Islamic Home Financing: A Case Study of HBFC

Passing Date: Jan 06, 2011.

A Beautiful home is dream of every person. To fulfill this need people normally spends their all reserves and savings but those people who have no any saving and funds to get a sweet home they will hire homes or get money on credit for purchasing or building a home. People normally not approach their relatives for such a long term financing. They will go to the financial institution to fulfill their needs. There are different substitutes available for getting finance for home. Conventional Banks provide financing for building a home on the basis of Interest/Riba. But Modern Scholars introduced some Shariah compliant methods of home financing which are using in all over the world in Muslim Communities.

Following is a schedule which shows different methods following in different countries for financing home.

The above mentioned all methods are all valid according to Shariah if we summaries the above mentioned all modes of financing so we can say there are mainly three Islamic modes of financing for home financing i.e. Murabha, Ijara and Diminishing Musharkah. Diminishing Musharkah is more acceptable Islamic mode of financing than other. Out of these modes of financing Murabha for Islamic Home financing is disapproved by the scholars. Middle east Shariah scholars rejected this mode because this is same as conventional mode of home financing (Meera and Abdul Razak). Ahmad Tarmidzi writes in his thesis dissertation that Bay Bithaman Al Ajil for home financing is same as Bai Inna. Because the practice of BBA financing is same as Bai Inna i.e. Bank purchases home from client e.g. for PKR 100000 and will sell to him at cost plus profit like (100000+10000=110000). So this practice is same as Bai al Inna. So this mode of Islamic home financing is most controversial between scholars many scholars like meera and Abdul Razak has totally rejected this mode. On the other hand Diminishing Musharkah/MM is most acceptable in scholars for Islamic home financing in all over the world. Home financing is the combination of three contracts (Partnership + Ijara + Sale)

HOME FINANCING IN PAKISTAN, “HBFC”:

As we have discussed above that diminishing Musharkah is the most acceptable mode of Islamic home financing. In Pakistan there are different financial institutions providing home financing like Islamic banks and a special institution for this purpose is House Building Finance corporation which is a government based institution established in 1952 by the government of Pakistan and incorporated under companies’ ordinance 1984 (XLVII of 1984).[1] The Objective of the House Building finance corporation was to facilitate the low income of Pakistanis. “According to the HBFC Act 2001 HBFC has adopted the Islamic model of house financing in November 1978. [2] HBFC replaced its conventional Riba Based financing methods and opted Musharkah products after a judgment passed by the Supreme Court of Pakistan against Riba based Transactions.”[3] The Task Force of the proposed modifications in the HBFC Act to make it Shariah Compliant, Having vetted by the CTFS, the amended law has been promulgated by the Government.[4]

HBFC provides a facility to the clients with the name of GHAR AASAN. This Facility helps the client,

RESEARCH OBJECTIVE:

The objective of the research is to check how much HBFC is shariah compliant. The main purpose is that in literature it is clearly mention that at the time of Islamization of Financial system[1]. House Building finance corporation was given model of diminishing musharkah. But there is great discrepancy among general public that HBFC is not shariah compliant.

So the researcher will try to find this answer. In whole literature we can find that HBFC is based on diminishing musharkah but no body filled this gape weather their practice is according to shariah or not?

This is summery of interview with General Manager of HBFC Islamabad, (WORDINGS OF GM)

"We have adopted Islamic system of Home financing after the Judgment against Riba. The Model was given in 2001, after final approval from parliament we have adopted this model in 2002 and we introduced a product Ghar Aasan. In this product we provided him shariah compliant facility. But people were not satisfied with this product because it was very very difficult so now a days we are providing on KIBOR+spread on yearly basis. And the rate of spread is (3.5for self employed and 3.25 for government servent.)"

BIBLIOGRAPHY:

1. AAOIFI. (1429H-2008). Accounting Standards. Manama: Accounting and Auditing Organization for Islamic Financial Institutions, P.O.Box 1176, Behrain.

