Buying a House with Interest on the Price: Permissible?
Home > Ask the Scholar > Financial Issues > Buying a House with Interest on the Price: Permissible?

Buying a House with Interest on the Price: Permissible?

Questioner

Anonymous

Reply Date

Jun 19, 2017

Question

As-salamu `alaykum. In Ethiopia, the government has designed a housing system for the poor and middle income citizens. The government sells houses in 15 to 30% pre-payment and the remaining cost is paid in monthly basis in 20 years.The amount of money paid in 20 years is more than the price agreed to be paid. For example: the cost of a house is 100,000 Birr. I paid 15,000 Birr primarily. Then I agreed with the government Bank to pay 800 Birr per month for 20 years. Which can be 192,000 Birr at the end of the 20 years. I pass through this system as there is no way to have a house.The monthly payment I have to pay according to the Bank agreement is almost the same as I pay for house rent. Is it lawful in Islam to buy this house?

Mufti

Answer


Buying a House with Interest on the Price

Wa `alaykum as-Salamu wa rahmatullahi wa barakatuh.

In the Name of Allah, Most Gracious, Most Merciful.

All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.


In this fatwa:

1- It is clearly known that usury (riba) is impermissible (haram) either in housing or any other dealings.

2- As for the kind of contract you mentioned in your question, it is obviously riba (unlawful interest).


Offering a detailed reply to your question, Prof. Dr. Monzer Kahf, Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies, states: 

It is apparent that the difference in this example between the total paid and the sale price (15000+192000-100000=107000) is riba.

Riba is haram whether for housing or for any other purpose.

Ethiopia is a country with a large Muslim community. You should be able to amend this contract or to have the finance done through the Islamic bank.

There is a new Islamic bank in Ethiopia.

To amend it, it is permissible to negotiate with the government bank to sell the house for 207000 with 15000 cash and the remainder on 800 a month.

The difference is not simply formality. It is in fact a basic difference between sale on credit and interest on lending. Sale on credit is permissible and interest on loan is not.

Almighty Allah knows best.




About Prof. Dr. Monzer Kahf

Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies

find out more!