• Our home financing model is based on the concept of “Lease-To-Purchase”
(LTP) (Ijara Wa Iqtinaa / Diminishing Musharaka).
• This is done as the basis for calculating the monthly payment
and marking the value of the property to the market in terms of the “rent
/ lease” it can bring if it were put up for rent as an investment
• This is the uniqueness of the LARIBA model:
If the house is overpriced, the model will flag this fact to the homebuyer
in order to go back to renegotiate a lower price or to wait till an existing
market “bubble” is burst. Here is how\ it works, according
to the Shari’aa Approved Models (Sheikh Qaradawi & Team of Scholars
and Sheikh Taqi Usmani)
1. The first step in the above arrangement (as Sheikh Taqi Usmani –
1998 & Sheikh Qaradawi & Scholars – 1990 - write) is to
create a joint ownership in the property. Sheikh Usmani writes in his
“It has already been explained in the beginning of this chapter
that “Shirkat-al-Milk” (joint ownership) can come into existence
in different ways including joint purchase by the parties. This has been
expressly allowed by all schools of Islamic Jurisprudence.”
Therefore no objection can be raised against creating this joint venture
The patented LARIBA model assumes that American Finance House LARIBA would
purchase the property jointly with the client.
2. The second part of the arrangement as written by Sheikh Taqi Usmani
in his book is:
“…that the financier (in this case LARIBA) leases his share
in the house to his client and charges rent from him.”
Sheikh Taqi (as well as Qaradawi and Scholars) writes further:
“This arrangement is also above board because there is no difference
of opinion among the Muslim jurists in the permissibility of leasing one’s
undivided share in a property to his partner.”
In order to AVOID RENTING MONEY AT A PRICE CALLED INTEREST RATE, WHICH
IS RIBA, at the prevailing interest rate of the day and calling it the
rent of the house!! ) We go to the market and check the actual market
rent of a similar home in the same neighborhood.
THIS IS WHERE OUR MODEL MEETS THE REAL SPIRIT AND OBJECTIVE OF OUR BELOVED
Some finance companies claiming to be Shari’aa Compliant and Riba
Banks do exactly this., and fall in the trap of Riba (the Act of Renting
Money while calling the interest rate of money agreed upon as rent of
the house.) We believe that this is Gharar (uncertainty and misrepresentation)
and Hiyal!! (Tricks) we go to the market and check
In fact, the market value of the property is best defined by the lease
revenue it can generate, if it were leased on the open market. The fair
market value varies by the location and specifications of each property
and is mutually agreed upon between the client and American Finance House
LARIBA. THIS PIONEERING APPROACH IS WHAT IS UNIQUE ABOUT THE LARIBA MODEL.IT
PUTS A THICK WALL BETWEEN TAKING Interest (Riba) and calling it rent as
some are doing This is based on the well-documented story when syeduna
Bilal (Mu’azzen Arrasul (s)) brought to Prophet Muhammad (s) a number
of high quality large size dates as gift. The Prophet (s) asked him how
he, Bilal, can afford buying these expensive dates with his humble means.
Bilal said that he has saved a large number of small low quality dates
and went to the market and exchanged them for a smaller number of larger
high quality dates. The Prophet (s) responded by saying that this is exactly
what Riba is (Al-Riba Bi Ainih!). The Prophet (s) told Bilal that he should
have sold the lower quality small dates for gold or silver (the currency
at that time) and used the currency to buy the large dates. This way each
type of date is “MARKED-TO-THE MARKET.” LARIBA’ s patented
model applies this concept, which we call in association with the research
conducted at Rice University, “Marking the Property to the Market.”.
WE, AT LARIBA, MARK THE HOUSE TO THE MARKET. This is done by defining
its economic utility, which is the rental / lease value on the market.
THE PROCESS TAKES THE LARIBA REPRESENTATIVES LONGER TIME THAN JUST PICKING
AN INTEREST RATE AND CALLING IT “Rent!” But it assures us
i) We, at LARIBA, disengage people’s brainwashing and thinking
that money can be rented at a price called interest rate. Hence, they
do not need to worry about the real return on investment when one buys
a property. That is the main reason for the excessive debt accumulation
and abuse of credit cards.
ii) We evaluate the economic viability of every investment we embark
Our process requires that:
a) The client check with at least three sources like real estate agencies,
property managers,..etc in the market to obtain the fair market lease
rate for a similar property in the same neighborhood.
b) LARIBA finance advisor independently does the same checking process
c) The client and American Finance House LARIBA discuss their findings
to agree on a mutually acceptable fair lease amount value. This lease
value is used as the foundation for the calculation of the monthly payment.
d) The mutually agreed upon rental value id divided between the client
and American Finance House LARIBA in the same proportion of their units/shares
of ownership of the purchase price of the property.
3. The third step in the approved conceptual model as in the book of Sheikh
Taqi Usmani (1998) and the Fatwas of Qaradawi and other scholars (1990)
“ …that the client purchases different units of the undivided
share of the financier. This transaction is also allowed. If the undivided
share relates to land and building, the sale of both is allowed according
to all Islamic schools. Similarly, if the undivided share of the building
is intended to be sold to the partner, it is also allowed unanimously
by all Muslim jurists.”
Here is what we do at LARIBA in continuation of items a, b and c above:
e) As the client buys back the share units of American Finance House
LARIBA every month, he/she increases his/her ownership share in the property,
which in turn reduces the amount of the rental value to be paid to AFHL.
This part of the payment is called RETURN ON CAPITAL (“RonC”
– pronounced Ronsee.)
f) The client’s total monthly payment consists of the sum of RofC
and RonC. This way, the model allows the client to finance a home based
on marking the property to the market fair rental value, as sanctioned
by Islamic Jurisprudence. SEE THE ATTACHED DETAILED NUMERICAL EXAMPLE.
g) PLEASE NOTE THAT American Finance House LARIBA uses a proprietary,
copy righted and patented computer program; ISLAMABAD, which is a software
developed by LARIBA originally in 1995 for a client after he consulted
with a Sheikh Taqi Usmani at the Islamic University in Islamabad, Pakistan
(It was.) The model incorporates the principles described above and generates
a level equal payment over the Financing Period in order to lower the
required payments in the early years and make it convenient to the budget
of the new homebuyer.
h) In order to comply with the US laws and financial regulations specially
the “Truth in Lending Law – Federal Banking Regulation Z”
and rules pertaining to the tax deductibility of home mortgages, American
Finance House LARIBA takes the monthly payment obtained from the Lease-To-Purchase
model above and inputs it into a traditional mortgage program to obtain
the “Implied Interest Rate” as required by the US laws. This
allows AFHL LARIBA to disclose such a rate and complete the standard documentation
as required by the US Federal and State Banking and Consumer Lending Laws.
i) In order to protect the interests of the parties involved and to conform
to industry standards as well as US and state government tax and regulatory
requirements, the home financing transaction uses traditional purchase
financing / mortgage documentation. A LARIBA Financing Agreement is
also used to supplement the traditional mortgage documents. Such agreement
describes the relationship between American Finance House LARIBA and
the client and the basis for calculating the monthly payments and rate
of return. It is an important part of the documentation. In LARIBA’s
patented model, the client will appear as owner on title to the property
with American Finance House LARIBA listed as financier.. This documentation
protects the client and the title of the property regardless to what
happens to AFHL in the future and the ability to benefit from tax deduction.
This further protects client future interests in case American Finance
House LARIBA decides to exit the business or does not exist.
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