Halaal Mortgage?

[Khayr]

Originally posted by Nur:

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.

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.)

Why is Islamic Wealth Management Community Oriented and not individual oriented? If I want to be rich and just pay my zakat, then whats wrong with that?

 

 

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)

What I fail to understand is how 'Islamic financing' as practiced now is a feasible option for a muslim in non muslim lands. If an Islamic finance schemes will resell you a home that was at market price originally for $300, 000 and not give it you halal at $350, 000 or ask you to pay a whopping 25% on a downpayment compared to some mortgage companies asking for 5% or less, then is it a viable option for the muslim (meaning something realistic) or does it just put us at an economic disadvantage?

 

 

Nur, I am in agreement with all that you said in this thread.

 

Good discussion.

 

Fi Amanillah

[ElPunto]

Thanks Nur. Many items were cleared up. However steps 2 and 3 of they buy the property and resell it immediately is not a major difference although a difference nonetheless.

 

I think more of a discussion about how an Islamic economic system works at a macro level would be interesting. To see how one moves along the community economically but also ensure Allah's commandments are observed.

 

JZK.

[Nur]

Point Bro.

 

My Point was that 2, 3 are fundemental departure from the Banking Model that relies only on lending business, Islamic "banking" is in reality a business front for depositors to earn profit thru Sharia Compliant ventures ( Muraabaha, Mushaaraka, Istisnaac, etc."

 

Below I am attaching an article I read today about the imminent collapse of the Ribaa economy and the socialization of the capitalist America.

 

Save The Rich.

 

 

Comrades Bush, Paulson and Bernanke Welcome You to the USSRA

(United Socialist State Republic of America)

 

 

By Nouriel Roubini

 

09/09/08 "Roubini Global Economics" -- - The now inevitable nationalization of Fannie and Freddie is the most radical regime change in global economic and financial affairs in decades. For the last twenty years after the collapse of the USSR, the fall of the Iron Curtain and the economic reforms in China and other emerging market economies the world economy has moved away from state ownership of the economy and towards privatization of previously stated owned enterprises. This trends was aggressively supported the United States that preached right and left the benefits of free markets and free private enterprise.

 

Today instead the US has performed the greatest nationalization in the history of humanity. By nationalizing Fannie and Freddie the US has increased its public assets by almost $6 trillion and has increased its public debt/liabilities by another $6 trillion. The US has also turned itself into the largest government-owned hedge fund in the world: by injecting a likely $200 billion of capital into Fannie and Freddie and taking on almost $6 trillion of liabilities of such GSEs the US has also undertaken the biggest and most levered LBO (“leveraged buy-out”) in human history that has a debt to equity ratio of 30 ($6,000 billion of debt against $200 billion of equity).

 

So now Comrades Bush, Paulson and Bernanke (as originally nicknamed by Willem Buiter) have now turned the USA into the USSRA (the United Socialist State Republic of America). Socialism is indeed alive and well in America; but this is socialism for the rich, the well connected and Wall Street. A socialism where profits are privatized and losses are socialized with the US tax-payer being charged the bill of $300 billion.

 

This biggest bailout and nationalization in human history comes from the most fanatically and ideologically zealot free-market laissez-faire administration in US history. These are the folks who for years spewed the rhetoric of free markets and cutting down government intervention in economic affairs. But they were so fanatically ideological about free markets that they did not realize that financial and other markets without proper rules, supervision and regulation are like a jungle where greed – untempered by fear of loss or of punishment – leads to credit bubbles and asset bubbles and manias and eventual bust and panics.

