How does Islamic finance work?
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- เผยแพร่เมื่อ 15 ธ.ค. 2014
- As an Islamic bank, Al Rayan Bank’s products exclude the use of interest, which is forbidden in Islam. Instead, We offer an expected profit rate for savings, and rental rates for home finance.
But how does this work?
For savings, a customer places their deposit with Al Rayan Bank in return for an ‘expected profit rate’.
This is not a fixed rate of return, like interest, because the profit is generated through Sharia compliant investments. These carry an element of risk, but this is highly managed.
As a result, we’ve always achieved the expected profit rate offered, and sometimes customers have been paid more.
Our Home Purchase Plans are based on co-ownership and leasing, through which the customer and the Bank buy the property jointly.
The customer’s monthly payments gradually increase their share in the property, and include a rental payment on the share that the Bank owns.
At the end of the finance term, the title in the property transfers to the customer and they own their home outright, without involving interest.
We call this banking you can believe in
Music is louder than the main content!
The music is too loud
Call it what you want, its the same repayment structure but with a "rent" payment instead of an "interest" payment...
the bank and the buyer share liability in the property, and in the event of a foreclosure the burdon is not all on the buyer
@@akrambakri624 If the buyer stops paying, the bank sells the property, no?
@@jeffmahoney1271 that depends on the contract, but the buyer keeps the percentage of the property they already paid for
@@akrambakri624 Thats actually an interesting way of doing things. Much fairer in that sense.
@@jeffmahoney1271 yeah, the risk is shared, in traditional banking the financial institution finances an asset that you want to aquire and expect you to pay back with interest and the asset as collateral, so the bank minimises its risk and it's all on the little guy's shoulders, in Islamic finance the bank buys the house and sells it to you with monthly installments and can rent out the percentage that they own to the buyer for profit, of course the rent decreases overtime
i watched like 10 videos on islamic banking and was confused. this video really just makes it basic and easy to understand
Correct me if I am wrong but as I understand the Islamic bank buys the house on behalf of the borrower and immediately sells it with an agreed "profit rate" to the buyer (This buying and re-selling of the property by the bank all happens in the comtract and therefore instantly) The contract requiries the buyer to make the agreed payments to completion. If the borrower defaults then bank sells the property to recoup the monies promised in the contract. If my understanding is correct then for all intended purposes u hav achieved exactly the same thing as a conventional interest loan. In a conventional interest loan the bank will also own ur property if u default on ur repayments and force the bank to sell it. It seems that at no material time does the Islamic bank take anymore risk than the conventional bank so it seems a rather convoluted way of dancing around interest but since it is so popular one must assume the people who drew up these contracts know the mindset of the Muslim buyer better than I and can write it in the way to cloak the interest and get their business 👍
That’s what I’m wondering. It doesn’t sound much different, just less straightforward to get the same result
no here is the difference:
1. in conventonal banking the bank gives you a loan and you buy the house, so the house belongs to you (i.e. you will pay housing tax) but if you default the bank will seize it.
@@intranext1359 so you don't have to pay any property taxes (eg property, council tax etc) on it if you get a HPP with Al Rayan?
Idk this is just replacing interest with rent. Seems like its just wordplay... changing up words.
Some scholars such as Atabek says a conventional mortgage is halal because in effect, it is the bank that owns the house regardless of what the deed says. The interest charged is not considered Islamic riba because the bank does not give the borrower possession of the money and the borrower is not free to do whatever he wants with the money. In real riba, a bank would hand the borrower cash and he would be free to do whatever he wants with it.
In conventional mortgage, the bank transfers the money directly to the seller of the house. The "borrower" never touches the money. In effect, it is the bank buying the house with its own money, and then after mandating an inspection and appraisal to assess value, it in turn sells the house to the borrower for a mark-up, which is the interest, but not to be confused with Islamic riba. Reselling homes for a markup is what Islamic banks do anyway.
In effect, the bank is also appointing the borrower as its representative to vet the house and check it out. The reason the bank owns the house despite the name on the deed being the borrower has to do with the % of equity the borrower has on the house, which is the downpayment. The house in effect belongs to the party with the most equity. If 80% belongs to the bank and 20% to the borrower, its still the bank's house, doesnt matter what is written on the deed. Its the effect that counts.
Even if you dont agree with the above, every single verse in the Koran that condemns riba, condemns it for the one who "eats" or "gains" from it which is the receiver of interest. Yes, there is a hadith saying the prophet says both borrower and receiver and contract witness are all alike, but per Koran, it is a more severe sin for the receiver of interest than the borrower for it is the receiver who is using his money to gain wealth.
Interest suck the poor poorer and make the rich richer, it is a bane of the existing financial system.
