Question
1) Bank (A) has an Islamic finance program for real estate (villa or land), they give you a loan at a margin of 4.75% according to your monthly income + 10% as down payment for 20 years. The bank doesn’t possess any real estate, they ask you to go and search for anything you like and then they re-evaluate it, and then they buy it on their name, then they make a lease contract with the client for 20 years, and when payments are done, the real estate is transferred into client’s name.
In case they the client is passed away before completing the installments, they remaining amount is waived and the heirs don’t have to pay the money, the real estate is transferred on the heirs name.
2) Bank (B) has an Islamic finance program for real estate (villa, building or land), they also give loans at a margin of 5% per year for 15 years according to your monthly income with no down payment. The bank doesn’t possess any real estate, they ask you to go and search for anything you like and then they re-evaluate it, and then they buy it on the client’s name, but they keep the original papers of the real estate in their possessions till the payments are complete, then they release the papers to the client. During the 15 years the client may build, lease or do anything with the real estate except selling it.
Which one of the above two are considered halal?
Answer
Muhtaram / Muhtaramah
In the Name of Allāh, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāh wa-barakātuh.
1) The scheme where the bank purchases a property for a client and thereafter leases it out to him on installments over a period of 20 years with transferring of ownership to the client after the installments are complete is permissible. However, it is incumbent that the bank makes it clear in the contract that transferring of ownership of the property will be a voluntary gesture from the side of the bank. The contract will be rendered incorrect if this is not mentioned in the contract.
The bank should also make clear from the beginning that the benefit of the outstanding installments being waived off and the transferring of ownership to the heir’s in the event of the client’s demise will be merely a voluntary gesture from their side.
The issue of the bank extending a loan to the client at a margin of 4.75% is unclear. Nevertheless, we gather that the bank extends the loan to the client to assist him in paying out his installments or deposit. In this case, the contract will only be permissible if the following two conditions are fulfilled:
1) The loan is completely independent from the contract of the bank financing the desired property.
2) The loan is a voluntary gesture from the side of the bank.
2)The plan where the bank purchases the property for the client and the property is registered on the clients name, thereafter the client pays the bank in installments with an excess of 5% per annum is not permissible as it is clear cut Riba (Interest)
And Allah knows best
Darul Iftaa
Madrasah Inaa’miyyah
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