 

The ideologue “regulators” who literally held a chain saw at a public event to smash “unnecessary regulations” are now communists nationalizing private firms and socializing their losses: the bailout of the Bear Stearns creditors, the bailout of Fannie and Freddie, the use of the Fed balance sheet (hundreds of billions of safe US Treasuries swapped for junk toxic illiquid private securities), the use of the other GSEs (the Federal Home Loan Bank system) to provide hundreds of billions of dollars of “liquidity” to distressed, illiquid and insolvent mortgage lenders, the use of the SEC to manipulate the stock market (restrictions on short sales), the use of the US Treasury to manipulate the mortgage market (Treasury will now for the first time outright buy agency MBS to manipulate and prop up this market), the creation of a whole host of new bailout facilities (TAF, TSLF, PDCF) to prop and rescue banks and, for the first time since the Great Depression,to bail out non-bank financial institutions, and a whole range of other executive and legislative actions (including the recent bill to provide a public guarantee to mortgage for banks willing to reduce their face value).

 

This is the biggest and most socialist government intervention in economic affairs since the formation of the Soviet Union and Communist China. So foreign investors are now welcome to the USSRA (the United Socialist State Republic of America) where they can earn fat spreads relative to Treasuries on agency debt and never face any credit risks (not even the subordinated debt holders who made a fortune yesterday as those claims were also made whole).

 

Like scores of evangelists and hypocrites and moralists who spew and praise family values and pretend to be holier than thou and are then regularly caught cheating or cross dressing or found to be perverts these Bush hypocrites who spewed for years the glory of unfettered wild west laissez faire jungle capitalism (and never believed in any sensible and appropriate regulation and supervision of financial markets) allowed the biggest debt bubble ever to fester without any control, have caused the biggest financial crisis since the Great Depression and are now forced to perform the biggest government intervention and nationalizations in the recent history of humanity, all for the benefit of the rich and the well connected. So Comrades Bush and Paulson and Bernanke will rightly pass to the history books as a troika of Bolsheviks who turned the USA into the USSRA. Fanatic zealots of any religion are always pests that cause havoc and destruction with their inflexible fanaticism; but they usually don’t run the biggest economy in the world. But these laissez faire voodoo-economics zealots in charge of the USA have now caused the biggest financial crisis since the Great Depression and the nastiest economic crisis in decades. So let them be shamed in public for their hypocrisy and zealotry that has caused so much financial and economic damage.

 

Copyright © 2008 Roubini Global Economics

[Nur]

The Crash of Western Capitalist Civilization?

By Richard_C_Cook

 

15/09/08 "ICH" -- - “Train-wreck” doesn't even begin to describe what is starting to happen to the U.S. today with the financial crisis, an onrushing depression, and the failure of George W. Bush's war policy as he is faced down by Iran and the Russian bear.

 

But in an even broader sense, the West, as a civilization, after a century of world war and the utter failure of global finance capitalism, may have reached its limits.

 

Those with a vested interest in the status quo dismiss any suggestion that something is wrong. This includes Donald Luskin, author of an article in the Washington Post on Sunday, September 14, titled: “A Nation of Exaggerators: Quit Doling Out That Bad Economy Line.”

 

Luskin writes, “The relentless drumbeat of pessimism in the media and on the campaign trail” is “a virus.”

 

He continues: “Sure, there are trouble spots in the economy, as the government takeover of mortgage giants Fannie Mae and Freddie Mac, and jitters about Wall Street firm Lehman Brothers, amply demonstrate. And unemployment figures are up a bit, too. None of this, however, is cause for depression -- or exaggerated Depression comparisons.”

 

Continue reading, and you find out who Luskin is: a campaign adviser to John McCain.

 

We know that “where you stand depends on where you sit”—and who pays you for advice. So is a catastrophic meltdown coming?

 

If so, probably a majority of the people in the world are thinking: “Serves them right.” For the last 500 years, the West has been striding across the globe, armed to the teeth with firearms, warships, bombers, and—more recently—depleted uranium, enforcing the “white man's burden” by enslaving nations and peoples and confiscating everything of value—ranging from art objects to gold to oil—that can be carried away.

 

The financiers behind it all have also used the diabolically clever practice of creating money “out of thin air” to put the natives everywhere into debt, and, when that has proven insufficient, of doing the same to their own populations.