Music is too loud
nice
This is actually the best simplifies explanation of Islamic Banking that is not loades with ethics and goes straight to the point. How do islamic banks earn money without interest? By using money of the depositors to invest where depositors sharw in the profit or loss in the investment instead of relying on a fixed interest rate. How do you borrow money to buy a house or even a car? You dont borrow money and pay interest you borrow money with the bank where you are co owners of the property and pay the bank over time to increase your share of the ownership.
that's where you are mistaken my friend. See if you you fail to pay the totality of the house, you should normally still keep the share you already paid for ( cause you paid for it duh ), but no, they just seize the property and leave you with nothing.
@@shemseddine7547 so what happens when you can't pay back your share? Do they just buy it back off you? How do they value your share? Potentially they can say the value of the house has depreciated and pay you less than you have contributed. They only "fair" (in the sense of liner for like) way is to just pay back what you paid. Which doesn't sound feasible at all....
@@anneeq008 they are just playing with words to make it not seem like riba.
@@anneeq008 lesson of the story : just keep on renting if you can't buy a house. We're only here for a while anyway and then we go back to ALLAH. Whatever you "own" in this world, you will leave it here.
Please make this video in Tamil. I want to know how Islamic banking works without riba
Hi everyone, i have an important question to ask the people of the UK. I'm a citizen of Belgium, muslim and soon to be married. I would love to buy a house of my own but unfortunately, here in belgium, we don't have such a bank. Is it possible - for me - to go to the al rayan bank and arrange such a payment method to buy a house here in Belgium? I'm totally lost here now. With kind regards,
Where you from in belgium?
@@ries3554 i'm from the city of Gent. Why?
There is any good muslim Belgium sisters that practice the deen 100% are will.to marry?
Because of the loud music the contents are difficult to understand.
Can I share this video on TikTok plz? As introduction to Islamic banking?
There is yet upto date no alternative to currency system. No alternative more fair method of equitable distribution of wealth. No alternative to complex financial engineering. No more equitable method for the determination of currency value with in a certain jurisdiction or between multiple jurisdictions.
World has understood the unequitable distribution of wealth through current financial laws and will and must either move to one currency system or may be one internet based currency or fictional currency that are just numbers in our accounts operating through phones or tablets only......
What the future holds.....
No one knows but change is inevitably inevitable.
What if the venture loses money? Then how do you pay profit? Also, dont you think that the repayment structure includes "fixed profits", which in no way can be guaranteed in a business venture is not reliable or practical? So then, if the bank still pays "profits", is it not just another form of interest?
This is not Islamic. Because the bank will buy the specific house only when a customer says : I want to buy that specific property ‼️ if customer fail to pay , the bank seize the property ! The risk sharing is non-existant. The customers bear all risks , and the bank took no risks , particularly when the bank has all the money to buy upfront his initial share , a money that does not even belongs to the bank , but came from others savers or printed out of thin air through fractional reserve.
The bank has to buy the house first ! A pool of houses first ! Then advertise the sale of shares of the house. The buyers can buy a share , and don't have to rent it ‼️ the house can be rented to a third person , and the rent is shared buy the ban and the customers involved who bought some share of the house. Everyone will lose proportionately to his investment.
If the bank who bought a pool of houses try to increase house price more than the inflation , then the house would not be able to be sold , thus the bank will not do that.
The non-Muslims have created p2p property fund , where every one can buy shares and all take the same risks.
You know interest is haram
But you know music is also Haram right????
Alassane Keita nope it is not known if it is haram or not
عندك دليل على تحريم الاغاني
@@mohamedkabha6861
Please go to Dr Zakir Naik video about Music. It is so clear music is haram. It's mentioned in the Hadiths. I don't know why Muslims nowadays still don't know about this
@@mohamedkabha6861
Firstly Allah (SWT) have mentioned obey Allah and obey his messengers. So that means if Mohammad (SAW) forbids something it automatically becomes a rule. It doesn't mean we are helping Allah. Astagfirllah.
And also Islam is not based on what the earlier ruling caliphate did. Islam is based on the teachings of the Quran and the Hadiths. Because if you want to believe that music is halal just because the earlier caliphate permitted it then you got to say that alcohol should be halal too because Yazid who was the son of the Sahaba and the king after his father. He drank alcohol till death. So does that mean alcohol should be permitted too?
@@mohamedkabha6861
Now here is the main evidence from the Hadiths that the Prophet Mohammad (SAW) forbade music
The Messenger of Allaah (peace and blessings of Allaah be upon him) said:
“Among my ummah there will certainly be people who permit zinaa, silk, alcohol and *musical instruments*…” (Narrated by al-Bukhaari ta’leeqan, no. 5590; narrated as mawsool by al-Tabaraani and al-Bayhaqi. See al-Silsilah al-Saheehah by al-Albaani, 91).
