My brother is looking to purchase a car with the assistance of Dubai Islamic Bank. The procedure for an Islamic loan in Dubai is that the bank will purchase the car for you and you repay the loan through installments, but you end up paying more than the actual price (similar to an Islamic Mortgage in the UK). Would it be permissible for my brother to purchase a car through Dubai Islamic bank. Please also explain the difference between this type of loan and a normal loan where you pay back interest which works out to be considerably cheaper.
In the name of Allah, the most Beneficent, the most Merciful.
Saaidina Ibn Masud Radiallahu Anhu narrates that the Prophet of Allah Sallallahu Alahi Wasalam, said: “Every two loans extended by a Muslim to another count as one charitable payment.” (Sunan Ibn Majah)
Saaidina Abu Hurayrah Radiallahu Anhu narrates that the Prophet Sallallahu Alahi Wasalam, said: “whoever relieves the hardship of a Muslim in this life, Allah will relieve one of his hardship on the day of judgement; and whoever eases a financial difficulty for a Muslim, Allah will relieve his difficulties in this life and the hereafter…” (Sahih Muslim & Sunan Abi Dawud)
The Islamic Loan is based on two principles, which is compatible with the Qur’an or Hadith.
Briefly, they are Murabaha and Ijarah. Murabaha is where the bank buys the item, which you need, the loan for at a set price and immediately sells it on to the client at a higher price. This is paid back in instalments and deemed to be a sales transaction.
Ijarah is where the bank and the client both purchase the item which you need the loan for and the client pays rent to the bank for its share and also payments in instalments towards the purchase of the item until the client pays the entire price of the banks share, and the rent paid in this period would be considered the bank’s profit.
With regards to your question, if the Islamic Loan, which you have mentioned, is compatible with the aforementioned principles then it will be permissible.
Only Allah Knows Best
Mohammed Tosir Miah
Darul Ifta Birmingham.