The LARIBA RF finance model uses the following documents:&Promissory Notethat indicates the amount of financing, the agreed-
upon monthly payments, and the imputed (implied) interest rate of the
transaction
&Deed of Trust
&Other required regulatory documentation relating to truth in lending,
non-discrimination, servicing of the financing, and so on
&The unique, copyright-protectedLARIBA AgreementC. The LARIBA Agreement The RF Shari’aa-based financing process (as is
done at LARIBA) uniquely supplements the above standard documents
(which use the word interest) with a specially devised rider called the LAR-
IBA Agreement. This Agreement documents the process used in the LAR-
IBA Shari’aa-based RF finance model to calculate the monthly payment
using the market measured rental value agreed upon between the customer
and the RF bank or financial institution. The LARIBA Agreement clearly
declares that riba/interest charging and/or receiving is divinely prohibited
(haram). It also summarizes the proprietary process and model used. In ad-
dition, it states that the calculated and agreed upon rate of return, using the
actual market rental rate of the property, is called animplied interest ratein
order to comply with the U.S. Regulation Z (the Truth in Lending Act,
detailed in Chapter 7).The RF bank issues an Internal Revenue Service
(IRS) U.S. form 1098 to allow for the deduction of the rental portion of the
payments (as an implied interest) in the case of home mortgages, which is
calculated at the beginning of the transaction and converted to an implied
interest rate on the promissory note, as explained above.
Monthly Billing LARIBA has created a new billing format that, we be-
lieve, is a historic development in the RF movement. LARIBA’s monthly bill-
ing breaks down the monthly payment in terms of RofC (called principal
payment in the riba-based finance industry) and RonC (called interest in the
riba-based industry). A copy of the monthly billing is shown in Exhibit 10.1.
Servicing the Financing Facility (TheLoan) Servicing of the credit facility
(loan) is the process of maintaining the finance facility after it has been
funded. It includes billing the customer on a monthly basis, responding to
customer inquiries, resolving any issues faced by the customer, escrowing
taxes and insurance for the property, and maintaining records according to
consumer compliance government regulations. Many finance companies
and banks ‘‘sell’’ the servicing tooutside companies, some of which are
located outside the United States,for a handsome fee. This practice may
RF Banking Model for the 21st Century 269