Halaal Mortgage?

[SayidSomal]

couple years ago, i decided to buy my flat from the council on Amaana loan from the bank (well, actually the bank bought it on my behalf) i considired all the implications before i bought this and the most serious warning i got from respectable sheikhs (that asked for their fatwas)were that there is doubt (the halaal mortgage) is similar to an interest and it best to leave things with doubt. the rest were saying it is okay and it is not the same as an interest; it is legal profit.

 

however i was certain what i was doing was and still is not a haram thing to do. it is not an interest despite nearly working about the same amount. on the weekend i got into anguerment with this brother at the local masjid. the brother was adamant that all kinds of mortgage were haram and i am doomed to hell.

Subxanallah.

 

anyways - want to know do any of the nomads here, have this halaal mortgage or as they called Amaana loan and what is your undertsanding of this system and would you consider buying a house int he uk, if you don't have already?

[Nur]

Sayid*Somal bro.

 

Below find some of my old responses on the issue of Mortgage and Ribaa.

 

posted May 13, 2007 03:33 PM

 

I have been battling with the concept of how halal are these Halal Morgages? I want to invest in a property,but ofcourse cant afford the whole price and for along time had been pondering on taking a morgage.

 

I have been doing research and had been to the bank, but while the manager was talking, all I could hear was my moms voice, "nayaa waan kuogaa inaa galo galo iskadigtii..hadaa waxaan keentee inaad xaraantaa kudarsatoo".So I really didnt hear much of the ups and downs of Halal Morgages..I know there is Ijara,which sounds ideal.BUT,,,

 

I want to hear your opinion on the matter, and advice.Please enlight the sister!

 

Signed: Munira

 

 

Answer:

 

Munira sis

 

The basic idea of Islamic finance is JUSTICE. In Islam the default of all actions is that they are permitted unless otherwise indicated to be prohibited (Except for Money and Sex, those two, the default is prohibition except for permitted transactions and relationships)

 

Trading present money with larger future money ( Ribaa ) presents INJUSTICE as it exposes undue risk to the needy borrower while guaranteeing profit for lender.

 

Trading goods with money is known as selling ( Bayc). A homeowner is permitted to sell a house for cash or in future installments. As an incentive, she is permitted to lower price of cash sale ( Bayc Caajil) and to charge more for series of future payments,( Bayc aajil)

 

Banks in the west convert unIslamic lending instruments to Islamized instruments, and there are many variants of these structured instruments.

 

What you have to look for is

 

1. That you are not exposed to more risk than the lender. ( Risk and reward in Islamic trading must be shared, otherwise it conflicts with moral of the Sharia)

 

2. Seller is selling own property.

 

3. Property is real as opposed to a proposed development.

 

4. The term mortgage is unIslamic, its defined as: A loan to finance the purchase of real estate, usually with specified payment periods and interest rates. The borrower (mortgagor) gives the lender (mortgagee) a lien on the property as collateral for the loan. In Islamic Sharia, the Bank buys the property and then sells/rents to you in installments (hence sharing risk and reward), The Bank thus sells to you a property it rightfully owns (holding its deed) in FIXED installments ( No compounding), regardless of amount of profit, if mutually agreed. ie ( Bank buys Present house value @ 200,000 Pounds, and sells to you @ 300,000 Pounds equal monthly payments of 1000 Pounds for 25 years.)

 

Wallaahu Aclam

 

 

That is my two cents, hope it helped.

 

 

Nur

 

-------------------------------------------------

 

 

My Response regarding a question on permissibility of taking student loans, posted October 19, 2003

 

Q. Salaama calaykum wr wb.

 

Brother i have this Question wich is,if some one takes a loan from the bank and knowing that they have to pay the money back with interes fees on it. the person knows that it's haraam to pay or take riba. What the person has to face i mean what are the consiquences? danbiga uu sameeyay how bad that danbiga could be? thank you

 

p.s Reason was they needed the money and didn't had no other choice.

 

Signed: Asraa

 

 

Response:

 

Dear Asraa

 

Alxamdulillah, wa bihi nastaciin, wa salaamu calaa rasuulihi alladii istafaa wa calaa aalih wa saxbih wa sallim.

