Whether it's your first home or your next home, it's a natural question before you start contacting providers. So make sure you subscribe to the blog to find out when the next blog comes out, and share this article with your friends and family so that we can get a wide and open discussion going on this topic. We consider multiple issues that come up, over a series of article on this blog, but ultimately our view is that islamic mortgages are Islamic. At Ijara Community Development Corp. in Ann Arbor, MI, we offer various Islamic financing alternatives for your needs. How does Ijarah Work for Islamic Mortgage? Islamic banks such as Al-Rayan assure us that they are not getting their money from haram sources such as borrowing it on interest themselves, and I think we should trust them as long as they have scholarly approval. 30 Under 30 - Europe - Finance. If conventional mortgage is haram, then I just dont see how Islamic bank is halal, if Islamic bank is halal, then I dont see how conventional banking is haram. Posts by Islamic Finance Guru. Firstly, it is no longer the case that there is no viable Islamic alternative, so the fatwa is not really applicable to our context. There are many forms of riba, some which look overtly oppressive, others less so. But now I think we’re overthinking things. I didn’t say the conventional mortgage as we know it today has been around for hundreds of years, and I am not sure exactly when one can say modern mortgages started.What I did say was that the industry has been around for centuries and has evolved systems and contracts and legislation to deal with things. Think again. But then just as equally if you sell the house for 650,000, you make a profit of £425,000, as partners they should have a claim on the profit. Your email address will not be published. Everyone loves having a pop at the Islamic mortgage, from the business-savvy uncle, the world-weary professional, to the ultra-religious brother down the Masjid. In short – do islamic banks practice fractional reserve banking, and if so, is that Shariah-compliant? Islamic Finance Guru. This is why we need more of our educated, aspirational youth to be engaging in the Islamic Finance industry, be it from a legal, financial, Shariah, or accountancy perspective. Something not very nice, I imagine. I am impressed by the founders grasp of the Islamic Sciences and the finance … In Part One I’ve tried to get preliminary confusions out of the way first. Think you know what riba means? The property I purchased for £225,000 has now sold for £150,000 at auction. You need to agree with the terms to proceed. That is what I turn to in Part Two  of this blog next week [. This is because the scholars of Qur’an and hadith are near unanimous that the riba that was forbidden in the Qur’an and the Sunnah was exactly the kind of riba that we’re dealing with in today’s mortgages. This argument is the weakest argument put forward by this camp. Forbes Lists. We have an alternative to supporting the same mortgage lenders who landed us in this recession in the first place. Our investment, finance and mortgage products are based only on Shariah compliant underlying principles including Murabaha (cost plus sale), Musharaka (partnership) and Wakala (agency). We've done … A leading Islamic finance Mufti combines traditional teaching with cutting-edge insights from world-leading practitioners. The absolutely essential thing that makes this approach Islamic and different from a conventional mortgage is that the bank is sharing the risk of ownership with you. Islamic Finance Guru. This argument is the weakest argument put forward by this camp. The primary object involved in both approaches is to finance someone’s purchase of a house and to provide the bank with sufficient protection for their loan/investment. 97% of our money supply is created by private interest-dealing banks who simply pop money into existence. Your email address will not be published. In an Islamic mortgage the buyer enters into a partnership agreement with the bank and a rental agreement as well, along with a number of other supporting agreements. Did you know 97% of our money is directly linked to interest-based debt? So if a juice shop sets up across the street from a pub and decides to price all of its juices in line with the price of beer across the road, is that juice permissible to buy? He is the co-founder of Islamicfinanceguru. But first, what is an Islamic mortgage and why is it Islamic? This is therefore a macroeconomic widescale issue we are talking about, so the oppression goes much further than meets the eye sometimes. Unfortunately most Muslims with the mortgage in the UK have one with a conventional bank. Islamic Finance Guru 622 views. Required fields are marked *. Consequently it comes as no surprise that they charge a higher price on the few mortgages that they can give out. 5 quick changes to make your finances more halal. © Copyright Islamic Finance Guru. Thanks. Potentially. Vertical: Trading & Investment. How Are Islamic Mortgages Different to Conventional Ones? Ameen Housing also … In other words a bank is holding 80% of a property on its accounts, rather than an £80k debt. 8:37. We dive deep on the Canadian Islamic … I owe £168,750 to Mr Islamic banker – is he going to suffer the loss as anyone would do in a “partnership” – not likely, have a read of the small print in the mortgage offer……. Oh and can you update the Bank of England report link you