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| Murabha And Ijara: Home Finance For Muslims Which Is Allowed By Islamic Law |
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| Written by William King |
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Murabha - In the Murabha method of finance, the financier purchases the property and immediately sells it to the customer at a higher price. The higher price is settled based on the number of years allowed by the financer to the customer to pay the purchase price. The extra sum can be compared to the interest which is charged on a conventional loan at a certain rate over the whole payment term. An ethical dilemma is faced by about two million Muslims in the UK when they want a loan or a mortgage as conventional loans and mortgages all need the payment of interest and ‘riba’ (interest in Islamic law) is not allowed by the Koran. Under Ijara, the bank will buy the asset you want and you will be allowed to use the asset for an agreed period in return for a monthly payment which covers the bank’s capital. It is a kind of leasing. In Musharaka (meaning partnership), the bank buys the asset and becomes the legal owner. You pay monthly installments, covering part of the rent and part of the cost of the asset, so that after a pre-determined period, you own the asset itself. William King |
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