 

Ribaa or what is termed as interest in banks around the world is a financial transaction that grew from greed and Kufr, all three revealed religions, Judaism, Christaianity and Islam forbid it as these messages were issued by the same God regardless of the name adherents call him.

 

Before we answer the question, let us look into the drivers of making Ribaa haraam, and what makes the one who indulges in it a sinner of a KABEERA, a major sin even greater than Fornication, as it was reported by the Prophet Muhammad SAWS that he said a hadeeth whose gist is " Ribaa is of many types, with different degrees of severity in Punishment, the least significant type of Ribaa is equivalent to the sin of a man who fornicated with his mother some thirty( thirty six) times, in the Quraan Allah SWT placed taking Ribaa even higher by sayin to ribaa dealers, takers and givers " Beware of a war from Allah and his appostle"

 

Allah SWT says again " Allah has made business transactions lawful, but made Ribaa Xaraam"

 

Now, what is very important is to simplify the concept of Ribaa.

 

Ribaa is the act of lending money so that the time factor is sold, the longer the period the more ( Rent) has to be paid on the capital. The reason this is haraam is that the lender is not doing busines here, he is securing the loan and at the same time securing profit which is against the concept of Tijaaraa, or commerce which is sharing risk and profit. In Ribaa, you take the Risk, the Bank takes the Profit, an unjust deal.

 

In Islam, when someone is need, we help them out by either giving them grant or a loan, a loan with no interest given to a needy person is a form of worship to Allah SWT and it is that missed opportunity of benevolemce and the choice of greed that creates hatred in any community. Hatred is against the concept of brotherhood, which if not protected by benevolence can lead to theft, and loss of life. Thereby Ribaa destroys the fiber of love and community. To see the result fo this, just visist your local Psychologist who advices people whose house and cars are repossesed by banks aftre they lost tgheir jobs. That pesron is bitter at society and when able will not spare any law unviolated.

 

Now, as you have asked, a student who needs a loan applies at a local Bank, the Bank particpates in a government sponsored and secured student loan program, the Bank is guarnateed of his return, by two ways, one by the government and two by FDIC ( Federal Deposit Insurance in USA or equivalent in other jurisdictions) the inusrance for banks that insure participating banks with hundreds of millions. Now the Banks is milking the poor worker who has to pay more than their fair share. I saw this bumper sticker on a car ahead of me " I owe, I owe, so off to work I go" . The Ribaa feature is an evil result of greed, the more caring a society is to its members the more help it offers its members.

 

Most student loan applications clearly say the amount of interest payable after graduation, some applications give you a grace period, say 9 months interest free period after graduation after which you will incur penalties and more Ribaa to make you come crawling and begging for loan consolidation and collectors will be terrorizing you by placing your name in the most wanted list, so your credit worthiness diminishes so bad, your cash may not be accepted.

 

So, signing that document even if you beleive that you will pay the money before the grace period with no ineterst is a minor sin at best, " Wal ladiina laa yash haduuna al ZUUR"

 

 

Sister Asraa, we are undergoing a test here, just like materials, when engineers test them to see how much hardships these materials can tolerate, we are being tested likewise, with temptations our hands can reach , to see who is mindful of Allah in the Ghaib ( without seeing him). Paradise is no cheap.

 

Besides, any Muslim who resists temptation, Allah SWT will replace that which he forgone, with something better, it is matter of faith, and faith should not be compromised or sold for mere dollars. We must remember that our Rizq (sustenance) is in the heavens as Allah SWT said, " wa fis samaa-e rizqakum wa maa tuucaduun" and not with Ribaa Banks.

 

 

Wallaahu Aclam

 

Nur

[Rahima]

Brother Nur,

 

As far as I’m aware, there are in Islam two ways to buy property, one is the Murahaba system and the other the ijara system.

 

You give the following example:

 

In Islamic Sharia, the Bank buys the property and then sells/rents to you in installments (hence sharing risk and reward), The Bank thus sells to you a property it rightfully owns (holding its deed) in FIXED installments ( No compounding), regardless of amount of profit, if mutually agreed. ie ( Bank buys Present house value @ 200,000 Pounds, and sells to you @ 300,000 Pounds equal monthly payments of 1000 Pounds for 25 years.)

 

In this example, did the bank own the house before you approached it, or did it buy it for you and then sell it to you.

