Managing my financial journey
Managing my financial journey

Start this free course now. Just create an account and sign in. Enrol and complete the course for a free statement of participation or digital badge if available.

3.1.4 Islamic finance – a growing market in the UK

When looking at ways that money can be borrowed, we also need to look at the concept of Islamic finance. Internationally this is now the fastest growing financial sector.

In the UK at the end of 2014 there were 22 firms that offered financial products that complied with Islamic Sharia Law. These included six fully fledged Islamic banks including the Bank of London and Gatehouse Bank. Collectively the firms held an estimated total of $19 billion of assets (Reuters, 2014).

To learn more about this growing market, first read the description below about how Islamic home finance works, then watch the video on the growing Islamic bond market.

Islamic home finance

Islamic home finance is based on the Islamic finance principles of Ijara (lease agreement) and Diminishing Musharaka (equity participation). You make two contracts with the bank. In this scheme, the bank and you jointly own the property, although the title deeds will be in the bank’s name. You will then buy back the bank’s share over a number of years. During that period, the bank will charge you rent for living in the property on the percentage of shares it has. With each payment, your share of the property increases, while the bank’s percentage decreases. At the end of the term, the bank will transfer the title deeds of the property into your name.

Download this video clip.Video player: ou_futurelearn_managing_my_journey_vid_1072.mp4
Copy this transcript to the clipboard
Print this transcript
Show transcript|Hide transcript
 
Interactive feature not available in single page view (see it in standard view).

The figure below shows how the arrangement works.

Described image
Figure 4 The Islamic system of home finance.

Step 1 – You make an initial payment to the bank of at least 10 per cent of the property value. You sign two contracts, the Diminishing Musharaka contract and the Ijara contract. You promise to purchase the remaining 90 per cent of the property over an agreed period and you agree to pay rent to the bank.

Step 2 – The bank contributes up to 90 per cent of the property value and buys the property on your behalf.

Step 3 – The property is then transferred to you from the seller.

Step 4 – The property deeds are transferred to the bank.

Step 5 – When you have purchased the property completely, the property deeds are transferred to you.

Take your learning further

Making the decision to study can be a big step, which is why you'll want a trusted University. The Open University has 50 years’ experience delivering flexible learning and 170,000 students are studying with us right now. Take a look at all Open University courses.

If you are new to University-level study, we offer two introductory routes to our qualifications. You could either choose to start with an Access module, or a module which allows you to count your previous learning towards an Open University qualification. Read our guide on Where to take your learning next for more information.

Not ready for formal University study? Then browse over 1000 free courses on OpenLearn and sign up to our newsletter to hear about new free courses as they are released.

Every year, thousands of students decide to study with The Open University. With over 120 qualifications, we’ve got the right course for you.

Request an Open University prospectus371