Conveyancing Practice – written notes – Emily Law

Topic 6: Islamic Home Loans

Introduction

 Islamic loan are interest free.

 Technically, there are not ‘loans’ but ‘buy and sell’ agreements.
 The most common Islamic loan is Bai Bithamin Ajil (BBA).
 BBA = cost + profit mark up, to be paid over a deferred period of time.

1. Bank’s customer buys a property from the vendor under a SPA.

2. The bank then, at the request of customer and with the consent of vendor, steps in to
become a party to the agreement by executing Property Purchase Agreement (PPA),
making the bank as the purchaser now.
3. The bank’s purchase price is the loan facility amount.
4. At the same time, the bank enters Property Sale Agreement (PSA) to sell the property to
the customer at a selling price which includes principal amount + profit to be paid over x
numbers of years.
5. In short, it means the bank buys the property from the borrower under PPA and sells it
again to the borrower under PSA at an agreed price which includes principal amount +
profit to be paid over x numbers of years.

 Property Purchase Agreement (PPA) = borrower sell to bank

 Property Sale Agreement (PSA) = bank sell to borrower

Property with title

Documents:

1. PPA
2. PSA
3. Charge document
4. Statutory declaration on bankruptcy
5. Entry and withdrawal of caveat

Property without title

1. PPA
2. PSA
3. DOA
4. Statutory declaration on bankruptcy
5. Entry and withdrawal of caveat