Conventional banks are, at their core, financial intermediaries built on interest. You deposit your cash, the bank pays you a little interest on it, and it then lends that capital out to others at a higher rate. The profit is the spread between the two.

So the natural question is this: what does a bank that follows Islamic principles, and prohibits interest in both directions actually do to earn a profit? What function does it serve in an economy, and does that function match a conventional bank’s?

This article explains the role of an Islamic bank, the mechanisms that underpin how they operate, and their wider purpose within markets. It also covers the main products and providers, and what all of this means for you in practice as a consumer.

Let’s start from the deposit side.

Deposits: how Islamic banks are funded

A retail bank (what we colloquially refer to as a bank) and similarly an Islamic bank, primarily raises funding via customer deposits. The are two ways this is done;

The first is the current account. This is structured as an interest-free loan: you deposit your money and, in effect, lend it to the bank for no return. You are simply using the bank to safeguard your money and to give yourself a centralised place for income and expenses to flow in and out of.

You can get this at a conventional bank too, you just ask for a zero-interest current account. The advantage of choosing an Islamic bank however is that it is far more likely to put that loaned capital towards ventures aligned with Islamic principles. The most obvious example is that it won’t be lending your money out at interest. And where a bank does touch any non-Shariah-compliant activity, it will at least segregate those funds so they don’t mingle with the rest.

A current account is useful for the reasons above, but I wouldn’t personally recommend it for long-term savings. Inflation eats into your purchasing power, so money sitting in a zero-return account loses real value over time.

The second source of funding is the savings account, which does generate a return. If not interest, then what?

Here the relationship looks more like an investment than a deposit. The bank and the saver form a profit-sharing partnership known as Mudaraba, where the depositor acts as an investor rather than a lender, and the bank acts as the fund manager, contributing expertise and the infrastructure, rather than capital. The bank finds investment opportunities (or, under a two-tier structure, appoints third parties to do so on its behalf) that are tied to real economic activity and assets. It pools the money from savers, invests it, and shares the resulting profit with them at an agreed split. This behaves far more like equity than debt: both sides are entitled to a pre-agreed share of whatever profit is generated.

That makes it materially different from a conventional savings account. Because the deposited funds carry the same risk and volatility as any other investment, if the venture doesn’t work out, some of the original capital can be lost. This follows a principle covered in earlier articles: no profit without liability. A conventional bank argues that because it manages liquidity and credit risk, it has earned its return, but under Shariah principles that reasoning doesn’t hold, because it amounts to a pure return on money rather than on any real asset.

In practice, though, this looks different once you factor in the regulatory landscape. In the UK, for example, most of the Islamic banks available to retail savers are covered by the Financial Services Compensation Scheme (FSCS), which protects up to £120,000 per person, per authorised firm (as of time of writing: July 2026). So depositors’ initial capital is automatically protected up to that limit. These banks also quote an Expected Profit Rate (EPR) that tracks prevailing market rates, much like an advertised savings rate. The EPR however is not guaranteed and can change, (the bank will notify you if it does), and the profit itself is still generated from investment in real economic activity, and banks monitor those investments closely to keep returns steady.

So while the practical version is a somewhat smoothed-out take on the theoretical model, it still generates non-interest, investment-based returns. Many scholars accept this slightly compromised application, seeing it as shaped by the regulatory landscape rather than as a breach of principle.

Now that the bank has funds to work with, how does it actually put them to use?

Islamic bank financing: deployment of capital

There are several ways an Islamic bank can use depositors’ funds to generate a return for both the bank and its savers, and many of them sit adjacent to how a conventional bank earns interest. The key difference is that the Islamic bank invests in genuine business ventures , or becomes a direct participant itself, rather than simply lending cash.

Home financing: The bank uses depositors’ funds for property finance, most commonly through the Diminishing Musharaka model. Here the bank and the buyer enter a joint venture to purchase a property together. The bank earns rent on the share it still owns, and that share along with the rent, shrinks over time as the buyer gradually buys the bank out through capital repayments.

