Two million Muslims in the Uk face an ethical dilemma if they want a mortgage or a loan. Accepted mortgages and loans all wish the payment of interest and "riba" as interest is called under Islamic law, is forbidden by the Koran.
British financial institutions are increasingly catering for Muslims' master needs through a estimate of alternative arrangements that respects the teachings of the Koran. Here are just two of them:
Mortgages and Loans: Islamic Finance Avoids Interest.
Ijara with diminishing Musharaka - the mortgage alternative.
Ijara with diminishing Musharaka is an Islamic alternative to a Accepted Uk mortgage and has been adopted by some British banks and building societies.
In essence, Musharaka means partnership. Under this Islamic financial concept, the bank buys the house and legally becomes its owner. Then throughout the pre-agreed period, say 25 years, a monthly payment is made. Each monthly payment includes a payment for rent and a payment that buys a small proportion of the house itself. It's form of variable shared equity plan with the proportion of the house being owned by the purchaser, steadily expanding as payments are made. Once the final payment has been made, the house is owned outright. Ijara
Here you tell the bank or financial custom what you want, for example a car, and they buy it. In return for a monthly payment that covers the cost of the bank's capital, the bank then allows you to use the asset for an agreed period. In reality, it's a form of leasing
Islamic finance is not widely ready in the Uk - so where can find it? Here are three suggestions:
Over the last few years Lloyds Tsb has introduced Islamic products to 33 of its branches. Their spokesperson says, "It's important for our customers to see that we are following the right procedures. We have a panel of four Islamic scholars who over-see the products. They offer guidance on Islamic law and audit the products".
Another high road bank, Hsbc, is developing a special range of Islamic products under the Amanah brand name. This range includes home finance plans, home insurance, market finance, and various current accounts and pensions. Hussam Sultan, the Amanah goods employer says, "As a bank, we are not here to moralise or tell our customers that Amanah finance is the way to please Allah. We're just here to provide them with a choice".
The Islamic Bank of Britain has three branches in London, two in Birmingham and one each in Leicester and Manchester. They're the only British bank specifically providing for Muslim customers and claim to be halal throughout their operations. All their financial products are beloved by their Sharia'a Supervisory Committee - all Muslim scholars who are experts in all aspects of Islamic finance.
For your interest we show below, definitions of some words used widely in association with Islamic finance.
A Glossary of superior Islamic words used in finance.
Amanah: Means trustworthiness, with connected aspects of faithfulness and honesty. As a central supplementary meaning, amanah also describes a enterprise deal where one party keeps another's funds or property in trust. This de facto the most widely used and understood application of the term, having a long history of use in Islamic market law. It can also be used to relate dissimilar financial activities such as deposit taking, custody or goods on consignment.
Arbun: Means a down payment. It's a non-refundable deposit paid to the wholesaler by the buyer upon agreeing a sale ageement together with an undertaking that the sale ageement will be completed during a prearranged period.
Gharar: This means uncertainty. It's one of three significant prohibitions in Islamic finance (the others being riba and maysir). Gharar is a sophisticated plan that encompasses sure types of uncertainty or contingency in a contract. The prohibition on gharar is often used as the grounds for comment of Accepted financial practices such as speculation, derivatives and short selling contracts.
Islamic financial services / Islamic banking / Islamic finance : Means financial services that meet the specific requirements of Islamic law or Shariah. Whilst designed to meet specific Muslim religious requirements, Islamic banking is not restricted to Muslims. Both the customers and the assistance providers can be non-Muslim as well as Muslim.
Ijara: Means an Islamic leasing agreement. Ijarah permits the financial custom to earn a behalf by charging leasing rentals instead of lending money and earning interest. The ijarah plan is extended to hire and purchase agreements by Ijarah wa iqtinah.
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