Is practiced Islamic Finance a camouflage of Riba ? : is charging on credit sale Riba ?

Fatawa Question

Dear Br. Monzer Assalamu Alaykum Wa Rahmatu Allahi Wa Barakatuh Jazakallah. My question is regarding Islamic banking and finance. Islamic banking and finance has been picking up momentum since the last few years in the Middle East and some western countries also. It is getting into most of the fields where conventional banking has got its presence. Since Islamic Banking allows charging a higher rate for deferred payments than cash payments, most of its critics say it is Riba in the garb of Islamic finance and is therefore not Halal. e. g., if someone buys a house thru an Islamic finance institution, he pays an upfront amount followed by monthly installments, the total of which exceeds the value of the house. The same applies to all goods bought on the basis of hire purchase. The critics say the only difference is that the lender provides the house in this case but charges excess amount like conventional lenders. Since this concept (of Islamic finance or investments) is relatively new, I assume there will be initial objections from skeptics and even well-meaning people whose intentions will be good but will still need some more details to clear their doubts. Hence my question and this communication that is following the initial question. Since Islamic finance mostly depends on Contracts of exchange and not investment, the real point of concern or discussion would lie in how to price the asset that is being sold on deferred payment basis, e. g., a house bought from a lender with cash value of $ 100,000 can also be directly bought from a builder on exactly the same terms. Let’s say an increment of $ 50,000 over a 15 year period. I have read that most Islamic lenders rely on LIBOR as a benchmark for assessing the incremental value of the asset. Is that a right way to do ? Secondly, the increment is also calculated taking into view the time from the initial to the last due date. In fact, I have recently come across a write up in Islamic-finance.com, where this issue has been dealt with in detail and unfortunately it has come to the conclusion that it is conventional bank lending with a slight change. I would be grateful to you if you could clear the doubts that arise out of these issues. Wassalam Tariq

Fatwa

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Publication Date

2009-02-26

Main Subjects

Financial and Accounting Sciences
Islamic Studies

Topics

• Islamic jurisprudence
• Islam
• Sales
• Financing
• Banking services

No. of Pages

2

Data Type

Fatawa

Language

English

Record ID

BIM-730784

• APA
• MLA
• AMA