it's interesting to see islamic banking gaining momentum, but the question is, what's islamic banking?

i think the most striking difference between islamic and conventional would be the money invested would be syariah compliance activity.

i also see that it has profit sharing.

would that mean saving account will get more interest, and loan is cheaper in interest?

anyone care to explain?

The So called Islamic banking in this country are really a conventional banking given some Arabic names and with some restriction in investment. There's a lot in Islamic banking rather then investing in syariah approved businesses.

Basic principle of Islamic Banking states that it supposed to be free from Riba (usury) or interest, gharar or uncertainty, maisir (gambling),

and there's lot more than just arabic name of the products.

Islamic banking promotes buying and selling, not lending the money... and it also advocates the existence of 'effort' and 'risk' for a reward / profit.

The only islamic banking product I'm personally involved in is my islamic housing loan, and frankly I don't see any effective difference from a regular housing loan.

I still pay interest, only that it's named something else (profit sharing? can't remember).

My loan is still pegged to BLR, only that it's named BFR instead (Base Financing Rate).

Do you fully own your house or it's partially owned by the bank when you are still serving the loan?

From what I read, assuming you buy a house for RM100,000 and total profit for the 10 yrs borrowing is RM20,000, the Islamic bank will buy the house and sell it to you for RM120,000.

The question now is, what happens if you default after 5 years? With conventional housing loan, you paid only the first 5 years interest (plus whatever part of the principal). What about Islamic?

nowadays, the calculation is almost the same with conventional .....

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Hi all, sorry to revive this old thread but I believe I am called to tell something. I'm not a scholar in anything including religeous knowledge as well as in economics.

As a muslim, I totally reject conventional bank when it comes to money lending (LOAN) because it practices direct RIBA and I also have a fishy feeling regarding the so called Islamic banking which I think the purpose is to lure muslims who objects conventional loan due to its practice of usury (RIBA). Islamic terminology such as Murabahah and so are on used on Islamic banking just to blindfold the muslims who reject the conventional banking system but eventually most of these muslims falls into the giant fishing net.

First of all, I have to define the word RIBA. RIBA also called Al-RIBA in Arabic language means excess or increase and we commonly use the word INTEREST. In the Islamic terminology interest means effortless profit or that profit which comes free from compensation or that extra earning obtained that is free of exchange. A loan with RIBA means a loan with the condition that the borrower will return to the lender more than and better than the quantity borrowed.

Due to Islamic banking is a system that has to do with Islam, meaning it is based on religion. To be fair, I will refer to the Bible and the Al-Quran.

First I have to quote some verses from the Bible where interest/riba is prohibited :

Exodus 22:25-27:

“If you lend to one of my people among you who is needy, do not be like the money lender; charge him no interest."

Leviticus 25:35-37:

“If one of your countrymen becomes poor and is unable to support himself among you, help him as you would an alien or a temporary resident, so that he can continue to live among you. Do not take interest of any kind from him, but fear your God, so that your countryman may continue to live among you. You must not lend him money at interest or sell him food at profit.”

Deuteronomy 23:19:

"You shall not charge interest to your brother -- interest on money or food or anything that is lent out at interest."

There are probably about 30 more verses in the Bible regarding the prohibition of interest/RIBA

Now I want to quote some verses in the Al-Quran where interest/riba is prohibited :

Al-Baqarah 275-281

275. Those who eat Ribâ (usury) will not stand (on the Day of Resurrection) except like the standing of a person beaten by Shaitân (Satan) leading him to insanity. That is because they say: "Trading is only like Ribâ (usury)," whereas Allâh has permitted trading and forbidden Ribâ (usury). So whosoever receives an admonition from his Lord and stops eating Ribâ (usury) shall not be punished for the past; his case is for Allâh (to judge); but whoever returns [to Ribâ (usury)], such are the dwellers of the Fire - they will abide therein.

276. Allâh will destroy Ribâ (usury) and will give increase for Sadaqât (deeds of charity, alms, etc.) And Allâh likes not the disbelievers, sinners.

277. Truly those who believe, and do deeds of righteousness, and perform As-Salât (Iqâmat-as-Salât), and give Zakât, they will have their reward with their Lord. On them shall be no fear, nor shall they grieve.

278. O you who believe! Be afraid of Allâh and give up what remains (due to you) from Ribâ (usury) (from now onward), if you are (really) believers.

279. And if you do not do it, then take a notice of war from Allâh and His Messenger but if you repent, you shall have your capital sums. Deal not unjustly (by asking more than your capital sums), and you shall not be dealt with unjustly (by receiving less than your capital sums).

280. And if the debtor is in a hard time (has no money), then grant him time till it is easy for him to repay, but if you remit it by way of charity, that is better for you if you did but know.

