Are the current Islamic mortgage options available in the UK truly “Islamic” and acceptable alternatives for Muslims?

 Research Proposal


Are the current Islamic mortgage options available in the UK truly “Islamic” and acceptable alternatives for Muslims?


Research Introduction


Meaning of the title


           Introduction to the Subject


A critical study analysing the Islamic mortgage options available in the UK, and

assessing whether they are truly “Islamic” and acceptable alternatives to conventional

finance options by analysing the avoidance of Islamic prohibitions and fulfilment of

Islamic ideals.


Definition of Islamic terms used in the title


           Islamic: fulfilling all of the ideals upon which Islam is based





The meaning of the title


The title mentions the acceptability of the UK Islamic mortgage options and this

is what the study hopes to establish. In order to do this the study will firstly attempt

to determine the requirements for a mode of finance to be Halal (permissible)

according to Shariah (Islamic law). Secondly it will further assess if a mode of

finance can be permissible in Islam whilst not necessarily being truly Islamic.



The importance of my topic


Importance and relevance today


One of the biggest financial investments any person will make in their lifetime is

likely to be the purchase of their home and in the vast majority of cases they will

need to borrow money on interest from a bank. As the Muslim population in the

UK is increasing; the topic of discussion is of paramount importance because

Muslims are not allowed to pay or receive riba al nasiah which is a specific type of

prohibited increase akin to modern day interest charged against loans. In light of

this, Muslims living in the UK need to understand what forms of finance they can

use knowing that the requirements of their faith are not being compromised.



               New Islamic Knowledge


Although there are innumerable writings on Islamic Finance which explain how it is

different to conventional finance and how it works, there are however very few

writings which clearly make the distinction between “permissibility” and “ideals”

             within Islamic Finance. I feel this distinction is imperative as often people assert that

because all the ideals of Islamic finance are not fulfilled, this in turn would suggest

that the products in question are not Islamic and hence not permissible.




Literature Review


Islamic Finance known and accepted authorities and personalities


Mufti Taqi Usmani (Primary Source)


Mufti Taqi Usmani is a well known and leading figure in the field of Islamic Finance with

worldwide recognition. He has chaired several shariah supervisory boards and is responsible

for increasing awareness and understanding in this field. Whilst he is a great supporter of

Islamic finance he also recognises the challenges Islamic finance faces in order to

overcome genuine objections, to be able to compete with conventional products and to be

able ultimately revolutionise banking worldwide. Mufti Taqi Usmani believes it is possible to

offer genuinely shariah compliant Islamic mortgages whether this is through an Islamic

window of a conventional bank or through a standalone Islamic bank providing the products

are structured properly and certain critical rules are adhered to. However he stresses the need

for Islamic banks to develop products which involve more risk sharing as some of the current

products the banks offer use methods which allow the banks to avoid interest but do not

share risk. He further states that some of the methods currently used were never intended

initially as a mode of finance and hence they are not ideal methods of financing.


“An Introduction to Islamic Finance” Mohammed Taqi Usmani


“The Issue of Interest” Hazrat Maulana Mufti Mohammed Shafee (Late) and Mualana

Mohammed Mufti Taqi Usmani





Haitham Al Haddad (Primary Source)


Haitham Al Haddad is a director of Muslim Research and Development Council, chair of an

Islamic Shariah Council and an advisory scholar for Ansar Finance. The bulk of his works

with regards to finance relates to Islamic mortgages in the UK. Whilst he supports the need

for acceptable methods of finance for Muslims living in the UK he is also very critical of the

current range of mortgages labelled as shariah compliant. Firstly he challenges the

permissibility for a conventional bank offering Islamic home finance through an Islamic arm

or indeed an Islamic bank doing the same as he claims such institutions make use of money

(at least initially) which has been borrowed on interest. Secondly he claims the definitions

used by some of the other shariah scholars when defining Riba and Gharar are incorrect and

as such some of the products which they have approved fall foul of these prohibitions and

hence are not permissible.


