entity (SPE) or a special purpose vehicle (SPV), which would buy the
property and either sell it back, in a Cost-Plus (Murabaha) scheme,
or lease it back, in a joint venture with declining equity (Musharaka
Mutnaqisah) scheme. The other idea, used in Musharaka Mutnaqisah,
is to register the title of the property in both the financial institution’s
name and that of the property or business buyer to make the transac-
tion appear to be a true joint venture.
2.Start with the LARIBA RF model to test the prudence of the invest-
ment and to calculate the monthly payments, based on the actual
rental value researched in the market (by applying the mark-to-market
rule). Financing contracts are drawn up according to the U.S. federal
banking laws and regulations. The contract is supplemented by a pro-
priety ‘‘rider’’ called the LARIBA Agreement. The LARIBA Agree-
ment explains the prohibition of riba and the process used.It is believed that this second approach is a true manifestation of the
Judeo-Christian-Islamic values because it is based on Shari’aa. Here are the
reasons why:
1.The LARIBA RF finance model uses the standard mortgage documenta-
tion required. This documentation and its associated contracts have
been in continual development by the U.S. banking and finance authori-
ties since the Great Depression of the 1930s.
2.It can be easily compared to the conventional riba-based approach. This
way, the customer can make a fair comparison (apples to apples) in his/
her pursuit to make the right decision.
3.It offers protection of the customer, because it conforms to standard U.S.
financial and banking industry norms rather than to special considera-
tions that may require lengthy court deliberations in case of a dispute.
4.In the case of RF mortgage financing, the LARIBA RF financing model
offers the customer the advantage of being able to deduct the rent-based
payments as implied interest, using the statutory mortgage reduction
laws in the United States. In comparison, the Shari’aa-compliant model
uses an IRS Opinion Letter, which does not carry the weight of the law
and is usually temporary in nature. It can be withdrawn and/or nullified
at any time.
5.Because the LARIBA RF Shari’aa-based model records title in the name
of the customer, it protects the customers. Companies that use the
Shari’aa-compliant models require that the title be in the names of both
the buyer and the financial institution. Recording title in both the name
of the customer and the finance company or bank may expose the cus-
tomer to any risks assumed by the finance companies.268 THE ART OF ISLAMIC BANKING AND FINANCE