Fatwa #471835 February 2021Pakistan
Islamic House Financing Standard Chartered Bank Pakistan
Question
Assalam o Alaikum,
My question is related to Islamic Home Financing.
I've gone through 2 of the related questions (and answers on this site):
- Islamic Home Finance Solution (http://askimam.org/public/question_detail/24745)
- Do we need to revise the view on interest (Riba)? If not then what solution does Shariah has for dire need owning a house for those living in the western countries? (http://askimam.org/public/question_detail/19939)
Based on the answers to both questions, I understand that it's permissible to purchase a house using Islamic Home Financing. Now I want to know if the bank, from which I want to pursue this facility, and their procedure is Shariah Compliant or not. Does it rreally not invlove interest or not.
The details of the facility in Standard Chartered Bank can be found on this link, under Home Finance section: https://www.sc.com/pk/saadiq/#Home-Finance
And here's the link to pricing: https://av.sc.com/pk/content/docs/pk-saadiq-home-finance-pricing-notice.pdf
From the questions linked above in start, I undertood that the customer buys shares of the house from the bank with time, and the rent is calculated for the remaining share of the bank in the house. So, it means the rent should get lower and lower with time. But from the links attached, of this bank, they're increasing the rate after 3 years. So, is this really Shariah Compliant?
And secondly they mention the increase with KIBOR rate (which looks to be a interest rate in Pakistan).
When we ask the bank, they always say that all of this is according to Islamic banking and is Halal. That's why I'm asking it here, if the Ask Imam team can go through the bank's terms and let us know that they are Shariah Compliant or not? Is it permissible for us to buy a house using this plan? We want to be sure that this plan has no interest involved...
Thanks, Jazak Allah
Answer
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
Brother in Islam.
Below is a detailed explanation of Diminishing Musharakah by Justice Mufti Muhammad Taqi Usmani مد ظله which is a Sharīʿah compliant mode of financing a house.
Diminishing Musharakah
A client wants to purchase a house for which he does not have adequate funds. He approaches the financier who agrees to participate with him in purchasing the required house. 20% of the price is paid by the client and 80% of the price by the financier. Thus, the financier owns 80% of the house while the client owns 20%. After purchasing the property jointly, the client uses the house for his residential requirement and pays rent to the financier for using his share in the property.
At the same time the share of financier is further divided in eight equal units, each unit representing 10% ownership of the house. The client promises the financier that he will purchase one unit after three months. Accordingly, after the first term of three months he purchases one unit of the share of the financier by paying 1/10th of the price of the house. It reduces the share of the financier from 80% to 70%. Hence, the rent payable to the financier is also reduced to that extent. At the end of the second term, he purchases another unit increasing his share in the property to 40% and reducing the share of the financier to 60% and consequentially reducing the rent to that proportion. This process goes on in the same fashion until after the end of two years, the client purchases the whole share of the financier reducing the share of the financier to 'zero' and increasing his own share to 100%.
This arrangement allows the financier to claim rent according to his proportion of ownership in the property and at the same time allows him periodical return of a part of his principal through purchases of the units of his share.
However, it is very important that the following steps are strictly adhered to as mentioned in order:
1. To create joint ownership in the property (Shirkat-al-Milk).
2. Giving the share of the financier to the client on rent.
3. Promise from the client to purchase the units of share of the financier.
4. Actual purchase of the units at different stages.
5. Adjustment of the rental according to the remaining share of the financier in the property.
Brother, we are unable to comment on the product offered by Standard Chartered Bank in Pakistan. You may contact Darul Uloom Karachi and seek their advice.
And Allah Ta’āla Knows Best
Usaamah Dadipatel
Student Darul Iftaa
Eshowe, South Africa.
Checked and Approved by,
Mufti Ebrahim Desai.