 

If it is the latter, what is the difference between that and fixed interest? The bank is making a profit on your lack of funds, or on credit.

 

Could you please explain.

[Nur]

Rahima sis

 

Your question has a short answer and a long one, depending on depth.

 

In the above example, the Bank buys after your request for financing. The fact that the Bank buys for you satisfies two Islamic principles:

 

1. No one is allowed to sell what they dont own.

2. The Bank has to take a risk in aquiring the property ( Al Ghurmu Bil Ghunm), which offsets your risk ( Sharing Risk), but, at times, the "Islamic" Banks make a killing as they end up with more profit than giving conventional mortgages, this has been the case lately as Muslim devotees insist on islamic instruments even if it costs more to satisfy their spiritual needs which in itself is a VALUE the Banks are meeting with high "interest" level .

 

Your second question has a very long answer, but let me give you the sgort version.

 

You ask :" what is the difference between that and fixed interest? The bank is making a profit on your lack of funds, or on credit"

 

 

Rahima sis

 

The principle of selling time value of money in Islam is a form of Shirk. How you may ask. You ses sis, everything on earth depreciates, common sense then tells us that money also should, but in the Riba based economy, Money is set to appreciate against all kinds of market forces. That makes the Dollar a quasi GOD, Sovereign on its own merit, and as a result it is worshipped in many money markets worldwide, the biggest church being Wall Street Congregation, and from there devotees from all over the world find themselves bound to this unscapable force.

 

The basic financial instrument in Islamic Banking is known as BBA ( Bayc Bi Thaman Aajil, aka Murabaha) ( iib lagu iibanayo qiimo dib loo dhigay), in Reality, this instrument is still against Islamic spirit which I will explain at length when I have more time inshAllah.

 

Here is how BBA works:

 

There are three parties in the BBA Deal.

 

1. Bank

2. Customer

3. Owner Of Asset

 

First Step: Customer identifies property to be aquired.

Second Step: Bank purchases property from owner on cash basis.

Third Step: Bank sells property it aquired to Customer at cost plus profit margin.

Forth Step. Customer repays Bank in N installments (eg n=60)

 

 

You see sis, Allah SWT says in Quraan, "Allah made trading lawful, and forbade Usury ( Interst), in my upcoming thread Titled: "A Euro Tomorrow is better than a Euro Today! Time Value of Money In Islam. (Hint : Hadeeth Fatima and the leg of the lamb ) " which goes against conventional finance, I will explain the philosophy behind the prohibition of Ribaa and why its different from sale of a property in any arrangement to satisfy your question in depth inshAllah.

 

 

Nur

[SayidSomal]

i am now even more confused - you said

Here is how BBA works:

 

There are three parties in the BBA Deal.

 

1. Bank

2. Customer

3. Owner Of Asset

 

First Step: Customer identifies property to be aquired.

Second Step: Bank purchases property from owner on cash basis.

Third Step: Bank sells property it aquired to Customer at cost plus profit margin.

Forth Step. Customer repays Bank in N installments (eg n=

Now! - that is what i have - i wanna know whether this what the majority of Culama/scholars agree with or not!!! the bank i am with is not an islamic bank but they have produced all these sheiks/imaams/islamic scholars who say this is halaal even as far as saying (on question related to the actually financial equity of the bank being acquired in unislamic manner i.e. that their profit was gained thru interest and as such that is what they bought the house with) the counter arguement offered by these scholars was that if a shop sold alcohol does that mean the milk you pay from there is xaraam?

 

i look forward to you answers and many thanks in advance for your anticipated response or more approriately Jazakallah Khayr.

[Nur]

Sayyed bro.

 

If that is what you have ( Specific situation as you have described), be it from an Islamic Bank or HSBC Amana, it seems as a valid instrument for aquiring a property from Owner .

 

You are not responsible for how the Bank raised the money, riba or halal, that is not in your sphere of influence, yours begins with how you aquire the property and how you dispose it, the Prophet SAWS is said to have taken a loan from a Jewish Lender in Madina. Jewish traders have historically dealt in usury with the Arabs in Madina.

 

 

Wa Allahu Aclam

 

 

Nur

[Rahima]

Br. Nur,

 

Now, I’m confused even more :confused: .