2. AAOIFI. (1429H-2008). Shari's Standards. Manama: Accounting and Auditing Organization for Islamic Financial Institutions, P.O.Box 1176, Manama, Behrain.

3. abdullah, N. M. (July 2010). Musharkah Mutnaqisah Home Financing: A review of Literatures & Practices of islamic Banks in Malysia. . international Review of Business Research Papers,, (pp. Vol: 6 272-282).

4. Abdul-Rahman, D. Y. Islamic Home Financing in the United State. LARIBA and Mike Maguid Abdelaaty,.

5. Ahmed Kameel Meera & Abdul Razak. (2009 AD/1430 AH). Home Financing through the musharkah mutnaqishah contract: some practical Issues. JKAU: Islamic Econ, Vol. 22 No. 1 , 121-143.

6. Ali, H. Z. (2008). Dour E Hazir kay mali muamlat ka Shari Hukam. Lahore: Abu Huraira Academy.

7. Ali, H. Z. (2010). Maeeshat wa Tijarat kay Islami Ahkam. Lahore: Abu Huraira Academy.

8. Al-Shalhoob, D. S. Home Financing in Islamic Law, A study of some products from housing financing and applicable to Islamic Law. King Fahd University of Petroleum and minerals, Saudi Arabia.

9. Chaudhry, Z. H. (1952). House Building Finance Corporation Act,. Lahore: Ch. Abdul Sattar at G.F. Printing Press,.

10. hamdi, A. R. (1997). Islamic Banking Conceptual Framework & Practical Operations. Islamabad: Institute of Policy studies (IPS).

11. Hassan, M. U. (2007). The Islamization of the Economy and the Development of Islamic Banking in Pakistan. Kyoto Bulletin of Islamic Area Studies , 92-109.

12. HBFC. (2001-2002). Mannuals of House Building Finance Corporation. Karachi: House Building Finance Corporation, .

13. IPS. (1992). Jadeed Iqtsadi Masaiel, Shariat ki Nazar Main. Islamabad: Institue of Policy Studies.

14. Kiyani, s. (2010). house financing in pakistan & united kingdom from shariah perspective. Islamabad: International Islamic University, .

15. Mansoori, D. M. (2005). Islamic Law of Contracts and Business Transactions. Islamabad: Shai'ah Academy, International Islamic University,.

16. Matthews, I. T. Ethical Banking Islamic House Financing in The United Kingdom: A Comparative Study. Center for International Business Policy Kingston Business School, Kingstone Hill .

17. Mehmood, A. (2002). Islamization of Economy in Pakistan, Past Present and Future. Islamic Studies 41:4 , 675-704.

18. Mohammaed, D. A. (2008). Consumers Acceptance on Islamic Home Financing: Empirical evidence on Bai Bithaman Ajil (BBA) in Malaysia. IIUM International Accounting Conference IV (INTAV), (pp. 24-26). Kuala Lumpur.

19. Muhmood, A. T.-M. (2007). Bay Bithaman Ajil (BBA) in house Binancing As implemented by Malasian Financial insitutions: A critical Analysis of its procedures and application from the fiqh point of view. International Islamic University, Malaysia.

20. Razak, A. K. (2005). Islamic Home Financing through MM & BBA contracts: A comparative Analysis. Internatioanal Islamic University, Malasia.

21. SBP. (2002). Islamization of Financial System in Pakistan. Karachi: SBP.

[1] After Supereem Court Judgement,

[1] Manuals of Islamic House Financing by House Building Finance Corporation, Construction Case

[2] Islamization of Economy in Pakistan, Past Present and Future, Aurangzeb Mehmood, Page No. 682

[3] Shazia Kiyani, House Financing in Pakistan & United Kingdom from Shariah Perspective, 2010, IIUI for partial fulfillment of LLM. Page 10

[4] Islamization of Financial System in Pakistan, Page No. 193