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Advantages and Disadvantages of Islamic Financing

 
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zavier



Joined: 20 Mar 2009
Posts: 198

PostPosted: Sat Aug 01, 2009 9:58 am    Post subject: Advantages and Disadvantages of Islamic Financing Reply with quote

i dun see any thread about islamic financing ..
hopefully it can shed some knowledge in this thread ..
recently, i came across a magazine named "Personal Money" .. personally i think this mag is good .. which lead me into this topic ..
The nature of islamic financing is to buy the property from developer and sell it back to the owner at a profit because interest is prohibited in islam .. one very good point being raised in this mag is that in event the developer abandoned the project, it is not the responsibility of the owner to service the remaining payment .. the bank is suppose to take full responsibility of it ... this is very interesting and i hope someone can clarify this ... this is a new breakthrough in the financial industry .. other advantages that i heard of will be the capped BLR rate at 10% ... maybe someone can also shed some knowledge on disadvantage of islamic financing .. thanks ..
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jansen_chua86



Joined: 18 Jul 2009
Posts: 86

PostPosted: Sun Aug 02, 2009 8:08 pm    Post subject: Islamic Banking Reply with quote

I find that true. Islamic banking is indeed good as you have mentioned. is Maybe the only "disadvantage" is investments should only support practices or products that are not forbidden or considered unlawful, or haram, by Islamic law. Trade in alcohol, for example would not be financed by an Islamic bank; a real-estate loan could not be made for the construction of a casino; and the bank could not lend money to other banks at interest.
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Adrian Wong



Joined: 05 Jul 2009
Posts: 30

PostPosted: Sun Aug 02, 2009 11:10 pm    Post subject: Reply with quote

If I'm not mistaken, the "profit" calculated for the loan is fixed. So if you decide to pay up faster, you will still have to pay the full profit agreed upon when you first sign up for the loan. Please correct me if I'm wrong.
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drchan



Joined: 10 Feb 2009
Posts: 77

PostPosted: Mon Aug 03, 2009 12:33 am    Post subject: Re: Advantages and Disadvantages of Islamic Financing Reply with quote

zavier wrote:

The nature of islamic financing is to buy the property from developer and sell it back to the owner at a profit because interest is prohibited in islam .. one very good point being raised in this mag is that in event the developer abandoned the project, it is not the responsibility of the owner to service the remaining payment .. the bank is suppose to take full responsibility of it ... this is very interesting and i hope someone can clarify this ... this is a new breakthrough in the financial industry .. other advantages that i heard of will be the capped BLR rate at 10% ... maybe someone can also shed some knowledge on disadvantage of islamic financing .. thanks ..


Underlying all these "benefits" is the higher borrowing cost: interest we normally call it; but known as "profit" in order to "halal" it ! Laughing Laughing
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Adrian Wong



Joined: 05 Jul 2009
Posts: 30

PostPosted: Mon Aug 03, 2009 12:39 pm    Post subject: Re: Advantages and Disadvantages of Islamic Financing Reply with quote

drchan wrote:
zavier wrote:

The nature of islamic financing is to buy the property from developer and sell it back to the owner at a profit because interest is prohibited in islam .. one very good point being raised in this mag is that in event the developer abandoned the project, it is not the responsibility of the owner to service the remaining payment .. the bank is suppose to take full responsibility of it ... this is very interesting and i hope someone can clarify this ... this is a new breakthrough in the financial industry .. other advantages that i heard of will be the capped BLR rate at 10% ... maybe someone can also shed some knowledge on disadvantage of islamic financing .. thanks ..


Underlying all these "benefits" is the higher borrowing cost: interest we normally call it; but known as "profit" in order to "halal" it ! Laughing Laughing

LOL! I always felt it was just semantics. To-may-to ... To-mah-to ... different pronunciation, same fruit. Smile
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zavier



Joined: 20 Mar 2009
Posts: 198

PostPosted: Tue Aug 04, 2009 7:13 am    Post subject: Reply with quote

Adrian Wong wrote:
If I'm not mistaken, the "profit" calculated for the loan is fixed. So if you decide to pay up faster, you will still have to pay the full profit agreed upon when you first sign up for the loan. Please correct me if I'm wrong.

there will be a rebate in event u pay up faster ... but the question is how much ... and will it be clear enuff with calculation or discretion by bank ..
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drchan



Joined: 10 Feb 2009
Posts: 77

PostPosted: Tue Aug 04, 2009 11:32 pm    Post subject: Re: Advantages and Disadvantages of Islamic Financing Reply with quote

zavier wrote:

The nature of islamic financing is to buy the property from developer and sell it back to the owner at a profit because interest is prohibited in islam .. one very good point being raised in this mag is that in event the developer abandoned the project, it is not the responsibility of the owner to service the remaining payment .. the bank is suppose to take full responsibility of it ... this is very interesting and i hope someone can clarify this ... this is a new breakthrough in the financial industry ..

Unfortunately NONE of the Islamic housing loan lenders is practising this aspect of the Islamic ruling, and I guess they are trying hard to shield it off from the knowledge of the borrowers.


zavier wrote:

other advantages that i heard of will be the capped BLR rate at 10% ... maybe someone can also shed some knowledge on disadvantage of islamic financing .. thanks ..