You can read a more in-depth explanation of Islamic home financing in my earlier article here: What are Islamic mortgages and how do they work?

Deferred contracts of exchange: These are the instruments Islamic banks tend to favour, because their returns are more predictable, they behave a lot like the fixed-income instruments used in conventional finance, and they often relate to business and trade finance. The main ones are explored below.

• Murabaha (cost-plus sale)

I touched on this in the mortgages article, but it applies just as readily to other asset classes. The asset is sold at a pre-agreed markup, paid for at a deferred date (though it can also be at spot), with full transparency on both the underlying cost and the markup applied. It can function like a business loan: a company wants to buy an asset to trade, say, a commodity of some kind, but doesn’t have the cash to acquire it upfront.

The crucial difference is that the bank actually procures the asset (in practice it usually appoints a third party, or the buyer themselves, to do so on its behalf), takes ownership of it, and then sells it on. Its profit is the markup. In a conventional loan, by contrast, the bank has no real tie to the underlying asset and no exposure to its specific risks; instead it takes personal assets as collateral and charges interest on the amount borrowed.

To protect itself against losses in a Murabaha, the bank can require a non-refundable deposit towards the purchase, or build in a grace period so it can cancel the contract if the buyer doesn’t complete.

• Ijara (lease)

Also touched on in the mortgages article. Here the bank acts as a lessor: it takes ownership of an asset, manufacturing machinery, say, or a car, and leases it out to the client. A sale-and-leaseback is also permitted, where the client sells an asset to the bank and then leases it straight back. Most of these arrangements end with ownership transferring to the lessee at the end of the term, since the bank usually has no reason to hold on to the asset.

• Salam (forward purchase)

A Salam contract is essentially a short-term provision of funds, often used for working-capital finance. The bank pays in advance for an asset that might not yet exist, or is not immediately available, and the client commits to producing (or sourcing) that asset at an agreed point in the future.

The bank profits without ever wanting to hold the asset, by entering a parallel Salam contract, two simultaneous Salam contracts occur but with different parties. It immediately lines up another party (the ultimate buyer of the goods) in a matching Salam contract, agreeing to deliver the goods to them once the original client produces them.

The bank sits on the opposite side of that second contract (essentially being the one who promises procurement or production of the goods but this is generated from the first contract) and can charge a higher price than it paid the original client. (That markup is typically pegged to a market reference rate (e.g. LIBOR/SONIA rates)

You might wonder why the ultimate buyer doesn’t just deal with the original client directly and cut out the middleman, since it would be cheaper. The answer is a number of reasons but mostly trust: the bank is a more reputable and reliable counterparty than an individual producer, and the final buyer would rather the bank carry the delivery risk.

• Istisn’a (project finance)

Istisn’a is a variant of Salam used for project financing. If a large asset needs to be built , heavy machinery for a manufacturing plant, for instance, the buyer can use Istisn’a to finance its construction with the bank’s help. The bank contracts directly with the manufacturer to build the asset, and appoints the buyer as its agent to handle the arrangement on its behalf. Payment is usually made in instalments tied to construction milestones.

As with Salam contracts, the bank’s exit is a parallel Istisn’a contract, and its profit is the margin between the two: one contract with the manufacturer to build the asset, and a simultaneous one, at a markup, with the final buyer who actually wants it.

• Sukuk

The last major route for deploying depositors’ funds is the Sukuk. It is often described as the Islamic analogue of a conventional debt security like a bond, because it produces a predictable stream of income until maturity, at which point the capital is returned. But Sukuk is not debt: each one represents a share of ownership in an underlying asset, so the income is tied to how that asset performs and isn’t strictly fixed.

Sukuk is a broad topic in its own right and I’ll cover it properly in a later article, but it’s worth flagging here because banks commonly issue them to fund investments across assets, projects, and business ventures.

