An earlier version of this
Article was published in
Middle
Eastern Finance & Economics
Issue 6, 2010.
Islamic House financing
Islamic House financing
A
Critical Analysis and Comparison with Conventional Mortgage
Abstract
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Housing is considered the basic necessity of
human being and its shortage is a major problem worldwide especially in less
developed countries including Pakistan. Recently the commercial banks in
Pakistan have started looking for house financing. In addition to conventional
banks Islamic banks are also providing house financing. This paper is focusing
on house financing needs in Pakistan and critically analyzes the existing model
of Islamic house financing (in practice) along with comparison of conventional
mortgage. As per findings of this study huge potential for financing
exists in local market. Current model of Islamic house financing (in practice)
is not matched with the principles of Diminishing Musharaka however it suits in
competing with conventional banks. The major difference (risk and reward
sharing) between Islamic and conventional finance is lacking in operations of
IFIs. At final pages of study a comparison of conventional house financing and Islamic house financing is provided which concludes that in conventional return is fixed while in Islamic return is variable taking into account value appreciation / depreciation in addition to rentals.
Key words: Housing, returns, Islamic house
financing, Diminishing Musharaka, Pakistan
JEL Classifications: R 11, G 15, G 21
1. Introduction
Housing
is considered the basic necessity of human being. However the basic phenomenon
is that wants are unlimited and resources [under control of majority] to
fulfill the wants are limited. (Robins 1932). In order to get maximum possible
satisfaction human beings are prioritizing their needs/wants. Scholars have
contributed for prioritization of needs (e.g. Maslow, 1954). Housing is the basic
need and included in top priorities in addition to food and clothing. Shortage of
housing is a major problem worldwide especially in less developed countries
including Pakistan. To construct or purchase a house major amount of capital is
required which is not available to everyone. To overcome the problem, house
financing agencies and commercial banks are playing very important role in
developed countries by providing required amount to acquire a house which is
refunded in easy installments consisting of principal and interest.
In Pakistan provision of housing to
increasing population is one of the major problems this country is facing at
this moment of history. Until the start of 21st century commercial
banks’ contribution to house financing was nil. One of the reasons could be
lack of consistency in policies by different regimes (e.g. mass scale
nationalization in 70s and privatization in 90s onward). Due to nationalization
capital market could not developed in Pakistan and private sector was
prohibited (practically) to contribute its due role in economy especially in
financial sector. In 1991 reforms taken place in Pakistan and private sector
allowed to operate in financial sector in addition to privatization of
nationalized banks.
Recently the commercial banks in Pakistan
have started provision of house financing. In addition to conventional banks
Islamic Financial Institutions (IFIs), although are at infant stage in local
market and covers only 6% of market share by June 2010 (SBP, 2010), are also
providing house financing. This paper is focusing on house financing needs in
Pakistan and critically analyzes the existing model of Islamic house financing
(in practice) along with comparison of conventional mortgage.
As per findings of this study huge potential
for house financing exists in local market. Current model of Islamic house
financing (in practice) is not matched with the principles of Musharaka however
it suits in competing with conventional banks. The major difference (risk and
reward sharing) between Islamic and conventional finance is lacking in
operations of IFIs. At final pages of the study a comparison of conventional mortgage
and Islamic house financing is provided which concludes that under conventional
mortgage system return is fixed while under Islamic house financing return is variable
taking into account value appreciation / depreciation of property in addition
to rentals.
Rest of the
study is in following order. Section II states the back ground of study followed
by purpose and methodology in section III. In section IV Islamic house
financing model is explained followed by differences in practice and theory in
section V. Section VI documents differences in conventional and Islamic models
of mortgages and section VII concludes the study.
