The Sharia constitution prevents Muslims from paying or collecting interest, as specified in Islamic law. Most mortgage products on the market were also not appropriate for Muslim borrowers since they are mostly interest-based.
In recent years, lenders have extended their range of products with sharia-compliant mortgages as a result of the growing demand from Muslim borrowers.
According to the Sharia rule, prospective homeowners may obtain two forms of mortgages: Ijara and Murabaha.
The Ijara Loan
The mortgage lender would purchase the property from the seller by this method; it would become the proprietor. The loaner then rents the property with an annual rental charge for more than 20 to 25 years. Both the risks of the landlord must be taken into account before paying the mortgage.
Today, instead of “interest,” the Muslim borrower payment will be considered as rent. And with interest rate increases, payments will fluctuate.
In the mortgage agreement, the occupant will purchase the property from the landlord at the end of the lease term for a very small amount.
The Murabaha Loan
The mortgage lender purchases property by the Murabaha system and immediately resells this at higher prices to the Muslim purchaser.
The benefit made by the lender on this deal basically equates to the interest on a fixed interest loan and all charges.
The purchaser then purchases the property from the lender in the gross figure and, usually for 15-20 years, is then paid back in equivalent installments to the lender.
The primary provision for financial goods and services under Sharia law, when money-making becomes usury and not engaging in businesses deemed unethical, such as companies related to alcohol, cigarettes, pornography, or gambling, is to charge no interest or pay.
In loans, the bank also buys the items for the client and leases or sells them at a discount for refund in increments. It’s not a concern for the bank. By charging consumer fees the bank makes its money.
Islamic finance deals for transactions on the principle of risk-sharing and compensation. Both the client and the bank agree to conditions to share the cost of acquisition and divide the benefits evenly.
Types Of Islamic Banking
The four major types of Islamic banking are known as Murabaha when the bank makes a purchase and re-sells to the buyer without payment of interest; musharaka, a relationship which shares both the bank and the client in the investment of the rewards and risks i..e. the benefit and losses mudaraba in which a specialist invests the investment and takes part in the investment, without taking the risk of losses; musharaka; And, indeed, a contract of rental made in order to purchase the consumer goods for rental of the goods over a period of time and, at the end of it, the bank retrieves the goods.
Since loans charged by interest are mortgages, they are not regarded by the Islamic faith as permissible. However, as most people cannot afford to pay cash to purchase a home, there is a need in the Muslim community for Shari’a-compliant mortgages. Now many highway banks, including the Islamic Bank of Great Britain, sell such goods.
An Islamic mortgage usually uses ijara, a loan deal under which the borrower buys and owes rental (including payments for handling) on behalf of the customer to the customer before the buying price is repaid. The bank holds the title to the property until such time as for all mortgages
Many banks in UAE offer a smooth procedure of online bank account opening in UAE. Mashreq bank offers Islamic finance for its customers. If you are looking for an Islamic mortgage Mashreq is the best choice.