Islamic housing loans are all fixed rate, no BLR involved.
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NewKENZO



Joined: 01 Jun 2006
Posts: 198
Location: Subang

PostPosted: Wed Aug 05, 2009 2:14 am    Post subject: Re: Advantages and Disadvantages of Islamic Financing Reply with quote

drchan wrote:



zavier wrote:

other advantages that i heard of will be the capped BLR rate at 10% ... maybe someone can also shed some knowledge on disadvantage of islamic financing .. thanks ..

Islamic housing loans are all fixed rate, no BLR involved.



Nope. Previously it was, but since few years ago, it was not. Alliance Bank is offering Islamic package with fixed rate for first year and fluctuate rates for thereafter. Now they call it BLR like conventional loan, but previously they call it BFR, Based Floating rate. I think CIMB and HLB also doing the same.
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zavier



Joined: 20 Mar 2009
Posts: 198

PostPosted: Thu Aug 06, 2009 12:32 pm    Post subject: Reply with quote

yea i think now they have developed to BFR .. something similar to BLR ..
so i guess no one can clarify whether the islamic bank will take full responsibility in event developer abandoned ...
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eijilee



Joined: 25 Oct 2007
Posts: 650

PostPosted: Thu Aug 06, 2009 12:50 pm    Post subject: Reply with quote

Wonder why no Mortgage Officer involved in the discussion. Seem like they are only interested the threads which MAYBE can give them business... Laughing Laughing Laughing

Good point, Zavier. At least you make us aware the following concern on Islamic Loan...

a) Responsibilities of the buyer to service the remaining mortgage loan if project abandon
b) Rebate from bank if earlier settlement
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max_57070



Joined: 23 Mar 2007
Posts: 21

PostPosted: Thu Aug 06, 2009 1:15 pm    Post subject: Reply with quote

1) Currently islamic also got BLR @ BFR = based financing rate. but under islamic the BFR is capped and it depends on each bank.

2) rebate is given if u pay early and based on bank discretion. no calculation given.

3) when islamic bank "gives loan" based on BFR, the selling price to customer is based on the maximum BFR but the monthly payment is based on current effective BFR.

4) yup the islamic bank shall not request customer to pay the installment if the developer abandon / default its project.

This is based on what i understand and what i read with my islamic loan agreement. i got 2 islamic loans.

The best islamic loan is Al-Rajhi as they follow syariah whereas other islamic banks dont follow 100%. e.g Al-Rajhi doesnt hv any late payment or penalty, no locking period etc.

furthermore the capital already mixed with conventional so i think it create doubt on "the halal".
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drchan



Joined: 10 Feb 2009
Posts: 77

PostPosted: Thu Aug 06, 2009 11:31 pm    Post subject: Reply with quote

max_57070 wrote:

The best islamic loan is Al-Rajhi as they follow syariah whereas other islamic banks dont follow 100%. e.g Al-Rajhi doesnt hv any late payment or penalty, no locking period etc.


How competative are their packages compared to other lenders, e.g., in term of the total cost of financing ? Rolling Eyes
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drchan



Joined: 10 Feb 2009
Posts: 77

PostPosted: Thu Aug 06, 2009 11:37 pm    Post subject: Re: Advantages and Disadvantages of Islamic Financing Reply with quote

NewKENZO wrote:
drchan wrote:



zavier wrote:

other advantages that i heard of will be the capped BLR rate at 10% ... maybe someone can also shed some knowledge on disadvantage of islamic financing .. thanks ..

Islamic housing loans are all fixed rate, no BLR involved.



Nope. Previously it was, but since few years ago, it was not. Alliance Bank is offering Islamic package with fixed rate for first year and fluctuate rates for thereafter. Now they call it BLR like conventional loan, but previously they call it BFR, Based Floating rate. I think CIMB and HLB also doing the same.


Embarassed oops my bad. I've been leaving Islamic financing for too long ... Razz
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bkfeng



Joined: 21 Jun 2009
Posts: 48

PostPosted: Sun Aug 09, 2009 12:29 am    Post subject: Reply with quote

..forum.lowyat.net/topic/1096959

There's another topic here with pretty interesting points that forumers brought up Smile
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zavier



Joined: 20 Mar 2009
Posts: 198

PostPosted: Sun Aug 09, 2009 11:50 pm    Post subject: Reply with quote

max_57070 wrote:
1) Currently islamic also got BLR @ BFR = based financing rate. but under islamic the BFR is capped and it depends on each bank.

2) rebate is given if u pay early and based on bank discretion. no calculation given.

3) when islamic bank "gives loan" based on BFR, the selling price to customer is based on the maximum BFR but the monthly payment is based on current effective BFR.

4) yup the islamic bank shall not request customer to pay the installment if the developer abandon / default its project.

This is based on what i understand and what i read with my islamic loan agreement. i got 2 islamic loans.

The best islamic loan is Al-Rajhi as they follow syariah whereas other islamic banks dont follow 100%. e.g Al-Rajhi doesnt hv any late payment or penalty, no locking period etc.

furthermore the capital already mixed with conventional so i think it create doubt on "the halal".


thanks max for ur clarification ... it is very useful .. since u alr have 2 islamic loan ... mind sharing with us why do u choose islamic loan ?
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renkev



Joined: 01 Sep 2009
Posts: 5

PostPosted: Wed Sep 02, 2009 1:11 am    Post subject: Reply with quote

yes, surely an interesting topic. i myself wanted to learn more about it.

this doesnt already seem a new thing around rite i wonder why is it not *that* popular yet compared to conventional loan. one reason im thinking is taht ppl lazy to find out about it n the uninformed is usually feel concerned of any hidden cost ,etc...

yeah, some1 pls share moar... lol
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