Islamic Home Financing: A Case Study of HBFC By Muhammad Asghar Shahzad (MS Islamic Banking & Finance)

Muhammad Asghar Shahzad
Islamic Home Financing:  A Case Study of HBFC
Passing Date: Jan 06, 2011.
 
A Beautiful home is dream of every person. To fulfill this need people
normally spends their all reserves and savings but those people who
have no any saving and funds to get a sweet home they will hire homes
or get money on credit for purchasing or building a home. People
normally not approach their relatives for such a long term financing.
They will go to the financial institution to fulfill their needs.
There are different substitutes available for getting finance for
home. Conventional Banks provide financing for building a home on the
basis of Interest/Riba. But Modern Scholars introduced some Shariah
compliant methods of home financing which are using in all over the
world in Muslim Communities.
 
Following is a schedule which shows different methods following in
different countries for financing home.
 
SR. NO.
 
 
NAME OF COUNTRY
 
 
SHARIAH COMPLIANT METHOD FOR HOME FINANCING.
 
1
 
 
Pakistan
 
 
Diminishing Musharkah
 
2
 
 
Indonesia
 
 
Murabha/Bay Muajal/Bay Bithaman Al Ajil
 
3
 
 
Brunei Darussalam
 
 
Murabha/Bay Muajal/Bay Bithaman Al Ajil
 
4
 
 
U.A.E
 
 
Ijara wa Iqtna
 
5
 
 
U.S.A
 
 
·         Ijara WA Iqtna (rent to own).
 
·         Ijara WA Iqtna
 
·         Shared Home Appreciation in Rent and Equity
 
6
 
 
U.K
 
 
·         Ijara WA Iqtna (rent to own).
 
·         Murabha/Bay Muajal/Bay Bithaman Al Ajil
 
·         Istisna
 
 
The above mentioned all methods are all valid according to Shariah if
we summaries the above mentioned all modes of financing so we can say
there are mainly three Islamic modes of financing for home financing
i.e. Murabha, Ijara and Diminishing Musharkah. Diminishing Musharkah
is more acceptable Islamic mode of financing than other. Out of these
modes of financing Murabha for Islamic Home financing is disapproved
by the scholars. Middle east Shariah scholars rejected this mode
because this is same as conventional mode of home financing (Meera and
Abdul Razak). Ahmad Tarmidzi writes in his thesis dissertation that
Bay Bithaman Al Ajil for home financing is same as Bai Inna. Because
the practice of BBA financing is same as Bai Inna i.e. Bank purchases
home from client e.g. for PKR 100000 and will sell to him at cost plus
profit like (100000+10000=110000). So this practice is same as Bai al
Inna. So this mode of Islamic home financing is most controversial
between scholars many scholars like meera and Abdul Razak has totally
rejected this mode. On the other hand Diminishing Musharkah/MM is most
acceptable in scholars for Islamic home financing in all over the
world. Home financing is the combination of three contracts
(Partnership + Ijara + Sale)
 
HOME FINANCING IN PAKISTAN, “HBFC”:
 
As we have discussed above that diminishing Musharkah is the most
acceptable mode of Islamic home financing. In Pakistan there are
different financial institutions providing home financing like Islamic
banks and a special institution for this purpose is  House Building
Finance corporation which is a government based institution
established in 1952 by the government of Pakistan and incorporated
under companies’ ordinance 1984 (XLVII of 1984).[1] The Objective of
the House Building finance corporation was to facilitate the low
income of Pakistanis. “According to the HBFC Act 2001 HBFC has adopted
the Islamic model of house financing in November 1978. [2] HBFC
replaced its conventional Riba Based financing methods and opted
Musharkah products after a judgment passed by the Supreme Court of
Pakistan against Riba based Transactions.”[3] The Task Force of the
proposed modifications in the HBFC Act to make it Shariah Compliant,
Having vetted by the CTFS, the amended law has been promulgated by the
Government.[4]
 
HBFC provides a facility to the clients with the name of GHAR AASAN.
This Facility helps the client,
 
RESEARCH OBJECTIVE:
 
The objective of the research is to check how much HBFC is shariah
compliant. The main purpose is that in literature it is clearly
mention that at the time of Islamization of Financial system[1]. House
Building finance corporation was given model of diminishing musharkah.
But there is great discrepancy among general public that HBFC is not
shariah compliant.
 
 
 
So the researcher will try to find this answer. In whole literature we
can find that HBFC is based on diminishing musharkah but no body
filled this gape weather their practice is according to shariah or
not?
 