2. Background
The condition of housing is worst in less
developed countries including Pakistan. According to economic survey of
Pakistan (2004-05) the ratio of housing units to population is not acceptable by
any standard. At average eight Pakistanis are living in one housing unit. 35%
of housing units available are consisting of single room. According to 1998
census, the total number of housing units throughout the country was 19.3
millions. The housing backlog, as estimated according to 1998 census was 4.3 million
units, which in 2005 projected to 6 million units. The annual additional
requirement was estimated around 570,000 units whereas the annual production
was estimated around 300,000 units resulting in a recurring shortfall of
270,000 housing units annually. It was estimated (in 2005) that in order to
address the backlog and to meet the housing shortfall in the next 20 years the
overall housing production will have to be increased to 820,000 units annually.
(Economic Survey, 2004-05).
As per the survey report
shortage of housing is clear and Pakistan is a potential financial market for
housing sector. In Pakistan until recently commercial banks ignored the
provision of house financing. With the establishment of Islamic Financial
Institutions (IFIs) one can expect improvement and expansion in financial
disbursements in housing sector of this underserved market because as per
philosophy of IFIs this sector is much feasible for them. IFIs are extending
financing facility through kinds and not through cash or invest on the basis of
profit and loss sharing. House financing is provided by IFIs through
Diminishing Musharaka and it is much secure mode of investment as compare to
any other profit and loss sharing investment instrument. House financing is not
mature in local market. Until 2002 commercial banks were not interested in house
financing at all. The only specialized institution owned by public sector (i.e.
HBFC) was providing house financing in Pakistan. All inefficiencies of public
sector could be seen in operations of HBFC. So shortage of house financing
could not be met.
Government of Pakistan in this
regard has taken certain measures including following. Firstly the ratio of
housing loans by banks is increased from 5% to 10% of total loans disbursement.
Secondly the maximum per party limit of loan is increased from 5 million to 10
million. Thirdly the maximum debt equity ratio is increased from 70% to 80%,
which means that if owner can contribute up to 20% the rest can be arranged
through loan. Fourthly banks are allowed to create reserve up to 3% of consumer
loans for bad debts under house financing, which is a tax incentive, and
finally loan tenure is extended up to 20 years (economic survey 2004-05). One
can expect more flow of capital towards housing sector at maturity of these
steps. Another issue prevailing at the moment is that banks are focusing on
city centers and ignoring surroundings, which constitute reasonably large potential market.
3. Purpose & Methodology.
Islamic financial system is
getting momentum and expanding world over including For Eastern Countries,
South Asia, Middle East (the centre), Europe and America. Although Islamic
banking is at infant stage yet results achieved so for are very encouraging. Islamic
financing consist of more than 300 institutions worldwide with a global volume
of US$ 951 Billion by the end of 2008 (IFSL 2010). Recently IFIs have entered
in house financing under the scheme of Diminishing Musharaka with a positive
response from the market. This paper is
intended to examine the existing Islamic house financing model (locally in
practice) in detail and test the validity of model in the light of Musharaka
principles. The focus of the study
is to evaluate the current Islamic house financing model in the light of
Diminishing Musharaka principles. In summary following are the objectives of
this study: -
a)
An understanding of the Islamic house financing model in
the light of Musharaka (profit and loss
sharing) principles.
b)
Whether house financing practices of IFIs working in local
market are matching with the underlying theory of Islamic house financing
(Diminishing Musharaka)?
c)
How Islamic house
financing (Diminishing Musharaka) is different from conventional mortgages?
To answer these questions, we
collected data through primary and secondary sources. Primary data tools
include the personal observations, interviews with bankers, property dealers
and academicians. Secondary sources include publications, journals and periodic
reports.
4.
Islamic house financing
“If Muslims have the
same orientation and motivation in finance as everybody else, they will end up
having the system that has resulted from other people’s choices, the one we
call conventional financial system. A genuinely distinctive system can emerge
only out of a genuinely distinct orientation and motivation, a different set of
norms. If Muslims don’t have one, they do not need a different financial
system” (Siddiqi, 2006)
Islamic
banking/ finance is different from conventional counterpart in its mechanism
and principles. Islamic banking, like any other sphere of life, is governed and
regulated by the principles laid down by Sharia
(Islamic law). Under Islamic financial system interest based transactions are haram (forbidden by Islamic law).
According to Holy Qur’an riba
(interest and usury) is prohibited [2: 275-281][1].
