.    So now I need to sit with some Moslem finance people in Seattle and work out the details.  If the experiment in introducing leasing where there was once none proves profitable, and the Ijara variant proves profitable as well, then would not every small business in USA desire to offer a lease, a shariah-compliant version?

Anyway, so many opportunities, so little time.

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Halal at Costco?

I was shopping at Costco in Kirkland Washington in USA when I saw this:

Sorry for the lousy cell phone shot, through glass door, but it says in quotes "HALAL".  What they are selling is whole lamb, just like back home.

So is halal going mainstream in USA?

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