MONEM SALAM: So, are you basically saying that if I wanted to start up a conventional mortgage-lending, I could easily just download a contract, take it to the state and start operating within a short amount of time? Let’s see what happens. I’d never heard that before, that that person was able to do that. MECHANISM OF A SHARIAH COMPLIANT HALAL MORTGAGE A home loan made by the sharia, or Islamic law, which precludes the instalment or receipt of intrigue. Just give us a brief background about yourself, Amjad, before we get rolling. And that’s a large part about these contracts. The client is then able to purchase those units one by one periodically, thus increasing his own share till all the units of the financier are purchased making the client the sole owner of the property. MONEM SALAM: That’s a beautiful story. But so far as the property is leased to the partner himself, all of them are unanimous on the validity of this Tjarah leasing transaction that eventually results in full ownership. The Hanafi Jurists have adopted this view with regards to a particular sale called bai-bilwafa. MONEM SALAM: And it is complicated. Correct? The proposed arrangement is based on the following transactions: The first step is to create a joint ownership in the property. And I would say the answer to that is no. If they have a history of doing business in a reputable way with other people. And this is no different for Islamic mortgages. And Islam is not a burden. A bond fund's price will typically follow the same pattern. Conventional mortgages are very much that. Investing in foreign securities involves risks not typically associated directly with investing in US securities. Partnered with one of the country’s leading brokerages, Zero Mortgage Canada is a newly inaugurated option for those who need to secure home financing that adheres to Sharia law. You feel like, you know, you have more saved up and you’re in a better place. which means it was a stipulation given at a time of need and that it might not apply anymore. AMJAD QUADRI: You know, that’s a great question and the short answer is there is no trade-off. AMJAD QUADRI: Absolutely. But a lot of it sometimes is the states are very difficult to work with when it comes to these Islamic mortgage contracts, so that’s why. Stock prices fluctuate, sometimes quickly and significantly, for a broad range of reasons that may affect individual companies, industries, or sectors. Institute of Islamic Banking and Insurance No obligation may be discharged with the interest; so it may not be used to pay taxes or debts. • Murabaha: It is a sale in which it is permissible to stipulate an increase in price in exchange for deferring payment. these contracts, even though they’re not a conventional mortgage, do comply with all of the state home protection laws and these guys can do business in this state. But you know what I tell people is if we both see a yellow colored wall, just because the IRS comes by and says, “Hey, no, that’s blue,” it doesn’t change the yellow colored wall, which is the agreement between the two parties that are doing the contract. That was the first one. Share Flipboard Email Print CEphoto, Uwe Aranas/Wikimedia Commons/Photo by CEphoto, Uwe Aranas / CC-BY-SA-3.0 Islam. Well, Islamic banks have come up with a product called the “Home Purchase Plan” or “HPP”. MONEM SALAM: That’s a good explanation. The seller may give it to the poor, or he may spend it on sin. There is no objection from Islamic scholars against structuring this transaction. It is clear from the previous three points that each of the transactions mentioned above are allowed per se, but the question is whether this transaction maybe combined in a single arrangement. Home Purchase Plans are Islamic mortgage alternatives which allow individuals to buy their home in a halal way. This objection can be answered by saying that there is a big difference between putting a condition in the sale and making a separate promise without making it a condition. So, a few of the stipulations, the footnotes, the first one said that if Islamic financing is around, that this ruling no longer applies. The second one that you mentioned was a benefit for the customer is that if they were, let’s supposing they were either under water on their house and they had to sell it, or it got destroyed in some kind of natural disaster, then the company that has financed you will be basically eating some of the loss with you? However there are a number of Muslim Jurists who hold the view that promises are enforceable, and the court of law can compel people to fulfill their promise, especially, in the context of commercial activities. High-yield bonds may have low or no ratings, and may be considered "junk bonds." This concept requires the financier and the client to participate in the joint ownership of a property. AMJAD QUADRI: I think when you know you’re going to be in a particular area for a significant amount of time and significant being probably you know, more than five years. MONEM SALAM: Every time I speak to you, I learn something new, so I’m glad we were able to have this conversation and hopefully our audience learned something as well. Luckily for British Muslims, banks are gradually recognising that this is a problem for a large number of people, and are therefore offering an alternative, by way of Islamic Mortgages and other forms