281. And be afraid of the Day when you shall be brought back to Allâh. Then every person shall be paid what he earned, and they shall not be dealt with unjustly.

Al-Imran 3:130

O you who believe! Eat not Ribâ (usury) doubled and multiplied, but fear Allâh that you may be successful.

Ar-Rum 30:39

The usury that is practiced to increase some people's wealth, does not gain anything at God. But if people give to charity, seeking God's pleasure, these are the ones who receive their reward many fold.

As the Bible, the Al-Quran also has many other verses in different chapter where God prohibits interest in all forms and these are backed some more in many hadiths which you have to google yourself.

Back to topic about islamic banking vs conventional banking, the difference between these two types of bank (so called Islamic banking vs conventional banking) is too little. It just a matter of altering the word interest or RIBA into something that sound more Islamic to attract those muslims who reject conventional banking to become their client/meal. Muslims who is not an Arabic (may it be Malay, Chinese, Indian or others including Europeans) are easily deceived by Arabic terms because it is not in their mother tongue and mother language because at the back of their mind, anything Arabic is Islamic or Quranic. In this so called Islamic banking, the interest is STILL there, it is just the term interest is transform into some other word such as Murabahah or "we buy first then we sell them at a higher price" also means interest/RIBA is hidden in between. This system where you have to pay more than the amount borrowed to you, to me it is TOTALLY HARAM and it leads to civilization oppression disregarding what race/religion the clients are and totally godless.

For me the easiest solution for Islamic banking to be a real Islamic bank (not just by name or transformation of terminologies) and become fair to all mankind disregarding race and religion is to go back the the Quran and hadith. There is a solution if the Islamic bankers are real scholars in Islam and Islamic economics.

I have come about a solution which I think might be the solution to ALL the interest/RIBA issues and make a loan system a more healthy, client friendly, win win situation for all and most importantly - RIBA FREE.

I believe for example if Mr. A wants to take a loan to buy a car that is worth RM100k as advertised at car showroom the Islamic bank should make an agreement with the car company to reduce the price of the car to probably RM80k to the bank so the bank will purchase the car and sell through loan to the bank Mr. A at also RM100k (same as the market price) with 0% interest. This is already considered as trading and 0% interest rate on the particular loan. This is halal in Islam as referred to Al-Baqarah 275 as above. Same goes to all other purchases such as properties and so on. Isn't this a good news to all buyers having to loan with 0%??

Despite the bank getting more and more clients to apply for loan as they are delighted with the 0% interest concept, the bank will still make halal profit out of the loan with people flocking to them. The car maker despite having less profit margin for each car but thei gain on quantity and by these quantity, they might make even better profit compared to the previous system.

I believe once again that this will eradicated all the oppressions and lies in our current money lending system which are practiced in our conventional banks and so called Islamic banks.

However, I may be wrong and correct me if I'm wrong. Whatever that is correct comes from Allah and whatever that is wrong come from me. So please think guys. Islam is for mankind, not just for muslims.

This post has been edited by am_eniey: Jan 15 2011, 11:55 PM

Haha

How about like this.

Initial car price is 100k but car dealer want to "support" your idea of islamic banking.

Car dealer rise the car price to 130k.

Then car dealer reduce the car price to 110k to islamic bank.

End up car buyer loss in this case.

Whatever amount that has to be paid back is quite the same for conventional or islamic banking.

no difference from normal loan. the title is still in my name (and not the bank's name). of course, even with conventional loan you never really "own" the house until you've finished paying, cos if you stop paying the bank will repossess it

@am_eniey personally as someone who doesn't really follow closely riba and all these islamic banking terms & requirements, I fail to see any effective difference in today's islamic products. take my housing loan for example. Yes, the wording and structure is changed such that the bank is not charging me interest, instead now the bank is buying the property and re-selling it to me at a higher price.

however, in the legal docs the bank never really buys the property. the s&p is still only between me and the previous owner.
the 'profit sharing' portion is still based on a %'age that is still pegged to BLR (ok ... technically it's pegged to BFR and not BLR. But since BFR is also in turn pegged to BLR ... what's the difference?)

so in conclusion i can't help but be skeptical. as far as i'm concerned, these loans have removed the "word" interest from their literature but have not removed the concept of interest - it's no different from taking a bottle of champagne, re-packaging it as 'sparkling juice,' and selling it. the base product is still non-halal!

again, I must re-iterate that i know nuts about islamic banking requirements - i'm just saying what my perception is, so feel free to correct me.