According to the decision on riba by Supreme Court (Pakistan), “any additional amount over the principal in a contract of
loan or debt is the riba prohibited by the
Holy Qur'an” (Usmai, 1999). The same judgment is defining the Riba
(interest) as demanding the pre determined return on loan irrespective of the
purpose; and actual outcome of the project under taken by using that loan. The
consensus juristic opinion of Muslim scholars is that under Islamic financial
system interest based financing is prohibited (IFA resolution 10 (10/2)[2];
hence, Muslim scholars and financial experts have designed interest free financing
and trade mechanisms within Sharia
(Islamic law) boundaries. The most popular financing tools used by IFIs include
Musharaka (partnership in capital), Mudaraba (partnership of capital and
skill), Murabaha (cost plus profit sale), Bai Salam (spot payment with deferred
delivery), Bai Muajjal (credit sale), Istasna (order to manufacture) and Ijara
(leasing).
House financing is provided under the
principles of a special purpose partnership generally known as Diminishing
Musharaka. According to Sharia standard 12 “Diminishing Musharaka is a form of partnership in which one of
the partner promises to buy the equity share of the other partner gradually
until the title to the equity is completely transferred to him” Under Diminishing Musharaka arrangement
agreement is required; verbal or written; capital is contributed by both
parties in cash or in kind; profit is shared as per agreement while loss is
shared according to share in equity; cost of repair and maintenance, insurance
etc are shared by both parties; one partner (IFI) leases his share in asset to
other (client) for a consideration. Contract of buying and selling of equity
units between partners cannot be stipulated in Diminishing Musharaka contract;
price of units to be sold /purchased is fair value or else as agreed between
parties but face value of units cannot be stipulated (Sharia Standard 12). To
put the concept in practice following example would clarify the working under
diminishing Musharaka[3].
Mr. A want to purchase a house
amounting to Rs; 1,000,000 and requesting an IFI for financing to be repaid in
eight years through eight equal installments. Under Diminishing Musharaka
arrangement, the equity of Bank is divided in eight units which A will acquire
annually. Certain portion (e.g. 20%) of the total price is to be contributed by
A and rest (80%) is provided by IFI at the time of acquisition. House is the
joint property of IFI and A. After acquisition, house is handed over to A and
IFI is renting his share in property to A. suppose annual rent of property is
Rs; 1, 00,000 net of repair and insurance etc. For first year the share in rent
of IFI is Rs; 80,000 being the owner of 80% of property. The first installment
is Rs; 180,000 consisting of purchase price of an equity unit and rent. For
every subsequent year as the share of IFI is decreasing in property, hence the
amount of rent payable is also decreasing as shown in table 1. According to
this model the owner and the IFI both are contributing capitals and enter into
Musharaka.
Table
1- Displays payment schedule under Diminishing Musharaka mechanism
End of
Years
|
Principal
Payment
|
Rental
Payment
|
Amount of
Installments
|
Balance
|
0
|
0
|
0
|
0
|
800,000
|
1
|
100,000
|
80,000
|
180,000
|
700,000
|
2
|
100,000
|
70,000
|
170,000
|
600,000
|
3
|
100,000
|
60,000
|
160,000
|
500,000
|
4
|
100,000
|
50,000
|
150,000
|
400,000
|
5
|
100,000
|
40,000
|
140,000
|
300,000
|
6
|
100,000
|
30,000
|
130,000
|
200,000
|
7
|
100,000
|
20,000
|
120,000
|
100,000
|
8
|
100,000
|
10,000
|
110,000
|
0
|
Total
|
800,000
|
360,000
|
1,160,000
|
0
|
The
reward sharing is according to capital contribution or as may be agreed but any
loss to the property is to be shared by both the parties according to their
equity stake at the time of loss. However this is Diminishing Musharaka, by the
time client is purchasing equity units of IFI the share in rent is also
decreasing. The installment payment includes share of rent and purchase price
of an equity unit. Over the time equity of IFI is decreasing and share in
rentals is also decreasing. With the purchase of last equity unit the share of
IFI comes to an end and property as a whole is transferred in the name of owner.
