How Islamic
finance works

Learn the difference between Islamic and Conventional

Trade (Ijarah Model) vs Riba

Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, “Trade is [just] like interest.” But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah . But whoever returns to [dealing in interest or usury] – those are the companions of the Fire; they will abide eternally therein.
Surah Al-Baqarah [2:275]

The basis for all Islamic finance lies in the principles of the Sharia, or Islamic Law, which is taken from the Qur'an and from the example of Prophet Muhammad (peace be upon him). The Islamic form of finance is as old as the religion of Islam itself.
From the above verse, scholars have interpreted it as riba and trade has the same outcome, but one is allowed and the other is not. Though the outcome with Islamic finance and conventional loans are the same, the way we get to the end goal is very different. Just like halal chicken and nonhalal chicken, at the end of the day, it is still a chicken.
Below represents how the Islamic finance model is very different but aims to achieve the same outcome, get you in your home in an affordable and legal manner.

Conventional Mortgages

The home buyer arranges a loan from a bank or mortgage company according to a fixed or variable interest rate, based on the RBA interest rates.

The home buyer purchases the home.

The home buyer makes monthly payments to repay principal and interest on the loan.

Over the course of the loan, the home buyer repays the debt in full.

Hejaz Islamic Finance

The home buyer and Hejaz Finance agree to be co-owners in the property.

The two parties buy the home and the ownership of the property is determined by each party’s down payment.

The home buyer makes monthly payments to Hejaz Finance. Part of the payment is a periodic charge for full use of the home and the rest is a payment to increase the buyer’s ownership of the property.

Over the course of the arrangement, the home buyer purchases all of Hejaz Finance’s ownership stake and becomes the sole owner of the property.

Mufti Desai explains

4 Pillars of Sharia Compliance

Compliant and secure source of funding

Being a wealth management and advisory firm, we can source funds from investment pools available to us.

Compliant and secure property ownership

With our home finance product, the title to your property is in your name from day one. That’s fair and safe.

Compliant transactions (contracts)

Contracts approved by world-leading scholars and local regulatory bodies. Giving you the best of both worlds.

Islamic certified

The Islamic financial services sector is the most audited and regulated Halal industry, even more so than Halal food, hence, we have taken our Sharia Compliance to new heights by teaming up with a Global Islamic Finance auditing and advisory firm, Global Islamic Financial Services Firm (GIFS).

Helping build tomorrows community

We have successfully funded the establishment of numerous mosques in Australia. We are committed to providing tangible benefits to our community with your help.

Join the thousands of Muslim Australians who have made the change to an Islamic home.

Apply online

Further information

Who has verified your Sharia Compliance?

Our finance product has been established in collaboration with local, International Sharia Boards and Advisers. We adopt the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) Sharia standards. We are endorsed by an International Sharia board (Global Islamic Financial Services firm – GIFS headed by Mufti Ismail Ebrahim Desai) out of South Africa. GIFS continually audit us to ensure that the highest levels of Sharia compliance are being applied.

Why do you show % rates for products if you do not charge or pay interest?

It is important to remember that we are based on Sharia. Therefore, charge rental and not interest on their home finance products.

As an Australian provider of Credit and Financial Services, Hejaz Finance is regulated by the Australian Securities and Investments Commission (ASIC). Hejaz Finance is required to display its charges in this way so that consumers can judge the value of what it offers and charges. Customers must be able to compare Hejaz Finance’s rate and charges against what they would receive or be charged by conventional financial institutions.

By expressing the rental rate as a % the charge is not converted into interest. It simply expresses how much rental Hejaz Finance is charging the customer as a percentage of the property purchase price. It also allows the customer to compare this charge with other providers in the market, including conventional mortgage companies, and to make a decision on which product is most suitable for them. Whilst our Home Finance Product’s are Sharia compliant and the conventional mortgage is not, the % rate is a common measuring tool that makes the two products comparable.

Displaying % rates for products benefits the customer and their ability to make a choice about the products they wish to take.

How is the finance product structured?

The product is structed using the Islamic Finance model known as Ijaara Muntahiya Bi Tamleek (Shared Equity Rental). Using this structure enables us to allow the title to the property to be held in the client’s name with the client making fixed monthly repayments. Each repayment comprises two components, a rental portion for residing in our share of the property and an equity buy back to acquire our share of equity in the property. As you acquire more equity in the property, the rental component decreases and the equity component increases until the property is purchases outright or you sell/refinance.

How does Hejaz Finance ensure its activities are Sharia compliant?

By following Islamic finance principles laid down in Sharia, Islamic law. To ensure the rules are followed as closely as possible, Hejaz Finance has an Internal Sharia Compliance Officer (ISCO) and a separate independent body called the Global Islamic Financial Services Council (GIFS).

GIFS is comprised of Islamic scholars and experts in the interpretation of Islamic law and its application within modern day Islamic financial institutions. The ISCO is also trained to the highest standards, set down by The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). It is recognised as the highest Sharia compliance standard in the Islamic finance industry. The combined works of the GIFS and the ISCO ensure that both the Hejaz Finance’s products and its activities comply with Islamic rules at all times.

Does XYZ Sheikh endorse you?

We have worked closely with local and international scholars and Muftis who are experts in Islamic Finance. They have structured our product, drafted our contracts and continually audit us to ensure that Sharia standards are followed. We welcome your preferred scholar to speak to us about our product and will provide the details that they seek. Our doors are open to all scholars who wish to better understand who we are and what we offer.

Join us

Ready to apply? Apply online in under 10 minutes.

Have a question?

Talk to us

How Islamic finance works