Shariah-Compliant Home Finance Defined
The Holy Quran (3:130) states, “O you who believe! Do not devour usury, making it double and redouble, and be careful of (your duty to) Allah, that you may be successful.”
What is Shariah-compliant Islamic finance?
Shariah-compliant Islamic finance is any investment fund that meets and honors all the demands, requirements and principles of Shariah. The principles of Shariah prohibit types of income, such as riba (or interest). Shariah-compliant financial instruments cannot pay or collect interest.
The rules of using Shariah-compliant funds include:
- Investment of the funds in Shariah-compliant companies
- Shariah board approval and certification
- Annual Shariah-compliant audit to monitor and validate authenticity and transparency
Why Shariah compliance?
For a practicing Muslim, a Shariah-compliant finance product provides great confidence because it is reviewed and approved by a Shariah board comprised of eminently learned scholars from across the world who take due diligence in supervising and certifying financial products. Additionally, Shariah places great importance on ethical and equitable financing, social welfare and economic development.
Shariah compliance across the world
International banks such as HSBC, Crédit Agricole and Standard Chartered have established Shariah-compliant banking divisions and advised corporations and governments on issuing ‘Sukuk’ (Islamic equivalent of a bond) and other financial products. Companies in the United States are considering Islamic finance to fund business ventures and infrastructure projects. This shows the gradual acceptance of a Shariah-compliant financing model across the world.
Guidance Residential and Shariah compliance
Guidance Residential is the largest provider of Shariah-compliant Islamic home financing in the U.S. Our home financing program called the Declining Balance Co-ownership program is modeled from the Islamic concept of ‘Diminishing Musharakah’. An independent Shariah board has certified the product and performs an annual audit to establish Shariah compliance. In this model, Guidance and the homebuyer engage in a joint ownership venture. When a homebuyer makes monthly payments to Guidance, they are buying Guidance’s shares of the ownership so that they will eventually gain full ownership of the home. As the sole inhabitant of the property, the home buyer pays Guidance a profit fee for utilizing Guidance’s share in the property.
Shariah-compliant home financing honors the principles of Shariah, while benefiting from the best of what is available in the modern financial marketplace.