in order to be responsible for his/her actions and decisions in this life and
the life after.
The Unique Features of the LARIBA
Shari’aa-Based Model
As described earlier, in today’s banking terminology, one can conceptually
define riba as the rent on money and/or lending to rent this money at a price
or rate called interest rate. Riba-based conventional financing may involve
unsecured and noncollateralized credit that is not asset- or service-based.
The riba-based conventional financing system uses an index called interest
to define the cost of ‘‘renting’’ money to the customer. In an RF finance set-
ting, the bank’s financing activity is looked on as an investment by the bank
in the individual (or company), in order to help that entity acquire tangible
assets and/or services. In this capacity, the RF finance officer makes sure
that the finance facility has economic merit by measuring the return on in-
vestment using the market rent of the facility, the service, or the business.
Please note that in RF financing, we prefer to use the wordfinance, not
lend, because the financing is looked upon as a true investment with the cus-
tomer. The only loan in Shari’aa, as detailed earlier, isqard hassan(a loan
that is returned with no additions to the original value, which is made for a
good cause).
The other important aspect of an RF banking transaction is that there is
no predetermined value measurement for the renting of money, calledinter-
estin riba-based conventional banking transactions. In an RF banking
transaction, the return on investment is obtained as a result of the invest-
ment process or the leasing process of the asset in question. That return on
investment is the real measure of the value of the investment activity, with
its unique characteristics. In doing so, the RF banker marks the item to be
invested to the local market, instead of using a unified interest rate to rent
money at a predetermined level throughout the country. For example, a
house rent should reflect the value of that house and not acapitalization
rate, as is done in most leases and in many models used by some ‘‘Islamic’’
bankers. The rent of two similar homes—one in Alabama, which has a
smaller economy, and another in California, the eighth largest economy in
the world—should be different, because of the difference in the economic
characteristics of each state. That difference should be reflected in the
financing process by the lease rate of the item to be financed in each state,
as dictated by the market forces of supply and demand.
The following are some of the unique features of the LARIBA Shari’aa-
based RF finance model:
258 THE ART OF ISLAMIC BANKING AND FINANCE