There are several complicated Arabic terms used in Islamic financing. Although it changes depending on different situations, riba is usually defined as interest. Here’s a few things that you should know about how this term applies to mortgages, loans and other business applications.
Taken literally, it means either growth or increase. However, when it comes to sharia compliance, the word usually covers two concepts.
Riba Al Nasia
It also covers a contract were a lender is repaid a little extra because there’s been a delay in repaying a debt.
Riba al Fadl
It can also refer to exchanging two different amounts of the same products.
These explanations aren’t meant to be confusing. There’s a difference between riba and profit. For example, in Islamic financing, a bank cannot charge any interest. However, when it comes to the repayment of something like a mortgage, they take out an equity stake and rent their portion. Here the Islamic bank takes on part of the risk if there is a loss.
Here’s a few other ideas that you should know about.
Usury is another term that Islamic financing steers clear from. It’s a situation where an excessive amount of interest is charged. Payday lenders are a good example. Islam makes no distinction between interest and usury. Both are haram.
The idea behind Islam is to build up communities which are based on empathy, selfishness and goodness. The idea is to promote practices that help lessen the differences between the poor the rich in any society.
More Ways To Avoid This Issue
Here are a few ways to avoid riba and stay sharia compliant.
- When you decide to buy a house, make sure the mortgage payment is riba free. One way to avoid any issues is look for ijara loans. These involve a trust which is a workaround for interest payments. It involves Islamic financing that is usury free.
- Leasing is an excellent option when you are looking at equipment you might need for a business. Getting involved here means having a contract called the bank lease rental. The bank keeps the ownership of the equipment over the agreed term. At the end of that timeframe, it sells the equipment for a small price.
Ijara Community Development Corp. understands how people want to realize the American and Canadian dream while adhering to their religious faith. We know there are lots of different items for you to think about when you’re deciding on a transaction as big as a home.
That’s why we supply different financing alternatives that can help. We are proud to supply sharia compliant financing options that are riba free. Our relationship with license providers means clients get financial solutions in Canada and the United States.
Buying a home for your family using our riba free financing alternatives has many bonuses. Along with transparent transactions, we deal with credible, reliable investors who offer competitive rates and fees. Get in touch with us today to learn more about your Islamic financing options.