5 ms·

curious what are these proxies? I thought under Sharia law charging interest is "illegal"

zht 4y ago
bank buys the house and you rent-to-own it. coincidentally the total amount of the rent is higher than what the bank bought it for. not "interest", but yea, pretty much interest
- s1artibartfast 4y ago
  Basically identical to a mortgage where the bank has a lien on the house if you stop paying
humanistbot 4y ago
Different mechanisms, but the most common for financing large purchases is Murabaha, which exists in the West as rent-to-own. Islamic law allows merchants to mark-up prices, to buy low and sell high, and nothing is considered wrong with that. So after a conversation at the bank, the bank buys the desired property at market value, marks up the price in a way that just so happens to be the prevailing interest rate (some literally use LIBOR+X), and lets the clients pay over time. The mark-up is not called interest, it is called a market profit on reselling. It is functionally identical to interest, but is officially not considered interest. Interestingly, banks aren't allowed to charge late fees for this under Islamic law, but as they still remain the legal owners until the entire cost is paid, they can repossess for non-payment. Mudarabah is for companies that want loans, either startups or existing companies that want to expand. The not-a-loan is structured as a joint venture with profit and loss sharing, often with a new holding company. The bank becomes a part-owner of the holding company in a way that entitles the bank to collect profits on the joint venture up to a certain percentage of the original not-a-loan. Again, functionally identical to interest, but officially not. It is worth noting that conservative Islamic clerics have raised objections over these, but have been overruled everywhere that money rules.
- kragen 4y ago
  thank you very much for this explanation i think this comment is the second most interesting one in the whole thread, following the one that pointed out that svb's stock fell 60% today (true: https://finance.yahoo.com/quote/SIVB/ https://finance.yahoo.com/quote/SIVB/) related links: https://en.wikipedia.org/wiki/Islamic_banking_and_finance https://en.wikipedia.org/wiki/Islamic_banking_and_finance https://en.wikipedia.org/wiki/Murabaha https://en.wikipedia.org/wiki/Murabaha https://en.wikipedia.org/wiki/Profit_and_loss_sharing#Mudarabah https://en.wikipedia.org/wiki/Profit_and_loss_sharing#Mudara... https://en.wikipedia.org/wiki/Profit_and_loss_sharing#Musharakah https://en.wikipedia.org/wiki/Profit_and_loss_sharing#Mushar...

zht 4y ago

bank buys the house and you rent-to-own it. coincidentally the total amount of the rent is higher than what the bank bought it for. not "interest", but yea, pretty much interest

s1artibartfast 4y ago
Basically identical to a mortgage where the bank has a lien on the house if you stop paying

humanistbot 4y ago

Different mechanisms, but the most common for financing large purchases is Murabaha, which exists in the West as rent-to-own. Islamic law allows merchants to mark-up prices, to buy low and sell high, and nothing is considered wrong with that. So after a conversation at the bank, the bank buys the desired property at market value, marks up the price in a way that just so happens to be the prevailing interest rate (some literally use LIBOR+X), and lets the clients pay over time. The mark-up is not called interest, it is called a market profit on reselling. It is functionally identical to interest, but is officially not considered interest. Interestingly, banks aren't allowed to charge late fees for this under Islamic law, but as they still remain the legal owners until the entire cost is paid, they can repossess for non-payment. Mudarabah is for companies that want loans, either startups or existing companies that want to expand. The not-a-loan is structured as a joint venture with profit and loss sharing, often with a new holding company. The bank becomes a part-owner of the holding company in a way that entitles the bank to collect profits on the joint venture up to a certain percentage of the original not-a-loan. Again, functionally identical to interest, but officially not. It is worth noting that conservative Islamic clerics have raised objections over these, but have been overruled everywhere that money rules.

kragen 4y ago
thank you very much for this explanation i think this comment is the second most interesting one in the whole thread, following the one that pointed out that svb's stock fell 60% today (true: https://finance.yahoo.com/quote/SIVB/ https://finance.yahoo.com/quote/SIVB/) related links: https://en.wikipedia.org/wiki/Islamic_banking_and_finance https://en.wikipedia.org/wiki/Islamic_banking_and_finance https://en.wikipedia.org/wiki/Murabaha https://en.wikipedia.org/wiki/Murabaha https://en.wikipedia.org/wiki/Profit_and_loss_sharing#Mudarabah https://en.wikipedia.org/wiki/Profit_and_loss_sharing#Mudara... https://en.wikipedia.org/wiki/Profit_and_loss_sharing#Musharakah https://en.wikipedia.org/wiki/Profit_and_loss_sharing#Mushar...