There are two types of home financing in the UAE, conventional and Islamic mortgages. Typically, a conventional mortgage involves a financial institution lending money and charging interest to purchase a home. It involves a principal (the amount borrowed) and an interest charge on the loan, which is paid back monthly over a pre-determined period. On the other hand, Islamic or Sharia'h compliant mortgages are becoming increasingly popular in Dubai and other parts of the UAE, but differ greatly from conventional mortgages in one very significant aspect.

What is an Islamic or Sharia’h compliant mortgage?

An Islamic mortgage is a mortgage that's compliant with Sharia’h law. Sharia’h-compliant means that the mortgage complies with the principles of Shariah (Islamic Law), based on the teachings of the Holy Qur’an and the sayings of Prophet Muhammad. Basically, in Islam, lending money to make a profit is considered haram (or sinful), which is why Islamic financial institutions are forbidden from charging interest and are instead finding other ways to make mortgages halal (or lawful). Islamic or Sharia'h-compliant mortgages follow the principles, among others, that investments should be ethical, risks should be shared among all parties, and there should be no hidden fees or ambiguous terms.

How do Islamic or Sharia’h compliant mortgages work?

Due to their safety, ethical nature, ease of understanding, and ease of application, Sharia-compliant mortgages are so popular today. Despite the fact that Islamic mortgages are available in different forms, they all work the same way; a bank purchases the property on your behalf and becomes the legal owner; your monthly payments are similar to rent; part of each payment is used to purchase the property owner's stake.

Types of Islamic or Sharia’h compliant mortgage

There are currently three types of Islamic or Sharia-compliant mortgages available, namely ijara, Musharaka, and Murabaha. Basically, the nature of the three types of mortgages are the following: 
  • Ijara (lease)
  • Musharaka (partnership)
  • Murabaha (profit)
An Ijara mortgage seems to be the most popular and common in the UAE and involves the bank or any other Islamic financial institution buying the property for you and then leasing it to you for a fixed term and a fixed payment. Once the fixed term expires, the property will be yours.

Musharaka mortgage involves the buyer entering into a partnership with the lender to jointly purchase a property, both of you own a separate share of the property and each repayment goes toward repaying the capital and rent.

As part of a Murabaha Islamic mortgage, your lender buys the property for you and then sells it back to you at a higher price, with the total value including the additional amount to be repaid over the term of the mortgage.

Characteristics of Islamic or Sharia’h compliant mortgage

As a result of Sharia-compliant lenders buying the property outright, Islamic mortgages tend to be more expensive than regular mortgages, which in turn increases the risk of lending. You will also need a larger deposit if you want an Islamic mortgage than you would if you got a regular mortgage, in addition to the increased fees your lender may charge. Bear in mind that these mortgages aren’t available to everyone, they’re intended for Muslims so that they can obtain a mortgage without violating their religious beliefs. 
Beautiful view of the Burj Khalifa and surrounding skyscrapers in Dubai, UAE.

Banks that offer Islamic or Sharia’h compliant mortgage in the UAE

Currently, six fully-fledged local Islamic banks and two foreign Islamic banks licensed to operate in the UAE entirely operate using Islamic principles. In addition, 15 conventional banks have also established Islamic banking windows, meaning they’re conventional banks that offer services based on Islamic principles. 

Here’s the list of fully-fledged Islamic banks licensed by the Central Bank of the United Arab Emirates:
  • Abu Dhabi Islamic Bank P.J.S.C
  • Ajman Bank P.J.S.C
  • Al Hilal Bank P.J.S.C
  • BOK International Bank
  • Dubai Islamic Bank P.J.S.C
  • ElNilein Bank
  • Emirates Islamic Bank P.J.S.C
  • Sharjah Islamic Bank P.J.S.C
Here’s a list of banks that offer Islamic financing and are licensed by the Central Bank of UAE:
  • Arab Bank for Inv.& Foreign Trade
  • Commercial Bank International PLC
  • Commercial Bank of Dubai P.J.S.C
  • Emirates NBD Bank P.J.S.C
  • First Abu Dhabi Bank P.J.S.C
  • Habib Bank A.G Zurich
  • HSBC Bank Middle East Limited
  • Mashreq Bank P.S.C
  • National Bank of Fujairah P.S.C
  • National Bank of R.A.K P.J.S.C
  • National Bank of U.A.Q P.S.C
  • Samba Financial Group
  • Standard Chartered Bank
  • United Arab Bank P.J.S.C

Next steps

By now, you should have a better idea of what Islamic or Sharia’h compliant mortgages are and how they work in the UAE. The next thing you can do if you want to get this type of mortgage for UAE property is to approach the lender yourself or you can contact our mortgage advisors and get personalized advice and offers. Also, we have 5000 units in Dubai available for you to choose from if you haven't found a property yet. In case you want to learn more about UAE real estate and mortgages, check out our blog section.
Photo credits:
  1. Photo ANON | IslamicCity
  2. Kent Tupas | Unsplash

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