4.

Islamic house financing

“If Muslims have the same orientation and motivation in finance as everybody else, they will end up

having the system that has resulted from other people’s choices, the one we call conventional financial

system. A genuinely distinctive system can emerge only out of a genuinely distinct orientation and

motivation, a different set of norms. If Muslims don’t have one, they do not need a different financial

system” (Siddiqi, 2006)

First of all the system, structure and ethics of the Islamic banking is quite unique in relation to

traditional counterparts. Islamic banking is administered and managed by the standards set

around Sharia (Islamic law). As stated by the Holy Qur'an, riba (interest and usury) is strictly

disallowed [2: 275-281]. According to the Islamic financial system any kind of exchange that

involved interest is haram (forbidden by Islamic law). In addition to that a ruling was made by

the Supreme Court in Pakistan that, “any extra sum over the principal in an agreement of loan or

debt is the Riba and it is prohibited by the Holy Qur'an" (Usmani, 1999). A similar judgment is

characterizing the Riba (interest) as demanding the foreordained profit for advance regardless of

the reason. Moreover the views of Muslim scholars are that, under Islamic financial system

interest based financing is prohibited (IFA resolution 10 (10/2)2. Subsequently, Muslim

researchers and financial specialists have composed interest free financing and exchange

components inside the Sharia (Islamic law).

House financing is given under the standards of an uncommon reason organization by and large

known as Decreasing Musharaka. As indicated by Sharia standard 12 "Lessening Musharaka is a

type of association in which one of the accomplice guarantees to purchase the value offer of the

other accomplice bit by bit until the point when the title to the value is totally exchanged to him"

Under Decreasing Musharaka game plan understanding is required; verbal or composed; capital
is contributed by the two gatherings in trade or out kind; profit is shared as per agreement while

misfortune is shared by share in value; cost of repair and support, protection and so forth are

shared by the two gatherings; one accomplice (IFI) leases his offer in advantage for other

(customer) for a thought. Contract of purchasing and offering of value units between

accomplices can't be stipulated in Diminishing Musharaka contract; cost of units to be sold and

obtained is reasonable esteem or else as concurred between parties yet confront estimation of

units can't be stipulated (Sharia Standard 12).

The reward sharing is as indicated by capital commitment or as might be concurred however any

misfortune to the property is to be shared by both the gatherings as indicated by their value stake

at the season of misfortune. However this is Lessening Musharaka, when customer is obtaining

value units of IFI the offer in lease is likewise diminishing. The portion installment incorporates

offer of lease and price tag of a value unit. Over the time value of IFI is diminishing and share in

rentals is likewise diminishing. With the buy of last value unit the offer of IFI arrives at an end

and property in general is moved for the sake of proprietor. Second is the situation of

development of property by the customer rather than buy. As a guideline of Musharaka return

(rentals) for IFI will due once the property is useable. As a general practice estimation of the

built house is higher than its cost under ordinary conditions. IFI and customer can close a value

covering the benefit for IFI at the season of finish of property. For this situation IFI should get

the arrival in type of lease after culmination of house and furthermore benefit over cost for the

time of development, being accomplice in the development