Sharia Compliance – How It Works
Our IjaraTM Home Financing Program was created by a Board of Internationally recognized Shariah Scholars since 1996. The program complies with Islamic Finance Guidelines and is free of both types of Riba and also Gharar.
The program is called “Lease to Purchase” (Ijara wa Iqtina). The Lease to Purchase or Lease to Own contract blends many of the concepts used by traditional lending institutions. The architects of the Ijara Contract used here were guided by three basic principles:
- To create Riba-free financing.
- To structure the Ijara Contract so it upholds the basic rights, duties, and obligations found in a traditional home mortgage and
- To retain the income tax deductibility benefits of the traditional home mortgage.
How the Program Works
The individual selects the property;
- Pays the required on-account payment (traditionally called down payment), which could be 3.5% to 20% or higher if the individual chooses to do so.
- An independent trust holds the title to the property.
- The house can be leased for 10, 15, 20 or 30 years, depending on the individual choice.
- The lessee pays monthly rent to the trust, also called on-account payments. The trust will pay real estate taxes and property taxes on behalf of the lessee and add these to the monthly rent. At the end of the lease period, the title is transferred to the lessee for a fee of $1.00.
- Should the personal situation for the lessee change and he or she has a need to sell the house, the trust is informed of this need and an arrangement is made to sell the house. If there is a profit, the lessee keeps 100% of the profit. If there is a loss, the lessee bears the first loss.
Even though the ‘Lease to Purchase’ program was specifically designed to meet the religious obligations of Muslims, it is made available to all qualified people in the United States and Canada that are interested in a Sharia Compliant Financing Product.
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The Sharia contract “Lease to Purchase” is owned and copyrighted by Samad-Ijara Home Financing, LLC, which is also the master licensee for the US. Ijara Marketing, LLC may license the program to other financial organizations that might be interested in meeting the needs of the Muslim market in the United States.