Anyone doing/done mortgage with Ijara Canada (Ijara loans)

[Pda]

Can someone explain in simple words what is interest-free (Riba Free) Mortgage loan.

Lets say someone borrows $300,000 does he pay back $300,000 over 25 years amortization period.
Since this kind of Ijara loan is given by any private lender and not bank then how can we explain this in simple way. lets say I have $300,000 and I lend to someone as ijara Loan then how will I be able to give someone money for 25 years amortization without any advantage. In reality is there something called 0 interest or interest free loan for such a big amount.

 

[BonManush]

There are many different schemes to make "profit" from the loans rather than charging interests. A true 0% loan is only possible from a person or persons that I have seen where they are just doing this out of the goodness of their heart. Obviously for a large amount such as a home loan, the lender would like to get some sort of compensations.

A simple google search would give you this information in more details. For specific schemes, search for each of the institutions mentioned in this thread. Some keep percentage ownership of the property alongside you until you "buy" them out and all the while paying rent towards their ownership. Most just change the term interest" to profit. The loans aren't always from a third party lender, often times are from a bank.

This is a more complicated topic and I'm onlly giving you 1 sentence form answers here. What makes these loans "halal" isn't just the way they deal with interest but also the terms and conditions. The terms need to be sharia compliant as to protect both the buyers and lenders. An absolute "true" sharia compliant loan isn't possible in North American (according my knowledge) due to various financial rules and regulations - most come close to it by wording their terms accordingly.

 

[scylla]

Can someone explain in simple words what is interest-free (Riba Free) Mortgage loan.

Lets say someone borrows $300,000 does he pay back $300,000 over 25 years amortization period.
Since this kind of Ijara loan is given by any private lender and not bank then how can we explain this in simple way. lets say I have $300,000 and I lend to someone as ijara Loan then how will I be able to give someone money for 25 years amortization without any advantage. In reality is there something called 0 interest or interest free loan for such a big amount.

It's not really a 0% loan (there's no such thing unless you get it from a very good friend or family member). You still have to pay money in exchange for getting the loan - it's just structured differently and not called interest. However for all practical purposes it's the equivalent of interest (i.e. you are paying money to use someone else's money). It's also a more expensive way to go. You end up paying more in fake interest than you would if you just took out a normal mortgage.

 

[Pda]

what I understood from a simple term is I can lend someone $300,000 and charge him rent on his property which is still mine till total loan is paid off. But I cannot just charge him rent equivalent to monthly rent x 12 x amortization = $300,000 as I will loose value of money after amortization period and I will not get any benefit of lending out so how come Islamic banks are able to do that. End of the day the buyer has to pay lender something either we call it interest or profit. So can a rental income be considered with rent + profit = total rent. Will that not be against sharia.

There are many different schemes to make "profit" from the loans rather than charging interests. A true 0% loan is only possible from a person or persons that I have seen where they are just doing this out of the goodness of their heart. Obviously for a large amount such as a home loan, the lender would like to get some sort of compensations.

A simple google search would give you this information in more details. For specific schemes, search for each of the institutions mentioned in this thread. Some keep percentage ownership of the property alongside you until you "buy" them out and all the while paying rent towards their ownership. Most just change the term interest" to profit. The loans aren't always from a third party lender, often times are from a bank.

This is a more complicated topic and I'm onlly giving you 1 sentence form answers here. What makes these loans "halal" isn't just the way they deal with interest but also the terms and conditions. The terms need to be sharia compliant as to protect both the buyers and lenders. An absolute "true" sharia compliant loan isn't possible in North American (according my knowledge) due to various financial rules and regulations - most come close to it by wording their terms accordingly.

 

[BonManush]

This is one of the methods:

https://ijaracdc.com/how-it-works/

 

[torontosm]

what I understood from a simple term is I can lend someone $300,000 and charge him rent on his property which is still mine till total loan is paid off. But I cannot just charge him rent equivalent to monthly rent x 12 x amortization = $300,000 as I will loose value of money after amortization period and I will not get any benefit of lending out so how come Islamic banks are able to do that. End of the day the buyer has to pay lender something either we call it interest or profit. So can a rental income be considered with rent + profit = total rent. Will that not be against sharia.

What you described is the basic "Sharia'a compliant" Ijara structure. A person who wants to buy a house comes to an Islamic bank. The bank buys the house on behalf of the customer, and has the customer sign a 25 year rental agreement whereby the customer agrees to pay a certain amount of "rent" each year. In return, the bank grants the customer use of the property for the 25 years, along with a promise to sell the property to the customer at the end of the term for a nominal sum ($1).

The rent payments include the basic principal amortization ($300,000 / 25 years / 12 months) plus a "profit" payment. The profit payment is exactly the same as interest, and is even linked to the same benchmarks (LIBOR, etc.). Moreoever, despite the bank "owning" the house for the next 25 years, they assume no risk at all. So, if the house is destroyed in an earthquake, the "tenant" still has to continue to pay the rent for the remaining years. Or, if house prices fall, the tenant is the only one who will suffer.

Somehow, the Sharia'a "scholars" who charge obscene amounts of money for issuing fatwas have deemed this to be legal under Islamic law, even thought there is virtually no difference between this and a mortgage.

 

[stepover]

Hello everyone,
Where are we on this topic? Any new halal companies offering truly islamic mortgage?
I looked through Ijara CDC: https://ijaracdc.com/sharia-compliance/islamic-finance/
Any thoughts on them?

My plan to move to Canada hinges a lot on availability of halal islamic finance options.

 

[torontosm]

Hello everyone,
My plan to move to Canada hinges a lot on availability of halal islamic finance options.

Really? Wow, that's an unusual factor to base your move on.

