No, Meezan bak doesn’t provide you an interest free loan i.e the bank should give me money for x years and expect the same amount in return after x years. No they don’t do that.
For example, the modarba product is basically same as business loan + fixed interest. The bank just named the fixed interest as “profit” and instead of providing the loan so that you buy the product with it, the bank buys the product directly and sell it to you for a fixed profit (fixed interest really). Again, ask how they reached this “fair” profit? The real answer is that it depends on interest rates for the loan duration.
For all these so called Islamic mortgages, what banks do is they label “interest” as “rent” which goes back to my original question as to why can’t people rent money (since it is an asset like other assets). The reason why this rent is just interest in sheep’s clothing is:
- The amount of rent doesn’t depend on local rental values of similar properties but instead varies as bond/interest rates change.
- If the value of the house goes down during the partnership, the bank doesn’t share the loss
- If the value of house goes up during the partnership, you don’t share the profit with the bank
- Like normal rentals, does the bank provides 80% of maintenance bills? no.
- Don’t know about Meezan but the Islamic mortgage brokers in US use the applicants FICO credit score to determine the eligibility of a person to go in partnership with and also to determine the amount of “rent” (interest rate).
Doesn’t all this sound eerily similar to a normal mortgage or a normal business loan? The only difference is that a normal loan is cheaper (because of competition) but these Islamic loans are often expensive as compared to market loans. There is a lot of money to be made in Islamic banking because Muslims are willing to pay extra money so that they can feel good that they didn’t violate their religion. These banks pay good money for scholars to issue fatwas to approve their products.