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What is unique about the LARIBA model FAQ - Frequently Asked Questions Fatwas & Shariaa LARIBA Lifetime Achievement Award LARIBA Annual Award LARIBA book RIBA & LARIBA, What is the Difference RIBA in the Qur'an (Chapters 2, 3, 4, and 30) RIBA in Abrahamic Faith *New* RIBA in the Bible RIBA in the Torah Guide on Islamic Banking History of Riba in the World LARIBA Videos Ask Scholars I Scholars FAQ's Glossary of terms (Meezan Bank) Research Papers on Islamic Banking & Finance Corporate Governance in Islam *New* Islamic Banking Network LARIBA News Links Related Links

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DISCLAIMER: PLEASE NOTE THAT IT IS NOT THE INTENTION OF AMERICAN FINANCE HOUSE LARIBA, A CALIFORNIA CORPORATION OR ANY OF ITS AFFILIATES OR EMPLOYEES TO SOLICIT BUSINESS IN STATES WHERE IT IS NOT LICENSED OR QUALIFIED. THIS IS NOT A SOLICITATION TO BUY, SELL, &/OR SOLICIT BUSINESS AND FINANCING IT IS A PROGRESS REPORT ON THE DEVELOPMENT OF THE COMPANY.

Since 2000

What is Unique about the LARIBA Model?

American Finance House LARIBA is the Oldest Community-Owned, Riba-Free and Shari'aa Compliant Finance Company Serving the Community in the US since 1987. The Uniqueness and Primary Differences between us, at LARIBA, and other Riba-Free Models and Riba banks are the following: 1. We do not Rent Money. We approach each transaction as an investment (using the Lease-topurchase Model) instead of Lending. We advise you as to whether the transaction is a good investment or it is better to rent. 2. We never start from an interest rate to calculate your payment. Your payment is based on the market rental value of the property you are seeking to finance. The rental value is determined by mutual agreement between you and us. 3. We work with clients in a humane and fair way (Tarahum) in times of trouble. Our Home (Auto, Businesses and Trade) Financing (and Refinancing) Shariaa Compliant Riba-Free Model is based on the Fatwas Given By Sheikh Qaradawi (Please Click Here to Reach The Fatwas) & His Team of Aalim (Scholars) in 1990 and Justice Sheikh Taqi Usmani fatwa and methodology (Please Click Here for Details). Following are the steps we follow at LARIBA: 1. LARIBA agrees to form a conceptual partnership with client to buy the property together; 2. The Partnership rents the property to whoever is interested in renting it, in this case the client out of his/her free will;

3. LARIBA, in response to clients expression of intent out of his/her free will, agrees to sell its share to the client over a period of time at the same amount/price LARIBA paid for it at the start WITHOUT CHARGING INTEREST. PLEASE NOTE THAT THE ABOVE THREE STEPS ARE DONE IN DISTINCTLY SEPARATE AND NOT DEPENDENT STEPS AND NONE OF THEM IS A PRECONDITION FOR THE OTHER TO TAKE PLACE. Doing it this way will render the process NOT SHARIAA COMPLIANT BECAUSE IT WOULD BE LIKE Two Sales in One Contract.

Other Features of the Model:

1. LARIBA does not encumber the future of your home ownership by placing its name on the Title of Your House. This way the safety of the house of your family will not be compromised and you may not be a part of a dispute in case the company, may Allah forbid, faces trouble. 2. LARIBA financing allows clients to enjoy the tax advantages of traditional real estate financing while avoiding the Riba aspects. 3. The repayment terms are structured to fit your cash flow needs with payback periods of up to 30 years. 4. LARIBA can accept a down payment as low as 5%. Please note that if down payment is less than 20%, you will have to purchase Private Mortgage Insurance ("PMI") until your equity in the property reaches 20%. 5. You can buy back our share at any time by making additional payments WITHOUT PENALTY. 6. There is Partnership fees and NO HIDDEN fees. LARIBA is also unique in the fact that it uses the standard legal documentation required by US Mortgage Industry Procedures and United States Standard Government Mortgage Law and we , at LARIBA, UNIQUELY supplement them with the LARIBA Agreement. This LARIBA AGREEMENT documents the process we used to calculate the payment and the rental value agreed upon. We, at LARIBA, DO NOT BELIEVE IN WHAT OTHERS DO. They replace the word interest with the word rent or profit to make the transaction appear Riba-free. We CLEARLY DECLARE IN THE LARIBA AGREEMENT THAT Riba / Interest Charging and/or Receiving is Haram.

To start the process, please complete the online application request or download the application package from: You can also complete the application by phone. If you prefer the phone option; please let us know a suitable time when youll have your information ready and will be able to devote about 20 minutes; we will be happy to contact you at that appointed time. PLEASE CALL US AT LARIBA: 1-888-LARIBA-1

Message & Pledge From

Fatwa & Shari'aa

Dr. Yahia Abdul Rahman

LARIBA Book Email Video

LARIBA Team
Serving since 1987

Home Financing & Refinancing Pre-Qualify Application Auto Financing & Refinancing Application
Phone 1-888-LARIBA-1

Fast Food Franchises Medical Equipment Other Businesses Application

Phone 1-888-LARIBA-1

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FAQ - Frequently Asked Questions:

Questions and Answers Concerning the LARIBA Home Financing Model

Has the LARIBA Model been approved? What is Interest / Riba? What is Interest Rate? How is it determined? How is the LARIBA Model different from Other Models Used by Conventional Riba Banks and Mortgage Companies? Is the Interest Word used in any of the documents? I heard that in your contract you have a term as interest. What does that mean? Is the LARIBA contract the same as that of a Conventional Riba Bank? Is the Only Difference in the LARIBA Contract is replacing the word RENT for Interest. Does LARIBA Actually Own the Property? If not how can they charge rent. What are the Relationship Between LARIBA and Freddie Mac / Fannie Mae? Does LARIBA sell its clients loans, like in case of Freddie Mac / Fannie Mae or other Banks? How Much Down Payment is required?