Second is the case of construction of property by the client instead of
purchase. As a principle of Musharaka return (rentals) for IFI will due once
the property is useable. As a general practice value of the constructed house
is higher than its cost under normal circumstances. IFI and client can conclude
a price covering the profit for IFI at the time of completion of property. In
this case IFI shall receive the return in form of rent after completion of
house and also profit over cost for the period of construction, being partner
in the construction.
In practice, IFIs are calculating the IRR on their share (payable
balance) and state as a percentage return along with principal.[4]
This method of calculation makes it easier for customers to understand
liability and make comparison of various financing agencies in the process of
reaching conclusion. This method is also assisting IFIs to offer competitive
rates to customers because (as it is said) Islamic banking is at infant stage
in this country and have to compete with established conventional banking.
5. Issues in existing practices
As
a principle, under Musharaka mode of financing risks and rewards are shared by
the partners (Sharia Standard 12). Reward or return is income received on an
investment plus any change in market price (Van Horne 07). The existing model
of Islamic house financing (in practice) gives rise to certain questions as
follows.
The first and foremost; it ignores
the appreciation /depreciation in value of the property. After all how it can
be justified that any appreciation /depreciation in the value of property
belongs to one partner (owner) and nothing for other (financier); while in majority
cases financier provides larger part of capital. This is clearly against the
principles of Musharaka. One can argue that if financier wants to gift his
share in appreciation, or surrender his share in favor of other partner, then
nothing against justice. However the financier in question is IFI who is not
the sole owner of capital invested. Capital is provided by depositors on profit
and loss sharing basis and they too are owners. So any surrender in share of
return by IFI would mean gifting the property of others, without their consent.
In fact what is practically happening in the market is due to the principle of
market itself (demand and supply). IFIs fear loss of customers if true
Musharaka is being put into practice. Sharing of appreciation would increase
the amount payable by customers and they might prefer conventional mortgage. On
the other hand sharing of depreciation in value would increase the risk for
IFIs which they might not be able/ willing to tolerate. IFIs are trying to be competitive
with conventional banks in order to attract and retain customers. This is a
valid business trick but this is a hurdle in promotion of true Islamic
financial system, which differentiates itself through sharing of risks and
rewards.
The second question is
determination of rental value in advance or linking with KIBOR (Karachi Inter Banks
Offered Rate). In this era of paper currency, inflation is hitting almost every
country. In Pakistan, official figures of inflation, for last three years are
more than 7%. The house rent inflation was 11% in year 2004-05 (Economic survey
of Pakistan 04-05). It means rental value of the underlying property is varying
(increasing) every year. How can one determine the return rate in advance
assuming an artificial rental value instead of actual?
Third question; what IFIs are
demanding from customers is rental of capital (payable balance) determined on
the basis of KIBOR and not the share of rentals based on actual rent of the property.
As a matter of fact Diminishing Musharaka explicitly states the sharing of risk
and reward associated with underlying property and not the rent of capital.
KIBOR is determining rent of capital used under conventional financial system
and not the rent of property.
Another severe criticism on IFIs raised by
certain quarters is the linkage of profit percentage with KIBOR. This objection
is not only limited to house financing rather it is on all financing tools of
IFIs. IFIs are of the view that they are competing with conventional banks
which are dominating the local financial market with a share of 94%. Any other
bench mark might turn the operations of IFIs uncompetitive with conventional
banks. If products of IFIs would be
costly than conventional banks they (IFIs) might lose the customers. The view
point of IFIs does carry weight however it adds in negative perception among
masses about their operations. This negative perception is required to be
changed as the chief motivating factor for customers to transect business with
IFIs is their Sharia compliant operations and of course sole reason of their existence.
Finally fixation of prices of
equity units to be purchased by client guarantees return of investment to the financier
irrespective of increase /decrease in the value of underlying project which is
against the very nature of Musharaka financing (Sharia standard 12). After the
financial crisis of 2007-08 this aspect demands more consideration by experts
of Islamic financial system and IFIs. It is generally argued that such a crisis
cannot happen under Islamic financial system. Yes the argument carries weight
if true Musharaka is in operation then certainly such crises can be avoided.
