For those with an Open Mind:
Disclaimer 1: If you are of the persuasion that Islamic banking is “Halalaisation” of Interest and your mind is made up, this post is not for you.
Disclaimer 2: I am neither promoting Islamic banking nor asking you to get an Islamic mortgage, I (as always) merely present facts. Disagree if you wish and there is no problem with that.
Shariah Problem with Islamic Mortgage:
The problem with Islamic mortgage isn’t what a famous Mufti keeps moaning about. The problem isn’t even what the Scholars of Karachi keep castigating Mufti Taqi Usmani (HA) about!
The Islamic problem is that Islamic mortgage is essentially two contracts rolled into one:
- Contract 1: I can lend you 5,000 USD and you pay £153.89 for 36 months at the rate of 7%
- Contract 2: I can lend you 5,000 USD BUT I say for my Services you need to pay me back 5,540.20 and you pay £153.89 for 36 months
There are many Scholars who “correctly and rightly” say that you cannot have multiple contracts for the same transaction. There is no need to look beyond this problem into interest or (lack of interest), this entire issue is deeply problematic to begin with.
Sceptics are right in the sense that “Islamic mortgage” is a legal jargon filled transaction designed to get around the traditional “Haram Mortgage” transaction. In reality and in effect, the net transaction is no different. Let me illustrate this to you by an example, suppose you want to borrow money from me to get a car, I can do this in two ways. Suppose that the car costs 5,000 US Dollars here are two ways:
- Interest Based:I can lend you 5,000 USD and you pay £153.89 for 36 months at the rate of 7%
- Service Based: I can lend you 5,000 USD BUT I say for my Services you need to pay me back 5,540.20 and you pay £153.89 for 36 months
1 is Haram
2 is not directly Haram as long as we both agree and come up with some legal mumbo-jumbo. In essence, both have a difference where the service fee does not change with the term. And the opposite of above would also hold true in the two models. If a person delays the payments, then beyond 36 months, the base interest rate of 7% will still be charged, plus any penalty that may come forward. Where as in the service based islamic banking, the bank will have a big challenge to figure out how to penalize the delay since they cannot just charge penalty upon the delay in the loan as that would be Riba'.
Mufti Taqi Usmani (HA) responds:
15 years ago this was put to Mufti Taqi Usmani Saheb (DB) that isn’t Islamic Mortgage (HSBC) just legal mumbo-jumbo to get around the Interest prohibition? Mufti Taqi Usmani Saheb (DB) replied that Islamic Mortgage isn’t perfect but it is for the convenience of Muslims to avoid Haram, it is the best solution we have at this time when we don’t control the financial markets and world economy and there is always room for improvements.
A student of Mufti Taqi Usmani (DB) answered by using this example:
Suppose while driving in UK you want to turn right (or left in US and the example will make sense). You see a Petrol Station (Gas station for US) and instead of going to the traffic lights and turning right properly, you cut across the station and save time and keep on going. This isn’t strictly illegal but it may be not the right behaviour or up to ethical standards of driving.
Islamic Mortgage isn’t “Strictly Haram” but it isn’t agreed upon “Halal” according to all scholars either. This is where Taqleed comes in, I had this argument on Sunniforum with the then (student and now Mufti) Abu Hajira. As a layman Muslim, Allah Ta’ala commands you to make Taqleed so if you choose to follow someone like Mufti Taqi Usmani (HA) and get an Islamic Mortgage or any other (well known and trusted scholar for that matter), there is no sin on you!
This is the bottom line you need to grasp!
YOU WILL NEVER GET ALL THE SCHOLARS TO AGREE ON ISLAMIC BANKING OR ISLAMIC MORTGAGE BECAUSE IT IS AN ISSUE OF IJTEHAAD!
What is in it for the Banks?
Banks are in there to make money and Islamic (banking) or Mortgages offers the following advantages:
- Statically, Muslims are financially stable with stable families and pay loans back because it is bred and drummed into Muslims to look after their families so loans to Muslims are less risky.
- Muslims have close knit families so they are able to pay greater down payment and families often bail those out who are in trouble
- Muslims are a financial powerhouse in the world and ready to invest
- MOST IMPORTANT: Banks have to show a reserve against which they are given permission to lend against. Islamic Mortgages means that they have to ring-fence certain money which CANNOT be invested into what you would deem "high risk investments" and this secures their bottom line. So by investing in "Islamic Banking" they are able to leverage this amount TWICE
Muslims are their own worst enemies!
