Shariq Siddiqui, Indiana University

The growth of “halal mortgages” over the past 20 years has expanded financial access to homeownership for many Muslims. Halal mortgages provide interest-free loans in keeping with Islamic beliefs.

These mortgages are available in over 80 countries that have a significant Muslim population, such as Saudi Arabia, Iran, Malaysia, United Arab Emirates, Kuwait, Qatar, Turkey, Bahrain, Indonesia and Pakistan, where they account for the vast majority of the global US$3.9 trillion Islamic finance economy.

Access to halal mortgages has been growing in the United States. Until 1997, no financial institution was willing to offer halal mortgages, but in 2024, over 25 banks had made them available.

The Conversation asked Shariq Siddiqui, assistant professor and director of the Muslim Philanthropy Initiative at Indiana University, to explain halal mortgages.

What are halal mortgages?

Halal mortgages are a tool of Islamic finance and offer an equitable way to gain homeownership. They emphasize risk-sharing and mutual cooperation with the aim of checking unfair exploitation and wealth accumulation in the hands of a few. In such a system, money is a means of exchange rather than a commodity that generates profit.

What are the religious roots of Islamic finance?

The Muslim holy book, the Quran, and the sayings of the Prophet Muhammad, the Sunnah, prohibit riba, (interest), maisir (speculation) and gharar (uncertainty or uneven risk).

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For example, the Quran says, “O you who believe, do not eat up the amounts acquired through ribā (interest), doubled and multiplied. Fear Allah, so that you may be successful.”

Over time, Muslims have sought to develop systems that adhere to these rules. These include bonds that do not receive interest but are based on profit-sharing; socially responsible mutual funds that comply with ethical rules; and insurance that provide protection through a communal fund.

Since World War II, however, monetary policies in the global financial market are largely based upon interest.

How does Islamic financing work in modern context?

In the modern context, Muslims use contract law for economic activity and offer home mortgages without interest. For example, as an attorney, I would develop mortgage contracts that would allow buyers and sellers to transact without interest. This “mortgage” contract would be recorded with the county.

Traditionally, there are three kinds of halal mortgages. In the first, known as ijara, the bank purchases the property and leases it to the homeowner; the homeowner pays rent, principal payments and bank charges; the buyer’s share in the home remains the same until the entire loan is paid off.

Diminishing musharaka is another type of joint ownership plan between the bank and the buyer. The buyer makes principal monthly payments and pays bank charges rather than interest. With each principal payment, the ownership of the buyer increases and the bank’s ownership decreases.

In the third type, murabaha, the bank purchases the home and resells it immediately to the buyer at a higher price – termed as profit. The buyer typically pays a 20% down payment. Thereafter, the buyer makes fixed interest-free payments until the loan is paid off.

What is the availability of halal mortgages in the US?

In 2001 and 2003, respectively, Freddie Mac and Fannie Mae started buying Islamic mortgage products to provide extra liquidity in the U.S. Islamic finance market. These government-backed housing giants work under the conservatorship of the Federal Housing Finance Agency and are one of the principal means of bolstering homeownership in the United States.

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These mortgage buyers have grown to become the main investors in Islamic mortgages. For example, Freddie Mac has invested in Guidance Residential, one of the largest halal mortgage companies in the U.S.

What are the advantages?

These systems ensure that there is mutual risk-taking between the bank and the homebuyer. For example, should the homebuyer be unable to keep up payments, their prior principal payments are protected and not consumed by the interest. Furthermore, if the home loses value, both homebuyer and bank proportionally lose out on the principal value of the home.

They require greater transparency on costs, fees and responsibilities; both parties are required to work together and fulfill their obligations.

This reduces the risk of failures like the subprime lending crisis, when banks overvalued homes and financed mortgages that buyers could not afford, leading to a global recession in 2008.

What are the downsides?

Halal mortgages are more expensive and more difficult to enter into, as they require a down payment of at least 20%. Furthermore, they are not available in every state in the United States.

Additionally, many Muslims are unwilling to deposit their money in banks, if those banks are required to pay interest or earn part of their revenue based upon interest.