Under true Musharaka one may not witness willful default by financially sound
customers during the period of fall in prices of real estates because they
(customers) are not alone to bear the whole risk/loss. Fixation of prices of
equity units in advance (normally to recover the principal) narrows the
difference between Islamic house financing transactions and those of
conventional mortgages in substance, if not in form.
To conclude, IFIs have to take into
account the appreciation /depreciation in property value as well as actual
rental value of the property in order to put true Musharaka in practice.
Liability of prospective owner cannot be determined in advance, which is the
essence of Musharaka business. Any increase /decrease in value should be shared
by both parties. As for practice is concerned, two frameworks for sharing of
appreciation/depreciation in property value are suggested. First is to value
the house at the time all principal is discharged an adjustment for appreciation
/depreciation should be made. Second method the most accurate is to revalue the
house every year and determine the rental value accordingly, to calculate
installment payable for the year and so on. A worked example on these
parameters is given at the end of section VI.
6.
Conventional Vs Islamic Mortgage
In this section we are highlighting the
difference between conventional and Islamic house financing as under.
Firstly
under conventional financial system interest is charged which is determined on
the basis of demand and supply of the capital while under Islamic financial
system rent of the property is charged, determined through demand and supply of
real asset. Hence return under conventional mortgages is not linked with
utility creation while under Islamic house financing financial sector is linked
with real sector. Without having a linkage between financial and real sector,
it is a zero sum game which does not add any value to the society as a whole.
Secondly
as conventional banks do not own the underlying asset, hence sharing of risk
and reward of the property is not required while IFIs are co owners of the
property and share risk and rewards attached with ownership. Any damage or loss
occurred to the property without negligence of client is shared by IFIs
according to their equity stake which is not the case in conventional
mortgages.
Thirdly
return for conventional banks starts from the date of loan extension facility
which is not the case in IFIs. Under Diminishing Musharaka model return is due
when the property is ready for use either through an acquisition or through
construction.
Fourthly
conventional banks will continuously receive the installments (containing
interest & principal) even if property is not use able and needs some
repair. During the repair period IFIs cannot receive the rent.
Finally
return of conventional banks is fixed as interest while IFIs will receive
rentals as well as share any appreciation (depreciation). Graphic presentation
of comparative returns is shown in figure 1. In figure 1 on x-axis time period
and on y-axis returns are shown. Curve bd
is representing return under conventional financial system and curve ae is representing return under
Diminishing Musharaka. In initial period return under Diminishing Musharaka is
low (abc) as compare to conventional
system (and during construction or repair phase may be zero) and increases with
the increase in value of property (cde)
while return under conventional mortgage
is fixed irrespective of value appreciation (depreciation) of property
(obxd).
The
lower return in earlier period and higher return later on under Diminishing
Musharaka is justified on the basis of outcome of the underlying project.
In
recent years there is a booming increase in rentals as well as in value of
property in local market. Take the example of property prices and rental values
of any city center, you will see manifold increase. In certain instances like
Islamabad city prices are gone up to (50-60) times approximately in 20 to 25
years. In case of conventional banking
the return is fixed irrespective of rental value and value appreciation. In
case of Islamic house financing any increase in value and rental is shared with
financier. The following tables and graph will explain the phenomenon of
housing values boom in Islamabad and likely impact on returns under
conventional and Islamic house financing systems. These figures are relating to
an average house in Islamabad.
- A
house purchased in 1981 with amount of Rs; 600,000 and rental value at
that time 30,000 per annum. At present 2007 the same house is carrying
value of 41,000,000 with rental value of Rs; 1,200,000.[5]
- 50%
contributed by bank and rest by owner.
- Assuming
customer has not returned principal to date.
- Interest
rate is 15% fixed.
