Halal Mortgages: Alleged Misuse of Taqi Usmani’s Fatwa and 3 Important Questions
The latest fatwa spreading like wildfire across the internet deals with a volatile topic – Islamic finance. More specifically, halal mortgages. Even more specifically – a scholar whose signature is used as public proof of endorsement by certain Islamic finance companies has come out and said that he has given no such endorsements.
Mufti Taqi Usmani is a scholar of great international repute and respect, particularly in the fields of Hanafi fiqh, and Islamic finance in general. Here is the statement from him (taken from his website), and then we’ll delve into its importance below:
Announcement Regarding Misuse of a Fatwa
Thursday, 17 February 2011 12:32
This is for information of all concerned that I have been receiving correspondence from various places enquiring whether I have authorized any Ijarah contracts of certain financial institution in America, Australia and Canada. As evidence these companies have posted a 15 years old fatwa of mine on their websites. I would very explicitly like to declare the following in this regard:
I have never approved any Ijarah contract or scheme for any Financial Institution in America, Australia or Canada.
This fatwa was actually issued 15 years ago in peculiar circumstances prevalent at that time in favor of a house financing company, namely, Al-Amin Company based in Jeddah which they had intended to implement at that time but is no more acting in USA. This Fatwa cannot be used by any other company, because I never reviewed their contracts, nor do I serve on their Shriah Board . As such, the use of this fatwa by other financial institutions is illegal and misleading.
All such companies are requested not to refer to this Fatwa nor to use it as their marketing material, and immediately remove it from their websites failing which they may face legal action at their own cost.
The ijara (co-ownership) model of home finance is perhaps the most common scheme sold by Islamic finance companies. Taqi Usmani is one of the most reputable authorities to endorse such a scheme, so this statement from him has a direct ripple effect on those involved with such institutions as well as those considering a home purchase in the future.
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The ‘other side’ of this is an official endorsement publicized by Guidance Financial from Mufti Taqi Usmani and can be found on the last page of this white paper published by Guidance.
Another well known institute that provides Islamic financing utilizing Taqi Usmani’s name is La Riba. Their fatwa page prominently features Taqi Usmani’s name on the top. However, it is only after scrolling to the very bottom that you find the following text:
THIS IS NOT A FATWA BY HIS EMINENCE SHKH. TAQI USMANI. THESE ARE QUOTATIONS FROM HIS BOOK.
PLEASE NOTE THAT THIS INFORMATION IS PUBLISHED HERE TO EDUCATE THE MUSLIM USER WHO WANTS TO REMOVE RIBA FROM HIS/HER LIFE. THEY DO NOT DIRECTLY OR INDIRECTLY IMPLY THAT THE MENTIONED SCHOLARS HAVE SPONSORED, GIVEN DIRECT FATWA OR THE LIKE REGARDING LARIBA. We at LARIBA believe that it is the RESPONSIBILITY OF THE EDUCATED MUSLIM TO READ, COMPREHEND, ANALYZE & COMPARE then make his/her own decision.
WHILE LARIBA HAS IT IS OWN SHARI’AA ADVISORS IT’S OUR POLICY NOT TO USE THE EMINENCE & SCHOLARLY STATURE OF OUR SCHOLARS TO “MARKET” OR “SELL”. WE RELY ON THE MIND OF THE EDUCATED MUSLIM. WE ASK ALLAH TO ACCEPT.
Which only begs the question, why is Taqi Usmani’s name being used if it’s not for marketing purposes? The point I want to drive home here is not whether La Riba is right or wrong in quoting it – but the bigger picture – utilizing a scholar’s name to provide legitimacy to a finance scheme.
The core of the problem, and confusion now, is whether or not these Islamic finance institutions are 100% certified as they currently stand.
The vast majority of Muslims are not able to delve into the detailed jurisprudence of fiqh. In fact, a number of imams and scholars I have personally spoken to about some of these issues have deferred the questions to those scholars who are specialized in the field. Most Muslims do not understand Islamic contracts as most any lay person of any background does not. Because of that, we refer to scholars for their insight on huge decisions like buying a house and if it’s being done in a legitimate manner or not. If not, then its consequence is riba – a consequence nearly every Muslim understands regardless of their level of scholarship.
The endorsement of a scholar, especially a recognized expert (such as Mufti Taqi Usmani) may mean literally hundreds of millions of dollars worth of business from Muslims following his answer [As an example, Guidance has done $1.4 billion in business from 2002 to 2009].
While we are reasonable enough to know that we should not act as arm-chair jurists, we should have an expectation of those representing a contract to us for Islamic finance to not only being legally valid and viable, but Islamically as well. The question is how do we create the same protections for consumers against misrepresentation in fatwa as we do for legalities?
With that in mind, here are 3 important questions that must be raised in this regard.
*Please note these questions are general questions and not necessarily directed at any particular institution.
1) How often are updated contracts reviewed and approved by a shari’ah board, and which scholars have signed off on the actual contract being used by an Islamic finance company?
Even the latest endorsement that we could find was from 2002 (in the white paper referenced above). In 10 years, a lot has changed in regards to federal regulations. Also, as Islamic finance companies expand from state to state, they’re forced to meet different regulations in regards to loan origination, servicing, etc. There needs to be documentation furnished indicating which scholars have reviewed the final sale contract actually used in a mortgage and signed off on it. I simply find it implausible that the contract from 2002 is identical to the one being used today.
2) Are all practices done by the Islamic finance institution during the course of the contract and “declining co-ownership” shari’ah approved?
I have to disclose here that I actually have a contract with a US based Islamic finance institution. During the course of my contract, I was notified by mail (I have the paperwork to prove it) that the balance on my mortgage was actually sold to a ‘regular’ bank. The company itself tried to say that they simply transferred the administrative duties of collecting payment. However, the paperwork from the other bank indicated clearly the transferring of the debt (i.e. selling the debt) from the Islamic company to the bank. This is an important ethical question because if an institute is selling itself on providing an Islamic service to the Muslim community, then it needs to show some level of transparency in regards to the shari’ah compliance of such questionable actions.
3) How are inconsistencies between what Mufti Taqi Usmani advocates in his writings and the actual schemes used by these banks to be addressed?
In his writings on Islamic finance (example), it is clear that in a partnership the profit/loss risk must be shared. From my experience, it seems that this is not the case. If the Islamic finance company owns 90% of the house (with the buyer putting a 10% downpayment), then why is the company not liable for any loss in property value? I realized this when my ‘halal mortgage’ was sold to another bank: I am on the hook for the full “loan” amount regardless of the value of the investment (i.e. the house). If the house drops in value, and is sold at a loss, the only party that actually incurs the loss would be me – because I still owe the full amount to the Islamic finance company. I would owe it to them the exact same way as a conventional loan would be due to a bank.
This is just one of the inconsistencies I have found in regards to this “co-ownership” model. Is it, as Mahmoud el-Gamal says, simply holy water sprinkled over a regular mortgage?
What are your thoughts on Islamic finance? Have you used an Islamic finance institute – how did you feel about it going into it vs. after executing the contract?
How does the endorsement of a particular scholar affect your opinion on these issues?
Are there any scholars or people who work for Islamic financial institutions willing to tackle the 3 questions stated above here? I hope that no one shies away, a little bit of transparency can go a long way in removing doubts, and this discussion is long overdue at this point.
Related Post: The Failure of Islamic Finance
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March 27, 2012 at 2:02 AM
Why don’t you contact Mufti Taqi yourself and ask him these questions?
March 27, 2012 at 2:07 AM
sure, do you have a way of getting in touch with him?
March 29, 2012 at 12:42 AM
Mufti Taqi Usmani on his website dated 29 Oct 2007 actually talked about status of Guidance Financial Group Scheme and said that
“After a great deal of discussions and amendments brought in the scheme
of Guidance that lasted for about two years we have finally issued the
Fatwa in favor of the lawfulness of the Scheme. We have also mentioned
in the Fatwa the basic principles underlying the Scheme. I have heard
that some people have objections to the Scheme. If so, they should
mention the specific clauses”
So that seems to answers question about how often they check shariah
compliance and if they are using sheikhs name or not, and his engagement
in all this…
Also, comments from Mufti Taqi Usmanis’s page are about ijarah contracts
and not musharakah, hence confusion comes from assumptions beeing made.
(I see often students confuse leasing/ijarah and musharakah because
both have leasing component (of part of asset one does not own) – but
that is where similarity ends)
Mufti Usmani musharakah or declining balance co-ownership document was
co-signed with Shaykh Nizam Yaquby, Dr. Abdul Sattar Abu Ghuddah, Dr.
Muhammad Imran Usmani, Shaykh Yusuf Talal DeLorenzo- quite strong team –
and one should not be so relaxed and say – “Trade is [just] like
interest.”(2:275) – there are many people in this industry and some are
dedicated their life to establish part of deen so vital for our society.
September 15, 2013 at 11:28 AM
Almir stop putting on misleading qotes. below is the full ayat. Readt it fully.
Quran [2:275] Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, “Trade is [just] like interest.” But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah . But whoever returns to [dealing in interest or usury] – those are the companions of the Fire; they will abide eternally therein.
December 16, 2017 at 3:02 AM
I checked Mufti Taqi Usmani’s website and it lists “Member Shariah Board Guidance Financial Group, USA”.Here is a link: http://muftitaqiusmani.com/en/?page_id=11333
So, I am not sure what all this means.
March 27, 2012 at 3:46 AM
Salaam alaykum bro,
Great article. I have a great deal of distrust of the finance industry in general, and these wacked out contracts in particular. After having “used my mind” as La Riba requests, these contracts appear to be nothing more than syntactic window-dressing.
I recall one of these finance officers (nonMuslim) calling into a well-syndicated talk radio show, telling the host precisely how the wording is spun so that Muslims can pretend to themselves they’re not taking out riba loans, but in effect, they are. Both had a good chuckle at the nonsensical setup.
And yeah, they had scholars certifying them as well.
March 27, 2012 at 7:32 AM
Just for people’s information and not to start a debate, most of Taqi Uthmani’s own people reject his fatwa on riba, including one of his own teachers Saleemullah Khan who forwarded a book that academically and respectfully refuted Mufti Taqi’s fatwa. Most of the Hanafi scholars in Indo-Pak strongly disagree with his fatwa despite the fact that Hanafis are known to be the most liberal when it comes to issues related to financial transactions. Hence, people should be very careful even with Guidance Financial’s schemes.
I personally don’t trust any of these companies.
March 27, 2012 at 7:45 AM
While I do not give an ‘official fatwa’ on this matter, I have always said (and those whom I trust and are more knowledgeable than me in Islamic finance have told me) that these contracts resemble ‘hiyal’ (‘tricks’) – it is as if the basic structure of a mortgage remains the same, but some clauses are added here and there to make it appear that it’s legitimate.
Based on this, while I do not agree with Sh. Qardawi’s unconditional fatwa that allows a mortgage loan for one’s personal house, still, if one were to follow his fatwa, it would make more Islamic sense (since he calls it riba, but says that it is a necessity) than these contracts, which give the illusion of not being riba, but in essence appear to be so.
And Allah knows best…
March 27, 2012 at 8:56 AM
Sh Yasir, the fiqh might be confusing but that isn’t the essence of the problem.
As this announcements by T. Usmani, the core problem is that these businesses aren’t regulated. The shariah boards are too slow to keep up with these companies revisions of their offerings. The responsibly falls on us, the general Muslim consumer, to regulate them by demand full disclosure, calling them out when they abuse the consumer etc.
Otherwise, they’ll keep on having a field day with the general Muslim consumer to the religious leadership. Either they’ll have them sold on it or confused enough to be silent
March 27, 2012 at 9:04 AM
assalamu alaikkum sheik yasir,
With all due respect, if you could atleast make your opinion more public, it can help muslims who look up to you and listen to your lectures to avoid from getting fooled by these tricks. All i am saying is, you don’t need to give fatwa but make your opinion louder for us to benefit.
March 27, 2012 at 9:07 AM
Jazak-Allah khyran Sh Yasir. This may more sense, muslims spend more in order to be shariah compliant, while in reality it is not, Might as well just call it what it is, save your money, abhor it, and consider it as necessity.
If you remember, in one of TDC (long time ago), Sh Ibn Jibreen (RH) said more or less same thing right? I was not in that lecture and heard it later. Do you remember the context and what he said?
bint Suheil Ehmad
March 27, 2012 at 10:17 AM
As salaam ‘Alaikum Shaikh Yasir, my husband and I were saving up to invest in our own property through Guidance but this article has thoroughly confused us and upset us. Although I appreciate that Muslim Matters exposed the truth and I praise Allah for Guiding us however we are back to square one. I completely understand that you cannot give fatwas on this matter, but is there anything you can share with us, the less knowledgable people, regarding what Muslims in the U.S. can do that is completely halaal, as far as owning a house goes. Like most people we don’t have the capability to purchase up front with cash. Any suggestions you can give would be much appreciated as we look up to you and listen to many of your lectures. May Allah grant you success in Dunya and Akhira and bless your family with His Never-ending Mercy, Aameen.
March 27, 2012 at 2:08 PM
The entire Islamic Financing issue is quite a frustrating
ordeal. For someone who just wants a
label of “islamic” financing and look no further, perhaps the
frustration is a bit less. But even if for
someone well intended and careful, who really wants the halal and would not
mind paying rent all his/her life if the true halal wasn’t available, the lack
of most scholars actively indulging in this issue, and a wide variety of
opinions (whether actual fatawas from scholars or their skeptic remarks about
fatawa from others) make it a very frustrating experience. To add to all of this, most Islamic Financing
companies don’t let you see the actual Murabah/Musharaka/etc “Islamic” contract
that you will sign, until the day of the closing, which leaves you with no time
to evaluate it. They do this in the
guise of protecting their intellectual property (i.e. the contract that they
developed after paying the attorneys). But
this seriously limits a lay person’s ability to judge the actual contract, or
to consult someone on it. Furthermore, there is no transparency as to who is
actively on the “shura board” of the bank, and how they review the contract.
Financing is one of the greatest problems facing the Muslims, not just in the
West, but the entire world. Yet we do
not see any independent scholarly boards that can certify the Islamic financing
companies. Something similar to the “halal”
certification for food products. There
are many scholars who have made efforts to come forth with guidance on Islamic
Financing issues at an individual level (or in very small groups), but a
concerted large group scholarly effort is direly needed by the Muslim ummah. An
authority of a scholarly body needs to be established, which well-intended
people can trust blindly. This will also
force these “Islamic” financing companies to get certified from such scholarly
bodies and will put an end to the abuse that currently takes place in the name
of providing the halal option.
March 27, 2012 at 5:34 PM
I literally read both the contract and the Taqi Usmani book cover to cover (google “murabaha” by taqi usmani). I would not have signed my name on it if I felt like I was doing something haram
I feel fairly confident that my mortgage with UIF is halal. Is it possible that UIF was merely defrauding me and the terms of the contract I have with them are more malleable than I perceive? yes it is possible. But than any two party transaction is subject to different views. Buying a 0% interest car might only be marginally better. My minivan’s financing was given from Chrysler to TD Bank lat year. Is it haram? Not if they continue following the same terms.
I am literally stunned that YQ thinks it is possibly “more acceptable” to do a CLEAR riba transaction then to engage with Guidance/UIF/Devon Bank. Didn’t Allah declare war in the Quran on such people?
So it is OK to do something CLEARLY haram that EVERY-one (except Qaradawi ) thinks is haram, is repeatedly condemned strongly in the Quran and in the hadith…….instead of doing something that quite LARGE number of people think is very much halal (me being one of them).