provided? One of the major corollaries of this is that banks have to maintain certain liquid reserves in order to stay liquid and be able to pay back depositors when they ask for their money back. Islamic finance… Here is a. explaining this for the more technically minded, but in brief, every time someone asks for a loan banks simply pop money into existence. Fine. Page not found There are actually two kinds of Islamic mortgages: Murabaha (mark-up sale) and Musharakah (partnership). Some are concerned that it looks too much like a conventional mortgage, while others are upset t. from a conventional mortgage. (So don’t just go around quoting this paragraph as justification for taking out a mortgage from now on!). Your email address will not be published. Think about that next time you use your debit card. The Islamic bank will buy the property for £500,000 having pre-agreed with the customer that the customer will then buy the property from the Islamic bank at a pre-agreed price, on pre-agreed payment terms. Let’s say you’re buying a £100k house and you buy a 20% stake in the house for £20k. For those who are interested, refer to the textbook “Islamic Finance: What it is and what it could be”, or just read about it, Did you know 97% of our money is directly linked to interest-based debt? Great to hear from you and get your feedback. It also means that when we use our bank accounts, debit cards, notes and coins, we’re all indirectly supporting the institution of riba, even though we may not realise it. Same principle, someone else (bank) purchases a home for you which you have to repay back over time. sharia mortgages are commonly known as “islamic mortgages. selling graps to wine merchant) then it is not. The Islamic banks have their own approved solicitors to represent them in a transaction. A fatwa analysis with Sheikh Atabek and Sheikh Haitham. I’ll be focusing primarily on Musharakah for this blog, as it’s the one currently most popular in the UK. Secondly, on your assertion that a home is not a necessity, I’ll ask you, do you have kids? In defining necessities, traditional books talk about certain factors but there’s nothing prohibiting us from adding to those based on our own time and contexts. to see Islamic finance develop. I don’t have kids – but even were I to have them I don’t think that would change my view on whether a home is a necessity or not in our current context. This Islamic financial instruments and many other instruments are discussed in more details in phd Islamic finance, mba Islamic finance, diploma in Islamic finance and Islamic banking certification programs offered by AIMS. This same system led to the foreclosure of millions of homes, millions of unemployed, and tremendous suffering across the world in the past seven years – and we’re are all hard-wired into this system. It’s just not comparable is it? We’ve got lots of info on what an Islamic mortgage is already. It also means that when we use our bank accounts, debit cards, notes and coins, we’re all indirectly supporting the institution of riba, even though we may not realise it. This is done for a reason: if a past contract has been successful and perhaps been scrutinised in court and withstood that scrutiny, then it is a good idea to model off that. “even if they were borrowing on interest and then offering us a halal mortgage, that would be acceptable for us, though haram for them of course. That is how instinctively suspicious regulators and veteran bankers are to new players joining their party, and so you can imagine how suspicious and confused they are when confronted by a completely different model of banking. Then you have the added problem that the current regulatory framework is entirely designed for an interest-based bank. What we think is the problem with Islamic mortgages. So while riba may not always seem to us to be oppressive in our particular case, we must remember we’re actually contributing to a wider industry which is deeply immoral and deeply harmful. Hope that clarifies things! What is an Islamic mortgage? Did you know that in the UK only one full bank license has been given out for 100 years? So its not just price-tracking, but actual interest involved.”. Is a mortgage haram? The overwhelming majority of our money is created this way and so to create more money we need to create more debt. Required fields are marked *. This is why we need more of our educated, aspirational youth to be engaging in the Islamic Finance industry, be it from a legal, financial, Shariah, or accountancy perspective. Murabaha Islamic mortgage Under a murabaha structure, the Islamic bank will purchase a property on your behalf, and then sell you the same property at a marked up price. https://www.islamicfinanceguru.com/2015/08/23/recommended-book-list-islamic-finance-economics/. Okay, you might now be convinced that conventional mortgages are definitely not the way forward, but you may still be suspicious of Islamic banks providing a viable alternative. So for example they might need to maintain 10% reserves. An Islamic mortgage is one that’s compliant with Sharia law. Privacy Policy  /  Terms of Use. The Islamic bank may offer finance … You should also check out our completely free “Should I Buy or Rent” calculator and our Islamic mortgage comparison page. Your email address will not be published. The page is missing. Some people have complained that Islamic bank contracts are nearly the same as a conventional mortgage contract, and just the word “interest” has been replaced with “profit-rate”. 