Does LARIBA Financing Cost More than Riba Banks? Does LARIBA charge High Fees? How long does it take to get pre-approved? What happens if I wish to sell the House? Does LARIBA participate in the Profit & Loss as Islam Orders Us? What happens if I lose My Job? Can I Renegotiate my Payments with LARIBA in Terms of Increasing or Decreasing the Monthly Payment? Is there a cost involved? And if so, why? Do I still get the Tax Benefit as from a Traditional Mortgage? How Does LARIBA Get Its Financing? Is It From A Muslim Investor?

Has the LARIBA Model been approved? The LARIBA Financing Model is based on Religious Jurisprudence (Fatwa) and Procedures issued by distinguished scholars (Sheikhs Qaradawi and Sheikh Taqi Usmani and others) and documented by one of the oldest Islamic Financial Institutions in the world. American Finance House LARIB is run as a professional Riba-Free and Shariaa Compliant Islamic Finance company. It is not associated directly or indirectly with any Islamic Center or Organization. We believe that the nature of running a voluntary non-profit business and the political processes and environment involved dictates the independence of an organization like ours, LARIBA. We beleive in the responsibility of NOT using Islamic Centers and Organizations as platforms for business.

What is Interest / Riba? Interest is the rent of money, and is called in the Islamic Jurisprudence Riba and in the Old Testament Ribbit. In a Conventional Riba institution the Riba Banker rents you the money at a rental rate called interest. This interest is defined for all markets regardless of the economic environment of the particular market. In a Riba-free transaction the actual market-defined rental of an actual tangible asset or service is charged. This rent differs from market to market depending on the supply and demand of the tangible asset/property being financed. The LARIBA banker in fact INVESTS jointly with the user of funds while the Riba banker LENDS money to the user of funds. In the LARIBA System we FINANCE and NOT lend. The only loan allowed by the Islamic Jurisprudence is a Loan for Good Cause (Qard Hassan) and is given without interest or added value. There are two types of Riba:

1. Riba Al-Fadl, which is an added charge to the money loaned because of delayed payment, which is definitely PROHIBITED and 2. Riba Al-Nasiaa, which is a function of the term of financing (number of years to repay the loan.) This form of Riba is used as a foundation for Murabaha Contracts but with the provision that the added value after a certain number of years does not change if the person cannot pay back due to a legitimate excuse.

What is Interest Rate? How is it determined? Interest rate is the price of money when the Conventional Riba Banker rents it. The Federal Reserve Board of the US or the Central Bank involved defines its level. Government policy makers use it as a tool to manage the economy.

I heard that in your contract you have a term as interest. What does that mean? We have a very unique and patented system that has captured the admiration of many experts and scholars. While most others take the interest rate of the day and call it rent (Guidance, HSBC), service charge (Gulf and SE Banks) or Index (South Asia, Guidance and HSBC and some Gulf Banks) we do exactly the opposite! We structure the Musharakah (Join Venture), go out to the actual market to survey the rent of a similar home (documented rents are obtained from 6 different Real Estate Agents - 3 by the customer & 3 by LARIBA) and come up withe Rate of Return on Invested Capital. This way we look at each deal as an investment to check the real economic prudence of investing Allah's trusted money with us. We take this Return and in order to satisfy the requirements of the US Government we call it IMPLIED INTEREST. As part and parcel of the contract we also have the LARIBA Agreement. It states clearly that: Riba / Interest is Haram - Charging & Taking It - and that we call the return - Implied Interest - to satisfy the US Government requirements and Regulation Z (Truth in Lending Law.) We have arrived to this solution because: 1. It does not expose the Client to having to sign a non-standard mortgage contract. In case of a dispute, the nonstandard contract will require lengthy and expensive legal proceedings. By the way, if you read the Guidance Contract carefully, it says that in court the contract will be looked at as REGULAR FINANCING CONTRACT. I wish our brothers & sisters read that contract carefully! It does not require the name of the company on the title with the customer. We learned from prior experiences with Al-Manzil (United Bank of Kuwait) and I-Hilal (Dubai) and others that if the company closes down, it takes a long time to disengage and a costly legal proceeding. My own cousin had to pay $6000 to release her home

2.

3.

4.

title from Al-Manzil and it took her 8 month to clear it! Also, what happens if the company goes out of business? all creditors will try to capture the properties that have the name of the company on the title! That is; the very home of a brother or a sister. All this and the contract says, that it will be treated as a Finance Contract! We coined new terminology in the Riba-Free Home Mortgages. We use it in our statements and is recognized by the industry. Terms like: Return of Capital - RonC (Pronounced Ronsee) and Return Of Capital RofC (Pronounced Rofsee). In fact, when our investors audit our home financing files they look for the surveys of rents in the market as part of the unique LARIBA financing. Doing it the way we follow - using standard agreements - assures our brothers and sisters beyond any doubt that they can benefit from tax deductibility. Remember that other contracts, despite admittedly by those who use like Guidance are mere regular finance contracts - had to get an Opinion Letter on Tax deductibility. As you know Opinion Letters can be reversed retroactively any time by the authorities BUT NOT the Mortgage Deduction laws!

