interest-based mortgage/ loans

Following many questions that I have been asked about Islamic Finance, and the job that I am doing at the moment, I thought I’d write about it. Sorry, it will be a short summary as I can’t be bothered to go into so much detail, plus it’ll take forever and plus I do not have extensive knowledge into Islamic Finance. Hence, I am doing my Masters in Islamic Banking, Finance and Management starting from September. (I do obviously know more then your average Joe and can maybe convince you that it is better to get an Islamic mortgage or loan then a conventional one).

Please note- I am not a scholar/sheikh/mufti and am not giving a legal ruling!

There are three things that make the conventional modes of finance prohibited in Islam- Gharar (uncertainty), Maisir (gambling) and the most obvious Riba (interest). Interest has been mentioned several times in the Qur’an and its severity clearly stated. It is the one issue that, if you take part in it, you will wage a war against Allah (swt) and His Messenger (pbuh)!

O ye who believe! Fear Allah, and give up what remains of your demand for usury, if ye are indeed believers. If ye do it not, take notice of war from Allah and His Messenger. But if ye turn back, ye shall have your capital sums: Deal not unjustly, and ye shall not be dealt with unjustly. If the debtor is in a difficulty, grant him time till it is easy for him to repay. But if ye remit it by way of charity, that is best for you if ye only knew. And fear the Day when ye shall be brought back to Allah. Then shall every soul be paid what it earned, and none shall be dealt with unjustly. Surah Baqarah v. 278-281

Interest, like alcohol, does not restrict prohibition to just the actual user. The one who has any kind of dealings with interest, such as being the middle person in a transaction or transferring it into a someone else’s account for example, will be accountable just as much as the person who has direct dealings with interest. This hadith confirms that….

From Jabir (peace be upon him) - the Prophet (peace and blessings of Allah be upon him) cursed the receiver and payer of interest, the one who records it and the two witnesses to the transaction and said: "They are all alike in guilt". (Reported in Muslim, Tirmidhi and Ahmad)

There is also a hadith (which I can’t find) that states that dealing with interest is like fornicating with your own mother.

Charging interest on borrowing is prohibited as you are charging someone extra for lending to them. This act has clearly been condemned by the Prophet (pbuh) as He said if someone gives you a one sar (a form of measurement) of date then you should return it with one sar of date…or something along them lines. *Man! I’m losing the power to sustain information in my ‘ickle brain!!*. This is what banks are doing- they are charging you interest payments for borrowing a certain amount from them. By doing this they are therefore placing value on money- and at the end of the day money is nothing but a piece of paper (with really no nominal value at all). Making money from doing nothing at all is prohibited in Islam- some sort of risk must be involved!! It is mechanism by which only the rich can benefit; the rich will get richer and the poor will get poorer. It totally contradicts the principle of distributive equity practiced in Islam. The rich are able to watch their money grow exponentially by doing nothing whilst the poor have to work doubly hard to merely pay the interest payments on their debt. This interest-based system has fuelled Third World debt crisis which is escalating to dire conditions.
Placing value on a tangible good, like a house, or a commodity, like metal, is permitted.