 

All this is rationalized by various brands of racism, cultural superiority, social Darwinism, historical determinism, “dominion of the Elect,” “God's chosen people,” etc. Or, simply, “might makes right.”

 

Some call it “The New World Order.”

 

So today, we Americans, denizens of the “land of the free and the home of the brave,” victors in two world wars, bearers of “democracy” to Afghanistan and Iraq, allies of the brave Israelis who hold high the banner of Judeo-Christian values among the ungrateful Palestinians—well, we Americans owe our own bankers almost $70 trillion at most recent count. With the government takeover of Fannie Mae and Freddie Mac, we owe holders of bad housing loans, including the governments of China, Korea, and Japan, another few trillion.

 

The bluster of Kissinger, Brzezinski, the Kristols, the Christian fundamentalists, and their paid-off politicians and media millionaires notwithstanding, America—indeed, the entire West—has been found out, perhaps even checkmated on the world stage.

 

The Bush/Cheney wars in Afghanistan and Iraq have blackened America's name forever. Iran has called our bluff. In Israel the gap between rich and poor is increasing as much as in the U.S. According to an article by Ian S. Lustick, the Palestinians have stood up to the Israelis to the point where more Jews are emigrating from that country than are moving in, and where those who remain are increasingly huddling around Tel Aviv as a safe haven. (Ian S. Lustick, “Abandoning the Iron Wall: ‘Israel and the Middle Eastern Muck',” Middle East Policy , Vo. XV, No. 3, Fall 2008.)

 

In the 1990s, the European bankers used U.S. and NATO forces to dismember Yugoslavia so George Soros and the Rothschilds could gobble up Balkan resources. But that strategy is failing in the Caucasus, where the Russians fought back against the genocidal attack by Dick Cheney's poodle, Mikheil Saakashvili, the New York-trained attorney the CIA got elected as the president of Georgia.

 

And now the people of Ukraine, the “Little Russians,” realizing what the West has in store for them, are rushing back into the Slavic fold and may be only a year or so away from reuniting with their “Great Russian” cousins across the border.

 

What is telling is to watch the Western financier press, chiefly the Washington Post and the New York Times , fume about Russian prime minister Vladimir Putin and his “authoritarian” manner. An example is the article by Times correspondent Ellen Barry on Putin's September 11 press conference in Moscow. She wrote, “In three-and-a-half hours, in tones that were alternatively pugilistic and needy, Vladimir V. Putin tried to explain himself.”

 

I'm sorry, Ms. Barry. You and your editors may think your writing is cute, but Vladimir Putin is the foremost figure on the world stage today. He will remain so after George W. Bush leaves the White House disgraced.

 

Putin is heir to an epochal movement of patriots who began in the 1970s to take back Russia from within. It started with a base of operations within the KGB and the Orthodox Church, led to Gorbachev's glasnost in the 1980s, and culminated in the Second Russian Revolution of 1991. At that point, the Western financiers gleefully rushed in to support an assault from the Russian “oligarchs” who were looting Russia of everything it owned.

 

The oligarchs were the shock troops of a financier assault that had already begun to overlap in the West with the Russian Mafia. Cheered on by the Washington Post and aided by academic advisors from places like Harvard, this international syndicate nearly destroyed Russia during the 1990s. But when Putin was appointed interim president by Boris Yelstin in 1999, and after winning the presidential election of 2000 in his own right, he began to fight back.

 

From the mid-1970s to today, thousands of Russian gangsters, along with many hard-line Bolsheviks/Stalinists, were allowed to emigrate. Many settled in the U.S. and are here today, and many more settled in Israel. In fact, one reason the price of condos in New York, Miami, Tel Aviv, and elsewhere has inflated so much reportedly is the flood of cash from racketeering.

 

The crooks have allied themselves with the Colombian drug cartels and have heavily infiltrated the world's financial systems, even setting up their own banks for laundering money and speculating in the commodities markets.

