Islamic Banking and Finance (Sharia'a compliant home mortgages…
Islamic Banking and Finance
Mudaraba, Musharaka, Ijara, and Ijara wa Iqtina Contracts
Acceptable transations/Types of contracts
Car Mudaraba with Murabaha
general car financing
Mudarib buys car and sells it to buyer on a deferred payment basis
one partner gives another money for the purposes of investing it (Islamic Fashion Example)
2 parties investing in a business (money/tangibles) looking for money out in the form of a percentage of the profit
Operating lease contract
Bank buys assets and leases them out
Ijara wa Iqtina
Finance lease contract
Sharia'a compliant home mortgages
Ijara wa Iqtina (Individual leases from the bank with eventual purchase)
Diminishing Musharaka: Steps
Bank pays for part of the house and agrees to gradually sell its share back to the individual
Complete ownership transferred to individual
Individual pays for part of the house and agrees to pay rent to the bank
Bank gradually sells its share of ownership to the individual with the rent diminishing
Murabaha (an installment sales contract for property)
Istisna'a (bank finances construction)
Ijara wa Iqtina
Sources of Funds For Islamic Banks
: These accounts can be opened by individuals anywhere, depositors have to authorize the bank to use they money at their own risk, and people are allowed to deposit and withdraw as they please.
Saving Deposits :
Depositors have to grant the bank permission to invest their money.
One party (the Rab ul Mall) entrusts money to the other (the Mudarib) who invests the money in an agreed upon manner and agrees to return the principal and an agreed upon share of the profit.
Mudaraba (Profit-sharing venture)
Unlimited period investment deposits
Specified investment deposits
Limited period investment deposits
Prohibitions in Investment
Must be Halal
when in doubt, most scholars suggest you avoid it.
Prohibition on Riba
RIba is "Any loan in which the lender specifies a return in excess of the capital amount loaned"
cannot justify interest on the ground of time passing
Muslims Should invest in an Islamic form of investment, but some suggest that if it is not possible...
Obligatory if one's income is above a certain threshhold
Tithes can go to one of 8 groups
The poor (cannot cover their basic needs)
The Destitute (No property or income at all)
Those whose hearts are to be reconciled
Persons freeing slaves
Activities in the way of Allah (charitable works)
Tamlik- Can it be given over to an institution or used for nationbuilding? Some scholars say no, it has to be person to person.
from this they conclude it cannot be used for...
programs for collective welfare
Burial rites for a poor person
freeing a poor person in slavery
planning to make someone self sufficient
Does it purify wealth?
If in a non-Muslim country, one can accept Interest if it will not be used for personal benefit (Sadaqah) and instead be given as Zakat
Not everyone agrees on this
Is it sinful to receive? many say no.