Products
a. Fixed Rate Financing
Under this option, the profit rate is fixed for the full length of the financing term i.e. it does not change, therefore the monthly installment also stays the same for the whole financing term making it easier for you to plan your budget.
b. Flexible (Floating) Rate Financing
This option provides you with a flexible profit rate. The Base Rate will reflect movements in the six-month EIBOR rate (Emirates Interbank Offer Rate). A floating rate of profit enables you to make the most of the low profit rates prevailing from time to time. If you follow EIBOR trends and feel that you can take advantage of a flexible (floating) profit rate, then our 'Flexi Rent to Own' is the product for you.
c. Flat Rate
Under the flat rate system, the 'flat' rate is multiplied by the original finance amount for the full term of financing to arrive at the total accumulated profit. As you pay through installments, the outstanding principal keeps reducing. Profit on a 'flat' rate basis is computed on the original financed amount and so turns out to be higher than the reducing balance basis for a given profit rate.
d. Reducing Balance
In the case of a Reducing Balance system, profit is only charged on the outstanding balance of the financed amount, which keeps reducing. Here, the principal component is deducted at the end of every month and then the profit is calculated on this new outstanding, reduced principal amount.
Installment Payments
Installment payments are the most common method of repaying finance. There are two types of installments, equated (fixed amount) or un-equated / variable (where all installments are not equal). The frequency of installments is usually monthly, but in some cases could be quarterly, six-monthly or annually.
Islamic Financing Techniques
a. Murabaha:
A 'Murabaha' is essentially a deferred payment contract, where the 'buyer' identifies the property he/she wishes to purchase and agrees upon a price with the vendor. Once the purchase of the property has been approved by the 'financier', the 'financier' will purchase the property in its name and resell it to the 'buyer' against either immediate or deferred payment. The 'financier' is entitled to profit, which is the difference between the price it pays to the vendor, and the price at which it re-sells to the 'buyer'.
b. Ijarah
The term 'Ijarah' means 'to give something on rent' or to transfer the 'right to use' of a property to another individual in exchange for rent claimed from him/her. 'Ijarah' is like a conventional operating lease, where the 'buyer' identifies the property he/she wishes to purchase and agrees upon a price with the vendor. Once the purchase of the property has been approved by the 'financier', the 'financier' will purchase the property in its name and lease it to the 'buyer' for a specified monthly (or otherwise) rental payment and lease term.
At the end of the leasing term, the financier promises to transfer the title of the property to the customer, once all repayments have been made as per the agreement.
'Flexi Rent to Own', 'Fixed Lease to Own‘and 'Yusr‘ are types of Ijarah contracts.
c. Istisna’a
'Istisna'a' mortgages are financial products widely used by Islamic banks to finance the construction of buildings and/or industrial assets. Under Istisna'a, the price is fixed with the consent of the parties and the specification of the house or building to be constructed, is fully agreed upon.
If the customer has his/her own land and he/she seeks financing for the construction of a house, the financier may undertake to construct the house on that open land, on the basis of 'Istisna'a'. If, however, the customer has no land and wants to purchase the land, the financier may undertake to provide him/her a constructed house on a specified piece of land.
