Keep the Faith

The watchword for lenders at the moment is undoubtedly risk. The sub-prime crisis that imploded to become a full-scale credit crunch has been blamed on lenders' inability to identify risk. Now, as lenders, brokers and consumers await an increase in liquidity in the market, there is at least one thing everyone can agree on - the new dawn of lending, whenever it might come, must be more astute at managing risk than the previous era.

Islamic mortgages avoid interest by using a method based on the principles of Ijara (leasing) and diminishing Musharaka (partnership). Instead of lending money the bank owns a share in the property which it leases to the customer.   The customer then makes rental and acquisition payments in order to own the property outright at the end of the term. The client is able to sell the property at any time and can pay in lump sums twice a year without incurring any penalties.

The Musharaka structure requires the legalities to be different from a conventional mortgage. For example, the legal contract shows the bank's share in the property and ownership rights within the transaction.
Of course, any lawyers involved have to be familiar with the process. That's why we have a panel of vetted solicitors, creating a smooth transition for clients wishing to take the ethical path.

The government has come up with initiatives designed to make the UK a global hub of Islamic finance, and the balanced principles that underpin the industry could make this an ethical solution to some of the problems in this country's traditional banking structure.   Although knowledge of Islamic finance can be attained fairly readily it is hard for brokers to explain the differences between conventional and Islamic financial products -especially what makes them Sharia-compliant.  This is mainly because the structures, Arabic terms and legalities involved have to be understood well enough that they can be explained to clients in a clear and simple way.

Customers may already be confused after trawling through a minefield of information on the internet, and be looking for a simple explanation Islamic methods, and more importantly what makes these products compliant with their faith or ethics.   It's hardly surprising that many brokers do not see the extra work involved in learning about Islamic financial products as representing a viable business.   I believe a specialist approach is key to delivering Islamic financial advice to the masses. This has two main benefits. First, clients see a company not deriving its income from interest-based conventional banks while explaining to them why they should avoid these firms - I'm often asked if I deal with conventional banks. Second, by specialising in this market the principles and structures of it become second nature, and clients can see this.

Reference
www.mortgagestrategy.co.uk/cgi-bin/item.cgi