I do not get your logic at all. Your comment makes it clear you have not actually even tried to read/understand these contracts….! Yet you accuse these banks and the many practicing Muslims who run them (in a “some say” fashion) of engaging in “heela” (and, incidentally, me all of us who have bought into this knowingly).
Is it okay to add “Allah knows best” after a lazy comment? Isn’t that kind of using Allah’s name in the wrong way? Traditionally it is added after a long thought out logic discussion and decision. Finally you could help a great deal more people by spending 5-10 hours reading a few ijara/murabaha contracts and understanding the Taqi Usmani book. It is not that hard. You have the credibility to give your opinion on this.
My personal believe is that Allah would not give us a commandment that is hard to figure out.
p.s. FULL Disclosure I am not an owner, investor, supplier to these murabaha/ijara companies though I am a customer of two of them. I do have acquaintances — none close — that work at some of these firms
p.p.s I apologize if I came off as rude. don’t mean any disrespect.
March 29, 2012 at 5:11 AM
Instead of apologizing in the PS below, why don’t you re-read what you write before posting the comment and make sure you don’t come off as rude (and immature), ESPECIALLY when you’re replying directly to such a respectable shaykh. The people of knowledge have rights and one of them is that they should be treated with the utmost respect.
*I doubt this is how you would respond if you were speaking face to face with Shaykh Yasir.
January 16, 2015 at 11:12 AM
Asalam o Alaikum
I am living in London, Currently looking at Home Purchase Plan from Al Rayan Bank. After reading your posts I am getting more confused then ever about these Halal financing products.
After looking at the product and reading on it, I am more swayed towards the fact that it is Halal. I think we all need to understand the product before commenting on it. It is important to understand that the Percentage figure they charge as monthly rent is calculated using the Bank of England Base rate but that does not mean that it is interest, They are only using the base rate to create a bench mark for calculating The rent.
The other reason why I am swayed towards it being Halal is the fact that the Bank Owns the property with you in a partnership, it is not lending you money, it is purchasing the property with you and it will share any losses that take place if the property looses its original value. Because it owns it’s share, it has a right to charge rent and that can be based on any bench mark.
I am hoping that someone can shed some more light in to the points I have mentioned above and make any arguments against it if possible.
I am not a mufti nor have any special knowledge in this subject so if I have said anything against the laws of Islam whether intentionally or not, I pray that Allah forgives me.
October 21, 2015 at 2:07 PM
I think what Shaikh Yassir was saying is based on the FATWA. So he is not legitimizing something. He is giving his opinion on something that is already out there for a specific circumstance, situation, time, place, etc.
Maybe you should look into what a Mufti goes through before he becomes one, and the process of issuing a fatwa and the responsibility that follows.
March 27, 2012 at 10:43 PM
Wa-`alaykum as-salam Sh Yasir,
The approach that we have found the leading fuqaha’-specialists in this area consistently applying themselves and encouraging others to adopt is one that is quite balanced: namely that we distinguish between the blameworthy ‘tricks’ (hiyal, sing. hilah) that you astutely mentioned, on the one hand, and permissible ‘outs’ (makharij, sing. makhraj), on the other. As you can appreciate, telling the difference between the two is crucially important, because permissible solutions are…well..permissible, even if they resemble impermissible transactions in many ways, making it difficult for non-specialists to distinguish.
The issue of course is telling the difference. This takes us back to the importance of knowing who our fuqaha’ who are competent in the area actually are, so that we 1) can acquire basic Islamic financial literacy (the essentials of the ‘fiqh of finance,” if you will) ourselves from them and 2) insist that each institution have an independent, expert Shari`ah Board (composed of these people) that actually reviews products and issues certificate of compliance (fatawa) that are accessible to the consuming public.
Adopting this approach and insisting on these best practices has the advantage of saving us from either dismissing all of these solution as tricks (through the baby out with the bathwater), one the one hand, and accepting everything that untrustworthy people put in front of us as halal, on the other! I am confident that the brothers and sisters can do it by Allah Mercy and Aid!
March 28, 2012 at 12:33 AM
I think Shaykh Yasir has already mentioned he’s consulted with those more knowledgable than himself in Islamic Finance and those scholars, whether you agree or not, are specialists and are differing with what others have come with.
One resource I would suggest viewing is amjaonline.org for a differing opinion.
August 17, 2015 at 8:00 AM
In reply to the comments by brother Mohammad regarding the Al Rayan bank’s Home Purchase plan I would like to point all the brothers to the following link which shows that the bank does not share profits and losses equally. I would like all the brothers to comment on this.
What happens in a negative equity situation?
March 28, 2012 at 9:52 AM
Wa Alaikum salaam,
When Allah SWT has declared dealing in Riba as a war against Allah and His Prophet, what kind of responsibility does that put on all the Muslims? What about scholars?
Is declaring attempts for Riba Free banking Halaal or Haram without providing solutions, enough?
I have heard many scholars that, merely by living in the US and western economies we end up supporting the Riba system. The car we buy with full down payment upfront is actually manufactured with money loaned on Riba. The system in US is that Federal Reserve Prints Money loans it to Big banks they then sell in the same way to the smaller banks so on and so forth. Almost every manufacturing is done with Riba money. You cannot NOT have a bank account.
Are we to wait or prioritize a Shariah state or can we do something about it within the system? How does this relate to living a Darul Harb?
March 29, 2012 at 1:34 AM
Many of the top scholars that are actively engaged in Islamic finance
are on the board of AAOIFI and they spend considerable time debating
these things… AAOIFI is quite conservative in their approach and
scholars from banks such as Rajhi and other banks in gcc region are
involved. So my suggestion for those who are serious about this issues
is to grab AAOIFI shariah standards (book available from their website)
and compare it to your local/regional Islamic bank practices? this will
give you good inside into how well they are doing… AAOIFI may not be
your ultimate guide for Islamic finance but this is something that is
standard for most of the Muslim countries.
For purposes of disclosure I dont not have affiliation with AAOIFI
or any finance organisations in US/UK
March 31, 2012 at 9:22 PM
This is excellent advice Ustadh.
April 25, 2012 at 3:32 PM
I think we should follow this opinion, it appear that everyone is fine with it, this is the danger when scholar’s start debating complex matter’s in front of regular Public, i chalange anyone if he or she at least read Taqui Usmani Book about islamic finance. i have heard his lecture he is a someone to be respected when it comes to this Topic. May Allah forgive us all.
March 27, 2012 at 8:31 AM
I am shocked and very much worried now. I almost payed my savings as down payment and got into GUIDNCE program thinking it is halal. My local masjid imam researched and recommended it so I can come out of the traditional loan. Brothers please help me out with your suggestion so I can be protected from HIS wrath
March 27, 2012 at 8:34 AM
A lot of these lenders are ran wolves in sheep clothing with employees & customers who have been mislead as early as coming in touch with their marketing material on their website. I know that is hard pill to swallow, especially who are in such contracts.
March 27, 2012 at 8:37 AM
As a board member of an islamic finance organization, I can provide a bit of insight into these issues.
1) With regards to operations being audited by a shariah board, you are answering your question. If, for example, an organization is using a Fatwa by Mufti Taqi but Mufti Taqi is not on their Shariah board, it is pretty obvious that the fatwa is static and the Shaikh which issues it is not taking responsibility for their ongoing operations. The purpose of the Shariah board is to provide ongoing operation audits of shariah compliance. The original fatwa only lays the groundwork of how they intend to operate… ensuring that the fatwa is acted upon is the duty of the shariah board.
There are many instance of bait and switch fatwas being utilized in our community (some by members outside the community, some by members of the community). Unfortunately this is a fact and the Muslim consumer simply needs to be aware of this and make an educated purchase.
March 27, 2012 at 8:57 AM
Please provide full disclosure of who you are and what is your affiliation. Thank you.
March 27, 2012 at 10:45 AM
the problem is that most Muslim consumers simply aren’t aware of this, and that’s why the people providing this “Islamic service” should take it upon themselves to provide some extra transparency. If Taqi Usmani is regularly reviewing Guidance’s updated contracts, why is the latest fatwa on their website dated over a decade ago?
March 27, 2012 at 8:47 AM
2) As for the original “declining balance” aka Musharaka contract, that was approved by Mufti Taqi Uthmani many years ago (presumably for Guidance). Speaking based on anecdote and not academically, I have been involved in musharaka based schemes for many years and have not encountered any scholarly objection to the structure of the contract.
Now, of course, the devil is in the details and a fatwa is only useful if it is implemented correctly. However, Mufti Taqi insists that the actual contract be presented before he will endorse any organization. So if an organization gets “approved” based on one contract and then uses another one with their clients, then this is deceit and the scholar cannot be held accountable for that. The onus is on the client to ensure that what he is signing on is in fact the same contract as that which was approved by the Shariah scholar.
Over and above the original contract, that is a question which needs to be asked from the individual shariah boards.
March 27, 2012 at 10:46 AM
i think the point being missed is that the average Muslim consumer (or client) does not have the ability to actually delve into the details and make sure the clauses in the contract are covered by the fatwa. Ideally, I would agree with you, and im most scenarios you’re right – but finance is not the case.
March 27, 2012 at 8:59 AM
3) There are two issues here.
The issue as you asking it, where you are responsible for 100% of the profit/loss regardless of your current percentage of ownership at the time of the sale is clearly not in accordance with the principles of Islamic finance.
However, there is one point of the classic musharaka agreement which the brothers often have confusion about and perhaps this is what you meant to say instead.
In a declining balance contract, say for instance that initially, the purchase price of the contract was split 50-50 between the homeowner and the financial institution. Then after one year, the homeowner’s payment amounted to him purchasing an additional 25% share of the house such that at that point in time, the homeowner owns 75% of the house and the institution 25%. If the house were to be sold for a profit/loss at that moment in time, the profit/loss should be shared 75-25%. I dont think anyone has any issue with that point.
The point of confusion arises when the property is paid off by the homeowner. Say for instance the house cost $100K and it was initially a 50-50 split. Over the course the course of 10 years, the home owner paid off an additional 25% and then at the 10 year anniversary, he won the proverbial “halal” lottery and paid off the remaning 25% in one shot. Now over the course of 10 years, the price of the house has increased so it is now worth $150K. So the issue is how is the capital gains ($50K) on the house split between the home owner and the financial institution. An argument can be made that it should be 50-50 as that was the initial ratio. But perhaps an argument can be made that the price increase only occurred in the last year. Regardless, clearly this is a point of contention as the ratio of ownership has been constantly declining. So in this instance, Mufti Taqi has stated that there is flexibility in how to deal with this issue so long as both parties agree to the percentage of the split at the time the contract is signed. So practically speaking, in this instance, the contract can state that the capital gains/loss at the time of the completion of the agreement (as differentiated from the profit/loss on sale of a jointly owned asset) is split 50-50, or 90-10, 100-0 or according to any mutual acceptable ratio provided that both parties agreed on the terms at the time the contract was signed.
March 27, 2012 at 10:51 AM
The point of confusion is this:
I buy a house for $100,000 with a downpayment of 10%. That means the Islamic bank owns 90% of the house, and i own 10%.
I owe a principal now of $90,000 that I can “buy back my shares” of the house, and I will pay rent (interest) while i’m buying back my shares since i’m living in the house.
Let’s say a year goes by, and i have paid off an additional 5% toward the principal. Now I own 15% of the house, and the bank owns 85%.
But I suddenly got a job in another city and need to sell the house, and due to the housing market the house will only sell for $50,000.
If its a TRUE partnership, that means we should sell the house, and I will recoup 15% of the 50,000 and the bank will take 85% of the 50,000 [$42,500].
However, the way that its structured now, both parties will not share in the loss. I would be forced to deal with it like a normal mortgage and do a short sale and ruin my credit history. Or, i would sell the house for 50k and still owe the bank the full 85,000 left on the “loan”
This means that its NOT a partnership, because the bank is 100% insulated from taking a loss of the INVESTMENT VALUE of the house at sale.
March 27, 2012 at 11:22 AM
I agree. It doesn’t sound very legitimate to me. I do not live in the US and am not familiar with the guidance financial contract… but if what you say is correct, this does sound rather dubious. According to my understanding, both profit and loss should be shared according to the percentage of ownership.
The best place to start would be if you have a copy of the contract you signed with guidance to send a copy with an attached letter to Mufti Taqi C/O Darul Ifta. Darul Uloom Karachi. Korangi Industrial Area. Karachi Pakistan. 75180. That is the general address for Darul Ifta and the letter will NOT be opened by Mufti Taqi. However Mufti Taqi is very meticulous and letters of this nature are often elevated to him or one of his associates who can address the issue.
On a related note, I just looked up the Shariah board of guidance and it shows Mufti Taqi as still being on the board. I know there has been alot of debate about Mufti Taqi’s stance on selling debt notes (sukuk), but recently he came out and clarified that in most instances, he is not of the opinion that they are permissible. So it seems rather strange that they would be doing something like that.
Not sure what more to say… something doesn’t seem right here. But I guess you already knew that.
March 27, 2014 at 4:59 PM
Pardon my extremely late response to this discourse, I’m just coming across it after taking an introductory course on Islamic finance by bro Almir.
There was a case study on the guidance declining balance scheme (diminishing musharaka) and if it is as I understand it, then it appears ok to me.
1. Let’s say the customer and the FI (financial institution) jointly purchased the house at 1000000 usd at an initial contribution of 20% and 80%.
2. Now it’s 2 years down the line and the customer’s owner %age has increased to 40% while the FI’s has decreased to 60%.
3. The customer is changing jobs and moving to a new house
4. What he’ll do is to purchase the FI’s remaining share at its exact amount. So he owns the whole house while the FI owns the debt to the tune of 600000 usd
5. Once he sells the house, he’ll pay off his debt, by implication the if is not responsible for how much the house is sold for.
6. He could successfully sell the house at a profit and all he’ll be paying the FI will be the debt he owes. He would have made a profit
7. Conversely, if the house is sold @ a loss, he’s still liable for the debt he owes the FI.
This appears straightforward enough to me. Except I’m missing something.
March 29, 2012 at 12:48 AM
In the scenerio you mention above, your majority owner would not allow you to sell the house. In a true partnership, you would not have the ultimate say in the sale of the house. If I owned the 85% of the house, why would I allow you to sell it for a loss when I am going to be absorbing most of the loss? The only way I would sell the property would be if YOU absorbed the loss because YOU want to move. YOU would have to make a decision of wheither its worth it or not. You may opt to rent it out.
However, since a homeowner wants ultimate decision in the sale of a property, they will have to give something up to the partner. In the above example, the homeowner is giving up shared responsibility for the loss but gaining control of the property whereby they can decide whent to sell it. Also, if they were to sell it for a gain they would also benefit.
Anyway, this does not seem like it has anything to do with riba. If you ask me “Hey mister millionaire, I want to buy a house and only have 20% can you help me out with 80%?” You bet I am going to have some preconditions. Is it not reasonable to say “Okay I will help you buy the property given that 1) we set a rent for teh property of which we split 80:20 2) you promise to use your 20% of the rent to slowly buy me out 3) You can decide when to sell the property but you are responsible for the gain/loss. This seems like a fair and generous arrangement from me.
Especially since the investment generate income: rent. The property will generate rent wheither one person owns it or wheither two people own it. That has nothing to do with riba, money generated on money.
Everyone would agree that paying rent is not riba.
