We're happy to answer any inquiries you may have but here are some Frequently Asked Questions that might help you out.
Ijarah Finance is open to Australian Citizens, Permanent Residents, Non-Residents and Non- Citizens. Approval is subject to meeting the selection criteria of the financier and where applicable, the Foreign Investment Review Board (FIRB).
No, Ijarah Finance does not operate as a co-operative. The Ijarah contract will simply be between you and the funder.
There is no waiting list.
This depends on the type of property you are purchasing. The minimum deposit required is:
- 10% deposit for Residential Property
- 10% deposit for joint Land & Construction
- 25% deposit for Low Doc Residential
- 25% deposit for Rural Property
- 30% deposit for Commercial Property
- 30% deposit for Commercial Property Low Doc
- 50% for Vacant Land Only
Ijarah Finance facilitates a finance agreement with the view to own the asset at the conclusion of the finance contract. This is otherwise known as Ijarah Muntahiya Bil Tamleek.
Ijarah Finance facilitates a ‘lease to own’ approach or Ijarah Muntahiya Bil Tamleek. This is a widely accepted process of funding an asset acquisition and has been approved by Islamic scholars.
You will sign one Letter of Offer/Contract between you and financier. The Ijarah Muntahiya Bil Tamleek components of the contract are with the funder/financier in a singular contract.
Your consultant will explain what documents you will need to provide at the time of application based on your scenario. Please click here for more information.
Yes, the Ijarah Finance contract/s has been reviewed and certified as Shari’ah compliant by FSAC (Financial Shariah Advisory and Consultancy). FSAC is an Independent Shari’ah Consultancy Firm based in Singapore who specialise in Islamic Financial Contracts Certification for companies or entities all over the world.
10. Why has Ijarah Finance used a Singaporean board to certify their property contacts as Shari’ah compliant?
Unfortunately, there are no local certifying organisations who specialise in financial contracts in Australia. There are, however, several international firms who focus on this specialty.
Whilst there are many knowledgeable scholars and Imams in Australia, none exist in the capacity of a firm with the infrastructure in place to offer financial certification authority with specific specialty and familiarization in the field of finance.
Additionally, we used FSAC as the credit laws, contract laws and taxation system in Singapore is very similar to Australia and this board is familiar with the finance & credit process in Australia. They offer a wealth of experience in this space, especially in advanced economies.
The intricacies of understanding Islamic Finance, Conventional Finance, financial instruments, Australian taxation laws, Australian Credit Laws, Property Laws, and legal contract laws (to name a few) are complex. To align and work within these laws whilst remaining within the spirit of Shariah compliance, requires specialized firms with knowledge of how to merge these with Shariah principals whilst also understanding the laws of the land of a Muslim minority country and applying reason and dispensation when/if required. Hence, our board was well placed to understand and guide us as a firm when offering Islamic finance to our Australian customers.
Our Board members are experts in financial Shariah knowledge. They also have a strong understanding of conventional finance, as some have been in the finance industry for over 3o years.
Additionally, our local staff understand the two distinct concepts very well, and are reputable and trusted Credit & Finance Representatives. Many of our credit staff are approved with ASIC to give Credit and Finance advice and we are also a full members of the Mortgage & Finance Association of Australia (MFAA). Many have completed various courses in finance and compliance and undergo ongoing training to enhance their knowledge.
Further, some of our staff hold accreditations with Australia’s largest banks and financial institutions, and have underwritten and worked on over $2billion in finance applications since the year 2000.
We are finance facilitators and offer Rental Based Finance Contracts for customers seeking non interest based solutions. In many cases, the finance contracts have been tailor made for the Muslim community to allow them to purchase property or assets.
We are paid fees by the funders for the customers, commissions, and at times even charge the customer a fee for service for our work.
Our funders and financiers are various Australian financial institutions. These include any of the following:
- Wholesale Funding bodies
- Finance Houses
- Major Banks
- Non-Bank lenders/institutions
- Small Banks
- Private Equity Firms
We do NOT pay Interest to our funders. Nor do we borrow money from our funders on Interest.
We are NOT in a Lender – Borrower arrangement with our funders or institutions.
We ONLY offer Rental Based financing solutions.
The funder does NOT need to be an Islamic bank or Islamic finance entity to offer a shariah compliant based product or contract. Rather, the transaction, finance contract or agreement being issued needs to meet shariah compliance as this describes and fulfils the dealing or Mu’amalat with you.
All funders who offer conventional and/or Islamic finance can change their rates or offerings over time. The reasons for rate changes are at the discretion of the funders and are linked to many economic factors both locally & internationally, finance policy, regulatory requirements & much more. Finance costs today are significantly less than what they used to be 5 or 10 years back.
At Ijarah Finance, we emphasise that rates and rate movements (if any) are decided by the funder and NOT US and is based on the funders financial policies or mechanisms and their own access to funds, liquidity & more.
17. If funders can change their rates and offerings over time, doesn’t that make them non-compliant?
Pricing changes affects all types of transactions or items over time. Provided that the funder’s offerings at the time of application are clear and disclosed, you are free to make an informed decision on whether this offering is good for you. If you don’t accept a funders pricing or terms, there is no obligation on you to use that funder or offering.
We can offer different financing contracts and terms according to your circumstances. For example, the larger the deposit, the better the rental rate offered to the customer.
The index is the percentage margin being used by funders to calculate payments on finance contracts. In the case of a Rental Based finance contract, this is also known as a Rental Rate.
In the case of an interest-based loan contract, this is known as an Interest Rate.
