Article by Michael Challiner

Two million Muslims in Britain face an ethical dilemma if they want a mortgage or loan. Mortgages and loans require the payment of interest and “riba” as interest is called under Islamic law, is prohibited by the Koran.

British financial institutions are increasingly catering for the needs of Muslim scholars through a number of alternative arrangements that respects the teachings of the Koran. Here are just two of them:

Ijara with diminishing Musharaka – the mortgage alternative

Ijara with diminishing Musharaka is an Islamic alternative to a conventional UK mortgage market and was adopted by the British many years. Banks and building societies.

In essence, Musharaka means partnership. Under the concept of Islamic finance, the bank buys the house and its owner is legally. Then, in the pre-agreement, say 25, is a monthly payment. Each monthly payment includes a charge for the rental and a charge that buys a small part of the house itself. It is in the form of a joint plan with the variable part of the equity of the house will be heard by the buyers is steadily increasing as payments are made. Once the final payment is made, the house is freehold. Ijara

Here you can tell the bank or financial institution, what you want, for example, a car, buy it and the. In exchange for a monthly payment that the cost of capital of the bank, the bank covers so you can use to make the asset for an agreed period. In reality it is a form of leasing

Islamic finance is not widely available in the UK – where they can find? Here are three suggestions: introduced

In recent years, the Lloyds TSB Islamic products to 33 of its stores. His spokesman said: .. “It is important to look for our customers that we are on the correct procedures, we have a group of four Islamic scholars who over-see the products you offer a guide on Islamic law and verification of products”. ” / P>

For your interest, we show below are definitions of some words often used in conjunction with the Islamic finance

A glossary of certain terms of Islamic financial world

Amanah: .. Means of reliability aspects associated with loyalty and honesty. As a further central importance Amanah also describes a business, if a party holds funds or property of another in trust. This application actually the most widely used and understood the term, with a long history of use in Islamic commercial law. It can also be used to describe the various financial activities such as deposits, custody or goods on consignment

Arbun. Means of filing. This is a non-refundable deposit to the seller by the buyer on the agreement of a purchase contract with a company that the purchase contract will be completed agreement on the time

gharar. This means uncertainty. It is one of three basic prohibitions in Islamic finance (the others being riba and Mays). Gharar is a difficult concept that certain types of uncertainty or contingency in a contract includes. The ban Gharar often used as a ground for criticism of conventional financial practices such as speculation, derivatives and short selling contracts

Islamic Financial Services / Islamic Banking / Islamic Finance. Means financial services that meet the specific requirements of Islamic law or Sharia. Although designed to meet Muslim clerics, Islamic finance is not limited to Muslims. Both the client and service providers, non-Muslim and Muslim

Ijara. Means an agreement leasing Islamic. Ijara allows the financial institution a profit by charging rent instead of lending money and they deserve to earn interest. Ijarah concept expanded to rent and purchase contracts Ijara wa iqtinah

Mays. Means of games. It is another of three fundamental prohibitions in Islamic finance (the other two and Gharar riba). The prohibition of maysir is often the basis of criticism of standard financial practices such as insurance, speculation and derivatives classic

Mudarabah. A Mudarabah is a form of investment partnership. Here the capital is the investor (the Rab ul time) provided the other party (the Mudarib) to undertake a business or investment. The profits are then distributed according to previously agreed shares, but any loss on the investment is born exclusively by the investor and the expected return mudarib loses share

Mudarib. The mudarib is the investment manager or entrepreneur in a Mudarabah (see above). It is this responsibility to managers of the investor money in a project or portfolio in exchange for a share of the profits to invest. A Mudarabah is substantially similar to a diverse pool of assets in a traditional portfolio of investments managed discretionary place

Murabaha. Means of purchase and resale. Since lending money to meet the investor buys the assets or products required (otherwise they would have taken out a loan) by one third. The asset is then resold at a higher price in the user interface of the capital. By paying this higher price brackets, the user gets capital effectively credit without paying interest. (See also the opposite of tawarruq murabaha.)

Musharaka: This means profit and loss sharing. It is a partnership where profits are shared in agreed proportions before and losses are shared in proportion to each partner or investment loans. In Musharakah perform all partners, corporations have the means and the right, but not the obligation, to exercise executive powers in this endeavor. There is a concept similar to a conventional partnership and the holding of the voting shares of a company. . Musharakah is considered the purest form of Islamic financing

Riba: This means interest. The legal concept extends beyond interest, but in simple terms, riba covers any return of money on money. It does not matter whether the interest float or floating, simple or compound, or what rate. Riba is strictly prohibited by Islamic law ..

