Knowledge and FAQ

Afiyah's Knowledge and FAQ page provides you with essential information and guidance to navigate the world of Sharia-compliant financial solutions. Empower yourself with the knowledge you need to make informed decisions and secure your financial future.

How many agreements do I have to sign when I get a loan for a house?

According to AAOIFI standards, its sole discretion of the financial institution to constitute policy document that protect the rights of the parties in an agreement.

Our funders use Ijarah Muntahia Bittamleek (Lease to Own), an established form of contract that is unique and complies with Shariah standards.

The financier purchases a property on behalf of a client and then leases it back to the client. In return, the client makes agreed rental payments with the view of taking legal ownership of the property once the payment terms have been met.

During the leasing period, the client enjoys full rights and access to the property during the “ijarah” or “rental” period.

What documents will I be required to provide?

To assure the lessee can pay monthly rents; The funder willyour financial health through bank statements andother financial reports of the lessee. Other documents may include the following for individual or company. Each situation is unique and therefore a list of documents will be provided to individuals in the process.

For individuals:

  • Applicant ID verification
  • Employment details to verify the date of joining, designation, and name of the company
  • Original or certified salary slip showing financial strength of the individual
  • Bank statement of the salary account for the last 12 months
  • Previous year tax returns

For Companies

  • Applicant ID verification
  • Company details and financials
  • Bank statement of the account for the last 12 months
  • Previous year tax returns
  • GST registration

Is the contracts approved by the Shari'ah board?

The products offered have been reviewed and certified by FSAC (Financial Shariah Advisory and Consultancy).

FSAC is a Singapore-based Independent Shari’ah Consultancy Firm that specialises in Islamic Financial Contracts Certification for companies and entities all over the world.

Why an international board is used and not a local body?

Unfortunately, there are no local certifying organisations that specialise in financial contracts in Australia. There are, however, several international firms that specialise in this area.

While there are many knowledgeable scholars and Imams in Australia, none have the infrastructure in place to provide financial certification authority with specific specialty and familiarisation in the field of finance.

Furthermore, we used FSAC because Singapore’s credit laws, contract laws, and taxation system are very similar to Australia’s, and this board is familiar with the Australian finance and credit process. They have a wealth of experience in this field, particularly in advanced economies.

Understanding Islamic Finance, Conventional Finance, financial instruments, Australian taxation laws, Australian credit laws, property laws, and legal contract laws (to name a few) is difficult.

To align and work within these laws while remaining in the spirit of Shariah compliance specialised firms with knowledge of how to merge these with Shariah principals while also understanding the laws of a Muslim minority country and applying reason and dispensation when/if required are required.

As a result, our board was well positioned to understand and guide us as a firm when it came to offering Islamic finance to our Australian customers.

Who are our partners in Ijraha home financing?

We work with various institutions that provide Ijarha based financing.  Their products are sharia-compliant. We can lead you to the best options that can facilitate you to buy or refinance home loans, construction financing and Investment financing.

Do we pay interest to our partners?

Riba is strictly prohibited in Islamic finance. We work on profit and loss sharing principles with our partners that eliminates riba. The profit our business generates is interest-free and distributed among the partners on strict sharia laws.

Is it necessary for the funder to be Shari'ah compliant?

To offer a sharia-compliant product or contract, the funder does not need to be an Islamic bank or Islamic finance entity. Rather, the transaction, finance contract, or agreement being issued must comply with Sharia.

Can funders change their interest rates?

Yes, they can depend upon the financial position and the regulatory position. However, the change in interest rate will depend upon the nature of Islamic finance products. For example in case of Ijarha, both fixed and varied interest rates can be used; however, the same should be mentioned in the agreement details and mutual consent of parties.

Isn't it non-compliant for funders to be able to change their rates and offerings over time?

The funder can change their rates and offer over time. However, if the pricing will stay fixed throughout the period of Ijarha or it will variable, it will be mentioned in the contract of the Ijarha agreement with the mutual consent of parties. There will be two conditions:

  • The payable amount of periodic rental and the total rental (if the
    ijarah financing adopts a fixed profit rate)
  • the first rental amount, a benchmark or formula, and any applicable minimum and maximum limits (if the ijarah financing
    adopts a variable profit rate).

