Finding the right halal contract

NOTE: Although we do not offer Islamic mortgage contracts at Azzad Asset Management—focusing instead on halal investments like the Azzad Ethical Wrap Program and the Azzad Funds—our financial planners want to make sure clients understand the depth and scope of financial products in the marketplace. As fiduciaries, we put the interests of our clients first and want to make sure they are making informed decisions in all facets of their financial lives. The subject of financial contracts and their permissibility according to Islam is a complex one. Shari’ah-compliant contracts are regularly sought out by American Muslims looking to align their finances with their values. Just because a contract abides by Islamic principles, however, it does not mean that the agreement is the most appropriate form of contract for your particular needs. A good example can be seen with the Halal home financing industry in the United States. The two most common forms of halal mortgages are murabahah (cost-plus) and musharakah (joint partnership) contracts. In a murabahah contract, the financial entity purchases an asset and then sells it back to a consumer at an agreed upon profit mark-up. A payment plan is created based on the new price. In a musharakah