Yes I know this topic has been beaten to death but I didn’t pay attention the last time. Plus, we have a new crowd on GS, so here we go again!
So we have Islamic financing institutions such as Lariba who help you finance your home purchase without getting you under the obligation of “interest.” They have a philosophy that has been endorsed by scholars over the board and they have been operating successfully for many years.
Given that none of us our scholars here, we must have our own understanding of this concept, so explain clearly how this is indeed Islamically correct, what are the key points that make this better than the regular loans most people take.
i know about diminishing musharika model..here it is in few steps
You and bank are co-owners and also landlord (bank) and tenanant(you)
you pay a fixed amount to bank per period.
rental = purchase price of share in property + rent as tenant for using other's property
-first the bank buys 100% of the property and you have 0%
-since you are living in a house owned by the bank...so you pay him rent ..
-alongwith rent you also pay him some more to buy a share in property
-gradually as you keep buying share of the property more n more, the payment for rent decreases (and larger portion of the payment goes towards purchasing the rest of the share in property)
-by the end of the term...you end up buying the whole of the property i.e 100%
So it is just like a conventional lease in its structure..as in
there is a principal portion (purchasing share in the property) and markup (rent for using the property as tenant)
on the surface the actual things seem almost identical.....but on the back end the islamic banks 'claim' that their products are islamic...which would seem logical in many cases.....(for example the above case where the actual methodology is quite similar but how u view it is different)
the actual difference is at the back-end.... the islamic banks claim that they will give the excess amount charged as charity which conventional one's don't do.....and that they are doing stuff which is shariah compliant but delivers you the same goods as conventional..meaning thereby that you dont have to suffer due to a poorly designed package.....the goodies will be the same but compliant..
i myself still think that islamic banks are not truly islamic yet...because their pricing mechanism is based on interest rates.....but still i would prefer those to the conventional ones....at least there might be some element of halal in them....even if not 100% halal.