Home Financing

Answered by Shaykh Taha Abdul-Basser

Question: What are the principles to be used when getting a home loan that is in accordance to the Shariah from the various Islamic Banks?

Answer: Al-hamdu li-llah wa-s salatu wa-s salamu `ala sayyidina muhammad wa-`ala alihi wa sahbihi wa-man ihtada bi-hadyihi ila yawm d-din

There are several principles that one should be aware of and attempt to apply when going about obtaining property financing from a Shari`a-compliant financing institution:

1. Intention

1.1 As is the case for all acts of obedience (ta`at), one should make the effort to obtain financing from a Shari`a-compliant financing entity for Allah’s sake, wanting to please Him by sticking to the permissible (halal) and avoiding the impermissible (haram).

2. Choosing a Financing entity

2.2 One should restrict oneself to a financial institutions that have each engaged a Shari`ah review board (/hay`at al-riqaba shar`iyya/). A Shari`ah review board is a independent body, composed of 3 or more /fuqaha’/  who specialize in and are known for their expertise in the application of /fiqh/ to contemporary financial issues.  The Shari`ah review board advises, examines, audits and monitors the products and services that the financial institution offers for compliance with the precepts (/mabadi’/), established principles (/qawa`id/) and ethico-legal values (/ahkam/) of the Shari`ah.

1.3 One should look for and prefer to do business with financial institutions that openly commit themselves to adherence to the AAOIFI (Auditing and Accounting Organization of Islamic Financial Institutions) Shari`a Standards. The AAOIFI Shari`a Standards are painstakingly drafted by a council of leading /fuqaha’/. They document the preponderant (/rajih/) and adopted (/muqarrar/) /fiqh/ positions that are 1) the basis for actual practice and 2) form the content of the ethico-legal /responsa/ of our leading specialist-fuqaha’ in the area of the application of /fiqh/ to contemporary financial issues.

1.4 One should restrict oneself to financial institutions that publish (e.g. on their website) their Shari`ah review boards’ certificate of compliance (CoC), i.e. the /fatwa/ that states that a set of products or services as Shari`ah compliant, i.e. halal (permissible).

[Ref: AAOIFI Shari`a Standards, AAOIFI, Manama, Bahrain, n.d.]

And Allah knows best.

Wa s-salam.
The Needy Slave of Allah
Taha Abdul-Basser
Framingham, Massachusetts
6 Muharram 1431

Notes

1. Since the banks and financing companies that offer Shari`ah compliant property financing do not *lend* money, per se, but typically finance the acquisition of property through various sales-based transactions, “home loan” is not technically correct. Rather “home financing” or a similar term is more accurate.