“The Islamic Mortgage: Paradigm Shift or Trojan Horse?” Sheikh (Dr) Al Haitham Al

Haddad and Tareq Al Diwany  


“Islamic Ijara Mortgages by HSBC and other Banks”, Haitham Al Haddad


Umar Vadillo (Primary Source)


Umar Vidallo followed a long period of study of the application Imam Malik’s Al Muwatta

to modern financial practice. He believes banking whether it is current Islamic banking or

conventional banking is totally forbidden as it has emanated from a system built on and

promoted by using Riba. He further states that paper money is actually a “promissory note”

with no intrinsic value and hence an unacceptable medium of exchange. He calls for a totally

different Islamic banking system not dependant on the conventional system. He promotes the

system of Muamalaat (Muslim Socio-Economic model) as a replacement to the Riba system,

which uses gold dinar and silver dirham as an Islamic real wealth currency to eventually

replace paper money as a medium of exchange between Muslims. He contends that Islamic

banks have made Riba permissible and are deceptive for three main reasons. Firstly they have

made only superficial changes, they maintain the model of central banks and credit money

and hence tacitly approves this Riba based system. Secondly they ignore our system of

Muamalaat and deny the existence of a shariah currency. Thirdly they have altered the nature

of business contracts in order to make them fit into alien institutions and practices forbidden

in Islamic law.


“Muamalaat: The alternative to the Riba system exists” Umar Vadillo


Mahmoud A. E-Gamal (Primary Source)


Mahmoud A. E-Gamal is a professor of Economics and Statistics at Rice University

(endowed Chair in Islamic Economics, Finance, and Management). He served in the Middle

East Department of the International Monetary Fund (1995–6), he was a scholar in residence

on Islamic Finance at the U.S. Department of the Treasury in 2004. He has published

extensively in the areas of econometrics, finance, experimental economics, and Islamic law

and finance. Mahmoud Gamal’s main line of argument is that of Adl (justice) and he

suggests that in order for products to be Islamic they need to be just. He states because many

of these products are unjust in terms of risk sharing and return this is tantamount to Riba in

disguise. He further states there is too much emphasis on the wording of contracts and too

little with regards how just and ethical a contract is.


Islamic Finance: Law, Economics, and Practice, By Mahmoud A. El-Gamal, Cambridge

University Press




New Areas of Learning and Research


Whilst reading around my subject area I have been introduced to new objections, ideas and

solutions which have really broadened my understanding of the subject area in question and I

feel that they are worthy areas of further discussion and research. These areas can be broadly

categorised as follows.


The Muslim Socio Economic System of “Muamalaat” and current UK Islamic Banking.


The model of Muamalaat presented by Umar Vidallo proposes a radically different system

which one cannot deny is arguably more robust and fair. However to assert that all current

banking and currencies are forbidden is a position which very few share as it would have far

reaching implications making life very difficult for the Ummah (Muslim community). The

need however to move towards such a system I feel is warranted, justified and required so

that Muslims can deal with one another and live a life which is in keeping with the principles

that Islam is based upon. A system of Muamalaat could take many years if not decades to

come into fruition but as Muslims we ought to do what we can to promote such a system

whilst at the same time focusing on developing the current UK Islamic Finance within the

context of the conventional system.





The actual definition of “Riba” and its understanding in modern day banking context.


The whole discussion of Islamic Finance I feel started with the prohibition of Riba and for

this reason this warrants a detailed discussion especially when it appears that many people

have a different understanding of its various forms, it’s definition and it’s application within

modern day context. It is only once it can be clearly established what can be considered Riba

and what is not that we can assess if the current Islamic Banking practices fall foul of this


Alternative Islamic mortgage models


There are many critics and objections levelled at current Islamic banking practices some

which are justified and others which are not, but very few such critics have been able to

present alternatives which are more befitting. Working within the industry I have come across

some very interesting alternative Islamic mortgage models. Some models not only appear to

avoid the prohibition of Riba and Gharar but they also offer risk sharing features which

many would agree is part of the essence of Islamic finance. However whilst such models

appear to be fairer and in keeping with the ideals of Islamic finance they do present other

concerns which may prove to be less popular to the banks, investors and home owners should

they be introduced within the UK.







Method of Data Analysis




  • UK Muslim demographics and the need for acceptable Islamic mortgage for

UK Muslims.


  • Islamic mortgages in the UK and an introduction to the proposed research


topic of how truly Islamic and acceptable the current Islamic mortgage


options are as an alternative to conventional mortgages for Muslims in living


in the UK.