 

My understanding of the correct method for the Murahaba system, the halal method, is that the bank must have ownership of the house before you approach it, because then it is not making the profit on your lack of money/credit. The correct method of Murahaba is that a bank buys homes at say $200,000 (not knowing if it will be able to sell them), then puts them on the market for possible buyers at a higher price whereby it will make a profit, say $300,000 BUT, it allows the potential buyers to make the re-payments in instalments.

 

The basic financial instrument in Islamic Banking is known as BBA ( Bayc Bi Thaman Aajil, aka Murabaha) ( iib lagu iibanayo qiimo dib loo dhigay), in Reality, this instrument is still against Islamic spirit which I will explain at length when I have more time inshAllah.

Is that an agreement of my above understanding? When you say against Islamic spirit, are you saying that this is haram? If so, how is this different from the example you provided earlier on?

 

You explain:

 

Here is how BBA works:

 

There are three parties in the BBA Deal.

 

1. Bank

2. Customer

3. Owner Of Asset

 

First Step: Customer identifies property to be aquired.

Second Step: Bank purchases property from owner on cash basis.

Third Step: Bank sells property it aquired to Customer at cost plus profit margin.

Forth Step. Customer repays Bank in N installments (eg n=60)

But then you provided us earlier on with this example:

 

In Islamic Sharia, the Bank buys the property and then sells/rents to you in installments (hence sharing risk and reward), The Bank thus sells to you a property it rightfully owns (holding its deed) in FIXED installments ( No compounding), regardless of amount of profit, if mutually agreed. ie ( Bank buys Present house value @ 200,000 Pounds, and sells to you @ 300,000 Pounds equal monthly payments of 1000 Pounds for 25 years.)

^Are you saying that this is against the Islamic spirit?

 

As for HSBC Amanah, I did some research on it a while back and came up with the following:

 

Amaanah financing from HSBC

 

Is Amaanah financing from HSBC valid in the light of the Qur’aan and Sunnah?.

 

Praise be to Allaah.

 

Amaanah personal financing through HSBC is based on tawarruq via the bank (al-tawarruq al-masrafi) as is clearly stated on the bank’s website in English.

 

See:

http://www.hsbcamanah.com/1/2/hsbc-amanah/personal/personal-finance

 

This is a haraam transaction, because it involves a trick to circumvent the rulings on riba.

 

The Islamic Fiqh Council has issued a statement ruling that organized tawarruq done via the bank is haraam. We have quoted the text of this statement in the answer to question no. 98124.

And Allaah knows best.

 

http://www.islam-qa.com/en/ref/102477/HSBC

[Nur]

Rahima sis

 

You write:

 

"the bank must have ownership of the house before you approach it, because then it is not making the profit on your lack of money/credit"

 

 

Walaalo, this is not a condition to conform to risk sharing between Bank and buyer, because a buyer can default, or simply escape once the Bank has bought the property for them, which exposes the Bank to risk, thus sharing it with custoner, this is different than straight Riba deal.

 

However, if the Bank securitizes against customer default and asks for a collateral before buying the property for the customer, then its a an expensive Riba deal inf favor of Bank.

 

 

Here is the motivation of what I termed as "Islamic Spirit" :

 

Wealth in Islam belongs to Allah alone, he is the holder of the deeds of all properties, real or otherwise on planet earth.

 

Allah made mankind His Khalifa on earth ( Care Taker of His wealth) honored mankind above all creatures for the purpose that mankind uphold Justice on earth and treat other creatures and his own with kindness and compassion.

 

For that above reason, Allah regulated transfer of this trust, aka wealth from one caretaker to another in five basic arrangements:

 

1. Inheritance

2. Gift

3. Sale

4. Loan

5. Sadaqah ( poors due)

 

The first case had been regulated in a detailed way in Quraan. It began with the Khilaafa ( Inheritance of man of wealth from Allah, and it trickles down to progeny)

 

The second way, is also mentioned in Quraan ( Queen Sheba and King Prophet David), and also in Hadeeth, " To love each other, exchange gifts"

 

The third case is sale, or exchange of (goods/ services) in excess with (goods/services) in need. Allah who is the real owner of all properties including the very humankind, offered to buy our souls and properties in exchange with Paradise.