To sum up: every deployment of capital is tied to a real asset or genuine economic activity, with the bank taking on some form of ownership or risk rather than simply lending money at interest. The bank acts as a facilitator and intermediary of economic activity, but in a way that is more equitable and doesn’t build the kind of overbearing, compounding debt that conventional lending can.

Islamic in form and in substance

We’ve covered how an Islamic bank funds and deploys capital. But there’s an important question underneath all of it: what ensures a bank as genuinely Islamic, rather than just being branded that way?

The main safeguard is the Shariah Supervisory Board (SSB), which is built into the governance of these institutions (and often also conventional banks offering Islamic products).

An SSB is an independent body responsible for ensuring that operations, products, and transactions are all Shariah-compliant. It reports and acts on behalf of shareholders, and its members are embedded across a firm’s functions and throughout the lifecycle of each relevant product. They are typically learned scholars with deep knowledge of Islamic jurisprudence alongside economics, finance, and law, and they maintain ongoing compliance through periodic reporting, certification, and internal Shariah audits.

The point of all this is to ensure that a bank’s Islamic framing isn’t just marketing, but a genuine signal of legitimacy to the people who need these products. That said, governance quality varies between institutions, and there is real debate over whether some approved structures honour the spirit of the principles or merely the letter.

As things stand, several common practices are far from perfect. One of the most debated is Tawarruq. This is where a party buys a good on deferred terms and then immediately sells it on to a third party to raise cash. A common version appears in commodity markets as the commodity Murabaha: a commodity is sold at a markup on deferred terms, and the buyer immediately sells it on at spot price.

Neither the bank nor the buyer actually wants to own the commodity, so the whole thing functions as a roundabout way of replicating short-term liquidity financing, or from a retail perspective, a personal loan.

A minority of schools of thought forbid transactions like this outright. The majority permit them, but only under conditions, for instance, a clear separation between the purchase and the sale, with no contingencies linking the two.

There is also a practical argument for structures like this, because taxes such as VAT and capital gains tax can create real obstacles for Islamic finance instruments. Since these structures involve buying and then reselling the same asset, they can trigger tax twice over, where a conventional loan, which involves no asset, would not. A commodity Murabaha, however, avoids the worst of this: by using wholesale-market commodities such as metals as the vehicle, you can structure the cash-raising transaction while sidestepping the VAT stacking that would hit if you were buying and reselling ordinary VAT-able goods, thanks to the VAT reliefs that apply to such trades.

As these institutions grow and expand into wider markets, the pressure on boards and standards is likely to push them towards more consistent, more practical outcomes, and Islamic financial institutions, working with their SSBs, are already taking active steps to find better alternatives.

What does this all mean for you - the practical recommendation

We’ve spent most of this article on the financing side, but I appreciate that most people reading aren’t looking to engage in business finance. They’re curious about the depositing side, and what they can actually do with their money.

As covered above, a savings account is a straightforward way to earn a passive return , less than you might make investing in equities, but still more secure. You open the account, let the money sit, and it earns a return, with your capital protected up to the FSCS limit. There’s a decent range of products on the market, including easy-access savers and fixed-term accounts.

Some of the current (Jul 2026) products on the market and their corresponding lowest and highest annual rate products are listed below;

The number of providers are fairly scarce currently, but competition has been improving, and that has been reflected in the rates provided. There is also the option to mix and match products and providers as say QIB has the best easy access rates currently, but Al Rayan has better long term options. There is also consideration into other factors such as minimum deposit amounts, customer service , ease of setup, app UI etc, with Gatehouse being cited as the easiest to access as they have easy setup, low initial deposit accounts.

