Comparative
Analysis of house loan products by conventional
and Islamic banks
Presented to : Sir Aamir
Rafique
Presented by: Mannan Saeed
Aleem Ullah
Baig
Azeem Ullah Baig
Saleem Ahmed
SZABIST ISLAMABAD
· Difference
between Islamic and conventional (non Islamic banking)
In conventional banking you are agreed as a
partner in profit sharing only but in Islamic banking you are agreed as a
partner in both profit and loss situation. In conventional banking a defaulter
is normally charged with the principal amount and heavy interest as of
punishment while in the case of Islamic banking,the same heavy interest charged
goes directly into the charity .Islamic banking is an interest free banking so
that’s why it is an asset based banking as interest normally called as riba in
Islamic sense is prohibited in Islam. If person wants to start a business and
goes to conventional bank, they will provide him with loan while if that same
person goes to an Islamic bank , they will provide him with all the resources like construction materials etc.
Alfalah bank, MCB bank and Habib bank are some of the examples of conventional
bank while Meezan bank , Bank Islami and Dubai Islamic banks are some of the
examples of the Islamic banks. Islamic
banks don’t give loans to those
where non Islamic activities are
done like beauty parlor and Pakistan Tobacco Company etc. Most of the
Islamic banks decisions and policies are
backed by a shriah councel and consist personal having vast experience and
knowledge in shriah where as conventional banks decisions are made qualified bank professionals.
Islamic banks are given a KIBOR sheet ( Karachi Inter Board Offer Rate) which is a rate
charged on their accounts and it is not fixed it may change which is in the case of
conventional banks where interest rates are fixed.
·
ISLAMIC BANKS
·
Meezan
Bank
Meezan bank offers its customer its home products through
"easy home" scheme through joint ownership of the house between the
bank and the customer until and unless the customer able to pay all the
"payment" the ownership is then transferred to the customer. With the
"easy home" the bank finance up to 85% of the cost of the house
.According to the bank the profit charged by the bank is the payment made by
the customer for the use of its share of the house during the life of the
contract.
·
Purchasing a home
Choose a home and then Meezan bank finances up to 85% of the value of the house, up to
RS 40 million for the financing tenure till 20 years.
·
Building a home
Meezan bank offers up to 70% of the house value till RS 40
million for the financing period up to 20 years.
·
Renovating or Repairing your home
Meezan bank finances up to 30% of the finances for the
finance period till 15 years
·
Replacing your existing mortgage
The bank helps the customer to transfer its existing liabilities
and to enjoy flexible financing up to RS 40 million for the tenure or the
time period of 20 years.
Easy home also offers Life Takaful which covers the death
of a person
·
Eligibility
Should be a Pakistani, aged between 25 to 65
years, should be a salaried individual like he should be earning some money on
your job, can be a business person too. For a business person he should have 3
years of business experience and for salaried person he should have a minimum
experience of 2 years of working and thus should also be in range of minimum
income requirement prescribed by the bank.
·
Dubai
Islamic Bank
Dubai Islamic bank uses Musharaka model in
which the bank and customer enters into the partnership for the leasing of the
property. Until and unless all rent or
monthly payment is paid by the customer only then the bank hands over the
complete ownership to the customer. In
case of death the bank will provide the Takaful coverage.
·
Home Purchase:
Purchasing one's
dream home through the Musharaka basis .
·
Home
Renovation
The bank in this category finance up to 7o% of
the value.
·
Home Mortgage
scheme transferred
The customer can transfer its interest based
home financing to the Dubai Islamic bank
riba free home financing.
Dubai Islamic Bank
finances 80% of your property value
·
Eligibility
One should be a
Pakistani national aged between 25 to 65
should have a minimum income of RS15000 .Could be self employed business
man or a salaried person.
·
Documents Required
Copy of CNIC and co partner's CNIC copy if
necessary, 2 passport size photo. Copy of utility bill . Tax return and a copy
of utility bill to verify your home address they may send you a letter of
thanks for verification purposes too. Your salary slip is also requires to know
that you really work for an organization.
·
Bank Islami
Bank Islami as per Islamic rules and
regulations which forbids the use of the concept of giving money on
money practiced by the conventional banks instead it focuses upon the trading
.A process known as Murabaha in which
the customer when applies for the Bank Islami house products the Bank
purchases the things needed for building
the house like construction materials.
It is up to the customer to either pay the full material cost at once or pay it
in installments. In this Murabaha the
customer is being told about the bank profit in the payment scheme. The Bank
Islami MUSKAN home financing in which there are different schemes:
·
Home Purchase
The financing range offered is from 200k to
50M RS over a period from 2 to till 25 years. The bank has different investing
policies for different professionals like for a salaried person the bank will
invest up to 70%.65% for Doctors,Engineers,Architectures,Chartered Accountant
and for the business man the bank will
accommodate up to 50%. No extra charges on early unit purchase or early
termination after 12 months disbursement(meaning you will not be charged extra
if you are able to pay all the loan in early dates but if you make payment s
within 12 months of disbursement the customer will be charged with the charges.
