Guidance Residential: We Are Not A Bank
Allah (SWT) says this in the Quran:
“Those who take unlawful interest will stand before God (on the Day of Judgment) as those whose minds have been corrupted by the influence of Satan. They say that commerce is just like interest. But God has made commerce lawful and has forbidden interest.” (2:275)
Like the other monotheistic faiths, Christianity and Judaism, Islam strictly prohibits the practice of usury, also known as riba, or interest.
Today, however, interest has become so widespread that it underpins the entire banking system.
Getting a loan through a bank not only means paying interest, it also means supporting the bank in its usury-based business.
The only way to buy a home without supporting interest is to go outside the banking system altogether, for a truly authentic shariah-compliant home financing contract.
Why Guidance Residential Is Not a Bank
The Prophet Muhammad’s (SWT) companion Abdullah Ibn Mas’ud (RA) said,
“You are today in an age in which desires follow knowledge, and there will come an age in which knowledge follows desires.”
An age when knowledge follows desires .. that time is now.
Banks have convinced people for years that interest is good – but really, it’s only good for the banks.
At Guidance Residential, we stand firm with the timeless principles of our faith. That’s why we’re not a bank. That way, we can bring your community home financing that is truly beneficial, because it’s halal.
How Did Usury Become Widespread?
Centuries ago, in many parts of the world including Europe, it was not considered acceptable to take part in transactions involving usury, known to Muslims as riba.
In the 15th century, though, European monarchs began to make changes to financial norms.
They deliberately changed the word “Usury” to “Interest” in order to permit money lending at interest as a means to finance their endless wars.
This is how we ended up with a modern financial system in which interest has become acceptable and disassociated from the term usury.
What’s Wrong With Banks?
Since the creation of the United States, the founding fathers warned against banking practices and the practice of usury. What they repeatedly warned against is now known to us as the modern financial system. This system, which thrives on the creation of debt, has directly contributed to economic crises in recent decades.
Banks are built upon a foundation of debt and interest. Banks borrow money from people and then turn around and lend it out at interest, converting deposits into debt. The more debt they sell through credit cards or interest-bearing loans, the better for them.
They lend part of this money to businesses that then turn around and put their money into the bank. They will lend money to all kinds of companies, including those that sell alcohol and other items prohibited in Islam.
Financing a home through a bank means enriching a bank and its desire for more riba, while indirectly supporting prohibited industries.
The Impacts Are Wide-Ranging
The impacts of banking practices extend far beyond the bank itself.
Banks propagate usury through a method called fractional reserve, which essentially creates money from nothing – a transgression against Allah’s divine right to be the only one to do that.
In doing so, the banking system has created a fictional financial economy that is over 26 times larger than anything else produced on earth.
This burdens the economy unnaturally and places it at risk for a range of crises.
It also affects individuals negatively. The banking system is designed to transfer wealth from 90% of the population to a privileged 10% of the population. Banks are not meant to benefit the average person.
An Authentic Solution
Observant Muslim Americans once had no way to buy a home without paying in cash or dealing with a bank and paying riba.
Guidance Residential was founded more than two decades ago to provide a truly authentic solution.
In 1999, the company’s founders embarked on a three-year, multi-million dollar research and development project to develop a shariah-compliant alternative. This project involved 18 law firms and six of the world’s leading Islamic finance scholars.
The result, launched in 2002, was Guidance Residential’s Co-Ownership model of Islamic financing. This is an authentic home financing model that complies with both U.S. and Islamic legal systems.
Halal From Top to Bottom
A shariah-compliant solution must adhere to the following foundational principles of Islamic finance:
- Rooted in divine law: Divine law prohibits elements in transactions that are harmful for societies, such as interest and excessive speculation.
- Economic justice: Those prohibitions are enacted to promote economic justice for all of humanity.
- Circulation of wealth: Lending and charging interest on the loan concentrates wealth in few hands. Equity-based commercial transactions in Islamic finance promote circulation of wealth.
- Commoditization: Islamic finance transactions are backed by real assets, so they contribute to real economic growth.