So, metaphorically, it is like trying to attend an important meeting and they require that you bring a bottle of wine. So, a Muslim, who is a minority and who is committed to Allah buys a bottle of grape juice & enters. When they ask what it is he says wine. The problem with what is out there these days if that they take the Wine & call it grape juice. It has been really sad for me & many other brothers and sisters in the "Live Without Riba Movement for All - Muslims & Non-Muslims". Why? Because we thought that we have succeeded in disengaging the Muslims thinking from thinking in terms of Riba/Interest. Unfortunately, through the vast resources of Gulf countries supporting other companies in the US interest/Riba is now used freely. We shall not compromise because we know that we are trying our best using our own resources to be on the side of Allah & His Prophet (s). So, what is the difference? What our model is unique about is that it screens out any bubbly market conditions. In N. California a small home may cost $ 1 million but the same home can rent for $2500. So, using the LARIBA Model one can conclude that the return on investment is very low & LARIBA declines financing. That is NOT done by any of the models out there (Guidance & HSBC) WHY? Because they rent money, which is RIBA - Al-Riba Bi Ainihi - but we rent homes based on actual rent. Please read the model carefully on our site.

How is the LARIBA Model different from Other Models Used by Conventional Riba Banks and Mortgage Companies? The Conventional Riba Banker and the LARIBA Finance Institution are first concerned with:

1. The ability of the borrower to repay by evaluating income and expenses of the borrower, and 2. The willingness and track record of the borrower to meet their commitments as reflected by the credit reports. Then the process differs drastically. For the Riba Conventional, if one qualifies the Banker will need to start by defining: 1. The Amount of the Loan, 2. The Number of Years of Repayment, and 3. The Rent of the Money, called Interest Rate. The profit he makes by renting the Banks money to the borrower. The Conventional Banker inputs the above data in a computer (amortization) program and solves for the Monthly Payment consisting of Repayment of Principal and the interest on the money. In contrast, the LARIBA Model starts by asking the homebuyer to: 1. Define the location, address and specification of the house they intend to buy, 2. Survey the rent of a similar properties in the neighborhood and come up with three independent estimates from reliable documented sources. And the LARIBA Finance officer also gets three independent rent estimates for the same house. This way, the buyer and the LARIBA Finance officer end up with 6 estimates of the rent. They then negotiate what they agree to as a fair rent for the property. The following is a numerical example that clarifies the differences between the approaches used in riba (conventional) and Islamic financing: A family wants to buy a house for $300,000. They only have $60,000 of the purchase price. They approach a bank to help them finance the house. The following is a comparison between how the process will likely go in a RIBA Banking setting as compared to Islamic Banking setting: Riba Conventional Banker: 1. Evaluates the application form.

2. Concludes that the family derives a good income and that they have a good balance sheet. Also, the banker finds that the family cash flow can help them pay for a larger house or even to take a bigger loan without putting the $60,000 down, 3. Decides to lend the family at a certain interest rate over a period of time. 4. The repayment period defined by the banker can even be longer than necessary because the banker wants to help improve the familys surplus cash flow. In fact, it also helps the bank derive more interest income from a good qualified family as the loan repayment is extended. 5. In fact, the banker may convince the family to buy a bigger and more equipped house. This is because the higher amount will represent a small addition to the monthly payment and it will be taken care of by prolonging the financing period (term of the loan). Islamic LARIBA Banker: 1. Evaluates the application form. 2. Concludes that the family derives a good income and that they have a good balance sheet and good tax returns. In addition, the banker finds that the family cash flow is enough to cover the monthly payment for the house purchase. 3. Calls around to ask with real estate agencies such as Century 21, Caldwell Bankers the utility value of the home measured by the lease/rental rate. 4. Draws an agreement with the family that complies with the Islamic Finance legal requirements. In this agreement: 4.1. The family would own 60,000/300,000 or 20% of the house (20,000 shares at $1 per share) and the LARIBA Bank/Finance Company would (temporarily) own 80% of the house (240,000 shares at $1 per share.) In the same agreement the family agrees to buy the banks share of the car for the same value or $(300,000-60,000=) $240,000. This way the bank does not own the asset that complies with banking rules and regulations. The family, based on their cash flow agrees to buy the shares owned by LARIBA at the $1/share price and pay back the banks share interest free over a period of 30 years or $80,000 per year. This is called the Return OF Capital. 4.2. The family and the Banker, independently, survey the market to find a fair leasing rate for the house. They negotiate a fair lease and agree on it. Here the lease is divided between the family (20% in the beginning and rising to 100% over 30 years) and the Bank (80% in the beginning and declining to 0% over 30 years term.) This is called the Return ON Capital for the Bank. 4.3. The family and the Islamic banker, in order to satisfy the laws of the land, sign a promissory note, which documents the repayment of the debt (no time value of money) and the declining lease rate in a total monthly payment.

In order to comply with the laws of the land, the Islamic banker inputs the monthly payments representing the lease rate and the Return of Capital into a conventional amortization schedule to figure the implied interest rate. This rate is disclosed to the client in order to comply with the truth-in-lending disclosure laws. Please note that the resulting implied interest rate is not uniformly the same. It differs from one home and/or geographic location to another and it differs based on the leasing rate in the relevant market. In the LARIBA Islamic Banking environment, the Islamic LARIBA banker encourages the family to pay their home off as fast as they possibly can in order to reduce the burden of debt on the familys cash flow and free more money to save for the future.

