Question Summary:
Can Albaraka provide me with any options?

Question Detail:

Dear brother or sister in Islam
I had financed my home with ALBARAKA BANK when purchased in 2007.
Then in 2014 Shukr to Allah I was able to afford some major improvements on my home. at that time Albaraka could not assist me additional finance. I was forced to settle Albaraka and borrow from a conventional bank.
I have approached FNB Islamic Banking and have told I could move my Bond to them. When I approached Albaraka I was told a bond swop from SAHL will not be possible.
I would like to go back to Islamic finance. Could you please advise any other solution. My property is worth more than R1million. I need to free SAHL at R525 000.00 and Nedbank R150000.00 and am currently paying back approximately R11000.00 per month.
Can Albaraka provide me with any options? Will look forward for your reply In Shaa Allah.
Wasalaamu Alaikum Warahmatullahi Wabarakatuhu

Answer :

In the Name of Allah, the Most Gracious, the Most Merciful.
As-salamu ‘alaykum wa-rahmatullahi wa-barakatuh.
Your question dated 10 January 2017 refers.
We understand that you currently have a conventional finance facility for your home. You wish to convert your current facility to a Shariah Compliant facility.
A conventional bond swap is not permitted since that will entail the payment of the principle and the settlement discount fee over and above the principle amount by the counter party Bank. An Islamic Bank cannot engage in conventional bond swaps as there has to be a real transaction backed by a physical underlying asset.
We advise for you to make an arrangement to sell your home to the conventional bank with the current liabilities. The Islamic Bank will then purchase the house from the conventional bank and re-sell your house with a new payment plan either on the basis of Murabaha or Diminishing Musharakah. For example, your home is worth say 1 Million Rands. You owe the conventional banks 500 000. You sell your house for 500 000 Rands. In that instance the bank has received an asset in exchange of the current liabilities which equates to 50% of the sale price. The conventional bank then sells your house to the Islamic Bank for say 1 Million Rands. The Islamic Bank then re-sells the property to you for say One Million and 400 000 Rands over a 15-year term. You must ensure that you receive approvals for your facility from the Islamic Bank and procure undertakings from the conventional banks to sell to the Islamic Bank. While your intention is pure you must also ensure you are adequately protected. We advise you to seek legal advice also in these matters.
And Allah Ta’ala Knows Best
Ismail Desai,
Darul Iftaa
Checked and Approved by,
Mufti Ebrahim Desai