Eid Mubarak!

[LordAnubis]

Eid Mubarak everyone! I hope you have a fantastic day if you’re celebrating and all the same if you are not. 

 

I’ve got a Du Depute pulled for my first smoke when I get to it. Probably not this weekend but maybe early next week. We’ve got some Turquinos lined up for a herf with the Perth boys in a few weeks so looking forward to that. 

 

Todays topic is Islamic home loans. In Islam the concept of interest is haram (not permissible). So we aren’t allowed to pay interest nor are we allowed to receive it. There’s different thoughts on if it’s allowed in todays world (some say out of necessity you can have an interest home loan) but still today I want to talk about Islamic finance. 

 

The concept of Islamic finance for a loan is this. You buy a house. The Islamic lender pays 80% and you pay 20% of the house. The way it works is you pay back instalments of the ownership, and because the bank owns 80% you have to pay the bank rent for the portion they own. So in essence that’s their earning. In this arrangement, the risk and reward is also by ownership percent. So if the house burns down you don’t owe the bank the 80%. Similarly if you sell the house at a profit the bank gets 80% of it. If there are repairs to be made to the house again it’s shared by ownership percentage. That’s the fundamental principle of Islamic home finance. There are institutions in Aus who supposedly do Islamic finance but to me it’s all a scam and they just charge interest anyway in traditional forms from what I’ve seen. I don’t know what systems in Middle East are but I doubt they’d be any better than any normal western bank. 

 

The principles are based on fairness and risk/reward sharing for both parties. As you can imagine there’s no room for gross profiteering in this arrangement so it’s obviously not inline with any capitalist systems. 

 

Wouldn’t it be great if these principles were adopted for homeowners today! I’m sure a hell of a lot of people would find it more affordable than the current system.

 

Hope this has been insightful and again wish everyone and your family and friends a great day. 

 

Assalamualaikum (May peace be upon you)

 

Mus

[99call]

Eid Mubarak Mus, 

Hope you and your family&friends have a lovely time. 

[Arabian]

they aren't any better. local banks made massive profits last year, going sometimes against the central bank regulations. 

[LordAnubis]

1 hour ago, BoliDan said:

Eid Mubarak, Mus.

That seems like it was a short Ramadan. Hope you got out and got some celebration and feasting in. 

Yeah, I've known about Arabic banking for a long time. It's similar to business investors, where as if we don't want to go through banks we present our ideas and ROIs to people with money that take a share of your business. Some investors are predatory and will take your business if given the opportunity, but for the most part it is legit. I'm not sure if I'm comfortable knowing someone has part ownership in my business house for as long as I live and after that, when I can take out a loan. Pay the interest and 100% own that thing when it is paid off. I think it just depends on how large the loan is among other factors. 

No no you own your house. Every month you pay down the 80% ownership. So every month you pay the principal amount back and increase your share of ownership, as well as the rent portion of that ownership percent. Kind of like a rent to buy scheme. 

[Ryan]

About 15 years ago when I was still doing mostly financial/banking software, I sat in on a few meetings with a Scottish bank that was looking at producing a shariah-compliant mortgage/asset finance product to "appeal to a growing segment of the market" I believe were the words used. That should have been the warning sign right there, no western bank pays to create a new product out of altruism.

Some of us did our reading and it was looking like amortisation calculations would have to be entirely rethought. Of course as it turned out, all the bank were after really was renaming some of the transaction references in customer statements, which wouldn't have passed muster under the mildest of scrutiny by whomever might take an "interest"

Nothing came of it in the end, that client cancelled the project.

Turns out Islamic banking is a bit like rugby, the only people who are any good at it are people who grew up with it. 

[LordAnubis]

16 minutes ago, Ryan said:

About 15 years ago when I was still doing mostly financial/banking software, I sat in on a few meetings with a Scottish bank that was looking at producing a shariah-compliant mortgage/asset finance product to "appeal to a growing segment of the market" I believe were the words used. That should have been the warning sign right there, no western bank pays to create a new product out of altruism.

Some of us did our reading and it was looking like amortisation calculations would have to be entirely rethought. Of course as it turned out, all the bank were after really was renaming some of the transaction references in customer statements, which wouldn't have passed muster under the mildest of scrutiny by whomever might take an "interest"

Nothing came of it in the end, that client cancelled the project.

Turns out Islamic banking is a bit like rugby, the only people who are any good at it are people who grew up with it. 

Yeha it’s hilarious. Here Islamic banks charge “rent”. But magically the “rent” goes up and down as central bank rates go up and down. Such coincidence 😂

[Ryan]

5 minutes ago, LordAnubis said:

Yeha it’s hilarious. Here Islamic banks charge “rent”. But magically the “rent” goes up and down as central bank rates go up and down. Such coincidence 😂

Well there you go!

While I'm not much of an adherent of any faith, I've yet to come across a banker who might ask the question "What would the author(s) of our faith have us do?". Though there probably are some out there.

Hope you're having a super Eid! Respectfully, I've no idea how you guys manage to get through Ramadan, especially in the higher latitudes. I can remember hating not being able to have sweets during Lent, although we were given a day off that "fast" on St. Patrick's Day. The busiest day in every sweetshop in Ireland!

 

 

[Connoisseur Kim]

Eid Mubarak Mus! I wish you; your family and friends have a wonderful time too.

[Fuzz AI]

Eid Mubarak, Mus!

[cgoodrich]

Eid Mubarak! May Allah's grace and mercy be with you and your family today and always.

[Chibearsv]

Eid Mubarak Mus. Thank you for the education. I’m in the mortgage business and never knew this was a thing. I think the closest I’ve seen that may accommodate is a contract for deed but those don’t usually include transferring ownership until the contract is paid in full. The idea of shared ownership that shifts on each payment is interesting.