Is the Interest Word used in any of the documents? Yes. We use implied interest, which is calculated based on the actual house rent. It is used to satisfy the Mortgage disclosure regulations and laws. It is also used in order to document the process in order to allow the buyer to claim the mortgage tax deduction. In addition to the traditional financing documents, a LARIBA Agreement is used. This LARIBA agreement discloses that Riba (interest) is PROHIBITED in Islam, that the monthly payment was obtained on the basis of lease-to-purchase model and that the word interest is used to comply with the rules, regulations and laws of the United States Government. This approach has been approved by the TOP Islamic Finance Shariaa scholars in the world and is documented.

Is the LARIBA contract the same as that of a Conventional Riba Bank? The documentation of a home purchase is a standardized system developed in the US since 1920s and is the most sophisticated and government regulated in the world. In the interest of all parties and in the requirements of US government authorities LARIBA transforms its Model based on property rental into a traditional mortgage but with the explanation of how the monthly payment was calculated. This is done in the PATENTED LARIBA Agreement, which indicates clearly how the monthly payment was calculated based on rental value and that interest is HARAM and is prohibited, and that this is done in order to satisfy the

requirements and laws of the US. This also allows the buyer to benefit from tax deductibility.

Is the Only Difference in the LARIBA Contract is replacing the word RENT for Interest. NO. In fact, we do exactly the opposite. We take the monthly payments based on the rental of the property and call it implied interest and the documented file includes an agreement called the LARIBA Agreement, which clearly indicates that Riba (interest) is Haram and that we use it in order to satisfy the rules and regulations of the US government

Does LARIBA Actually Own the Property? If not how can they charge rent. The LARIBA Model is based on the two entities; the buyer and LARIBA, conceptually buying the house jointly. Then the buyer, out of his own will, buys the shares of LARIBA back at the same price but the price is paid, WITHOUT INTEREST, over a 30-year period (or less). The shares are used as a collateral and are released every month with the repayment of the value of the shares. As long as LARIBA conceptually owns the shares in its name (as expressed as a lien on the property Milk Raqabah) then it is entitled to receive a proportion of the rent in the percent ownership level.

What are the Relationship Between LARIBA and Freddie Mac / Fannie Mae? Does LARIBA sell its clients loans, like in case of Freddie Mac / Fannie Mae or other Banks? Freddie Mac (and Fannie Mae) was originally initiated by the US Government to provide liquidity to the housing market, which is a very important backbone of any economy. Building and selling homes has been the locomotive of growth of many associated industries like cement, bricks, tiles, paints, electric wiring, carpets, appliances, furniture, gardening,.. etc. Freddie Mac usually provides a line (an authorized total amount of money to be used by the finance company) for its approved finance/mortgage companies. In April 2001, LARIBA was the FIRST Islamic Finance Operation in the West to be approved for investing Freddie Macs money using the LARIBA Islamic Home Finance Model. In 2002 LARIBA became the ONLY US-Based Shariaa Compliant Riba-Free Finance Company to be approved by the largest mortgage investor in the world, Fannie Mae. We thank Allah

for these historic achievements and the dedicated quality work of all LARIBA Professionals. LARIBA DOES NOT BORROW MONEY FROM FREDDIE MAC / FANNIE MAE NOR SELL LOANS. Freddie Mac / Fannie Mae is an investor in the LARIBA Financed Homes. Every single home is presented to Freddie Mac / Fannie Mae on line for approval or disapproval. If approved, LARIBA would forward the money from its own funds to purchase the house and is paid within a week or less by Freddie Mac / Fannie Mae. LARIBA does not charge Freddie Mac / Fannie Mae interest for using the money during that weeks time.

How Much Down Payment is required? We expect as low as 5% of the purchase price of the property. I heard that if Down Payment is below 20% Special Insurance is required. Is insurance allowed in Islam? If the down payment is below 20% a Private Mortgage Insurance (PMI) is required by US mortgage industry practice and regulations. Insurance is NOT haram if done according to Shariaa. Insurance companies (also called Takaful, which literally means mutual support) are required by Shariaa to be in the form of cooperatives and they exist in the West as Mutual Benefit Insurance Companies and that the premium collected from monthly payments are invested according to Shariaa. In Mutual Benefit Companies, the premiums paid for insurance are used to support losses in the community and the remainder is refunded. Other companies, which are organized, as shareholders companies, are NOT allowed because only the shareholders benefit from the premium surplus and not the community at large. Example of Mutual Benefit Companies is State Farm and the shareholders company is AIG, All State and AFLAC. The other problem in insurance companies is how they invest the premiums. State & Federal Regulators require that premiums be invested in Riba Bonds, Riba Money Market, Stocks and other Riba Financed Real Estate. This part of the problem is very difficult to solve at this stage of our development of Islamic Financial Services.

Does LARIBA Financing Cost More than Riba Banks? Does LARIBA charge High Fees? NO! We strive to be competitive with Riba-Free Banks and Mortgage Companies. Please BE CAREFUL of the Bait and Switch techniques used by others in the industry. The administration fees charged by LARIBA are extremely competitive with other providers. There are no hidden fees, charges for research, charges for faxes and couriers and the fee is used to provide a humble salary that would provide a comfortable and honorable life to your brothers and sisters who serve you at LARIBA.

How long does it take to get pre-approved? It takes around 3 days to get pre-approved and usually much less if your application is complete. The application is available on the LARIBA site www.LARIBA.com. It usually takes as little as three weeks to close and usually no more than 6 weeks.

What happens if I wish to sell the House? The title of the house is registered in your name from day one. You can sell the house any time you wish to. You keep the capital gains. In case there is a loss, then it will be our risk and that of the investor.