Would it be fair is YOU the 20% owner decided to rent the property to a third party and collected the rent by your self or is it more fair to share the rent with me co-owner? Because the property is going to generate rental income regardless.
April 3, 2012 at 3:34 AM
I find it strange that you consider getting out of your contract as such a light thing when Allah says fulfill your contracts but because you found a job somewhere else you decide it’s ok to force the other party to take a loss based on your desire to move after you assured them you would actually fulfill your contract. This is not some light thing that you got into. Breach of contract is more of you just following your desires.
ibn abee omar
April 3, 2012 at 9:47 AM
Selling a house is not breaking a contract.
No one is forcing them to take a loss – that’s the way the islamic contract *should* be structured.
April 15, 2012 at 12:09 PM
The crux of the issue can be found in Mufti Taqi Usmani’s book. He has given permission to allow for an additional condition that is not part of the essential contract to be added that penalizes and prevents you from breaking the contract. If I recall correctly, only some Maliki scholars allowed this, and I strongly feel that the hiyal [tricks] Sh. Yasir Qadhi was talking about stem from this. This is one of the main tricks that opens the door to abuse.
March 27, 2012 at 9:17 AM
Lastly, I’d like to touch on the point made by Br. Ibrahim below.
While the gist of what you are saying is correct, please forgive me, but I think you are exaggerating a bit. The VAST majority of the hanafi scholars in the Indo-Pak world recognize Mufti Taqi as being a authority in the field and use his writings as the basis of their own.
I have read the paper by Maulana Saleemullah Khan and without getting into debates on the validity of madhabs, the majority of his objections are based on the fact that Mufti Taqi has ventured outside the confines of the Hanafi world in order to find the basis for his principles. Mufti Taqi himself has clearly admitted to this and provided an explanation for it. In the same way that throughout history, the ummah has been under “attack” by various academic trends, today the dominance of the interest based systems has reached the point where even muslims question whether it is possible to live life in accordance to Islam or whether being a Muslim requires one to be “backwards” and financially disadvantaged. In this regard, the writings of Mufti Taqi on the topic of islamic finance can be classified as a form of ijtihad (my point of view, not his)… and as is usually the result of ijtihad, many people just arent willing to change their frame of reference to accommodate it.
I find that people like ourselves who reside in the west are often very hypocritical in this regard. We will be the first to whine and complain about how difficult it is to live Islamically in the west. Yet when someone takes concrete steps to create institutions which will help us to accomplish this, we put on our taqwa caps and nit pick. As muslims, we need to be honest. Is fraud being committed in the name of Islamic finance… absolutely. There is no doubt about that and there are many instance of that which we are all aware of. Having said that, let’s not throw the baby out with the bath water. We need a critical mass to change the system… and often times in order to demonstrate the critical mass, you need brothers to take a leap of faith and to sign up for things which may have flaws, but which are an attempt to move in a better direction. Often times we dont understand the regulatory hurdles encountered by these organizations where they are trying to jam islamic square pegs into interest based round holes. It doesnt take a genius to notice the discrepancies… but I firmly believe that by being firm in our resolve to avoid interest and by staying the course, however flawed that may be, Insha’Allah things will improve.
March 27, 2012 at 10:26 AM
I dont believe we need critical mass on these institutes – we need to get away from telling muslims they should buy homes and other goods for which they dont have the money for. Stay off credit, live on cash as much as possible, and find other channels to invest in yourself (start a business, train a new skillset, and so on).
Dont worry, the muslims the world over nitpick on all fiqh issues, but this is one worth fighting over – no one wants to be conned into waging war with Allah and His Messenger.
March 27, 2012 at 10:36 AM
Yes do we really need to own/buy a home? It may be valid century ago, but now-a-days you can live good life in rent
March 27, 2012 at 11:29 AM
I don’t disagree with that. But I think that is part of a larger issue… which probably does need to be addressed first.
March 27, 2012 at 10:58 AM
i agree w/siraaj’s comments. i think your argument holds weight if islamic banks were truly servicing the community. as an example, we all put up with shortcomings from our masajid because at the end of they day they’re trying to HELP the community (as flawed as it may be).
With finance, no one feels that altruistic sense of community. I might have felt it a little before, but after actually signing up myself – i feel 100% that its deceit, and its companies that have no intention other than to repackage a haram product with a much higher muslim markup so they can rake in profits.
also, the leap of faith logic bothers me. i’d be willing to take a leap of faith if there was more transparency, more than a 10 year old fatwa at least. show us that scholars are actively reviewing your current contracts and BACK END PRACTICES and we might be willing to give more benefit of the doubt.
March 27, 2012 at 12:04 PM
I think your comments are fair.
I am speaking of the co-operative model rather than the “big bank” Guidance model. In the co-operative world, money is raised from investors (Muslims), so it is like the community is pooling their resources to allow their fellow members to purchase houses for personal use. Now… there are many drawbacks in this model as well, but at least it isnt crass “islamic” commercialism.
I am not at all familiar with how Guidance financial works and I suspect that you are 100% justified in your objections. My point was that there is a fine line between pointing out issues with certain financial institutes and the larger need for non-interest based alternatives. From the perspective of a da’ee, certain abuses of the deen is not reflective of the deen itself. The options are limited and definitely not ideal… but I think the focus should be on the larger issue of refraining from Interest, rather than providing justification and indirect encouragement to go towards interest.
I agree with Br Siraj wholeheartedly… the best alternative is to stay away from all of it. But from your point of view, at least on the day of judgement you can say that you tried your best and perhaps even paid for your principles. Something is better than nothing… especially if today’s flawed attempts can be developed into something proper tomorrow.
March 27, 2012 at 12:55 PM
jazakallahu khayr for your input.. i really do appreciate you adding your thoughts esp being part of the industry. it makes a lot of sense that you’re not in the US :) i think some other countries (based on a cursory look) have much better systems than we do
March 27, 2012 at 9:22 AM
Sorry to drag on…
One more point I would like to make with regards to the initial article which may be confusing for the brothers…
Guidance financial is not an Ijarah based contract. Therefore when Mufti Taqi states that he has not agreed to any Ijarah contracts, that does not include Guidance. Guidance (at least the last I checked) is musharaka based and I know personally, that at least initially, the contract Guidance financial presented to Mufti Taqi was approved.
I should add that I have no knowledge about whether Guidance is operating according to that contract… that would be something which would need to be clarified with their shariah board (their contact information should be readily available).
March 27, 2012 at 10:59 AM
guidance seems like a hybrid of musharakah and ijarah. the model sounds exactly like ijarah, and they even create a separate LLC for the “partnership” with the client.. but its labeled “musharakah”
March 27, 2012 at 9:40 AM
Omar, although misusing fatwas of scholars are definitely deceptive, but does not make the contract haram itself instantly. May be their contracts are still “acceptable”? Although the part where they sold your mortgage to regular bank definitely is very disturbing
March 27, 2012 at 10:37 AM
If someone deceive you at the door by abusing a fatwa, are you ready to go in and have dinner with them ?
March 27, 2012 at 10:35 AM
I have personally gotten a loan from Guidance and then ended up foreclosing on the house. These companies and nothing but proxy for the same products you can buy from any mortgage company. In fact, they are worst to deal with and you will be paying much more premium for the same product.
March 27, 2012 at 11:05 AM
WOW! I felt that this was the worst case scenario that would ultimately prove that this is not a CO-OWNERSHIP – i just never wanted to find a real example of one. Subhanallah may Allah (swt) make your affairs easy for you and your family.
March 27, 2012 at 11:16 AM
I was confused about the issue of Mufti Taqi Uthmani’s approval of Guidance Financial, so I sent an email to his official email address in May 2011 and got this reponse:
Yes, the Guidance Financial is still approved by Maulana Muhammad Taqi Usmani Sahab.
Rafat Saghir FarooquiSecretary toJustice Muhammad Taqi UsmaniDarul Uloom KarachiKorangi “K” Area – Karachi-75180, PakistanPh: +92-21-3512-3100, Fx: +92-21-3512-3233
March 27, 2012 at 12:37 PM
Salam Adil Bhai, can you please give us the email for Taqi Usmani. Jazak Allah.
March 27, 2012 at 12:35 PM
About a decade ago I personally researched the matter of scholarly endorsements (I left the economic details to the experts; not my forte) and found that the Guidance model was fully endorsed by not only Mufti Taqi Usmani but some of the leading authorities I trust in the US (my own shaykh Waleed Idrees and my friend Dr Hatem ElHajj, to name a few). The consensus seemed to be that, although there are imperfections in this budding Islamic sector, the Guidance contract was essentially valid and our best bet in the US. I even saw a followup fatwa from Taqi Usmani addressing some objections and continuing his endorsement.
So if you have some objective evidence to the contrary, you should present it. Otherwise, I think the tone of the article is misleading and leading many to a dangerous blanket conclusion that there is absolutely no difference between regular and “Islamic” mortgages. I beg to differ, and I would suggest we consider the ramifications for the thousands of Muslims who took these loans in a sincere attempt to follow Islamic principles in their lives.
March 27, 2012 at 12:53 PM
do you know if the follow up fatwa is available online?
you know, i actually somewhat agree with your criticism of the tone (despite being the author of the article) – but i would say the counterargument holds greater weight. if we DON’T raise these objections, then the discourse on this subject continues unchallenged – ie that these schemes are all halal and there’s no need to question. without this being raised, the only information dominating the discussion is the general fatawa and endorsements.
despite my best attempts at researching it, the only literature and endorsements i’ve found are about the actual scheme itself. But i haven’t yet found any of the scholars addressing the specific objections raised in the course of this article and comments – specifically the sale of the loan on the backend, and the insulation from any risk of loss on the value of the asset that we co-own.
Those are critical questions that are still unaddressed.
also, i personally used one of these companies based on endorsements just like the ones you mention, and its after getting into the contract myself that i’m noticing a lot of these inconsistencies and thus raising the question.
March 27, 2012 at 1:14 PM
I always found on AMJA website that they endorse Devon bank more than anything else. Sh Mian al Qudah, in fact in many fatwas on AMJA website said, LARIBA and Guidance has major issues, but Devon seems relatively clean (their murabhah plan)
March 27, 2012 at 8:51 PM
I don’t get it…what do you mean by “best bet”. In other words, does Waleed Idrees thinks there is still some haram in it but we can use it out of necessity? Can you share his fatwa?
March 27, 2012 at 12:38 PM
BTW, I speak about the fatwa/endorsement aspect. I fully agree with your concerns and questions raised.
I would also be interested in hearing from our Shaykh Yasser Birjas, who is currently teaching Pure Paisa on economic transactions. I believe he has done considerable research into the matter.
March 27, 2012 at 12:54 PM
shouldve read this before replying to the above one :)
March 27, 2012 at 1:28 PM
I studied this topic five years ago and researched the “halal” offerings before I bought my first home. Beside the profit loss and risk sharing flaw that the author has mentioned, I also realised another flaw – they assess your rent based on the local market but then also ask to pay the taxes on the full value of the house without contributing for the taxes on their share thus making it even costlier and thus making the contract actually more closer to the essence of riba ie exploitation! Because when I rent a house I dont have to pay taxes.
March 27, 2012 at 2:35 PM
A number of people have mentioned renting long-term as an alternative to buying. This is an option that many practicing Muslims have opted to take on, and I myself have been renting for almost three years now.
That said, although renting long-term is plausible, I don’t consider it realistic for the majority. Most Muslims living in this country- particularly those making enough money to purchase a home through conventional banking- will opt to buy if possible. The amount required for a down payment is nominal in comparison to the total price of a home, and there are financial advantages that come with owning a home, including generous tax breaks.
Additionally, so long as someone is able to work out a reasonable mortgage rate and maintain their finances (keep a couple of thousand in savings, etc.), there is much more stability that comes with owning versus renting. Even the best landlord will raise rent on an annual basis, and having families move around every few years is not easy. The amount spent in rent payments is often more than the 25/30-year mortgage equivalent of the same place, and although mortgages will eventually land you ownership of the house, rent is effectively money down the drain.
In order to convince the average Muslim to forego not only the financial advantages that come with buying a home, but also the social benefits (prestige, reputation, sense of accomplishment, etc.), you have to have a reasonable alternative. Given the aforementioned difficulties, I don’t see renting as a reasonable alternative, and think Islamic Finance is something that can offer comparable benefits in a more religiously conscious way.
I think the questions you’ve raised in the article are valid ones, and need to be discussed, but I think it’s important for us to not dismiss the entire industry because of the contractual shortcomings of many Islamic banks. Despite all their flaws, I think we can agree that there is a need for an alternative home buying process that satisfies shariah-compliance. These banks may not be ideal, but as interim solutions they may ultimately lead to a model that is better aligned with our religious sensibilities (insha’Allah). Just my 2 cents. Allahu A’alem.
March 27, 2012 at 3:10 PM
Just to add, there is another disadvantage to renting, and that is it limits your choices as well. For example, there might be properties next to a key location (your work or your masjid) that you can’t rent.
March 27, 2012 at 3:49 PM
My fear is that if we ‘support’ them through our dollars, they won’t increase ‘research’ into finding better ways, but rather continue on with what, in their view, “works” —from a profit perspective. And why would they? We aren’t forcing them to change anything when we continue to give them money. Our money will speak much louder than any inquiring emails.
Someone told me that, if we don’t support the present Islamic Financial institutions, then the field of Islamic Finance won’t get better and advance. But they’ve proven that their main interest is their profit line (like any business), and by this article, proven that they are willing to skew the truth to pressure, guilt, comfort well-meaning Muslims into the corner of 1) riba through a ‘non-muslim’ bank or 2) a not so clearly halal ‘muslim’ lender.
maybe option 1 (with a pinch of guilt) isn’t as bad (for eventual progress with more halaal non-riba options) as supporting people who lie/cheat/steal to gain our trust, only to zabiha a pig and give us qurbani?
March 27, 2012 at 4:49 PM
Your last point is important in illustrating the differing perspectives on the topic of Islamic finance. Continuing with the meat analogy, is Islamic finance:
a) A pig that’s slaughtered under the basmalah
b) A halal meat factory that machine slaughters its meat with a ‘bismillah’ sticker on the blade
If we are saying it is (a), then there’s no difference between it and a conventional mortgage. If it is closer to (b), we are saying that it’s not the ideal solution, but acceptable to certain scholars on the basis of necessity. Given the number of scholars who have certified certain banks and their contracts, I always assumed it to be closer to (b). Allahu A’alem.
March 27, 2012 at 4:10 PM
what if we consider our goal of existence as muslims is weighed between what is haram and what is financially beneficial.
Even if you let your fitra dictate the validity of the argument of institutions being setup to address the concern of practicing Muslims in the west in the way they are setup now you will not only feel mislead you will feel your imaan is being taken for granted.
I strongly urge those who interested in learning about Fiqh of Islamic Transactions to take the class offered by Jamaal Zarabozo who is from amongst those rare scholars who are economists by education as well as scholars. jamaalzarabozo dot com has more information about his class or you can refer to the past class notes on smahate dot com
March 30, 2012 at 1:18 PM
I have been listening to Zarabozo for 19 years – I havent once heard him say anything is permissible – even health insurance or having a checking account. I can bet the down payment on the white house that his answer will be ‘haram haram haram’ unless the house is purchased with gold dinars that you’ve been hiding in the hole under your jute mattress.
March 27, 2012 at 8:54 PM
Salaam alaykum Mobeen,
Wrt to costs of renting vs buying, I think most of what you’ve mentioned are generalities when all variables under discussion are turned in favor of buying (ie landlord raises rent, interest rates are low, buyer is intelligent, buyer really will stay in one home for 25 – 30 years (rarely happens these days)).