Ibn al-Qayyim (may Allaah have mercy on him) said: This is a saheeh hadeeth narrated by al-Bukhaari in his Saheeh, where he quoted it as evidence and stated that it is mu’allaq and majzoom. He said: Chapter on what was narrated concerning those who permit alcohol and call it by another name.
This hadeeth indicates in two ways that musical instruments and enjoyment of listening to music are haraam. The first is the fact that the Prophet (peace and blessings of Allaah be upon him) said: “[they] permit” which clearly indicates that the things mentioned, including musical instruments, are haraam according to sharee’ah, but those people will permit them. The second is the fact that musical instruments are mentioned alongside things which are definitely known to be haraam, i.e., zinaa and alcohol: if they (musical instruments) were not haraam, why would they be mentioned alongside these things? (adapted from al-Silsilah al-Saheehah by al-Albaani, 1/140-141)
Hope that answers your question brother
Do you think an all seeing god would be fooled by loopholes?
@forsenCD so if i pay for most of the house but i can't afford the rest what happens?
@forsenCD that was my question i was searching in google just now. thx for clarifying. But how bout if for example I want to open a restaurant and i request a loan for period of 10 years. So the profit rate is for example 10%, meaning i hv to pay 10% of my profit per month right ? Preferable the minimum amount set right ? but what happens if I can't reach the minimum amount ? Will it only just extend the time more than 10 years or do i hv to pay some fixed penalty ?
@forsenCD He just can't understand the transparency of said system. Probably made a stupid fucking mistake with his debit card and now has to take some time off.
forsenCD I don’t understand, so is profit allowed in Islam? So if I have a house for £5000 and I sell it for £10000 is that ok as I will make a profit of £5000? Plz let me know thanks
@@antimatter333 you could do that,but you would look greedy...
and greed is frowned upon...
In islamic finance, how it work in home loan (personal use not rental)
But its also similar to riba
The music is so loud I can barley hear what the voice is saying 😂
ok I got it. Now how loaning works and a bank benefits from it?
I think thats the second half of the explanation. Loans cannot be done where the bank lemds money for an expected return plus interest. The bank fronts the cost of the purchase and you become co owner of your business or your house with the bank. Periodical installments are made to slowly transfer partial undivided ownership over the property until you become full owner. As to how islamic banks earn im guessing a 2 min video is not enough.
capitalistic bank: bank loan you money with usury to buy property you want
Islamic bank: buys a property you want and sells it back to you with agreed profit margin.
the difference is simply, capitalistic bank does not involved in any purchases of properties. while Islamic bank does involved in buying properties.
Isn’t it the same as interest? Just a shell game.
Not exactly
The customer is identified his need identified and a trap is laid in the name of Islamic banking. Fear Allah. He knows what is hidden in hearts. Two words " ISLAM" and "BANKING" are has nothing to do with each other. Infact enemetic.
Where did you earn your Doctorate degree in sharia law and Islamic banking and economy? Which university?
mudza92 Afghanistan
Don't use music
FIX THE MUSIC
Pleas avoid music its haraam
You are still making money with money. I don't see a difference between this and usury except for some unimportant details.
in interest the burden is totally on the borrower not lender
What stupid the name interest is changed with some Arabic names. Still you have to pay money for money. Isn't it haram.
No
Any element of risk regarding investing your money is speculation. That is why gambling is also haram. This is not permissible
Where did you earn your Doctorate degree in sharia law and Islamic banking and economy? Which university?
mudza92 Pakistan
how can I buy a house brother?
Please remove the music. It is a major sin in Islam as found in Saheeh al Bukhari
This is all rubbish it’s still count as profit meanings they are taking sum of from you which is haram in Islam however in Islam we have thing like if a person buying share from certain company and they make earnings from shares that’s valid not which these guys are mention there is such no thing like that in Islam which these guys by hadith or Quran can prove it don’t get mislead please double check from scholars of Islam who can guide you through more accurately hope that helps everyone as this riba count as the biggest sin in Islam there is Hadith saying taking riba is more worst then having a sex with your own mother astagfitullah that is something which we need to be careful from these banking rules
Person who edited and processed video has no logic or has hearing issues. 😂
Rubbish
Dont try to fool Allah by ideas like these! simple Bank buy house for 300K and sell it to the customer for 320K on straight up payments! how about this, the bank is making 20k and the customer got a house on payments. Islamic way is simply sell me a house that you own and I make payments for the exact amount. The story of renting, is a joke!
I agree 100% this is how it should be