 
 
This is summery of interview with General Manager of HBFC Islamabad,
(WORDINGS OF GM)
 
 
 
"We have adopted Islamic system of Home financing after the Judgment
against Riba. The Model was given in 2001, after final approval from
parliament we have adopted this model in 2002 and we introduced a
product Ghar Aasan. In this product we provided him shariah compliant
facility. But people were not satisfied with this product because it
was very very difficult so now a days we are providing on KIBOR+spread
on yearly basis. And the rate of spread is (3.5for self employed and
3.25 for government servent.)"
BIBLIOGRAPHY:
 
1.      AAOIFI. (1429H-2008). Accounting Standards. Manama: Accounting
and Auditing Organization for Islamic Financial Institutions, P.O.Box
1176, Behrain.
 
2.      AAOIFI. (1429H-2008). Shari's Standards. Manama: Accounting
and Auditing Organization for Islamic Financial Institutions, P.O.Box
1176, Manama, Behrain.
 
3.      abdullah, N. M. (July 2010). Musharkah Mutnaqisah Home
Financing: A review of Literatures & Practices of islamic Banks in
Malysia. . international Review of Business Research Papers,, (pp.
Vol: 6 272-282).
 
4.      Abdul-Rahman, D. Y. Islamic Home Financing in the United
State. LARIBA and Mike Maguid Abdelaaty,.
 
5.      Ahmed Kameel Meera & Abdul Razak. (2009 AD/1430 AH). Home
Financing through the musharkah mutnaqishah contract: some practical
Issues. JKAU: Islamic Econ, Vol. 22 No. 1 , 121-143.
 
6.      Ali, H. Z. (2008). Dour E Hazir kay mali muamlat ka Shari
Hukam. Lahore: Abu Huraira Academy.
 
7.      Ali, H. Z. (2010). Maeeshat wa Tijarat kay Islami Ahkam.
Lahore: Abu Huraira Academy.
 
8.      Al-Shalhoob, D. S. Home Financing in Islamic Law, A study of
some products from housing financing and applicable to Islamic Law.
King Fahd University of Petroleum and minerals, Saudi Arabia.
 
9.      Chaudhry, Z. H. (1952). House Building Finance Corporation
Act,. Lahore: Ch. Abdul Sattar at G.F. Printing Press,.
 
10.  hamdi, A. R. (1997). Islamic Banking Conceptual Framework &
Practical Operations. Islamabad: Institute of Policy studies (IPS).
 
11.  Hassan, M. U. (2007). The Islamization of the Economy and the
Development of Islamic Banking in Pakistan. Kyoto Bulletin of Islamic
Area Studies , 92-109.
 
12.  HBFC. (2001-2002). Mannuals of House Building Finance
Corporation. Karachi: House Building Finance Corporation, .
 
13.  IPS. (1992). Jadeed Iqtsadi Masaiel, Shariat ki Nazar Main.
Islamabad: Institue of Policy Studies.
 
14.  Kiyani, s. (2010). house financing in pakistan & united kingdom
from shariah perspective. Islamabad: International Islamic University,
.
 
15.  Mansoori, D. M. (2005). Islamic Law of Contracts and Business
Transactions. Islamabad: Shai'ah Academy, International Islamic
University,.
 
16.  Matthews, I. T. Ethical Banking Islamic House Financing in The
United Kingdom: A Comparative Study. Center for International Business
Policy Kingston Business School, Kingstone Hill .
 
17.  Mehmood, A. (2002). Islamization of Economy in Pakistan, Past
Present and Future. Islamic Studies 41:4 , 675-704.
 
18.  Mohammaed, D. A. (2008). Consumers Acceptance on Islamic Home
Financing: Empirical evidence on Bai Bithaman Ajil (BBA) in Malaysia.
IIUM International Accounting Conference IV (INTAV), (pp. 24-26).
Kuala Lumpur.
 
19.  Muhmood, A. T.-M. (2007). Bay Bithaman Ajil (BBA) in house
Binancing As implemented by Malasian Financial insitutions: A critical
Analysis of its procedures and application from the fiqh point of
view. International Islamic University, Malaysia.
 
20.  Razak, A. K. (2005). Islamic Home Financing through MM & BBA
contracts: A comparative Analysis. Internatioanal Islamic University,
Malasia.
 
21.  SBP. (2002). Islamization of Financial System in Pakistan. Karachi: SBP.
-- 
*Muhammad Asghar Shahzad
+92 333 5317372*