Purchasing Property Through a Bank

Contemporary Fatawa, Economics, Fiqh / Monday, September 13th, 2010

Q 1. What is the Islamic ruling on the purchase of residential houses, cars and others home furnishings through Banks and Financial Institutions? The position is that such institutions provide loan by putting these things under mortgage and on this loan they charge interest at fixed rates. An alternate to this situation is that such things be acquired on monthly rental basis. But, this monthly rent generally exceeds the installments charged by Banks as pointed out in the first case.

A. The transaction mentioned above, being based on interest, is impermissible and unlawful. However, Muslims should make efforts to adopt other permissible methods in accordance with the Shari‘ah of Islam as opposed to this interest-based transaction. For example, the Bank could itself sell things pointed out in the question on installments. In other words, the Bank should first buy things from the original seller, add an appropriate profit, then sell it onwards to the customer, and then realize its total price in installments.( Murabahah )

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