5 ms·

"How is [Islamic finance] different from secular finance? The difference is, for example, that they don't charge interest. They can't indulge in some particula

"How is [Islamic finance] different from secular finance? The difference is, for example, that they don't charge interest. They can't indulge in some particularly risky or speculative transactions. There's actually a whole long list of requirements, such as not selling debt, that are derived from these basic prohibitions against interest taking and against excessive risk. So because of those specific rulings, they have to design the transactions in slightly different ways. For example, rather than borrowing money to buy some goods, they'll have the bank buy the goods and then resell the goods to the customer, so the bank becomes involved as an owner at one stage of the transaction. That makes it lawful, from the Islamic perspective. Whereas if the bank lent the money to the customer, that's an interest-bearing loan, and that's not allowed. So they use slightly different routes, typically involving ownership of goods at some point, to achieve finance." https://www.theguardian.com/commentisfree/michaeltomasky/2010/aug/05/usa-islam-elena-kagan-sharia-nonsense https://www.theguardian.com/commentisfree/michaeltomasky/201...

candiodari 6y ago
The do charge interests. Sorry, they "don't". They charge "administrative costs", percentual administrative costs that reoccur over time. Although this comes in many different flavors. And, of course, despite everything sounding nicer ("partnership"), it is in fact a much worse position for the buyer to be in. An example of islamic finance "without interest": you want to buy a house, and repay your "non-loan" over 30 years. You put down a 10% downpayment. The bank purchases the home, immediately increases the price by the full interest (let's simplify that calculation to 30yearly interest rate/2, so let's call it 50% for 30 years at 4%) then leases it back to you, and if you run out the lease they promise to transfer (for an additional fee) the ownership of the property to you. This is called a "partnership". This is illegal in most of the world, because it's exploitative. Why? 1) you are charged all interest on day 0 2) if you fail to pay, the property is in the hands of the "not-" bank that will kick you out, you will STILL owe them, generally more money than was to be repaid for you to get the property 3) if the *bank* gets into financial trouble you will lose your house 4) there are none of the normal protections (such as maximum interest rates, limits on administrative fees, ... and technically 2) is also an example of lack of protections)
- deleted 6y ago
  [deleted]
- adityapurwa 6y ago
  In Islam, the bank has to own the house 100% if they want to sell it. You are not allowed to sell item that isn’t yours in Islam. If the bank purchased the house via leasing and that it isn’t 100% owned by them, they are not allowed to sell it to anyone at all. You can not sell loan for loan in Islam. It is similar to a seller buying some cars for $10k each, and sell them on their dealership for $15k each. They can provide installment payment for the buyer and sell it for $20k each and they can pay it per month for $500. The difference between price is not loan/interest, its their profits.
  - candiodari 6y ago
    The bank does own own the house 100% in this case ... The distinction between profit calculated on de amount and duration of a loan and interest is the difference between 4 and IV. It’s the same amount, with the same reasoning behind it. It’s interest.
    - adityapurwa 6y ago
      > 2) if you fail to pay, the property is in the hands of the "not-" bank that will kick you out, you will STILL owe them, generally more money than was to be repaid for you to get the property 3) if the bank gets into financial trouble you will lose your house 4) there are none of the normal protections (such as maximum interest rates, limits on administrative fees, ... and technically 2) is also an example of lack of protections) Then I assume 2 would no longer be a risk? Bank owned the property, if you failed to pay bank will sold it to someone else who can pay, bank will then return your money if it sold higher than the set price. Point is 3 is a weak contract issue, when you made the purchase, the contract should be clear that bank can not seize the house unless you failed to pay. If the contract says bank can cancel the transaction however they want or whenever they have issue, no one would want to do business with them. Imagine accepting a project but we put the terms, we can cancel the project and not return your money if we have issues with it. Again 4 is also a contract issue, we have to draft the contract to make it feasible for both parties. It is basically an installment, you buy $100k house for $100/month. That’s it, the values are clear, the monthly payment will not go higher or lower, you can even pay the remaining directly with hard cash on the next month if you want.

candiodari 6y ago

The do charge interests. Sorry, they "don't". They charge "administrative costs", percentual administrative costs that reoccur over time. Although this comes in many different flavors. And, of course, despite everything sounding nicer ("partnership"), it is in fact a much worse position for the buyer to be in. An example of islamic finance "without interest": you want to buy a house, and repay your "non-loan" over 30 years. You put down a 10% downpayment. The bank purchases the home, immediately increases the price by the full interest (let's simplify that calculation to 30yearly interest rate/2, so let's call it 50% for 30 years at 4%) then leases it back to you, and if you run out the lease they promise to transfer (for an additional fee) the ownership of the property to you. This is called a "partnership". This is illegal in most of the world, because it's exploitative. Why? 1) you are charged all interest on day 0 2) if you fail to pay, the property is in the hands of the "not-" bank that will kick you out, you will STILL owe them, generally more money than was to be repaid for you to get the property 3) if the *bank* gets into financial trouble you will lose your house 4) there are none of the normal protections (such as maximum interest rates, limits on administrative fees, ... and technically 2) is also an example of lack of protections)

deleted 6y ago
[deleted]
adityapurwa 6y ago
In Islam, the bank has to own the house 100% if they want to sell it. You are not allowed to sell item that isn’t yours in Islam. If the bank purchased the house via leasing and that it isn’t 100% owned by them, they are not allowed to sell it to anyone at all. You can not sell loan for loan in Islam. It is similar to a seller buying some cars for $10k each, and sell them on their dealership for $15k each. They can provide installment payment for the buyer and sell it for $20k each and they can pay it per month for $500. The difference between price is not loan/interest, its their profits.
- candiodari 6y ago
  The bank does own own the house 100% in this case ... The distinction between profit calculated on de amount and duration of a loan and interest is the difference between 4 and IV. It’s the same amount, with the same reasoning behind it. It’s interest.
  - adityapurwa 6y ago
    > 2) if you fail to pay, the property is in the hands of the "not-" bank that will kick you out, you will STILL owe them, generally more money than was to be repaid for you to get the property 3) if the bank gets into financial trouble you will lose your house 4) there are none of the normal protections (such as maximum interest rates, limits on administrative fees, ... and technically 2) is also an example of lack of protections) Then I assume 2 would no longer be a risk? Bank owned the property, if you failed to pay bank will sold it to someone else who can pay, bank will then return your money if it sold higher than the set price. Point is 3 is a weak contract issue, when you made the purchase, the contract should be clear that bank can not seize the house unless you failed to pay. If the contract says bank can cancel the transaction however they want or whenever they have issue, no one would want to do business with them. Imagine accepting a project but we put the terms, we can cancel the project and not return your money if we have issues with it. Again 4 is also a contract issue, we have to draft the contract to make it feasible for both parties. It is basically an installment, you buy $100k house for $100/month. That’s it, the values are clear, the monthly payment will not go higher or lower, you can even pay the remaining directly with hard cash on the next month if you want.