Islamic Home Financing
Murabahah and BBA home financing
Bay' Bithaman Ajil (BBA) and murabahah-based home financing are permissible as they involve a genuine sale of property (not a loan), with profit markup disclosed upfront. The bank buys and then sells the property to the customer at a deferred price.
Full Ruling
Under BBA/murabahah home financing: (1) The bank purchases the property from the seller (or developer) and takes legal ownership — even if briefly. (2) The bank then sells it to the customer at a higher price (cost + profit markup) payable in instalments. (3) The profit markup must be disclosed upfront and is fixed at contract inception. (4) Unlike conventional mortgages, no interest accrues on overdue payments (though late payment penalty to charity is permissible).
Rationale & Reasoning
The key difference from conventional mortgage is genuine sale (bay'): there is transfer of ownership, real risk of ownership (however brief), and a predetermined fixed price — not floating interest on a loan. Scholars accept the economic equivalence to mortgages as incidental, not determinative of Shariah compliance.
Rule Basis (Daleel)
- 01Validity of bay' (sale) contract
- 02Fixed deferred price in murabahah
- 03Prohibition of compound interest
Conditions for Permissibility
- ✓Bank must genuinely acquire ownership of property, even briefly
- ✓Profit markup must be disclosed and fixed at contract inception
- ✓No compounding of profit on late payments
- ✓Late payment penalties must go to charity
Citations & Sources
Securities Commission Malaysia – Shariah Screening Methodology 2023
Securities Commission Malaysia · 2023
Ref: SC/2023/SSM