Welcome to Amanah Islamic Finance, your journey to home financing starts here
Amanah uses the Islamic principal of Ijarah (XXX link back to Common terms in Islamic Finance /CTIF XXX) as its preferred method for home financing.
Ijarah* is used to facilitate home finance by Islamic banks in the Middle East, Malaysia, Pakistan and South Africa.
Upon completing the prerequisite forms to qualify for Finance and succeeding, you can finally purchase your dream home with the ease of mind of not dealing with Riba (Interest). When your choice of home has been purchased, you are now known as the Wakeel and Amanah as the Financier. Under Shariah rule, the Financier is regarded as the owner of the home, and he has purchased it through his Wakeel, from the vendor.
Furthermore, According to the Amanah Wakala agreement and Shariah rule, as owner, it would make Amanah liable to pay all the expenses incurred in the process of its purchase. This is taken into consideration while fixing the rentals.
It is important to note, the combination of Ijarah and Wa’ad makes a simple Ijarah into a financing arrangement and this approach is widely accepted in Shariah and practised by many Islamic banks.
The basis of using Ijarah.
The first stage with Amanah means that rent must be charged after the customer has taken delivery of the home and not from the day the home has been purchased. This is unlike the contract of sale because the agreement of Ijarah can be achieved for a future date. What does this mean for you? It determines that, in accordance with Shariah, the first payment is due one month after settlement date. At this stage, the relationship between you and Amanah Finance is Wakeel (you) and Muwakel (Amanah).
The second stage begins from the date when you have taken delivery of the property purchased. The Amanah Ijarah Financing Agreement documents this as the stage where the customer will make rental payments which comprise the amount that was applied to the purchase of the Financed Property. At this stage, the relation of Mustajir and Ajir comes to play its role.
So, you’ve moved in and now what?
During this point, as the Amanah Wakala agreement highlight, the customer is obligated to keep the mortgaged property in good repair, pay all rates and taxes and other expenses in relation to the property.
Under the terms of Ijarah, you have the right to use and enjoy your home based on the fact that you are fulfilling your Wakala agreement and the Ijarah agreement.
If you are renting, what benefit do you get once you make all of your payments?
The Ijarah Financing Agreement is accompanied by a Wa’ad or “sale undertaking”. Under the Wa’ad, the Financier undertakes that if the Customer makes all payments in accordance with the Ijarah Financing Agreement then it will sell the Financier’s interest in the property for a nominal amount (currently $635 which is the current cost of a discharge).
If the Customer Is Seen As Paying Rental What Happens If the Customer Terminates the Agreement Part Way Through?
The Ijarah Financing Agreement is also accompanied by a “purchase undertaking” (or Wa’ad) from the Customer. If a Customer terminates early, the Financier will exercise this Wa’ad where the Customer promises to pay the Financier an amount equal to the balance outstanding and immediately purchase Financer’s interest.
What about rental increases?
Rest assured that rental rates will never fluctuate on a daily basis (as is the case with many credit contracts in Australia). Amanah renders this feature of its contract as an imperative point : uncertainty of rental rates is expressively excluded under Amanah’s contract**.
Permissible use of Insurance
In Australia, the procedure to insure a financed property is a requirement. These requirements exist across the world including, in Islamic banks such as at Meezan Bank in Pakistan where Takaful (an Islamically permissible form of insurance) is used.
Takaful is not available in Australia. We overcome this problem by including a term in the Wakalah Agreement which states that the Customer is purchasing the insurance on behalf of the Financier, and the Financier has adjusted the payments to include the insurance premium. This acknowledgement in relation to premium payment is expressly recognised and evidenced as a key term of the Wakalah.
From a Shariah perspective, the Amanah contracts have been drafted such that the Financier is considered as the one purchasing, and enjoying the benefit of the insurance. In these circumstances, the insurance is permissible under Shariah.
*For more information on the topic of Ijarah as analysed in significant detail, please refer to the following material:
- The Ijarah standards of the Accounting and Auditing Organization of Islamic Financial Institutions (AAOIFI) where Mufti Dr Imran Usmani is a member of the Executive Committee
- Meezan’s Guide to Islamic Banking by Mufti Dr Imran Usmani
- An Introduction to Islamic Finance by Justice (ret) Sheikh Mufti Muhammed Taqi Usmani
**(it may be permissible from a Shariah perspective for the rental rate to vary, however there are strict conditions that must be followed.)