 

The fourth way is Loan, Again, Allah SWT asks mankind to give Allah a loan ( Man dha ladee yuqridu Allaha qardhan xasanan fa yudaacifuhu lahu adcaafan katheera, wallaahu yaqbidu wa yabsudu wa ileyhi turjacuun) ( Is there anyone willing to give Allah a loan so that Allah will pay him back with multiples of his capital, knowing that Allah is the one who released the funds to mankind in the first place and the one who can withhold it and to him mankind will eventually return for an audit"

 

So in essence, Allah gives better return than Banks for investors if they help the needy with an interset free loans for their needs.

 

When this verse was revealed, our cousins of the people of the Book aka Jews, said "Allah is poor and we ar rich" then Allah revealed " Allah had heard the claim of those who said Allah is poor and we are rich, We shall record their claim and their crimes of slaying of prophets unjustly ( attempt on Jesus included)"

 

Why does Allah need a loan? well it was intended for the welfare of the poor.

 

The Fourth is Sadaqah. Allah SWT revealed, " Dont they know that Allah accepts the repentance of his servants and takes Sadaqaat (from them) to offset ( forgive) their sins.

 

 

With that quick tour of what wealth is and how is lawfully transferred between caretakers we make the following conclusions:

 

1. Allah made Trading Halaal.

 

2. Allah made Ribaa Xaraam

 

Despite the claim of the Jewish traders in Madina who said (in Quraan) : Sale of goods is the same as the sale of money ( Ribaa).

 

Here lies the root of confusion, sale of goods is not the same as the sale of money. Money is not a product, its an instrument of transaction.

 

In Islam, sale is halaal, with no roof of profit as long as hoardding and other illegal ways are not used. ( goods such as water and foods are regulated)

 

While a LOAN is tantamount to SADAQAH, philanthropy, its to help someone in need. Taking advantage of a needy person by burdening them with more financial burden is abominable and evil.

 

In Islam if you need a loan and approach a person, there is a moral responsibility to give a loan with no interest. If that person, out of gratitude offers on their own to give back the loan plus some extra , its rightfully halaal to take ( Based oon Hadeeth of the Camel loaned to Prophet Muhammad SAWS), but to make it a condition before giving the laon is the Haraam.

 

From the above treatment, we see that a Bank in the present form is un islamic, so to say " Islamic Bank" is an oxymoron, money in Islam should never be parked in vaults, its meant to circulate to benefit the community like a vital blood vein , Allah SWT says in Quraan " So that money does not (unjustly) circulate among the wealthy" which is the case in present day Banking. To get a loan today, you fill a kilometer long form, to prove to the Banker that you dont need any money to be trusted with a loan.

 

Islamic Banks are on the heals of Modern Banks, they have translated the terms and practices, but the spirit remains the same, the Maqaasidul Shariica ( Moral of Allah's law) is being violated.

 

 

That is what I meant by the "spirit" or Maqaasid Ul Shariica, my dear sister.

 

 

is it Halal?

 

 

That is a tough question, the best thing I can say, is:

 

 

Allah says in Quraan : "Fattaquullaha mas tadactum" (Beware Allah as much as you can).

 

Its a personal call, for me, in a time when my sphere of influence is limited, I use personal judgement I can sleep with at night and look myself in the mirror in the morning after.

 

 

Nur

[Geel_jire]

jzk brother Nur and Rahima.

 

this has answered some lingering questions I had about this issue.

 

can you point me to a comprehensive book about 'kitaabul bayc' in english that also discusses ... these new methods of business not covered in the standard Fiqh books.

 

Ramadan kariim walaalayaal !

[SayidSomal]

Jazakallah khayr once again all - i wish the brother who argue with and shouted proufanity at me - could read this now - anyways i'll try not to argue with ignorant again.

[Khayr]

Nur you said

its meant to circulate to benefit the community like a vital blood vein

What about the concept of Baytul Mal?

 

Islamic Banks are on the heals of Modern Banks, they have translated the terms and practices, but the spirit remains the same, the Maqaasidul Shariica ( Moral of Allah's law) is being violated.

 

 

That is what I meant by the "spirit" or Maqaasid Ul Shariica, my dear sister.

 

 

is it Halal?