Although
practically increase in property value is taken place in phases however for
ease of calculation and understanding we calculated internal rate of return
that becomes around 17%. Complete working is shown in appendix. Figure 2, table
2 & 3 display return on investment
(rental value and appreciation) which starts from Rs; 132,000 p.a. and reaches
to Rs; seven millions p.a. in 27th year. Share of investor under
Islamic house financing is increasing accordingly while under conventional mortgage
it is fixed of Rs; 45,000 irrespective of return.
In figure 2 on x-axis
years and on y-axis returns are measured. Under Islamic house financing system
return is increasing with the increase in value of the property. Blue line is
representing total return on property which has crossed the figure of Rs; 7
millions and red curve depicts the return for IFI which is reached to Rs; 3.5
millions in 27th year while green line is representing return under
conventional system which is fixed of Rs; 45,000 per annum. Percentage return
under Islamic house financing is higher (average 21%) as compare to
conventional (15%). By looking at graph and tables certain points worth mentioning,
are as follow: First; in Islamic banking the return of financier is low in
early years and higher in later years (according to value of property) as
compared to conventional banking. However it varies with the actual return on
property hence, justified. It is not putting the owner into trouble by asking
for a fixed return irrespective of actual outcome of the underlying project. So
by applying the practice of Diminishing Musharaka, banks can earn more than
conventional financing system. Under this system bank will earn more and share
accordingly with depositors as deposits are taken under profit and loss sharing
system. This will result shifting of capital and savings from conventional
banking to Islamic banking.
Figure 2-Total return (rental
+appreciation) and distribution in Islamic finance
Second;
if we look at the total return under conventional banking one can earn in 27
years Rs; 1.2 million while under Islamic banking the return in the same period
is around Rs; 4 million in rentals and cumulative share in appreciation is Rs; 20
million. So the IFIs are earning approximately Rs; 22.8 million more than
conventional banks which is justified as
there is appreciation, in the property value,
of Rs; 41 million in 27 years.
Table 2- showing the comparative return-
(rental plus appreciation) under both schemes
Financing
scheme
|
1981
|
1986
|
1991
|
1996
|
2001
|
2006
|
2007
|
||
Value of property
|
702,000
|
1,539,099
|
3,374,394
|
7,398,182
|
16,220,131
|
35,561,794
|
41,607,298
|
||
Total Return on Property
|
132,000
|
284,000
|
611,000
|
1,320,000
|
2,847,000
|
6,000,000
|
7,000,000
|
||
Return under
Islamic banking
|
66,000
|
140,000
|
305,000
|
660,000
|
1,423,000
|
3,000,000
|
3,500,000
|
||
Return under
conventional banking
|
45,000
|
45,000
|
45,000
|
45,000
|
45,000
|
45,000
|
45,000
|
||
As a matter of fact this will shift the
depositors to IFIs and customers—borrowers-- towards conventional banking and
leaving the IFIs with more funds and fewer customers-borrowers-. Here the
economic principle of demand and supply will come to play i.e. determination of
return for IFIs through demand supply forces. Under such circumstances return
can be shared under any acceptable ratio-favoring customers as profit sharing
can be decided through mutual agreement under Musharaka. However if things move
in opposite direction as happened in financial crisis 2007-08, customer is
relatively secured because loss is shared according to equity under Islamic
financial system.