If I flip the script, then I’d rather rent if I can get a landlord to agree to not raise rent for a guaranteed lease of extended time, not having to maintain property upkeep or pay yearly taxes, having the flexibility to break a lease with minimal penalty if I need to move for a job and the lost opportunity cost when locked into a mortgage or being locked into a mortgage in a bad seller’s market and either not being able to take the job, or taking it, moving, and adding renting in the new location with my mortgage. And add to that that perhaps the property value has dropped and still being on the hook for the original principle.
And perhaps the biggest elephant in the room for the practicing Muslim who thinks of death constantly – what happens if you die and your family can’t pay the debt off? They couldn’t when you were alive, they’ll have to sell the house, and you and I both know it won’t go right away – how long can a Muslim handle the next beginnings of the next life with such a huge debt over their head, assuming it was halaal?
Good link to review about being in debt:
The New York Times put together an interactive chart that asks is it better to rent or buy, and you can input the numbers you have in mind, and it will tell you over a 6 year period whether it’s better to rent and funnel your down payment into an investment, or choose a house:
I would agree generally that in matters of fiqh, we ought to be accommodating and flexible, but with respect to riba, we ought to hold a very high standard. If Muslims held a high standard, I have no doubt we’d not have to settle for these half-baked contracts – non-Muslims would be the first to provide better financial products than those from the “islamic” companies.
As it stands, from personal experience it seems most will go for the conventional banking approach (mostly due to ignorance and this being the way the world works, it’s as normal as breathing), and the balance, with good intention, will opt for the ijarah or musharakah contracts.
March 28, 2012 at 1:39 PM
I wasnt necessarily advocating for people to buy homes, and agree with you that there are substantial benefits that come from renting over buying, particularly on the issue of flexibility and needing to move.
My only point is that for many Muslims, the thought of renting on a long-term basis is not tenable when taking into account the downsides that come from renting. In my own experiences and experiences of others I’ve been around, I’ve yet to come across a landlord who agreed to a fixed rent for longer than two years (most work on annual lease agreements). Most renters are forced into moving every few years, and stability is something most people regard as valuable when managing a family (not having to change schools, neighborhoods, etc.).
Also, when it comes to buying, many counties have generous first-time buyer benefits that allow them to qualify for low-priced homes at low interest rates. If you choose to itemize your tax deductions, there is quite a bit one can write off when owning a home, as opposed to literally no deductions when renting….
Again, its not that I disagree with you. Most buyers believe they are intelligent and that their home purchase is an asset that they can pass down generations. They don’t think of what will happen if they lose their job, or have to take out a second loan, or get foreclosed on. Most importantly, very few of them think of the akhirah when making such decisions; they think of their family, the life they can enjoy as a result of the home, and all the positives that come from home ownership. For many people, those benefits become realized- housing prices go up, people remain in the same home for 15-20 years and pay off a sizable portion of their total mortgage, and are able to sell the home and keep the profits generated from the sell.
If we have an Islamic banking system that is rife with problems and questionable practices, we can and should avoid those things and elect to rent. The question comes in for those who simply refuse to take that same path for all of the aforementioned reasons. Even someone with a very good job would literally need to save up for 10 to 15 years while minimizing their costs/expenses in order to buy a home full cash. Most people either don’t make enough money, have too many expenses, or are not financially responsible enough to ever be in a position to buy a home. I guess my question is, what are the solutions for those people? Should we tell them to rent knowing full well that they’d rather go into riba than rent forever? Why not at least evaluate existing institutions that have been certified by scholars that can grant them home ownership (Devon, University Bank, Guidance)?
March 28, 2012 at 4:20 PM
We may be having or two or three different discussions, so let me hone in a bit and re-focus us where I went, and that was the reality of home ownership vs renting a home, not the perception of it, or the permissibility of it (I assumed in this discussion it’s permissible, and went from the angle of the huge downside of debt). I’ll circle back to the rest of those topics.
From a factual perspective, most of what you’ve stated are either ideal scenarios, or neglecting the full financial context – sure, you can itemize, get low interest rates, and get plenty of benefit, but net-net, you’re still in the negative upfront for many years and may or may not be saving if you rent and invest instead, and ignore many many costs that come with either purchasing a new or used home (repairs, upgrades, servicing and maintenance, taxes, etc). Paying $30,000 to a $12,000 tax break is nonsense math. I can give myself a better tax deduction by paying rent and keeping the balance, assuming a mortgage and rent rate the same.
Wrt to finding good terms for renting, that’s not a lack of resources, that’s a lack of resourcefulness. Craigslist is full of people who can’t (and likely won’t for many years) sell their homes and would be happy to rent with extended leases and take the guaranteed income.
I can’t discuss the permissibility side of this discussion because I’m not a scholar to say it’s allowed or not. Based on the scholars I trust, my own research which includes not the contract itself alone, but seeing people like the author of this article watch a shari’ah board certified loan sold to a bank, window-dressed terms removed so Fannie and Freddie can own it, then I don’t see it as seeing it closer to window dressing something haraam as halaal, I see it as something potentially halaal morphing into something haraam. I suspect the scholars certifying these contracts are only certifying the aspect related to setting up the partnerships, not the aspect related to selling the loan to a bank. It’s like when a scholar comes to perform a marriage ceremony at a decked out banquet hall – he came there just to certify that the wali, the dowry, and the appropriate witnesses were present, and all relevant parties agreed to the marriage – his presence at the event doesn’t mean he’s also certifying the party as well.
Regarding perception, I think it really boils down to marketing 101, that people buy on emotion first, and then find logical justification for the purchase. Given the amount of social pressure, propaganda, and misinformation on home-buying, I don’t expect most Muslims even care about shari’ah compliant mortgages. In fact, I can tell you that since most don’t have that sense of iman coupled with fiqh of transactions, a very basic equation happens in the back of their minds – the bank mortgage is cheaper, so what’s the difference? I’m going the conventional bank route.
For the few who care, there are options if one TRULY wants to dig themselves in debt, but I would refrain from sharing it because I wouldn’t in any way want to damage someone so badly from debt. The Prophet (SAW) warned against it, and people would be wise to stay away from it, and learn to deal with some discomfort.
In my opinion, we are not doing a service to the side of the community that cares truly about doing this right by telling them to try out the financial products that exist today. We’re simply digging them in the same hole, with higher premiums on a (hopefully) halaal contract that will (often) be sold to a bank.
March 29, 2012 at 10:06 AM
Jazak Allah khayr for the responses bro. I don’t want to go on forever on this topic, but I think you’ve brought up a number of important points that are worthy of further discussion.
1) The extent to which my statements were idealized is debatable. I live in the DC Metro and am not as familiar with what other metropolitan areas have to offer, but in my county (and surrounding counties) there are first time buyer programs that qualify individuals to purchase homes at prices $50-$75k less than the listed price. There are a number of stipulations and conditions needed to fully qualify, as well as post purchase agreements (cant rent the places out, have to live in them for x number of years, etc.), but in an of themselves these programs are highly popular for obvious reasons.
I also think that you’re slightly aggrandizing the added costs that come with home ownership. Yes, homeowners assume repair, upgrade, and maintenance costs, but these costs are variable and highly unpredictable. Also, because this is your place, you have the added advantage of selecting your own process of resolution- you can choose to replace something, hold off, get something repaired, etc.
2) As for nonsense math- again, I can only speak for the DC Metro area, so these costs may differ from your own experiences. In the area I live, townhomes rent from $1500 (very low end) to $3500 (upscale communities). Single family home rental goes from $2000 to close to $5000 and higher. Depending on the interest rate, it is very possible for someone to buy a home and have a mortgage that mirrors these rental costs, and sometimes may even be less. If you are paying the exact same amount in mortgage payments vs. rent, how is it possible for you to get a better tax deduction by paying rent and keeping the balance? Perhaps I didn’t understand this point….
3) Rent and invest- I’m curious as to the type of investments you’re talking about. The most common one I’m familiar with is stock investing, and I can tell you that investing in the stock market is far from a guaranteed return. Even an intelligent investor that extensively researches stocks is liable to lose on many stock buys, and in the long run stocks rarely provide the type of returns most people expect/desire.
4) Wrt finding people willing to offer an extended lease with a fixed rent- I’m skeptical that landlords would accept such a condition in metropolitan areas (unless the fixed rent agreed to was much higher than the initial listing), but I’ll take your word for it.
5) Wrt the morphing point- I think the extent to which we assume these scholars to be naïve and/or unaware of the problematic practices done by these banks is likely overstated. I’m certain many of these scholars feel a sense of responsibility in facilitating halal alternatives for the Muslim community. When they keep hearing about how difficult it is for Muslims to live without homes and the struggles of trying to buy a home in a halal fashion, it’s difficult not to think that pressure plays into their willingness to certify a model/contract that is far from ideal.
6) I’m going to have to take issue with your dichotomizing of Muslims into those who simply lack the iman to refrain from riba mortgages versus those who refrain from home buying entirely. The number of Muslims eager and willing to opt for Islamic banks are many, and there’s a reason that Islamic banks continue to receive clients beyond their own marketing campaigns. I know people personally who have purchased homes through Islamic banks and have made major concessions in doing so- larger down payments, purchasing smaller homes, and paying higher monthly payments. These may sound trivial, but being offered a home loan only needing to put 5% down vs. 20% is a big difference and can require a family to forego necessary expenditures and live frugally for years. I can honestly say these people make the decision solely out of the hope that Allah accepts from their efforts, and in dismissing the entire enterprise of Islamic banking, we not only belittle the efforts they’ve made, but do so without offering any viable alternatives.
7) On your point concerning debt, then that will be there irrespective of the permissibility of the transaction. Even the most halal loan will bring with it debt. It is important in these discussions to make a distinction between our personal ethics and what is religiously permissible. The Prophet (sal Allahu alayhi wa sallam) said: “The one who takes people’s wealth intending to pay it back, Allaah will pay it back for him, and the one who takes it intending to destroy it, Allaah will destroy him.” Bukhaari (2387).
Ibn ‘Abd al-Barr said in al-Tamheed (23/238) about the one who will be kept out of paradise as a result of his debts:
The debt for which a person will be kept out of Paradise – and Allaah knows best – is that for which he left behind enough to pay it off but he did not leave instructions to that effect, or he was able to pay it off but did not do so, or he took the loan for some unlawful or extravagant matter and died without having paid it off.
As for the one who took a loan for something lawful because he was poor, and he died without leaving behind anything to pay it off, Allaah will not keep him from Paradise because of it, in sha Allaah. End quote.
On the note of dying in debt, perhaps there are scenarios in which one could transition the debt so as to mitigate the potential of dying in the state of debt. Maybe one can write in the contract that if he dies, his nearest kin will assume the remainder of the debt (with the agreement of the family) so that the debt is now on that family member and not on him. These are just ideas of ways in which one can manage the risk of dying in debt, and I’d be curious to hear what scholars advise in this regard…
8) On your final note, I too think it’s important that we educate our community on the parlous financial implications that come with purchasing a home. The only difference is that I think we’re doing a tremendous benefit for our community when/if we have halal alternatives to make those alternatives known. If our scholars truly investigate and arrive at the conclusion that every Islamic bank is impermissible, then there’s no debate about discouraging our community from buying in any manner outside of full cash. But if there are scholars we trust who are working with these organizations and certifying them, then it is much more purposeful to work with those organizations, communicate concerns, and recommend them for those determined to buy their own home.
March 29, 2012 at 3:28 PM
Wa iyyak Mobeen,
Good discussion, and I don’t mind continuing, it’s one of the few topics I don’t mind engaging and discussing :)
With respect to the numbers you’ve cited in points #1 and #2, we’re now honing in on why I call your numbers idealized. Your original post took something specific to your area, and made it general as though it was the country was benefiting from. My statement was that benefits will vary for renting vs buying, so it’s not as black and white as was first portrayed.
In point #3, you’re now telling me that I’m making a big deal about the costs of owning a home, but that was my point precisely and which you’re now repeating – depending on which factors you focus on, you will find benefit and harm both ways. As someone who has lived in apartments as well as both a medium and large home (parents home, owned, brand new), and going through them with my family to help them understand how to budget their costs and investments, I’m pretty well-aware of the costs that can come up, and often do, not just with me, but with others. Go out to lunch or dinner with work colleagues, mention anything about housing, and you’ll spend hours listening problems with their homes.
On point #5, the proof is in the pudding – the author of this article made a transaction with one of these shari’ah-certified organizations, and now a bank owes his debt as a conventional mortgage. With due respect to scholarship, they as all others are guilty until proven innocent, but practically speaking, they are human beings, and I cannot judge anyone’s intention, but I can acknowledge they are prone to mistakes, prone to errors of judgment, and prone to making decisions that are not in the best long-term interest of the Muslim community due to varying levels of pressure. My way of dealing with our scholarship is trust, but verify as well. As i mentioned, our own author is in this very predicament – how do you account for this? What I mentioned was my own speculation, and perhaps even making an excuse for them, and maybe you have as well with your own statement, so what we’re really debating are excuses for something that really is inexcusable.
On issue #6, I would say many relative to what? I know about the community you’re from, and it’s a great community, but you should know the community I grew up, the part that doesn’t come to the mosque unless it’s ‘eid, and then deck themselves out, which will be mocked and looked down on in the religious community. The part of the community that sees no problems in mixed gatherings with alcohol, that has no problem dating, the part whose religious training doesn’t go beyond memorizing a few ayaat of qur’aan with tajweed that gives hafidh wisaam nightmares. The part that doesn’t pray 5 times a day, not because they’re lazy, or don’t believe in having a connection with Allah, but because they dont see the connection between one and the other.
As for those engaging with these groups, there are many religiously committed folks I know who get involved in this, but I also know before marriage and all this pressure, many of them would be the staunchest against these schemes until it was time to deal with the pressure from family, wife, society, and so on. and then they cave =) But I assume the best irrespective, and maybe they had a change of heart in their fiqh opinion, which is fine, but let’s not kid ourselves, many of those getting into this are those who couldn’t get approved by the bank as well =D
About dying in debt, you may notice in my first post I purposefully left aside the question of permissibility because I don’t feel it’s my place to really talk about it, I’ve engaged with my own thoughts after you mentioned it, and I added this to the list of disadvantages of home ownership. It’s a strange and irresponsible inheritance to leave one’s family, a 30 year debt. By this time, normally, the kids have grown up and have also been encouraged to get their own 30 year debt on a house, so now the situation to to spread debt among children? What if you die young and pass it on to your wife and kids who aren’t working? Seems perilous to me, but to each their own risk-taking I suppose.
But let’s be clear – taking money out on a debt because you’re poor and dying is not the same as someone making $40k – 120k or more in the US (thus putting the person in the top 1% of the world earners and possible living standard at $40k) and taking out a loan of $300k – 400k for a home that is unneeded. this goes back to another discussion, of scholars from overseas passing fatwas when they don’t understand the living conditions of the area because they don’t reside here, but that’s another discussion.
People are not poor, they’re spoiled, and they’ve been conditioned into considering taking out huge amounts of debt and credit as a way of living life. This was not so only 20 years ago, when banks enforced a stricter standard home buying and giving credit, and people worked their rear ends off to keep a clean credit report, built up a sizeable down payment, and live within their means. It was a big deal to be given a loan to buy a home, and if those strict standards return, so too will better behaviors from the population in general over time.
