Is this RIBA? Please answer in Detail.

Question

Asalam-u-alekum, Dear Mufti sahib, I own a piece of land. I want to build a house on it. I do not have enough money. One of my friend wants to invest in the house. I will pay 50% of construction cost ($300, 000) and he will pay 50% ($300, 000) of cost. (All this will be paid directly to the builder, he will not give me any money). As he is investing in the house he wants to be involved in all phases of construction, including plans and approval of builder. However he has allowed me to act his agent in selection of materials and builder. He wants reasonable profit on his investment. His profit will be fixed from the beginning and there is no late payment penalty. I will pay back $400, 000 to him in 10 years in equal installments. The title of the house (to save cost) will be in my name and he will be listed as 1st lean holder on that, till I pay him back completely in 10 years, when his name will be removed. Is this Islamic? (Murabaha) or is this RIBA?. If it is non Islamic, how can we make it Islamic. Shall we sign a separate contract of joint ownership?. JazakAllah Khair

Mufti Ebrahim Desai · Accepted Answer

Muraabaha is that sale wherein a commodity is sold in a way that the purchaser is aware of the total cost of the commodity. In the matter of building, it would be advisable to deal on a diminishing Musharakah basis. In this method of financing, people join in partnership (in your case, you and your friend) and hence become joint owners of the property.

The one who is utilising the property will pay rental to the other partners pro rata to his share. At the onset, 50% of the agreed rental rate of the market rental of the property. Thereafter, as lump sums are paid by the occupying partner over and above the rental to the other partner, the share of the non-occupying partner would diminish, thus, his share of the rental would decrease until he has no capital inveestment in the property.

For example, the total investment is $600,000, Ahmad and Muhammad are equal partners. Ahmad rents the property from the partnership at the agreed rental of $6000 per month. He is liable to pay $3000 to Muhammad in rental per month. After the first year, Ahmad pays Muhammad $100,000 against his capital investment. Now Muhammad's share is 33 1/3% of the partnership (original investment 300,000 - Capital payments 100,000 = $200,000). Now the rental for the second year is $6,600 per month of which Muhammad is entitled to 33 1/3%. In this way, Ahmad will buy off Muhammad's share and will become the sole owner of the property. It should be noted that all rates and taxes, levies, repairs and maintenance, etc. wll be a burden on the joint rental, unless agreed that the lessee will be responsible for the abovementioned.

May Allah Ta'ala guide us all in dealing in an Islamically accepted manner, Aameen.

and Allah Ta'ala Knows Best

Mufti Ebrahim Desai
FATWA DEPT.

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