Ibra'
Ibra' is the release or remission of a debt, in whole or in part. In Islamic banking it is the rebate a financier grants when a customer settles a deferred sale price early.
Also called: ibra · rebate · remission · early settlement rebate
Under a murabaha or similar sale, the customer owes the full deferred price, which includes the profit for the whole term. Classically, the creditor is not obliged to reduce that debt if the customer pays early, but may choose to. Making the rebate a binding condition of the original contract has been debated because it resembles the conventional idea that interest accrues only for the time money is outstanding.
Regulators have stepped in for consumer protection. In Malaysia, Bank Negara Malaysia's rules require Islamic banks to grant ibra' on early settlement of sale-based financing and to disclose how it is calculated, which closes the gap where a customer settling early could otherwise owe profit for years that never ran.
In practice
Whether a rebate is discretionary or obligatory depends on the jurisdiction and the contract. A customer cannot assume one exists unless the documents or local rules provide for it.
Example
A customer owes US$24,000 on a 24-month murabaha whose cost was US$21,000. After 12 months, with US$12,000 still due, she settles early. The bank grants an ibra' of US$1,400, roughly the unearned profit for the remaining year, and accepts US$10,600.
See also
- MurabahaMurabaha is a sale in which the seller discloses its cost and the agreed profit to the buyer. Islamic banks use it to finance purchases by buying an asset and reselling it to the customer on deferred terms.
- QardQard is a loan of fungible property — usually money — that the borrower must repay with its equivalent, with no stipulated benefit to the lender. Any benefit the lender requires as a condition of lending raises a riba problem.
- UjrahUjrah is a fee or wage paid for a genuine service or for the use of an asset. In Islamic finance it is legitimate compensation — but only where a real service exists and the fee is not, in substance, a charge for credit.