Loanpad explores Shariah products to build on religious loan offerings
Loanpad is seeking to add Shariah-compliant options for investors and borrowers in an expansion of its existing policy, which includes provisions for observant Jewish customers.
Louis Schwartz (pictured) told Peer2Peer Finance News that the platform is committed to being as inclusive as possible of all investors. Over the past couple of years he has been working to ensure that investors and borrowers of all religious persuasions are able to benefit from the peer-to-peer lending model.
The property lending platform introduced a Heter Iska option a couple of years ago, which enables Jewish borrowers and Jewish investors to enter into a P2P lending agreement through a contract which defines the process as a business arrangement, where both parties split the profits.
Similarly, under Islamic financial rules, investors are not allowed to make a profit from lending activities. However, Loanpad has not yet been able to find a solution to this which does not require the entire platform to become Shariah-compliant.
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“There is a prohibition on charging interest in both Islam and in Judaism,” said Schwartz.
“Currently we’re only actually set up for Jewish interest law. When it comes to Islamic laws the difficulty is that with Islamic finance it would have to apply to everyone whereas with Jewish laws it only applies where both the borrower and the investor are Jewish.
“That is our major hurdle with becoming Shariah compliant because it means everyone has to follow that system.”
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Schwartz added that the use of Heter Iska does not have any practical impact on the platform’s non-Jewish users, nor does it apply where either the borrower or the investor is Jewish, but not both.
“That interest is actually considered to be a share of the profits,” he explains.
“It has no practical change for the investor or borrower. They wont see any different terms in that sense.
“Loanpad has no plans to become a Shariah-compliant platform in totality but we would like to make it possible for people of Muslim faith to invest without contravening any of their own religious laws,” added Schwartz.
“We first focused on the Jewish element simply because we have a higher percentage of Jewish investors and borrowers.”
When structuring its products for Jewish users, Loanpad worked closely with the Union of Orthodox Hebrew Congregations who were “very helpful to us,” Schwartz said.
“We haven’t given up with the Shariah element and we will see what happens in the future,” he added.
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