I understand that in Islamic property financing, the bank actually buy the property and resell to us at a higher price depending on a contracted profit rate. This make early settlement an issue (since we're obliged to paying interest of whole tenure once the home financing accepted), however has been resolved by giving ibra (rebate), which is an important aspect to make it competitive to conventional home loan. But how high is the ibra(rebate)?

I'm referring to "flexi-type" of Islamic Financing.
There are two types of ibra i.e. (a) ibra for early settlement (b) ibra for monthly basis to correspond the current profit rate in the market.
As far as i know, the ibra for monthly basis will be given as ;
contracted profit rate - effective profit rate.
whereby effective profit rate refers to current profit rate, calculated on daily/monthly rest basis.

However, how do we calculate the ibra for early settlement? Any formula or example of formula for this? Is it recommended to take up Islamic financing if i plan to do early settlement in near future? What is your personal opinion?

emmm i guess it depends on the bank,is ibra' standard between banks?

if you see the term

to follow strictly to shariah (islamic law)
they need to do

1 - ABBA al-bai' bithaman al-ajil (buy and then sell)
which is what you refering to bank buy the house (it is lump sum if completed, progressively if under construction)
that way, the rate should be fixed (bank profited from you). it varies accross bank. What i know public islamic bank have profit rate of 9.55% pa

2 - BFR which is normally same as BLR
if BFR minus (-) X.XX is higher than ceiling rate, than the ceiling rate will be followed
but if lower, the rebate (ibra') will make conventional and islamic calculation exactly same
i recommend you to use home loan calculator that you can feed bfr info according to monthly & number of day which is different between months
simply said, theres a limit of repayment each month (which is calculated 9.55% pa)
however high bfr goes, it should not greater than 9.55% pa because it is in the aqad (shakehand agreement) already - same like in islamic marriage
but if bfr is lower than the 9.55% (fluctuating bfr) will be used instead as repayment rate

3 - compunding interest is not allowed
you lose your property because of two reason, compunding (cumulative) interest & blr shoot too high
there is no compunding interest, but they have interest still in the rate of unpaid x mudharabah such as 2.5% pa (or fd / saving acc pa rate)


a - i do think there something not yet shariah in some aspect
such as locking period, still too high which is 3% also
i am not quite sure for other aspect / banks
it should be around 1% only. but if bank applies this then nobody wants to go for conventional anymore, i guess

b - islamic bank institution who really follows all the shariah ruling, then they will tend to be selective to their customer (such as hsbc amanah) or having very bad rate (bank islam)
one of the reason the only thing not yet islam can be applied is legal tender (fiat money/paper money) which is deteriorate in value because of inflation rather than zahab (gold) which is dinar 4.25gram 916 gold wal fiddhoh (silver) which is dirham 2.275gram 999 silver


you cannot be too low on your fixed profit rate because say in 30 years repayment, the value of money is not the same anymore, your money lose it value it once had

1400 years ago, in rasulullah and sahabah (sahabat/companion) time - 1 dinar you can buy a goat, today the value of 1 dinar is around 530 ringgit per dinar. imagine that much money, can u still but a goat today?

1400 years ago, in rasulullah and sahabah (sahabat/companion) time - 1 dirham you can buy a chicken, today the value of 1 dinar is around 15 ringgit per dirham. imagine that much money, can u still but a chicken today?

so gold and silver have the protection / shield against fluctuation of inflation rate (aka bfr)

in p ramlee movie which i cannot recall what film, 7.5 cent at that time we can buy a pair of uniform cloth, trouses and shirt. but if you multiply by 100, you maybe able to buy only the shirt now, or maybe both i am not quite sure, but enough said our money lose it value it once had

it is glaring example, in malaysian history/old film


the conclusion is, the rate on conventional and islamic, how to calculated is exactly the same except some of the clauses such as compunding interest, exit fee in some banks (i think standard chartered saadiq), ceiling rate
the shariah advisory board have a very big power, if not follow shariah, you cannot claim yourself islamic system
same goes to halal concept - thus theres a difference

i am a muslim, and proud to be one
we as a muslim waajib (obligatory) to use interest free system, not putting ourself into the danger of capitalism
that is why i am writing this...

