In the Name of Allah, the Entirely Merciful, the Especially Merciful.
All praise is due to Allah, Al-'Alim (The All-Knowing)
"And whatever you lay out as riba, so that it may increase in the property of men, it shall not increase with Allah; and whatever you give in charity, desiring Allah's pleasure-- it is these (persons) that shall get manifold." (Quran 30:39)
As I mentioned in my previous article, search for more knowledge on Islamic Finance took me to Chicago in June. After a week of enjoying the beautiful weather and tasty food, I finally made my way to the conference. Did I mention Sabri Nihari? Wow, I have never tasted food like that before. Alhamdulilah. Anyways, it was pretty well organized, but audience was thin. My goal was to confirm or deny the conclusions that I reached on the Islamic Home Financing in USA, and was not sure if there would be enough information to do that. Specifically, I went to see Shaikh Mudassir Siddiqui, who seems to have a very balanced view on this. Another person was Khalid Elsayed, the CEO of Guidance Residential, who can provide some insight into how a financial company owner view Islamic Home Financing.
As the conference progressed, I observed so many different aspect of Islamic Financing. There were seasonal bankers, career Scholar-cum-Consultants, theorists, pure businessmen, Jewish brokers etc. Finally, I get to hear Mudassir Siddiqui, and ask him direct questions, and of course Khalid Elsayed from Guidance. In order to keep this short and concise, let me present you the conclusion and some supporting evidences. Most of the videos, contracts, and white papers can be presented upon request. If you wish to know full details, please contact me offline at ajumani@hotmail.com.
Khalid Elsayed seemed sincere, and seemed like a very good businessman who is willing to, at some extent, take the loss to provide halal home financing for Muslims in USA. However, he was very focused on the profit and potential of the industry. Although it is understandable, this driving force for profit, and market share is making it very difficult to establish proper Islamic financing products that comply with Islamic Sharia.
Shkh Mudassir told a story from Dubai that clarified everything for me. Dubai has been the center of Islamic Financing experiments for decades. During the financial boom of early 2000s, many businesses were financed based on Islamic Financial contracts like Murabaha (Deferred Sale), and Musharaka (Partnership), and one of them was a Shopping Mall in Dubai. When the market took a downturn in 2008, Dubai economy was hit specially hard, and this Shopping Mall suffered. Owner was not able to make the monthly "Profit" payments, which were suppose to be rent to the supposedly partner in profit/loss. This is a very common structure of Islamic Financing where the financing cost is recovered by collecting rent on the property from the client, but in order to remove the responsibility and the liability from the Islamic Financial Institution, only the client's name is put on the Title, which makes the transaction, essentially a debt transaction, since the only claim of money remain is in a form of a loan. In fact, there is a contract of partnership or sale that is kept off the books which suppose to make this "Halal", since bank seemingly sharing the liability.
From Usamah ibn Zayd : The Prophet, , said: "There is no riba except in Nasiyah [waiting]." (Bukhari, Kitab al-Buyu', Bab Bay' al-dinari bi al-dinar nasa'an; also Muslim and Musnad Ahmad)
However, when the matter came to the court for judgement, Bank's attorney argued that this was a case of secured debt financing, and the Bank is not liable for the property and the owner is responsible for the full amount financed, because Islamic Bank are still banks whose main concern is money and not the property. Of course, the owner insisted that he is just renting the property from his partner, according to the signed Islamic partnership contract, and willing to surrender the property to the Bank. Shaikh Mudassir was part of the judge tribunal, and carefully looked at all the documentation. Judgement was given in the favor of the Bank, because the contract based on profit/loss partnership was not the driving factor, and the true intention of the transaction was to provide financing. In fact, all the details of the end transaction were identical for a interest based transaction, and Bank was not responsible or liable for the property involved, since property was clearly owned by the client. Based on these evidences, owner was held liable for the full amount, and the supplement agreement that made the transaction halal was set aside, because it conflicted with practices of common law.
Shkh Mudassir and several consultants, in the conference, explained that all Islamic financing transaction contains a conflict of jurisprudence authority, because the transaction is recorded as debt transaction with no evidence of sharing loss/profit is published to the local authorities. So, when the matter comes to be adjudicated, in case of default, there is no way to proof that the financing institution has any share in the property, unless the conventional law recognize the Islamic Contract which Islamic Scholars recognize. In other words, Bank's attorney will never admit to sharing risk and hence relieving the minor partner from majority of the burden, and official document will support the case of this being a pure debt transaction. I have a video recording for this back and forth, if anyone interested.