To sum up, the propaganda machine of the housing and credit industry in concert with the government are not black and white – it’s not always financially better to purchase, and there are many potential financial black holes that make renting better, and each situation requires an evaluation. For the muslim, they should additionally consider what it means for their faith, and the burden on their family.
The alternative to home ownership already exists, and it’s only as difficult as you perceive it to be. If one’s emotional state regarding home purchasing isn’t in check, no amount of logical discussion about harms and benefits will change a person’s mind from only seeing benefit in home ownership and “money down the hole” in renting. It’s a simple sound byte with no basis in a properly contextualized discussion, but that’s politics for you =)
March 31, 2012 at 7:57 AM
I too find the topic interesting and appreciate the thoughtful replies :)
1) Rent vs. Buying- I think either you’re misunderstanding my point or maybe I’m misunderstanding yours. My objective was not and is not to advocate for home buying. It is providing an alternate perspective, one that is rarely considered by some practicing Muslims (please forgive the generalized appellations…it is something I find repulsive, but in the context of this discussion I pray you understand what I’m getting at) when denigrating the mere possibility of purchasing a home as opposed to renting.
Yes, my perspectives are a product of my specific context, but arent they all? And just because they are, does it make them immediately ‘idealized’? Many counties and cities have programs for first time buyers, there are tax credits provided by the government, free counseling and home buying courses from the government, and numerous other benefits that get offered for those interested in home buying. It should come as no surprise that federal and local institutions incentivize home buying as opposed to rent, and to treat it as inconsequential is to not understand important motivations that drive home buying.
2) Wrt your note on investing, the only real investment listed is for continuing education…the rest is just saving up. Depending on ones salary, family size, and expenses, this could take close to 20 years (or much, much longer)….at which point your kids will already be in college without the money you hoped to save for them.
If you somehow are able to save quicker, you may complete the task in 15 years, but by then your kids will have a handful of years to live in the new house before leaving for college, at which point a home that size won’t be necessary….And this is assuming someone has a good salary. Someone on the lower end of the ‘1%’ spectrum (40k let’s say) will probably never see a home in this scenario. I’m also glad you brought up inflation- saving $15k this year is not going to be as valuable ten years from now. A $300k property today could be $350 in ten years, and as you probably know, home prices trend upwards as a rule (minor dips in recession occur, but rarely subsist).
3) Your note on target audience is telling, and explains our shift in perspectives. The ‘eid’ community that you mention, at least in my mind, is not a demographic that would even remotely consider Islamic Finance. The people I speak of don’t fit into the same narrative- many are struggling to apply Islam in their lives, and the spectrum is quite large in terms of religious commitment and practice. No one- and I really mean no one- goes to an Islamic bank without having some level of concern about riba. And in this regard I think we have a fundamental disagreement about those who elect to pursue Islamic finance programs to own a home- I simply don’t see the majority of these people as selfish. The author of this article purchased a home from one such organization- I don’t believe the decision was a product of greed or conditioning, and I think the idea that marriage somehow coerced them into acquiescing on an issue they were previously unwavering on to be off base.
Shifts in positions are not only a product of convenience. They are also made as a product of enhanced understanding, personal growth, and life experiences.
I was once firmly convinced that I would never sign up for a credit card in my entire life (interestingly enough, the position was reinforced by MM articles on the topic :)). Then I tried to find apartment complexes to rent near the masjid, and all of them required a credit score which I didn’t have. I offered to put 6-months rent down and assured them that rent wouldn’t be a problem. My salary at the time was decent, and yet I was repeatedly rejected. It took me a long time to find an apartment willing to rent out to me, and when it happened I had to have family members co-sign who did have a credit score.
Additionally, I started experiencing growth in my career. I started working (and remain working) in positions that required me to have a corporate credit card for work expenses. Since my corporate cards were always American Express, I was forced to get my own separate credit card because American Express was not accepted for many services I needed that required credit card transactions (and no, they didn’t accept a debit card). Over time the amount I use credit cards has gone up, and I now have to make credit card transactions on a fairly regular basis. I literally only use it when I absolutely have to for work, but even within that limited scope of usage I end up using it quite a bit.
In the same vein, it is difficult to appreciate why people seriously consider buying homes unless you’ve been in their shoes. Close friends and families I’ve known who only rented literally moved every two to three years. These shifts were not easy, and it was something I’m sure they would have rather avoided. Not everyone has such resolve.
4) On the note about not getting approved by a regular bank, considering the unfavorable stipulations present in Islamic Finance contracts (higher down payments, higher monthly payments, etc), I’d assume these people would have little trouble getting a loan from a regular bank.
5) Wrt your note on dying with debt, if you frame it in those terms, it’s obviously irresponsible. Putting a more positive spin on it, a person could potentially have 20-years or 15-years left on the loan, and by that point will likely owe less than the price of the home. The inheritor can continue paying on it while renting it out, or sell it and make a profit on the home purchase. If the burden is shifted to kids who are now working and out of college, they can sell the home and divide the money amongst themselves to help their own future costs (marriage costs, family costs, perhaps a home of their own, etc.).
The citation of Ibn Abd al-Barr (rahimahullah) was not intended to somehow exonerate Muslims who pass away while still owing on their home. It was intended to illustrate that many scholars understood circumstances in which one could die in debt without being regarded as one who would immediately be punished. In other words, not everyone took the ahadith unconditionally. Take another statement by Imam ash-Shawkani (rahimahullah) in Nayl al-Awtaar (4/53) commenting on the hadith about a persons soul hanging after death until his debts are paid off:
“Here, the inheritors are being encouraged to pay off the debts of the deceased and informs them that his soul is suspended by the debts until they are paid off. This circumstance is conditional on the debtor dying while being in possession of wealth to pay towards his debts.
As for a person who dies without possessing any wealth, but who had been determined to pay off his debts, his case is different. There are other hadîth that tell us that Allah will fulfill his debts on his behalf. Indeed, it is established that the mere desire on the part of the dying person to pay off his debts is sufficient for Allah to fulfill them on his behalf.”
Again, the point is that there are justifications and reasons behind which scholars can arrive at the conclusion that buying a home through an Islamic bank is permissible despite the possibility of dying while still owing on the home. I wasnt offering such a reason, but attempting to demonstrate possibilities as to what might go through the head of a scholar contemplating this issue.
Even in your worst case scenario of shifting the burden to an entire family of people who aren’t working, how would rent change any of that? Landlords would probably be less forgiving in granting allowances for them to live without paying or paying a reduced rent. At least the house can be sold, or foreclosed on, or negotiated for a short sale.
To sum up the points I’m trying to make, there are a few things I’m trying to get at:
-It’s important for us to understand reasons why people purchase homes beyond the typical assumptions of conditioning, greed, or lack of iman. Such simplistic treatments of the topic truly doesnt do it justice.
-Advocating for permanent renting or purchasing a home with cash brings with it significant challenges, challenges that can easily and reasonably lead one to want to purchase a home through Islamic banking.
-All of our scholars are struggling with the challenges of modernity, and home buying is one such issue. I’m certain you’re familiar with the opinions coming out on a range of issues, from shaking hands to owning insurance (which is explicit gharar). As I’ve said in past posts, I dont believe these scholars are holding out for an ideal solution, just solutions. So long as some exist that are somewhat justifiable through ijtihaad, even with the presence of many shortcomings, insha’Allah it is better for one’s akhirah to follow that scholarly ijtihaad rather than surrender to explicitly riba banks that have far little to no scholarly approval. And so long as those opinions exists from reputable people of knowledge, it is important for us to let those opinions known, even if we convey them while outlining the numerous financial challenges that come with home ownership.
And Allah knows best.
Jazak Allah khayr again for the replies :)
March 31, 2012 at 4:13 PM
Salaam alaykum Mobeen,
The limits of embedded replies are being tested here, lol.
In response to your question about calling out your numbers and situations as idealized, I repeat that while I understand homebuying can be attractive, and at times better financially than even renting, this isn’t ALWAYS the case, and in fact many times it is not – the benefits you’ve mentioned are not available for everyone, the situation is not the same, and to make it sound as though it is in your opening paragraph, in my opinion, is a mistake. There are many other factors to evaluate.
In response to investing in one’s self, an assessment of financial priorities and current family priorities has to take place, and then a plan has to be made based on that. Depending on the situation, it may be better to further educate now, retool, and then enter the work force, and save. For others, they may decide to move to somewhere like Texas and become residents. For others, they may save for part of their kids education, encourage their kids to work and save in their teenage years (which I did as well), knock out the first two years of school in community college for drastically reduced prices, and then continue on with a combination of subsidized loans and pell grants (with the assumption no grants will be available). Each person needs to figure out where they are, where they want to go, and then work towards it.
Responding to your thoughts that no one goes to the Islamic bank without thoughts of avoiding riba, your view is, to put it bluntly, naive. I personally know people who go there simply looking for a better deal, and have come back turned off because the prices were higher than conventional banks and a super gyp. And I’ll repeat, there are also people with poor credit who also go to these institutions who were rejected by conventional banks (which is sad, sub-prime lending was a major factor in housing market tanking 2006 – 2008). And btw, when I say lack of iman, let me clarify and say lack of knowledge-based iman which would set the priority for both intention and action. The severity of certain sins often is not properly crystalized in the minds of many because the action is so normal, prevalent, and accepted, calling it evil or a major sin doesn’t make sense.
About dying with debt, I think the responsible thing to do is not put yourself in a position where you die with debt and pass your debts to others. If the family has a discussion and they agree together this is what they want, it’s not my business, but I don’t see myself doing this. I don’t believe many consider this question to begin with and while they could think it through and work it out, practically speaking, I don’t think it will happen. I think selling off the house occurs if you imagine the housing market recovers and banks are lending more freely (as muslims can sell to nonmuslims as well).
About higher down payments and premiums, it’s the people with bad credit that have to pay more in interest and pay higher down payments, not the reverse – people with better credit ratings get better deals. Income is not the issue, creditworthiness is the issue.
About living without a credit card, I’ve lived solely on a debit card for many years now, and have had no problems renting. I did have credit cards years ago when I didn’t know about riba, and I was irresponsible with them and they hurt, not helped, my credit, but they’ve been long since paid off, my credit rating remains relatively low compared to most, and getting nice apartments and so on has been pretty easy. I’m not one of those, btw, who don’t believe its disallowed to own a credit card, I just avoid it as a matter of practice. My wife happens to have gotten one last year because she wants to build her history, so she makes small purchases we could easily pay off immediately with cash, and that’s it.
I don’t believe I’ve stated in my posts these people were greedy, though conditioning and family pressure, both outside and after marriage are there. I was just speaking yesterday with a young brother who knew nothing of islamic financing and had no care for buying a house was now being pressured into it from family. I know of few people who do the whole thing right so that the investment is profitable, they manage their finances and family responsibly, and take advantage of house buying as both a family endeavor and financial investment. Perhaps the author was of the latter category, perhaps not, but I see few in the latter.
but that doesn’t answer the larger question I asked earlier, and that is how is these shariah certified orgs get to sell your debt a few years in to a bank?
March 27, 2012 at 3:51 PM
to me the bank is just a white collar robber
March 27, 2012 at 6:26 PM
AA. Either equate riba with interest and live pre-modern lives like Amish. Or accept the completely changed meaning of interest today and focus on ineqalities that the prohibition was meant to address. This double standard i.e. equating riba with interest and then indulging in this world that is built on an interest based financial system is untennable. We work in companies that exist because they were able to take loans and develop their ideas. We are praying in masjids that have been built through mortgages. We are buying ‘halal’ meat thanks to interest. Taqi Usmani is doing what most of us muslims practice in our daily lives anyways. He is providing a solution so that we can follow the letter of the law. Even if Islamic financial contracts are endorsed by Taqi Usmani, his form centered aproach will give us just that, a halal meat shop. There would be NO concern for social justice that is at the root of the riba prohibition just like there is NO concern for animal rights and fitra feed for the slaughtered animals in our halal meat shops.
March 30, 2012 at 2:30 PM
Well said. Riba is exploitation, injustice, and oppression – still happening in most of the muslim world where poor peasants are tied in debt (usary) for generations by wealthy land lords and made to work as slaves.
In Islam, it is permissible to me to sell something to someone for cash for $10 but if they want to buy it on installments over two years, I can sell it for $24 or $2/month. This is exactly what banks are doing. As for late fees, we enter into contracts with late fees all the time – including the utility, gas, and cable company. Most banks, if you miss payments, will work with you to avoid forclosure and waive late fees. This is exactly what ‘Islamic’ banks do. Why call the $50 a ‘processing’ fee and not riba? If in the example above, the buyer missed the $2 payment for a month, can I charge him a $.20 ‘processing’ fee and not call it riba?
Islamic & conventional financing are the same – if one is halal, then so is the other, and vice versa.
Amin van persie
April 2, 2012 at 3:42 PM
Salaam. This is a very naive way of looking at things brother. People need to understand that the bank is not here to serve the community but to make hard cold profits. Let me give you a clear example. If i wanted to buy a house (worth 100k in todays market), do you think the bank will sell me 100k loan in a instant cash transaction or a 200k a in credit transaction over 20 years? credit of course. Now the time difference between the transaction of acquiring the loan (which is what essentially a mortgage is!!) is the essence of riba!
April 2, 2012 at 10:30 PM
Brother, as long as the total price is known in advance it is permissible to raise the price for deferred payments. This is known as “Murabaha” contract and this is exactly what the modern mortgage does. Please consult with someone knowledgeable in your area before posting your naive comments.
April 2, 2012 at 10:35 PM
Secondly, no one (at least no one sane and sober) expects financial institutions to ‘serve the community’ without regard for profits. They are not charities – they are in this business to make money – and lots of it – and it is their right to do so. They’re not forcing anyone – it is a mutual contract that you enter with them.
March 27, 2012 at 6:31 PM
Junaid posted a really interesting link on his class notes related to Jamal Zarabozo’s Islamic Finance classes. That is a valuable find indeed and made my day. Zarabozo is not only Yasir Qadhi’s early mentor but also still one of the most conservative Islamic students of knowledge in the west.
Siraj’s take on this topic is sound. Why must we Muslims own homes? Nobody explores that question. Really it is no other reason than keeping up with the Jones’. Would you rather live all your life in an apartment (which is much better than a homeless shelter or the streets) or risk incurring serious sins by delving into riba? Waleed Basyouni once quoted a hadeeth about one riyal or dirham of riba being equivalent to having zina with your own mother or something to that effect. Yet we find Muslims in the scores buying a home. One of the strangest excuses I heard was “if we don’t buy a home who’s going to come marry our daughter? It will look so awkward if they come to an apartment”. Well even if that makes sense, I would say there are now homes for rent available! Go rent a home if you really want it that bad. There are numerous authentic ahadeeth that makes the idea of riba so repulsive. There’s a joke amongst Muslim scholars in the west about LaRiba needing to be called Na’amRiba. The contracts signed are your good old Fannie Mae and Freddie Mac contracts with interest percentages specified (unless they’ve re-worked their contracts lately). A lot of these “islamic” home contracts are akin to lipstick on a pig.
I personally fell for the lure of a home myself and as soon as I joined the work force I saved for 7 years and then bought a home with cash which some of my friends and I believe in. But I struggled for 7 years by eating pineapple slices (59 cent cans from Hill Country Fare) and a slice of pizza ($1) just so I can save up and not have to pay riba. Alhamdulillah I was able to avoid paying riba. And if I couldn’t have saved enough, then I would’ve stayed in an apartment or even in the streets rather than pay a dollar of riba. This is not to boast but to encourage other Muslims that hey if a middle class Muslim like me can do it, you can too.