Does LARIBA participate in the Profit & Loss as Islam Orders Us? A16. In fact Islam requires us to participate in a much broader sense by participating in THE RISK. We at LARIBA take the risk of not benefiting from higher rents. We also polled a large number of community members and most of them (over 90%) did not want LARIBA to participate in the profit. In the Housing Cooperative of Toronto, Canada, they participate only in 10% of profit and loss. They use the same model we use. In our case and judging by sad experiences and lengthy court proceedings regarding this subject we decided to participate in 0% in this stage.

What happens if I lose My Job? You are given a grace period that varies depending on the situation. If, God forbid, you could not get another job, we work with you to sell the house. If you make money, then it is yours. If you lose money, then it is our risk.

Can I Renegotiate my Payments with LARIBA in Terms of Increasing or Decreasing the Monthly Payment? Is there a cost involved? And if so, why? Yes you can pre-pay at any time with no cost. To decrease your monthly payments and increase the financing term, we need to redo the financing documents. The costs involved in refinancing include re-appraisal, tile and other charges.

Do I still get the Tax Benefit as from a Traditional Mortgage? YES. That is exactly the reason we document our Islamic LARIBA Model in order to comply with Government laws and regulations.

How Does LARIBA Get Its Financing? Is It From A Muslim Investor? LARIBA is a Registered Finance Company that is owned by members from the American Muslim Community. They put their money where their mouth is. LARIBA did not go hat-in-hand trying to collect funds from the rich and affluent in the Oil rich countries. Please understand that in order to finance 10 homes per month at $200,000 each, the company should have at least $20 million available every month or at least $240 million per year. This is a staggering number for our community to afford. That is why we thank God for making Freddie Mac / Fannie Mae our major investors in addition to others in our community who have chosen to support this grass root community effort.

LARIBA.com is a Equal Housing Lender

Privacy Notice

Copyright 2000-2004 American Finance House LARIBA All Rights Reserved

DISCLAIMER: PLEASE NOTE THAT IT IS NOT THE INTENTION OF AMERICAN FINANCE HOUSE LARIBA, A CALIFORNIA CORPORATION OR ANY OF ITS AFFILIATES OR EMPLOYEES TO SOLICIT BUSINESS IN STATES WHERE IT IS NOT LICENSED OR QUALIFIED. THIS IS NOT A SOLICITATION TO BUY, SELL, &/OR SOLICIT BUSINESS AND FINANCING IT IS A PROGRESS REPORT ON THE DEVELOPMENT OF THE COMPANY. LARIBA.com is a Equal Housing Lender Privacy Notice Copyright 2000-2004 American Finance House LARIBA All Rights Reserved

DISCLAIMER: PLEASE NOTE THAT IT IS NOT THE INTENTION OF AMERICAN FINANCE HOUSE LARIBA, A CALIFORNIA CORPORATION OR ANY OF ITS AFFILIATES OR EMPLOYEES TO SOLICIT BUSINESS IN STATES WHERE IT IS NOT LICENSED OR QUALIFIED. THIS IS NOT A SOLICITATION TO BUY, SELL, &/OR SOLICIT BUSINESS AND FINANCING IT IS A PROGRESS REPORT ON THE DEVELOPMENT OF THE COMPANY.

SHEIKH DR. YUSUF AL-QARADAWI AND OTHERS

DOCUMENTED SHARIAA JURISPRUDENCE OPINIONS A Group of Pioneering Scholars Headed by His Eminence Sheikh Dr. Yusuf Al-Qaradawi Algiers, Algeria 1990, originated this series of Fatwas Translated from Arabic by Professor Mahmoud Elgamal The First Ever Chair of Islamic Banking, Economics & Finance in the History of the US, Rice University Houston Texas 1.1. Translation of Selected Fatwa of Al-Baraka Seminars - Seminar 6: --(pp.77-78) Algeria 5-9 Shabaan 1410 A.H. - 26 October 1990 C.E. The sixth Baraka seminar was held in Algeria during the period 5-9 Shabaan 1410 A.H., 2-6 October 1990 C.E. In

Book Preview RIBA in Abrahamic Faith

addition to the scholars whose names are listed below, representatives of Al-Baraka and other Islamic banks were invited. During those five days, the seminar program covered the practices of Al-Baraka Bank, London, including issues raised by the environment within which the Bank has to operate. The goal of this review was to find appropriate Shariaa solutions to said issues. In addition, branch managers raised a number of questions, which were also addressed by the scholars. The participating scholars in this seminar have issued a number of fatwas for the relevant issues, based on the explanations of specialists and documents prepared by the Bank management team in London The committee of scholars in this seminar included the following, after appointing Sheikh Abdul-Hamid Al-Saih as chairman, Dr. Sami Homoud as secretary, and Dr. Abdul-Sattar Abu-Ghuddah as assistant-secretary: 1. 2. 3. 4. 5. Dr. Yusuf Al-Qaradawi. Dr. Abdul-Sattar Abu-Ghuddah. Dr. Muhammad Al-Mukhtar Al-Salami. Dr. Yusuf Qasim. Sheikh Abdul-Hamid Al-Saih.

Special circumstances prevented Dr. Al-Siddiq Muhammad Al-Amin Al-Darir from participating in the seminar deliberations. However, he had sent his suggested answers to the paused questions, which answers were distributed to You can buy stamps by clicking here! all participants along with the other seminar papers. In the event, his opinions were utilized in composing the final fatwas. 1.2. (6/2) pp.81-82 Using the term interest as an alternative to the term profit or rate of return when interest payments can relieve the payers of certain financial obligations Question: Is it possible to use the term interest instead of the term profit or rate of return, without meaning in fact the essence of interest, to benefit from the financial advantages granted by the relevant authorities in the West to interest payments in the cases of deposit and financing? Fatwa: The committee has reviewed some of the legal benefits that the British tax system gives to paid and received interest in bank dealings.

