Contemporary Islamic Finance: Innovations, Applications and Best Practices

CHAPTER 18

Islamic Mortgages

BY DAVID LOUNDY

Chairman of the Board of Directors and Chief Executive Officer, and Head of Religion-Based Financing for Devon Bank in Chicago

In Islamic finance circles, it is the big mega-transaction high-value corporate financing deals that make the news. However, at a retail level, it is home buying that makes up the higher individual transaction volume. To purchase a home, the demand for financing is high, the transaction sizes are reasonably high in relation to customer resources, and thus the need for financial assistance in making such a purchase is also high. On the investor side, home finance is often seen as attractive because people will let a lot of other needs go unmet before they are willing to risk their families being thrown out in the street for nonpayment on their home financing. Home financing is also asset-backed financing with collateral that has a readily accessible market should liquidation be necessary. Home financing is seen as more stable than a lot of other potential financing transactions.

The number of homeowners versus home renters varies depending on country. This is due to definitions of “ownership,” differences in financing options, state subsidies, ability to own and track property titles, cultural value of ownership, and so forth. In many countries, elaborate homeownership infrastructures are developed to support the long-term financing of home purchases. Such support may be in the form of standardized products, purchase ...