Wan Hafizi Wan Halim on “Halal Loan”

Is there such a thing called halal loan?

Yes, there is.

A halal loan simply means a loan without interest.

If I lend you a dollar today, I cannot charge anything beyond that figure for the repayment because that would simply be riba’, and riba’ is strongly prohibited in Islam. Everyone knows that.

So here’s the question.

How actually an Islamic bank gets their return?

I think, this is one of the most important points, that has caused probably huge misunderstanding among the public.

Because Islamic banks do not provide loan. They provide Islamic financing facilities.

Islamic bank provide financing facilities which are based on various underlying Islamic contracts. So let’s take for example Murabahah.

So a bank may purchase a certain asset at a certain price and sell it to you at a higher price. This is a valid sale and buy contract in Islam.

A bank may also purchase a certain asset, and lease it to you for a certain amount. So basically what you pay to the bank is actually the rental payment for utilizing that asset.

So this is ijarah, which is also one of the approved contracts in Islam.

So people may ask, what’s the difference? Is this just changing the terminologies on paper?

Well it is not.

Let’s take Murabahah again for example. A Murabahah, if you see a transaction based on the Murabaha in any Islamic financial institution, there is actually a genuine buy and sale transaction that happens and underlying all Murabaha-based products.

There is a genuine transfer of ownership from a particular entity to the Islamic bank, before the bank can sell it to the customer for a certain price with profit. That is on one hand.

On the other hand, it is also good to know and to be highlighted here that all Islamic financing facilities, are only for the Shariah-compliant purposes. Therefore, you cannot see any Islamic financial institutions funding any non-ethical activities which are not according to the Shariah principles.

It is also good to know that all Islamic financing facilities available in the market are for everyone, both Muslims and non-Muslims alike.

At Amanie Advisors, we have in-depth experience in structuring and developing various Islamic financing products or facilities, based on the Client’s requirements and needs.

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