of finance tailored towards Muslims. Some Maliki and Hanafi jurists have declared that an undertaking or promise can be enforced through courts of law in cases of need. In this particular example of the Islamic finance contract, the financier, the lender, and you are actually co-owners of the house. New York 10022 They are mandated government institutions that are supposed to help Americans buy homes. In this manner, then, the transaction described in the second part of the question will be perfectly halal. AMJAD QUADRI: That’s exactly how it’s done. Hopefully we’ll get rid of a lot of myths that a lot of people have about Islamic mortgages. I mean, it helps to mitigate risk. Therefore, even if the sale is without an express condition, it should he taken as conditional because a promise in an express term has preceded it. Help to Buy mortgage guarantee scheme extended to include providers of Home Purchase Plans. The views and information discussed in this commentary are at a specific point in time, are subject to change, and may not reflect the views of the firm as a whole. None of this, however, changes the question above. And then the beauty of Islamic contracts comes into play… the beauty of it, and the actual crux of the matter comes into play with the contract itself and then the greater part is if you are ever in trouble. A claim for actual damages suffered resulting from a default can consequently be made. Ijara CDC offers the rent-to-own model and has helped buyers in Brooklyn and Queens. Certain states, they don’t want to target because there’s not enough Muslims there. AMJAD QUADRI: That is a very good way to look at it, yes. But this was more a rukhṣa (permission/alleviation), MONEM SALAM: Chris, do you own your own house? The first thing I wanna know is their credit score. Because I wanna know if the person that I’m potentially helping to buy a house is reputable. Let’s say they found a $100,000 and they had $50,000; they’re basically going to find another partner to help them do the other $50,000. Beyond that, money will pass through the hands of all manner of people, honest and dishonest, just and unjust, and for all manners of purposes, halal and haram. Hanafi jurists, on the other hand, have argued that if the resale of the house to the original seller is made a condition for the initial sale, it is not permitted. The risks of foreign investing are generally magnified in the smaller and more volatile securities markets of the developing world. And that’s kinda what led to me eventually going and working for them for a while. My 1099 says INT on there. Why is there so much skepticism in mortgages, Islamic mortgages? The second one was this has to be a need. It’s a business relationship. CHRISTOPHER PATTON: Are there trade-offs with some of these… I’m gonna say friendlier rules and guidelines here, like the late fees not compounding and kinda looking out for people if they’re in trouble. Guidance Residential is a similar company providing support to New York City buyers. MONEM SALAM: It’s a different model but like I said, a lot of times, when we talk about Islamic investing, it’s not only about the return, it’s about risk mitigation. On that note, well, I thank you very much Amjad for joining us on this show today. Islamic scholars also permit this transaction, however where the undivided share is leased out to a third party, its permissibility has been a point of contention between Muslim jurists. This is attested to by the fact that in the time of the Prophet of Allah, Allah bless him and grant him peace, when a shield was stolen, and when an abba was misappropriated from among the spoils of war, no one refrained from buying shields or abbas. We have, I feel, a very special one. • Even though deferment is not considered real currency, in murabaha, there is an increase in price for deferment. If you wish to deal with these companies then please contact them to verify their mortgage systems for Shariah compliance as we cannot guarantee it 100%. It is preferable that the purchase of different units by the client be effected on the basis of the market value of the house as prevalent on the date of purchase of that unit. Even if the promise is backed out of, the sale will remain effective. In this manner it would appear that the buyer is indirectly involved in the payment of riba. But because this is an Islamic contract that I had to get approved by Sharia scholars and those type of things, that they can’t easily get approved, so they need somebody like a lawyer to present this to the regulatory body of that state and then they’ll get approval? And this just decreases your overall blessings in your financing. Can I use my savings in the government Help to Save scheme to use as a deposit towards an Islamic Home Purchase Plan? Alperton Lane, Greenford UB6 8AA Important Principles Prayer Salat Prophets of Islam The Quran Ramadan and … When interest rates fall, bond prices go up. At the same time the client may sign a one-sided promise to purchase different units of the share of the financier periodically and the financier may undertake that when the client purchases a unit of his share, the rent of the remaining units will be reduced accordingly. So then, he’s paying the other partner, the 50% partner, off, while he’s living in it, and paying them almost a rental amount while he does that. You know, it’s something