"I need to make this point clear to prevent undue confusion. For example, when the polytheists in the city of Mecca say, "Trade is like riba..." and the Quran detested it by saying "Allah allows trade (al-bay') but prohibits riba," the former, i.e., al-bay' implies the existence of 'iwad, or equal countervalue in the transaction. When the requirement of 'iwad is fulfilled in trading (al-bay'), it brings along the sense of equity and justice into business transaction, that rendered it superior to an interest-bearing system" (page 30 Saiful Azhar - IBF)
So, it is clear that if Islamic Home financing transactions are not clearly identified as true Partnership or Rental agreement, it is just a debt transaction with profit collected on financing provided to the client who can not afford on their own. We can not have it both ways. We can not base the transaction on Declining Partnership and Rental agreement to make it halal, and at the same time, relieve Islamic financial institution from the responsibility of being the co-owner of the property. And, we can certainly not allow the homeowner to profit from the equity 100% when it is sold, as Islamic financial Institution should share the profit according to the ownership at the time of sale. That is what makes Islamic Home Financing halal, and deviation from it makes the transaction invalid.
So, does that mean, there is no halal way to finance a home, without dealing in Riba in current financial framework? No, Declining Partnership (Musharaka Mutanaqisa), Lease to Purchase (Ijara), Sleeping Partnership (Mudaraba) are all 100% halal transactions, but the Islamic financial institutions in USA have chosen to structure their contracts in a way that it renders the transaction into a simple interest based loan. If a Islamic financial institution chose to put their name on the title, responsible for maintenance, liable for loss, and share the equity in the house, then Alhamdulilah there will be no doubt whatsoever. Of course, most of us have weak faith, and we are willing to practice Islam as long as it is convenient. So, if we don't get our tax break, or have full ownership, or full equity profit like we do with conventional loans, we will find another Islamic Financial Institution who does with a fatwa from the same scholars.
"...they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest..." (Quran 2:275)
In essence, Guidance Residential, LaRiba, Ijara Loans, University Financials, Devon Bank, etc. are all structuring their transactions to avoid owning or being liable for the homes, and have individual fatwa for each exception. There is a fatwa to provide a 1098 form. There is a fatwa to not have the financing institution name on the title (based on a signed contract which is never recorded in the official records, and will not be held up during foreclosure). There is a fatwa on selling the home back to the client for $1 after he sells the home ( of course he can't sell the home until the financing institution removes the mortgage, so both are done simultaneously to deceive the government). There is a fatwa for financing company to not be liable for insurance, taxes, and maintenance. So, at the end, what you have is a homeowner owning the home that was financed with Cash, and paying back more in cash with a mortgage being the only connection to the financing institution. In order to keep it Halal, homeowner should give up the equity share, and financing institution should give up profit from rent unless they take liability.
"O those who believe fear Allah and give up what still remains of the Riba if you are believers. But if you do not, then listen to the declaration of war from Allah and His Messenger. And if you repent, yours is your principal. ..., then everybody shall be paid, in full, what he has earned. And they shall not be wronged." (Quran 2:278-281)
This is a harsh example, but it brings the point across, as the above verse of the Quran is even harsher. These transactions are similar to making a Mutta (temporary marriage) halal by approving parts of it. For example, a traveler comes to a new town, finds a woman, and proposes a temporary marriage, and they both announce it, and do proper Nikkah. When the husband is returning home, he gives a proper divorce, and pays the dowry. We can certainly get fatwa for each individual aspect of this temporary marriage, and these individual actions are definitely halal, but is the marriage as a whole Halal? Of course not, because both husband and wife knew that this is a temporary marriage and dowry was agreed accordingly. So, the intention was not to marry each other for indefinite term, but intention was to provide companion ship for the man during his trip. Similarly, the intention behind all the Islamic home financing transaction is to finance the home without any liability or responsibility for the financing institution, and no profit sharing in equity, and full rights to foreclose on the property as 100% debt default. There is a famous saying in politics that "It is the economy. Stupid!". Similarly here, "It is the intention. Stupid!"