Can Islamic banks or financial institution use the Index Percentage (percent)?

Various benchmarks like LIBOR are subject to criticism from various Islamic scholars. However, there is no harm in using these benchmarks unless they are being used for purpose of calculating profit margin only. Various international accounting and financial authorities have given the permissibility to use these benchmarks for purpose of calculating their margin.

How does a financial institution profit or make money from an agreement if no interest is charged?

The answer is simple; the nature of the Ijarha contract allows the owner to receive compensation when the asset is leased out. Both lessor and the lessee get benefits, the lessor gets the profit in the shape of rentals and the lessee doesn’t have to purchase as an asset, rather the lessee can utilize the usufruct for its business operations.

What is the distinction between rental and interest-based financing?

In Islamic finance, rentals can only be charged if the asset is delivered to the lessee. In conventional leases, rentals begin on the day when the lease period commences.

In Islamic finance, risks associated with the ownership of the asset remain with the lessor, for example, insurance that is the expense of the lessor being the owner of the asset.

Whereas in the conventional lease, the lessee has to incur all expenses related to the asset.

When do the monthly installments start?

The Lease period will start when the asset has been delivered to the Lessee. The rentals will start if the asset is

  • in a usable condition
  • Whether or not the Lessee has started using it.

Typically, rentals are paid every month. Rentals can be paid in advance or deferred depending upon the mutual consent of the parties.

Can I pay advance rentals?

Yes, advance rentals are one of the options in Ijarha financing. Lessor can use those funds immediately.  In case, lessor doesn’t deliver the asset on time, rentals shall be refunded to lessee.

Is there a penalty for late repayments or contract default?

The contracting parties may agree to include a clause in the ijarah contract which stipulates imposition of late payment charges as determined by the relevant authorities.

Late payment charges shall consist of−:

(a) Compensation (ta`widh) for actual loss borne by the lessor the ta`widh may be recognised as income to the lessor
(b)Penalty (gharamah) shall not be recognised as income to the lessor and shall be channelled to the Baitulmal and/or other charitable bodies.

Is it possible for me to sell the property before the finance period expires?

No, lessor being the owner of the asset has the authority to sell the property to the third party. However, you will have the following option available:

  • With the consent of the lessor and lessee you can sub-lease the asset. You have the option to charge higher or lower rental amounts agreed under main Ijarha agreement.

Do you receive a portion of the profit or loss from the sale of the property/asset?

Ijarha is a rental contract where rentals will be paid monthly; it is not a profit and loss agreement. For profit and loss agreements, there is another Islamic finance product like Murabha, Mushrakha and Istisna.

Who is responsible for the property's upkeep?

The expenses that are linked with the ownership of the property will be the responsibility of the lessor, however, the expenses related with the usage of property like repair and maintenance will be the responsibility of the lessee.

What happens after I make my final payment?

Once rental will end and sale settlement has been complete, the asset will be transferred to the lessor for a nominal fee which can vary depending on the finance contract used.

Whose name would the property is registered under?

Once the rentals have been paid out and the sale has been concluded, the lessee will be the new owner of the property. The lessor will transfer the title of the property to the lessee. After registration of the property under your name, you can enjoy full rights over your property.

Is the rental rate a fixed or a variable contract?

We have both the options for you both the fixed and variable rental rates based upon your need and specifications.

Other than finding scholarly opinions on variable and fixed rate of rentals, the Australian Consumer Credit Protection (NCCP) act and customer Best Interest Duty also favour the right of the consumer to select appropriate rental rate for their contract.

Who is FSAC?

After 2008 financial crisis, the World started to recognize the importance of asset-based financing and investment. This is when Financial Sharia Advisory and Consultancy (FSAC) was created to empower the financial industry with the impact of Islamic finance.

This organization is the database of world leading scholars and financial experts who have in-depth knowledge of Islamic finance products. These experts aim to discuss Sharia issues and finding appropriate solutions for them.  FSAC is mainly offering services to:

  • Community Advisors that includes individuals and community
  • Corporate advisory for businesses and organisations