Conventional Home Finance Islamic Home Finance Law Land Property Essay

Published Date: 02 Nov 2017

1.A

Conventional Housing finance is a bank providing a pure interest based loan. In conventional house financing, the bank extends a loan to a borrower it buy a house and charges interest. Over here repayment take place over the life of the loan.

Islamic house finance is sales and purchase that means the bank buys the house first and then sells it an agreed profit. The sale can either be a bullet payment for cash or seller agrees to sell the property on an installment basis factoring in a fixed profit over a certain period of time.

Islamic Finance

The rental reflects capital redemption

Mark up priced in

Conventional home finance Islamic home finance

Financing principle Bank Loan Sale and purchase

Profit vs interest Interest Charged Mark up priced in

Ownership Consumer has title Financier has title

2A.

Conventional house finance : Interest margin . Here Bank extends a loan at a premium that means interest rate varies according to the risk and interest rate outlook.

Islamic house financer: Profit Margin : Here both parties agree to a certain amount of profit arising from the sale and purchase .The profit should be earned in full even if full payment is settled prematurely.

3A.

Conventional Finance : In a conventional loan secured by a advance , Here the consumer has ownership but not title.

Islamic house finance : the title is with the financier. It transfer to the consumer with a lien or advance granted

4A.

To be a sharpie’s compliant loan , the following principle need to apply

The loan must be free from a requirement by the borrower to pay interest, This does not , however, mean that Shari’s law prohibits the concept of borrowing – rather the reverse. Provided that the loan stimulates productivity in the economy, rather than the making of more money from money.

The loan needs to demonstrate that the risks are shared fairly between the parties. A predetermined return to the lender, regardless of whether the transaction makes a profit, is not Shari’s compliant.

The loan must provide assistance a society by helping in the production of trade services and most commodities. The production of certain commodities is strictly banned, such as pork or alcohol

There must be a single contract

The form and substance distinction is important

Late payment is another issue

5A.

Murabaha is a form of asset finance that involves the lender purchasing the asset, back to back with

A sale of the asset , to the borrower, at an increased price. This increased price usually reflects the interest that would otherwise be payable.

6A.

There is a key point of difference between Murayama and Ijara. In Murayama the actual sale should take place after the client takes delivery from supplier and any previous agreement of Murayama is not enough for effecting the actual sale . Therefore , after taking possession of the asset under the agency agreement ,the agent is bound to give intimation to the institution and make an offer for the purchase

Form him. The sale takes place after the institution accepts the offer.

The procedure is leasing is difference and a little shorter . Here the parties need not effect the lease

Contract after taking delivery. If the institution , while appointing the client as its agent, has agreed to lease the asset . There are two reason for this difference between Murayama and Ijara. first , it is a necessary condition for a valid.

Sharma’s sale that it should be effected instantly. There for any previous agreement is not sufficient in the case of marabaha, whereas. it is quite acceptable in the case of leasing.

Second, the basic principle of sharia'a is that one canot claim a profit or a fee for a property , the risk on which was never borne. Applying this principle to Marabaha, the seller can not claim a profit over a property that never remained under his risk for a moment. Therefore, If any previous agreement is held to be sufficient for effecting a sale between the client and the institution, the asset shall be transfered

to the client simultaneously when he take s its possession and the asset shall not come into the risk of the seller even for a momnet.

7A.

The ijara wa iqtina contract allows small, medium, and large-scale business owners to enjoy the benefits of using an asset or a piece of property without having to buy it. This is especially helpful to cash-strapped business owners who do not have the funds to buy a piece of equipment or machinery for their production purposes and yet would like to use it to reap its benefits.

The specific features of an ijara wa iqtina contract especially appeal to business owners who presently have the need for a piece of expensive equipment but do not wish to buy it because it has a poor resale value.

The option of being able to transfer the ownership of an asset is also beneficial for the lessor, because it means that it is not saddled with the responsibility of owning an asset at the end of the leasing period.

The lessor gets to realize the entire purchase price of the asset; that is, the lessor also benefits from entering into the ijara wa iqtina contract.

The simplicity and transparency of the financial transactions and the benefits to be realized by both the lessor and the lessee are the reasons why the ijara wa iqtina contract is one of the most favored amongst all forms of ijara.

8A.

Our IjaraTM Home Financing Program was created by a Board of Internationally recognized Shariah Scholars since 1996. The program complies with Islamic Finance Guidelines and is free of both types of Riba and also Gharar.

The program is called "Lease to Purchase" (Ijara wa Iqtina). The Lease to Purchase or Lease to Own contract blends many of the concepts used by traditional lending institutions. The architects of the Ijara Contract used here were guided by three basic principles:

to create interest-free financing,

to structure the Ijara Contract so it upholds the basic rights, duties, and obligations found in a traditional home mortgage, and

to retain the income tax deductibility benefits of the traditional home mortgage.

9A.

1. Ownership:

Who owns the asset after the lease contract?

2. Risk bearer:

After the agreement on lease contract, the risk of ownership lies

with whom?

3. Starting time for rental obligation:

When would the rental obligation start, after the agreement on

lease contract?

4. Usefulness of property:

What is the minimum useful life of the property?

5. Penalty:

Can penalty be charged if lessee fails to fulfill the obligation?

6. Repossession of an asset:

Is repossession of an asset allowed at predetermined/bargain price?

7. Asset has value upon completion of leased period:

Does asset hold value upon completion of leased period?

8. Premature termination: Is premature termination allowed if the lessee has violated or

contravened the terms of the lease?

9. Effect of premature termination:

Are all the obligations that are still executory on both sides

considered discharged as a result of premature termination?

10. Sale and lease back as one transaction:

Could sale and lease back be completed under one transaction?

11. Determinant of rent:

On what basis has rent been determined?

12. Equivalent to a sale:

Is lease equivalent to a sale?

10A.

Musharaka in Arabic means "partnership", so a diminishing musharaka is a diminishing partnership, in the sense that a home buyer and his/her bank are partners in the purchase of the home. The diminishing musharaka contract generally provides for the home buyer to contribute a deposit, while the bank pays the rest, and the two become co-owners of the home. The home buyer lives in the house, paying rent to the bank as well as regular scheduled purchases of "units" of the bank's share of the house. As the bank's ownership decreases/diminishes, the rent decreases accordingly, until the home buyer has bought out the bank and owns the house outright