 

Today, Putin is cleaning out the remaining gangster class. His efforts reached a milestone in January with the arrest in Moscow of Semion Mogilevich, called “the world's most dangerous man.”

 

Putin has declared that the world will not be governed in a “unipolar” manner; i.e. by the U.S. military as the police force for the global financiers. This does not mean Russia has to be our enemy. In fact the world would be much better off, and much safer, if we joined with Russia as allies in keeping the peace.

 

But to do that our system would have to change, because finance capitalism is far too unstable to coexist with other nations as equals. It must either grow or die, because it always needs new victims to pay the interest on its usury practices and to finance its speculative balloons. As a last resort, it needs the kind of financial institution bailouts being engineered by Secretary of the Treasury Henry Paulson, where the only remaining stopgap is borrowing from public funds and adding to the national debt.

 

Once economic growth stops, as has now happened, and all the bubbles to restart it have blown up, as has also happened, the end really is nigh. Especially if the host—the U.S.—is bankrupt.

 

What is coming at us today isn't just another downturn. If people like McCain adviser Donald Luskin doubt it, maybe, instead of writing campaign propaganda, they should ask the fired CEOs of Fannie Mae and Freddie Mac, the stockholders of Lehman Brothers, whose shares have dropped ninety percent in less than a year, and the millions who are losing their homes.

 

Presidential candidates Barack Obama and John McCain are calling for “change.” Well, if I were standing on a beach with a 100-foot tsunami roaring in my direction, I would call for change too. Except I would not be standing around arguing about the meaning of the words “lipstick on a pig.”

 

By Richard C. Cook

http:// www.richardccook.com

 

Copyright 2008 by Richard C. Cook

 

Richard C. Cook is a former U.S. federal government analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, NASA, and the U.S. Treasury Department. His articles on economics, politics, and space policy have appeared on numerous websites. His book on monetary reform entitled We Hold These Truths: The Hope of Monetary Reform will be published soon by Tendril Press. He is also the author of Challenger Revealed: An Insider's Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age , called by one reviewer, “the most important spaceflight book of the last twenty years . ” His Challenger website is at www.richardccook.com . A new economics website at www.RealSustainableLiving.com is upcoming with partner/author Susan Boskey. To get on his mailing list, for questions and comments, or to pre-purchase copies of his new book, please write EconomicSanity@gmail.com .

[Nur]

Fatwa on the Impermissibility of the HSBC and other "Halal" Mortgages.....Excellent

 

TOPIC WAS ORIGINALLY POSTED BY NINBROWN ON December 24, 2004 06:47 AM

 

The ruling on the permissibility of financing properties using Islamic ijara mortgages as currently implemented by HSBC and other banks

Many people have enquired about the permissibility under Sharee’ah of the so-called Islamic ijara mortgages recently announced by banks such as HSBC. As it is in the interest of all Muslims to have a current and accurate understanding of the issues involved here, I have concluded the following judgement based upon the Quran and Sunnah in accordance with the understanding of the main school of thoughts.

Let me first brief the reader regarding the manner in which the scheme works.

 

Under the ijara (rental) variety of Islamic mortgage, the bank purchases a property selected by the client, following a promise from the client that he or she will live in that property and purchase it after an agreed period of time. In return, the client pays monthly installments to the bank, mainly composed of two payments. One portion of the installment is considered to be a payment of the purchase price for the property, and another portion is counted as rent that the client pays for living in the property in the meantime. The purchase price paid by the client is equal to the purchase price initially paid by the bank for the property. Once the client has paid all of the installments, in other words the purchase installments plus the rental installments, the bank will transfer the ownership of the property to the client. The bank makes its profit from the difference between the price it pays for the property (including related transaction costs) and the amounts received in installments from its client.

 

This type of scheme, with some minor modifications, is used in the United Kingdom by HSBC Amanah Finance, Ahli United Bank and United National Bank[1].

