Mortgage (Ijarah) in Islam
Definition
Mortgage (Ijarah) in Islamic finance, also known as Ijarah, refers to a leasing agreement where the ownership of the asset remains with the financing entity while the consumer has the right to use the asset in exchange for a rental payment. Unlike conventional mortgages, where the borrower owns the property with the lender holding a security interest, Islamic mortgages require compliance with Shariah law, which prohibits interest ({\it riba}).
Etymology
The term “Ijarah” is derived from the Arabic root “أجر” (ʾajara) meaning “to rent” or “to hire.” Ijarah, therefore, emphasizes a lease rather than a loan, avoiding the element of interest.
- Arabic: إجارة (Ijarah)
- Turkish: Kira veya İcara
Legal and Theological Context
In Islam, traditional interest-bearing mortgages are deemed unacceptable due to the prohibition of Riba (usury). Instead, Islamic finance offers various Shariah-compliant alternatives, including Ijarah:
- Ijarah Muntahia Bittamleek: A lease-to-own arrangement where ownership is gradually transferred to the lessee at the end of the lease period through a gift or sale transaction.
- Murabaha: A cost-plus financing arrangement, often used in property purchases where the bank buys the property and sells it to the buyer at a markup, payable in installments.
Key Legal Considerations:
- The lessee pays rent for using the property, distinct from paying interest on borrowed capital.
- The lessor retains ownership and responsibility for major maintenance, while the lessee covers minor upkeep.
- The lease agreement must clearly state the rental price, lease term, and rights and obligations of both parties.
Cultural and Ethical Implications
Ijarah-based mortgages provide a vital alternative for Muslims who wish to purchase property without violating Shariah principles. It emphasizes ethical finance ensuring transparency, fairness, and equity in transactions.
Recommended Books for Further Study
- “An Introduction to Islamic Finance: Theory and Practice” by Zamir Iqbal and Abbas Mirakhor
- “Islamic Banking and Finance: Principles and Practice” by Mohammad Rizwanul Islam
- “The Art of Islamic Banking and Finance: Tools and Techniques for Community-Based Banking” by Yahia Abdul-Rahman
Takeaways
- Ijarah serves as a Shariah-compliant method to enable Muslims to lease or own property without engaging in interest-based transactions.
- The concept underscores ethics in finance by promoting transparency and mutual benefit.
- Understanding and applying Ijarah agreements require awareness of both the legal and theological dimensions within Islamic finance.
Conclusion
The Islamic mortgage through Ijarah represents a significant shift from conventional interest-based mortgages, aligning real estate financing with Islamic ethical and legal principles. It offers Muslims a way to fulfill their housing needs while remaining compliant with their faith.
With a robust framework based on transparency, fairness, and equity, Ijarah stands as a sustainable and ethical alternative, fostering trust and justice in the financial transactions of Muslim communities.