Sharia is Islamic law as the Qur’an and the example of the Prophet Muhammad is revealed (peace be upon him). Sharia any of the products, all requirements of Islamic law. To facilitate this, a Shariah board is usually appointed. . This board meetings and committee of Islamic scholars is generally available to the organization of guidance and supervision for the development of Shariah-compliant products

Shariah advisors together: an independent professional, usually a classical scholar Islamic law, has appointed an Islamic financial institution on compliance of their products and services with Islamic law, to advise the Sharia. While some organizations to consult individual Shariah advisers, most of a committee of Shariah advisers (often known as Shariah committee or Shariah consultancy known)

Shariah-compliant. Refers to the activity that ensures that the requirements of sharia, or Islamic law must be respected. The term is often used in Islamic banks as a synonym for “Islamic” – for example, Shariah compliant financing or Shariah compliant investment

Sukuk. It has properties similar to conventional bonds. The difference is that they are backed and a sukuk represents proportionate beneficial ownership in the underlying. The asset is then leased to the customer, the profit on the

takaful revenue sukuk. This is Islamic insurance. Takaful plans are designed to prevent the characteristics of conventional insurance (ie interest and gambling) that are so problematic for Muslims. They structure the arrangement as a charitable collective pool of funds to help mutual Comcept

Tawarruq. When used in personal finance, a customer buys something with a need for cash on a deferred payment credit. The client then immediately sells the items of money to third parties. The client receives the money, interest free loans. Tawarruq is the opposite of Murabahah.

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Two million Muslims in the UK face an ethical dilemma if they want a mortgage or a loan. Conventional mortgages and loans all require the payment of interest and “riba” as interest is called under Islamic law, is forbidden by the Koran.

British financial institutions are increasingly catering for Muslims’ specialist needs through a number of alternative arrangements that respects the teachings of the Koran. Here are just two of them:

Ijara with diminishing Musharaka – the mortgage alternative.

Ijara with diminishing Musharaka is an Islamic alternative to a conventional UK mortgage and has been adopted by several British banks and building societies.

In essence, Musharaka means partnership. Under this Islamic financial concept, the bank buys the house and legally becomes its owner. Then throughout the pre-agreed period, say 25 years, a monthly payment is made. Each monthly payment includes a charge for rent and a charge that buys a small proportion of the house itself. It’s form of variable shared equity plan with the proportion of the house being owned by the purchaser, steadily increasing as payments are made. Once the final payment has been made, the house is owned outright. Ijara

Here you tell the bank or financial institution what you want, for example a car, and they buy it. In return for a monthly payment that covers the cost of the bank’s capital, the bank then allows you to use the asset for an agreed period. In reality, it’s a form of leasing

Islamic finance is not widely available in the UK – so where can find it? Here are three suggestions:

Over the last few years Lloyds TSB has introduced Islamic products to 33 of its branches. Their spokesperson says, “It’s important for our customers to see that we are following the right procedures. We have a panel of four Islamic scholars who over-see the products. They offer guidance on Islamic law and audit the products”.

Another high street bank, HSBC, is developing a special range of Islamic products under the Amanah brand name. This range includes home finance plans, home insurance, commercial finance, and various current accounts and pensions. Hussam Sultan, the Amanah product manager says, “As a bank, we are not here to moralise or tell our customers that Amanah finance is the way to please Allah. We’re just here to provide them with a choice”.

The Islamic Bank of Britain has three branches in London, two in Birmingham and one each in Leicester and Manchester. They’re the only British bank specifically providing for Muslim customers and claim to be halal throughout their operations. All their financial products are approved by their Sharia’a Supervisory Committee – all Muslim scholars who are experts in all aspects of Islamic finance.

For your interest we show below, definitions of some words used widely in connection with Islamic finance.

A Glossary of selected Islamic words used in finance.

Amanah : Means trustworthiness, with associated aspects of faithfulness and honesty. As a central supplementary meaning, amanah also describes a business deal where one party keeps another’s funds or property in trust. This actually the most widely used and understood application of the term, having a long history of use in Islamic commercial law. It can also be used to describe different financial activities such as deposit taking, custody or goods on consignment.

