When Islamic finance less fair than conventional finance

One of the things that Islamic finance touts when comparing it to conventional finance is an emphasis on fairness, yet the industry's practices do not always lead to outcomes that most people would consider fair.  One example is when the buyer in a murabaha defaults and the payment schedule for the principal plus profit is spread over a number of years.  An article describes how two brothers in Malaysia received RM200,000 in financing from an Islamic bank with repayment spread over 30 years.  After a year, they defaulted on the financing, and the bank claims that they owed RM642,263, amounting to the principal plus profit over the entire 30 year financing period. 

The reason that this could occur is that the property is being purchased and resold with a profit to the customer, with deferred repayment spread over 30 years.  The profit is determined so that the bank makes a similar profit as it would be paid in interest.  However, since the transaction is a sale with only the payments deferred and not a loan with interest, the customers have agreed to buy the asset for the full amount (principal plus profit).  When they default, the bank would say "you agreed to buy this from us for the full amount, even though we agreed to let you make monthly payments over a 30 year period.  Since you have defaulted, you owe us the difference between the purchase price and the amount you paid us."

While the structure of the contract most likely supports the bank's view (I am just guessing, I have not seen the contract), it puts the customer of the bank in a decidedly worse situation than if they had taken a conventional loan from a bank.  In a conventional loan, they would owe the bank the principal (less any amortized principal) plus the accrued interest for the time since they took the loan (less the portion of their payments that went to pay interest).  With the borrower defaulting a few years into a 30-year loan, they would owe far less than they do in a murabaha (probably a bai bithamin ajil, since it was in Malaysia where BBA is permitted). 

This issue has been heard in Malaysian courts before when a lower court ruled that BIMB could not force a customer in default to pay the entire amount of the purchase price (including future profit payments).  However, this decision was overturned by a Court of Appeal decision.

There are probably good reasons why the bank cannot specify in the contract that they will agree to waive the future profit payments in the case of a default, but it does end up making Islamic look unfair to customers who default (compared with conventional banks), which is in contrast to the principles at the root of Islamic finance of fairness and compassion towards people who cannot pay their debts.   This should be an issue at the forefront of Shari'ah scholars minds because this contract is used widely in Malaysia, and similar murabaha contracts are used in other countries where BBA is not permissible.