Thursday, November 09, 2006

Financing under Islamic Law

This isn't something that comes up every day with me, but I'd certainly file it in the useful information when I need it category. CBA had a presentation the other day by David Loundy with The Devon Bank on the technicalities of financing under Islamic Law.

See their Laws prohibits institutions from charging interest when lending money or to penalize people for failing to repay a loan. How to get around?

1. Murabaha. The customer picks the asset at a stated purchase price. Then the bank purchases the asset and resells it to the customer in an installment sale at a price that reflects an imputed rate of interest.

2. Ijara. The bank purchases the asset into a single purpose subsidiary and then leases the asset to the customer. At the end of the lease, the bank may transfer title to the customer.

A lot of tax questions and deductibility issues remain undecided.

1 Comments:

At 12:05 PM, Blogger Geno Petro said...

Well its nice to see there's a softer side to all the 'Islamic Law' I've been hearing about in the media the past several years.

 

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