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Introduction: Dr Saeed Shehabi:
Our host tonight is HSBC Amanah services and now we move
from spirituality to money.
Rezaan
Haffajee:
I will start with some background information about HSBC
Amanah. It was launched in 1998, the first retail or high
street bank to provide Islamic retail services in the UK.
The HSBC’s
Islamic Banking division regional offices in ten
geographical areas including the UK. A range of services
have been developed in accordance with Shariah.
Ensuring
compliance with shariah is essential. The modes of Islamic
finance include Amanah home finance which is the main
product which we provide.
The Global
Shariah Advisory Board (GSAB) advises HSBC Amanah on
research activities intended for further development of the
Islamic finance industry. GSAB comprises of representative
scholars from all Regional Shariah Committees (RSC) of HSBC
Amanah in addition to other Shariah scholars of
international standing. The presence of renowned scholars
from various geographies at GSAB will provide an opportunity
to achieve further harmonization of Shariah standards and
practices of Islamic Finance Industry. The following
independent Shariah scholars are currently members of GSAB.
HSBC Amanah
Home Finance makes it possible to own your home without
contravening the guidelines set by our
Shariah
advisors
The
underlying product structure varies by location. In the case
of
murabaha,
we replace an interest-based mortgage with a trade-based
solution by buying your house of choice from the mortgage
provider and then reselling it to you over a period of fixed
instalments. Our
ijara
product works more like a floating rate mortgage, where we
lease the property to you in return for monthly rental
payments. Once the lease period is completed, we transfer
the title of your new home to you.
The Amanah Home Finance
monthly payment will be based on the Amanah Home Finance
rate, which is currently
5.83%.
It will be collected from your account by direct debit
on the
25th
of every month.
As determined by the HSBC
Amanah Central Shariah Committee, Shariah permits using the
conventional market as a benchmark.
Payments will be reviewed
on the 1st January, April, July and October each calendar
year during the financing term. Any change to the Amanah
Home Finance monthly payment (upwards or downwards) will be
notified in writing to you.
We guarantee that the HSBC
Amanah Home Finance Rate will not be more than
2.5%
above the Base Rate (the Bank of England Repo rate from time
to time) at the time of recalculation of the Amanah Home
Finance Payments
The Amanah Home Finance
payment consists of three elements:
-
Contribution Payment providing a monthly contribution
toward the purchase price of the property resulting in
an increase in your beneficial share
-
Rent, for
the use of the bank’s share in the property
-
Other
charges, if applicable (Service Charge, Ground Rent
and/or buildings insurance, if arranged by the bank)
The Amanah Home Finance
payment will be apportioned as follows:
-
Rent
-
Charges
(if applicable)
-
Contribution Payment
Rent is calculated by
applying the Amanah Home Finance Rate to the purchase price
less the Contribution Payments received.
Properties
outside England and Wales are currently not available and
neither are buy to let properties but we are looking to
develop that as well.
Amanah also
provides insurance services through
Takaful, an insurance
system through which the participants donate part or all of
their contributions, which are used to pay claims for
damages suffered by some of the participants.
Takaful is based on the
co-operative principles of Shariah (mutual help and
solidarity).
It is the Fund Manager’s
role is to manage the Takaful operations and invest Takaful
contributions in line with Shariah principles:
-
Mutuality. Contributors own the fund jointly and share
in the risks and rewards.
-
Simplicity. The system is easy to understand and
encourages participation.
-
The
benefit is in terms of receiving compensation for a
claim or a share of the surplus, if any.
-
Fairness.
The system of takaful recognises the rights of both
policyholders (“Participants”) and shareholders.
-
No
speculation. Unlike conventional insurance, one party
does not try to win a sum from another. There is only
one party for taking of mutual loss. If there are no
claims, there will be no losses, so all participants
benefit.
-
Ethical
investment. We invest in assets, companies and
businesses that are acceptable within the socially and
environmentally acceptable investment principles of
Shariah. The Takaful Fund is held in a
non-interest-bearing environment.
Islamic law
states an explicit preference for equity financing over debt
financing. The classical forms of equity financing (musharaka
and
mudaraba)
require partnership and profit sharing, to which the
contemporary devices of venture capital, investment
management and project financing can be compared.