Umar ibn al-Khattab relates that he heard the Messenger of Allah, say, "Verily actions are by intentions, and for every person is what he intended...." (Agreed upon)
Ironically, some scholars in Saudi Arabia allow this type of Nikkah for foreign travelers, but Mufti Taqi Uthmani and other scholars have , rightfully, criticized it due to the intention and the contract as a whole not being Islamic, However, Mufti Taqi Uthmani and others have signed on to the Islamic Home financing contracts which follows the same pattern. Not sure, if they are not aware of the local laws in USA of ownership and partnership, or some other reason. Interestingly, I have a recent article from Mufti Taqi Uthmani, where he admits the above faults in these home financing contracts and encourages Americans to come up with alternatives, which I truly admire. What I don't understand is that why he doesn't pressures the US companies into putting their name on the title with the threat of revoking the fatwa. That is something I would like to ask him InshAllah, when I see him. following is the link to his recent article.
http://www.muftitaqiusmani.com/index.php?option=com_content&view=article&id=5:looking-for-new-steps-in-islamic-finance&catid=12:economics&Itemid=15
Of course, this is only a refutation of the fatwa of the scholars, and business practices of Islamic Financial Institutes, but if one is in a need to buy a home, they should try their best to chose the best among these Islamic companies. This is not my opinion, but opinion of renown scholars of USA as the link below show. With my research and concurred by following fatwa, Guidance Residential is the best company in USA for Islamic home financing with the best contract and scalable solutions, only if they can correct the above faults. As you can see in the opinion of the scholars issued after a recent conference in Houston below. All the companies' contract are defective, including Guidance Residential, and only allowed in a need, but there is a stacking order, and as practicing Muslims we should " leave whats doubtful towards what is not doubtful", meaning that it is toward things without doubt, but not necessarily abandoning everything with a fraction of doubt, and cause harm to the family and the society, which is sometimes the misinterpretation of this hadith. In this case, one should not force their families to live in rent, if it harms them, if they can make use of these Islamic loans, as the basic purpose of Islam is to ease our life, unless one is very strong. May Allah give us strength to practice Islam even when it is not convenient.
And Allah knows best.
http://www.amjaonline.org/en/articles/entry/amja-resident-fatwa-committee-resolution-about-islamic-home-financing-companies-in-the-us
JazakAllahu Khairin
A student of knowledge.
AbuArman Jumani
All praise is due to Allah, Al-'Alim (The All-Knowing)
"And whatever you lay out as riba, so that it may increase in the property of men, it shall not increase with Allah; and whatever you give in charity, desiring Allah's pleasure-- it is these (persons) that shall get manifold." (Quran 30:39)
As I mentioned in my previous article, search for more knowledge on Islamic Finance took me to Chicago in June. After a week of enjoying the beautiful weather and tasty food, I finally made my way to the conference. Did I mention Sabri Nihari? Wow, I have never tasted food like that before. Alhamdulilah. Anyways, it was pretty well organized, but audience was thin. My goal was to confirm or deny the conclusions that I reached on the Islamic Home Financing in USA, and was not sure if there would be enough information to do that. Specifically, I went to see Shaikh Mudassir Siddiqui, who seems to have a very balanced view on this. Another person was Khalid Elsayed, the CEO of Guidance Residential, who can provide some insight into how a financial company owner view Islamic Home Financing.
As the conference progressed, I observed so many different aspect of Islamic Financing. There were seasonal bankers, career Scholar-cum-Consultants, theorists, pure businessmen, Jewish brokers etc. Finally, I get to hear Mudassir Siddiqui, and ask him direct questions, and of course Khalid Elsayed from Guidance. In order to keep this short and concise, let me present you the conclusion and some supporting evidences. Most of the videos, contracts, and white papers can be presented upon request. If you wish to know full details, please contact me offline at ajumani@hotmail.com.
Khalid Elsayed seemed sincere, and seemed like a very good businessman who is willing to, at some extent, take the loss to provide halal home financing for Muslims in USA. However, he was very focused on the profit and potential of the industry. Although it is understandable, this driving force for profit, and market share is making it very difficult to establish proper Islamic financing products that comply with Islamic Sharia.
