Depicting the ceiling of a mosque in Turkey, the Iskan Finance logo represents its dedication in providing fair, Islamic home loans.
We spoke to Russell Murphy, the General Manager of Iskan Finance about Sharia compliant home loans and what those looking to take one out should do before signing on the dotted line. Russell has been the General Manager of Iskan Finance since 2011. Russell has held a number of senior positions at a number of Australian and internationally owned institutional mortgage providers, and is a career property financer.
How can those looking for an Islamic home loan ensure their lender is reputable and can be trusted?
The first thing that we’ve learned in operating the business is that a lot of customers that come to us do so because they are unfamiliar with dealing in a property purchase and in the financial product. The lead time for these customers is necessarily fairly long. A lot of them may have come from countries where home ownership was just out of financial belief because they just couldn’t afford them.
A lot of them don’t understand what a mortgage is, a lot of them don’t understand what a transfer is. So all of those things conspire to make for a lead time for these customers fairly long.
What do we understand out of that? Well, we stake our reputation on the fact that a lot of customers have been with us for so many years. That we are members of the MFAA, that we do have external dispute resolution, that we do have a credit licence.
And I think the trust for a lot of these customers is built over those telephone calls. In fact, a customer that I spoke to this morning, he was calling from Perth and looking at buying a house for about $400,000.
You get all of your disclosure documents, have a look at getting a deposit together. You would get at least two sets of disclosure documents from us before you have to put your hand in your pocket so you get lots of points of which you can stop. The trust really is built over a succession of phone calls before the customer even commits to filling out an application form.
How did Iskan Finance come about?
It was basically that a couple of guys came to us and said to us that they believed that the Australian Muslim community was unable to share in the benefits of the financial stability, community stability and all those sort of things attached to home ownership in Australia because they were unwilling to deal with banks.
We started Iskan finance probably 13 years ago, and we do very little advertising and there’s very little competition in Australia for Muslim customers. There’s really only us and a few lenders in Melbourne. Every day the phone rings and everyday customers are enquiring about how to do their home loan or how to do a financing package outside of the bank.
Everyone gets a fair shake. And I think that’s the reason why this particular model has taken off.
Do you mainly deal with customers over the phone?
We only deal with customers over the phone. We offer all the administrative services to do so by means of either fax, email or telephone calls.
What regulations do Islamic lenders have, or follow?
For us, our conversations are usually consumed by the National Consumer Credit Protection (NCCP) Act. So a lot of these customers will turn up and they will say, look I have a family, we have a certain income. We again underline our responsibility to ensure that they can repay the facility without undue hardship. For us, probably the personal question for regulations for Islamic lenders to have to follow is the NCCP because if it doesn’t comply with that, it doesn’t do anything else.
Islam prohibits trading in interest, it doesn’t necessarily preclude trading for profit. And look, in saying all this, I am not a Muslim so I am not by any means an Islamic scholar so when customers want to get into a debate, we say sorry you are barking up the wrong tree. It’s not our job.
You will see our disclaimer that says we don’t claim to be perfect, we claim to have an alternative and you really have to decide for yourself if it is good bad or indifferent. In one of the models that used to be in Australian home financing for Muslims was a partnership where the financier and the customer would partner and when the property was sold, the profits would be split. It has, or it did have implications for capital gains tax, transaction duties and stamp duties. The customers hated it.
It sort of shows a maturing of the market. That a lot of Muslim customers used to wander in and say, ‘look I better do this because this is the Islamic model’. Yet when capital gains tax time came around, when the transaction had been determined and the home had been sold and there was a profit to be shared everybody was going ‘I am not so keen about this now’.
Our model doesn’t have that. We have steered away from all of the pitfalls of joint ownership. For our customers at the date of settlement they are registered as the owner, we’ve taken mortgage from them, secured a transaction agreement that doesn’t express capital or interest.
Nonetheless there is a profit rate and customers are expected to make regular payments on the transaction. No payments equals no property. These customers are to that extent the mainstream of Australian mortgage holders.
So things have changed over the years. So for these customers they there’s nothing special about the transaction. The credit code prevails, they have to be able to demonstrate that they can repay the facility without undue hardship.
All of the usual requirements for obtaining a mortgage has to be adhered to. People need to have a smooth income, they have to be able to demonstrate that they earn enough money, they need to be able to demonstrate that have saved the deposit, they have quality credit, a hundred points of income.
Does the time from application to settlement take a lot longer than your typical loan?
No, not at all. Don’t forget there’s normally a property transaction left on the backside of this and that’s normally 42 days. There is a commercial pressure at the back end that makes this business run like most others. You know, I guess the other sides of it are that the rates in our Iskan business are probably lower than the industry average.
What are some tips for borrowers looking for an Islamic home loan to ensure they get a good deal?
As a customer group, Iskan customers tend to be very reticent, they don’t rush into things. So we normally would have more than the usual number of conversations with our customers before they are willing to submit an application or sign on the dotted line.
Everyone gets a fair shake. And I think that’s the reason why this particular model has taken off. It’s because the registered proprietor is the registered proprietor that there’s no pretence about partnership or profit sharing or things like that.