Dr. Monzer Kahf, a prominent Muslim economist and counselor, states the following: That is a very good project. It needs a lot of liquidity though. You can adopt either of the following two forms of contracts.
1. Murabahah contract: Here the client asks you to buy a selected house for a known price and promises you that after you buy it he/she will buy it from you on installments at a higher price. There are many details in the contract that you really need to consult a lawyer in the UK and an expert in the Shari’ah to prepare the contract unless you have the format that is used by some other Islamic banks and they authorize you to use it. Your profit is the price differential. In this contract, you own a promissory note (a debt) and you have to hold it until maturity of all installments; you cannot discount it at a finance provider or a band because discounting debts is forbidden in the Shari’ah.
2. A long lease contract: This will include an open offer to buy a certain number of shares of the house along with every rent payment. In this case, the house remains under your name and the rent declines in proportion to shares purchased. In the kind of contract you can sell the contract to finance providers or institutional investors because it is a property that you own. Your profit will be the amount of rent. You certainly need a lawyer and a Shari’ah expert to prepare it too.