·
Home Construction
It has the construction period of 2 years and
financing period from 2 to 25 years . The financing range consist from 200 k to
50 M . Again the bank investment ratio is different for different for various professionals and is
exactly the same as written above for home purchase segment .
·
Home Renovation
Remodeling your home consists a financial period of 2 to 7 years and the maximum time limit for
remodeling is 6 months with the financing range from RS 150k to 5M.The bank
investment ratio is the same for different
professionals .
·
Home Replacement
Its
basically transferring your
mortgage plan to Bank Islami. The financial period consist from 2 to 25
years and the financing range is from
200K to 50M . The bank investment ratio and the payment ratio is the same.
This Musharakah is based on Shirat_Ul_Milk
where the customer and the bank participates in the role of ownerships until
all the units are purchased by the
customer meaning the value of the home construction is 5M and they have divided
into 5 units l each of 1M then one units purchase means that you have paid the 1/5th
of the house value and some extra value also charged upon it .As per time the
customer purchase more you units and so is able to take more share in the
ownership of the house .
·
AL-BARAKA BANK
AL Baraka Bank offers its customers home
products in the concept of Musharaka
under five categories:
·
Purchase of a house
·
Construction of a house on the customer owned
plot
·
Purchase of plot
and the construction of the house
·
Renovation of the house
·
Assets Transfer Facility
According to Musharaka system the bank and
the customer enter into a joint ownership agreement in which the customers
agrees to purchase all the units and to make all payments on the prescribed
time to attain the full ownership of the house. Like 1 unit is equal to 1M RS
and 5 units is equal to 5M RS. The bank financing is available up to 2o M RS
which is repayable up to 20 years. In case of renovation the maximum financing
limitation is of RS 1million and where
the repayment period is available up to 5 years. The bank also offers a co
applicant program in which the spouse or customer other close relatives can support
him in the home financing in terms of finance. Assets Transfer Facility is used
for customers to shift towards Al Baraka home finance from a conventional bank.
Many conventional banks have however also
open an window for the Islamic
banking like they also offer Islamic
home products like UBL Islamic banking and Alfalah Islamic banking etc.
·
BANK ALFALAH
Bank Alfalah also offers its customers the
home products through Musharaka in which
the bank and the customer enters into the a joint ownership , the customer is
entitled to pay all the rent plus the
principal amount in the unit forms already explained above. Only after paying
all the amount the customer is entitled
for full ownership. The financing tenure is available up to 3 to 20 years.
·
Eligibility
Need to be a Pakistani aged between 25 to 65
years old. For a salaried person to be applying he should have at least be
working for 2 years . Incase of a business man he should be in the same
business for years . Last one is that
the person must be a tax payer.
The person must also provide some documents
like copy of CNIC .2 passport sized photo. Original or certified copy of pay
slip .The employer must provide a proper document of the employee working under
him like his tenure and designation etc. Bank statement of 6 months of his
account. For the business man his last years of tax return document required
plus a proof required and one year bank statement. Joint owner account can also
be formed in case of a spouse.
·
Conventional Banks
·
MCB BANK
MCB offers
"pyara ghar " which is divided into 4 parts:
·
Home purchase
MCB gives loan to its customers to purchase
an already build home of their own choice. Maximum loan provided is 30 Million
RS
·
Home construction
Construction of the house on the customer
owned plot where the loan is distributed in installments, and it is also said
that only when the money from your first installments aren’t finished the customer would not be given the second installment.20
Million RS is the maximum loan offered.
·
Purchasing of the plots and the construction.
Customer is provided loans on installments
for construction of the house on his own plots.
There are specific cities on which only
you can renovate, build or
construct your own house . These cities
include Karachi, Lahore, Faisalabad , Rawalpindi and Islamabad. More over the
information provided to the bank should be valid including the customer
personal information. Loan would only be provided to the customer if its credit
history is not good. The property like house , land should be properly
registered. The bank should be provided with income statement in order to estimate
the financing tenure to return the payments. The repayment should be made in
equal installments. There are some state bank regulations and bank policies which are as follows like the
installments should not exceed the person
50% of net income. The maximum tenure given to the customer is of 20 years. The bank also visits the site in
order for inspection and monitoring , not only just the sites but also monitor
the person accounts and his business in order to confirm that whether he would
be able to pay back the installments or not. Floating rate for home finance is
repriced on every first working day of the year. The minimum home loan provided
is RS 500,000.The documents which are required are CNIC copy, 2 passport sized
photos , income docs and employment and business proof.
·
HABIB BANK
Habib bank offers home loan for purchasing of
the new home and for renovation of the
customer house.
·
Home purchasing
The loan tenure is provided from 3 to 20 years. The loan amount provided varies
from RS 300,000 to RS 1500,000.85% of the total house value is loaned by the bank. Life insurance is also
provided to the primary applicant and the co borrower. Property insurance is
borne by the bank .Property lease is for
5 years in which the property the
customer is using the property and unless the customer doesn’t made the whole
payment the complete ownership is no transferred to him.
