Sharia Finance Explained

Principles and Application in Mortgage Lending
Sharia finance, also known as Islamic finance, is a financial system based on ethical principles rooted in Islamic teachings. It adheres to the Quranic injunctions and the teachings of Prophet Muhammad (peace be upon him), which emphasize fairness, justice, and social responsibility. Here, we provide a clear and concise explanation of Islamic financial principles and their application in mortgage lending.

Riba (Interest) Prohibition

Islamic finance strictly prohibits Riba, the charging or paying of interest on loans. Instead, financial transactions are conducted on a profit-sharing or equity-based basis. In mortgage lending, this principle is reflected in Sharia-compliant financing options like Ijarah.

Ijarah (Lease-to-Own)

Ijarah is a Sharia-compliant lease-to-own arrangement. The financial institution purchases the property and leases it to the borrower for an agreed-upon period. The borrower pays regular rental payments, and at the end of the lease, they have the option to purchase the property at an agreed price. This structure enables individuals to achieve homeownership without resorting to interest-bearing loans.

Gharar (Uncertainty) and Maysir (Gambling) Avoidance

Islamic finance avoids transactions with excessive uncertainty or speculation. This principle applies in mortgage lending by ensuring that all terms and conditions of the financing are clear and transparent, without hidden fees or elements of gambling. Property Requirements: Sharia-compliant mortgage lending requires properties to meet certain criteria, such as being free from elements prohibited in Islamic finance, such as alcohol-related businesses or activities deemed harmful to society.

Social Responsibility

Islamic finance emphasizes the concept of social welfare and responsibility. As such, it encourages responsible lending and considers the borrower's ability to repay the financing comfortably, promoting financial stability and ethical business practices.
Sharia finance offers an alternative approach to mortgage lending, aligning with Islamic principles and promoting financial inclusivity and ethical practices. With options such as Ijarah individuals can achieve their dream of homeownership while upholding their faith and values, making a positive impact on their financial journey and society as a whole.

At Islamic Credit Corporation we are dedicated to providing Sharia-compliant mortgage solutions, empowering you to
own your home responsibly and in harmony with your Islamic beliefs.