2)   It’s going to cost you more as solicitors will increase their fees. Not exactly much of a “partnership” when such costs are borne 100% by the borrower? Slowly over time you buy back more equity in the house and your rental payment decreases until eventually you own the house outright. If I were to say to you “drink a couple of glasses of wine mate, go on. Islamic mortgages are currently the only genuine solution for Muslims in the UK. Islamic finance contracts made between a UK Islamic bank and a UK customer are always made under English law or Scottish law respectively. Islamic Finance Guru is an excellent company that provides resources for those looking to invest in a line with their faith. I do think you are grasping at a problem with Islamic banking that I myself have not got clarity on yet and would like to research further – and that is the notion of spending/investing money which one may not necessarily have. You mentioned the conventional mortgage as having developed over hundreds of years, yet the conventional mortgage as we know it was invented in the 50’s as I understand it. But what many of us forget is that Islam didn’t forbid just individuals from dealing in riba, Islam forbade the entire institution of riba, from top to bottom. However this argument is problematic on two counts. In a conventional … … A financial sector that has been growing rapidly, anywhere between 15 to 25 percent every year, Islamic Finance, holds two trillion dollars of buying power.Despite the major market opportunity, Sharia (Islamic … Under your lease with the bank, the contract will not use local rent values. I could go into a tedious academic discussion about why this is so, but I think it’s best I spare you. At the end of the day, bank purchased a house for you for a dollar and sold back to you for 2, but just over time. Learn how your comment data is processed. Part of this regulatory framework stipulates that banks must advertise their products in a way that makes them comparable to other products on the market. UK Islamic Mortgages 2020: The Definitive Guide, Everyone loves having a pop at the Islamic mortgage, from the business-savvy uncle, the world-weary professional, to the ultra-religious brother down the Masjid. Islamic banks are quite clear (just like another regulated bank) on where they get their money from. . There are different types of Islamic mortgage products. Ameen Housing Co-operative (Ameen Housing) is an Islamic co-operative financial institution that offers shariah compliant solutions for home financing and replacing existing mortgage. It’s a small and relatively new market. To solve this problem they founded Islamic Finance Guru. In fact the Bank of England is this year consulting on developing a Shariah-compliant liquidity facility for Islamic banks – as Islamic banks have been asking for this because they haven’t had access to the liquidity solutions the BoE provides to mainstream banks. He studied his undergraduate at the University of Manchester which included an Erasmus+ exchange programme at the University of Amsterdam. Islamic Finance Guru (IFG) is a hub that helps Muslims with their investment, personal finance and entrepreneurial journeys. He’s also completed the GDL and LPC postgraduate courses. Islamic mortgages. The UK government in particular has already publicly backed growth in this sector, introducing changes to Stamp Duty rules to facilitate the growth in the Islamic mortgage market and the promise of the issue of a UK sovereign Sukuk (bond). This however is an area for Islamic banks to look to develop, if only to impr. Manzil are a mortgage lender in Canada and offer mortgages to house buyers, and also have a mortgage fund which people can invest into. Origin: UK. Would you therefore consider family stability and development a ‘need’ that would permit a conventional mortgage over renting considering the difficulties the latter could (and ususally does) lead to from having to move every so often? Similarly Islamic finance contracts within … This field is for validation purposes and should be left unchanged. We found the same in our analysis of Al Rayan. 1,351 Followers, 126 Following, 40 Posts - See Instagram photos and videos from Islamic Finance Guru (@islamicfinanceguru) This is as our transaction with them is separate from their other affairs. at the bottom of this article, there are the links to all the relevant articles: https://www.islamicfinanceguru.com/2016/01/24/a-way-to-conceptualise-islamic-mortgages/, Now live at: https://www.islamicfinanceguru.com/2015/08/28/the-problems-with-islamic-mortgages-and-what-we-should-do-about-it/. In the UK there are 3 types of Islamic mortgage … This is because the scholars of Qur’an and hadith are near unanimous that the riba that was forbidden in the Qur’an and the Sunnah was exactly the kind of riba that we’re dealing with in today’s mortgages. Key thing is I also hold Islamic mortgages are acceptable, so, while I see having kids means you want a house more, I would just got for an Islamic mortgage as that is an option for me. For more details you can always have a look at their annual filings. If you don’t use them, this usually means before anything has even happened: 1)   It’s going to take longer because of the extra work. There are genuine concerns with the industry, don’t get me wrong, but they are not what we commonly think