Monthly payments include an installment to repay the capital for-
warded by RF bank and a rental component:
1.The monthly repayment of the RF bank capital invested with the buyer
is paid back, on a monthly basis, on an agreed-upon schedule and on an
interest-free basis. This component is called thereturn of capitaland
was given the acronymRofC(pronounced ‘‘rofsee’’), which is called in
riba-based financing the payment of principal.
2.The rental component is the RF banker’s share in the rent, based on the
proportion of the capital returned to the RF bank. This component rep-
resents the profit or income the RF bank collects as a benefit in co-
owning the right to use the property. This is called in the RF finance
modelreturn on capital, and its acronym isRonC(pronounced ‘‘ron-
see’’), which is called in riba-based financing the payment of interest. It
is important to note here that the RonC is based on the actual market
rent of the property, not the rent of money, in contrast to the portion of
payment in a riba-based conventional banking setting in which the in-
terest is really calculated using the rent on money (riba), which is pro-
hibited by the Law (Shari’aa).It is important to note that the above steps are done independently
without preconditions, and none of the steps is a precondition for the other
to take place. If the process is not done this way, it will not be based on
Shari’aa, because it may be considered as ‘‘two sales contracts in one con-
tract,’’ as explained in cases of the sale of eena in Chapter 9.
Calculation of the Economic Viability and Prudence of the Investment An
important and truly unique aspectof the LARIBA Shari’aa-based RF
finance model is prudence in investingone’s assets. It is the responsibil-
ity of the RF banker to act as a wise and prudent investment adviser,
preventing the customer from digging a deeper hole of debt for himself
and his family by investing in a property, a business, or a house. If it
would not make prudent economic sense to invest in if it were rented
to a third party as an investment, it would not make prudent sense for
the customer.
Appraising the Property or the Business There are two approaches to
appraising the property. The first approach is that obtained by the standard
appraisal, based on the last few sales in the neighborhood. But this ap-
proach may be extremely misleadingin an inflated market, like the ones
experienced in Houston, Texas, during the 1980s housing and commercial
real estate bubble, in Silicon Valley in the 1990s, and during the nationwide
264 THE ART OF ISLAMIC BANKING AND FINANCE