Regardless, there are a number of private lenders that do offer Sharia'a compliant housing financing in Canada. Some examples I have come across that haven't been mentioned on this thread are Al-Nur Co-Op, Ansar Co-Op and Salam Financial. I haven't dealt with any of these, and am not sure how active they are.

 

[stepover]

Really? Wow, that's an unusual factor to base your move on.

Regardless, there are a number of private lenders that do offer Sharia'a compliant housing financing in Canada. Some examples I have come across that haven't been mentioned on this thread are Al-Nur Co-Op, Ansar Co-Op and Salam Financial. I haven't dealt with any of these, and am not sure how active they are.

Thanks a lot. I had read about Al-Nur before, but will check out the others.
Its surely not the only reason, but I am considering other possible places as well.

 

[torontosm]

Thanks a lot. I had read about Al-Nur before, but will check out the others.
Its surely not the only reason, but I am considering other possible places as well.

While I appreciate the importance of faith, I don't think any of these financing providers offer loans in the true spirit of Islam. Until the lender truly shares risk with the borrower, and until rates aren't determine by traditional variables (such as the BoC rate, LIBOR, etc.), none of these financing facilities are truly Sharia'a compliant. This is true of virtually every Islamic bank and lender in the world.

 

[scylla]

While I appreciate the importance of faith, I don't think any of these financing providers offer loans in the true spirit of Islam. Until the lender truly shares risk with the borrower, and until rates aren't determine by traditional variables (such as the BoC rate, LIBOR, etc.), none of these financing facilities are truly Sharia'a compliant. This is true of virtually every Islamic bank and lender in the world.

One of my team members is Muslim and has researched this topic extensively. Apparently there are basically two companies who really provide truly Sharia compliant mortgages. The rest say they do - but actually don't (i.e. they're not actually Sharia compliant even though they say they are). For the two companies that are Sharia compliant, apparently the funds available are limited (since this is dependent on benefactors who are able to make the money available) and for this reason it's very difficult to get a Sharia compliant mortgage. Anyway - that's his opinion.

 

[torontosm]

One of my team members is Muslim and has researched this topic extensively. Apparently there are basically two companies who really provide truly Sharia compliant mortgages. The rest say they do - but actually don't (i.e. they're not actually Sharia compliant even though they say they are). For the two companies that are Sharia compliant, apparently the funds available are limited (since this is dependent on benefactors who are able to make the money available) and for this reason it's very difficult to get a Sharia compliant mortgage. Anyway - that's his opinion.

Scylla, while I'm sure your colleague has done his research, I can assure you that neither company offers mortgages that are truly Sharia compliant. While their scholars may bless their structures (in return for handsome compensation packages), the easiest way to check if a mortgage conforms with the principles of Islam is to see what happens if you have to sell your house for a loss (i.e., after a market crash). If the bank will share the loss, and forgive a corresponding portion of the mortgage amount, then the risk is indeed shared and the loan is Sharia compliant. However, if the bank still wants all their money back, as conventional commercial banks do, then there is no risk sharing and the loan is considered to be "haram".

 

[scylla]

Scylla, while I'm sure your colleague has done his research, I can assure you that neither company offers mortgages that are truly Sharia compliant. While their scholars may bless their structures (in return for handsome compensation packages), the easiest way to check if a mortgage conforms with the principles of Islam is to see what happens if you have to sell your house for a loss (i.e., after a market crash). If the bank will share the loss, and forgive a corresponding portion of the mortgage amount, then the risk is indeed shared and the loan is Sharia compliant. However, if the bank still wants all their money back, as conventional commercial banks do, then there is no risk sharing and the loan is considered to be "haram".

I believe that's exactly the research he's done. They aren't banks he's identified - but rather groups of private individuals who provide the funding. And yes - I believe they share in the loss (if there is one). Because the mortgages are funded by private donors with no guarantee of a full return, the funds available are very limited and difficult to get (you need to have a very large down payment to qualify and I believe there's a waiting list). You would obviously have to be pretty wealth to contribute money with no guarantee you'll even get it all back (those doing it are doing so for the good of their community and not to make money) - so it makes sense there's not much money available.

 

[rizmayo]

Hello everyone,
Where are we on this topic? Any new halal companies offering truly islamic mortgage?
I looked through Ijara CDC: https://ijaracdc.com/sharia-compliance/islamic-finance/
Any thoughts on them?

My plan to move to Canada hinges a lot on availability of halal islamic finance options.

Try http://iffco.ca/IFFCO/Home.html ... I have not used them, but a friend of mine with extensive research on the subject was of the opinion they were more compliant then the rest.

Please talk to Dr. Iqbal Masood (contact on the website) and please satisfy yourself before making a decision

 

[CA17CA]

I really have a thought regarding the "interests" on borrowing money in general.

Back in time when Riba was prohibited, money was in the form of Gold and Silver and other precious materials. So if you borrow 1 kg of gold return it 1 kg because gold holds its value. And so you are not allowed to borrow 1kg and returned it 1.1 kg because this is Riba.

Nowadays, the definition "itself" for the money has changed. It is just a paper bill that represents a market value without out any gold treasury reference (Canada sold almost all its Gold reserves, google it). So, the current money is not similar to the money back then during early stage of Islam.

Here is example,
you borrow in 2017 100,000$ which is equivalent , "for example" to 1kg of Gold
do you want to convince me that after 10 years you wanna return it as 100,000$ or it will be Riba? will 100,000$ hold the same value of gold after 10 years? no inflation?
What makes sense to me and I think it should be Halal is that if you borrow "X amount of money" equivalent to 1kg of Gold today, then you have to return the same 1 kg of gold even if it will be 2X or 100X amount of money in 10 years. Same gold but different representation.