you wanna stay away from. So let’s state you purchase a home for ₤ 100,000, and pay ₤ 20,000 as a deposit and ₤ 80,000 is contributed by the bank. Login Login Banking securely Register for new mobile banking app. Praise be to Allah. AMJAD QUADRI: Well, you know, I would say that what happened is when Islamic financing first started and even for myself, when I first went with this local Korean bank, the rate that I was paying was almost 2 percent higher than what a conventional bank could have gotten at the time. That most of our listeners would be facing whenever they do an Islamic contract? Because they add states slowly, based on the Muslim population and return on investment. These risks include currency and market fluctuations, and political or social instability. The most that can be said is that there is an appearance of involvement, but appearance and reality are two different matters. To obtain this and other important information about the Amana Funds in a current prospectus or summary prospectus, please visit www.amanafunds.com or call toll free 1-800-728-8762. 800 San Antonio Road, Suite 1 Read on to find out how Islamic mortgages work. MONEM SALAM: I just wanna know that the person is good for whatever he is. And what I think people sometimes don’t think about is if they reversed the position and they were the person that had a lot of money. MONEM SALAM: Yeah, we have our regional manager for Saturna Capital, Amjad Quadri. And you know, if you did it conventionally then Islamically you’d be like, “Oh yeah, okay, it was about the same,” but if you haven’t, and if you’re buying either conventionally or buying it through an Islamic process, you’re just gonna be like, “Wow, this is hard! However, the proposed scheme suggests that instead of making two transactions conditional to each other, there should be an undertaking from the client. Halal & Ethical Screening. All rights reserved, IIBI Institute of Islamic Banding and Insurance. So, he approached the Korean bank and said, “Hey, I’m trying to see if we can do something to help Muslims buy homes.” So him, and this Islamic scholar came up with a contract with this Korean bank and they sent it over to who is now one of the leading, was probably then as well, one of the leading Islamic finance experts, Mufti Taqi Usmani, and then it came back from him with a fatwa in Urdu basically saying since there is no alternatives in America, as Muslims, you can use this. Say, if you and I bought a house together and we were renting it out and it would rent for a thousand dollars a month, we’d take the thousand dollars in and split it halfway. Can you think of any that you’ve come across over the years of doing this? With the Islamic finance contracts, you know, there is no multiplying late fees. MONEM SALAM: So, you’ve mentioned a lot of things, and I know you’re in the industry so it comes rapid fire to you, but I just want to kinda try to sum up, if I can, what you actually said. MONEM SALAM: I think one of the last ones would be… there have been fatwas in the past that said we can buy conventional mortgages. But I thought Islamic finance should be different. So how to get around that? Generally, an investment that offers a higher potential return will have a higher risk of loss. Listed below are some companies offering Islamic mortgages. CHRISTOPHER PATTON: And then, so the key shift that then happens in a Halal mortgage is a change in the risk-sharing and the kind of asset-based nature of it then? To obtain this and other important information about Amana Mutual Funds, Saturna Sustainable Funds, Sextant Mutual Funds, or Idaho Tax-Exempt Fund in a current prospectus or summary prospectus, please visit Forms & Literature or call toll free 1-800-728-8762. We help you purchase your residential property the Halal way. Regarding Islamic financial institutions that offer Shariah compliant mortgages in the US, please contact: 1) United Bank of Kuwait So, I don’t think we could have asked for a better expert to be able to join us on this call. DISCLOSURES (read by Christopher Patton): Please consider an investment's objectives, risks, charges and expenses carefully before investing. Faith-Based Financing Faith Based Financing FAQs Murabaha Shariah Board Approval Heter Iska Stay Connected Islamic Financing Devon Bank has been offering Islamic Financing designed to avoid conventional interest common in traditional loans since 2003 for home purchases and refinancing from traditional loans. And this person has now opened it up for multiple hundreds of homes to be closed on a monthly basis through Islamic finance for a lot of people that probably would not buy a house. The truth is buying a home a hard process. At the time, one of our good friends that we to a similar mosque that we did, that we grew up with, he was a CPA. And then, Mufti Taqi Usmani was one of the people that helped create the Guidance products, so I felt like his Urdu permission that he gave us no longer applied because now there’s a product from scratch. MONEM SALAM: Yeah, it’s one of those things where they have to get approval from each of the different states, as far as the contract is concerned. But if you were living in the house, then you’re the renter and the owner, so you still have to pay me half the rent, and that’s kinda how that actually works. 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