In financial
markets, investing in stocks and equity funds is permitted
but must conform to certain guidelines. Not unlike ethical
or socially responsible investing, undesirable companies and
industries are screened out on the basis of both qualitative
criteria (nature of business) and quantitative criteria
(level of involvement with interest). Islamic investment
also discourages speculation and precludes short selling,
conventional debt instruments and conventional derivatives.
These views go back to the prohibition of interest, gambling
and certain types of uncertainty in Islamic law.
HSBC is
looking into assistance with commercial financing.
Muslims have
now the option of conducting their financial affairs in a 'halal'
manner throughout the UK thanks to an extensive network of
HSBC Amanah services. I will be happy to answer any
questions.
Q:
You call one type of financing commercial and the other
residential - why is that?
A:
It is called residential financing because the bank itself
is granting its proportion of ownership of property to you
therefore it doesn't allow subletting because in effect you
are renting your proportion of the property that the bank
ownes itself. And that itself if not allowed according to
the contract.
Q:
What criteria do we use when assessing whether someone
qualifies for getting Amanah home finance?
A:
HSBC Amanah uses what we call an affordability scale. Rather
than using salary multiples with the mortgage, if you earn
50,000 some banks say they will give you four times your
salary. What we need to bear in mind is that someone may
support a lavish life-style and that means they cannot
actually afford the finance. We assume that people have a
net income and we assume that 40 percent of that is used for
the living cost and enjoying their life. The rest is for
things like home finance, building insurance, council tax.
And that gives you a better idea of whether customers can
afford it. We use 60 percent affordability criteria, looking
at your income and your outgoings. So we have an idea of
whether you as the customer can afford the potential
finance.
Q:
Do you deal with people who are self-employed?
A:
We do deal with people who are self-employed and those who
are salary employed. If you are self-employed we would
expect that you would expect you to have at least two years
worth of financial accounts by the financial accountant. We
would then assess whether you can afford it based on 60
percent affordability.
Q:
Do you do
equity releases?
A:
I assume that you are asking that if you have a mortgage at
the moment i.e if it is 50,000 pounds and your house is
worth 250,000 could we release equity up to that in a
Shariah compliant way? Yes, we could take hold of mortgage
you have and provide finance up to 90 percent of the value
of the property , between 200,000 and 300,000. This means
that whatever equity you have released is yours to keep. The
mortgage would then be taken over by us and we would do the
re-finance on the basis of the value of the actual property
today.
Q:
What do you mean by Shairah? How can use the Qur'anic
justification. Quote me a surah. Don't make a fool of
Muslims.
A:
I am not going to quote any surah. What I would like to say
I am not a shariah scholar. With all due respect my
intention in coming here this evening was to make people
aware that there is an alternative. The only way to see if
this is a viable alternative is to approach those who are
providing it and find out from them. At the end of the day
that we believe that each of us must face Allah and if we
believe that this is okay for us it is then our
responsibility to do it or not. My intention in coming here
today is to make you aware that there is an option which is
available.
Q:
Okay you are HSBC you are basically a Western bank and now
you are providing services for Muslims. And that is
commendable. But there are also Islamic banks in Muslim
countries which are not tied to Western banks so why is
there a need for this. If you look at the world banking
system which America controls it is able to stop funds to
the Palestinian Authority. If the Muslims really got their
act together with this alternative finance they could set up
a system outside this system. They could set up something
outside the IMF. So I am trying to raise this to the bigger
picture.
A:
I think that is a very valid point. Something which Sheikh
Fadallah also pointed out is that we are not in an ideal
world. The idea behind banks such as the HSBC, the Islamic
Bank of Britain in providing these services is because they
are businesses and there is a crying need for services such
as this. In terms of the constraints of the legal guidelines
in the UK the Shariah scholars have worked within those
constraints to find a product which meets the criteria of
the shariah as far as possible. It is not perfect and it
will take a while for the industry to grow and provide that
to you.
In
terms of your question of what the Ummah can do, in time
perhaps that is an option but at ground roots level if it
has taken us this long to understand a concept which
potentially could help, in time, in sha Allah that could
happen, but that is in an ideal world.
