Is a deposit free mortgage offered by Skipton Building Society permissible?

Ribā refers to the stipulated or customary excess that is unjustified and unwarranted in a contract. In the mortgage in question, the borrower does not make a down payment but borrows the entire sum from the financier and is charged interest. This interest is considered Ribā, and not a justified gain from a Sharī’ah perspective.

Lending is a charitable contract and a gratuitous performance in Sharī’ah. Lending cannot be monetised. Lending is a gesture of goodwill to support those in need. A loan contract is not the right vehicle to profit; a loan must be repaid at face value, and the risk of the funds are borne by the borrower. As such, the lender no longer bears the risk of the funds, nor is the return of his money conditional on the successful deployment and use of the funds. As such, he is not entitled to any gain over and above the capital he had provided to the borrower. Yes, he is entitled to immense reward for this virtuous act.

Any loan that draws benefit(s) for the lender beyond the capital is a Ribā contract. Imam al-Marghīnānī (d.593 AH) mentions that Ribā is unjustified consideration in transaction.

Imam Abu Bakr al-Jaṣṣāṣ al-Rāzī (d.370 AH) described the Ribā that was practiced in Jāhiliyyahas a loan entailing a specified repayment period, and an amount in excess of the capital is predetermined.

Below are modes commonly used within the Islamic Finance industry:

Ijārah Model

In Ijārah, or the leasing model, the bank acquires the property a customer wishes to buy and then leases it to the customer for a predetermined term at a specified monthly cost. Upon completion of the term, full ownership of the property is transferred to the customer by either a sale for a nominal fee or by gift.

Diminishing Mushārakah

Diminishing Mushārakah, or the partnership model, involves a co-ownership agreement between the customer and the bank where each party owns a separate share of the property. With each repayment, consisting of both capital and rent, the customer acquires more of the bank’s share. As a result, the rent decreases as the customer’s share increases, and eventually, the customer will gain ownership of the entire property.

Murābahah Model

In the Murābahah, or cost-plus profit model, the bank purchases the desired property on and then subsequently sells it to the customer at a markup. The customer then pays instalments over an agreed period. This model ensures a clear, fixed cost, avoiding ambiguity in the repayment structure, aligning with Sharī’ah principles of transparency and fairness.

While various financial institutions may claim to operate under the aforementioned Islamic financing models, it is crucial for individuals to exercise caution and conduct diligent research to verify whether institutions have received certification from reputable Sharī’ah boards. The application and implementation of these models are nuanced and highly technical, necessitating extensive vetting and consistent oversight to ensure strict adherence to Sharī’ah principles. A lack of thorough scrutiny and proper certification could result in engagements that are not truly in compliance with Sharī’ah principles, potentially leading to the inadvertent involvement in non- Sharī’ah compliant transactions. It is therefore paramount to seek and verify the approval of credible and authoritative Sharī’ah scholars or boards when considering such financial arrangements.