Sheikh Haitham al-Haddad: A Model for “True Islamic Finance”

Sheikh Haitham al-Haddad, of the United Kingdom, has been very active in analysing and critiquing some of the various models for Islamic finance that have appeared in the West.  I recently came across a fatwa from the Sheikh on particular scheme:

In this short fatwa, I would like to identify a scheme that I am confident provides a good model for true Islamic Finance. This scheme is provided by Ansar Housing Ltd. in Manchester ( and it is, so far, the best scheme that I have encountered. Given that Islamic guidelines concerning finance are fulfilled as far as is possible under present UK regulations, we can say confidently that it is an ideal scheme for Islamic home financing. The scheme adopts a unique system of joint ownership that fulfils the aims and objectives of Islamic finance. I urge both Muslims and non-Muslims to study it objectively and thoroughly in order to realise how true Islamic finance deals fairly with all parties to a transaction, both the weaker and the stronger. It is also important to notice how such a scheme ensures that the customer does not bear financial burdens beyond his ability, which is a major factor encouraging the over-indebtedness of so many individuals today. Moreover, this scheme does not link together several contracts nor does it impose obligations upon the customer in such a way that the end result is indistinguishable from an interest-based loan secured on the customer’s home. In conclusion, I would like to encourage Muslims and non-Muslims who dream of building a fair society, free from oppression by debt and its detrimental consequences, to try their best to ensure that schemes such as this are successful.

Ansar Finance describe their scheme as follows:

<meta content=" 2.0 (Linux)" name="GENERATOR" /><meta content="abutler" name="AUTHOR" /><meta content="20060906;453900" name="CREATED" /><meta content="abutler" name="CHANGEDBY" /><meta content="20060910;2335400" name="CHANGED" /><br /> <style type="text/css"> <!-- @page { size: 21cm 29.7cm; margin: 2cm } P { margin-bottom: 0.21cm } --> </style> <blockquote> <p align="left" style="margin-bottom: 0cm"> <p align="left">An Ansar member wishing to buy a house or re-finance his existing interest-based mortgage is required first to invest his savings (buy shares) in Ansar Housing Limited (“AHL”) for a certain length of time. Afterwards, upon fulfilling all the application requirements of the institution, he may locate and negotiate the purchase of a house with financial support from AHL under its diminishing musharakah contract.</p> <p align="left">AHL pays cash for the house and obtains legal title in its name. At this time the client transfers his investment in the institution to this house and becomes a co-owner. This process forms a partnership (<a href="" onclick="javascript:urchinTracker('/outbound/');"><em>Mudhaarabah</em></a>) relationship with the institution and the individual.</p> <p align="left">This partnership leases the house to the client at an agreed rent. According to the terms of the agreement between partners, the client may purchase extra ownership shares in the house at future dates and thereby in due course come to own the property in its entirety. The price of ownership shares is calculated by reference to the market value of the property. AHL will receive a specified percentage of any increase in property price but will share falls in property price according to its ownership share at the time the extra share purchase is made. Legal title of the house is transferred to the client upon his or her purchase of the final ownership unit.</p> <p align="left">During the term of this partnership the client pays rent for living in the house in proportion to the share ownership of the house. The institution’s share of the rent goes to AHL and the client receives (back) his own share.</p> <p align="left">The client is responsible for paying for repairs and maintenance. Some expenses of a capital nature are shared in a previously agreed ratio between the partners.</p> <p align="left">This model is most equitable and fair since both parties share the fluctuation (up or down) in the value of the property in a predetermined ratio. There is no prefixed time limit for increasing share ownership, thus providing maximum flexibility to the client. At the same time the client enjoys immediate savings in the rental payment in proportion to his increasing investment in the house.</p> <p align="left"> </blockquote> <p>There is the issue of double stamp duty which will affect buyers in states other than Victoria because title passes from vendor to bank and then from bank to vendor at the end of the contract, but the model does appear to be different to those currently on offer in Australia.  