 

 

That is a tough question, the best thing I can say, is:

 

 

Allah says in Quraan : "Fattaquullaha mas tadactum" (Beware Allah as much as you can).

 

Its a personal call, for me, in a time when my sphere of influence is limited, I use personal judgement I can sleep with at night and look myself in the mirror in the morning after.

Islam and Banking don't go together. I agree.

 

Just explain to the nomads the idea of 'Wealth Management' in the Shariah. Whats the purpose of Wealth? Why accumulate it?

 

Is there a confusion of principles here? Are Capitalistic ideas being "Islamized"?

[Resistance]

and wats wrong with wealth creation in Islam. Spend it the in the way of Allah but nothing wrong with creating in the 1st place.

[ElPunto]

This topic needs a lot more elucidation. Thx to Nur and company for their contributions.

 

So in essence - what I got from this is:

 

1- The source of the funds is irrelevant(HSBC Amanah or HBSC) ; the transaction details is what matters

2- The bank must buy the property and therefore 'bears the risk'

3- The bank sells you the property at a price that adds a predetermined profit to their purchase price. (If they turn around and sell it to you at their purchase price + profit - what risk are they bearing exactly apart from ths usual default risk?)

4- Customer repays the loan + profit on a monthly basis ( in the event of a sale prior to full loan repayment who bears the risk of loss and who participates in the gains?)

 

Is my understanding correct? What of the above steps is markedly different than from western financial institutions which would make the Islamic system different from riba based systems?

 

In Islam if you need a loan and approach a person, there is a moral responsibility to give a loan with no interest. If that person, out of gratitude offers on their own to give back the loan plus some extra , its rightfully halaal to take ( Based oon Hadeeth of the Camel loaned to Prophet Muhammad SAWS), but to make it a condition before giving the laon is the Haraam.

This fails to address the perceived 'scarcity' of wealth and people's innate selfishness. Is money 'free' in Islam? If I have an extra 30k that I have saved up for years - why should I lend to my neighbour who wishes to buy a car as opposed to investing it in some profit producing entreprise? Isn't it better for the whole community if I invest it in an entreprise rather than finance someone's consumption? Is it appropriate in Islam to ask for loans to finance what is in essence personal consumption (cars, houses etc) as opposed to a business concern?

 

From the above treatment, we see that a Bank in the present form is un islamic, so to say " Islamic Bank" is an oxymoron, money in Islam should never be parked in vaults, its meant to circulate to benefit the community like a vital blood vein , Allah SWT says in Quraan " So that money does not (unjustly) circulate among the wealthy" which is the case in present day Banking. To get a loan today, you fill a kilometer long form, to prove to the Banker that you dont need any money to be trusted with a loan.

Money in western banks does circulate - the mechanism for that circulation is interest rates. Additionally - money in all banks comes from the community - the money doesn't belong to the bank. They have a responsibility to make sure your cash deposits are not impaired. This then requires they mitigate risk of impairment by making loan applicants go through hoops. I am not sure it is unwarranted.

 

How would an idealized hypothetical Islamic financial institution function? Would it not ensure that customers' deposits are safeguarded by checking out prospective loan applicants? Would it lend money to loan applicants at zero profit? etc.

[Nur]

Kheyr bro

 

Thanks for the good observation of the institution of Baitul Maal Al Islami ( Islamic Wealth Depository) is where public wealth is stored to be dispensed for the public. Its where the Zakat funds are stored and where welfare payments are administered for the poor or government spending on public projects in an Islamic state.

 

The Bank on the other hand is a private institution whose sole business is lending money for profit. The Banks securitize the loans the give, in essence they have the same wealth in different forms all the time ( Collaterals or deposits) and as time ticks, money is being generated with time, a risk free business.

 

In Islam, our lives are centered around our faith, to be specific around Allah our creator, so we are Allah Centric. As such, we value Allah more than anything else, since He created everything else. In Islam the more a pious a person is, the closer he/she is to Allah SWT.

 

Capitalism on the other hand is Capital Centric ( As its name implies), money matters more than anything else including people in Capitalism, for money's sake wars are initiated and millions die, . In Capitalism, the more wealth a person is worth, the higher he/she is regarded no matter how the wealth is earned, this is known as Upward Mobility.