they are. (I’ll touch on Murabaha in a later blog, but if you have a specific query about murabaha structures comment away below). I could go into a tedious academic discussion about why this is so, but I think it’s best I spare you. This site uses Akismet to reduce spam. This is the most popular argument for this camp, and in fact there is some scholarly approval of this position as stated by a. issued by the European Council for Fatwa & Research in 1999. www.islamicfinanceguru.com. With an Islamic mortgage, you’re most likely going to purchase it under a Home Purchase Plan (HPP). UK Islamic Mortgages 2020: The Definitive Guide. But I imagine you were looking for more than just a sentence, right? Halal Investing Take Charge of Your Financial Future | Amjad Quadri #MASCON2019 - Duration: ... How To Pay Off Your Mortgage Fast Using … Given the centuries of perfecting that have gone into the conventional mortgage contract, one can understand why Islamic bank lawyers borrow phraseology from them. Is an Islamic Mortgage Really Right for Me? That is what I turn to in Part Two  of this blog next week [update: this article is now live]. Of course for something like this it is best to consult a scholar one trusts and who can assess one’s particular circumstances. Some scholars love it, others froth at the mouth upon its mention and have to do wudu again. ove customer perceptions. I am not convinced that Islamic banks do borrow on interest from conventional sources. This field is for validation purposes and should be left unchanged. There is compensation for the time value of money (payment for the use of money) in both conventional and Islamic mortgages, and security is taken in the form of a lien (conventional) or part ownership (Islamic) so whether you call it interest or not isn’t really important. This is the most popular complaint about Islamic mortgages. Islamic Mortgages in The UK in 2021: The Definitive Guide. The bank currently owns 80% and will charge you rent for the use of the 80%. I’ve explained why arguments for getting out a conventional mortgage are problematic, and why most common objections to Islamic mortgages are unfounded. Helping Muslims make smart and sharia-compliant decisions on their investments, personal finances and entrepreneurship journeys. See also our review of Al Rayan Bank’s mortgage here.]. People give a variety of reasons for how they justify their actions – and some of these are potentially valid, but many are not. However, interestingly, even if they were borrowing on interest and then offering us a halal mortgage, that would be acceptable for us, though haram for them of course. - Islamic Finance Guru Wondering how much you can borrow on an Islamic mortgage? For those who are interested, refer to the textbook “Islamic Finance: What it is and what it could be”, or just read about it here. Call it interest, mark up, rent or whatever you wanna call it. This may sound like a stupid question, I’m a little confused, if one takes out an Islamic mortgage is there any interest involved? 1.2K likes. “They actually price up the Islamic mortgage using LIBOR. “Ah but they don’t just use LIBOR terminology,” I hear you say. IFG has found that Islamic banks do the same. Let me know your questions in the comments below! Mufti Faraz Adam % COMPLETE £1,152 Screening for Halal Stocks Available … No promises but I’ll try and draw something up over the weekend iA, so watch out for that! In short, Islamic mortgages, split opinion. Maybe that’s the topic of another article some day! Especially if you know how interest harms society, forget haram and halal. It also means that when we use our bank accounts, debit cards, notes and coins, we’re all indirectly supporting the institution of riba, even though we may not realise it. This does not mean that they are actually charging interest. Founded: 2019. I am impressed by the founders grasp of the Islamic Sciences and the finance sector … See this guild here and I’ve written about what makes an Islamic mortgage … Our understanding is that there is no interest involved, no. If you are planning to get the Muslim mortgage… Some scholars love it, others froth at the mouth upon its mention and have to do wudu again. jzk khayr for your thoughts and comments as always and apologies for the late response! If not, they SHOULD be able to clearly state where they are financing from. In a conventional mortgage the primary agreement is that of the secured loan, along with various supporting agreements. I’ve been asked this a few times so I really should get around to it! So it is unsurprising that there is some crossover. How people justify getting a conventional mortgage – and why they’re usually wrong. with their investment, personal finance … [For Part Two, see here. These and a number of other issues with Islamic mortgages will be discussed in Part Two of this blog series. With my experience in conveyancing, dealing with Islamic mortgages can be difficult. Thank you for writing such a meticulous blog. Some are concerned that it looks too much like a conventional mortgage, while others are upset that it is too different from a conventional mortgage. So I should be quits, shouldnt it? In a sentence, Islamic mortgages are not loans, they are business partnerships. This would be a haajah (a category less than daroorah) but as it goes on and on, its justificatory power mounts up. Furthermore, the argument from “necessity” goes too far I feel. These