If the car company intentionally wants to increase their price due to the implementation of the 0% interest rate offered, the islamic bank has the right not to purchase from them. The bank can tell their client that the car company has increased the price of the car but however it is up to the client. The car company wants to cheat the bank is not the problem of the bank as long as the bank does not cheat their clients.

In your case, I could only see that the car company is cheating. Not the bank nor Mr. A

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Added on January 16, 2011, 6:21 pmThis is the proof that all so called Islamic bank is not Islamic.

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Added on January 16, 2011, 6:26 pmI agree with you. Especially with the champagne part. It's just the same. Not Islamic at all. Words and methods are altered to attract/lure more clients. The result is still the same. Borrower must pay more than the the amout borrowed. To make it easy for you, in Islamic term of borrowing is simple. Borrow 1000, pay 1000 disregarding the value. Borrowing however is not encouraged.

This post has been edited by am_eniey: Jan 16 2011, 06:26 PM

Agree with your statement

Those bank keep pushing islamic banking because they enjoy tax benefit from government, without these tax benefit, who would like to promote?

Banks fail to lure many muslims to take loan with riba from them, so they CREATED an Islamic bank to get those who reject them previously. So in the end the bank still wins and wins big. In Islam, a loan in simple. If one makes profit from loan, it is haram. But if one trades item and mark up the price reasonably, it is halal. Better if the seller tells the buyer the cost and his profit to the buyer.

From what i understand, islamic banking is still under conventional bank. nothing much they can do.
For muslim, maybe this is the best option they had for now.
To answer ts question, i will say there is not much different between the 2 banks.

When it comes to business, there are many different loophole to earn money.

Whoever created the Islamic banking is a genius. In the end of the day, it still involves money.

It would be nice if we don't have to pay interest to the bank.

However, I doubt that banks will do any loosing business. Same with the car supplier. In the end, we as a buyer would have to pay more as both parties will want to maintain their profit margin. So, by that, how would we as a buyer benefits from this?

The car suppliers and the banks will not lose. Only their profit margin will be reduced. But on the bright side, the car suppliers and banks will have enormous quantity of clients due to the 0% interest basis. For the buyers, we have nothing to lose. But however banks will not do this because their intention is to slit the throats of all buyers instead of getting reasonable profit. From what we are seeing now, buyers and flocking to banks even with some percentages of interest rates. How about the one with zero interest at the market price?.

they're not charging u interest!!!they wanted to gain some profit...its not like u borrowing money...juz like dis:

1) u wanna buy a house.
2) u ask for islamic banking.
3) they'll pay for u first (they give money to u to pay, juz like u're the third party)
4) they sell it back to u.
5) like every item in the world, the maximum profit i would like is 50% ( but islamic banking is juz too kind)
6) finally, u have to buy the house from the islamic banking actually, not from the dealer.

I am no expert in banking, islamic nor conventional, however here are some links people may fund useful. Where the link is in Malay and you have diificulty understanding it, you may want to use Google Translate.


Perbankan Islam dan BFR

Beza akaun islam dan konvensional

Differences between islamic and conventional banking

Riba - resaon behind its prohibition

answers to whom condemned islamic bank practices - scroll to the end as there seem to be another article on zakat at the top

fatwa : considering riba

this issue require expertise, to the muslims, you may want to consder what is said in this article before issuing your own "fatwa"
Dua isu sukar dpermudah

Remember that the point that you were talking about is for cash transaction and not loan, we are not paying cash to the bank. Suppose you have an unlimited cash reserve, a developer sells the house for RM100k while Islamic Bank sells for RM400k, which do you prefer to buy ?

from my understanding, it is the abolishment of abuse of investors... unlike conventional banking, our money is taken to reinvest for say 30% margin return but only a handful that is given to us... 1-2% for normal interest p.a

islamic banking is abolishment of this system and more to profit sharing....

but the con is it does not have reserve

The point is, they are using the name of Islam to permit interest rate while altering the words to profit sharing and murabahah. In Islam, there is not profit sharing when it comes to loan. Loan is there to help people who is really really in need and expect nothing in return. The payment must also be equivalent towards the amount loaned no matter how many years given for the repayment. Very simple, these banks are making it more and more complicated by these alterations just to attract those who object conventional loan system.

It would seem that the closest way to align yourself with Islamic banking principles would be to get a fixed-term loan.
The core principles of Islamic banking is to protect an invidual from financial blackmail and this would seem to be one
way to share the risk although you may be paying a bit more monthly.

a tiger bank officer told me today: There is not much difference in terms of repayment amount, max tenure, etc. in islamic mortgage package, except the following advantages :

1. islamic loan has 20% discount on stamping fees
2. islamic loan has no lock-in period...good for flipper!

I want to know what are the disadvantage of taking an islamic mortage , can someone with a full cycle of taking and exited islamic loan (finished serving or refinanced) share your experience here?

