Ijara Q & A

Questions About Islamic Loans and Other Concerns

What fees would we expect to pay upon the renewal of the agreement after the term had expired?

None if you continue with the same investor, if you don’t agree with the terms offered and want to go with a different investor, there could be some additional costs.

How do you know an Islamic loan method or contract is Shariah compliant?

This is important. We recommend you look to the Shariah scholars who have an expertise in financial and commercial transactions. For instance, does your provider of an Islamic finance service have a fatwa or relevant supporting opinions? Can your provider point you in the direction of a knowledgeable resource person or text, someone or a resource to approach in person, by mail, or online?

If I still have questions after reading this or other IJARA™ related literature, can my lawyer or I go over the documents in order to be more clear about the system that makes our contract halal?

If you wish to read the primary documents individually, we will send a Non-Disclosure Agreement you can sign before we forward the files about your Islamic loan. The document is not to be given to third parties, banks, people who might wish to go into this business, competitors, or dealt with in a way that would accidentally allow these types of people to acquire our proprietary material without making the research and expense that we have, let alone share our concern for Shariah compliance.

How can we tell whether a company has a valid fatwa?

A copy will have the names of the approving scholars and their signatures. If they are unknown to you, you should be able to verify their relevant training and capacity to opine on various matters relating to Islam and Islamic finance.

How can we know if the scholars providing the fatwa are qualified?

Certain scholars are well known and their certificates or ijazas are publicized. Others may be qualified, but less well known. Asking for their bio-data, ijazas, or other information will help you have comfort in their opinions.

Is the property purchased by Ijara and then leased to me or is Ijara a broker, managing the trust between the lender and the buyer?

The property is purchased by the trust and then leased to you. Ijara Payment processing will than manage the payment processing of rent from you to the trust.

If I decide to renovate, do I put in the cost? What is Ijara’s role in renovation?

You have all the rights of a regular home owner, so if you wanted to make any changes in the home, it is your option. You don’t need to report to Ijara in order to do so. You will be responsible for any costs associated with renovations.

In case of the default of the payment, what are the usual procedures under the Sharia compliance?

If you default the investor, the investor will try to get their investment back and recommend you to sell the property, if you are not able to do so they will sell the property themselves.

Under whose name is the property in when I rent from Ijara and can the property hold my mother’s name when I paid off the loans?

The property will be held in a trust. So let’s say your property is located on 123 Main St, the name of the trust will be 123 Main St Revocable Trust.

The beneficiary initial is you, so when the house is paid off, the property will go under your name, but if you wanted the property to go under your mom’s name, you can have her as a beneficiary.

There is also what is called a successor beneficiary that can only obtain the property if you pass away. Many people add on this beneficiary if they have children, so that the property will automatically to their children without having to have a will. (maybe a little more info than you need, but yes your mother can hold the property after the loan is paid off).

Can I make an extra payment to the house each year?

clients can increase their monthly payments by 20% every year and make a lump sum payment of up to 20% of the total loan amount every year (minimum payment is $100.00). the range will be between 10% to 20% each year for a lump sum payment as the amount for each Lender will be vary.

What will happen if there is loss or damage to the property and the insurance company refuses to cover the losses incurred? Who will pay for this?

The borrower. What you have to realize is that this is a lease to own transaction, not a regular rent or lease. After the transaction is done, you will own a house, with a regular lease agreement, you will own nothing at the end.

The lease to own agreement is similar to a commercial lease, where the tenant is responsible for maintenance. With this lease agreement you will gain more rights over the property that you would not have if you were just doing a regular lease. You will be able to get tax credits as a homeowner, you can rent the property out, you can sell the property, renovate as a homeowner can.

Who provides the funds to the trust to purchase the property and what is the contract between the financier and the trust. I read online somewhere that the trust acquires property by a traditional mortgage from a bank. Is this True?

The term mortgage is like saying Kleenex instead of tissue or Xerox instead of photocopy, the term mortgage actually refers to two documents the Mortgage which is a security instrument and is permissible from a Sharia perspective, the other document is the Note, which is the evidence of interest. in a normal mortgage transaction, the bank uses the Mortgage to take the property, and uses the Note to collect in the default. In our transaction, in the event of a default, we give the bank “An Assignment of Rents and Leases”, this gives the bank the option of collected under the lease agreement.

So yes it is true that the trust acquires through a mortgage, but not traditional mortgage as is the common definition. Thank you for clarifying this rather than going by what is a huge misunderstanding and here say.

We have over 38 different investors that we work with, you do not deal with any of them, you will make application through us and we will arrange everything.

