A court has summoned the chairman of Shariah Board of Islamic Banking of the newly rebranded Absa Bank Kenya PLC to shed light in a case where the bank is accused of charging conventional banking interest on a shariah compliant facility.
The former Barclays Bank Kenya has been involved in a legal tussle with A.O Bayusuf and Sons over a Sh25 million interest that the bank charged for a Sh300m loan that the bank had advanced their client.
This was after Saeed Ali, lawyer for the defendant submitted a prayer in court to have the Islamic banking expert appear in court to determine the nature of the facility they applied for and were granted by the bank.
“We are requesting the court to summon the chairman of the Shariah Board of the bank to come to court to give evidence as regards Murabaha Facility,” he said.
For starters, Murabaha is a form of Shariah Compliant financing where the buyer and seller agree on the profit or a cost plus price for the item on sale.
According to renowned scholar Sheikh Ahmed Musallam, Murabaha is cost plus financing.
The decision to summon the chairman was however contested by Absa Bank Kenya PLC who claimed that the plaintiff was summoning someone from the defense to give evidence against them.
“During the case conference before your honour, all parties confirmed they were satisfied with what had been presented and an order to proceed on what was on record agreed upon,” said Kongere Billy who is representing the bank.
But the judge, PJ Otieno in making a ruling on the case said that order rule 16 which bars the additional inclusion of additional evidence midstream should never be used as a handmaiden of justice.
“We should not therefore lock out evidence that is important to the case,” ruled the judge, invoking the inherent judicial jurisdiction of the court to overrule the bank’s opposition to Bayusuf’s request.
The court was adjourned to April 30 where the expert is expected to help the court determine the nature of the loan.
Bayusuf and Sons Limited, one of the oldest logistics companies at the Coast went to court accusing the former Barclays Bank Kenya of peddling conventional loans in the guise of Islamic, interest free facilities, to enrich themselves at the expense of the unsuspecting customers.
AO Bayusuf and Sons, a Mombasa logistics company has taken Barclays Bank Kenya to Court for defaulting on their March 6 2015 agreement in which the bank had advanced the company a Sh300m loan.
In their plaint through Balala and Abed Advocates, the plaintiff claims that the bank, which offered them a La Riba Asset Finance facility by the name of Murabaha, a product that meets Islamic financing principles was a normal conventional loan which the bank touted under an erroneous Islamic label.
According to their plaint, the facility letter by the bank, in contradiction of principles of Murabaha, provided for a deposit of Sh60m that was to be paid by the plaintiff and did not specify the assets to be purchased with precision.
“The letter did not even contain a schedule as alluded to within the facility letter,” reads their plaint in part.
They further state that the purported Murabaha was not disbursed in the way contemplated but made available over a period of one year with only Sh240,000,000 disbursed in place of the expected Sh300,000,000.
On March 2018 when AO Bayusuf and Sons opted to move their business over to I&M Bank and opted to clear the remaining balance of the facility by Barclay’s Bank, they expected that the outstanding balance of the principal and interest accrued from the inception of the deal upto the date of the transfer which was Sh74,542,308.95.
Upon the transfer, the amount outstanding was settled as planned but in spite of the client’s effort, Barclays Bank proceeded to unlawfully and unilaterally debit their account with an extra Sh25,999,489 which is over and above the outstanding amount.
“The bank purported to charge its interest for the remainder of the term of the facility as opposed to charging upto then point of the point of liquidation of the transfer,” says the company.
AO Bayusuf and Sons says that Banclays Bank ought to have applied Murabaha Asset Financing principles on the transfer of the facilities.