Zakaat on diminishing Musharakah Islamic home loan
Question:
I hope your are well. I would like to find out a question regarding zakaat.
If I have an Islamic homeloan, how do I calculate my zakaat each year?
I'm not sure whether the home loan is considered a liability as my simple understanding of the diminishing mushakrak agreement is that I'm buying portions from the bank each year.
Please can you assist
Jazakallah
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
According to Shariah, if one possesses the nisaab (quantum) amount of Zakat and one’s liabilities do not exceed one’s assets, then Zakat is obligatory on such a person. Moreover, Zakat is calculated on Zakatable assets which are in one’s ownership. The standard Nisab amount is 20 Mithqals which translates to 87.48 grams of gold or 200 Dirhams which is equivalent to 612.36 grams of silver or the equivalent in the present value of cash. One can procure the latest Nisab value from one’s local Islamic organization. One’s personal belongings (Hawa’ije Asliyyah) do not form part of one’s Zakatable assets. Moreover, if one’s wealth decreases below the Nisab threshold during the year but equals or exceeds the Nisab amount at the end of one’s Zakat year, then Zakat is still Wajib. (Kanz al-Daqa’iq, Pg. 203 and al-Ikhtiyar, Pg. 99, Vol.1)
With regards to your specific query, you state that you have an Islamic home loan. You also state that you are unsure of the nature of the liability in a diminishing Musharakah agreement. The Islamic home loan will depend on the nature of the debt that has been established. In other words, since you purchased your home via a Musharakah Mutanaqisah/Diminishing home equity rental agreement, then you and the bank are equity shareholders in the home. You then unilaterally promise to purchase the bank's units over a term. You will hence only pay Zakat on the current outstanding liability since you have not incurred the full liability based on the general understanding that you have not contracted to purchase the banks units over the term rather you have provided a non-legally binding promise (Wa’d). The liability incurred refers to the immediate outstanding liability for the latest outstanding equity unit purchase and the pro-rata rental charged by the bank.
Moreover, if your contractual engagement with the Islamic financial institution entails on-account payments in the form of locked funds in an escrow/custody/client account, then you will not calculate such funds as Zakatable since such funds are not immediately accessible to you and hence no Zakat is due on such funds.
In the instance of an Ijarah or Murabaha only home purchase plan, then you will only consider the current outstanding liability and one year’s Murabaha liability respectively.
You are welcome to submit the actual contract for us to review and advise further to ensure accurate advice on the specific nature of your Zakat obligations.
and Allah Ta'ala Knows Best
Mufti Ismail Desai
Darul Iftaa
Durban, South Africa
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