Arbun : Means a down payment. It’s a non-refundable deposit paid to the seller by the buyer upon agreeing a sale contract together with an undertaking that the sale contract will be completed during a prearranged period.

Gharar : This means uncertainty. It’s one of three essential prohibitions in Islamic finance (the others being riba and maysir). Gharar is a sophisticated concept that encompasses certain types of uncertainty or contingency in a contract. The prohibition on gharar is often used as the grounds for criticism of conventional financial practices such as speculation, derivatives and short selling contracts.

Islamic financial services / Islamic banking / Islamic finance : Means financial services that meet the specific requirements of Islamic law or Shariah. Whilst designed to meet specific Muslim religious requirements, Islamic banking is not restricted to Muslims. Both the customers and the service providers can be non-Muslim as well as Muslim.

Ijara : Means an Islamic leasing agreement. Ijarah permits the financial institution to earn a profit by charging leasing rentals instead of lending money and earning interest. The ijarah concept is extended to hire and purchase agreements by Ijarah wa iqtinah.

Maysir : Means gambling. It’s another of three fundamental prohibitions in Islamic finance (the other two being riba and gharar). The prohibition of maysir is often used as the basis for criticism of standard financial practices such as conventional insurance, speculation and derivative contracts.

Mudarabah : A Mudarabah is a form of Investment partnership. Here, capital is provided by the investor (the Rab ul Mal) to another party (the Mudarib) in order to undertake a business or investment activity. Profits are then shared according to pre-arranged proportions but any loss on the investment is born exclusively by the investor and the mudarib then loses the expected income share.

Mudarib : The mudarib is the investment manager or entrepreneur in a mudarabah (see above). It is this managers responsibility to invest the investor’s money in a project or portfolio in exchange for a share of the profits. A mudarabah is essentially similar to a diversified pool of assets held in a conventional Discretionary Managed Investment Portfolio.

Murabaha : means purchase and resale. As opposed to lending money, the capital provider purchases the required asset or product (for which a loan would otherwise have been taken out) from a third party. The asset is then resold at a higher price to the capital user. By paying this higher price by instalments, the capital user effectively gets credit without paying interest. (Also see tawarruq the opposite of murabaha.)

Musharaka : This means profit and loss sharing. It’s a partnership where the profits are shared in pre-arranged proportions and any losses are shared in proportion to each partners’ capital or investment. In Musharakah, all the partners to the commercial undertaking contribute funds and have the right, but without the obligation, to exercise executive powers in that undertaking. It’s a similar concept to a conventional partnership and the holding of voting stock in a limited company. Musharakah is regarded as the purest form of Islamic financing.

Riba : This means interest. The legal concept extends beyond interest, but in simple terms, riba covers any return of money on money. It does not matter whether the interest is floating or floating, simple or compounded, or what the rate is. Riba is strictly prohibited under Islamic law..

Shariah : This is the Islamic law as disclosed in the Quran and through the example of Prophet Muhammad (PBUH). A Shariah product must meet all the requirements of Islamic law. To facilitate this, a Shariah board is usually appointed. This board or committee is usually comprised of Islamic scholars available to the organisation for guidance and supervision for the development of Shariah compliant products.

Shariah adviser : Means an independent professional, usually a classically trained Islamic legal scholar, appointed to advise an Islamic financial organisation on the compliance of its products and services with Islamic law, the Shariah. While some organisations consult individual Shariah advisers, most establish a committee of Shariah advisers (often known as a Shariah committee or Shariah board).

Shariah compliant : Means the activity that ensures that the requirements of the Shariah, or Islamic law are observed. The term is often used in the Islamic banking industry as a synonym for “Islamic”- for example, Shariah compliant financing or Shariah compliant investment.

Sukuk : This has similar characteristics to a conventional bond. The difference is that that they are asset backed and a sukuk represents the proportionate beneficial ownership in the underlying asset. The asset is then leased to the client to yield the profit on the sukuk.

Takaful : This is Islamic insurance. Takaful plans are designed to avoid the characteristics of conventional insurance (i.e. interest and gambling) that are so problematical for Muslims. They structure the arrangement as a charitable collective pool of funds based on the comcept of mutual assistance.

Tawarruq : When used in personal finance, a customer with a cash requirement buys something on credit on a deferred payment basis. That customer then immediately resells the item for cash to a third party. The customer thereby obtains cash without taking an interest-based loan. Tawarruq is the opposite to murabahah.