 

In principle, an ijara scheme can be structured in such a way as to be acceptable under Sharee’ah so long as certain conditions are met, the discussion of which is beyond the scope of this judgement. However, the implementation of the scheme by the above banks is highly problematic.

 

Firstly, the contract is ambiguous in terms of its nature. Is it a lease contract, a purchase contract or a combination of the two? Some scholars have prohibited combined contracts (for example, a transaction that combines both lease and purchase), as the Prophet (peace and blessings of Allah be upon him) prohibited two transactions in one transaction. This is the opinion adopted by most of the scholars, and although there are some who have allowed this type of transaction under certain strict conditions, there is a consensus that the presence of a significant amount of ambiguity invalidates a contract. Among the many Prophetic traditions on this point is that of Ibn Umar, who related that the Prophet (peace and blessings of Allah be upon him) forbade sales that involve uncertainty or ambiguity (gharar)[2].

 

Many scholars, including the foremost Fiqh councils of our times[3], believe that if rental and sale are mixed in such a way that one cannot distinguish at any point of time whether the client is a tenant or a buyer, then such a contract is invalid according to Islamic jurisprudence.

 

When pressed to clarify the nature of the ijara mortgage, staff in Islamic banking departments frequently describe it as a ‘lease ending in a purchase’. Yet if this really is the case, then the ijara mortgage should display the features of a lease throughout the entire time-span of the contract (often as much as 25 years) until it concludes with a purchase event. In other words, the bank will rent the house for a period of time with the promise that it will sell to the client at the end of the tenancy. During the tenancy, the bank will be the legal owner of the property. After the tenancy the client will be the legal owner.

 

Although many scholars do not allow this type of combined contract, let us for the sake of argument consider it to be valid according to the opinion of those scholars who accept it. When we examine the available ijara schemes more closely, we find that the theoretical structure outlined above does not exist in practice. The ijara contract as it stands is neither a lease nor a purchase. Rather, it is closer to a conventional loan where the bank lends money to a client for a property purchase, and requires that the client must repay with a markup (under the guise of ‘rent’).

 

Consider the following questions which illustrate the ambiguity of the contract:

 

1- Why does the tenant need to pay a large down payment? (Frequently an amount equal to 10% of the price is required. A genuine tenant does of course make some kind of down payment, relevant to the period of the tenancy, but no credible tenancy agreement can bind the tenant to place such a large down payment.)

 

2- Who pays the insurance of the house? Is it the bank or the tenant? (Technically, the owner of an asset is the one who should pay for its insurance.)

 

3- What will happen if there is loss or damage to the property and the insurance company refuses to cover the losses incurred? Who will pay for this? (Once again, if the bank is the actual owner, and such a loss or damage occurred through no fault of the client, then the bank cannot hold the client responsible for damages.)

 

4- If the tenant decides to stop the tenancy agreement, the bank will sell the property. If the price of the property has depreciated in the meantime (which means the bank as the owner of the property suffers a loss), why is the client bound to compensate that entire loss while being only a tenant?

 

The point of all these questions is to address the central issue, namely, who is considered the actual owner (and thus liable for any damages or depreciation in value) for the duration of the lease? Is it the bank (in which case all of the above scenarios do not make sense), or is it the client (in which case this contract is not a lease contract in the first place, but rather something else)?

 

A bank may give an answer to all or some of these questions, supported by quotations from jurists past or present. Some of these answers may indeed prove to be acceptable when looked at in isolation but, when taken as a whole, such practices may invalidate the contract.

