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Summary of Fixed vs Variable Series

Here are the main points of all THREE Blogs

  • In theory, a funder would typically offer Fixed rates prices higher than variable rates and that is due to the below reasons:

–              The funder’s risk with fixed rate is higher.

–              The higher the risk involved the higher the price.

–              Prices can go up and quickly during the fixed term.

–              Funders mitigate the high risk by adding cost to the fixed rate

In saying that Fixed prices does not have Huge and rapid changes often, with exception of a global financial crises.

  • When it comes to why there is different opinions about Islamic banking and finance among Muslims in Australia, that can be because Muslim communities in Australia are made of over 175 ethnic and cultural origins, therefor there will be diversity of opinions, BUT are all these views legitimate?
  • In the matter of Islamic finance there is a similar The Shariah Standards of AAOIFI (established in 1991) are the most widely adapted, both globally and here in Australia.
  • The AAOIFI Shari’ah Board comprises of 20 leading scholars in Islamic finance drawn from virtually all major Islamic finance jurisdictions – luminaries such as Sheikh Muhammad Taqi Usmani (current Chairman) and Sheikh Dr. Abdul Sattar Abu Ghuddah to name just two.
  • What does the AAOIFI Shariah standard on Ijarah(lease) say on the permissibility of variable rates for Ijarah(lease) based financing?
  • Standard No. (9) at clause 5/2/1 states” … The lease rental may be…a fixed or variable amount…
  • Clause 5/2/3 further states “…It is then permissible that the rentals for subsequent periods be determined according to a certain benchmark…”.

What does this mean? Simply, variable Ijarah payments are as permissible as fixed, and so is calculating Ijarah payments by using a reference rate.

  • The distinctive advantage that fixed rate has over a variable rate is the home owner knowing exactly what her/his/their payment obligation is over that fixed period (whether its 1 year or up to 5 years).

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Publications

An Introduction to Islamic Finance

A seminal book on Islamic finance by the world-renowned Mufti Taqi Usmani, this is a must-read for anyone interested in the key concepts, rules, and ideas behind modern Islamic finance.

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