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#16 [Permalink] Posted on 24th April 2018 21:05

Muadh_Khan wrote:
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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
 
I feel the difference ought to be made a little more clear here.
 
Service Based banking as in many Islamic Banking do not peg the service fee to the capital. So while as a benchmark they may caculate the Service Fee for the above financing to be  £540.20 over the 36 months, Should the individual pay out the entire financing in 20 months, he would still be paying the full £540.20  service fee for this particular financing.
 
In the conventional interest based financing, since the interest payment is pegged to the capital and the repayments, if the entire sum is paid in 20 months instead of 36, then the debtor is theoretically entitled to seek a discount on the entire term to reduce the full repayment. It is quite possible that the banks may try to go around this by making further changes to their model, but I have seen conventional contracts where such discount is mandated or claimable by law.
 
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'.

 
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#17 [Permalink] Posted on 24th April 2018 21:48
This is new to me. Are you all saying that according to some reliable ulama, it is permissible and I can lend someone $1000.00 and tell them they have to pay me back $1500.00 by paying me $100.00 a month for fifteen months? All I have to do is say that this extra $500.00 is a service charge ?

Does a 'service' really have to be involved? For example I going to collect the payment monthly is a real service. Or can some paperwork be considered a service?

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#18 [Permalink] Posted on 24th April 2018 22:10

Concerned wrote:
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Incorrect.

Do not confuse financing with a loan. Financing has a comodity purchase within it. When we discuss, then normally it is either car-financing or house financing. There is a tangible comodity which is being financed.

Under conventional financing, the bank does not take the risk of taking ownership of the car or the house. Instead they extend you a loan with keeping the lien on the car or the house as the collateral. So their loan is pure interest based.

In islamic model, the loan is by name a loan. But in reality the ownership of the item first comes to the bank/financier who then sells it over to the client charging the profit. Such base mechanism has big consequences on the risk management.

As for the service fee, which is normally charged on transactions then that too, in islamic banking, must be based off some service. It cannot be something out of thin air. 

So, if the previous answered showed that we are merely extending a loan in lieu of a return of capital plus a service fee (being the benchmarked profit etc), then I am sorry that is not the case. That WILL be pure riba'. My explanation has to do with financing and not a loan.

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#19 [Permalink] Posted on 24th April 2018 22:10
Edited to read above reply post first.
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#20 [Permalink] Posted on 24th April 2018 22:12
Please ignore my above post mufti sahib as I did not know you replied when I posted it.
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#21 [Permalink] Posted on 24th April 2018 22:44
Jazak Allah , the confusion stemmed from this post by Muadh:
Quote:

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 you5,000 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
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#22 [Permalink] Posted on 25th April 2018 10:14

abuhajira wrote:
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Post edited and corrected as requested.

Mufti Saheb is an expert in this field and what I was trying to convey has been articulated better by Mufti Saheb and it is simply this:

  1. Islamic Banking can be Haram
  2. Islamic Banking can be Permissable

Consult Ulama on a case by case basis and learn the details instead of ignorantly dismissing something because your brain is unable to grasp the intricacies of a financial transaction.

Read any classical Islamic text and you will come up with the understanding that Islam is very PRO-BUSINESS and very ANTI-RIBA and it is entirely possible to be both (even in 2018).

A business has to make money so no business will lend you money for nothing! And get this into the deep crevices of your brain:

Ulama may differ on a particular transaction. It is entirely theoretically possible for Mufti Abu Hajira to differ with his own teachers on a particular investment scheme, let alone Mufti Abu Hajira disagreeing with other Ulama and of course vice-versa.

May Allah Ta'ala save us from indulging in Rib'a (Ameen).

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#23 [Permalink] Posted on 25th April 2018 18:54
Who's the mole on this site that keeps running to the majlis. Just delete your account or stop lurking if you hate this site.
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#24 [Permalink] Posted on 25th April 2018 19:35

Rajab wrote:
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lol, why what happened?

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#25 [Permalink] Posted on 25th April 2018 19:42
Rajab wrote:
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^^ True. And the way they write their questions is simply astonishing!
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#26 [Permalink] Posted on 25th April 2018 20:39
abuhajira wrote:
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User removed post so was only seen by a few for approximately 1 hour or less.

Looong post which would've been reported anyway.
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#27 [Permalink] Posted on 25th April 2018 21:09
abuhajira wrote:
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This thread is on that site

#ifyouknowwhatimean
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#28 [Permalink] Posted on 26th April 2018 09:05

Rajab wrote:
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We must be doing good work here.

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#29 [Permalink] Posted on 28th April 2018 09:59
MashaAllah the information provided by Messrs Khan and Abu Hajira has been informative. However the purpose of the post was more for discussion about renting accommodation not about Islamic mortgage. Just wanted to ask if people have lived in privately rented property/or currently residing in rented property and what their experience was. Which cases would it be beneficial for the renter and when would it be a disadvantage?
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#30 [Permalink] Posted on 28th April 2018 10:05

Malak wrote:
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Renting vs buying depends on your individual circumstances and your employment career. In certain sectors, volatility exists and you may be required to move around and thus it makes no sense for you to invest in property because you need to move around. In certain employement fields it makes sense to rent and be flexible

Secondly, also depends on your family. If you have younger children it is relatively easier to move around but as children grow up and get used to friends/school/community it’s hard to uproot them.

So there is no single answer to renting vs buying discussion.
 

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