open market—based on the rent of comparable properties in the same
area—because we do not rent money (which is riba/ribit), but we rent prop-
erties and businesses. We also assure the customer that if the investment
makes economic sense based on our RF finance model, the monthly pay-
ment will be competitive with that offered by the conventional riba-based
banks. To evaluate the economic viability of owning a property in contrast
to not buying it and instead renting a similar property, the RF banker inputs
the monthly rent obtained from the market survey process described above,
the number of years to pay back, the purchase price, and the down payment
into the patent-pending and copyright-protected LARIBA computer pro-
gram. The unknown here is the rate of return on invested capital, which is
called theimplied interest rate. It is actually the rate of return on investment
for this property. This rate of return is compared with the expected rate of
return by the investor in the RF bank or finance company. There are three
possible outcomes:
1.The rate of return on investment, based on the actual market rental
value of the property, is higher than the RF return on capital expected
by investors.In this case, the RF bank would inform the property buyer
that the property purchase makes economic sense and that because the
investors (those who invest with the RF bank and its shareholders) are
looking for a lower return to compete with the riba-based conventional
banks, the RF bank will unilaterally reduce the agreed-upon rent so as
not to hurt the community member who wants to abide by Shari’aa.
This makes RF financing competitive with the rest of the market.
2.The rate of return on investment, based on the actual market rental
value of the property, is very low compared to the return on capital
expected by investors.In this case, the RF bank officer advises the pro-
spective buyer that the property market in this neighborhood is
extremely inflated and is experiencing an economic bubble. The RF
bank informs the customer that it cannot finance the property. In fact,
some markets in northern California, Arizona, Nevada, Washington,
D.C., and Massachusetts have been suffering from this problem since
late 2005 to mid-2006. The appraised value by sales comparisons is
acceptable, but the economic viability based on the unique LARIBA
marking-to-market RF finance model is not valid. The LARIBA model
may make the RF bank the only RF finance institution that would reject
financing, despite the fact that the buyer may be a great customer for
any bank to deal with—because investing in the property does not
make economic sense. It is important to state that we, at LARIBA, have
saved many customers in the aforementioned states from participating
in the most recent real estate bubble. In fact, because of this feature of266 THE ART OF ISLAMIC BANKING AND FINANCE