General Questions concerning IJARA™
Question: Is access to IJARA™ programs restricted to Muslims?
IJARA™: IJARA™ programs are intended to offer a financial benefit to every type of consumer. SAMAD and its partners are bound to the belief that Sharia’a and Islamic values benefit everyone.
Question: Is it advisable to accept someone’s basic assertion that a contract or a particular method is compliant with Sharia’a?
IJARA™: To answer this relevant question, we suggest you rely on Sharia’a scholars who are experienced in matters relating to commercial and financial transactions. For example, does your
Islamic finance service provider have a fatwa or appropriate supporting opinions? Can this provider direct you to either an individual with resource knowledge that you can contact directly, or a resource text that you can refer to online or access by mail?
Question: If questions remain after reviewing this literature or other written material related to IJARA™, can I review your documents with my lawyer in order to better understand the process that renders our contract halal?
IJARA™: If after reviewing the answers in this section you want to read over the primary documents, we will forward a Non-Disclosure Agreement to you for signature and return followed with a file. In this way, the document is intended for the sole review of an individual and is not to be given to banks, competitors, third parties or others interested in entering this business in order to prevent these individuals from accidentally acquiring our proprietary material without the same investment in research and expense we have made, not to mention the importance regarding compliance with Sharia’a.
Question: How can we determine if a company’s fatwa is valid?
IJARA™: Obtaining a copy will show the names and signatures of the consenting scholars. If their names are unfamiliar, the appropriate training and the capacity which allows them to hold or express an opinion on matters regarding Islam and commerce should be able to be verified.
Question: Can we be assured these scholars are qualified to provide the fatwa?
IJARA™: The ijazas or certificates of certain well-known scholars are made known. You should request ijazas, bio-data, or other pertinent information that will encourage your confidence in the opinions of otherwise qualified but lesser known scholars.
Questions Concerning the IJARA™ Method (Alternative Mortgage Process)
Question: If I decide to purchase a new home after five years and sell my current house which I purchased for $400,000, what gain will I receive if the property is now worth $500,000 six years later?
IJARA™: In Islamic finance, an Ijara transaction is structured specifically to enable the customer to receive 100% of the gain under the Sharia’a, ensuring that any profit derived from the sale of a home less the balance owing on the loan benefit the customer. Using a scenario in which there is an original loan in the amount of $360,000 and the balance owing after five years is $330,000, the balance between the sale price of the property ($500,000) less the remainder of the loan ($330,000) equals a profit of $170,000 which benefits the customer. The balance remaining on the original loan is the only amount required to be repaid.
Question: How do you handle private mortgage insurance (PMI) which is a requirement for many people with small down payments?
IJARA™: The IJARA™ alternative mortgage process does not make use of established Private Mortgage Insurance, also known as PMI and, in some cases, the financing is structured in such a way that PMI is avoided. However, investors need assurance that either conventional mortgages or alternative Islamic mortgages have some type of support. As a result, some IJARA™ providers have created a Sharia’a compliant approach in transactions with consumers that provides investors with the protection they require.
Question: What about state laws that require interest must be paid on certain accounts including funds I deposit into an escrow account?
IJARA™: By law, IJARA™ providers are obligated to ensure these payments are payable to you. Although not considered either zakat or sadaqat, it is the concensus of Islamic scholars that you in turn should make this type of earned interest payable to charity.
Question: How is rent established in an IJARA™ transaction?
IJARA™: Since every IJARA™ provider has an individual method, some may provide more than one way of dealing with this issue. Generally, both parties should mutually agree to rent rates according to the accepted Sharia’a principle, although the provider may use a standard interest oriented benchmark measure in some instances. While the basis of the transaction is unaffected, Sharia’a scholars at this time unanimously agree that this type of standard is not perfect.
Question: What will happen if my payments are late?
IJARA™: You will be responsible for paying the cost of collection with respect to late payments. Ijara Payment Processing, Inc. is the company we presently work with to handle completed IJARA™ acquisitions. Funds received over and above the $50.00 collection fee this company charges will be contributed to charity.
Question: What is the minimum amount required as a down payment in an IJARA™ transaction?
IJARA™: Five(5%)percent is the minimum amount required as a down payment, otherwise referred to within the structure of the IJARA™ program as the initial payment on account. While a zero(0%)percent down payment can happen, in every instance when the down payment is less than twenty(20%)percent, the consumer is always required to execute an agreement in which the sharing of any loss by the Ijara™ provider is cancelled.
Question: Can I usehome buyer’s down payment assistance programs?
IJARA™: Provided that you produce a minimum three(3%)percent of the funds required to afford your initial payment on account, several down payment assistance programs are presently permitted by IJARA™ providers.
Question: Do IJARA™ providers currently refinance mortgages already in place?
