Islamic House Financing through Diminishing Musharakah: A Cheaper Solution

Abstract

Shelter is one of the basic necessity along with food and clothing which any human endeavors for. The assiduous efforts to acquire basic necessities is made part of human nature (Shahzad & Farooq, 2014). Quran and Hadith emphasizes on the importance of housing; “And Allah has made for you from your homes a place of rest and made for you from the hides of the animals tents which you find light on your day of travel and your day of encampment; and from their wool, fur and hair is furnishing and enjoyment for a time” (Al Quran An-Nahl: 80) The Holy Prophet Muhammad (PBUH.) said; “The happiness of son of Adam is determined by three things: a pious wife, a good house and a good vehicle, and the misery of son of Adam is determined by three things: an impious wife, a bad House, and bad vehicle.” (Musnad Ahmad: 1368). Irrespective of housing being one of the basic necessity, the high expenses to acquire it usually costs people all of their reserves and life savings. But not all people have sufficient resources to get a house and therefore, they often approach the financial institutions in order to fulfil their financial needs. The financial institutions offer house financing facility for buying, construction, renovation or balance transfer (Muhammad Asghar Shahzad, 2012; Shahzad, 2015; Shahzad & Farooq, 2014; Shahzad, Saeed, & Ehsan, 2019) . Conventional banks provide financing for building a house based on interest (Riba), which is strictly prohibited in Islam. According to the Quran, dealing with interest is equivalent to waging war against Allah (SWT) and His Prophet (PBUH) (Council of Islamic Ideology, 2003; Khan, 2000; Shahzad & Hameed, 2018). In order to provide alternative solution of house financing, contemporary Sharī‘ah scholars have introduced Sharī‘ah compliant methods of house financing. There are different modes of Islamic house financing being used in Muslim and non-Muslim countries, i.e., Murabahah Lil-Amiri bi-al-Shira, Istisna’, Ijara, and Diminishing Musharakah (Al-Shalhoob, 2008). However, the Diminishing Musharakah is more acceptable to Sharī‘ah scholars as compared to other modes for house financing. (Shirazi, Syed Ali, & Zafar, 2014)