Islamic banking for non-Muslims

Religion had nothing to do with Armin Sorabji's decision to finance the purchase of his Dubai home with a Shariah-compliant mortgage. Instead, it was all about getting the best deal. In 2006, Mr Sorabji, a 51-year-old accountant from India, who is a Hindu, was interested in buying an off-plan property from Nakheel in Jumeirah Park. He knew that if he went to a conventional bank for financing he would have to start paying monthly interest, known as pre-EMI - equated monthly installments - before the property was complete. After his home was constructed, he would have to pay EMI and a portion of the principal he had borrowed.

When he researched Islamic banking, he found he wouldn't have to make any payments until the property was complete. Only then would he have to pay a lump sum to account for the bank's profit markup, which is usually about the same as the total pre-EMI interest paid at conventional banks. After that, the keys to his home would be handed over by the bank; in keeping with Islamic principles, the bank buys the property and leases it to the customer until the mortgage is paid off. Mr Sorabji, who did not want to disclose the amount of his mortgage, would then make monthly mortgage payments without paying interest.

"I decided to go the Islamic banking route rather than the traditional route because then you get more time to collect funds to make the payments when the property is ready," said Mr Sorabji, who is financing his home through Noor Islamic Bank. "With a conventional bank, irrespective of whether the property is complete or not, payments start from the first month." Mr Sorabji, whose property was due to be completed in early 2009 but has been delayed, has also found another advantage to Islamic home financing. "In today's market, off-plan properties are often delayed. The benefit you have is that if you are experiencing a delay, you don't get penalised for it."

Since no payments are required before the property is complete, Mr Sorabji will not have to pay pre-EMI for the additional months that the property is delayed, as he would have had to with a conventional bank. The payment he is required to make is fixed at the time the agreement is signed.  Almost three years after the bank purchased the property for Mr Sorabji, he has only made a down payment to Nakheel, which was 5 per cent of the total property value, while the bank finances the rest.

Mr Sorabji said he is also open to other Islamic banking products. "For me, it really depends on the deal they are offering and how they compare to traditional banking products," he said.