There is mention of both Dr. Mahmoud el Gamal (Rice economist and egyptian Muslim but current Houstonite) and Dr. Main ul Qudah both of whom I have corresponded with and discussed Islamic finance with…Dr. Mahmoud has some extensive work and papers published on Islamic finance and he has immersed himself in this subject. He is extremely intelligent but also cynical about the window dressing aspect of current Islamic finance. His thesis, from what I can gather, is that Islamic finance as it stands is highly inefficient and the mark up in fees reflected in Islamic financial instruments including home loans reflects this inefficiency. I’ve corresponded with him about his attempt at emulating Dr. Younus’ micro-credit loan schemes in Egypt and there are major assumptions and clauses tied to those schemes including non-repayment penalties that are heavy.
The focus of discussion for common Muslims should shift to what the dangers of riba are and let the islamic finance scholars deal with the details. I have a Masters in Finance and have examined complex financial instruments and I can tell you that there is a reason for the dearth of Muslim scholars specializing in Islamic finance. The topic is difficult and requires endless hours of research. If you examine a cross section of the ahadeeth of our Rasool himself in dealing with loaning of materials or money, one can easily get confused as to why a certain transaction counts as riba and another doesn’t. And Allah Himself alludes to that by saying that humans say riba is like trade but in fact they aren’t. How they are similar and how they aren’t is a complex and difficult subject to master.
Those worried about saving their skins from the fire should just stay away from letting their sheep graze in questionable pastures and just live in an apartment or move in with your parents, or relatives, or a whole host of other viable options. Better to be humiliated than to pay one dollar of riba.
March 29, 2012 at 3:44 PM
Re-posting something Dinar Standard posted abt Islamic micro finance in Pakistan.
RT @muslimconsumer: Akhuwat interest free microfinance in Pakistan given $20 million as Qard-hasan 99.85% return from borrowers #IFHarvard
March 27, 2012 at 9:55 PM
What Sh. M Taqi Usmani’s statement and the confusion around the
issues raised in the second part of this article underscore is 1) the importance of
adopting the basic, confidence-boosting best practice of having a properly composed, properly operating Shari`ah
Board in place for each aspiring Shari`ah-compliant financial
institution and 2) the importance of stepping up our basic Islamic
literacy on financial matters.
March 27, 2012 at 11:24 PM
i was about to buy a car through one of these companies and based on my basic search about the fatawa, it appeared to pass the typical ltimus test questions. However, after getting approved, I asked for the actual copy of the contract (which they were hesitant to show). When I received it, I sent it to a good friend who is a specialist in islamic finance, and after reading through it, he advised that it is very suspect and he discourages me from entering into it..alHamdulilah for his good advise, I did not proceed with it.. I hope he reads this post and comments on it…below is snipet of my questions and their answers:
1. What happens in case the buyer wishes to sell the car? What is the split at the time of sale?
You can sell the car and pay off the amount you owe. There is no split because the PARTICIPATION is in the RIGHT of USE (Haqul Manfaa) as explained above.
2. God forbid, in case of accident if the car is totaled, what happens at that time financially?
Your car MUST be fully insured as per contract with a minimum deductible of $500. That is a MUST. In that case the insurance company (TAKAFUL) will pay to either repair the car or the value of a replacement if totaled.
3. If at any point during the loan, buyer wishes to to payoff the remaining loan/rent (total value remaining) are there any penalties or charges? NO!
4. You mentioned there is a Lien on the ownership of the vehicle, what % of equity will the lien be by the financer, let us say if the share is 50/50 for buyer/financer? Can you please send me a copy of that Lien agreement. The loan agreement explains the details. These are standardized agreements that protects the consumers by complying to the US Consumer Compliance Laws.
March 28, 2012 at 3:23 AM
The fundamental question we need to ask: Do we need Islamic Finance? If the answer is ‘yes’ then we need to appreciate the challenges within a Western regulatory framework for banks. Nevertheless internal Shariah supervision is critical and Islamic banks can never just rely on Shariah Boards that meet 4 times a year.
March 28, 2012 at 8:35 AM
“In his writings on Islamic finance (example), it is clear that in a partnership the profit/loss risk must be shared. From my experience, it seems that this is not the case. If the Islamic finance company owns 90% of the house (with the buyer putting a 10% downpayment), then why is the company not liable for any loss in property value? I realized this when my ‘halal mortgage’ was sold to another bank: I am on the hook for the full “loan” amount regardless of the value of the investment (i.e. the house). If the house drops in value, and is sold at a loss, the only party that actually incurs the loss would be me – because I still owe the full amount to the Islamic finance company. I would owe it to them the exact same way as a conventional loan would be due to a bank.”
I found this section most disturbing. You are already paying them for equity + “rent”, which some scholars say is OK. But now you’re saying they’re not liable for declining property values?! That’s unacceptable.
As for this business of buying and selling debts- is that even halal to begin with? I hate bankers and their “financial instruments”.
March 28, 2012 at 10:50 AM
Actually they don’t buy/sell debt here – (which if done must be at par) – but part of equity ownership… (remember you are leasing from them, so they own something) – if this was murabaha or credit sale contract there would be no asset but debt and you can not sell it at discount. (as that is exchanging different amounts of money – one could say interest of surplus (riba al fadl)
March 28, 2012 at 11:00 AM
the paperwork sent to the client after the transaction clearly shows transfer of a DEBT
March 29, 2012 at 12:51 AM
I am not familiar with details but if I assume that most of the laws are similar to what we have in Australia then clasifying something as debt in this transaction is more oftend done for tax purposes… from shariah point of view there is no debt in partnership relationship, you both own equity and rent is only debt after it becomes due. So what debt would they be selling? Unfortunately fixing future price in musharakah is problem with most of similar arrangement and this is why Mufti Usmani few years back criticised 80% of musharakah sukuk for not complying with shariah when pricing assets in the future.
March 28, 2012 at 10:37 AM
For those who may not know, Ijara Loans had posted on their website a
fatwa from Justice Taqi Usmani endorsing an ijara product many years ago in a
different country. Justice Taqi Usmani then posted on his website stating
that he has never endorsed such a product in the United States.
Unfortunately, since most people don’t know Ijara Loans but they do know
Guidance. They have made the assumption that he revoked his fatwa with
Guidance. This is the source of the rumor that has been going on for
March 29, 2012 at 12:35 AM
name is Mohamed-Umer Esmail and I am a
Shariah advisor for Ijara Loans. I acknowledge the differences of
opinion concerning the issue of Islamic modes of financing and I respect
all those who have posted in favor or against it.
However, I would like to clarify a few points:
1. Ijaraloans NEVER claimed that Mufti Muhammad Taqi Uthmani approved Ijaraloans.
2. Ijaraloans uses the same contract that was approved by Mufti Muhammad Taqi Uthmani in 1995 for another institution.
Thus, our claim is and has always been that we use the same contract
that was approved by Mufti Muhammad Taqi Uthmani in 1995.
4. There was no deception, lying or false attribution intended by Ijaraloans.
There is nothing haram, in my opinion, in the contract that was
approved by Mufti Muhammad Taqi Uthmani in 1995 for another institution.
Other Scholars may disagree and they have the right to disagree.
6. Ijaraloans bought the rights to use the contract for Ijaraloans from the other institution.
The issue is open to debate as to whether the contract approved in
1995 can still be applied today. In my opinion, it can, though others
have the right to disagree.
light of the above and what the esteemed author ibnabeeomar and other
Scholars have commented, I advise utmost discretion and listening to
both sides of the debate before moving forward with any financial
I may be contacted at 512 736 9532 or email@example.com for further inquiries you may have.
March 29, 2012 at 5:54 PM
jazakallahu khayr for stopping by to comment. my questions would be:
1) do you still utilize the same contract as 1995
2) how much do the contracts change to adjust to regulations in different states?
..although as i write this comment, i see from your email address that you’re canadian, so its probably different from the US
March 29, 2012 at 11:25 AM
Justice Usmani is directly endorsing guidance on this video as recently as May of last year!
Please watch it and share your thoughts on this? Does it clear up any confusion?
March 29, 2012 at 5:55 PM
can you directly address questions #2, and #3 in the original article here?
March 29, 2012 at 11:28 AM
A much needed article.
The article should have talked about Murabaha as well. A few banks offer it and it seems like a much cleaner approach than Ijara? Last I checked AMJA endorses Murabaha.On similar lines: what is the permissibility of investing in mutual funds like Amana Mutual Funds. I understand many scholars say it’s fine to invest if the primary business model is not to produce haram content or products BUT: – What if the company earns some interest (riba) on its savings?
– What if the company pays interest (riba) on its loans?
Since stock-holders are considered owners of companies and since all companies (i.e. Apple, Microsoft etc.) do the above, is investing in these companies permissible? Finally – what about home insurance? I know many brothers who have bought a home with cash but ended up getting home insurance.
Bottom line = We are in need of some serious islamic finance knowledge. Unfortunately we have a lot of brothers and scholars (with good intentions) but with wrong information and knowledge on this issue. I know Al Maghrib has started a lecture (Pure Paisa) but its hard for most people to get access to that information. Shaykh Yasir – does this sound like something you would be able to research?
March 29, 2012 at 6:19 PM
BACK-DOOR RIBA – by Sh. Imran HosseinIslamic Banks and other Islamic financial institutions are today lending money on interest through the back-door by disguising a loan as a sale on credit. They call it murabaha! But it is most certainly not murabaha! It is Riba! What the bank does is to offer an item on sale in a credit transaction with a price substantially higher than the cash price. While credit transactions are Halal, since the blessed Prophet (sallalahu ‘alaihi wa sallam) himself engaged in such transactions, there is no evidence that the credit price in such transactions was ever higher than the cash price. When credit price is higher than cash price then the implication would be that time has value. And the essence of Riba is that money grows over time. When a client wishes to purchase something, but does not possess the cash with which to purchase it, the so-called Islamic bank enters into the fiction of purchasing the item at its cash price and then selling it to the client on credit. The interest charges are added to the selling price thus making a credit price for the item substantially higher than the cash price. In fact the bank never actually purchases the item. Rather, it writes out a check to the client who then purchases the item in his name with the bank holding a lien on the item until the sale price is eventually paid to the bank. The bank therefore sold something that it never actually owned – and that is Haram! In actual fact the ‘sale’, also, was entirely fictitious. What the bank actually did was to ‘lend’ a specific sum of money on interest over a specific period of time and to then denominate the ‘loan’ in the amount of a final total that included the total interest payments as money due on a ‘sale’. It is when the client defaults on payment of installments of money due to the bank that one is treated to ridiculous and utterly scandalous financial gymnastics. Consider the following: a client entered into a so-called murabaha transaction with an unnamed Islamic Bank to purchase a house with a market price of $500,000. The bank wrote out the check to him for $500,000. with which he then purchased the house in his name. He thus became legal owner of the house. The bank then transacted with him a fictitious sale agreement to sell to him on credit a house that the bank never owned (and hence could not sell) for a total of $1 million. The difference between the credit and cash prices was thus $500,000. One month after entering into the agreement the client defaulted on his payments. The bank then repossessed the house and sold it on the open market for $500,000. But the bank went on to sue the client for an outstanding balance of almost $500,000. The court, however, dismissed the claim and ruled that the bank was entitled to nothing more than the interest payment for the actual duration of the contract (i.e., the amount of time it took the bank to recover its $500,000.) We have a stern warning to deliver to those scholars of Islam who persist in defending the so-called murabaha transactions of Islamic Banks today. They defend the transaction with Fatwas (fatawa). If they obstinately persist in their defense of today’s so-called Murabaha transactions, and then learn in Allah’s court that it was not Murabaha but Riba, at that time they cannot plead for mercy from Allah for they will have misguided people, nor can they say “I did not know”.
April 4, 2012 at 5:11 PM
Jazakallah Khair! Finally, somebody said this…however, I have listened to him quite bit and he has not yet discussed musharaka and mudaraba (profit/loss). The question still remains is there a need for complete profit/loss sharing, i.e., some aspects of profit/loss sharing, if agreed upon. For example, Guidance on their website says that they share risk. So the question is whatever level of risk they share, is it acceptable under the shariah? Does the risk sharing have to be according to percentage ownership?
The difference between tijara (trade/bussiness) and riba is the potential for profit or loss!
Time DOES NOT equal money, Time + effort = money….
March 29, 2012 at 6:22 PM
Omar, I think you need to not make a blanket statement on all Islamic finicial institutions in America. Mufti Taqi Usmani’s article was referring to a specific fatwa referring to a specific transaction – ‘ijara’ which some companies were misusing. I don’t think it’s fair or correct to generalize one of our powerful instituions in America.
March 30, 2012 at 7:09 AM
To be honest, and with all due respect to the author, I believe that one should be more trained in Islamic finance and conventional finance before delving in this controversial issue.
I specialized in finance for my MBA and also took an Islamic finance class from one of the leading non-Muslim attorneys in the world- and this field is amazingly complex and “new”, and from what I learned I can say this much:
Just because there are similarities with conventional finance, just because we may use similar documentaion, just because calculations yield similar rates of return does not mean that the two are the same, implying Islamic finance is wrong. Islamic finance did not exist until couple of decades and has made great strides in providing Muslims with options that did not exist before.
Arguments such as Muslims dont need houses or don’t need financing for businesses are so misguided in the practical sense, that it’s even hard to respond to them.
Having property that you can call your own, that you can give to your children, that you own the rights to it’s appreciation, are almost fundamental to living in these societies. Only for a very small minority, and paradoxically enough the very rich and sophisticared minority, who feel they can use their equity to increase returns in alternative investments, does renting make sense. Which for most of this sophisticated minority is a ROE of above 20%. Besides, most Muslims WILL buy a house, so who are we kidding?
I really believe that until a thorough analysis of the fundamentals of Islamic finance is undertaken, proper study of fatwas on it, detailed analysis of contracts, INCLUDING talking with the companies, their boards and principles, such articles may not be helpful to benefit Muslims in the big picture.
And this is my personal opinion and highlights the fact that Omar’s or Siraaj’s opinions don’t represent MM as a whole, just as mine doesn’t. Even Sh Yasir is not setting forth a MM view.
March 30, 2012 at 10:16 AM
what’s not helpful is what’s laid out about this topic already (including the article linked to at the end of the article above here). There’s a lot of misinformation, misconceptions, and outright allegations (ie some companies even trying to buy fatwas to be legitimate).
i agree its complex, but the bottom line is a lot of ppl are confused on this issue, and a lot of people have these questions (such as the 3 i mentioned at the end of the article).
instead of saying that articles like this are not good for the big picture – how about saying the islamic finance companies need to be more transparent, and do a better job of providing information about this SO THAT we don’t have all these unanswered questions?
Up til this point, no one has actually addressed all 3 questions, instead its just been a lot of back and forth on other issues.
It’s like a masjid where the board does something really stupid, messes over the masjid, wastes a lot of money, hires a bad imam or something – and when community members call them out on it, the board labels them as “fitnah makers”
So the easy solution is for someone to step up to the plate, and answer people’s misconceptions.
March 30, 2012 at 4:52 PM
“Just because there are similarities with conventional finance, just because we may use similar documentaion, just because calculations yield similar rates of return does not mean that the two are the same, implying Islamic finance is wrong.”
This is a pretty strong statement. What you’re saying is:
it may look like X
it may smell like X
it may feel like X
*but* it may NOT be X.