This post has been edited by AbangCorp: Jan 17 2010, 11:47 AM

Thanks abangcorp,if i may add....BBA is too controversy and complicated...that's why when you look, it reflects the calculation of 90% equal to the conventional...what veer it is, BNM has yet to come out with independant benchmark other than BFR..btw, there is no authority to prohibit the bank from imposing 100% profit. am i rite sifu?

can a non-muslim take an islamic financing? anything need to be aware of?

yup, so it is according to agreement
you need to discuss with bank

but if you see conventional, it is an offer
than you need to nego to that offer
same goes to islamic loan

a discussion must be made to close the deal
not merely use what most people use
or in other word, not our profit rate / interest rate is in the liberty of the banks


i calculated, mine in 9.55% pa, it is almost 200% profit

bba is not too complicated, it is complicated when they want to islamized the available conventional system
for muslem, we need to be thankful for that. even tho the calculation almost same, but we have akad what rate of profit bank would get in return of the financing facility - which make it legal in islam

the basic idea is, in islam, you cannot sell something without price tag
i will sell you this house according to blr, for 150k or 200k or maybe more according to blr

you need to have something like, i sell to you 250k (how high doesnt matter, as long the purchaser agree)

but like bank islam, they cannot put ibra' as bank obligatory clauses, because it is not BBA (buy then sell) - they can grant it but not in writing, it will collide with BBA system

but my public bank do put ibra' as in offer letter, it varies
how they want to go about

---

Added on January 17, 2010, 12:40 pmwe always say to non muslim during our prophet teach islam to non-muslem arabs
islam is rahmatal lil alamin (islam is a rahmat (blessing) to the universe)

i can answer you question with another question
can anyone (non muslem) buy a halal food?




________

to add anything to be aware of
our financial institution even tho make everything according to shariah, but in some sence
they still tide to profit making no matter what (capitalisme)

believe me, most our islamic bank hsbc amanah, ocbc al-amin, standard chartered sadeeq, bank islam, bank muamalat, cimb islamic, public islamic bank and many more
mostly take if partially, not fully (kaaffah/wholly)

like lariba founder says (www.lariba.com), we say loan as loan, we dont say bai bithaman al-ajil
saving account, we say saving account, we dont say mudharabah or al-wadhiah

it cnfosue ppeloe

the only difference is we tell them exactly what they need to know, the consequences
the price, profit sharing - amanah (amanah as in malay), sadeeq (thruthful), amin (the truthful)

my monthly income still be paid in malaysian ringgit which is inflation effected, so what more can i say

This post has been edited by AbangCorp: Jan 17 2010, 12:55 PM

Very informative, and a well done job, Thanks AbangCorp,

i give speech to ppl about this
i think this is my 5th or 6th time explaining the same matter
dont worry, happy to share

and thanks by the way

This post has been edited by AbangCorp: Jan 17 2010, 02:16 PM

Hi! I've found this elsewhere for the ibra calculation:

Early Settlement/ Redemption of Facility

1) During Lock-in Period

i) The Lock-in Period for the Facility is 5 years from the first disbursement date.

ii) The Bank may at its sole discretion allow earlysettlement/redemption of the Facility during the Lock-in Period. The Bank is entitled to grant Ibra’ (rebate) to the Customer(s) and theBank’s calculation of such Ibra’s (rebate) shall be treated as final &binding.

2) After Lock-in Period
i) The Bank may grant Ibra’ (rebate) in the event of earlysettlement/redemption of Facility after the Lock-in Period.

Subject to the provisions of Shariah law, the Bank may at its absolute discretion permit the Ibra’ (rebate) of such amount of the Bank’s Selling Price upon various circumstances and in accordance withvarious methods and formula adopted by the Bank. The Bank’s calculation of such Ibra’ (rebate) shall be treated as final and binding.

Note : Lock-in Period means the period where the Customer(s) shallmaintain the Facility with the Bank.

-->In a nutshell, in the event of early settlement, ibra can be given but the formula/amount is not known and will be at full jurisdiction by the bank. From what i've read and understand, if the bank decide on the computation of ibra earlier, the concept will fall into "riba", which is prohibited.
-->Thank you for all your informative reply!