A
Could I just add it is a valid question of course. We have
to be clear about the objectives of Islamic banks and HSBC
Amanah being the first high street bank in the UK to provide
services that were being provided in the Middle East. Amanah
is a dedicated division of the HSBC group. It is not
specifically a brand that HSBC has decided it will sell a
few products the Muslims. This has been running since 1998
and has expanded into about a dozen countries world-wide.
Our objective is to provide Islamic banking solutions. While
we can try our utmost to offer genuine Islamic banking
solutions we don't lose our head, we are not here to save
the ummah, to solve the problems of today. Of course this is
very important to us on the personal. Our business objective
is to help you in terms of your banking needs to avoid
anything prohibited by shariah, to offer you an option and
that is what we are doing.
Q:
You said
something about insurance - takafol. If I understand
correctly this is a pool to which everyone contributes and
it goes back to the people. But what if more people claim
from the pool than is available?
A:
It is a pool. People contribute to the mutual takafol fund.
The profits and the losses are shared. With investments from
insurance pools they are very long term investments and are
very low risk so the chances of that happening would be
remote.
Q:
What is
the difference between a mortgage and a home finance
agreement?
A:
If one were to put a mortgage and a home finance agreement
side by side you would pretty much come out with the same
thing. They are based on a similar model. The question that
we need to ask ourselves if for example people who are
co-habiting. They live together for years, they have
children what would differentiate that from marriage. And
the simple answer would be the contract which then makes it
halal or in line with shariah. In this way what the HSBC and
the shariah scholars come together to produce an alternative
whereby instead of having a mortgage which interest is
charged on and money having no intrinsic value there is the
sharing of a tangible asset, the house. That in itself is
taking a risk by participating in the ownership of that
house. The bank decreases its ownership over time. And as a
business it has the right to make some kind of profit. And
because you are living in the property the bank partly owns,
it is then deemed okay to charge rental. If yourself and
myself were to buy a bicycle together and we both put up 50
pounds but you ride away with it and I did not charge you
something for my contribution it would not actually be fair
because you are riding it. I would have the right to charge
you something. I am using an analogy if that makes sense. It
is actually the contract.
The
system that has been put in place is obviously within the
constraints of the law within the UK. It has taken us about
five or six years to develop these products. On the front
line all we see is what is provided. But in the back we
don't see the efforts of the scholars and they process they
go through to bring these products forward. We need to
understand the risk we face of you defaulting. We need to
ensure that according to our criteria you can afford it. If
you were not able to afford it the bank, as a business,
would be placing itself in undue risk.
Q:
What would happen if you default and the house is sold? If a
house is sold and there is negative equity how would you
share the loss?
A:
There are exceptional circumstances in which the bank itself
would take on all of the loss. That’s if you as a customer
had no other means of providing the finance or something
were to happen to you when you couldn't work and could not
find a way to repay. But if there was negative equity and
you then decided because the market was an upturn in the
market and you wanted to sell that would not be fair to the
bank and the bank would not share in that loss. It is your
choice to sell it at that point. At the outset it was
agreed that you would enter into this agreement for 10, 15,
20 years and that was from the outset.
Q:
Why is subletting not allowed?
A:
Because you are living in the property and the bank is
renting it out to you. That how it derives its profit
figure. The bank itself does not allow it. As far the
rationale behind subletting goes it was actually one of
the points raised by the shariah scholars that we have on
the committee that the aim of the diminishing mushakara
product is to help you finance a home to live in for
yourself. It is not to help or assist in an income
generating venture. There are different types of Islamic
financial tools for that. This product is to help you buy a
house. There is currently an issue with Shairah scholars as
far as the shairah legality of a diminishing mushakara
contract with a buy to let finance. That is one of the
second points that affected our decision. We want to keep
this as pure as possible, as close as possible to the
requirements and to the satisfaction of the scholars who we
are getting recommendations from. They were happy this is in
line with shariah requirements.
If
you were not living in the property and something was to
happen to it because to be fair potentially unlike the
conventional mortgage where the bank is more protected. In
the mushakara with the bank being a joint owner this is
another reason. | 