 

 

As for wealth management, Allah entrusted wealth in our care so:

 

First: We earn it equitably ( Fairly)

Second: We spend it wisely ( Not wasting it on forbidden activities)

Third: We share it with those in need in three ways:

 

a. Loan with no interest

b. Gift.

c. Poors Due( Sadaqa)

 

While wealth is in our care, we invest it and grow it by circulating it in the community, so that everone has access to wealth to generate more wealth through entrepre(Nur)ial activities .

 

Contrary to usury based Wealth Management, Islamic Wealth Management is benevolent, community oriented to satisfy the needs of all segments so that evil is not committed due to poverty. ( crimes are mostly driven by unfair financial disparities in a society, prostitution, drugs, murder etc.)

 

Islamic Wealth Managemnt takes many forms such as :

 

1. Investment in public infrastructure

2. Investment in Education

3. Trade Finance ( Muraabaha, Mushaarka etc.)

4. Investment in Manufaturing ( Istisnaac)

5. Investment in public and private Housing.

6. Investment in Agriculture ( Ijaara, Istizraac)

 

 

Nur

[Nur]

The Point bro.

 

 

You ask:

":Is my understanding correct? What of the above steps is markedly different than from western financial institutions which would make the Islamic system different from riba based systems?"

 

 

Answer: Steps 2, 3 are different. Usury based Banks do not sell and buy properties, they have it easy, you borrow money, they hedge it with a collateral, they earn their capital plus interest. Less activities before earning money means less risk.

 

 

You write:

 

"This fails to address the perceived 'scarcity' of wealth and people's innate selfishness. Is money 'free' in Islam? If I have an extra 30k that I have saved up for years - why should I lend to my neighbour who wishes to buy a car as opposed to investing it in some profit producing entreprise? Isn't it better for the whole community if I invest it in an entreprise rather than finance someone's consumption? Is it appropriate in Islam to ask for loans to finance what is in essence personal consumption (cars, houses etc) as opposed to a business concern?

"

 

Answer:

 

When faced with scarcity, a community places wealth where its mostly needed, infrastructure, education, food, agriculture, or entreprenurial activities to cerate more wealth for the community. But scarcity should not drive poverty through usury, as its the case today in the world, where the entire planet is in debt financing illegal wars for an insatiable energy and an imminent financial collapse is looming over our heads.

 

If you have saved 30k, paid your Zakat to the community, you have a choice to help someone in need, as opposed to finance a luxury. Consumption drives economy, so by helping a needy with an interest free loan, you may have averted a crime of theft that would have made you pay the money as a tax to incarcerate that thief. Allah will reward you too for that benevolence and the remaining wealth will be blessed.

 

The mindset that created the Economic theory of " Scarcity" is behind the principle of Usury that is forbidden.

 

Allah SWT says in Quraan : "Maa cindakum yanfad, wa maa cinda Alla baaq". Your wealth depreciates, and Allah's endures"

 

What is elluding many Muslims who study economics is that scarcity of goods is different than scarcity of the transaction instruments known as money. Treating money like commodities is where the violation of the verse " innamal baycu mithlu ribaa" (Sale of goods is like Ribaa ( lending of money for profit) ) begins.

 

The Prophet SAWS correcting Fatuma, His daughter when she described sadaqa she gave away " The Whole Lamb is gone except for a leg" The Propeht SAWS Corrected her " The Whole lamb is saved except for the leg" , therefore a Dollar today is better than a dollar tomorrow is false in Islamic Aqeedah.

 

Allah says: "Yamxaqulllahu Al Ribaa wa yurbii al sadaqaat" Allah makes usury fail, while increasing the value of wealth that is employed in benevolence projects.

 

What is important to note is that the principle of scarcity of goods and services on which modern Economic theory is built upon, falters when viewed through Islamic Aqeedah lens.

 

 

No one said that islamic financial principles are against investments, nor does it imply that wealth should be distributed and not created in business, industry and agriculture. As a matter of fact, all projects that add value to people's lives and happiness in islam, including play grounds are charitable , its known as AWQAAF.

 

Money should work for people, not the other ways around, otherwise, money becomes the goal instead of a mean for a higher goal. In Islam, Allah created man for a higher purpose, His worship, wealth was placed on earth to serve man, so man can serve Allah SWT.

 

 

Nur