A logistics company in Mombasa has gone to court accusing Barclays Bank of Kenya for peddling conventional loans in the guise of Islamic, interest-free facilities, at the expense of the unsuspecting customer.
A.O. Bayusuf and Sons, a Mombasa logistics company has taken Barclays Bank Kenya to court for defaulting on their March 6, 2015 loan agreement in which the bank had advanced the company a 300 Million loan.
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 Sh 60 million 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 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 Sh. 240 million disbursed in place of the expected Sh.300 million.
On March 2018 when A. O. 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 up to the date of the transfer which was Sh.74, 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 Sh.25,999,489, 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 up to then point of liquidation of the transfer,” says the company.
A.O. Bayusuf and Sons says that Barclays Bank ought to have applied Murabaha Asset Financing principles on the transfer of the facilities. “They were not entitled to debit our account with this sum as separate and different from what we had agreed upon.
The company states that there is no legal or contractual justification for the overcharged amount being debited. “It is illegal for our obligations to extend beyond the date of liquidation and transfer of the loan from Barclay’s Bank to I&M Bank Limited.
They say that they made several attempts to address the issue with the bank and in a meeting that was set up on the March 30, 2019 which was attended by Barclay’s Bank authorities, Sheikh Ahmed Musallam, Chairman of Barclays Bank Sharia Board as well as Sheikh Sukyaan, board member of La Riba. The meeting only yielded unsatisfactory answers.
They then served the bank with a demand letter for the immediate and unequivocal payment of Sh.25,999,489 plus interest over and above commercial lending interest rates.
They say that the bank breached the customer banker relationship by unlawful deductions to enrich themselves at the expense of the company.
Their plaint reads that the bank has failed to pay back the demanded amount and all they do is request more time to examine the matter.
They want the amount repaid in full plus interest, the cost of the suit and any other relief the court will deem fit to grant.
The A.O Bayusuf and Sons Director, Hassan Awadh Bayusuf is also set to testify.
Abdalla Ali Salim, a witness for the plaintiff in his statement states that indeed the company in 2015 were offered conventional loan by Barclay’s Bank which was commuted to meet Islamic Principles at the request of A. O. Bayusuf and Sons, to which the Bank agreed.
“The Bank offered to convert the Sh.300 million loan for the purpose of financing a fleet of trailers and prime movers into a La Riba Asset Finance product,” says that witness.
He goes on further to say that the facility provided for a deposit of sixty million to be paid by Bayusuf in complete contravention of Murabaha requirements. “In Fact, the mere mention of a deposit negates the essence of a Murabaha loan facility.” reads the witness statement.
“We were shocked to find out that the Bank had proceeded to unlawfully charge the company extra money over and above the agreed sum according to a Murabaha Asset Finance agreement.
The case will be heard on February 27, 2020.
By Joseph Kamolo