Table 3-showing the % return- (rental
plus appreciation) under both schemes
Financing scheme
|
1981
|
1986
|
1991
|
1996
|
2001
|
2006
|
2007
|
Return
under Islamic bank
|
22%
|
22%
|
21%
|
21%
|
21%
|
20%
|
20%
|
Return
under conventional bank
|
15%
|
15%
|
15%
|
15%
|
15%
|
15%
|
15%
|
7. Conclusion
There is a huge potential for house
financing in local market. The existing model (in practice) of Islamic house
financing is lacking the consideration of appreciation /depreciation in value
and variable rentals, hence demands change if true Musharaka is required to be
practiced. IFIs while competing with conventional banks are trying to remain
very close to them in products as well as total cost to customers which is a
valid business trick. However this practice raises questions in the minds of
people and adds to negative perception about operations of IFIs. Islamic financial
system is not based on the principles of capitalism and should be visible in
practices of IFIs. It cannot be comparative in practice with capitalism. It has
its own principles, which create a different economic system based on justice
and equity. If IFIs want to be closer to conventional banking in serving the
depositors and customers then certainly they have to depart with certain
principles and practices of Islamic financial system, which cannot be
appreciated. After all what is the essence of Islamic financial system? It is Sharing;
sharing of risks and rewards by both parties. Islamic house financing is unique
and unmatched with traditional mortgages and posses the feature of avoiding
financial crisis like2007-08. IRR cannot be determined in advance. It is true Musharaka,
which demands the sharing of risk and reward by both partners. Under Islamic house
financing financier is earning more as compared to conventional banking (in
case of appreciation) but after capacity building of customer, and shares loss
(in case of depreciation in value of asset) while under conventional mortgages return
is fixed which put the client in trouble in early years and lead to prosperity
in following years if property value appraises and vice versa. One important
aspect of competition with conventional mortgages demand due consideration
while practicing Islamic financing however under this fear (of losing
customers) IFIs should not and must not lose their identity and jeopardize
their future. The sole reason of existing of IFIs is Sharia compliance and this
feature must not be compromised in spite of non-conducive existing business and
legal framework. Undoubtedly practice is tough than theory and demands wisdom
and tactfulness but that is the challenge and way to change and achieve the
goal. Practitioners of Islamic financial system have to display extraordinary
wisdom and skill to lead the society towards a new system duly certified by
Sharia experts according to revelations.
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10.
Qarzawi,
y., (……).Islam Main Halal and Haram
(Urdu). Islamic publications Private limited, Lahore, Pakistan
11.
Rehman.
Y, Tug.A.S, (……).Towards a LARIBA
(Islamic) mortgage financing in the United
States providing an alternative to traditional mortgages. International Journal of Islamic Financial
Services Vol. 1 No. 2.
12.
Robins,
(1932). Nature and Significance of
Economic Science.
13.
SBP.,
(2010). Islamic Banking Bulletin.
14.
Siddiqi,
M. N., (2006). Islamic banking and
finance in theory and practice: a survey of state of the art. Islamic Economic
Studies.Vol. 13, No. 2, page 1-48.
15.
Task
force, (2000). Experience in Islamic
Banking, case study of Islamic Bank Bangla desh. Institute of Policy
Studies Islamabad, Pakistan.
16.
Usmani,
T. S., (1999). The Judgment on Riba. Supreme
court of Pakistan cases, Pakistan Legal Development (PLD) publishers Lahore,