For example, the rental being fixed for the term of the contract, the acceptance of capital risk by the bank (the price of share purchase in the asset is calculated based on current market value rather than the financed amount), and the use of a ratio for some expenses.</p> <p><script type="text/javascript">SHARETHIS.addEntry({ title: "Sheikh Haitham al-Haddad: A Model for “True Islamic Finance”", url: "/2006/09/10/sheikh-haitham-al-haddad-a-model-for-true-islamic-finance/" });</script></p> </div> <!-- You can start editing here. --> <div id="comments"> <h3 class="comment_intro">8 comments ↓</h3> <dl id="comment_list"> <dt id="comment-811"> <span class="comment_num"><a href="#comment-811" title="Permalink to this comment">#1</a></span> <strong><a href='' class='url' onclick="javascript:urchinTracker('/outbound/');">Law Student</a> </strong>on 09.10.06 at 11:26 pm </dt> <dd class="entry"> <p>I had once read a fatwa by Yusuf el Qardawi in which he stated: for Muslims in Western societies it is permissible to get a mortgage.</p> </dd> <dt id="comment-814"> <span class="comment_num"><a href="#comment-814" title="Permalink to this comment">#2</a></span> <strong><a href='' class='url' onclick="javascript:urchinTracker('/outbound/');">dezhen</a> </strong>on 09.11.06 at 4:44 am </dt> <dd class="entry"> <p>That sounds like a very interesting approach, and quite different from what seems to currently be the norm…</p> </dd> <dt id="comment-819"> <span class="comment_num"><a href="#comment-819" title="Permalink to this comment">#3</a></span> <strong><a href='' class='url' onclick="javascript:urchinTracker('/outbound/');">Hood</a> </strong>on 09.11.06 at 7:23 pm </dt> <dd class="entry"> <p>“…is required first to invest his savings (buy shares) in Ansar Housing Limited (”AHL”) for a certain length of time. Afterwards, upon fulfilling all the application requirements of the institution…”<br /> Is this not stipulating a contract within a contract, I.e. I will not go into partnership with you to buy the house you want, until you invest in my company for X number of days, months, years.<br /> It would seem that the purpose is defeated.</p> </dd> <dt id="comment-820" class="author"> <span class="comment_num"><a href="#comment-820" title="Permalink to this comment">#4</a></span> <strong>Amir </strong>on 09.11.06 at 8:08 pm </dt> <dd class="entry author"> <p>Hood: If the contract to buy the house is formed one year after they invest and given there are a lot of unknowns preventing the contract from being made (not least of all that they don’t know what house they will buy or whether they will be able to afford to finance it in one year), then is it still two contracts in one? At best, it seems to me that they have a promise rather than a binding contract (in shariah terms).</p> </dd> <dt id="comment-824"> <span class="comment_num"><a href="#comment-824" title="Permalink to this comment">#5</a></span> <strong><a href='' class='url' onclick="javascript:urchinTracker('/outbound/');">Hood</a> </strong>on 09.12.06 at 6:24 am </dt> <dd class="entry"> <p>if the stipulation is mentioned upon intial contract, that they will not go into a “Musharakah” purchasing of the house until you invest with them for a certain amount of time, then it is still two contracts in one. Time/place constraints in the future, the issue is what is said in the contract at the time of contract.<br /> What you mentioned about the promise would be applicable if it was the other way around i.e. we’ll buy this house together and you promise me to invest later on, that may be acceptable according to some, but here the home owner is is need and he cant buy his house *until* he invests. So they are taking advantage of the need of the buyer, and the Messenger forbade “Bai’ al MuDtarr”<br /> I havent read the contract just to clarify, but from the outset it seems something is wrong with that stipulation.<br /> Allah knows best</p> </dd> <dt id="comment-825" class="author"> <span class="comment_num"><a href="#comment-825" title="Permalink to this comment">#6</a></span> <strong>Amir </strong>on 09.12.06 at 7:13 am </dt> <dd class="entry author"> <p>Good point. Jazak Allah khair. </p> <p>I suppose an alternative would be to not specify a time/place constraint and simply require people to become “members” of the institution before they can avail themselves of its services (i.e. musharaka or mudarabah). The amount they invest would be up to them, but when they come to formulate a musharaka agreement, the institute would assess their risk of default (of which their total assets, invested amount, length of the relationship, etc are a part) before agreeing to enter into a contract. In the mean time, their investment would be pooled with the other investments and used to fund other property purchases for other members — the profits then being distributed across the membership.