A finance company is planning to provide interest-free mortgages to Muslims.
Paying or receiving interest on loans is forbidden in Islam.
Islamic loans involve various alternative ways for the borrower to repay the lender at a premium, while technically not charging interest.
Brian Henry, managing director of Amanah Ethical, said it was important to understand this did not mean customers got the money for nothing.
There are different ways for banks and financial institutions to offer home financing to Muslims.
In the UK, Al Rayan Bank, formerly Islamic Bank of Britain, offers products similar to hire purchase or let-to-buy plans.
UK bank Lloyds has a similar product where the bank buys the house for the customer, who then pays the purchase price in monthly instalments.
As the bank is the legal owner of the property, the customer also pays a monthly rent to the bank, which decreases as they buy the bank’s share of the property.
Similar finance products, known as Murabaha, are used in the United States and Canada.
Amanah Ethical’s scheme charges a “purification payment” to cleanse any investment income that might be generated though ways deemed haram in Islam, such as those related to alcohol, tobacco, gambling, weapons, pornography and nightclubs.
Henry said while there were only 43,000 Muslims in New Zealand at the time of the latest census, it was a “dream market”.
New Zealand’s growing migrant Muslim community was highly-educated and in good jobs, he said.
Previous attempts to offer forms of Islamic finance in New Zealand have failed.
In 2007 Christchurch lender Moorhouse Mortgages tried to get around the Sharia rules by offering a product which used a bond for the purchase of the house, and then a trust to buy the property on the buyer’s behalf.
In 2009, subprime mortgage lender Argosy Property Finance, which brought the country its first Islamic mortgage, stopped making loans after its insurer pulled the plug.
An Auckland woman Sara Jawadi has been lobbying banks to provide an interest-free home loan product for Muslim customers.
Jawadi has contacted ANZ, BNZ, Westpac and Kiwibank with a proposal, but told Radio NZ none had responded.
Westpac and Kiwibank said they did not offer a specific Shari`ah-friendly product and did not have any plans to do so in the near future.
ANZ spokesman Stefan Herrick said demand for Islamic loans were “very low” and the bank did not offer a specific product catering to this community.
“However, we’re always happy to talk to customers – Muslim or otherwise – about how we can help meet their needs.”
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