Fatwa: # 15302
Category: Financial Transactions
Country: Pakistan
Date: 1st June 2007

Title

I had taken a loan amount of Rs. 350,000/- from an individual for construction of our home. My home value in local market is about Rs. 800,000/-

Question

I had taken a loan amount of Rs. 350,000/- from an individual for construction of our home. My home value in local market is about Rs. 800,000/-
Now I want to pay the full amount of loan Rs. 350,000/- immediately to that individual through any Islamic bank, and than I will pay to the bank in monthly installment.
What is the criteria in Islamic banking for this kind of problem, is any solution available in the sharia that I can pay the loan full amount to that individual through Islamic bank.


Answer

In the name of Allah, Most Gracious, Most Merciful

Assalaamu `alaykum waRahmatullahi Wabarakatoh

As understood from you query, you want a loan the amount of Rs 350,000 from an Islamic Bank and you will pay back the loan to the bank in monthly installments.  The concept of Ijarah can be applied to achieve this.

The method of this is in step processes are thus:

1. The client sells a percentage of his house equivalent to Rs. 350,000 to the Bank, let say 40%.  Now the Bank and the client are joint partners in the ownership of the house.  The client owns 60% of the house and the Bank owns 40%. 

2. Thereafter the Bank can charge the client rent for the usage of the Bank’s portion of the house.  A monthly rent can be fixed by the mutual agreement of the Bank and the client in regards occupancy of the 40% owned by the Bank.

3. Thereafter the portion of the Banks ownership can be divided into 4 units each representing 10% of ownership of the house.  The client can promise the bank that he will purchase one unit after ever three months, six months, year, etc.  Accordingly, he will purchase another 10% of ownership of the house from the Bank by paying 1/10 of the price of the house.  It will reduce the share of the Bank to 30% and increase his share to 70%.  Consequently, the monthly rent will also decrease since the portion of the Bank is less now.  This process will continue until the client becomes the sole owner of the house again.

This method allows the client to regain full ownership of the house and allows the Bank to receive a profit upon their original Rs. 350,000.

The laws of Ijaarah should be kept in mind.

And Allah knows best

Wassalam

Ml. Ehzaz Ajmeri,
Student Darul Iftaa

Checked and Approved by:

Mufti Ebrahim Desai
Darul Iftaa

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