Islamic Finance
DKleinecke
purchase of a house versus the usual secular financing? I am looking
for an analysis that shows all the monetary transfers by whom to whom
when and exact amounts.
I admit that it is my expectation that there is no significant
difference in the monetary transfers.
Fariduddien Rice
> Can anyone point me a comparison between Islamic financing of the
> for an analysis that shows all the monetary transfers by whom to =A0whom
> when and exact amounts.
>
> I admit that it is my expectation that there is no significant
> difference in the monetary transfers.
I suspect in terms of the actual amounts they may not be too
different. However, they may be different in terms of sharing the
risk.
With Islamic financing of the purchase of a house, here is my
understanding of how it can work. (There is probably more than one way
to do it Islamically - probably not just the way I will mention here.)
The Islamic financial institution and the client jointly buy a house -
let's say the institution puts up 90% of the money, and the client
puts up 10% of the money to buy the house.
Now, they jointly own the house, with the institution owning 90%, and
the client owning 10%.
Let's say the client moves into the house. To live there, he must pay
rent. Since he owns 10% and the institution owns 90%, he should pay
90% of the market rental rate for the house to the institution.
At the same time, he can make additional payments to gradually buy the
90% of the house he doesn't own from the institution. As he gradually
owns more of the house, he pays a lower and lower percentage of the
market rental rate for living there (since he will own a larger and
larger percentage share of the house).
Where the main difference lies, I think, is regarding risk. Let's say
the house loses a lot of value due some reason - such as damage to the
house from a fire, or a market "crash" as happened in many places over
the last few years.
In the usual interest-based system, the client takes on almost all the
risk. No matter what happens to the house, the client still owes the
same amount to the bank.
With the interest-free-loan-plus-rental-payments system, the risk is
shared by both the institution and the client. As the house is
partially owned by the institution until it is fully paid off, the
institution also shares in the risk of anything affecting the value of
the house.
That's my understanding of it - though I am not an expert.
DKleinecke
> On Aug 14, 12:32=3DA0pm, DKleinecke <dkleine...@gmail.com> wrote:
>
> > Can anyone point me a comparison between Islamic financing of the
ng
> > for an analysis that shows all the monetary transfers by whom to =3DA0w=
I have the same idea of the situation you do. I was dealing with a
Muslim who could not grasp the idea that the cash flow was essentially
identical.
Given this understanding then why isn't Islamic financing more
popular? The media is filled with people twisting every penny. These
people would not hesitate a second, if they thought Islamic financing
had an advantage, to recommend Islamic financing. But they don't. It
would be easy to blame Islamophobia but that seem inadequate. I am
forced to conclude that most people have no opportunity to obtain
Islamic financing. Why is that ?
Because of my searches on Google I have lately been deluged with
online ads from an outfit called Guidance that claims to offer Islamic
financing. Has anybody had any experience with them?
hajj abujamal
On 9/7/2011 7:24 PM, DKleinecke wrote:
> I am forced to conclude that most people have no opportunity to obtain
> Islamic financing. Why is that?
Malformed predatory capitalism --> high risk of defaults.
was-salaam,
abujamal
--
astaghfirullahal-ladhee laa ilaha illa
howal-hayyul-qayyoom wa 'atoobu 'ilaihi
Rejoice, muslims, in martyrdom without fighting,
a Mercy for us. Be like the better son of Adam.
search all ways
>
> > Can anyone point me a comparison between Islamic financing of the
ng
> > for an analysis that shows all the monetary transfers by whom to =3DA0w=
hom
@Fariduddien Rice - In the example you give, what is the incentive for
the lender to put up the money for the purchaser to buy the house?