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Islamic Finance

Answered according to Hanafi Fiqh by Darulifta Azaadville

Question:

I’d like to find out regarding ___ Islamic finance for a home loan, is it permissible in Islam?

Answer:

Some banks claim to use Shari’ah compliant models for financing. One of the models that are in vogue is the model of diminishing Musharakah, generally used for home financing.   

Diminishing Musharakah is a form of mutual partnership, developed in the near past wherein the financier and his client participate either in the joint ownership of a property/commodity, or in a joint commercial enterprise. The share of the financier is further divided into a number of units and an agreement is made that the client will purchase the units (of the share of the financier) one by one, periodically. This will increase the client’s share of the commodity/equity, until, eventually all the units of the financier are purchased by the client, making him the sole owner of the commodity.

The method of enacting a diminishing Musharakah is as follows: Zaid wants to purchase a house but only has 50% of the funds required. He therefore requests a friend Amr to purchase the house with him in a diminishing partnership which Amr agrees to. Both parties contribute 50% of the capital towards the purchase of the house and buy the house.

Now, Zaid wishes to use the property for his personal need and therefore rents Amr’s 50% at a stipulated rental (for example, R3000.00 per calendar month). However, Zaid also works to purchase Amr’s portion of the house gradually as he accumulates funds.

When Zaid accumulates (not necessarily every month) a sufficient amount of funds to purchase for example 10% of Amr’s share, then both parties will agree upon a price for the 10%. Zaid will then purchase 10% of Amr’s share. The partnership will now stand at 60% for Zaid and 40% for Amr. Amr may now adjust (reduce) the rental amount (to a rental which both parties agree upon) as Zaid is now occupying the portion of Amr at 40% of the house.

This is the procedure will continue until Zaid has attained 100% ownership of the property. If this is the method which is being followed then it is in order and permitted in Shari’ah. If the contract includes other insurance, etc. it will not be permissible. If it is a conglomeration of contracts within one, it will not be permissible.

If there is any change to the procedure then the situation will need to be re-evaluated.

https://www.iftadua.co.za/enacting-a-diminishing-partnership/4625/

It would be best if you could send us the complete details of ___ Islamic home finance procedure, and the terms and conditions that are stipulated, and upon that we could see if it is Sharia compliant or not. Even if the basic product is passed, there is always the element of the reality not living up to the contract. If there is a Shar’i requirement of a physical exchange at any point, for example, this should actually happen. Merely signing on it is not good enough.

Checked and Approved By:

Mufti Muhammed Saeed Motara Saheb D.B.

الشركة نوعان: ‌شركة ‌الملك وشركة العقد. (فشركة الملك) أن يشترك رجلان في ملك مال، وذلك نوعان: ثابت بغير فعلهما كالميراث، وثابت بفعلهما، وذلك بقبول الشراء، أو الصدقة أو الوصية. والحكم واحد، وهو أن ما يتولد من الزيادة يكون مشتركا بينهما بقدر الملك، وكل واحد منهما بمنزلة الأجنبي في التصرف في نصيب صاحبه.(المبسوط للسرخسي (Pg:151/Vol:11

واعلم أن الشركة على ضربين شركة ملك وشركة عقد على ما نبين في أثناء البحث قال – رحمه الله – (‌شركة ‌الملك أن يملك اثنان عينا إرثا أو شراء) وكذا استيلاء أو اتهابا أو ووصية أو اختلاط مال بغير صنع أو بصنعهما بحيث…)تبيين الحقائق Pg:313/Vol:3)

يعتبر ويراعى كل ما اشترطه العاقدان ‌في ‌تعجيل ‌الأجرة وتأجيلها…(مجلة الأحكام العدلية (Pg:90  

إن كانت ‌الأجرة ‌موقتة بوقت معين كالشهرية أو السنوية مثلا يلزم إيفاؤها عند انقضاء ذلك الوقت…الوقت فلو كانت مشاهرة فتؤدى عند نهاية الشهر, وان كنت مسانهة ففي ختام السنة.(شرح المجلة(Pg:265/Vol:1  

This answer was collected from the official Ifta website of Darul Uloom Azaadville, South Africa. Most of the answers are checked and approved by Mufti Muhammed Saeed Motara Saheb D.B.

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