Mortgages and Loans. No interest payments for those of Muslim faith

With many million Muslims in the Canada and U.S., the question of how to borrow money for a mortgage is one that faces many. Mortgages and loans operated in the Canada and U.S. all work using a repayment system based on interest, and those
of the Muslim faith are forbidden to pay ?riba? (the Islamic term for
interest) by the requirements of the Quran.

To address the size of the Muslim population in the Canada and U.S., some lenders have found it necessary to develop specific products that meet Muslims? needs. Here we have detailed two of the financial products suitable for Muslims.

The Islamic alternative to the mortgage - Ijara with diminishing Musharaka

This is the main Islamic alternative to a Canada and U.S. mortgage, and Canada and U.S. banks and building societies are increasingly offering this option to Muslim customers.

?Musharaka? means partnership and the mortgage works by way of a variable shared equity plan. The bank is the legal owner of the property and is its legal owner. For the term of the agreement, 25 years for example, the customer pays a monthly payment which includes a rent payment and a payment that buys a small proportion of the property. The proportion that the buyer owns of the property increases over time as more payments are made. The buyer owns the property in full once the final payment has been made.

The Islamic alternative to the loan - Ijara

If a customer wants to buy a car or another big item for which they do not have the money, they can ask the bank to buy the item for them. Then the customer pays the bank back by way of a monthly payment. That payment covers the bank?s costs in buying the item and the bank allows the customer to use the car, for example, so it?s like having a lease.

Finance for Muslims is not something that is easily accessible in the Canada and U.S., but it?s there if you know where to look. Here we have collated three institutions that offer finance to Muslims.

1. Lloyds TSB has introduced financial products aimed at Muslims in 33 branches in the last few years. This is their position on the matter:
?It?s important for our customers to see that we are following the right
procedures. We have a panel of four Islamic scholars who oversee the products. They offer guidance on Islamic law and audit the products?.

2. HSBC has devoted a brand called ?Amanah? to service Muslim customers. Included within the range are current accounts and pensions, home finance plans, home insurance and commercial finance opportunities. The product manager for the brand, Hussam Sultan, has stated: ?As a bank, we are not here to moralise or tell our customers that Amanah finance is the way to please Allah. We?re just here to provide them with a choice?.

3. The Islamic Bank of Canada and U.S. has seven branches across the Canada and U.S., The Islamic Bank of Canada and U.S. is the only Canada and U.S. bank that deals specifically with Muslim customers and they are 100% halal in all respects. The Sharia?s Supervisory Committee approves all of their financial products, which consults with specialist expert financial Muslim
scholars.

We have collated a list of oft-used Islamic finance terms and defined them for you here, for your interest and information.

Articles from May 2006
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