Ethica Institute of Islamic Finance™

Mortgaging is impermissible, however, in the example of a Murabaha home financing, is it correct that the bank sells the house to the client, the sale is concluded, the debt remains outstanding and the house serves as security to the bank? If the debt i

AAOIFI, the most widely followed Islamic finance standard in the world, provides detail on this question in its Shariah standard on Murabaha. The following is excerpted from standard 5/4 in the Murabaha section. Other parts of the standard, in particular those in section 5, should also be consulted for particulars on charity clauses, pledges, guarantees, and other risk mitigants: “It is not permissible to stipulate that the ownership of the item will not be transferred to the customer until the full payment of the selling price. However, it is permissible to postpone the registration of the asset in the customer’s name as a guarantee of the full payment of the selling price. The institution may receive authority from the customer to sell the asset in case the customer delays payment of the selling price, in which case the institution should issue a counter deed to the customer to establish the latter’s right to ownership. If the institution sells the asset as a result of the customer's failure to make a payment of the selling price on its due date, it must confine itself to recovering the amount due to it and must return the balance to the customer."

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