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Selling halal mortgages is like telling porkies with interest
argues Dr. Sahib Mustaqim Bleher

Please Note: This article was first published in Q-News

There must have been a sigh of relief when the announcement was made that the chancellor had amended the rules on stamp duty to facilitate Islamic financing models for Muslims wanting to purchase their homes. On closer inspection, however, the offering by Muslim and non-Muslim high street banks appears to be more a case of mis-selling to a gullible and desperate Muslim public.

In ayah 257 of Surah al-Baqarah, the beginning of the Qur'anic rulings outlawing usurious interest dealings, Allah tells us about "those who consume interest" that "they say interest is like trade, yet Allah has permitted trade and forbidden interest". True to colour the purveyors of "Islamic" mortgages defend their practice by comparing the selling of financial instruments with the halal meat trade. Amanah Finance, the off-shoot of HSBC (Hongkong Shanghai Banking Corporation - the old British colonial bank - so maybe a little scepticism isn't ill-founded) uses this analogy in its frequently asked question leaflet. I shall stay with this rather limp analogy for a while to explain why I think they are selling what I shall term "halal porkage" instead.

HSBC Amanah Finance, like any other company venturing onto the new and promising (for them) halal finance market, has its own Shariah Advisory Board. The presence of scholars nave or eager enough to lend their name to an operation which might be technically correct, but morally no less outrageous, does not in itself make a product halal. Consider the halal pork chop, accompanied by a scholarly certificate testifying that the animal has been dispatched properly without stunning in accordance with the Islamic rites of slaughter - would you eat it?

My charge against these Shariah Board members lending their good name to an exploitation of the unsuspecting Muslim is the same as the one Allah makes against the Israelites in ayah 46 of Surah al-Nisa': they "displace words from their right places", that is, adjusting the text of the law such that the forbidden becomes lawful on a technicality, similar to the practice of swapping the days of the holy months mentioned in ayah 37 of Surah al-Taubah.

Let me flesh out this argument: The aforementioned leaflet states that Amanah Home Finance uses "a payment scheme that is competitive with conventional mortgages" and postulates that "it is certainly halal to use the prevailing interest rate as a benchmark" for the varying rent payments charged to its customers. It further explains that the key criterion for the acceptability of the scheme is "that the transaction be compliant with Islamic law, regardless of the price of the good or how that price is determined." It then compares this to a Muslim butcher in a non-Muslim country pricing his product according to what the market will support and that in spite of the price for his meat not being arrived at independently, the meat he sells is still halal. We all are familiar with paying higher prices at halal butchers for the privilege of getting the meat mandated by our religion.

On first glance this might look like a sound argument, but in reality it is like comparing apples with pears. The comparison would be appropriate if I compared the meat the butcher sells with the house the bank finances: A pub bought through Ijarah finance would be equally as haram as a house bought through a conventional mortgage would be halal as such. But we are not comparing products; we are doctoring with the method: The halal finance scheme is about as convincing as the argument used by Muslim slaughterhouses in Denmark, that stunning does not render an animal unlawful provided it is followed by ritual slaughter. This reducing of the requirements to a ritual without regard for their intended objectives does, of course, let people of the hook and removes the difficulties of availability. But if my halal butcher sells me pre-stunned meat - effectively haram meat with a halal label - why should I pay him a premium for the ingenuity of successfully cheating me? Likewise, why reward the cleverness of the Islamic finance houses and pay for their Shariah Boards, if the same product is available round the corner cheaper and without pretensions?

Undoubtedly the Muslim who opts for the "Islamic" finance scheme gets a worse deal. With a conventional mortgage the bank lends you the money to buy your home and secures the loan against the property. The property is strictly speaking yours, but if you default on the loan they can repossess and force a sale to get their money back. Whatever is left after this unfortunate process remains yours to keep. With the Ijarah financing method employed by HSBC Amanah the assets remain the property of the bank until paid off in full. They then lease it back to you, and should you default, arguably you are left with nothing, for you have neither a capital asset in your name, nor the protection of a tenant, as this is a fixed term lease.

Ijarah is, of course, a valid non-usurious instrument known in Islamic fiqh, but the house buying scheme on offer deviates from its proper application in a number of ways. A proper Islamic home financing scheme would work like this: Either the financing company or individual buys the property for your benefit and charges you a fixed price including a mark-up due to the fact that you enjoy the benefit of the property already before having paid for it in full; in this case your payments will not fluctuate and certainly not be pegged to prevailing interest rates. Or the property is rented back to you at a market rent plus a sum to buy back the house over the agreed period of time; in this case as your shares in the house increase, your rental obligations decrease, so that the property gradually moves into your possession. Amanah, on the other hand, want their cake and eat it.

Yet, there is an even more important fundamental principle involved. I take issue with HSBC's claim that "there is no particular reason why a house financed in this method should be any more or less expensive than a house financed by a conventional mortgage." Allah says in ayah 185 of Surah al-Baqarah that he wants ease for us, not hardship, and it is an accepted principle of fiqh that trade dealings between Muslims must be equitable and not exploitative or extortionate. Allah did not prohibit interest because He intended job security for Shariah Advisors, but because it is taking advantage of the need of a fellow human. Instead of helping him to escape the trap of poverty and debt it makes him dependent, and by accepting payments in instalments or at a later date the lender makes a handsome profit of almost double the purchase price. It follows that if interest is immoral, any other way of extracting the same penalty from the helpless borrower must be equally immoral, no matter what you might call it. Interest by any other name still smells the same. In other words, it is unthinkable that a halal financing model would cost the borrower as much or even more than one where he is exploited through the added interest payments. To claim otherwise means making a mockery of the Qur'anic prohibition of interest and of Islam.

The teachings of the prophet Muhammad, peace be with him, were not concerned with balance sheets, margins and profitability. They had the welfare of humanity in mind. For a sound halal financing enterprise the aim must be to provide ways for Muslims to secure a roof over their heads without being exploited. With HSBC the aim seems to be to aggressively groom a hitherto closed market. From the outset, the intention or niyah is all wrong. But more than that. This is the slippery slope to the destruction of the spirit of Islam, replacing it with a commercialised remnant of ritual practices. In the 16th Century Calvin's reformation redefined usury for the Christian Church, and centuries later Christian belief for most people has degenerated into a folkloristic collection of myths. Let the usurers get away with tempering with Islam, and maybe we, too, will soon be preoccupied with the "ordination" of gay Imams.

Maybe I am painting a bleak picture. Maybe this is only a passing phase of confusion. But we must be on our guard. For Muslims feeling unable to resist the temptation to get a mortgage, often for very genuine reasons, I can only offer this advice: get the cheapest deal going and pay it off as quickly as you can. Don't pay extra for some slick banking advertisement offering to smooth your conscience.

Author: Dr. Sahib Mustaqim Bleher
Date Published: Oct 2004 (First Published in Q-News)

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