Islamic Finance - How It Works?
Established by an International Board of distinguished Shariah Scholars in l996, our IjaraTM Home Financing Program is compliant with Islamic Rules and subsequently unimpeded from both Riba and Gharar.
The (Ijara wa Iqtina) program or “Lease to Purchase” is also known as a Lease to Own arrangement which combines many of the theories advanced by more familiar lending institutions. The originators of the ‘contract’ developed the program with three main principles in mind:
- to design a financing contract free from interest,
- to provide a framework for the ‘contract’ inclusive of the fundamental duties, rights, and obligations contained in a conventional mortgage, and
- keep the benefits of a conventional home mortgage including income tax deductibility.
How It Works
The person chooses the property. The person is required to make a payment on-account (often referred to as a down payment), usually ranging from 10% to 20% or more at the discretion of the individual. Title to the property is held by an independent trust. The property is leased anywhere from 10 to 30 years, once again at the discretion of the individual. Monthly rent or payments on-account are paid by the lessee to the trust. Real estate and property tax are added onto the monthly rent and paid on behalf by the trust on behalf of the lessee. When the term of the lease expires, title to the property is transferred over to the lessee for a nominal fee of One ($1.00) Dollar. The lessee must inform the trust of a change in personal circumstance which requires the property to be sold and an arrangement for the sale of the property will be made. If the property sells for profit, the lessee retains all or 100% of the profit. In the event the property is sold at a loss, the lessee will bear first loss.
Originally created to serve the religious commitment of Muslims, the ‘Lease to Purchase’ program is available to any individual in the U.S. and Canada interested in obtaining a financing product that is Sharia compliant and to those who qualify.