Personally from my experience, I have noted Al Rayan to be the most administratively heavy to set up, Gatehouse to be fairly easy to setup, but the simplest has been setting up QIB account via Raisin. It required no paperwork, and could be done all online via the Raisin app/website. The drawback however is that you are having to do via a brokerage service so you are not directly dealing with the bank. This might cause lag in the complaints and queries process, but I have not noted any such issue myself yet.

These rates are also genuinely competitive with interest rates that UK banks currently offer. Here is a list of some of the current conventional comparative bank offerings:

Santander - 4.30% Fixed Rate & Term Deposit ISAs / 2.00% Easy Access Cash ISAs / 8.00% Regular savings accounts (this includes a joining bonus of 5.00% for first 12 months, but actual rate is 3.00%

HSBC - 4.00% Fixed Rate ISAs / 3.35% Easy Access Rate (up to £50,000)

Barclays - 1.00% Everyday Saver / 3.80% 1 Yr Fixed Rate Bond

Here we can see the Shariah compliant products are in line with and in many cases yielding higher returns than the conventional counterparts, despite these large banks benefiting from economies of scale. This gives reason for even non-Muslim savers to look into switching savings accounts to one of these Islamic Banks.

It highlights a wider point: on the surface, the product can look economically similar, but underneath it is fundamentally a different one. It’s a product that not only spares Muslims the feeling of having to compromise on their values, but that also stands up competitively on its own terms.

Closing

In upcoming articles I’ll revisit what the current landscape looks like, since macroeconomic variables like interest and inflation feed directly into these products and have moved in unexpected ways in recent years. I’ll also dig further into Sukuk, another avenue banks use to deploy capital. Stay tuned.

If you are thinking of switching or opening an Islamic Savings account, please make sure to look at current rates and account structures before you do. Also please read reviews from other users of the platforms to better gauge the user interface, and what would best suit your needs.

Thanks for reading,

Aqila Finance.

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The end result may look the same on paper, but the mechanics behind the products are very different. Islamic mortgages aim to achieve two main goals that distinguish them from their conventional counterparts:

1. To not generate income via Riba (Interest)

2. Asset-backed risk sharing

Both of these goals aim to achieve a fairer and more sustainable alternative form of property ownership, one that balances risk with reward for each party. In practice this is achieved via three main structures: A Diminishing Musharaka, an Ijara or a Murabaha.

Below I will examine how these three structures work, practical considerations buyers may face and an honest assessment of where Islamic mortgages genuinely deliver on their principles versus where the gap between theory and practice shows.

Lets start with the most common form of Islamic mortgage, Diminishing Musharaka.

Diminishing Musharaka - Partnership

A Musharaka refers to a joint venture, or a partnership. In the context of an Islamic Mortgage, the individual seeking to buy a property engages in a partnership with an Islamic Bank/Lender.

These two parties have different risk profiles, capital levels and objectives when it comes to owning a property. One wants to own a property but does not have enough spare capital to outright buy it. The other has significant capital stores, and aims to conduct profit-generating, financing ventures. They however, have no need for this property.

These two parties therefore form a partnership to pool capital and then buy this asset together. The latter however does not want to retain its possession of the property and so over time, the former buys out its share of this partnership, (hence the diminishing aspect).

This is the most common form of Islamic Mortgage we see today in the market, often referred to as a home purchase plan (HPP). A theoretic illustrative example is detailed below;

1. The buyer and bank become joint owners of the property. The buyer contributes a deposit of typically 10-20% of the property value, and the bank funds the remaining 80-90%. Both parties hold proportional ownership stakes in this example. The deposit serves a similar purpose to a conventional mortgage deposit: providing a safety buffer and signalling buyer commitment.

2. The buyer occupies and uses the property; the bank earns rent on its share. Because only the buyer benefits from living in the property, the bank is entitled to compensation for its ownership share. This compensation takes the form of rent, charged proportionally to the bank’s stake. As the bank’s share decreases over the term, the rent it charges decreases in parallel (assuming a stable rental rate). The practical reality is more complex, as I'll cover later.