Now, I shall go onto Islamic mortgage and loans (I will not be using any Islamic terminology so as to not confuse you and cos they all sound pretty similar!!). The way conventional mortgage works is by the bank lending you money and you purchasing the house you want and then you paying back the amount borrowed with interest payments over a period of about 20+ years. The way is which these Islamic Financial institutions works is by them going into partnership with you. Instead of just giving money to buy a house- they go into a joint partnership and assist you to purchase a house. They will pay approx 90% of the purchase price and you will pay 10%. You will then pay monthly to them to buy their portion of the house to make it fully yours. The house is in their name as they have paid for most of it and you then pay rent to them for living in their house. This makes sense, yeah?!- like you would if you were to rent a house or live somewhere that wasn’t yours!! This is how the bank will make its money- through rental payments. I know what you’re all thinking- the rent payment is probably the same amount as interest payments, or maybe even more so it’s really just interest but renamed. Well, no its not!! As interest is putting value on money and charging for borrowing….here the bank is charging you for using something that isn’t yours- who the hell paid for most of the house?!! (btw, there is another way mortgage works- say a house costs £100,000 the bank will tell you to pay £110,000 over a pre-agreed period. This form isn’t so common and is permitted as there is no uncertainty. Plus, anything pre-agreed in a contract is permitted in Islam). Many ask me this question about the amount being the same…this is the reason they doubt the whole Islamic Banking method. Well, let me use this analogy (I made this one up myself- I am so proud!) and make the situation clear! It’s like two chicken on a farm, both came out the same mother, fed the same food, treated the same way, etc, etc. When it comes to sacrificing the chicken one is done the halal way and the other the non-halal way. Which would you eat...it’s the same chicken isn’t it?...NO?…thought not. You’d obviously eat the halal chicken (even though if you ask a non-Muslim to taste them both they will probably tell you it tastes the same) as it has been killed by means that have been set down by Allah (swt). In this same way the amount you pay to the bank for your house may be the exact same amount but in principle islamically they are two different things!! Dude…this is going on abit!! The bank, in this way, is trading- which is allowed (making money and a living is also allowed in Islam!). It’s like saying when you go to buy something from a shop that you don’t know that the seller brought it for real cheap and is selling it to you for a profit!?!!

Those who devour usury will not stand except as stand one whom the Evil one by his touch Hath driven to madness. That is because they say: "Trade is like usury," but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (The offence) are companions of the Fire: They will abide therein (for ever). Surah Baqarah v. 275

Your relationship with the bank is also different. As the owner of the property, the Bank faces risks associated with property ownership. This is quite different from conventional mortgage as the Bank never owns the property or has anything to do with the risks involved. If we were living in an Islamic world then this would work tremendously as each partner would be honest to one another and if payments couldn’t be made then the bank would lend a hand somehow. We do not however live in a perfect Islamic World…this is what people don’t seem to understand either!! Islamic Finance isn’t a new concept but it is a growing concept with scholars and Islamic finance/ economic intellectuals continuously working towards improving the products on offer. At the moment it’s the best on offer and probably the lesser of two evil in that sense. At the end of the day interest is haram!- so if Islamic mortgage doesn’t appeal to you you can always rent!!! So there isn’t any reason to take out a conventional mortgage. In terms of Fatwa- there was a fatwa given 20/30 years back for those in the west who had to buy a house (due to wanting a home and stable living conditions for them and their kids) that getting interest-based mortgage was permitted. But with certain conditions…you could only buy a house that was within your means, only get a mortgage to buy a house, monthly payments should be within your means too, and only purchasing one house. People obviously took advantage of this fatwa and brought houses that were well above their means and started buying a few houses at a time…now the ulema have gotten rid of this fatwa and do not permit interest-based mortgage as they can see the alternative. Mufti Muhammad Taqi Usmani has given the fatwa so don’t even think about messing with him…

Since it would be hard to get in contact with him directly you can ring Mufti Muhammad ibn Adam (plug). His website is on my links- he is a student of Mufti Taqi Usmani and is very knowledgeable on finance and especially Stocks/ Shares (I have no idea about anything to do with this topic!). That’s another thing that p***es me off- ppl with no knowledge about the fiqh of finance or the financial world speaking and slating the work done by these great scholars. I must admit I, as well as the scholars, don’t believe that the Islamic financial alternative presented to us is 100% halal but it is continuously being developed and improvements in products are constantly being available. Again this is because of my lack of knowledge in fiqh… It’s also because we don’t live in an Islamic world and also because the financial world is very complicated- dealing with equity, bonds, stocks, insurance, etc, etc, etc… this must be very boring for those who have read up to here!

Can you guarantee that the chicken you are eating in 100% halal?...not just the way its cut but also the way its treated?! *You know what they say about Nandos* In the same way give Islamic Finance a chance. The more people invest in it the quicker it will grow and the quicker we will take over the world!!

I think I shall stop writing now…I’ll write next time about what Christian/Jews say about interest…