 

To illustrate our point, the bank might state that, according to a particular school of thought, the down-payment is not a part of the price of the property since it is not a purchase agreement. Rather, it is an assurance that the tenant is serious in renting the property for a given period of time (up to 25 years, perhaps). Such a condition is acceptable according to some jurists. Furthermore, the bank may state that the insurance is paid by the tenant based on a mutual agreement, and there is nothing wrong with such a condition, for the Prophet (peace and blessings of Allah be upon him) said “Muslims are bound to the conditions taken on by themselvesâ€. In the meantime, they might claim that they are bound by English law to hold the title of the property, and will only pass it to the client upon the final payment. However, the contractual agreements that are signed between the bank and its client put all of the risks of ownership upon the client, and these factors defeat the purpose of ijara, even if technically speaking the bank claims to follow the letter of the English law as the ‘owner’ of the property.

 

In the above we see arguments that are each, on their own, widely considered to be valid. However this should not lead us into the grave error of assuming that three valid matters when combined produce a valid outcome. Take, for example, the plain riba transaction, but in the following framework:

 

1) An interest-free loan, (which is something recommended)

2) A gift, (which is again, something recommended)

3) A promise.

Taken individually, these three transactions are completely valid. However, if they are combined in a single contract, the result is pure riba. For example, I say, ‘Grant me a loan which I will repay you (a valid matter), and I promise you (a second valid matter) a gift (a third valid matter) in addition to the repayment when it becomes due’. Is this contact valid or is it riba? The answer is that it is manifest riba without any doubt, since the one who gave the money was promised that same amount back along with some profit.

 

So, we need to look at the end-to-end process here and evaluate it as one transaction. And we need to answer the critical question: who is the real owner of the property during the whole process? Is it the client while the bank is just financing the deal as it does in a normal conventional mortgage? Or is it the bank? If the owner is the bank, then does a real owner free himself from any responsibility towards his property? Why does the bank avoid owning the property?

 

Here, we need to explain an enormously incorrect methodology in deriving Islamic verdicts. A verdict should be derived by looking at a matter in its totality, in light of the aims behind it. When we break the matter of discussion into sub-issues and treat issues separately, without looking at the overall picture, then we are contradicting the right methodology in deriving verdicts. The reason is very simple: verdicts based upon sub-issues might not necessarily be the same as verdicts based upon a consideration of the general situation.

 

A very good example is the previous one. Each sub-contract taken individually is completely valid, but taken as a whole the entire contract becomes null since it is a clear riba transaction. Based on this, many if not all jurists forbade contracts which try to employ such deception.

 

As another example to further illustrate our point, let us look at the transaction known as ‘iynah. This transaction is strictly prohibited by the Prophet (SAW), and its prevalence is a sign that the Muslim ummah will decline. The Prophet (SAW) said

 

“When you trade with one another with ‘iynah, and hold on to the tails of oxen, and are content with farming, and give up jihad, Allah will cause humiliation to prevail over you, and He will not withdraw it from you until you return to (your commitment) to Islam.â€[4]

 

 

This transaction, when broken down into individual parts and examined solely upon these parts, appears to be valid. However, when taken as a whole, it is clearly a type of riba.

 

How exactly does ‘iynah occur? One of the means of practising ‘iynah is that one party sells a product to a second party on a deferred payment. The second party then sells it back to the seller at a lesser price, but in cash. If you break this transaction into sub transactions you can conclude that there are two acceptable sale transactions. It is allowed for a person to sell a product for a deferred payment, and it is also allowed to buy a product for cash. However, the ultimate aim of this transaction is to enact a pure riba transaction. This is because the second party receives an amount of cash from the first party and is then required to pay back an amount of greater value at a later time. As for the product itself, since it changes hands twice, it returns to the initial ‘seller’. Therefore, the product is used merely as a loop-hole to avoid the prohibition on riba.

 

This clearly illustrates that we cannot ignore the total aims of any transaction. Jurists mention this rule as a principle (qa’idah) that is employed for all business transactions. This principle states, ‘The consideration of a transaction is to be paid to its intention rather than its format’ or, alternatively, ‘Transactions are judged according to intention’. Of the evidences for this principle is the hadeeth of the Prophet “Actions are judged according to intentionsâ€. It is true that some people might say that scholars disagree with this concept, but those scholars who disagree with this concept (like Imam Shafi'i), agree with all other scholars that the aim of the transaction should not be to overcome a prohibited transaction. In other words, all scholars are in agreement that it is sinful for two parties to try to devise a scheme that appears to make permissible something that the Sharee’ah declares impermissible.

