Posted by: islamicfinancingnews | May 12, 2013

Understanding some of the basics of Islamic loans

islam4 When you are looking for Islamic loans to purchase a home or refinance, you need to have a general understanding of how these alternate financing programs differ from their more traditional counterparts.

Generally, Islamic Finance is asset based rather than being based on currency and as such an investment is set up on an exchange or ownership of an asset, with currency or money simply used to bring about the transaction. When it comes to purchasing property, one of the main differences between using a more traditional western style financing institution and an Islamic finance lending company is that the return on the investment in the latter case is based on the asset and not the interest on the money being loaned for the purchase. For practicing Muslims, this fundamental difference means a ban on usury, or the lending of money at excessive rates. This ensures one party does not benefit unfairly over another in this type of transaction.

Apart from a prohibition on Riba and the charging of interest, there are strict restrictions in place regarding gharar or high risk transactions that are uncertain or unclearf. In addition, a Sharia compliant financial institution is not allowed to invest in gambling, alcohol, pornography or pork related products and businesses that do not adhere to the principles of Sharia Law.

When you’re looking online for a reputable Islamic finance company, look for one that specializes in Shariah compliant no interest financing programs.

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