There was a time when HSBC, IBB, Bank of Kuwait etc were all competing in the UK for Muslim businesses. Barclays was also trying to get into the market but BECAUSE Muslims are “stupid” and short-sighted they didn’t kept discussing Fatwaas and market has now narrowed with HSBC and Barclays falling out. This means that you have niche banks in the business and with the lack of competition, customer lose out. Scholars should have sat together and worked out better contracts and agreed with each other for the sake of British Muslims INSTEAD
You have some scholars who have made a killing by earning money WHILE others are crying Haram, Haram and normal Muslims are confused!
WHAT SHOULD HAVE HAPPENED is that Muslims should have made sure that banking scrap and fight for their money (like what happens in the traditional market) and ensured that Islamic Mortgage is diversified as a viable product for everyone. Islamic Banking is just another form of ethical banking and that is why world’s top banks are offering it worldwide.
Islamic Mortgage is a niche product which is limited (or we have made it limited) and the competition is making it more expensive when it was actually cheaper.
Islamic Banking: ASKIMAM Fatwa
I have a question, sorry if it its daft thing to ask but im confused...The end result of Islamic Banking and Conventional Banking is the same ..thats what i think so how come they appear similar?
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
We understand your question as, “If the end result of Islamic Banking and Conventional Banking is the same, what is the difference between the two?”
Please take note of the following points/comments:
1). The “end result” of every Islamic Banking product/model is not the same, let alone (each product) being similar to Conventional Banking models. Hence, your statement is too general.
2). Many products are being advertised in today’s market as “Islamic,” yet, they are not in conformity to the laws of Shariah. We also condemn such advertisement and oppose such practices.
3). The mere fact that the end result of two things is the same, does not necessitate that both should be given the same ruling. Consider the following hadith to understand this principle clearly:
A Sahabi brought high quality dates from Khaibar to Nabi salla Allahu ‘alaihi wa sallam. Nabi salla Allahu ‘alaihi wa sallam asked, “Are all the dates of Khaibar like these?” The Sahabi replied in the negative and said, “We take one saa’ (a measurement for dry items) of high quality dates for two saa’ of inferior dates. Nabi salla Allahu ‘alaihi wa sallam said, “Don’t do this. Rather, sell your two saa’ of inferior dates for a few silver coins. Then buy the high quality dates with the same coins.”
Apparently, there is no difference between the two transactions; the end result is the same. The Sahabi would still end up with one saa’ of high quality dates and the other with two saa’ of inferior dates. However, in the first transaction, the Sahabi was involved in interest (Like-items which are weighed or measured in volume cannot be sold in excess). Nabi salla Allahu ‘alaihi wa sallam saved the Sahabi from interest by proposing two separate purchase/sale agreements. Excess in a purchase/sale agreement is called profit. Whereas, excess in like-items which are weighed or measured in volume is interest. Using end results to justify the method(s) adopted was the philosophy of the polytheist of Makkah. They said,
الَّذِينَ يَأْكُلُونَ الرِّبَا لَا يَقُومُونَ إِلَّا كَمَا يَقُومُ الَّذِي يَتَخَبَّطُهُ الشَّيْطَانُ مِنَ الْمَسِّ ذَلِكَ بِأَنَّهُمْ قَالُوا إِنَّمَا الْبَيْعُ مِثْلُ الرِّبَا وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا (البقرة: ٢٧٥)
Those who are involved in interest will not stand-on the Day of Judgment- except like the one who the Devil has driven crazy by his touch. That is because they said, “Sale is just like interest.” Whereas, Allah has made sale permissible and prohibited interest (Al Baqarah: 275)
It is clear from the above, the kuffār use to deal in interest and justify it by saying the excess in interest is just like profit in sale. As Muslims, we cannot accept interest to be like profit.
If present-day Islamic Banks are able to save the public from interest by structuring contracts which are in conformity to the laws of Shariah, then whether or not their end results are the same as Conventional Banks, their efforts will be noteworthy and acceptable. Of course, the contracts must not have ribā’, gharar, and other non-Islamic elements hidden behind a string of words. Furthermore, the contracts must not be a mere theory, but should be implemented appropriately as well.
If you have doubts on a specific product, you may send us details of that product for our observation.
And Allah Ta’āla Knows Best
Student Darul Iftaa
Checked and Approved by,
Mufti Ebrahim Desai.