Is Al Rayan Bank of UK Shari`ah compliant

I would like your views about the use of Home Purchase Plan offered by Al Rayan Bank of UK. The details of the plan can be seen at the following link. http://www.alrayanbank.co.uk/media/281902/pb1535-al-rayan-hpp-process-guide-lft.pdf

I hope you will be able to guide me on this as being halal or not halal.

It will be great if you could point out what are the things which render this Haram or non Shariah compliant.

may allah reward you with his mercy and help us all out.

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

We have studied the process guide of the Home Purchase Plan offered by Al-Rayan Bank of UK. We observe that the purchase plan is based on the diminishing partnership model which entails 

•  Joint partnership of the assets between Al-Rayan Bank and its “client”. 
•  Ijarah (leasing) to occupy the Banks share  
•  Purchase of Al-Rayans Share by the client in the future 

We understand the offering letter is for the following:

•  Diminishing Co-ownership Agreement 
•  Leasing Agreement 
•  Service Agency Agreement 
•  Legal Charge 

Each one of these transactions mentioned above is permissible. However, combining these transactions in a single transaction is impermissible . And combining them together by making each one of them a condition to the other is also impermissible .  

However, we do not understand what is the service agency agreement. Since  this is a partnership, the partners are bound to pay for their expenses pro-rata. This includes the legal charge. It is thus incorrect to impose all charges only onto the client. Hence the condition on page 17 “ You will also be required to pay for the cost of Al Rayan Bank`s solicitors” is an invalid condition and therefore impermissible. 

Furthermore, in a diminishing partnership agreement, there will be sale of units until the client becomes the owner of the house. How and when will this agreement be done?  That is not stated in the Home Purchase Plan. 

Hereunder is the correct procedure to execute a diminishing partnership deal : 

1. At the time of signing the contract of purchase, the client may sign a one-sided promise to purchase different units of the share of the financer (which in this case is the bank) periodically and the financier may undertake that when the client will purchase a unit of his share, the rent of the remaining units will be reduced accordingly. 
2. At the time of purchase of each unit, ijab (offer) and qubool (acceptance) must take place at that particular date 
3. The price of the unit can be mutually agreed and can also be the market value of that house prevalent on that day.   

And Allah Ta’āla Knows Best

Hafizurrahman Fatehmahomed 

Student Darul Iftaa
Netherlands 

Checked and Approved by,
Mufti Ebrahim Desai.

It is clear from the foregoing points that each one of the transactions mentioned here in above is allowed per se, but the question is whether this transaction may be combined in a single arrangement.  The answer is that all these transactions have been combined by making each one of them a condition to the other, then this is not allowed in Shari`ah, because it is a well settled rule in the Islamic legal system that one transaction cannot be pre-conditioned for another. However, the proposed scheme suggests that instead of making two transactions conditional to each other, there should be one sided promise from the client, firstly, to take share of the financier on lease and pray the agreed rent, and secondly to purchase different units of the share of the financier of the house at different stages. (An introduction to Islamic Finance, pg87) 

 أَبِي هُرَيْرَةَ قَالَ: نَهَى رَسُولُ اللهِ صَلَّى اللَّهُ عَلَيْهِ وَسَلَّمَ عَنْ بَيْعَتَيْنِ فِي بَيْعَةٍ

سنن الترمذي ت بشار (2/ 524)

“The Prophet (sallallahu alayhi wa sallam) forbade two transactions in one transaction” (Tirmizi).  

عَنِ ابْنِ مَسْعُودٍ، قَالَ: ” صَفْقَتَانِ فِي صَفْقَةٍ رِبًا

مصنف ابن أبي شيبة (4/ 307)

Abdullah Ibn Masood says: to combine two contracts in one agreement is a form of riba. (Musannaf ibn Abi Shayba)

 See Meezanbank`s guide to Islamic Banking, pg121