Shariah-compliant home financing for all

Shariah Home FinancingImage Credit: Supplied

Here in the UAE, Shariah-compliant home loans are offered by a host of banks and financial institutions, both Islamic and conventional. And they are not only for Muslims, but for everyone.

The institutions that provide Shariah-compliant mortgages and other Islamic banking services are governed by independent fatwa and Shariah supervisory boards. This process assures customers that all their financial dealings are halal and in keeping with Islamic traditions, giving customers peace of mind.

The rules of Islamic banking, as a whole, are significantly different from conventional banking, a huge restriction being that Shariah Law forbids the taking of interest or fees in return for lending money. The UAE, especially Dubai and Abu Dhabi, have a number of banks that provide services that adhere to Islamic principles and rules.

Shariah-compliant home loans follow a very different process from mortgages and home loans from conventional banks. They also come in different types: Ijara-wa-Iqtina, Ijara, Musharaka, Murabaha, among others. In Ijara-wa-Iqtina, which means rent with an acquisition or rent to own, the bank purchases the property then leases it to the customer. A portion of the monthly payment is put towards ownership until the customer entirely owns the property. In Ijara, the bank buys the property for a client and then leases it back to him. In Musharaka, the customer and the bank both invest money to buy a specific property, e.g. the customer pays 20% of the total purchase price, the bank pays 80%. The customer then pays a monthly rent to the bank with the end goal of owning it after the agreed term. In Murabaha, the bank purchases a property and sells it to the customer at a higher price. The customer pays the bank on installment basis without interest.

The core difference with Islamic banks from traditional banks is that profits cannot be made from money; they need to be made from real, tangible assets such as property.

Handy Hints
• In Islamic banks, no interest can be made or paid solely on lending money
• Islamic banks are governed by an independent Shariah supervisory board
• Among the Shariah-compliant home loans offered is the rent-to-own scheme

Source: Nicholas Baker, Special to Properties
The writer is a freelancer


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