Main Body


  • A discussion of the system of Muamalaat proposed by Umar Vadillo and others and a

discussion of the objection that current Islamic banking practices are Haraam

(forbidden) as they are part of the Riba banking system and hence rely and tacitly

approve this system.


  • The accepted definition of Riba, Gharar and other impermissible transactions and a

discussion of the objection that they are incorrectly defined and applied to Islamic

mortgages in the UK.




  • An overview of the Islamic mortgage methods used in the UK namely

           Murabaha (sale with declared profit), Diminishing Musharakah (joint diminishing

ownership) and Ijara (lease with option to buy), and a discussion of the key

objections levelled against these methods (detailed below).


  1. The is no real difference between conventional mortgages and Islamic

mortgage methods as they are very similar firstly in terms of their

general structure and secondly their cost which is partly due to

“benchmarking”rental rate rates in line with a base rate of interest.


  1. The methods used are not true modes of Islamic finance but rather it is the

application of Heela (amethod used to circumvent a prohibition) and

hence cannot be called Islamic.


  1. The methods used do not involve risk sharing and hence do not employ

                   Adl (justice) which is pivotal to the essence of Islamic finance.


  • A presentation of an alternative to the current Islamic mortgage methods, which

genuinely avoids Riba and Gharar and offers risk sharing which the critics of Islamic

finance state is key feature for its permissibility. A discussion whether this apparently

more acceptable model is actually more favourable for the home buyer and whether it

will necessarily be perceived as a better alternative by the home buyer, lender and






  • A summary of my findings demonstrating that:


  1. Islamic mortgage available in the UK is permissible and an acceptable

alternative whilst it may not be truly Islamic.


  1. In the short term the existing products ought to be developed if possible so that

they are more Islamic by offering more risk sharingand (or) better alternatives

offered alongside the current range available in the UK.


  1. In the long term we ought to be working towards creating a real wealth Islamic

economy which is not reliant on the current Riba system at.
















Books, Dissertations and Theses


Mohammed Taqi Usmani , An Introduction to Islamic Finance, Karachi, Maktaba Ma’ariful Quran, 2010


Shafi Mohammed, The Issue of Interest, Karachi, Darul Ishaat, 1997


Clement M. Henry and Rodney Wilson, The Politics of Islamic Finance, Edinburgh,Edinburgh University Press, 2004


Dr. Sahar Nasr, Islamic Finance in the Arab World: Challenges and Prospects, World Bank, American University in Cairo, and British University in Egypt, Cambridge Business & Economics Conference (CBEC), 2011


Oliver Wyman, The Next Chapter in Islamic Finance Higher Rewards but Higher Risks, 2009


Omar Mustafa Ansari & Faizan Ahmed, Islamic Banking: Is it really “Islamic”? , 2010




Mahmoud A. El-Gamal , Islamic Finance: Law, Economics, and Practice, Cambridge, Cambridge University Press, 2006


Abul-Husayn Ahmad, The Mukhtasar Al-Qudoori,


Ashraf Ali Thaanwi , The Principles and Codes of Law in Hanafi Fiqh,





Online Articles


Mohammad Tahir Mansoori, SHARIAH LEGITIMACY OF ISLAMIC BANKING: Is This Banking Really Islamic? Dean Faculty of Shariah & Law IIU Shariah Advisor, Askari Islamic Bank,, 9th May 2014


Khurram Baig, 2012, Islamic financial system shows inherent resistance to global crises,, 8th May 2014


M.Kabir Hassan & Rasem Kayed,2012, The Global Financial Crisis & Islamic Finance P.1 , The Financial Crisis & the Islamic Finance Renaissance, , 8th May 2014


Alan O’sullivan, 2009, Is Islamic banking the model for fairness?,, 9th May 2014


Haitham Al-Haddad, 2013, Islamic Ijara Mortgages by HSBC and Other Banks,, 9th May 2014



Haitham Al-Haddad and Tarek El-Diwany, 2006,The Islamic Mortgage: Paradigm Shift or Trojan Horse?, , 9th May 2014


Mohammed Amin, 2011, A simple introduction to Islamic mortgages,, 9th May 2014


Sajid Aziz,2007, Is Islamic banking in Pakistan really Islamic?, 9th May 2014



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