أنشئ حسابًا أو سجّل الدخول للانضمام إلى مجتمعك المهني.
In Islamic Finance, Islamic Bank owns the assets and let the client purchase the units over period of time and at the same mortgage the assets. Whereas in Conventional Finance Client owns the assets and mortgage with Bank.
It is totally different because Islam does not allow interest but it allow profit. this means when a seller is trading to make a profit he should also take a risk of making loss. When it comes to the interest in either way you have to gain money on top of money after taking the financing mortgage and you don't trade on with it still you have to pay the bank because the bank loan you and it takes no responsibilities on what you do with your loan.
EZ2 understand
Islamic Financing
House Value = $,
Sold to you for $,
Difference between value of the house and the price sold to you by the Islamic Bank = $, - $, = $, (Halal)
Down Payment = $,
Amount to be Paid in Years = $, - $, = $,
(Same as Traditional Bank)
Amount to be Paid every year = $,/ = $,
Amount to be Paid every month = $,/ = $
Traditional Financing
House Value = $,
Down Payment = $,
Mortgage Amount = $, - $, = $,
Variable rate5% for the first3 years, then becomes4% until the end of year7, than rises to6% until the end of year, then falls to5% until the end of year, and then becomes4% until the redemption date at year.
Interest Paid over Years = $,
(Reba)
Amount to be Paid in Years = $, + $, = $,
(Same as Islamic Bank)
That is it!
It is a standard definition of Musharakah; A joint enterprise or partnership structure with profit/loss sharing implications that is used in Islamic finance instead of interest-bearing loans. Musharakah allows each party involved in a business to share in the profits and risks. Instead of charging interest as a creditor, the financier will achieve a return in the form of a portion of the actual profits earned, according to a predetermined ratio. However, unlike a traditional creditor, the financier will also share in any losses.
Banks are doing practice without sharing in losses that's why it is same as Riba and it is conventional mortgage financing not Musharakah.
Islam prohbits to earn money apon lending money, Since it is called Intrest of Profit in Islam it is called Riba which is forbidden iin Islam,Conventional banks issue money to buy Home or Poperty by mortgaging the said property and earn intrest on installment.
While Islamic Banks introduce Musharkah in such mortgages type in which the Bank help buying the property and ecomes partner with the borrower in property and have the profit as the borrower pays the installment, this procedure does no fall into the catagory of Riba as the bank is not simply lending the money yet it becomes partner with the borrower and it is called Musharkah in Islam.
Conventional mortgage loans are interest-bearing, in conflict with Islamic Principles, and therefore prohibited by Shariah. This has presented difficulties for the finance industry and created barriers to homeownership for Muslims.
With a conventional mortgage, you borrow money to buy a house and then pay the money back over a number of years. You are charged interest on the money you borrow.
With Islamic home-buying facility, the bank share with you in purchasing the property and you then pay rent on the bank’s share of the property. Over time you will be able to purchase the bank’s share and reduce your rentals.