If the customer has to go to another city/province/country for a few years, can that property be rented out? If yes, how does the customer rent it out when it is not in the customer’s name?

Yes it can be rented out, the customer is the grantor of the trust, so they have control if they want to rent it out.

What is the difference between a Conventional Mortgage and Ijara?

In conventional mortgage, you are paying for the usage of money. supposed you want to buy a property, you walk to the bank and borrow some money. With that money you buy the property and each month you pay the bank for the usage of the money (rent on money)that they gave you. Payment for the usage of money (interest) is essential what Riba is.

But in Ijara suppose you want to buy a property, you walk to Ijara and fill the application, We will create a trust and the trust will purchase the property (funds from the investor)and each month you will pay rent to the trust. A portion of that rent will go towards your ownership until you have 100% equity. Rent on money is Riba (haram) but rent on property is rent, which is halal.

What is the different between fixed and adjustable/variable rate?

“Variable or adjustable financing is when the rate is changing unpredictably following the market value. The fixed financing is when you locked the rate to certain rate until the term is ended. In Canada we don’t use adjustable / variable rate because it is hard to make it Sharia compliant that way”

What is the difference between the rent to own contract and the lease contract?

“The rent to own contract is the contract agreement of you and the trust that stating at the end of the term, you will be able to gain the property 100%. The lease contract is rent agreement”

Why do you not get the certification from Canadian Council of Muslim Theologians.

While we like to have approval from as much organizations as possible, but it seems like every other customer has a different organization or a different scholar that they recommend we communicate with. But unfortunately, we just don’t have the physical ability to consult with every suggested organization or scholar. http://www.jucanada.org/

Is the Sharia structuring fee of $2500 due at the time of signing of the financing commitment. This fee is non-refundable once the commitment is signed. What exactly is this fee collected for since there is no such fee if signing a conventional mortgage commitment?

The customer actually has a choice, they can pay the fee up front and get the best rate, or we can add 1.5% – 3% to the rate like our competitors do. It’s usually cheaper to pay the $2,500 up front.

The fatwa I got from brother Shoeb is very old and I found the comments of Taqi Usmani from his website that he has not read and review any Ijara contract.

They don’t endorse our company and have never been under contract with our company, we do not pay them to be our Sharia advisor, the original Fatwa was given to CIHF partners, of which we are a part owner of since 2008, and we market that product as we clearly state on our website and utilize the same documentation that bears Justice Taqi’s original signature, so I don’t quite understand the statement below “I have never approved any Ijarah contract or scheme for any Financial Institution in America, Australia or Canada.“ because he obviously did approve an Ijara contract as is evidenced by his signature on each page. I think whoever entered the information must have misunderstood the Mufti, because I am sure the Mufti would not provide an answer that was contrary to what he did in the past, and I am sure he does not do the data entry for what is posted on the website.

We have the original contracts with Justice Taqi’s signature on each page to confirm what I am stating also, please visit our website at http://www.ijaraloans.com/index.php?p=62 for more information.

What kind of paper will I be signing off? Will it be a rent agreement or ownership agreement?

You will be signing a lease to own agreement where at the end of the loan term you agree to take over 100% ownership

If I want to sell the house, what will happen or how does it work?

Before the closing of the selling of the house, all the title and ownership will be transferred to you, and then transferred to the buyer. So on paper you will be the one selling the property. You will be required to pay off whatever is left on your loan balance. An profit gained from the sell is 100% yours.

Most importantly, with my initial discussion, you states that, “Ijara does not indulge into receiving or giving interest. The documents you have forwarded me clearly state an interest rate %.” Can you please explain this?

You are correct, our transactions do not involve interest, but there is still a profit earned through the rent. That profit earned is translated into a percentage form since it is required by government guidelines. The forms that you have received do state interest and that is the line where we state the profit percentage. These forms are government regulated and we are obligated to use these forms in order to be compliant, hence the appearance of the interest line. No matter what financing institution you go to, be it Islamic or not, the forms are uniform to the ones that you have received. So unfortunately even though our transactions do not have interest we still have to use the same forms that refer to interest as any other conventional bank would have to use.

Ijara borrows money from a financial institution at a fixed interest rate and Ijara clients are also responsible for signing the mortgage loan from the financial institution. Since money is borrowed with interest, I would like to know is it compliant with Sharia?

Firstly, in Islam, the client is only responsible for the contract when entering into contract with lender. However, what the lender does after that is not the responsibility of the client. If I rent an apartment, I will pay my monthly rent. If the apartment complex uses my money to pay off their interest-bearing loans, I will not be held responsible. Secondly, IjaraCDC enters into a separate Shariah compliant contract on the side.