Parsoli plans to launch Islamic housing finance

Ahmedabad-based financial services firm, Parsoli Corporation Ltd has initiated talks with Housing Finance Companies (HFCs) in a bid to launch a Shariah-compliant housing finance scheme.

Devout Muslims do not avail housing finance schemes provided by banks and housing finance companies because there is a hidden element of interest that is involved in such transactions.

A finance deal with interest is not permitted by the tenets of Islam.

However, Parsoli Corporation Ltd is now in preliminary stages of talks with Housing Finance Companies to structure their

products in such a way that they can be Shariah compliant.

"We are in preliminary stages of talks with HFCs and are attempting to convince them that instead of providing a loan and then charging interest, they must structure the loans in such a way that the principal and interest are taken into account as one single unit," Talha Sareshwala, chief financial officer, PLC, told Business Standard on Tuesday.

"The entire amount, can then be spread over a period of time and can be paid back by the customer."

He added that talks are in preliminary stages and it might take another six to eight months before a Shariah-compliant housing finance is launched.

He said that under the Islamic mortgage system, a concept that is catching up very fast in Europe, the 'Ijara' (an equivalent of leasing) and the 'Muraba' (where the bank first buys a property and then sells it to the customer) are being preferred.

Under the 'Ijara', there is just one stage of sale, while it is a two-stage sale in the case of 'Mujara'.

But this will attracts stamp duty twice, Sareshwala added. "In the Indian context, the 'Ijara' system is more viable," said Sareshwala.

Parsoli, Sareshwala said, will act as a facilitator between the customer and the HFC.

"There is a huge potential for HFCs too as hardly any devout Muslims seek home loans from these companies. All that Housing Finance Companies need to do is to replace the rate of interest with a lumpsum figure, that can be spread over a period of time," said Talha Sareshwala.

Parsoli Corporation posted a revenue of Rs 9.07 crore for the year ended March 31, 2005, compared with Rs 2.87 crore for the corresponding period of the previous year.

The net profit increased to Rs 2.03 crore during the 2004-05 from Rs 3.46 lakh registered in 2003-04.

Earlier this month, Parsoli launched the Islamic Wealth Management System (IWMS) in Ahmedabad.

The company officials had then said that the system has Islamic stock broking, insurance, Islamic equity index as some of the tools for wealth maximisation.