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Applying the principle for reviewing transactions stipulating that what matters in contracts are intentions and substance not words and forms we have reached a consensus that there is no objection to using the term interest as an alternative to the term profit or rate of return. This opinion is based on the view that what is intended here is not to effect Riba, which is forbidden in Shariaa. Thus, following our deliberations, we reached the following conclusion: Despite the fact that interest, as conventionally used in banking transactions, coincides precisely with the Riba that is forbidden in Shariaa to pay or receive, and regardless of whether the underlying transaction is a consumption or production loan, we have found that there is no objection to the use of the term interest in the cases related to those dealing with Al-Baraka Bank, London, aiming to benefit from the financial advantages given to interest in various cases of deposits and financing. In this regard, it is imperative to ensure that the term interest in the sense described above is used only in the forms required by entities other than the bank, e.g. tax declaration forms for depositors, or special forms used in various financing cases. However, if the intent is to change the nature of the transaction to make it an interest-bearing loan, then such transaction will be fundamentally impermissible. 1.3. (6/4) pp.84-87 - The Al-Baraka, London, Home Financing Contract Language Question: The contractual relationship between the proposed partner and the Bank on the basis of mutual possession of real estate for sale in accordance to the proportions advanced towards the purchase price. Those proportions are expressed in terms of shares, the value of each of which is agreed upon at the inception of the contract as 1 only. This value remains constant throughout the contract period. Moreover, the real estate remains eligible for sale, to allow the Bank to sell its shares on a periodic basis (e.g. monthly) to the buyer, or vice versa. Accordingly, ownership of the property is transferred gradually to the buyer over the agreed-upon period. In addition, since the buyer controls the usufruct of the property, he pays the bank a rent corresponding to said usufruct. This rent is labeled profit in the contract, and its amount is determined by the Banks share in ownership. In this regard, the rental value of the property is determined each year according to a fixed and agreed-upon rule, relying on rental values in London as a baseline for determining the rental of purchased property. Correspondingly, the amount of rent paid by the buyer to the Bank declines in proportion to the decline in the Banks ownership and corresponding buyers increased ownership, as the latter buys a pre-determined number of ownership shares each year, until he ultimately becomes the sole owner of the property at the end of the period [of financing]. What is the ruling in Islamic Jurisprudence regarding this form and contract language for financing the purchases of homes and real estate? Fatwa: The participating scholars discussed the method of financing homes and real estate followed by Al-Baraka Bank,

London, in light of the Laws governing this type of transactions. The scholars recognized the need for Muslims to own appropriate homes to meet their needs. In this regard, the scholars considered the following related points: 1. 2. 3. 4. 5. Registering the homes title in the partners (customer seeking to purchase the property) name from the inception of financing Making the partner responsible for all fees and costs associated with registering said title. Insurance premiums for the home. The method of calculating annual rents. Means of liquidating the partnership and releasing the Banks lien on the property in cases where the propertys price is insufficient.

After a long discussion of those topics, we reached the following consensus: 1. That registering the homes title in the partners name, based on trust, from the inception of the contract is permissible under Shariaa. Registering the propertys title in this manner does not contradict the agreed upon partnership, especially since the partners ability to sell the home is restricted until his full ownership of the property is established. In this regard, we took into consideration the fact that this registration of title is a form of documentation insured by the officially established lien on the property according to the conditions agreedupon with the partner. Making the partner alone responsible for all registration, survey, and other documentation costs associated with the jointly owned property from the inception of the contract, and absolving the bank from responsibility for such costs, is permissible if the partners agreed accordingly. This is particularly appropriate since the partner will ultimately become the sole owner of the property at the end of the financing contract. With regards to insurance, the default ruling would require both partners to bear responsibility for insurance premiums, as a shared burden of the jointly owned property. However, the bank may take that into consideration when determining the rental of its share of the property to include appropriate compensation for the appropriate share of insurance costs. The default ruling in joint ownership is sharing in profits and losses in proportion to ownership, based on the principle that entitlement to profit must be commensurate with risk exposure. In this regard, since the regulatory framework requires that the Bank should not be exposed to the possibility of losses when the partnership is dissolved, the model should be altered such that the order of the transaction proceeds as follows: a. The Bank and the customer share in purchasing the home according to the agreed-upon proportions. b. The Bank sells his share in the physical property ownership (milk al-raqabah) to its partner, while retaining his share of ownership of its usufruct (milk al-manfa`ah) until the time its partner pays the remaining portion of the price. c. The Bank collects an annual rent in accordance with the actually paid portion of the propertys price.

2.

3.

4.

d. If the partner is delinquent in paying the installments for which he is obligated, the Bank has the right to keep the sale agreement intact, and collect its right to the remaining portion of the price according to the obligatory performance clauses of the lien; or the Bank may void the initial sale and take full ownership the property if the partner agrees. In the latter case, the Bank should pay back to the partner whatever he had paid previously, as a revocation of the sale from its inception. (Item d. was agreed-upon by a majority of the participating scholars). 1.4. Seminar 9: --pp.149-150 - Jeddah 5-7 Ramadan 1414 A.H., 15-17 February 1994 C.E. (The third Jurisprudence Symposium on contemporary banking issues) All praise and thanks are to Allah, and prayers and peace upon the Messenger of Allah (peace be upon him) and upon all his family and companions, then: In the framework of the activities of the research and development group in Dallah Al-Baraka group, the ninth Al-Baraka seminar (the third Jurisprudence Symposium) was held to discuss some banking issues, during the period 5-7 Ramadan 1414 A.H., 15-17 February 1994 C.E. in Jeddah (Dallah Tower). The following scholars participated in this seminar: 1. 2. 3. 4. 5. 6. 7. 8. Sheikh Sheikh Sheikh Sheikh Sheikh Sheikh Sheikh Sheikh Dr. Ahmad `Ali `Abdallah. Dr. Al-Siddiq Muhammad Al-Amin Al-Darir. Dr. `Abdul-Sattar Abu-Ghuddah. Dr. `Abdullah bin-Sulayman Al-Manee`. Dr. Muhammad Sulayman Al-Ashqar. Dr. Muhammad Al-Mukhtar Al-Salami. Mustafa Al-Zarqa. Dr. Yusuf Al-Qaradawi.