Shkh Mudassir told a story from Dubai that clarified everything for me. Dubai has been the center of Islamic Financing experiments for decades. During the financial boom of early 2000s, many businesses were financed based on Islamic Financial contracts like Murabaha (Deferred Sale), and Musharaka (Partnership), and one of them was a Shopping Mall in Dubai. When the market took a downturn in 2008, Dubai economy was hit specially hard, and this Shopping Mall suffered. Owner was not able to make the monthly "Profit" payments, which were suppose to be rent to the supposedly partner in profit/loss. This is a very common structure of Islamic Financing where the financing cost is recovered by collecting rent on the property from the client, but in order to remove the responsibility and the liability from the Islamic Financial Institution, only the client's name is put on the Title, which makes the transaction, essentially a debt transaction, since the only claim of money remain is in a form of a loan. In fact, there is a contract of partnership or sale that is kept off the books which suppose to make this "Halal", since bank seemingly sharing the liability.
From Usamah ibn Zayd : The Prophet, , said: "There is no riba except in Nasiyah [waiting]." (Bukhari, Kitab al-Buyu', Bab Bay' al-dinari bi al-dinar nasa'an; also Muslim and Musnad Ahmad)
However, when the matter came to the court for judgement, Bank's attorney argued that this was a case of secured debt financing, and the Bank is not liable for the property and the owner is responsible for the full amount financed, because Islamic Bank are still banks whose main concern is money and not the property. Of course, the owner insisted that he is just renting the property from his partner, according to the signed Islamic partnership contract, and willing to surrender the property to the Bank. Shaikh Mudassir was part of the judge tribunal, and carefully looked at all the documentation. Judgement was given in the favor of the Bank, because the contract based on profit/loss partnership was not the driving factor, and the true intention of the transaction was to provide financing. In fact, all the details of the end transaction were identical for a interest based transaction, and Bank was not responsible or liable for the property involved, since property was clearly owned by the client. Based on these evidences, owner was held liable for the full amount, and the supplement agreement that made the transaction halal was set aside, because it conflicted with practices of common law.
Shkh Mudassir and several consultants, in the conference, explained that all Islamic financing transaction contains a conflict of jurisprudence authority, because the transaction is recorded as debt transaction with no evidence of sharing loss/profit is published to the local authorities. So, when the matter comes to be adjudicated, in case of default, there is no way to proof that the financing institution has any share in the property, unless the conventional law recognize the Islamic Contract which Islamic Scholars recognize. In other words, Bank's attorney will never admit to sharing risk and hence relieving the minor partner from majority of the burden, and official document will support the case of this being a pure debt transaction. I have a video recording for this back and forth, if anyone interested.
"I need to make this point clear to prevent undue confusion. For example, when the polytheists in the city of Mecca say, "Trade is like riba..." and the Quran detested it by saying "Allah allows trade (al-bay') but prohibits riba," the former, i.e., al-bay' implies the existence of 'iwad, or equal countervalue in the transaction. When the requirement of 'iwad is fulfilled in trading (al-bay'), it brings along the sense of equity and justice into business transaction, that rendered it superior to an interest-bearing system" (page 30 Saiful Azhar - IBF)
So, it is clear that if Islamic Home financing transactions are not clearly identified as true Partnership or Rental agreement, it is just a debt transaction with profit collected on financing provided to the client who can not afford on their own. We can not have it both ways. We can not base the transaction on Declining Partnership and Rental agreement to make it halal, and at the same time, relieve Islamic financial institution from the responsibility of being the co-owner of the property. And, we can certainly not allow the homeowner to profit from the equity 100% when it is sold, as Islamic financial Institution should share the profit according to the ownership at the time of sale. That is what makes Islamic Home Financing halal, and deviation from it makes the transaction invalid.
So, does that mean, there is no halal way to finance a home, without dealing in Riba in current financial framework? No, Declining Partnership (Musharaka Mutanaqisa), Lease to Purchase (Ijara), Sleeping Partnership (Mudaraba) are all 100% halal transactions, but the Islamic financial institutions in USA have chosen to structure their contracts in a way that it renders the transaction into a simple interest based loan. If a Islamic financial institution chose to put their name on the title, responsible for maintenance, liable for loss, and share the equity in the house, then Alhamdulilah there will be no doubt whatsoever. Of course, most of us have weak faith, and we are willing to practice Islam as long as it is convenient. So, if we don't get our tax break, or have full ownership, or full equity profit like we do with conventional loans, we will find another Islamic Financial Institution who does with a fatwa from the same scholars.