3. The buyer makes capital payments to acquire the bank’s share gradually. Alongside the rent, the buyer makes scheduled capital payments that progressively buy out the bank’s stake. In practice, the rent and capital payments are combined into a single monthly payment, which (in theory) typically decreases over time as the rental component shrinks. Buyers can usually make additional capital payments to acquire the bank’s share faster.

4. At the end of the term, the buyer owns 100% of the property. The bank’s share has been fully acquired, ownership is consolidated in the buyer’s name, and no further rent is payable. The structure has run its course.

The risk-sharing principle plays out across the term: because the bank is a genuine co-owner during the term, it bears proportional risk if the property value falls. For instance, in the event of a forced sale at a loss, both parties absorb proportional losses. This is structurally different from conventional mortgages, where the borrower bears all of the property risk regardless of who funded the purchase.

Ijara - lease

An Ijara is essentially a lease-to-own scheme. The lender here buys the property and leases it out to you for use. As with standard property leases, you pay rent during the lease period. You however can also agree to also buy back the property and shift ownership, as the bank owns the property until the end of the term. This could be done as a balloon payment at the end of the period, but more practically you would pay capital repayments alongside your rental payments within your monthly payments, similar to the payment schedule seen in Diminishing Musharaka.

The rental rate that is charged for this lease is variable, and period adjustments and repricing are allowed during the lifetime of the transaction.

The conceptual difference from Diminishing Musharaka is that the bank fully owns the property during the term rather than being a co-owner with you. Some find this cleaner from a Shariah perspective there's no joint ownership to navigate, and the relationship is more straightforwardly a lease. Others find the 'renting your own home' framing uncomfortable. In practice, Ijara products often involve hybrid structures with elements borrowed from Diminishing Musharaka, blurring the conceptual distinctions.

Murabaha - Cost Plus

A less popular form of financing is the cost plus sale, Murabaha. Here the Islamic bank buys the property from a landlord for the agreed price, then immediately sells it onwards to you at a higher price (the original price plus a fixed mark-up representing the bank’s profit). You would typically pay this back in instalments over the agreed term. The profit the bank plans to make is clearly disclosed in the contract (a requirement according to Shariah principles).

Suppose you want to buy a £300,000 house with a £30,000 deposit. The bank purchases the property for £270,000 (the amount being financed) and agrees to sell it to you for a fixed total of, say, £405,000, a markup of £135,000, representing the bank's profit. This total is fixed and disclosed in the contract from day one. You pay this £405,000 back in fixed monthly instalments over 15 years, working out to roughly £2,250 per month.

Whether conventional interest rates rise or fall over those 15 years, your payment doesn't change, and your total obligation is known on day one. The 'markup' translates to roughly the equivalent annualised rate of around 6% here, but it's structurally different. It's a fixed price for a fixed asset, not a compounding interest charge.

This is akin to a fixed-rate conventional mortgage. The key Shariah distinction is that the price was set at the moment of sale rather than accumulated as interest over time, increasing transparency in the transaction.

Murabaha is rare for residential mortgages because the fixed total cost makes the bank carry the interest rate/markup risk over a long term, if conventional rates rise, the bank effectively under-prices its product; if they fall, the buyer feels overcharged. Murabaha is more common for shorter-term financing or commercial transactions.

Comparing the three structures

The key defining elements of these structures can be summarised below:

As highlighted above, the most commonly used method in current markets as an Islamic Mortgage alternative is the Diminishing Musharaka model. It is the model that structurally makes the most sense for this type of financing agreement. It is the most digestible to western consumers as in form (not substance), it mirrors conventional mortgages. There are however pros and cons to each of these structures that should perhaps be considered so I have highlighted these below:

A comparison between each other has been made above, but how do these compare against a conventional mortgage? Moving forward , I will treat Islamic Mortgages as synonymous with Diminishing Musharaka given it is the most common form. There are two main areas where the comparison gets interesting: the role of the lender, and what happens when things go wrong.