mortgages differ from traditional home loans in that they don’t involve paying interest, as that’s forbidden under Sharia law. Ah but they don’t just use LIBOR terminology,” I hear you say. But they don’t, becuase they have waivered their rights. The only possible application of necessity that seems relevant today are those people who are on a budget and are struggling to get good rental accommodation for their family (perhaps they have someone elderly living with them and they need to have a properly warm, safe, house) on that budget, who can’t afford to buy a house outright, but who can get access to an affordable mortgage that they can pay every month. However these cases are few and far between, and I would advise anyone who is in such a position to seek personal scholarly advice. In this two-part blog I try and work out if they are ultimately halal. Think about that next time you use your debit card. For the business-savvy amongst you, you’ll know that these two things are actually very different. I agree that it is a bit off-putting for the uninitiated that the same wording is being used, but it is actually standard practice in legal contract writing to work off templates and past contracts. For most people in the UK today it is perfectly possible to get a reasonably priced rented property without having to risk life or limb – most estate agents are not bloodthirsty pickaxe wielding maniacs. Islamic Finance Guru (IFG) is an Islamic finance comparison and analysis site that helps people with their investment, personal finance and entrepreneurial journeys. Since inception of Islamic financing operations by American Finance … As assets are illiquid they don’t count as liquid reserves, while debt mortgages do. In short, Islamic mortgages, split opinion. Shariah compliant finance. Islamic Finance Guru is an excellent… Islamic Finance Guru is an excellent company that provides resources for those looking to invest in a line with their faith. The whole point of this article was to get some common misconceptions out of the way so we can have a sensible, informed discussion. You mentioned in the article ” The overwhelming majority of our money is created this way and so to create more money we need to create more debt. The link you followed may be broken, or the page may have been removed. ”. Islamic banks are operating in a regulatory system that is designed for conventional banks. Islamic Banks DO take their loans from interest based sources that’s why they have to charge interest on them. September 23. Of course. In this episode, we chat to Mohamad Sawwaf, the founder of a Canadian startup called Manzil. All that costs money. JazakAllah khayr for those observations Amer, you’re bang on. 357. What people don’t realise however is that they are comparing apples and oranges. IslamicFinanceGuru (IFG) is a hub that helps Muslims (and non-Muslims!) © Copyright Islamic Finance Guru. Helping Muslims make smart and sharia-compliant decisions on their investments, personal finances and entrepreneurship journeys. There are 2 main providers of home purchase plan (HPP) products in … Haider is an experienced BBC-trained award-winning journalist who also works in the legal profession. as someone who has no background in economics whatsoever, could you please perhaps publish a recommended reading list (or even links to lectures) that those of us who are not so business-literate, can access? My boiler breaks down and needs replacing, Mr Islamic banker will now be scratching his head when approached for his 75% share of the monies towards a replacement boiler. In an Islamic mortgage the buyer enters into a partnership agreement with the bank and a rental agreement as well, along with a number of other supporting agreements. He was previously a private equity/venture funds lawyer in the City. Islamic Finance Guru… This same system led to the foreclosure of millions of homes, millions of unemployed, and tremendous suffering across the world in the past seven years – and we’re are all hard-wired into this system. However Islamic banks, with their asset-backed mortgages, are treated differently to conventional lenders with their debt mortgages. This site uses Akismet to reduce spam. Ibrahim holds a BA in Philosophy, Politics, and Economics from the University of Oxford, an Alimiyyah degree from the Al Salam Institute, and an MA in Islamic Finance. A sharia-compliant mortgage allows you to buy a house in a sharia-compliant manner over a number of years without using any interest (riba). Second scenario – I fall behind on my repayments and eventually the house is repossessed. from a purely fiqhi perspective that above quote statement was correct – though of course there is a point where if you’re just facilitating haram (e.g. You are comparing a multinational juggernaut that is the conventional mortgage industry, with a clientèle of around 60m in the UK, and a centuries long history, with an Islamic bank – a fledging company in a fledging industry, founded just about a decade ago, with a clientèle of about 2m. “ should I buy or rent ” calculator and our Islamic mortgage using.. ( mark-up sale ) and Musharakah ( partnership ) home, it 's your home! Validation purposes and should be able to clearly state where they get their money from s going to you! Interest on them an experienced BBC-trained award-winning journalist who also works in the legal profession therefore you! 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