 

I therefore conclude that there is no significant difference between the ijara scheme outlined above and the conventional mortgage which is a pure riba-based loan. Under the ijara scheme, the bank performs what is essentially a money lending transaction, placing such conditions upon its clients that guarantee, for all practical purposes, that it will obtain the same amount of money in return plus a profit disguised as ‘rent’. It might be true that many of the individual clauses and conditions of the contract are permissible (or, at best, subject to a difference of opinion among scholars), but when put together and examined as a whole, it is apparent that there is little that separates this contract from a simple mortgage. Of the many matters that clearly illustrate this is that the risks and rewards of ownership of the house are carried by the tenant, not the bank, regardless of who is the ‘paper-owner’ under English law.

 

Allow me to provide a real Islamic scenario for acquiring a house, and also mention a philosophical and ideological approach in explaining a very important principle in Islamic finance. If two or more parties enter a business transaction, then of course their ultimate aim is profit. Islam, being the religion of ultimate justice, does not confer advantage to any party based on one’s worldly and materialistic power. In other words, in a permissible Islamic transaction, a powerful, richer person will not have any guaranteed advantage over a powerless, poor person. Both parties have to share the same risk of loss, just as they want to share the joy of profit. This is a very logical and simple – yet powerful – principle, which is an explanation of the Islamic rule: ‘ There shall be no profit without (a risk) of loss.’ This principle is based on many Prophetic traditions, such as: “It is not permissible to sell something on condition that the purchaser lends you something. And it is not permissible to have two conditions in one transaction. And no profit is permissible unless possession has been taken of the goods. And you cannot sell what is not in your possession.†[5]In another hadeeth, the Prophet (peace and blessings of Allah be upon him) forbade selling any item from the same place where it was bought; a buyer must first physically acquire these items (lit. ‘…add them to his own luggage’), then he may sell these goods.[6]

 

The point of this rule is that whenever an investment contract is structured such that one party is guaranteed a profit, something is simply not right. Only in a pure riba transaction will there be guaranteed profit. Any permissible transaction in the Sharee’ah must have an element of risk involved, no matter how small that element is.

 

Therefore, when looking at this particular transaction, it is essential that the bank (the stronger party) not take advantage of the client (the weaker party) by exploiting the financial power of the former and the desperate need of the latter. If these banks enact their transactions with this principle as an underlying morale framework, I think such contracts that we now see will disappear. Yet, the reality is far from this ideal. In light of this principle, we should always ask the following question: Do these banks share with their clients the risk of loss, or are they are stipulating all possible conditions to protect themselves against any foreseeable loss? Additionally, do these so-called Islamic banks own the properties they are renting to people?

 

If we give sincere answers to the questions in discussion, we will see that the current ijara schemes are almost identical to conventional mortgages. They appear to be a ruse designed to promote conventional interest-based practices using Islamic terminologies and Sharee’ah expressions.

 

Based on this, the ijara scheme as it is implemented here in the UK by major banks: Ahli United Bank (formerly called the United Bank of Kuwait), United National Bank and HSBC is totally prohibited. In fact, it is a deception rooted in riba. Until the Muslims in charge of these schemes prove that the above argument is invalid and give clear answers to the questions highlighted earlier, I believe that such transactions are totally prohibited, and I warn brothers and sisters not to get involved with them. I would also like to emphasize that the view of some Muslims, that this scheme is better than the conventional riba-based mortgage alternative and should therefore be used until a pure halal scheme is available, is incorrect. This is because there is no significant difference between the two schemes. And Allah knows best.