Islamic Mortgage vs Conventional Mortgage

The main comparisons, as highlighted in this article and other articles on my page, is the fact that in an Islamic Mortgage, the lender shares ownership in the property and does not charge interest as it is not a loan. The former comparative is important as it enforces a vested interest in the property from the lender which in turn encourages them to operate in the best interest of both parties.

In a conventional mortgage, the bank is less concerned for the outcome of the property and whether it devalues/ gets damaged as they don’t share in the upside or downside like a co-owner would. The would care indirectly as it could signal late payments or defaults and would potentially have to recover a devalued asset. But the ‘skin in the game’ is not nearly as prevalent.

The latter comparative however seems as though interest has been repackaged as rent. In theory this is not a valid argument as rent is pegged to the value of the banks share of the property and so the non-capital repayments will decrease over time unlike mortgages (which are usually fixed for the term of the loan).

The reality however is that most Islamic Mortgage providers currently benchmark the rental rate to interest rates (historically LIBOR, now SONIA or other reference rates). These are periodically reviewed to ensure they are in line with these benchmarks. This is a genuine shortfall with the product we see in today’s market as there is a mismatch with the theory.

There is however still a meaningful structural difference in the instances of missed payments.

In a conventional mortgage the missed payment becomes "arrears" , an outstanding amount you now owe on top of your regular payments. Interest continues to accrue on the full outstanding mortgage balance, including arrears, at your normal mortgage rate. Your lender will typically charge administrative fees for late payments and arrears handling fees. After a few missed payments, the lender may start formal collection actions, eventually leading to repossession proceedings.

In an Islamic Mortgage however the rent component represents payment for the bank’s continued ownership of part of the property. When you miss a rent payment, you owe the bank that rent but, crucially, the rent doesn’t compound or accrue additional charges in the same way. Islamic finance principles prohibit charging additional fees for late payment because that would constitute riba (charging more money for the passage of time on a debt).

Instead the missed rent becomes a debt to the bank. Under Shariah principles, the bank cannot legitimately charge interest on this missed payment. The bank can charge actual administrative costs incurred (real costs of chasing the payment), but these are typically modest and capped.

Some Islamic mortgage providers may charge a “late payment donation” which goes to charity rather than to the bank as profit, a Shariah-compliant workaround that some providers use, though scholars disagree on whether this is genuinely different in substance.

If the buyer continues to miss payments and the situation becomes serious, the bank still has remedies, the property is jointly owned, and the bank can ultimately force a sale to recover its share. But during the missed-payment period itself, the buyer’s obligation doesn’t balloon in the way it might with compounding interest.

How expensive are Islamic Mortgages though?

There are several practical considerations that need to be considered for an Islamic Mortgage. The most glaring and obvious of these being the cost.

There's a noticeable premium: providers have historically charged rates 0.5–1.5 percentage points above comparable conventional mortgages. This is a real additional cost that could translate from hundreds, to thousands in annual price differentials.

This premium exists mainly because of the smaller market scale (fewer providers, less competition), and also a lack of economies of scale the larger banks have access to. They also have more complex underlying structures (more legal and administrative work per mortgage) and in some cases Shariah governance costs.

Whether the premium is “worth it” , I believe, ultimately depends on whether you accept the Islamic finance principles. For Muslim buyers who consider conventional mortgages religiously impermissible, the premium is the cost of compliance with their values. For non-Muslim buyers attracted to ethical finance principles, there is maybe not as strong of a pull here.

The industry is however still young and in its growth stage. The premium will likely narrow as the market matures, and competitive dynamics between providers have improved. At the time of writing this there are only a handful of providers but this has grown from almost no providers in the past 10 years alone. The market needs time and it needs investment, and with this I genuinely believe a better product will exist, which will attract both Muslims and non Muslims alike.

