Islamic

Islam teaches Muslims how to conduct every aspect of their lives including financial and economic affairs. The Holy Qur'an makes it clear that entering into transactions that involve riba (or interest) is Haraam (or forbidden). The Qur'an states:

"O you who believe! Fear Allah (God) and give up what remains of your demand for interest, if you are indeed a believer." (Qur'an 2:278)

How can they work?

Described simply, both you and the Bank will each contribute towards the purchase of the home. For example, the Bank may contribute 90% and you 10% of the purchase price. Over a period of up to 25 years, you will make monthly purchase instalments through which the Bank will sell its share (90%) of the home to you. With each payment instalment, the Bank's share in the property diminishes while your share correspondingly increases. While the purchase instalments are being made, the Bank will charge you a rent for the use of its share of the property, the rent being calculated according to the respective shares owned.

Many see this as little different to a conventional mortgage, because under both methods monthly payments are made which may be similar in amount. However, unlike a conventional mortgage, where money is lent to help with the purchase of a property, the Bank makes its profit through the property's physical use via your occupation as a tenant. This is one of the fundamentals of Islamic finance whereby you can charge for the use of something physical, like a property, but you cannot charge for the use of money, because this is interest. The relationship between you and the Bank is also quite different. Two of the major differences are highlighted below.

• As owner of the property, the Bank faces risks associated with property ownership. This is a situation that does not exist under an interest mortgage, where the bank never actually owns the property.
• In a conventional mortgage, the customer is the borrower. However, in an Ijara/Musharaka structure, the customer is the Bank's tenant. This different relationship between the Bank and its customer presents the Bank with different risks and requires different remedies to problems that might occur.
• It is crucial differences like these that allow Shariah Scholars to approve a product and that make alburaq Shariah compliant home finance an acceptable way for Muslims to refinance, or finance the purchase of their homes.