LARIBA

• Our home financing model is based on the concept of “Lease-To-Purchase” (LTP) (Ijara Wa Iqtinaa / Diminishing Musharaka).

• This is done as the basis for calculating the monthly payment and marking the value of the property to the market in terms of the “rent / lease” it can bring if it were put up for rent as an investment property.

• This is the uniqueness of the LARIBA model:

If the house is overpriced, the model will flag this fact to the homebuyer in order to go back to renegotiate a lower price or to wait till an existing market “bubble” is burst. Here is how\ it works, according to the Shari’aa Approved Models (Sheikh Qaradawi & Team of Scholars and Sheikh Taqi Usmani)

1. The first step in the above arrangement (as Sheikh Taqi Usmani – 1998 & Sheikh Qaradawi & Scholars – 1990 - write) is to create a joint ownership in the property. Sheikh Usmani writes in his book:

“It has already been explained in the beginning of this chapter that “Shirkat-al-Milk” (joint ownership) can come into existence in different ways including joint purchase by the parties. This has been expressly allowed by all schools of Islamic Jurisprudence.”

Therefore no objection can be raised against creating this joint venture ownership:
The patented LARIBA model assumes that American Finance House LARIBA would purchase the property jointly with the client.

2. The second part of the arrangement as written by Sheikh Taqi Usmani in his book is:
“…that the financier (in this case LARIBA) leases his share in the house to his client and charges rent from him.”

Sheikh Taqi (as well as Qaradawi and Scholars) writes further:

“This arrangement is also above board because there is no difference of opinion among the Muslim jurists in the permissibility of leasing one’s undivided share in a property to his partner.”
In order to AVOID RENTING MONEY AT A PRICE CALLED INTEREST RATE, WHICH IS RIBA, at the prevailing interest rate of the day and calling it the rent of the house!! ) We go to the market and check the actual market rent of a similar home in the same neighborhood.
THIS IS WHERE OUR MODEL MEETS THE REAL SPIRIT AND OBJECTIVE OF OUR BELOVED PROPHET (s).
Some finance companies claiming to be Shari’aa Compliant and Riba Banks do exactly this., and fall in the trap of Riba (the Act of Renting Money while calling the interest rate of money agreed upon as rent of the house.) We believe that this is Gharar (uncertainty and misrepresentation) and Hiyal!! (Tricks) we go to the market and check

In fact, the market value of the property is best defined by the lease revenue it can generate, if it were leased on the open market. The fair market value varies by the location and specifications of each property and is mutually agreed upon between the client and American Finance House LARIBA. THIS PIONEERING APPROACH IS WHAT IS UNIQUE ABOUT THE LARIBA MODEL.IT PUTS A THICK WALL BETWEEN TAKING Interest (Riba) and calling it rent as some are doing This is based on the well-documented story when syeduna Bilal (Mu’azzen Arrasul (s)) brought to Prophet Muhammad (s) a number of high quality large size dates as gift. The Prophet (s) asked him how he, Bilal, can afford buying these expensive dates with his humble means. Bilal said that he has saved a large number of small low quality dates and went to the market and exchanged them for a smaller number of larger high quality dates. The Prophet (s) responded by saying that this is exactly what Riba is (Al-Riba Bi Ainih!). The Prophet (s) told Bilal that he should have sold the lower quality small dates for gold or silver (the currency at that time) and used the currency to buy the large dates. This way each type of date is “MARKED-TO-THE MARKET.” LARIBA’ s patented model applies this concept, which we call in association with the research conducted at Rice University, “Marking the Property to the Market.”.
WE, AT LARIBA, MARK THE HOUSE TO THE MARKET. This is done by defining its economic utility, which is the rental / lease value on the market.
THE PROCESS TAKES THE LARIBA REPRESENTATIVES LONGER TIME THAN JUST PICKING AN INTEREST RATE AND CALLING IT “Rent!” But it assures us that:

i) We, at LARIBA, disengage people’s brainwashing and thinking that money can be rented at a price called interest rate. Hence, they do not need to worry about the real return on investment when one buys a property. That is the main reason for the excessive debt accumulation and abuse of credit cards.

ii) We evaluate the economic viability of every investment we embark on.
Our process requires that:

a) The client check with at least three sources like real estate agencies, property managers,..etc in the market to obtain the fair market lease rate for a similar property in the same neighborhood.

b) LARIBA finance advisor independently does the same checking process described above.

c) The client and American Finance House LARIBA discuss their findings to agree on a mutually acceptable fair lease amount value. This lease value is used as the foundation for the calculation of the monthly payment.

d) The mutually agreed upon rental value id divided between the client and American Finance House LARIBA in the same proportion of their units/shares of ownership of the purchase price of the property.

3. The third step in the approved conceptual model as in the book of Sheikh Taqi Usmani (1998) and the Fatwas of Qaradawi and other scholars (1990) is
“ …that the client purchases different units of the undivided share of the financier. This transaction is also allowed. If the undivided share relates to land and building, the sale of both is allowed according to all Islamic schools. Similarly, if the undivided share of the building is intended to be sold to the partner, it is also allowed unanimously by all Muslim jurists.”
Here is what we do at LARIBA in continuation of items a, b and c above:

e) As the client buys back the share units of American Finance House LARIBA every month, he/she increases his/her ownership share in the property, which in turn reduces the amount of the rental value to be paid to AFHL. This part of the payment is called RETURN ON CAPITAL (“RonC” – pronounced Ronsee.)

f) The client’s total monthly payment consists of the sum of RofC and RonC. This way, the model allows the client to finance a home based on marking the property to the market fair rental value, as sanctioned by Islamic Jurisprudence. SEE THE ATTACHED DETAILED NUMERICAL EXAMPLE.

g) PLEASE NOTE THAT American Finance House LARIBA uses a proprietary, copy righted and patented computer program; ISLAMABAD, which is a software developed by LARIBA originally in 1995 for a client after he consulted with a Sheikh Taqi Usmani at the Islamic University in Islamabad, Pakistan (It was.) The model incorporates the principles described above and generates a level equal payment over the Financing Period in order to lower the required payments in the early years and make it convenient to the budget of the new homebuyer.

h) In order to comply with the US laws and financial regulations specially the “Truth in Lending Law – Federal Banking Regulation Z” and rules pertaining to the tax deductibility of home mortgages, American Finance House LARIBA takes the monthly payment obtained from the Lease-To-Purchase model above and inputs it into a traditional mortgage program to obtain the “Implied Interest Rate” as required by the US laws. This allows AFHL LARIBA to disclose such a rate and complete the standard documentation as required by the US Federal and State Banking and Consumer Lending Laws.

i) In order to protect the interests of the parties involved and to conform to industry standards as well as US and state government tax and regulatory requirements, the home financing transaction uses traditional purchase financing / mortgage documentation. A LARIBA Financing Agreement is also used to supplement the traditional mortgage documents. Such agreement describes the relationship between American Finance House LARIBA and the client and the basis for calculating the monthly payments and rate of return. It is an important part of the documentation. In LARIBA’s patented model, the client will appear as owner on title to the property with American Finance House LARIBA listed as financier.. This documentation protects the client and the title of the property regardless to what happens to AFHL in the future and the ability to benefit from tax deduction. This further protects client future interests in case American Finance House LARIBA decides to exit the business or does not exist.

Back to Fatwa Index Click Here