·
Home renovation
Loan tenure is provided for 3 to 20 years. The loan amount given by bank
ranges from 300k RS to 500k RS. The bank only finances up to 70% of the
renovation within the prescribed budget limit. Again the property insurance is
borne by the bank. The life insurance provided is the same as provided by the
bank. Property lease 5 years maturity
same as above.
·
Eligibility
Should be a Pakistani resident aged between
21 to 60 or 65 years old. For permanent employees they should have at least 1
year of experience and their proof of they being permanent in the organization.
For contractual employees and business man
they should have at least 2 years of experience. Documents required are
CNIC copy , 2 passport size photos , the proper documentation of the property
and the bank statement for last 6 months is required for both salaried person
and businessman. The business man also need to provide article of association,
their license etc.
Application charges are up to 7000RS and the
early settlement charges are around 4.7%.
·
Askari Bank
Askari banks
provides its customers with various home financing options:
·
Build a home
The bank provides loan to the customer who own a plot but need finance to build
their own home. The loan is provided in 4 to 5 tranches(episodes) upon bills of quantity submitted by the customer. The loan range starts from
300,000RS to 30000,000RS and this loan
amount is same for purchasing a home and purchasing the plot and then
constructing your home.
·
Buy a
home
The loan is provided upon already build
houses.
·
Buy a plot and construction
The bank provides lump sum of money for
purchasing of the plot and then in the construction phase the finance will be
provided into 4 to 5 tranches.
·
Home renovation
The sum of loan will be provided only after
customer showing the BOQ to the bank. Loan
amount is only provided for 50% of the renovation material.
·
Balance Transfer Facility
It is not allowed for those customer whose
houses are already under construction and wants to switch their financial
agreement form other financial institutions to the Askari Bank.
·
Conditions and Eligibility
The person must be a tax payer . The monthly
payments made by the customer should not exceed more then 50% of its net
income. This financial program is only valid in urban areas of major cities.
The person must be aged between 23 to 65 years old. A blood relationship is
only allowed in the case of joint ownership. The person income should be
starting from 35000RS to apply for it. Proper documents of the property and for
the income should be provided. The employment scheme and for the business man
is the same as mentioned in the above conventional banks. The documentation
required is also the same as above mentioned conventional banks. The charges
are as follows, RS6500 with form non refundable ,750RS per late installment.
The interest keeps on decreasing every year like first year its 6.5% then in
the second year it is 5.5%.The mark up rate is like for salaried person its
like KIBOR +4% and for business man its KIBOR+5%.Balloon payment is allowed 20%
of the outstanding payment ( it's like repayment of the outstanding principal
amount at the end of the loan period and only the interest is being made)
·
BANK AL-HABIB
Bank Al Habib offers the customer finance
through different segments.
·
Home Buyer
Financing is available from 500,000Rs to 20
million RS. The loan should not be
increased by 80% of the value of the house within the prescribed budget and
same goes for the home construction . The disbursement is made only at one
time. The financing period is available up to 20 years again same goes for the
home construction. Repayment is made only on equal installments.
·
Home construction
Financing available from RS 500,000 to RS 20
Million. Disbursement is categorized into three stages , plinth stage 30 %, structure completion 30% and the last one is finishing stages which is 40
% , these percentages attributes to the given amounts . Repayment into equal
installments ,1 year grace period is also included for the construction where only mark up is
serviced.(meaning after the payment issuance date the customer is allowed to
pay and in this period no late fee is charged) etc.
·
Home renovation
Finance available up to RS 5million and
should not increase the 70% of the property value. Disbursement is made at one
time only. Repayment in equal installments with of BOQ required , according to
this the customer must show all the bills of the expenditure occurred in
renovating his house only then the payment is made.
·
Eligibility
The loans are provided only to the existing
customers of this bank. They should be aged between 23 to 60 years old and plus
posses the minimum home income of 20000RS. The installments should not exceed
45% of the person salary. Pricing is like for 1 year KIBOR rate + 3 % of the salaried person and in the
case of business person its 3.5%.. The charges are 3500RS processing fee.400RS per
late payment.
·
UNITED BANK LIMITED
UBL offers its customer the various segments
for home product. All products ranges from over a period of 3 to 20 years.
·
Buying a home
The bank provides the maximum financing limit
of 70%.
·
Building a home
·
Construction of house on your
plot
·
Eligibility
Should have a monthly minimum income of
50,000RS. Aged between 23 to 65 years . The minimum loan allotted is of
500000RS.The Documentation requirement
is the same as above mentioned in the conventional banks. The mark up
rate for the salaried person is KIBOR +3.5%
and for business man its
4.5%.1000RS is charged for the late installment , 1.5% ,2.3% and 3% charged for
proceeding years. Processing charges are RS5000.
·
ANALYSIS
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