Islamic finance Murabaha

Discussion in 'Finance, Property, Law' started by IvyGrad, Jul 8, 2008.

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  1. I am no expert on this subject, but this article is intriguing.

    Wonder what happened to the US market :

    "In the US an Islamic mortgage scheme was introduced by the Federal Mortgage Association in March 2001."

    Maybe something to do with September 2001 ... :omg:

    We here in the US are distressed about the Islamicisation of Great Britain. For example from the report below:

    "In 2003, the Bank of England exempted Islamic mortgages from double stamp duty, a decisive move to boost the Murabaha in the UK with its two million Muslims."


    Saudi mortgage law sheds light on Islamic home finance potential

    (source: Saudi Arabia: Sunday, July 06 - 2008 at 12:49

    At the beginning of July, Saudi Arabia's consultative Shura council passed a full-fledged mortgage law. It still has to be approved by the Council of Ministers but the new law aims to encourage private real estate ownership in the kingdom. With a total population of 27.6 million, including 5.5 million foreigners, only one in five Saudis owns a home.

    The Islamic home finance, murabaha, market is booming

    It is expected that the new law will boost Shariah-compliant home financing.

    In Saudi Arabia Islamic finance is mainstream, with its biggest financial institution, the National Commercial Bank, having passed almost completely into Shariah-compliant banking two years ago.

    Islamic home finance is one of the fastest growing segments in the industry.

    Take the profit development of Dubai-based Tamweel or Amlak in recent years, both of which are pure Islamic home finance operators.

    Tamweel, the UAE's largest provider of real estate finance, posted a net profit increase of 195% in 2007, while Amlak went up by 131% to Dhs301m.

    In September last year Amlak signed an MoU with the World Bank's International Finance Corporation to explore Shariah-compliant opportunities in the Middle East.

    Tamweel and Amlak are both listed at the DFM, outperforming the market on a year-to-date basis.

    Guide to Islamic home financing

    How does an Islamic home financing work? This form of financing is known as Murabaha, (Arabic for 'sale').

    Under Murabaha or mark-up-sale, the bank purchases the house for its client and re-sells it to him on deferred payment basis. The mark-up-amount for the payment is spread over an agreed period of time.

    A payment of riba or interest is avoided this way and the financing becomes halal. Is also avoids the uncertainty, or gharar, which is haram.

    Under a conventional loan scheme home financing is often combined to the key interest rate. Because of its smooth payment structure, Islamic home financing has also become popular with non-Muslim customers in the UK.

    International impact

    In 2003, the Bank of England exempted Islamic mortgages from double stamp duty, a decisive move to boost the Murabaha in the UK with its two million Muslims.

    Major conventional banks such as HSBC (with its Islamic arm Amanah) or Lloyds TSB moved into the market, which is home of three FSA-approved Islamic banks.

    Other regulators of European countries with significant Muslim communities, such as France (6 million Muslims), Germany (3.5 million) or Switzerland (300,000) have not regarded Murabaha as a legal loan scheme (as yet).

    In the US an Islamic mortgage scheme was introduced by the Federal Mortgage Association in March 2001.

    The Saudi initiative demonstrates once again that, in many cases, only the national regulators can be catalysts for more growth in the industry.

    Islamic real estate finance is also in the global spotlight due to the subprime crisis sweeping the US. However, it does not replace a meticulous assessment of the customers' creditworthiness. At the end of the day it's up to the bank to examine the client's current and future ability to pay off his debt, whether his house is financed with interest or without it.
  2. So...purely for argument's sake, what precisely is the difference between an Islamic scheme that adds a 21.9% markup and is to be repaid over 10 years and an infidel's fixed rate loan at an interest rate of 2% that is also repayable over 10 years?
  3. For all our sake's,please don't mention this to Cyclops.
  4. meridian

    meridian LE Good Egg (charities)

    There are many benefits to sharia compliant mortgages, but when all said and done its an alternative way of financing for home owners and developers that avoid charging interest on loans, which is forbidden under sharia law

    You don't have to be a muslim and if people got past the dogma its just a different funding regime, no more than that. A bit like when we have fixed, trackers, endowments etc, different flavours of the same fundamental thing.

    There are more important things to worry about
  5. ViroBono

    ViroBono LE Moderator

    E.g. Hawala.
  6. So, take a fixed rate mortgage, call the interest a 'mark up', then claim there is no interest, et voila.
  7. The second concern to ensure the availability of information exchange of scientists in the field of Sharia and Islamic traditional financing. The third thing is to ensure the availability of qualified staff, who continue to meet the growing industry. It is believed that the demand exceeds supply in all three cases.
  8. Yup Spot on. The Bank owns the house, you pay the bank for more than what it was sold to the bank at and you get to live in it. Cunning that. I'll bet God is completely fooled by that one.
  9. Jenny please don't use the word "Scientists" and "Sharia" in the same sentence.