Products – Financing or Loan Products
1. Home Financing
(There are other forms – check with your bank)
Customer:
- Chooses property
- Applies to bank for financing and agrees on terms
- Makes initial payment of 10%, 15%...etc..%, which will constitute owners initial share
- Makes monthly payments which consist of two components- rent and repayment of capital for the share of the bank
- Becomes a part owner whose share increases with time as the bank’s share is repaid gradually
Bank:
- Agrees terms of financing with customer
- Purchases property for customer
- Sells property to customer for the same amount
- Requires customer to pay monthly instalments which consist of rent and repayment of capital through a pre-agreed period of 20, 25…etc. years
- Transfers full ownership to customer on completion of capital repayment
Islamic principle – Ijarah (lease) with diminishing Musharaka
2. Car Financing
(There are other forms – check with your bank)
Customer:
- Chooses car
- Applies for financing and agrees terms with bank
- Makes an initial down payment (deposit)
- Makes monthly payments for a period of 3-5 years as agreed with bank
- Pays for all wear and tear expenses
- Gets ownership of the car upon completion of the lease period
Bank:
- Agrees terms of financing with customer
- Purchases car
- Leases car to customer
- charges customer monthly instalments which consist of rent and repayment of capital
- Assumes the risk of ownership of the car
- Transfers ownership to customer on completion of instalments
Islamic Principle: Ijarah (leasing)
3. Stock or material Financing
(There are other forms – check with your bank)
Customer:
- Chooses goods (merchandise)
- Applies to bank for financing
- Agrees with bank price, mark up, quantity, quality, delivery dates etc. and terms of payment
- Pays on delivery or at deferred date(s) agreed either in lump sum or by instalments
Bank:
- Agrees terms of financing with customer
- Purchases goods and assumes ownership plus associated risks
- Sells goods back to customer at cost plus mark-up
- Delivers goods and transfers ownership to customer by way of offer and acceptance
Islamic Principle: Murabaha (Cost plus mark-up)
4. Equipment Financing
(There are other forms – check with your bank)
Customer:
- Chooses equipment and supplier
- Applies to bank for financing and agrees on terms
- May have to make 10%, 20%..etc down payment or security
- Pays monthly (periodic) rent
- May have the option to buy at the end of the lease of period which could be 2-5 years
Bank:
- Agrees financing terms with customer
- Purchases equipment
- Leases equipment to customer for a monthly charge over agreed period
- Keeps ownership of equipment and assumes associated risk
- May sell equipment to customer at the end of the lease period