For specifics on rates and provider comparisons, please stay tuned for future articles.

Other Practical Considerations

Above and beyond the cost, there are a number of other considerations to be made with current product offerings. I have briefly covered these below:

Deposit requirements : Typically higher than conventional minimums. Expect to need 10-20% rather than the 5-10% minimums available on conventional mortgages, though this varies by provider and product.

Eligibility criteria: Standard credit, income, and affordability checks similar to conventional mortgages. Some providers have specific requirements around income source (some won’t accept income from impermissible industries) but this is increasingly rare. However, some providers (e.g. StrideUp) currently also have more flexible criteria when it comes to contractors and self employed applicants, compared to conventional mortgages.

The application process: Broadly similar to conventional mortgages with similar timelines (typically 6-12 weeks from application to completion). Documentation requirements are similar.

Property restrictions: Some providers restrict the types of properties they’ll finance (no leasehold properties below certain remaining lease lengths, no shared ownership in some cases, restrictions on properties used for impermissible purposes).

Remortgaging and moving home: Generally possible but sometimes more complex than with conventional mortgages, particularly if you’re moving to a property the same provider doesn’t finance. Worth considering before committing.

What happens if you get into financial difficulty : Same FCA consumer protections apply. The mechanism for repossession is structurally different (since the bank already owns part or all of the property in many structures) but the practical experience for the buyer is broadly similar.

Insurance: You typically need buildings insurance just as with conventional mortgages, though the specific arrangements may differ slightly because of the joint ownership structure.

So should you get an Islamic Mortgage?

Short answer: It depends.

Long answer: Islamic Mortgages genuinely deliver on a number of fronts. Firstly structural risk-sharing is real. Banks bear property risk in ways conventional lenders don’t, which is inherently a more equitable product setup.

Shariah governance is also genuine (qualified boards / scholars review and sign off on these products), and for buyers who consider conventional mortgages religiously impermissible, these products provide an actual legitimate alternative to consider.

The current product setup however is far from perfect. Rental rates often track conventional interest rate movements closely, raising questions about how structurally different the products really are economically. Some scholars criticise specific aspects of the mortgages as they are too closely mimicking conventional products.

There’s ongoing disagreement among Islamic finance scholars about whether contemporary Islamic mortgages fully meet the spirit of Islamic finance principles or just the letter. This isn’t necessarily a reason to avoid them, but it’s a reason to engage thoughtfully rather than assume they’re either perfect or fraudulent.

My Opinion

If you are Muslim, desire to adhere to your religious beliefs and can afford it, I would encourage you to get an Islamic Mortgage. They are meaningfully different in structure and allow for a more balanced and equitable approach to home financing. It is not perfect in the eyes of the Shariah, but it is the closest thing to it.

At this stage of its life cycle this product needs the demand so that the providers can start to benefit from economies of scale and become more competitive against conventional banks. The Muslim population is seriously underserved for Shariah compliant alternatives. The higher participation in this market, the better these products can serve.

Competition in the industry drives prices down as participants vie for market share. It can also help flourish the product itself and allow for technical innovations to be made, that create even further justifications for this being a worthy alternative for every mortgage consumer.

As the industry evolves, I believe compromises will also be less common with there a) being less of an economic need to do so but also b) Shariah compliance requirements will likely become more stringent. This will steer the product to be more aligned with its purer form.

If you are not Muslim, the argument is harder to make here. I do believe regardless of faith, these products in essence, can be much better alternatives to conventional products. As of right now, they aren’t quite there yet.

If you are however still interested in the potential of this product, I urge you to keep an eye on the market and consider it a possibility. Especially later down the line as the market matures and converges to a more robust and structurally sound outcome.

In future posts I will look more closely at what current offerings there actually are in the market, covering current rates, fee structures, customer experiences and eligibility from the key players

Please stay tuned and subscribe to get that article when published.

Thanks for reading,

Aqila Finance.

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