IJARA™: Yes, the IJARA™ method can be used to replace an existing conventional mortgage or Islamic mortgages.
Question: Are the mortgage payments made in both conventional mortgages and Islamic mortgages basically rent payments as some people believe, paying a rental fee to allow you to currently reside in the home while the property increases in value in the future?
IJARA™: This notion is incorrect. When you borrow money to purchase a house or refinance an existing loan, you pay interest or “rent” on the money loaned to you and not on the house you own. In two of the three Sharia’a Islamic finance methods, lease payments represent your enjoyment of real property on the house you rent.
Question: Doesn’t the word interest also mean rent in the Islamic system? If so, aren’t you replacing the word interest with rent or profit?
IJARA™: In Islam, three methods to home acquisition are acceptable. A sale is the first method, followed by rent to own (or the IJARA™ method), with a partnership (where renting property comprises part of the transaction) as the third method. Rental payments are specifically intended for the use of the property while the profit, in the case of the sale method,is a mark-up on a base sales price. On the other hand, Riba is defined as payment for money used over a period of time,which is similar to the idea of interest as it relates to a conventional mortgage loan.
While an accountant may reason that profit in the case of the aforementioned sale method, and rent in the latter two methods is the same as interest, riba does not apply in any of these examples. Others may contend that interest is part of anything that is recognized to generate a benefit over time. However, this is not the way Sharia’a scholars define riba, instead riba inevitably relates to monetary loans or money exchanges such as when commodities are traded as money.
Question: Is it true that homes labeled as purchased under an Islamic finance system are the same as homes purchased under a conventional mortgage system?
IJARA™: This is inaccurate. While the process to qualify a consumer, including disclosing potential risks and costs and the relevant paperwork required both before and after bringing about the acquisition, is regulated by state and federal laws in the U.S. creating the same common rights and obligations which make it comparable or identical to a conventional mortgage, the acquisition process is essentially different in structure and not just labeled otherwise.
Question: I have been told the documentation required for signature in the application and processing of a purchase transaction with an alternative type of mortgage is identical to the documentation required in a conventional mortgage. Why is the documentation the same for two different systems?
IJARA™: While the documents required for signature which includes paperwork regarding the application, disclosure process and relevant disclosure documentation after closing should reveal the particular details of an IJARA™ method or alternative Islamic mortgages, they are mainly regulated by state and federal statutes so the government can make certain that you fully understand the specifics of a transaction and can compare it to other similar transactions. These documents do not form the contract that obligates you, the property, bank or any other parties to the contractual agreement.
Question: In what ways does a replacement under the IJARA™ method compare with refinancing a traditional mortgage?
IJARA™: Typically, replacement in Islamic finance is separate from traditional refinancing since title from the existing borrower owner is transferred to an independent trust which then owns the property for the investor’s benefit.
Question: What occurs if I cannot provide sufficient funds to close the transaction?
IJARA™:Conditionalupon the type of investment you qualify for, other amounts besidesfive(5%)percent of the estimated cost of the final purchase may be integrated into the Promise to Purchase value.
Question: Which legal documents will Ijara require us to sign? Can you please provide us with a copy of the relevant contract, agreement and/or terms of service(ToS) by email?
IJARA™: Upon receipt of an executed NDA, copies of documents required for signature that include a trust agreement, promise to purchase and lease will be forwarded to you.
Question: What does ACH mean?
IJARA™: Automated Clearing House (ACH) in the United States and Electronic Funds Transfer (EFT) in Canada essentially authorize electronic payments from a customer’s transactional checking account.
Question: Is routing our monthly payments part of the process?
IJARA™: Are payments automatically withdrawn from our bank account? Yes, payments will be deducted automatically from your bank’s checking account every month.
Question: Does Ijara charge other amounts such as a monthly, quarterly or annual fee in addition to payment of a conversion fee?
IJARA™: A monthly administration fee of $20 will be charged for every transaction on top of the conversion/closing fee.
Question: Your Islamic finance website is excellent and very informative. However, there isn’t much information available on the conversion program. Could you kindly share any information or documentation available on the Islamic viability of this type of program?
IJARA™: Our company takes a proprietary interest in the conversion method; therefore, we do not share our knowledge of the process. The Islamic viability of the conversion program essentially results in an Ijara transaction that is Sharia compliant.
Question: Who is responsible for communicating with our bank to arrange the transfer? What documents are required for exchange between our bank and Ijara? What is our involvement in this process?
IJARA™: Our company takes a proprietary interest in the conversion method; therefore, it is our responsibility to communicate with your bank to make the necessary plans. Your involvement in the process will be minimal once the conversion documents have been executed.
Question: There is a reference to “next payment coupon” listed below. Since the process is electronic, we do not receive coupons.
IJARA™: In order to locate the right account, we will need information such as the account number, payment address and so forth, in addition to your current bank balance.