To discuss the following issues: After lengthy detailed discussions, and after listening to the explanations of relevant practitioners, the scholars reached the following recommendations: 1.5. (9/4) p.155 Establishment of pro forma ligatures or contracts, or formation of sister or branch special purpose entities to benefit from tax advantages given to Ribawi interest Fatwa: 1. Islamic banks should be wary of writing pro forma Ribawi contracts or ligatures with pro forma Ribawi interest to benefit from tax or other advantages legally offered to Ribawi interest. 2. There is no harm done if Islamic banks use language in their financial statements to explain the nature of

permissible profit. For instance, the Bank may say that [such profit] is the Islamic alternative for interest in the Ribawi system or that it is the return on investment if such language will allow them to benefit from the tax advantages offered by Ribawi systems. However, the terms Riba or interest must never be used in any financial statement issued by the Islamic bank. This fatwa is considered complimentary to the third fatwa of the sixth Al-Baraka seminar (#51), according to the view that the earlier fatwa was restricted to forms that are not issued by the Islamic bank. Back to Fatwa Index Click Here PLEASE NOTE THAT THIS INFORMATION IS PUBLISHED HERE TO EDUCATE THE MUSLIM USER WHO WANTS TO REMOVE RIBA FROM HIS/HER LIFE. THEY DO NOT DIRECTLY OR INDIRECTLY IMPLY THAT THE MENTIONED SCHOLARS HAVE SPONSORED, GIVEN DIRECT FATWA OR THE LIKE REGARDING LARIBA. We at LARIBA believe that it is the RESPONSIBILITY OF THE EDUCATED MUSLIM TO READ, COMPREHEND, ANALYZE & COMPARE then make his/her own decision. WHILE LARIBA HAS IT IS OWN SHARIAA ADVISORS IT'S OUR POLICY NOT TO USE THE EMINENCE & SCHOLARLY STATURE OF OUR SCHOLARS TO MARKET OR SELL. WE RELY ON THE MIND OF THE EDUCATED MUSLIM. WE ASK ALLAH TO ACCEPT.
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SHEIKH MUHAMMAD TAQI USMANI

Book Preview RIBA in Abrahamic Faith

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DOCUMENTED SHARIAA JURISPRUDENCE OPINIONS Sheikh Muhammad Taqi Usmani is a world-renowned scholar who specialized in Islamic Riba-Free Financing over the past generation. He authored a book that was published in 1998 on the subject. The step-wise approach and methodology were the same as the ones described above and authored in 1990 in the form of a series of Fatwas (Religious Decree) by a group of pioneering teachers and Shariaa experts headed by His Eminence Sheikh Yusuf AlQaradawi. Following are excerpts from Sheikh Taqi Usmani book titled: An Introduction to Islamic Finance Muhammad Taqi Usmani Idaratul Maarif, Karachi, Pakistan, 1998 Pages 85 to 91 House financing on the basis of diminishing Musharakah (Joint Venture) The proposed arrangement is composed of the following transactions: 1. 2. 3. 4. 5. To create joint ownership in the property (Shirkat-al-Milk) Giving the share of the financier to the client on rent. Promise from the client to purchase the units of share of the financier. Actual purchase of the units at different stages. Adjustment of the rental according to the remaining share of the financier in the property. Equal Housing Lender

Let me discuss each ingredient of the arrangement in a greater detail: i. The first step in the above arrangement is to create a joint ownership in the property. It has already been explained in the beginning of this chapter that Shirkat-al-Milk (joint ownership) can come into existence in different ways including joint purchase by the parties. This has been expressly allowed by all schools of Islamic Jurisprudence. Therefore no objection can be raised against creating this joint venture ownership. ii. The second part of the arrangement is that the financier leases his share in the house to his client and charges rent from him. This arrangement is also above board because there is no difference of opinion among the Muslim jurists in the permissibility of leasing ones undivided share in a property to his partner. If the undivided share is leased out to a third party its permissibility is a point of difference between the Muslim Jurists. Imam Abu-Hanifa and Imam Zubair are of the view that the undivided share cannot be leased out to a third party, while Imam Mali and Imam Shafi, Abu Yusuf and Muhammad Ibn Hasan hold that the undivided share can be leased out to any person. But so far as the property is

