Interest Free Loans

[Masood Amin]

Hello BP,

I am a muslim trying to get started with my investment career. However, as part of my religion it is forbidden to pay or recieve interest. However there is an alternative way which is charging the profit on top of the purchase price. Let me give you an example.

Normal/regular loan: 

House Price: $600k

Interest: 5%

30 year fixed

Total price after 30 years: $1,295,029.13

$1,295,029.13 - 600k = 695,029

Bank makes: $695,029 in profit

Islamic Loan:

House Price: $600k

30 years 

Profit margin for bank: $695,029 (Add this to house price)

Total loan amount over 30 years: $1,295,029.13

0% APR

As you can see the bank will still make the same amount of money. So its pretty much the same thing but we cancel interest out. Do you think banks can structure a deal like this?

[Joe Stout]

Good afternoon, it really seems the knowledge regarding halal investing in the investment community is scarce. I have some Muslim friends that are looking for answers to this too. I have found SukFin (sukfin.com) claims to be a sharia compliant loan provider. They apparently share profit and loss with the customer and ban all collection of interest. one of their products is called Musharaka which is a joint venture, where a bank and a customer both contribute funds — for either an investment or purchasing an asset. The profits (and the risks) are shared proportionally. It looks like this is more for actually developing houses on land you bought or major rehabs where they fund 100% of the money needed. It looks like you'd have to split a good bit of the profits with them (they're mentioning 60/40 and 50/50 splits. I'll keep searching but that's what I have for now-