You obviously have some information we don’t. Could you please share it with us? Is your opinion based on knowledge of shariah or finance or both?
I would really like to know how you came to this conclusion.
April 7, 2012 at 3:50 PM
Let me share an example
I have a house that I want to sell. This is not a charitable sale. I can either sell it at the current market rate or I can sell it at terms where I can get a return that is suitable for the assumed risk. The bottomline in any financial deal is the link between risk and return. The more the risk, the more your expected return. That is why bank deposits earn so little and a risky enterprise will earn so much.
Assume that for the housing market, the average expected return is 5% (and that is actually what you will find in most stable market across the world). Relatively safe investment, so relatively low return. I have two options then: I can either do a rent to own agreement, sort of an ijara with the buyer or I can increase the price to earn the return I am seeking over x years. If the buyer wants to buy it in 10 years, I will actually use a typical mortgage calculation, put in my return of 5%, and get the total price that will be divided over 120 monthly payments. Just because you use the calculation, just because the math works out in a “mathematical” way, does not mean that this becomes haram. For a 100,000 home over 120 payments with a 5% return, I would sell you the house for $127,000 or $1060/month. Taxes/insurance/etc are your hassle because it’s your house. Alternatively, I could do a rent to own agreement, more typical of ijara. But even in this, I would seek 5% above and beyond any taxes and insurance, so if you want me to share in that, then I would just make that part of the costs for me and you would basically pay more monthly payment to me in order for me to help in other taxes, etc. Also, the “rent” does not have to be a market rent, because for both buyer/seller, the rate of return for the risk has to be similar to market. So, if the market rent is 10%, and I try to extract that, then the buyer would cry foul. So, “rent” becomes an economic rent, not the “rent” in the typical terminology.
Also, there are tax breaks for “interest payments”, which can be very significant. If you don’t call it interest on paper, then you lose that break. Unless you are interested in supporting Uncle Sam, terminology should not be a breaking point for a deal.
People tend to think in silos of their own situation, and the complainers are usually buyers. Remember there are two parties to a non-charitable house-purchase transation. For me to invest in this business, I absolutely have to get the return that the market will generally give for this risk. And if you want me to take more risk, like property depreciation risk, then I will be seeking an even higher return. Are buyers willing to give more? Are buyers interested in giving up a stake in their property appreciation? Lots of questions here.
Bottomline, math and terms don’t render agreements haram or not. It is a complex subject that can be tied up in emotion, without solution to the actual issue.
March 30, 2012 at 9:52 PM
“Arguments such as Muslims dont need houses or don’t need financing for businesses are so misguided in the practical sense”
Why buy what you cannot afford to buy? If you need space, you can rent house. What is the obsession of calling something of your own?
My cousin after working 8-9 years on a reasonable income, and being very careful in spending to buy/build a very good house in good area with cash, with help of family contribution that he is taking care of, in matter of just couple of years.
Similarly I know a brother, who also worked 10-12 years before buying his first house with some help of family.
Financially how would it make sense to buy something that you can hardly afford 20% of it (that too with loans to cover 20%). It should be other way around, If you can afford 80% of something, than you take loans to buy it.
March 30, 2012 at 10:56 PM
There are two separate discussions in there – permissibility and practicality. As I’ve mentioned previously, I’m not discussing the permissibility side, just the practical side of it.
And on that end, we’ll have to agree to disagree. People don’t need to own homes, they can rent. And while I agree people will turn to conventional banks anyway, most Muslims turn that way anyway even now because conventional banks are cheaper.
And starting a business on financing? Don’t get me started, starting a business is much easier than it used to be, what’s required is savvy and dedication after that.
April 3, 2012 at 10:16 AM
Amad, when you say “arguments such as Muslims don’t need houses are misguided in the practical sense” makes me wonder what you would reply to our Rasool when he told us to be in this world like a traveller who just sat down to rest for a bit or when he said that Muslims are like strangers in this world. If we practice conventional finance or window dressed Islamic finance then we aren’t like strangers. Yes, I know I know, we MBAs are taught to think about money and practicality and pragmatism and profit. But at what expense? Almost everything I learnt in Finance courses in graduate school is problematic under the light of the Q&S. I’d rather be like a traveller than be impatient and say buying a house in impractical. Millions of Muslims have lived and died in this world without owning homes. What about them? Were they not practical? Did they not safeguard their deen? You might say: “But what about my daughter? What about Umm Reem – if I don’t get her a house I won’t be a good husband?” Who cares. We should have spines of steel not jelly. We should be men, not metrosexuals. We should be fully Muslim, not half Muslim half Christian. And frankly, your being taught Islamic finance by one of the best kuffaar (ostensibly) lawyers in the world has as much relevance to your understanding of the subject as Muslims who learn Islam from Christian Professors delivering lectures on Islam. Sure, you scored in the top 5% at Wharton, so what? You underestimate the intellect of Muslims around you. Even amongst students who attend Maghrib, there are those who do not like ‘wishy washy’ answers and whose intellect is as sharp or sharper than some of the highly intelligent instructors. But I digress. Abu Ammar’s response to this article was diplomatic and cautious. I remember seeing him in a picture wearing a polo shirt and a backpack in front of his house in Memphis. Perhaps he can tell his students how he bought the house (or whether he rents it) – so we can follow him as a role model.
Aly Balagamwala | DiscoMaulvi
April 3, 2012 at 10:33 AM
Dear Abu Yusuf
Your comments repeatedly violate our comments policy. Kindly refrain from comments of a personal nature. Jazak’Allah Khairin.
April 3, 2012 at 12:07 PM
What are the comments policies?
Aly Balagamwala | DiscoMaulvi
April 4, 2012 at 4:16 AM
Akhi the comments policy was posted on MM some time back but unfortunately in the move to the new site that particular page got corrupted. We are in the process of restoring that page. In the meantime the summary of the content:
Make Rasulullah your role model
Read the post completely before commenting
Read the thread
Stay on topic
Think before you type – check your language
Cite your sources with links or inline quoting
Make the tone of your message clear
April 3, 2012 at 10:56 AM
“Amad, when you say “arguments such as Muslims don’t need houses are misguided in the practical sense” makes me wonder what you would reply to our Rasool when he told us to be in this world like a traveller who just sat down to rest for a bit or when he said that Muslims are like strangers in this world.”
So if we go with that argument, then there should be no need to have any fiqh for zakat. After all, being able to give zakat means being able to have a good deal of money (around $4000 with the current price of gold) saved for a year. And surely having such an amount goes against what you quote the Rasool (SAW) as saying? Islam offers a solution for each and every issue we come across in the world, even if some people consider it unpractical.
April 7, 2012 at 3:56 PM
It is obvious Abu Yusuf that you have a certain deep-rooted personal issue with me. Why don’t you email me directly and discuss? I am sure you know my email already, considering that many have complained that you have been stalking them.
So please contact me and lets get personal jealousies/insecurities/complaints or whatever else you might have off MM… In the case of you not having my email, contact info at muslimmatters dot org and they’ll get you in touch with me.
looking forward to your email (i.e. if you can shake off anonymous kuniyas and fake email addresses that you provide)
March 30, 2012 at 2:11 PM
Disclosure: I have purchased a house on the Devon ‘murabaha’ model
We are a nation who are blindly following the literal ‘syntax’ of the law without looking at its objectives. We satisfy ourselves that something is ‘halal’ by simply looking at how its packaged.
Most people do not even realize where the ‘riba’ in conventional mortgages is NOT that you are paying more on the house over a given time period but that you are ‘exchanging’ money for money i.e. the bank does NOT own the house it is financing for you. So how does Devon handle this? They pretend, at the time of closing, that they first ‘bought’ the house from the seller and then they sold it to you – and they charge you twice the closing costs!!
May I ask, what is the difference here? THat they ‘technically’ owned the title to the house for five minutes before transferring the house to me? The whole reason the shariah rule that “you cannot sell what you do not own” was made was to *protect* the buyer. But in this day and age we have title companies that do this. SO why this fixation on imitating the mere fomalities of this rule? What additional protection does it give me as a buyer other than costing me more on the closing costs?
This is all hogwash. The underlying system (underwriting) is *exactly* the same as a conventional mortgage. Our scholars are stuck in a time warp where they cannot comprehend the workings of modern financial systems and how the goals of the shariah relate to them.
After looking more into this, I have come to the conclusion that islamic financing is nothing but a smoke screen to satisfy ‘pious’ muslims with certain words, terminology, and processes and rob them at the same time. I am seriously considering refinancing with a conventional bank where I will get better rates and better service.
March 30, 2012 at 9:45 PM
If I am not mistaken, having two transactions in one transaction (and one transaction conditional on another) is also islamically problematic (scholars can clarify it). This is the issue I have with Devon, they wont buy the particular house, unless you are going to buy it from them. If they were just buying random houses, and selling for high prices, that would be different case
March 31, 2012 at 10:26 AM
This is what I’m getting at. Is this rule an explicit rule in the Quran or sunnah or was devised by scholars a thousand years ago to *protect* trades based on the general principles of shariah? Is it applicable in modern day financial systems, or are we just blindly stuck on such ancient rules that do not achieve their *objectives* today? Are we just looking at the superficial aspects of these rules? These are questions that need to be answered by the mujtahids of today.
It doesn’t make sense to just say Imam Shafi said ‘can’t have one transactional conditional on another’. We need ot ask *why* he said it and how it applied to their times – and how it applied ot ours. What was the *objective* that was being met, and if we just blindly apply that rule superficially are the same objectives being met or not, or in fact will it do more *harm* instead of benefit.
April 3, 2012 at 11:02 AM
Disclosure: I have purchased a house on the Guidance model, one of the main reasons being that it was endorsed by Mufti Taqi Usmani.
“We are a nation who are blindly following the literal ‘syntax’ of the law without looking at its objectives.”
So I am 100% against riba, don’t get me wrong here. But let me say something which may sound controversial. If we look at objectives, then the objective of not indulging in riba is because it is exploitive, and is the opposite of giving charity. But are home owners who buy homes, whether on riba or on the halal alternatives, really being exploited? I’m talking about someone who can afford payments, does not buy more than he can afford, etc. Is that person being exploited or he is benefiting? Again, I don’t indulge in riba Alhamdolillah, but if we are talking about objectives, then shouldn’t this be taken into account?
April 3, 2012 at 12:20 PM
Yes, I totally agree with you. That’s what I was saying.
May 9, 2012 at 10:48 AM
may be the islamic concern is not only whether it is benefiting you, but also it is also more benefiting to the oppressive loaners and sustaining them to keep oppressing the ummah. the rich will get richer and the poor will get poorer.
May 9, 2012 at 10:55 AM
April 1, 2012 at 4:20 PM
Jazakum Allahu Khayrun. Very informative article
April 1, 2012 at 9:52 PM
He’s not Mufti Taqi’s representative.
April 3, 2012 at 4:05 PM
I just looked at the list of organizations Sh Taqi Uthmani is affiliated with – from his website and it does list Guidance.
Current Affiliated Institutions • Chairman Shariah Board, Central Bank of Bahrain • Chairman Shariah Board, Abu Dhabi Islamic Bank, U.A.E. • Chairman Shariah Board, Meezan Bank Ltd., Karachi, Pakistan • Chairman Shariah Board, Dubai Bank, Dubai • Chairman Shariah Board, International Islamic Rating Agency, Bahrain • Chairman Shariah Board, Swiss Re-Takaful, Switzerland • Chairman Shariah Board, Pak-Kuwait Takaful, Karachi • Chairman Shariah Board, Pak-Qatar Takaful, Karachi • Chairman Shariah Board, Bank Islami, Karachi • Chairman Shariah Board, JS Investments Islamic Fund, Karachi • Chairman Shariah Board, JS Islamic Pension Savings Fund • Chairman Shariah Board, Arif Habib Investments – Pakistan Intrnational Element Islamic Fund, Karachi • Member Shariah Board, Arcapita Bank, Bahrain • Member Shariah Board, Islamic Corporation for the Development of the Private Sector (ICD), an organ of IDB Jeddah • Member Shariah Board, Guidance Financial Group, USA
April 7, 2012 at 11:27 AM
Allow me to post a different view.May Allah(swt) guide us on to the right path through this different opinion.
Islamic Finance is faced with few inherent Problems:
*Finance needs finding roots in Islam.
*Islam promotes Qarz and that has different rules.
*Islam does not require us to be compatible with current practices.
*Islam has own Economic System,We need to go by that.
*We need to do research on Origin of Banking.It was not there in 10 Hijra.
*Banking is a flower from garden if Islam(cf.S.D.Goitien).
*Before 1500, there was Banking in Italy & Italian Bankers brought that to England.Lombardee is in Italy & Lombard Street in London.We need to look deeply into this(cf.400 yrs of Banking,Dictionary of Banking and Finance-Hanson Derk page 364-366)
*There was no interest in England till 1500.
*Interest was legalised by Henry VIII around 1545.
*There may be more if we go for research.
April 10, 2012 at 12:06 AM
As an attorney handling many foreclosures for Muslims in America, who have/had loans through Islamic financing models, I submit that there are many inconsistencies with the Fatwa’s referenced to and the questionable tactics that are used by the “Sharia Compliant” lenders. To date, a few attorneys in the area have decided to also file foreclosure proceedings upon the “Sharia-Compliant” lender as co-owner of the property. At this point one of two things will happen, if the co-ownership is true then the Sharia Compliant lender will not fight the foreclosure lawsuit, if they indeed never intended to co-own they will file a motion to dismiss the lawsuit. When they file the motion to dismiss their real tactics will become memorialized through public record. Also, at that point it will make it clear that they were misleading, falsifying or simply defrauding the consumer, which makes them susceptible to other legal accountability.
April 10, 2012 at 1:55 PM
Can you please keep us updated on the outcome of this lawsuit.
ibn abee omar
April 22, 2012 at 3:03 AM
we would love a follow up on this, never thought of it that way, want to see how it turns out
July 7, 2012 at 12:15 AM
Br. Ahmed: if you could kindly post your contact info I’d like to join in filing foreclosure proceedings upon Guidance.
I am currently paying $1800/month for th past five years which amounts to aobut 30000 and now the time has come where I need to sell the house and Guidance wants no part in the loss. Sounds not quite shariah compliant to me. !
April 11, 2012 at 12:23 AM
The burden of proof needs to be on the institution which claims to be Islamic..not on the one who is using his services. Just like Zabiha meat…once declared by the host, we don’t probe further.The burden of sin lies on them.
April 11, 2012 at 12:57 PM
“Halal” Mortgages – are deeply rooted in RIBA!!!
If we give sincere answers to the questions in discussion, we will see that the
current ijara schemes are almost identical to conventional mortgages. They
appear to be a ruse designed to promote conventional interest-based practices
using “Islamic terminologies and Sharee’ah expressions”……The ijara scheme as it is implemented here in the UK by major banks: Ahli United
Bank (formerly called the United Bank of Kuwait), United National Bank and HSBC
is totally prohibited. In fact, it is a deception rooted in riba. Until the
Muslims in charge of these schemes prove that the above argument is invalid and
give clear answers to the questions highlighted earlier, I believe that such
transactions are totally prohibited, and I warn brothers and sisters not to get
involved with them. I would also like to emphasize that the view of some
Muslims, that this scheme is better than the conventional riba-based mortgage
alternative and should therefore be used until a pure halal scheme is available,
is incorrect. This is because there is no significant difference between the two
schemes. And Allah knows best …..by Haitham al-Haddâd
April 20, 2012 at 10:18 PM
Have not read the entire discussion (and I am seriously having to restrain myself from commenting on many of the points brought up) but I did want to just post a note on the incident of the Islamic bank selling the loan to a third party servicer– when we asked about this when taking our Islamic home loan they said that when the loan is sold it is the CONTRACT that is sold and the entity which purchases it is required by law to maintain and uphold *all the terms of the original contract*. So it is incorrect to say that the new bank now owns your loan as a “conventional mortgage” as the original contract must be honored. Hope that helps.
ibn abee omar
April 22, 2012 at 3:04 AM
actually.. i have proof that the new bank owns my loan as a conventional mortgage. they sent me paperwork indicating as such, and now that ive enrolled in online account access, it also shows as a conventional loan.