Shariq Siddiqui, Assistant Professor & Director of the Muslim Philanthropy Initiative, Indiana University

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This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Huseyn Abdulla, University of Tennessee

In 2018, L.L. Bean ended its century-old “lifetime” return policy, limiting returns to one year after purchase and requiring receipts. The demise of this popular policy sparked backlash, with several customers filing lawsuits.

It also inspired my team of operations management researchers to study how customers respond when retailers make their return policies more strict. Our key finding: Whether they often or rarely return products they’ve purchased, consumers object – unless those retailers explain why.

I work with a group of researchers examining product return policies and how they affect consumers and retailers.

As we explained in an article published in the Journal of Operations Management, we designed experiments to study whether and why return policy restrictions irk customers. We also wanted to understand what retailers can do to minimize backlash after making it harder for customers to return stuff.

We conducted three experiments in which we presented scenarios to 1,500 U.S. consumers who played the role of loyal customers of a fictional retailer. We examined their reactions to the fictional retailer’s return policy restrictions, such as charging a 15% restocking fee and limiting open-ended return windows to 365, 180 and 30 days.

Participants became less willing to buy anything from the fictional retailer after it restricted its long-standing lenient return policy. They also said they would become less willing to recommend the retailer to others.

This occurred because the customers began to distrust the retailer and its ability to offer a high-quality service. The backlash was stronger when the restriction was more severe. Even those consumers who said they usually don’t return any products often reacted negatively.

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When the fictional retailer announced its new, harsher return policy using official communication channels and provided a rationale, there was less backlash. Consumers found the changes more justified if the retailer highlighted increased “return abuse,” in which customers return products they’ve already used, or the high cost of processing returns.

You might presume that making it harder and more costly to return stuff could drive some shoppers away. Our research shows that the concern is valid and explains why. It also shows how communicating return policy changes directly with customers can help prevent or reduce backlash against retailers.

Why it matters

Americans returned products worth an estimated US$890 billion to retailers in 2024. Processing a single item typically costs $21 to $46. Most of this merchandise ends up in landfills.

The rise of e-commerce and other technological changes have contributed to this trend. Another factor is the ease with which consumers may return stuff long after making a purchase and get a full refund.

Many other retailers besides L.L. Bean have done away with their long-standing lenient return policies. Over the past decade, for example, Macy’s, a department store chain, and Kohl’s, a big-box clothing store chain, have shortened the time frames for returns.

Macy’s restricted its open-ended return window to one year in 2016, further winnowed it to 180 days in 2017, then to 90 days in 2019. It then stopped accepting returns after 30 days in 2023. Kohl’s didn’t have any time limit on returns it would accept until 2019. Then it imposed a 180-day limit. Others, such as fast-fashion giants Zara and H&M, now charge their customers fees when they return merchandise.

However, research shows that customers value no-questions-asked return policies and see them as a sign of high-quality service. And when these arrangements become the industry standard, customers can get angry if retailers fail to meet it.

Interestingly, most retailers that restricted their policies didn’t tell customers directly. Instead, they quietly updated the new policies on websites, store displays and receipts. Although not drawing attention to bad news might appear prudent – as most customers wouldn’t notice the changes that way – dozens of threads on Reddit about these changes suggest that this isn’t always true.

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What still isn’t known

We focused on restrictions on refunds and how long after a purchase customers could return merchandise. Other restrictions, such as retailers making heavily discounted items ineligible for returns, could also be worth investigating.

The Research Brief is a short take about interesting academic work.

Huseyn Abdulla, Assistant Professor of Supply Chain Management, University of Tennessee

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Welcome to the Consumer Corner section of STM Daily News, your ultimate destination for savvy shopping and informed decision-making! Dive into a treasure trove of insights and reviews covering everything from the hottest toys that spark joy in your little ones to the latest electronic gadgets that simplify your life. Explore our comprehensive guides on stylish home furnishings, discover smart tips for buying a home or enhancing your living space with creative improvement ideas, and get the lowdown on the best cars through our detailed auto reviews. Whether you’re making a major purchase or simply seeking inspiration, the Consumer Corner is here to empower you every step of the way—unlock the keys to becoming a smarter consumer today!

https://stmdailynews.com/category/consumer-corner