 

Written By Haitham al-Haddad

Haitham01234@yahoo.co.uk

1 Thulqadah 1425 – Dec 12th 2004

[Nur]

Rahima sis

 

Author writes:

 

"However, the contractual agreements that are signed between the bank and its client put all of the risks of ownership upon the client, and these factors defeat the purpose of ijara, even if technically speaking the bank claims to follow the letter of the English law as the ‘owner’ of the property."

 

 

In continuation of our past discussion on another thread, about halal mortgages in Islam, this article puts things in perspective, it shows few tricks that most people are not aware of.

 

The Concept of Taxaayul:

 

In Islam, when the legislator, ALLAH makes a law through a verse in Quraan, or through His Messenger, a clear purpose is served by that law, which is known in Islam as Maqaasidul Shariica.

 

As I have written before, the core purpose of the Sharia in Islam is JUSTICE to be served, and from there it trickles down to detailed instruments and legislations that protect that important concept, which in the Science of Maqaasidul Shariica spell out that the Sharia protects:

 

1. Faith

2. Life

3. Wealth

4. Intellect

5. Progeny

 

 

"In this Thread, we are talking about Purpose number 3, Protection of legitimacy of wealth."

 

 

If at the end of the day, any law seems NOT to protect its respective purpose for which it was legislated to begin with, or fails to live up to its spirit, we can say in plain Chinese Language that SUM SING is WONG!

 

a Joke goes like this: A Chinese couple in the hospital delivery room wanted to name their baby a nice befitting name, the baby, had wide eyes, dark skin and curly hairs, so the husband named the baby SUM SING WONG ( Something WRONG) ."

 

 

The author brilliantly dismantles the trick of Taxaauyl in "Islamic Mortgages" as he shows that a string of isolated legally permissible legal instruments when combined to a single application can create an illegal situation such as usury, just like taking different medications for different ailments that can become toxic when combined to cure a single ailment.

 

The wave of Islamic banking sweeping the world is not all after Allah's pleasure in following His law on money matters, rather many "Islamic Banking Instruments" are an attempt to further swindle money from the very disadvantaged group the Sharia was intended to protect, in a more creative ways. It is usury by a different name. "Yusammuunahaa bi gheyri asmaa ihaa."

 

This clearly shows that Muslims are in dire need to understand the basic morals behind every legislation in islam, lest they fall unwittingly in violation of the same.

 

The Concept of Taxaayul is more sinful than outright sin, for example.

 

In The Quran, we read that in a fishing village, the Children of Israel's faith in Allah was under a test when they were commanded not to work on the the Sabbath. In that trial, Allah sent plenty of fish within their reach on their SABBATH resting day, while the rest of the week it was difficult to spot any fish. So the Jews, who we Muslims are on their footsteps on many aspects according to the Hadeeth, devised a trick in which they would observe the letter of the Law, while bent on catching the Sabbath fish the next days.

 

The Taxaayul ( Trick) involved setting up of traps the day before SABBATH, so the fish can not go back with the tide at the end of day, so they can catch it on Sunday, a permissible day. The Quran says that Allah's wrath fell on that village dwellers, because of their TAXAAYUL, trying to going around to find a loophole against Allah's law. ("Ironically, The same is happening before our eyes in Wall Street to warrant this finacial meltdown) .")

 

In the Sharia we also know that if a couple marry and divorce three times that they are not allowed to come together, unless the woman marries to another a man naturally (not pre-arraged) afterwards, a natural divorce occurs ( not planned). Applying the concept of Taxaayul, we find that some couples who fall in this dilemma, some with kids, arrange a quicky for the woman in which she marries another man for a night, and then get a divorce in the following day, to get back with her ex-hubby. This Taxaayul is known as MAXLAL and the Messenger of Allah SAWS has cursed all parties to this deal, the Ex-Hubby, the Woman and the Surrogate ( Place holder)husband.

 

 

The moral of my note is that : "Its more immoral to go against the moral of a law, than to violate that law out right.."

 

 

Nur