(musharaka mutnaqisah) between the two entities—the property (home or
business) buyer, called the mortgagee, and the RF bank or RF finance (mort-
gager) entity.
As a result, it can be concluded that there is no need for the creation of
an SPV or the incurring of additional expenses and significant legal compli-
cations and confusion that would render RF financing more expensive and
liable to complicated legal suits in case of a dispute.
We significantly modified the Al Baraka model described in Chapter
- This modification produced the model known as the Shari’aa-based
LARIBA RF finance model,which is based on Shari’aa in contrast to
the other approach and models, calledShari’aa-compliant, which have
been used since the latter part of the 20th century. As was discussed in
Chapter 9, the Shari’aa-compliant proponents use the approach of force-
fitting the existing riba-based models to Shari’aa. In contrast, the LARIBA
Shari’aa-based RF finance model uses the commodity indexation rule
to normalize the effects of paper (fiat) money regimes (to avoid participat-
ing in an inflated economic bubble as discussed earlier) and the mark-
to-market rule to introduce, for the first time, the real spirit, intent,
substance, and wisdom of modern Islamic RF banking to the finance field.
Following are the modifications introduced by the LARIBA model to the
Al Baraka model:
1.LARIBA ModelModified Step 1. In this step, the actual rental rate of a
similar property (a car, a home, or a commercial building) or a business
in the same neighborhood and with similar specifications (in case of a
home or a commercial building, in terms of dollars per square foot) is
researched in the market by contacting automobile or real estate agents
active in the area. The customer and the finance officer each come up
with three documented estimates. The average of the six estimates, or a
mutually agreed-upon rental value, is used. This rent is used to evaluate
the rate of return on the investment, using the patent-pending LARIBA
model. This way, the bank and the investor act as if the purchase of the
car, the home, or the business is an investment. This will be discussed
later in further detail.
2.LARIBA ModelModified Step 2. The costs, including recording fees,
maintenance, and other fees are booked to the account of the customer,
who now owns the facility and is its operator. The insurance is not
shared, because of the strict consumer compliance requirements that de-
mand full disclosure of the items involved in every payment. (The rec-
ommendation made in the original fatwa could not be applied.) This
way, the customer will have the freedom to choose his/her own insur-
ance provider.RF Banking Model for the 21st Century 263