An interview with Zafar Ali Khan-Marketing Manager

July 05 - 11, 2004

Almost the entire banking system in Pakistan has entered in to business of House Financing a sector, which offers a huge market for the financial sector. It however depends on the professional capability, credibility and attractive products of the competing banking companies to grab the market share.

Meezan Bank, which carved a respectable place for itself as in Islamic Banking, in Pakistan, has maintained its identity in the segment of House Financing too by introducing its product "Easy Home" in accordance with Shariah.

Zafar Ali Khan, Marketing Manager, while elaborating the Islamic mode of financing in housing sector said that the people intended to avail house financing facility, participate with Meezan Bank in a joint ownership of property, or a Diminishing Musharakah, where the bank provides a certain amount of financing-usually up to 80 percent. The consumers have to make a monthly payment to the bank of which a component is for the use of the home, and another for equity share. The total monthly payment is reallocated regularly by the partnership to reflect growing equity and to allocate increasing amounts to customers' investment. On completion of the full investment, which the customers had already agreed, the client becomes the sole owner with a free and clear title to the property.

Zafar said that currently, the bank was offering house financing facility in the urban based areas like Karachi, Lahore, Multan, Faisalabad and was continuously expanding its operations in response to the growing demand from all corners of the country.

While giving a comparative analysis between conventional mortgage and Shariah compliance, Zafar said that diminishing Musharakah is Shariah complaint by conforming to Shariah laws specifically related to financing, ownership and trade. Taking ownership through a partnership and then transferring complete ownership to the consumer instead of simply lending money is the major factor that makes our products Shariah complaint.

Replying to another question whether this mode of financing is restricted to the Muslims only or it is open for every potential customer irrespective of the belief, Zafar made it clear that it's a market-oriented products and is available to the clients irrespective of their belief or creed. He also cited various examples where people from different religions also preferring this mode of house financing. It however gives a sense of satisfaction to the Muslims obviously because they feel that were entering into an agreement which is in accordance to Shariah. Like other banking institutions, Meezan also offers a wide range of house financing for purchase, renovation, construction and refinance at competitive rates.

The nature of the contract is a co-ownership and not a loan because the transaction is not based on the lending and borrowing of money but on the joint ownership of an asset. Meezan Bank shares in the cost of the asset being purchased, for example in the case of buying a home. In conventional mortgages the interest charged is a mark-up on the money lent. The profit charged by Meezan Bank is the utilization payment for use of Meezan Bank share throughout the lie of the contract. The profit is predetermined based on market trends. The procedure adopted makes the payments made to the Meezan Bank by the customers are hence completely riba-free, said Zafar.

Clarifying the situation in case of any eventuality with the customer for example if he expires, Zafar said that in housing finance, conventional banks usually take lie insurance to cover the risk of a customer's death. However currently we are not requiring customers to obtain a conventional life insurance until Islamic life insurance (Takaful) is available. Therefore, in the present scenario if an applicant dies his legal heirs will be liable to pay.

When ask what method is available for a customer who desires to make early payment to get out of the contract, Zafar said that in Easy Home, bank's investment in the property is divided into Musharakah units and customers has to buy one unit every month to increase his or her share in the property. In case of early payment first of all, Meezan Bank will valuate the property and the market price will be determined. If the market price remains the same no additional payment will be received and the Musharakah units will be sold at the face value. However, if the market price increases, the bank will increase the unit price in accordance to the increase in market value.

When his attention was invited towards the increasing trend in the prices of the real estate including constructed houses, flats or open plot, he said in fact the quantum jump in the value of real estate is speculative and artificial which does not indicate the real scenario of the market. When asked to point out the factors behind speculative increase in the prices, he was in agreement with PAGE that the property agents, or brokers were the major cause behind speculations in prices. In fact this is an area, which needs to be regulated to save the customers and the market as well from the speculative prices. These brokers should be brought into a documented net and the earnings through brokerage in the real estate sector should also be taxed like other areas of earnings. A property registration, training and bank guarantee of these brokers can save the innocent people of being defrauded or deprived of their hard earned money at the hand of unscrupulous elements who have mushroomed this business all over the country.