As I know advantage only no late payment charges cause my friend paid his car loan once a year when road tax expired.. if the car don't have road tax I didn't know when/how he paid the loan.. Con, no discount given on early settlement cause selling price has been agreed.

Very simple, who do business dont want to earn?

Even though still Islamic terms, bank still need profits.

Islamic just a terms and different meaning/method and bla bla. In the end who dont want to earn? so win win for both sides.

There is still a interests involved. But just turning around.

I lend you 100k you pay 100k after 5 years no riba added! Bank close down do what? ZzZz

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Added on November 17, 2011, 1:43 amYep true as well. Islamic terms you are bind to the agreement. Conventional is flexible

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Added on November 17, 2011, 1:46 amMost muslim ppl that is strong at religious part all go Islamic.

For those just 50/50 does not matter.

End stories riba still have. But just a other word/turning make things sound like no riba.



This post has been edited by stevenryl86: Nov 17 2011, 01:46 AM

thanks... the highlighted point is extremely important then. I wonder how it works if tiger bank says their islamic package has no loc-in period.. does that mean even if I sold off my property at x year, i still have to repay the full amount of the selling price agreed (which I heard can be many folds !!) ?

This post has been edited by numbertwo: Nov 17 2011, 09:43 AM

hhah... like this topic... ok yup... i agree that there r certain practices islamic banking and conventional r the same... but these practices have been converted based on syariah compliance coz all of the conventional concepts use r HARAM for muslims. etc BLR=BFR, MRTA=MRTT, INTEREST=PROFIT BANK. Besides there similarity... there are differences from islamic banking and conventional(especially al-rajhi bank):

1) The process used in islamic banking is trading, so u have right to claim the commodity for ur one purposes. Conventional banks is based on lending.
2) Capping rate- for islamic banks, they can only take profit.. based on their capping rate for example ; alrajhi banks capping rate is 10%. so even the BLR/BFR went over 10%... silamic banks still maintain the same.
3) No Late Payment Charges- For alrajhi bank, if u dont pay your installments 3 months.... they will not charge u any cent... b coz if they charge u, this will consider riba' based on arab saudi's syariah compliance.
4) No Default Rate - Al-rajhi bank dont have default rate. For conventional banks, if u dont pay ur installments for 3 months, the bank has right to change the interest rate without prior notice to the customers. For instance... the campaign price is -2.40%, once u default... the bank willl change the rate given to +2-4%, meaning BLR 6%+4%= 10% u must pay to the bank... AYYYOOO
5)Profit Sharing- If al-rajhi bank is involved in an auction... they will take only the outstanding balance... and the rest will be given to the owner. nice right??

For further information u can contact me:

Nik (0192752857)
Executive Home Finance
umair@alrajhibank.com.my
http://proud2be-alrajhi-homefinancing.blogspot.com/

The thing I dislike about Islamic banking at this time, for example,
they buy your house at 300k and then sell it to you at 1 mil which is calculated/estimated max price 30 years later. That IMO seems oppressing.

You're rite

Hi, anyone heard of maybank Commodity Murabahah Home Financing-i?
I was offerd this kind of loan from maybank.

Anyone knows the pros n cons of this kind of loan.

Whats the difference btw Commodity Murabahah, BBA and MM?

I believe all of them have the same term (BFR, loan tenure, etc....), it just how they structure the contract to make it syariah compliance. Commodity Murabahah I believe is based on Tawarruq concept, where you (home buyer) will purchase some syariah compliance commodities from the Maybank (maybe CPO), at pre-agreed profit rate, where the sums will be pay in instalment. The bank then will sell the commodities you bought from them to some commodities broker, where the proceed of the sales will be transferred to your account, to be used to purchase the house.

I believe Maybank create this product as an alternative to their BBA and MM, where some middle east scholars reject BBA, because they believe BBA transaction is not valid/syariah compliance because the transaction of BBA is just to create debt obligation, and there is no real trade from such transaction.

HI Guys,
Need some help here. I am just confuse whether to take conventional or islamic. I was offered Maybank Commodity Murabahah Home Financing-i. The ceiling rate is 10.6%. MY property value is around 250k and the Ceiling Profit rate is arnd 1.1mil. BFR is - 2.40% daily interest. I went through some thread and found out that , for islamic, even if you pay more to the principal, you can't reduce the interest as its already been calculated upfront and fixed. Meaning you have to continue paying the same amount every month as usual. This property is for investment and they offered me no lock in, no penalty for exit and less late payment chargers. Banker told islamic is better for investment but im nt sure. Really hope someone could advice me over here. Thanks alot!

u taken the islamic loan?