- Risk sharing: Interest-based lending transfers the risks to the borrower. Islamic financial transactions are rooted in the concept of justice, with mandates sharing of risk.
Specifically, halal home financing must avoid prohibited practices including riba (usury/interest), gharar (speculation or contractual uncertainty), and maysir (gambling).
With these principles in mind, there are three main options for Islamic home finance models in the West: Murabaha, Ijarah, and Musharakah.
Murabaha
In a Murabaha transaction, a financier purchases a home on behalf of a home buyer and then sells it to them at a marked-up price, which includes a profit margin for the bank.
A drawback of a Murabaha contract is that it creates an obligation that resembles debt.
Ijarah
Ijarah is a lease-to-own type of arrangement, where the bank buys a property on behalf of a customer and leases out the home to them. The home buyer makes monthly payments that include a portion that goes toward purchasing the home.
A drawback of this method is that the home buyer does not gain full ownership rights until the end of the contract term, typically 30 years.
Musharakah
Musharakah is a form of co-ownership between the home buyer and the financing company. The financier and home buyer agree to invest in a property and purchase the home together as partners.
Each party owns shares in the home based on the percent of the purchase price they contributed. In a version called Diminishing Musharakah, or the Declining Balance Method, the home buyer gradually buys out the financier’s stake in the property, while paying a fee to use the part of the property still owned by the financier.
In this model, the home buyer gains full ownership rights from the beginning, plus the company shares more risk than with a traditional mortgage.
This is the preferred method in the United States, and it is the model used by Guidance Residential.
What’s in a Name?
Guidance Residential is not a bank, nor are we a subsidiary of a bank, so our funding is not supported in any way by riba.
Some banks in the U.S. have created subsidiaries with Muslim-sounding names to appear as though they are not affiliated with any riba-based practices; however, their funding comes from the bank – funds earned through riba.
Asset Backed Financing
Not only do these subsidiaries generate their funds through the bank’s use of riba, they also cannot comply with another principle of Islamic finance: Transactions must be asset-backed.
A traditional loan is not actually backed by an asset – it involves essentially selling money now for more money later.
Even a contract that a bank calls Islamic cannot be an asset-backed transaction. That’s because U.S. law prevents banks and their subsidiaries from investing in and owning real property. This is a major violation of the Islamic finance principle regarding clear ownership by a financier in assets they wish to provide financing on.
Banks are thus unable to faithfully employ a Musharakah or co-ownership model – the most preferred model for Islamic home financing.
True Authenticity
Guidance Residential, on the other hand, built our operation from the ground up to be a standalone Islamic financial services company that is backed by a globally recognized organization owned and managed by Muslims.
For faith-conscious consumers, the facts have to matter more than the name!
Decades of Serving Muslim Americans Authentically
For more than 20 years, Guidance Residential has proudly held on to the principles of the Muslim faith to help American Muslims avoid riba.
Guidance is Muslim-owned and completely independent of banks and their riba-based practices.
To date, Guidance Residential has financed over $10 billion in Islamic home financing, helping more than 40,000 American Muslim families in 34 states achieve homeownership without compromising their faith and their values.
Continued compliance with shariah principles is ensured by audits by an independent shariah board. The board chairman is the world’s leading authority on Islamic finance, Shaykh Mufti Muhammad Taqi Usmani.
Giving Back
Guidance is not just a financial institution, we are a pillar in our community, giving back millions of dollars through sponsorships that align with our core values and principles.
Our independence from banks has made us the most trustworthy institution with the most authentically structured Islamic home financing program.
Start Your Home Buying Journey
Buying a home is one of the most important decisions you will make. The team at Guidance Residential is here for you every step of the way, from pre-qualification and pre-approval on through to finding the right real estate agent for you and your family. We invite you to explore the home buying process with Guidance Residential today.
Guidance Residential remains the #1 U.S. Islamic home financing provider. Over the past 20 years, we have assisted more than 40,000 families. Learn more and get started on your home finance journey today.
Your Guidance Residential Account Executive is here to help with any questions. Looking to refinance or purchase? Have a friend or family member who is looking for a home? Call 1.866.Guidance, or start an application today.
