Shariah Compliant Loans and Mortgages

Fast Growing Segment In Global Financial System
Prudential Corp (UK), Asia regional head of Islamic Fund Management Mark Toh says that “Islamic finance is now one of the fastest growing segments in the global financial system with assets under management worth $919 billion (RM3.11 trillion),” Prudential PLC Gets Set To Launch An Array Of New Islamic Funds | Business Times Malaysia | November 5, 2009

Nearly 1 in 4 People Worldwide is Muslim
The Pew Forum on Religion and Public Life report shows that the global Muslim population stands at 1.57 billion, meaning that nearly 1 in 4 people in the world practice Islam.  Pew officials call the report the most thorough on the size and distribution of adherents of the world's second largest religion behind Christianity, which has an estimated 2.1 billion to 2.2 billion followers.

The arduous task of determining the Muslim populations in 232 countries and territories involved analyzing census reports, demographic studies and general population surveys, the report says.  In cases where the data was a few years old, researchers projected 2009 numbers:

• More than 60 percent of the world's Muslims live in Asia
• About 20 percent live in the Middle East and North Africa
• Some 15 percent live in Sub-Saharan Africa, 2.4 percent are in Europe and 0.3 percent are in the Americas
• While the Middle East and North Africa have fewer Muslims overall than Asia, the region easily claims the most Muslim-majority countries.

Other findings:

• Two-thirds of all Muslims live in 10 countries: Six are in Asia (Indonesia, Pakistan, India, Bangladesh, Iran and Turkey), three are in North Africa (Egypt, Algeria and Morocco) and one is in sub-Saharan Africa (Nigeria).
• About three-quarters of Muslims living as minorities are concentrated in five countries: India (161 million), Ethiopia (28 million), China (22 million), Russia (16 million) and Tanzania (13 million).
• Indonesia, which has a tradition of a more tolerant Islam, has the world's largest Muslim population (203 million, or 13 percent of the world's total).
• Europe is home to about 38 million Muslims, or about five percent of its population: Germany appears to have more than 4 million Muslims -- almost as many as North and South America combined.
• Of roughly the 4.6 million Muslims in the Americas, more than half live in the United States although they only make up 0.8 percent of the population there; about 700,000 people in Canada are Muslim, or about 2 percent of the total population.

Source: Associated Press Report, "Nearly 1 in 4 People Worldwide is Muslim," Foxnews.com, October 8, 2009; based upon: Report, "Mapping the Global Muslim Population: A Report on the Size and Distribution of the World's Muslim Population," Pew Forum, October 2009. http://pewforum.org/newassets/images/reports/Muslimpopulation/Muslimpopulation.pdf

• He who drinks wine
• He who takes RIBA
• He who usurps an orphan’s property without right
• He who is undutiful to his parents.”

Riba Is Extracted From Raba
The word Riba is extracted from Raba. The literal meaning of interest or Al-RIBA as it is used in the Arabic language means to excess or increase. In Islamic terminology interest means effortless profit or that profit which comes free from compensation or that extra earning obtained that is free of exchange.

• Sharia: Islamic religious law.
• Halal: Permitted for Muslims under Sharia.
• Haram: Not permitted for Muslims under Sharia.
• Riba: Interest. Riba is haram.
• Ijara wa iqtina: Rent to own, usually of a house

Good News!
The good news is that Muslims can borrow and lend money if they do it in a Shariah Compliant manner.

Wadiah
Wadiah is a system in which a person deposits money into a bank and receives a “gift” from the bank. The bank is the keeper of the funds and will refund the entire amount at the demand of the depositor. The bank rewards the amount of time the depositor keeps the money in the bank with a hibah or gift, which is not guaranteed. The hibah is similar to interest, but lawful according the Islamic law.

1. Murabaha
2. Ijara
3. Musharaka

Shariah Compliant Home Financing...A Closer Look

• Identify the home you would like us to purchase on your behalf.
• Negotiate the price and other aspects of the purchase.
• Make any initial payment of earnest money to reserve the home.

The Bank will buy the property at the closing and assumes the risk of loss. The bank will immediately sells the property to you for a fixed price i.e. the purchase price the Bank paid plus the Bank’s profit. The profit is established in advance and is based on current mortgage market rates.  You then pay this total price to the Bank in an initial down payment and in fixed installments over an agreed-upon period of time. 

• Identify the home you would like us to purchase on your behalf.
• Negotiate the price and other aspects of the purchase. 
• Make any initial payment of earnest money to reserve the home. 

The Bank purchases the property and places ownership in a holding entity.  You agree to purchase the property over time, at cost.  Title to the property is transferred to you after you pay the full cost of the property over time.  Because you are using property you do not own, you also pay rent.  You may choose the rental adjustment period either daily, monthly, annually every three years or every five years.  This product is very flexible, but is more complex and has some additional costs to establish and maintain the arrangement. The payments you make will be very similar to those that you would make on a conventional adjustable-rate mortgage.  If there is sufficient value in the property, you may also use it to establish a Shariah-compliant line of credit.

• Identify the home you would like us to purchase on your behalf.
• Negotiate the price and other aspects of the purchase. 
• Make any initial payment of earnest money to reserve the home. 

The Bank purchases the property and you agree to purchase the property over time, at cost.  A portion of the property ownership is transferred to you with each payment you make.  Because you are using property you do not own, you also pay rent on the financier’s portion of the property.  You may choose the rental adjustment period either daily, monthly, annually every three years or every five years.  As an equity-based product, you and the financier are co-owners and thus share in any profit or loss upon your sale of the property based on your percentage of ownership.  This product is very flexible, but is more complex and has some additional costs to establish and maintain the arrangement. The payments you make will be very similar to those that you would make on a conventional adjustable-rate mortgage.  If there is sufficient value in the property, you may also use it to establish a Shariah-compliant line of credit. 

Credit Cards

Al Salam Bank-Bahrain (ASBB) has obtained the necessary legislative approvals for its takaful-principle-based credit card from both the Central Bank of Bahrain and the Bank's Shariah Supervisory Board, and will soon launch it in the market. The Shari’a-compliant credit card offers flexibility, easy implementation, payment terms and fairness to all card holders and yet have features of the conventional credit cards which are available in the market.

The smart credit card enjoys high security level that protects its users from theft or manipulation as it contains a dynamic mechanism for personal data verification in addition to ease of use at all points of sale. Ccard holders will benefit from more than 30 million ATM machines and retail shops worldwide, while the security features and benefits of the card would further enhance their confidence and encourage them to use it more without any fear of loss or forgery.

The Takaful Credit Card concept is based on cooperation and minimal fee which is different than any fee-based credit cards offered in the Islamic banking industry.. The surplus of the Takaful credit card fee pool will be paid back to the card holders.

• List of Islamic Banks and Lending Institutions at the Institute of Islamic Banking and Insurance
• Increasingly, the lending institutions in the United States and the Europeans countries are offering Shariah Compliant products for their Muslim customers. They offer Riba free home financing and automobile leasing. This offers a way to avoid any chance of Riba while buying a car or home. Check with the banks and other lending institutions in your areas or on the Internet.