What is the procedure of home finance according to Shariah. What are the general errors in implementation of the home finance by Islamic Banks.
In the name of Allah, Most Gracious, Most Merciful
Assalaamu `alaykum waRahmatullahi Wabarakatuh
A general method of house financing adopted by many financial homes is that of ‘DIMINISHING MUSHAARAKAH.’ In essence, this is a transaction where the financier (institution) purchases the house in partnership with the client. The client pays the amount which he can afford whilst the institution will purchase the remaining portion. For example, the client is only able to pay for 10% of the house; the financier will pay and take ownership of the remaining 90% of the house. Once the house is purchased, the client will use the entire house for residential purposes and pay rent to the institution for using its portion in the property (i.e. 90% of the house which it owns).Furthermore, the institutions portion of the house will be divided into units; each unit will represent 10% (thus, in this case, its portion will be divided into nine units). The institution and client will agree on certain periods in which the client will buy a unit (e.g. every three months the client will buy one unit). After purchasing a unit, the client’s portion of the property will increase while the institutions share in the property will reduce (i.e. after purchasing the first unit, the client will own 20% and the institutions portion will reduce to 80%). Accordingly, the rent will also be reduced. This process continues until the client purchases the entire property reducing the institutions ownership to 0%. In this way the institution will receive its money back by selling the units, in addition to receiving a profit through the periodical rent which the client pays.
Scholars have placed a few conditions to the above contract in order for it to be valid. Failure to abide by even one of these conditions will render the entire transaction impermissible. Therefore, every bank contract will have to be closely studied by the Scholars in order to issue the relevant ruling of Shariah.
There are numerous errors which are common in the above-mentioned transaction. Some are as follows….
1) Many times the contracting parties fail to separate the various transactions of ijarah, bai etc from the contract. This is forbidden in Shariah.
2) It is a condition that an ijaab and qabool (offer and acceptance) is carried out when selling every unit. This condition is ignored by many of those who opt to carry out this transaction.
Nevertheless, due to the intricacies involved in house financing, we recommend and stress that you review the entire contract with a qualified Scholar who is an expert in business economics before going into the transaction.
And Allah knows best
Ml. Ismail Moosa,
Student Darul Iftaa
Checked and Approved by:
Mufti Ebrahim Desai
Darul Iftaa, Madrassah In’aamiyyah
IMPORTANT NOTICE :
The Darul Iftaa, Madrasah Inaa’miyya Camperdown takes pleasure in inviting you to its 7th Shariah Compliant Business Campaign Programme. This seminar is designed to empower every Muslim with the Shariah Law of Finance and economics.
Sunday, 18th of May 2008 at the Darul Uloom Musjid-Camperdown. Programme begins at 10.00 am