Pakistan.
17.
Usmani,
T. S., (2002). An Introduction to Islamic
Finance. Maktaba Ma’arif Al Quran, Karachi, Pakistan.
18.
Van
Horne, c. J., (2007). Fundamentals of
financial management. Prenticehall New Delhi India
Years
|
Value
|
increase
|
rentals
|
Increase
|
return on property
|
share in rent
|
share in capital
|
Return under Islamic
|
Return under conventional
|
1980
|
600000
|
||||||||
1981
|
702,000
|
102,000
|
30,000
|
4,500
|
132,000
|
15,000
|
51,000
|
66,000
|
45000
|
1982
|
821,340
|
119,340
|
34,500
|
5,175
|
153,840
|
17,250
|
59,670
|
76,920
|
45000
|
1983
|
960,968
|
139,628
|
39,675
|
5,951
|
179,303
|
19,838
|
69,814
|
89,651
|
45000
|
1984
|
1,124,332
|
163,365
|
45,626
|
6,844
|
208,991
|
22,813
|
81,682
|
104,495
|
45000
|
1985
|
1,315,469
|
191,136
|
52,470
|
7,871
|
243,607
|
26,235
|
95,568
|
121,803
|
45000
|
1986
|
1,539,099
|
223,630
|
60,341
|
9,051
|
283,970
|
30,170
|
111,815
|
141,985
|
45000
|
1987
|
1,800,745
|
261,647
|
69,392
|
10,409
|
331,039
|
34,696
|
130,823
|
165,519
|
45000
|
1988
|
2,106,872
|
306,127
|
79,801
|
11,970
|
385,927
|
39,900
|
153,063
|
192,964
|
45000
|
1989
|
2,465,040
|
358,168
|
91,771
|
13,766
|
449,939
|
45,885
|
179,084
|
224,969
|
45000
|
1990
|
2,884,097
|
419,057
|
105,536
|
15,830
|
524,593
|
52,768
|
209,528
|
262,297
|
45000
|
1991
|
3,374,394
|
490,296
|
121,367
|
18,205
|
611,663
|
60,683
|
245,148
|
305,832
|
45000
|
1992
|
3,948,040
|
573,647
|
139,572
|
20,936
|
713,219
|
69,786
|
286,823
|
356,609
|
45000
|
1993
|
4,619,207
|
671,167
|
160,508
|
24,076
|
831,674
|
80,254
|
335,583
|
415,837
|
45000
|
1994
|
5,404,473
|
785,265
|
184,584
|
27,688
|
969,849
|
92,292
|
392,633
|
484,924
|
45000
|
1995
|
6,323,233
|
918,760
|
212,271
|
31,841
|
1,131,032
|
106,136
|
459,380
|
565,516
|
45000
|
1996
|
7,398,182
|
1,074,950
|
244,112
|
36,617
|
1,319,061
|
122,056
|
537,475
|
659,531
|
45000
|
1997
|
8,655,873
|
1,257,691
|
280,729
|
42,109
|
1,538,420
|
140,364
|
628,846
|
769,210
|
45000
|
1998
|
10,127,372
|
1,471,498
|
322,838
|
48,426
|
1,794,336
|
161,419
|
735,749
|
897,168
|
45000
|
1999
|
11,849,025
|
1,721,653
|
371,264
|
55,690
|
2,092,917
|
185,632
|
860,827
|
1,046,458
|
45000
|
2000
|
13,863,359
|
2,014,334
|
426,953
|
64,043
|
2,441,287
|
213,477
|
1,007,167
|
1,220,644
|
45000
|
2001
|
16,220,131
|
2,356,771
|
490,996
|
73,649
|
2,847,767
|
245,498
|
1,178,386
|
1,423,884
|
45000
|
2002
|
18,977,553
|
2,757,422
|
564,646
|
84,697
|
3,322,068
|
282,323
|
1,378,711
|
1,661,034
|
45000
|
2003
|
22,203,737
|
3,226,184
|
649,342
|
97,401
|
3,875,526
|
324,671
|
1,613,092
|
1,937,763
|
45000
|
2004
|
25,978,372
|
3,774,635
|
746,744
|
112,012
|
4,521,379
|
373,372
|
1,887,318
|
2,260,689
|
45000
|
2005
|
30,394,695
|
4,416,323
|
858,755
|
128,813
|
5,275,079
|
429,378
|
2,208,162
|
2,637,539
|
45000
|
2006
|
35,561,794
|
5,167,098
|
987,569
|
148,135
|
6,154,667
|
493,784
|
2,583,549
|
3,077,333
|
45000
|
2007
|
41,607,298
|
6,045,505
|
1,135,704
|
170,356
|
7,181,209
|
567,852
|
3,022,752
|
3,590,604
|
45000
|
Total
|
41,007,298
|
8,507,063
|
1,276,059
|
49,514,361
|
4,253,531
|
20,503,649
|
24,757,181
|
1215,000
|
[1] Surah
(Chapter) number and Aya (Verse) number.
[2] [Iqbal and Molyneux, p. 9;
IFC/2000] http://www.globalwebpost.com/farooqm/writings/islamic/r-i-consensus.html accessed on
March 20th 2010.
[3] [We
presented a very simple example here to demonstrate the concept ignoring any
appreciation (depreciation) in value of property; further we kept the rentals
fixed]
[4]
Generally in line with KIBOR (Karachi Inter Bank Offered Rate)
[5] The
values are taken from market with personal observation and interviews with
property dealers
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