The index percentage (%) may also be referred to as a Contract Rate or Implicit Rate. Our finance staff are well versed in understanding many contracts and can help you understand the distinction and context of each.
19. If no interest is being charged, how does the financial institution profit or make money from an Ijarah agreement?
In the case of Ijarah, the contracts are Rental-Based, hence the index margin being used is known as a Rental Rate. The financial institution will earn a profit or make money by charging the client Rent for the Use of the Asset. The Rental Rate is the index percentage (%) used when calculating the payment required on the contract.
For more information about what Ijarah Finance is, please watch the video on this page.
Under Australian law, all index rates or percentages, whether based on Rental or Interest, must be disclosed. Additionally, the Index Rental Rate disclosure complies with Shari’ah.
In conventional finance contracts, the interest rate is the index used by financial institutions for extra ‘Money on Money’ transactions.
In a Rental-based finance contract, the Asset is the prime subject matter within the relationship. The customer pays rent for the use of the asset or instrument over time.
An Interest-based finance contract is otherwise known as a loan contract. The Prime subject matter within this relationship is Money. This involves a money on money relationship. The margin paid for extra Money on Money is known as Interest.
Generally the customer will make the first payment one month after the settlement date. In some other cases, it can be at the beginning of the month or at the end of a monthly cycle.
Whatever it is that relates to you, this is usually explained to you upfront by the finance consultant and will be disclosed in the letter of offer or finance contract before you sign it.
You may be able to make extra voluntary repayments. However, this varies depending upon your contract. Some contracts have no limits on the maximum amount of repayments than can be made. Whilst others have some limits or a maximum limit on the amount of extra voluntary repayments that can be made. This is best discussed with your finance representative and is considered on a case-by-case basis depending on the asset type, and whether the contract is a fixed or variable facility.
If you default and break the contract by failing to make the rental payments on time or not pay them at all, you could be charged dishonor fees, default notification fees and legal notification costs. This covers administrative costs when collections and recovery staff are required to engage with you under law to bring finance contracts back into order, realign your finance payments back within the agreed schedule of payments, investigate any defaults and other matters related to a defaulting party.
Default administration fees and costs incurred by a customer should not be viewed as a money grab by a financier. Rather, they are a cost to mitigate paying for collection staff, specialized arrears departments and legal units engaged for non-compliance of the original agreed contract signed by a customer.
Our funders do NOT like having clients in default, and if they deem Islamic finance to be constantly problematic with excessive and above average defaults and delinquencies, they will remove the Islamic contracts on offer.
Yes. You may sell the property or purchase the property outright at any time provided the funder’s interests in the property are settled (i.e. all finance balances are paid out including any statutory & discharge fees).
The Ijarah concept is a rent to own arrangement. It’s NOT a Profit/Loss or share agreement. Other profit/loss or co-ownership finance agreements are different concepts within Islamic finance and not applicable here.
We encourage our customers to learn the distinctions between different Islamic finance concepts via their own research on Musharakah, Mudaraba, Murabaha and so on as we do not get involved in this, nor are we a teaching academy on these concepts.
Yes. The client has the sole responsibility for the property, including maintenance and upkeep.
As part of the Financing Agreement, the customer is the agreed appointed custodian of the asset on behalf of the funder. Hence the customer is responsible for all maintenance, repairs and taxes associated with the property or asset if they become applicable at his/her expense. Whatever your obligations are with respect to a finance contract, this will be disclosed in the Letter of Offer or contract.
Once all payments have been made in accordance with the Finance Agreement, the Financier will discharge the property to the client for a nominal fee which can vary depending on the finance contract used.
With a vehicle or equipment, this can also involve a residual or balloon payout and discharge costs.
Yes, the property will be registered in your name but the contract will/can stipulate that you are holding the property as a custody agent on behalf of the funder who has a beneficial interest in the property also. Once the final rental instalment has/have been paid, the funder will sell its share or discharge the finance on the property for a nominal discharge fee.
With a vehicle or equipment, you will have title of the asset in your name in most cases also, but your contract will/can specify the funder is the legal owner of the asset. Additionally, you are making Rental payments to the funder who is the owner of the asset as you may have put in NO deposit to acquire the asset. Once you pay out the finance, you can take full ownership and title of the asset.
Ijarah Finance Agreements will stipulate an agreed Rental Rate which is either Variable or Fixed for a specified period. This choice of variable or fixed contract is the customers, and we can offer either based on their individual choice or requirements.
Ijarah Finance have access to various financial institutions and contracts who provide either variable or fixed rental rates depending on the type of contract or asset class. Whether the contract must be variable or fixed depends on individual scholarly opinions. Scholars are not unanimous about this and you will find arguments for and against. Additionally, under the Australian NCCP (National Consumer Credit Protection) Act we must give the final choice of variable or fixed to the customer if it is available. This also complies with Best Interest Duty (BID)for the customer. This is in line with a shariah compliant lease agreement as per the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) in its Shari’a Standards for Islamic Institutions 2017.
If the contract is fixed or has just had a fixed rate period expire, the funder can/will offer their latest fixed or variable pricing/rates for certain term/s of year/s. If the client does not agree with the new rate offered, or wants something different, the customer is free to opt-out and terminate the Finance Arrangements with the funder, move to another funder of their choice or payout in full.
This is best discussed with our Finance Consultant. In some cases, we can get these approved depending on the LVR and the type of bad credit listing. In this case, it is best to be upfront with us and we will be able to give you a realistic answer.