"...they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest..." (Quran 2:275)
In essence, Guidance Residential, LaRiba, Ijara Loans, University Financials, Devon Bank, etc. are all structuring their transactions to avoid owning or being liable for the homes, and have individual fatwa for each exception. There is a fatwa to provide a 1098 form. There is a fatwa to not have the financing institution name on the title (based on a signed contract which is never recorded in the official records, and will not be held up during foreclosure). There is a fatwa on selling the home back to the client for $1 after he sells the home ( of course he can't sell the home until the financing institution removes the mortgage, so both are done simultaneously to deceive the government). There is a fatwa for financing company to not be liable for insurance, taxes, and maintenance. So, at the end, what you have is a homeowner owning the home that was financed with Cash, and paying back more in cash with a mortgage being the only connection to the financing institution. In order to keep it Halal, homeowner should give up the equity share, and financing institution should give up profit from rent unless they take liability.
"O those who believe fear Allah and give up what still remains of the Riba if you are believers. But if you do not, then listen to the declaration of war from Allah and His Messenger. And if you repent, yours is your principal. ..., then everybody shall be paid, in full, what he has earned. And they shall not be wronged." (Quran 2:278-281)
This is a harsh example, but it brings the point across, as the above verse of the Quran is even harsher. These transactions are similar to making a Mutta (temporary marriage) halal by approving parts of it. For example, a traveler comes to a new town, finds a woman, and proposes a temporary marriage, and they both announce it, and do proper Nikkah. When the husband is returning home, he gives a proper divorce, and pays the dowry. We can certainly get fatwa for each individual aspect of this temporary marriage, and these individual actions are definitely halal, but is the marriage as a whole Halal? Of course not, because both husband and wife knew that this is a temporary marriage and dowry was agreed accordingly. So, the intention was not to marry each other for indefinite term, but intention was to provide companion ship for the man during his trip. Similarly, the intention behind all the Islamic home financing transaction is to finance the home without any liability or responsibility for the financing institution, and no profit sharing in equity, and full rights to foreclose on the property as 100% debt default. There is a famous saying in politics that "It is the economy. Stupid!". Similarly here, "It is the intention. Stupid!"
Umar ibn al-Khattab relates that he heard the Messenger of Allah, say, "Verily actions are by intentions, and for every person is what he intended...." (Agreed upon)
Ironically, some scholars in Saudi Arabia allow this type of Nikkah for foreign travelers, but Mufti Taqi Uthmani and other scholars have , rightfully, criticized it due to the intention and the contract as a whole not being Islamic, However, Mufti Taqi Uthmani and others have signed on to the Islamic Home financing contracts which follows the same pattern. Not sure, if they are not aware of the local laws in USA of ownership and partnership, or some other reason. Interestingly, I have a recent article from Mufti Taqi Uthmani, where he admits the above faults in these home financing contracts and encourages Americans to come up with alternatives, which I truly admire. What I don't understand is that why he doesn't pressures the US companies into putting their name on the title with the threat of revoking the fatwa. That is something I would like to ask him InshAllah, when I see him. following is the link to his recent article.
http://www.muftitaqiusmani.com/index.php?option=com_content&view=article&id=5:looking-for-new-steps-in-islamic-finance&catid=12:economics&Itemid=15
Of course, this is only a refutation of the fatwa of the scholars, and business practices of Islamic Financial Institutes, but if one is in a need to buy a home, they should try their best to chose the best among these Islamic companies. This is not my opinion, but opinion of renown scholars of USA as the link below show. With my research and concurred by following fatwa, Guidance Residential is the best company in USA for Islamic home financing with the best contract and scalable solutions, only if they can correct the above faults. As you can see in the opinion of the scholars issued after a recent conference in Houston below. All the companies' contract are defective, including Guidance Residential, and only allowed in a need, but there is a stacking order, and as practicing Muslims we should " leave whats doubtful towards what is not doubtful", meaning that it is toward things without doubt, but not necessarily abandoning everything with a fraction of doubt, and cause harm to the family and the society, which is sometimes the misinterpretation of this hadith. In this case, one should not force their families to live in rent, if it harms them, if they can make use of these Islamic loans, as the basic purpose of Islam is to ease our life, unless one is very strong. May Allah give us strength to practice Islam even when it is not convenient.
And Allah knows best.
http://www.amjaonline.org/en/articles/entry/amja-resident-fatwa-committee-resolution-about-islamic-home-financing-companies-in-the-us
JazakAllahu Khairin
A student of knowledge.
AbuArman Jumani
