Islamic Loan Financing In Malaysia

Posted by Kris | Thursday, August 05, 2010 | | 2 comments »

Islamic loan financing has becoming popular nowadays even with non-muslims for big purchases such a property. It is the least understood scheme at least for me though. I ask around a few bankers on this subject regarding refinancing based on Islamic principals. I am not sure whether the bankers that i talk to is either too inexperienced, ignorant or maybe just want to save time explaining to a newbie like me on how Islamic or syariah based financing truly works.

The most common mistake I noticed are the following statement:

"It is almost the same as conventional loans, but the BLR/BFR is capped at 10%++. So if interest go up very high, this is a protection for you.". Okey this sounds interesting, since any high inflationary risks are protected through the cap. All conventional loans that i know of do NOT have this cap protection for high BLR/BFR rate. And I know that Islamic financing cannot be the same , as I know Islam forbids interest taking.

or

"You don't need to pay any maintenance fee like RM10 monthly for the upkeep of your current account like most of the normal conventional flexi loans. That is the only difference!!" I was like huh?? Conventional and Islamic based financing cannot be merely having such a small difference!!

or

"It is good because you can earn some 0.0x% of rebate , if you park your additional money at the account" -> I was thinking so what the difference??


After some intensive googgling, most of my answers are found at Lowyat Forum. It seems that there is alot of good replies from knowledgeable forumers on Islamic loans. Even after reading them, I am still not that clear as of yet. So i encourage the readers to find out more for yourself.

But the main summary is that Islamic Financing is NOT THE SAME as conventional financing as Islamic principles prevents the existence of riba or interest taking by the loaner!!

A lot of bankers don't take the liberty to explain in your in detail on how the final loan amount is calculated for Islamic financing, (it is quite different here),how the bank rebates you on your payment, etc. And there is not much mortgage calculators are based of Islamic financing.


So far the most salient top points that i understand under Islamic financing is that the

a) BFR/BLR is capped at a certain amount for the entire duration of loan
b) One interesting point that i read in "Personal Money" magazine sometime ago , is that home buyers' interest are protected if developers ran away or abandon the project. The home buyers are not liable to service the loan if this happens since technically the bank is the owner of the house. This is the best protection ever against irresponsible developers since our current housing act/law cannot protect consumers against this.

The main reason of this post hopefully some knowledge reader could point out how Islamic financing really works beyond my own understanding.

All in all , Islamic financing is something i am very interested to know more on in detail due to the benefits above. Anyone knows a good website that shows the calculations , do let me know =D

Disclaimer: I am a newbie to Islamic Financing, so double check the facts with your bankers if you decide your financing needs :P


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2 comments

  1. ChampDog // 10:49 AM  

    Thanks for bringing up this and I do not aware of the their differences too. I as most of the users think that they're about the same from a consumer's perspective.

  2. ~One~ // 12:16 PM  

    Islamic Finance really different from conventional Finance. You may visit Dr Zaharuddin blog(Zaharuddin.net) and ask the detail. He is a Professor at UIA. There you may find your answer..=)