Under Islamic Sharia law , making money from money by charging interest is deemed unfair and is not permitted. Sharia Law’s terms include strict limits on insurance, as well as other restrictions on financial services and trading.
Some provisions have been included in a new Finance Bill in Ireland to cover financing arrangements compliant with the principles of Sharia law. The bill also extends the tax treatment applicable to conventional finance transactions to Sharia compliant transactions.
Islamic equity funds are a growth industry and their assets are estimated to be €3.5 billion worldwide.
Buying Property Under Sharia Rules :
There are three models of Home Purchase Plans (HPPs):
Ijara, which means ‘lease’ in Arabic;
Musharaka, which means ‘partnership’;
and Murabaha, meaning ‘profit’.
Depending on the model, the lender will levy rent or add profit to the amount you pay back instead of charging interest.
An Ijara is a lease-to-own plan: the bank purchases the property you want then leases it out to you. At the end of the lease the bank transfers ownership of the property to you.
Under a Musharaka plan you buy the property jointly with your provider and gradually buy them out. So if you put down 10 per cent of the purchase price, the bank will buy the remaining 90 per cent. You pay the bank monthly rent on the share you don’t own as well as buying more shares in the property with each monthly payment, with a view to owning the property outright at the end of the term. The more shares you own, the less rent you pay to the bank, and the cost of a share in the property is based on the property’s original cost price, not its market value.
In a Murabaha plan, the bank will buy the property you want then immediately sell it on to you for a profit. You then pay fixed monthly repayments on the higher price, but with no interest to pay back to the bank. So the bank might buy a property that costs £200,000 and sell it on to a customer for £250,000; the customer then pays that sum back over a fixed term.
In the UK The selling of HPPs came under the Financial Services Authority’s regulation in 2007 – , so buyers get the same protection as if they taken out a conventional mortgage. All Islamic finance providers in the UK use the Libor index as the benchmark for rental payments.
Irish banks are not complete strangers to Sharia finances.In 2004 – Bristol & West, one of the leading mortgage providers in the UK and part of the Bank of Ireland Group, launched the Alburaq Islamic home finance facility.
Islamic finance products are not just for Muslims – around 2 per cent of the Islamic Bank of Britain’s customer base are non-Muslim and don’t choose the bank for religious reasons, but for ethical ones. Islamic banks will not invest in firms involved with gambling, alcohol, tobacco or pornography.
In Ireland the Irish Housing Corporation (IHC), started offering Sharia compliant “no interest” 12- to 15-year home loans on properties owned by their development company in late 2009.
In 2018 – Community Finance Ireland in conjunction with Philip Lee Solicitors, launched a product to market, which aimed to provide an ethical solution to community lending, compatible with the requirements of Shari’ah law.