leased to the partner himself, all of them are unanimous on the validity of Ijarah. iii. The third step in the aforementioned arrangement is that the client purchases different units of the undivided share of the financier. This transaction is also allowed. If the undivided share relates to land and building, the sale of both is allowed according to all Islamic schools. Similarly, if the undivided share of the building is intended to be sold to the partner, it is also allowed unanimously by all Muslim jurists. However, there is a difference of opinion if it is sold to the third party. It is clear from the foregoing three points that each one of the transactions mentioned hereinabove is allowed per se, but the question is whether this transaction may be combined in a single arrangement. The answer is that if all these transactions have been combined by making each one of them a condition on the other, then it is not allowed in Shariaa, because it is a well settled rule in the Islamic legal system that one transaction cannot be made a precondition for another. However, the proposed scheme suggests that instead of making two transactions conditional to each other, there should be one sided promise from the client, firstly to take share of the financier on lease and pay the agreed rent and secondly, to purchase different units of the share of the financier of the house at different stages. This leads us to the fourth issue, which is, the enforceability of such a promise. iv. It is generally believed that a promise to do something creates only a moral obligation on the promisor, which cannot be enforced through courts of law. However, there are a number of Muslim jurists who opine that promises are enforceable, and the court of law can compel the promisor to fulfill his promise especially, in the context of commercial activities. Some Maliki and Hanafi jurists can be cited, in particular, who have declared that the promises can be enforced through courts of law in cases of need. The Hanafi jurists have adopted this view with regard to a particular sale called bai-bilwafa. This bai-bilwafa is a special arrangement of sale of a house whereby the buyer promises to the seller that whenever the latter gives him back the price of the house, he will resell the house to him. This arrangement was in vogue in countries of central Asia, and the Hanafi jurists have opined that if the sale of the house to the original seller is made a condition for the initial sale, it is not allowed. However, if the first sale is affected without any condition, but after effecting the sale, the buyer promises to resell the house whenever the seller offers to him the same price, this promise is acceptable and it creates not only a moral obligation, but also an enforceable right of the original seller. The Muslim jurists allowing this arrangement have based their view on the principle that Arabic Stated Rule meaning: (the promise can be made enforceable at the time of need.) Even if the promise has been made before affecting the first sale, after which the sale, after which the sale \has been effected without a condition, it is also allowed by \certain Hanafi jurists. One may raise an objection that if the promise of resale has been taken before entering into an actual sale, it practically amounts to putting a condition on the sale itself, because the promise is understood to have been entered into between parties at the time of sale, and therefore, even if the sale is without an express condition, it should be taken as

conditional because a promise in an express term has preceded it. This objection can be answered by saying that there is a big difference between putting a condition in the sale and ma\king a separate promise without making it a condition. If the condition is expressly mentioned at the time of sale, it means that the sale will be valid only if the condition is not fulfilled in the future; the present sale will become void. This makes the transaction of sale contingent on a future event, which may or may not occur. It leads to uncertainty (Gharar) in the transaction, which is totally prohibited in Shariaa. Conversely, if the sale is without any condition, but one of the two parties has promised to do something separately, then the sale cannot be held to be contingent or conditional with fulfilling of the promise made. It will take effect irrespective of whether or not the promisor fulfills his promise. Even if the promisor backs out of his promise, the sale will remain effective. The most the promise can do is to compel the promisor through court of law to fulfill his promise and if the promisor is unable to fulfill\ the promise, the promise can claim actual damages he has\ suffered because of the default. This makes it clear that a separate and independent promise to purchase does not render the original contract conditional or contingent. Therefore, it can be enforced. On the basis of this analysis, diminishing Musharakah may be used for House Financing with following conditions: a) The agreement of joint purchase, leasing and selling different units of the share of the financier should not be tiedup together in one single contract. However, the joint purchase and the contract of lease may be joined in one document whereby the financier agrees to lease his share, after joint purchase, to the client. This is allowed because, as explained in the relevant chapter, Ijarah can be effected for a future date. At the same time the client may sign onesided promise to purchase different units of the share of the financier periodically and the financier may undertake that when the client will purchase a unit of his share, the rent of the remaining units will be reduced accordingly. b) At the time of the purchase of each unit, sale must be effected by the exchange of offer and acceptance at that particular date. c) It will be preferable that the purchase of different units by the client is effected on the basis of the market value of the house as prevalent on the date of purchase of that unit, but it is also permissible that a particular price is agreed in the promise of purchase signed by the client. Back to Fatwa Index Click Here THIS IS NOT A FATWA BY HIS EMINENCE SHKH. TAQI USMANI. THESE ARE QUOTATIONS FROM HIS BOOK. PLEASE NOTE THAT THIS INFORMATION IS PUBLISHED HERE TO EDUCATE THE MUSLIM USER WHO WANTS TO REMOVE RIBA FROM HIS/HER LIFE. THEY DO NOT DIRECTLY OR INDIRECTLY IMPLY THAT THE MENTIONED SCHOLARS HAVE

SPONSORED, GIVEN DIRECT FATWA OR THE LIKE REGARDING LARIBA. We at LARIBA believe that it is the RESPONSIBILITY OF THE EDUCATED MUSLIM TO READ, COMPREHEND, ANALYZE & COMPARE then make his/her own decision. WHILE LARIBA HAS IT IS OWN SHARIAA ADVISORS IT'S OUR POLICY NOT TO USE THE EMINENCE & SCHOLARLY STATURE OF OUR SCHOLARS TO MARKET OR SELL. WE RELY ON THE MIND OF THE EDUCATED MUSLIM. WE ASK ALLAH TO ACCEPT.

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DISCLAIMER: PLEASE NOTE THAT IT IS NOT THE INTENTION OF AMERICAN FINANCE HOUSE LARIBA, A CALIFORNIA CORPORATION OR ANY OF ITS AFFILIATES OR EMPLOYEES TO SOLICIT BUSINESS IN STATES WHERE IT IS NOT LICENSED OR QUALIFIED. THIS IS NOT A SOLICITATION TO BUY, SELL, &/OR SOLICIT BUSINESS AND FINANCING IT IS A PROGRESS REPORT ON THE DEVELOPMENT OF THE COMPANY.