Mu' meneen Brothers and Sisters,

As Salaam Aleikum wa Rahmatullahi wa Barakatuh.  (May Allah's Peace, Mercy and Blessings be upon all of you)

One of our brothers/sisters has asked this question:

Assalam o Alaikum Brother,

I am in the process of making a very complicated decision regarding whether or not to buy a home through "Islamic Financing".

I have heard differing opinions on the legality (as per Quran and Sunnah) of the Islamic form of financing that we have available here in USA. I have done some research and consulted various people whom I believe possess much greater knowledge of Islam as compared to myself, but unfortunately I have not been able to reach a conclusion as to whether it would be Halal in the sight of Allah (SWT) to purchase a home using the Islamic form of Financing. I really wanted to seek your opinion in helping me and fellow Muslims decide and would urge you to visit the web site www.lariba.com, and take a look at their home financing model and let us know your thoughts. LARIBA is an American based Islamic Financing institution that claims their model is halal as per shariah. They have listed all details of their financing model on the website. Apart from the model itself, an issue that I am aware of is that although there is no mention of interest or interest rate in the actual contract, but in order to comply with the strict finance and mortgage laws in the US they have to list an Implied Interest Rate on the monthly statements that the buyer receives. This implied interest has to be declared to the IRS (US Internal Revenue Service) for TAX purposes at the end of the year by both parties. From what I understand, no financing institute can get around this under the current laws. Please Help! May Allah reward you for your tremendous efforts in His cause. 

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Answer:

Buy home on Islamic finance

In the name of Allah, We praise Him, seek His help and ask for His forgiveness. Whoever Allah guides none can misguide, and whoever He allows to fall astray, none can guide them aright. We bear witness that there is no one (no idol, no person, no grave, no prophet, no imam, no dai, nobody!) worthy of worship but Allah Alone, and we bear witness that Muhammad (saws) is His slave-servant and the seal of His Messengers.

Allah says in the Holy Quran Chapter 2 Surah Baqarah verse 274-276:

But those who devour ‘riba’ become like the one whom Shaitaan has bewitched and maddened by his touch. They have been condemned to this condition because they say, “Trade is just like ‘riba”, whereas Allah has made trade halaal and ‘riba’ haraam. Henceforth, if one abstains from taking ‘riba’ after receiving this admonition from his Lord, no legal action shall be taken against him regarding the ‘riba’ he had devoured before: his case shall ultimately go to Allah. But if one repeats the same crime even after this, he shall go to Hell, where he shall abide for ever! Allah deprives ‘riba’ of all blessing and develops charity, and Allah does not like an ungrateful, sinful person.

Beloved Brother in Islam, all the good Islamic banks and financial institutions have a Shariah Board of eminent scholars who are proficient in the laws of Islamic Economics and approve the principles behind every transaction or dealing of these banks. If an Islamic Bank or Islamic Financial Institution which is approved by the Central Bank of a Muslim Nation is offering a service, it would be safe for the believers to assume that their products would be halaal and permissible in its essence.

If the Islamic Bank or Institution is based in a non-muslim nation, that one has to satisfy himself with the qualifications and reputation of the scholars on their Shariah Board. If one does basic due diligence and satisfies himself that the Financial Institution is indeed guided by Shariah principles of economics in their dealings, there is absolutely no harm if one takes a loan or mortgage from such Islamic Financial Institutions.

Provided that the Islamic Bank does not deal, transact, or execute their transaction based on interest, if the Islamic Bank based in a non-muslim nation is required by the law of the land to list an ‘implied interest rate’ in relation to the profit they charge from their borrowers or mortgage holders, there is absolutely no harm and it does not make the transaction unlawful in the Sight of Shariah Law.

Dear and beloved brother in Islam, we are neither qualified nor in a position to declare or endorse if a particular company or institution is interest-free in its dealings and/or Shariah compliant. The believers who intend to deal with any financial institution who claims to be Shariah compliant must do their own due diligence to the best of their ability, and if they are satisfied with the claims of the institution being interest-free and Shariah compliant, they may do business with them without fear of being involved in what is clearly declared as haraam or unlawful in Islam.

Whatever written of Truth and benefit is only due to Allah’s Assistance and Guidance, and whatever of error is of me alone. Allah Alone Knows Best and He is the Only Source of Strength.

Your brother and well wisher in Islam,

Burhan