</p> <p>Anyway, leaving aside the issue of the two contracts in one, the actual musharaka contract (as described by the website) does seem substantially better than some of <em>ijara wa iqtina</em> offered in the West (where the ijara rate is pegged to commercial interest rates and given to rise every six months or so). </p> <p>And Allah knows best.</p> </dd> <dt id="comment-828"> <span class="comment_num"><a href="#comment-828" title="Permalink to this comment">#7</a></span> <strong><a href='' class='url' onclick="javascript:urchinTracker('/outbound/');">Hood</a> </strong>on 09.12.06 at 8:50 am </dt> <dd class="entry"> <p>salam Alaikum</p> <p>Thanks Amir.<br /> No doubt, they do seem to be the better choise out there.</p> </dd> <dt id="comment-200900"> <span class="comment_num"><a href="#comment-200900" title="Permalink to this comment">#8</a></span> <strong>asaleh </strong>on 08.20.09 at 5:43 pm </dt> <dd class="entry"> <p>is there such a facility available in melbourne?</p> </dd> </dl> <!-- Comment Form --> <h3 id="respond">Leave a Comment</h3> <form action="/wordpress/wp-comments-post.php" method="post" id="comment_form"> <p><input class="text_input" type="text" name="author" id="author" value="" tabindex="1" /><label for="author"><strong>Name</strong></label></p> <p><input class="text_input" type="text" name="email" id="email" value="" tabindex="2" /><label for="email"><strong>Mail</strong></label></p> <p><input class="text_input" type="text" name="url" id="url" value="" tabindex="3" /><label for="url"><strong>Website</strong></label></p> <!--<p><small><strong>XHTML:</strong> You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong> </small></p>--> <p><textarea class="text_input text_area" name="comment" id="comment" rows="7" tabindex="4"></textarea></p> <p style="clear: both;" class="subscribe-to-comments"> <input type="checkbox" name="subscribe" id="subscribe" value="subscribe" style="width: auto;" /> <label for="subscribe">Notify me of followup comments via e-mail</label> </p> <p> <input name="submit" class="form_submit" type="submit" id="submit" tabindex="5" value="Submit" /> <input type="hidden" name="comment_post_ID" value="105" /> </p> <script src="/?live-comment-preview.js" type="text/javascript"></script><div id="commentPreview"></div> </form> </div> <!-- Close #comments container --> </div> <div id="sidebar"> <p id="rss"><a href="/feed/" title="Subscribe to this site's feed"></a></p> <ul class="sidebar_list"> <li class="widget"> <h2>Search</h2> <form method="get" id="search_form" action="/"> <input type="text" class="search_input" value="To search, type and hit enter" name="s" id="s" onfocus="if (this.value == 'To search, type and hit enter') {this.value = '';}" onblur="if (this.value == '') {this.value = 'To search, type and hit enter';}" /> <input type="hidden" id="searchsubmit" value="Search" /> </form> </li> <li id="recent-comments-3" class="widget widget_recent_comments"> <h2 class="widgettitle">Recent Comments</h2> <ul id="recentcomments"><li class="recentcomments"><a href='' class='url' onclick="javascript:urchinTracker('/outbound/');">JDsg</a> on <a href="/2006/12/01/the-horrors-of-halal/comment-page-1/#comment-287313">The Horrors of Halal</a></li><li class="recentcomments">Mulla on <a href="/2006/12/01/the-horrors-of-halal/comment-page-1/#comment-286752">The Horrors of Halal</a></li><li class="recentcomments">eib on <a href="/2006/12/01/the-horrors-of-halal/comment-page-1/#comment-255923">The Horrors of Halal</a></li><li class="recentcomments">eib on <a href="/2006/12/01/the-horrors-of-halal/comment-page-1/#comment-255922">The Horrors of Halal</a></li><li class="recentcomments">Mary on <a href="/2006/12/01/the-horrors-of-halal/comment-page-1/#comment-255615">The Horrors of Halal</a></li></ul> </li> <li id="recent-posts-2" class="widget widget_recent_entries"> <h2 class="widgettitle">Recent Posts</h2> <ul> <li><a href="/2009/11/07/the-situation-of-sunni-muslims-in-iran/" title="The situation of Sunni Muslims in Iran">The situation of Sunni Muslims in Iran </a></li> <li><a href="/2009/10/24/bnp-leader-on-bbc-question-time/" title="BNP Leader on BBC Question Time">BNP Leader on BBC Question Time </a></li> <li><a href="/2009/10/06/keysar-trad-why-should-polygamy-be-a-crime/" title="Keysar Trad: Why should polygamy be a crime?">Keysar Trad: Why should polygamy be a crime? 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