CHAPTER 11 RF Banking Model for the Twenty-First Century: The LARIBA RF Model Developing the Shari'aa-Based Finance Model

This chapter will detail the unique financing model that was pioneered at American finance house LARIBA, which is based on the Judeo-Christian-Islamic Shari'aa law, in contrast to the “Shari'aa-compliant” riba-based contract fitting to make these contracts “compliant,” as discussed in Chapter 10. This LARIBA RF finance unique and pioneering model is believed to embody the true spirit and substance of the RF (riba-free) value system.

In 1987, we started a humble community-based effort by establishing LARIBA (American Finance House). We started our finance operations by using the cost-plus (murabaha or BBA in Malaysia) model, because we did not know better. We simply started with the interest rate of the day, calling it a “profit” index based on opinions and edicts (fatwas) by some of the early Islamic finance Shari'aa scholars at that time. We would calculate the value of the dollar amount to be borrowed and compound it at the “index” (interest rate) to create an equivalent sale price at the end of 15 or 30 years, depending on the term of financing. The company would agree to sell the house back to the ultimate buyer at the original price plus a profit element, so that the total cash paid would be equal to the compounded value arrived at—just as if it were a regular interest-based transaction.

Many of us were not very comfortable with this approach, despite ...

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