April 27, 2012 at 12:34 PM
In response to #3, I think it’s fairly logical that this question be raised about institutions that Mufti Taqi Usmani approves and is on their Shariah boards. Obviously, he can’t be held responsible for what everyone else is doing in the name of Islamic finance.
If you take a look at his website, it seems that the only institution he is currently affiliated with in the United States is Guidance Financial.
I looked a bit on Guidance’s website and found a section on white papers.
The paper on “The Declining Balance Co-ownership Program” seems to have answers to some of the questions that have been raised here. For example, look especially at #7 in http://guidanceresidential.com/images/pdfs/customer_white_paper-dbcp-.pdf which directly addresses your question on profit/loss sharing in case of an early sale.
And the paper on “Sharia Supervision in Modern Islamic Finance” seems to address question #2. (http://guidanceresidential.com/images/pdfs/shariah_supervision_in_modern_islamic_finance.pdf)
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Yeahminn Ali Sueree Nannay
May 9, 2012 at 3:54 PM
I read both the original posting and the response from guidance, and
unfortunately this is nothing new. I have been telling people about this
for years, because first of all guidance gets its funding as a bundled
loan from FannieMae at a lower interest rate and the resells individual
loans to muslim consumers, as Yasir Qhadi said, using fancy legal
language that makes it sound like it is not interest.
I disagree however with saying that the Ijara model is not a halal
model, because if done right using money originated from a halal source
it can be a good way. The main problem is that Muslims w/ Billions of
dollars are not willing to fund organizations like ameenhousing.com,
which are doing Ijara the right way in a cooperative setting.
Also, the heart of the problem lies with not having an islamic central
bank, because the true islamic model is to give loans at 0% interest
with no conditions of ijara or otherwise. Money is not something that
should be done for a profit, but I guess that is the challenge of our
generation is to try to figure out how to make that happen without
having an islamic state funding it!
July 12, 2012 at 9:15 AM
For any ‘lay people’ to understand the “concept of borrowing”….if you borrow one cent/pound/dollar, then you owe the equal amount back.
If you are asked to pay back that same amount plus more (whether it is 1 extra cent) then is it classed as RIBA !!
October 4, 2012 at 12:02 PM
@ ibn abee omar; Given your experience and what you know now would you go with conventional mortgage or just rent.
December 21, 2012 at 11:00 AM
One of the comments in the original article was that the debt got sold, and that is permissible as there are different types of mortgage debt that is traded, a section 8 security is a traditional debt and a section 9 is a debt that carries withit theoretical ownership, and that is a permissible transfer, and as far as i know the companies that provide the saleable Sharia compliant debt use the section 9 securities, that would be the question i would ask.
January 4, 2013 at 12:53 AM
Have people considered the fact that when you rent home/apartments/condos, you are paying rent to someone participating in conventional interest loans? Is there a hadith that says anyone one that participates, witnesses, help collect it ect.. Doesnt this make a need? Thoughts please.. Also ran across a program by halalinc which seems to cure alot of the issues discussed
January 21, 2013 at 1:59 PM
Disclaimer: I have a contract with Lariba as well as with Guidance Residential. I am not personally related to anyone there, or have any other transactions with them which could be deemed as a potential conflict of interest.
I have read all the opinions and comments posted above. I do not possess any extra knowledge of economics or finance… heck I don’t even work for a bank!! I’m a physician!!! But I wanted to add to this very important discussion based on my experiences with both companies as well as my need for finding funding for a new house that I will be constructing the very near future.
These institutions are NOT out there to cheat you, defraud you, or trick you. If you look at it superficially, you can very well say that their programs are just like conventional mortgages. However, if you really delve into both contracts in detail, you will realize that it is not. It also depends on what frame of mind you are looking at the contract with. If your goal is to look for reasons to reject it… then you WILL reject it. However, if you look at it with an open mind and listen and follow their reasoning, you will understand them. I’m not trying to be flippant about Islamic Economics, rules and regulations, and most importantly Riba. But given the world we live in, and the circumstances surrounding us, these institutions are providing you with a product that they are comfortable with calling Riba-free… BUT confirming to all federal regulations in the west. Realize that these institutions are being run by hard working Muslims who mean well… they DO understand that if they lie to others about their practices, they WILL be held responsible on the day of judgement.
Moving on to the topic of having Muftis sign off on a contract, let me ask you this… If there was a contract that looks and sounds very fishy to you on your reading, but has been approved by a board, or by a Mufti somewhere, would you go ahead and sign it? You likely wouldn’t. There is a third company that I am currently evaluating, and have actual contractual paperwork signed by an esteemed mufti which in my humble opinion is doing something very similar. It does not make sense to me… so I am likely not going to accept it.
Bottom line… Having a Mufti sign off on a contract does not make it valid… and not having a Mufti sign off on a contract does not make it invalid. Islam is not that complicated. However, if we continue to make it look as if it is… then we’ll keep trapping ourselves. To all educated Muslims out there, read and educate yourselves about the details… then if it gives you peace at heart and makes sense to you… sign it!
My goal was not to offend anyone… If I have, I ask for your forgiveness.
January 29, 2013 at 9:40 PM
My brothers, my sisters,
did you hear about http://halalinc.com? they are claiming that they have resolved all the issues and they are truly riba free!
Please let me know if any one have experience with this company.
August 6, 2013 at 3:46 PM
I have come cross halalinc.com recently and their website seems convincing. Did you get the chance to get more information about them.
February 10, 2013 at 7:43 AM
Al karadawi imam understand the Quran and Islamic fatwa better than other non Arab imams
Even if he is the only one who disagree with this fatwas his interest is trying to clarify what the Quran and Hadith said about this matter,we as Muslim especially (Arabs) the Quran verses are clear once we hear them only the message is clear to us it is our mother tongue language we can’t take some of it and leave some of it because it doesn’t suit us,if it is haram it is haram ,if it is halal it is halal,the RIBA is haram ,renting is halal
And we can afford it ,if we have the cash we can buy ,but if we don’t , we cannot borrow money and try and paint the RIBA by saying that is halal ,Salam alaikoum
April 15, 2013 at 12:21 PM
Any info about Ijara Loans?
August 18, 2013 at 1:31 PM
IF YOU ARE AGAINST “USUARY”, THEN HOPEFULLY YOU WILL NOT HAVE BANK ACCOUNTS THAT PAY YOU INTEREST.
August 18, 2013 at 4:19 PM
There are bank accounts that do give interest, and even if they do, give that interest or feed someone (non-Muslim)
August 18, 2013 at 4:21 PM
I meant to write DO NOT GIVE INTEREST
August 29, 2013 at 10:15 AM
i believe you have a real problem here, because from the outside looking in, it looks like you receive interest on savings but do not want interest on your borrowings. or am i wrong???
September 21, 2013 at 2:30 PM
Before coming to my problem I will like to tell you a little bit of background. I am a student doing engineering, from the start of the first year I have been reserved as my class comprises of 95% boys only. The Problem is that in the first year when I see a one boy who was in 3rd year I liked him, but I asked Allah’s help and life went back to normal. Then in second year, he started to contact with me. We talked about our projects and then he starts to ask would I like to hang out with him. For his many of such questions I said NO. I like him and don’t know whether he likes me . But, I can’t keep this relation because it’s haram in Islam. Now, I don’t talk but my mind is always wondering about him. I want solution how can I not think about that person. I want him, but not like this. I am not very religious, dealing with boys are our daily routine, but I have never looked upon anyone that way, even though he is not handsome. I want peace. I don’t want to upset Allah because I think I have upset Allah, not wearing hijab and following religion properly. But, I want to get a solution for my this problem as soon as possible. Neither I want to lose him nor wanted to think about him.
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Abdul “jaleel” Kakkidi
July 28, 2014 at 7:37 PM
I think there is lots of challenges for one who wants to go with a ‘Islamic finance’ option – not just ‘premium’ price for the halal, but need lots of patience through out the process..
August 5, 2014 at 11:38 AM
The author of this article has not FULLY quoted what Mufti Taqi Usmani has said on his website about such companies using his fatwa incorrectly. Please visit Mufti’s website yourself and read the last line of his response which the author of this article has somehow missed.
Which says “It should be noted that I have not issued any fatwa in favor of any house financing scheme in North America except the scheme of Guidance Financial Group.” Published on Wednesday, 13 October 2010.
This was clearly published before this article was published on March 26, 2012. So there is no excuse for the author of this article to omit the last phase from what Mufti Taqi Usmani wrote.
August 25, 2014 at 1:50 PM
His comments are basically to extract payment from the companies that are licensing the process that he created for an organization, when he contracted with them to create the process, he did not put anything in his contract to receive royalties from the licensing arrangements, so he is continuously putting up posts about one of these companies in particular every time they do not agree to add a licensing agreement to his original contract.
it should be noted that he clearly states that “I have never approved any Ijarah contract or scheme for any Financial Institution in America, Australia or Canada.” because he obviously did approve an Ijarah contract as is evidenced by his signature on each page of the contracts being used. When confronted by this discrepancy, he changed the wording on his website and has now named the company that has the licensing rights to the original product.
it is a shame that even these well known scholars stoop so low when it comes to money, this is one of the signs of the Akhirah:
48. The knowledge of the Shariah will be used to earn
We should recognize that these “Scholars” are human and succumb to human desires and short comings and should not just follow blindly what they say without researching what they are saying.
December 31, 2014 at 6:24 AM
For those interested in this topic, there was a recent resolution from AMJA in Oct 2014 regarding the Islamic Mortgage issuing instiutions, please visit: http://www.amjaonline.org/en/articles/entry/amja-resident-fatwa-committee-resolution-about-islamic-home-financing-companies-in-the-us#comments
March 21, 2015 at 1:32 PM
One aspect which everybody missed is the source of money which these companies use to buy houses. According to my knowledge in USA all of the so called Islamic Financing Institutions except Ameen Housing Co-op of California, borrow money from same source(s) like other non-islamic mortgage companies. How this could be halal if I borrow money from somebody on interest, buy a house with it and sell it to somebody with a claim that this is islamic mortgage?
Under umbrella of ISNA-Canada (not to be confused with ISNA-USA), Al-Amin Co-op And Ansar Co-op are two subsidiaries which offer interest free houses for its members. I was a member of Al-Amin Co-op and deposited my Retirement Savings with an intention to earn hassanat by helping other brothers to get interest free housing with my SMALL amount instead of keeping it in a interest free checking account in conventional banking system. After two years I was surprised they started sending me dividends (I never intended for). I moved to USA in 2009, never bought a house in Canada and in 2010, harvested my retirement savings prematurely, paid 25% non-resident tax to Canada, transferred funds to USA and bought a reasonable dwelling (not a mansion) next to masjid on cash.
The co-op model being used by ISNA-Canada and Ameen Housing Co-op of California is interest free and could be replicated elsewhere. The funds come from halal source and there is a sharing in profit and loss by both parties according to their percentage of ownership and one can buy a reasonable size house with a few years of savings and of course patience.
There is a dire need from brothers and sisters to grow the institutes like I mentioned above by investing their savings in halal places instead of keeping in interest free checking accounts in conventional banks.
I am not a religious scholar, just want to share my experience and one don’t need rocket science to understand simple principles of Islam.
I also want to make it clear that I don’t have any financial relation or membership with non of these institutes.
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July 31, 2015 at 7:20 PM
As i spoke to devon and few of my friends and as i understand that there is no issue is signing 2 contract and infact thats what made it islamic because you can sell a product that you don’t own that is the case with other institutions. And the reason for Devon having charge for 2 closing cost is because its a sale agreement between seller and the bank and then to you. What i don’t see a fair is charging customer twice for closing cost i think they can adjust that in the profit. As he explained to me that you can even see devon as the owner even of deed in city records though its only for a day.
August 17, 2015 at 8:02 AM
In reply to the comments by brother Mohammad regarding the Al Rayan bank’s Home Purchase plan I would like to point all the brothers to the following link which shows that the bank does not share profits and losses equally. I would like all the brothers to comment on this.
What happens in a negative equity situation?
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Muhammad Ali Anwar
December 18, 2016 at 3:09 AM
Mashallah very useful discussion. I read every single comment. I think the thread should continue.
I dont think that conventional mortgage based interest is “Riba”. There are scholars of islam like Javed Ghamdi and Tahirul Quadri who have written books on this subject. Riba is when you make money out of money. Here the bank purchases a house for you and it is perfectly fine to make a nominal profit out of it.
It is far more better than renting, which is a clear exploitation of the needy. I am renting right now and the Mortgate payments, Taxes, insurance, and maintenance charges are all hidden inside my rent.
very important question which no one addressed is to think why do most of us need mortgage to buy a house. Why are the housing prices to high that all of us have to rely upon finance companies.
if you have not visited then please checkout http://www.positivemoney.org
it explains that how the real estate prices were artificially inflated by floating money in the market. and the money was created out of thin air. it never existed and is digitally created. if we can stop the banks from printing money, trust me all of us will be able to buy a house within few years of savings. Riba / Interest/ profit is the not the real problem. the real evil is the creation of money which unfortunately no Mufti is recognizing or pointing.
August 20, 2018 at 1:34 PM
I bought a house from La Riba in 2016 and the day I bought it I realized it was a mistake. I will try to explain my point of view and explain why Islamic Financing is no different from Conventional Financing. There are some good things about it too. Like your home will not be foreclosed, La Riba will give you time to get stable financially. And in the end if you can’t make ends meet and have to get rid of the house La Riba will take the money they have put in the house and you get the rest. Now the money you get could be more or less than what you had paid over the time. This brings us to the point the author mentioned above i-e you incur the loss not the bank, which I think is fine because if the value of the house is increased and you end up selling the house due to non payments, the bank doesn’t take profit. You take the profit. Bank only take the money they have put in the house.
My biggest concern is when we are talking to the bank they keep repeating the work “Rent” and when the paperwork arrives you don’t see that word on it at all. It all says “Interest” and you keep signing it. Because the bank tells you that this paperwork is for the US Gov. So my question was that I am buying a house from you, our agreement is about the rent. I don’t care what you and the US Gov do. It should say Rent on all the paper work I sign. Now I am signing a paper that says interest and than I say that I have Islamic Financing. Who am I trying to deceive?
Brothers!!! in short there is no such thing as Islamic Financing neither in US nor in Pakistan. The Prophet PBUH has cursed the person who gives Riba, takes Riba, records the transaction of Riba and the 2 witnesses who are during the signing of the contract. Save yourself from Riba and live in a rental property unless you can pay cash. Cash is always king. In my case I asked my dad to loan me some money to pay off the house and I send him money every month to pay his money back.
December 26, 2018 at 2:40 AM
Very nice blog and articles. I am realy very happy to visit your blog. Now I am found which I actually want. I check your blog everyday and try to learn something from your blog. Thank you and waiting for your new post.