Calculation of the Economic Viability and Prudence of the Investment
An important and truly unique aspect of the LARIBA Shari'aa-based RF finance model is prudence in investing one's assets. It is the responsibility of the RF banker to act as a wise and prudent investment adviser, protecting the customer from digging a deeper hole of debt for himself and his family by imprudently investing in a property, a business, or a house and/or by overstretching his repayment capacity. If the house, for example, would not make prudent economic sense to invest in, in case it were rented to a third party as an investment, it would not make prudent sense for the customer to own it.
Appraising the Property or the Business
There are two approaches to appraising the property. The first approach is that obtained by the standard appraisal methodology, based on the last few sales in the neighborhood. But this approach may be extremely misleading in an inflated market, like the ones experienced in Houston, Texas, during the 1980s housing and commercial real estate bubble, in Silicon Valley in the 1990s, and during the nationwide bubble experienced in the United States for housing and commercial real estate, which reached its peak in 2006 and burst in 2008.
This is the real spirit and real intent of the prohibition of riba/ribit in the Torah, the Christian Bible, and the Qur'aan. In fact, based on the LARIBA RF finance model, LARIBA may be the only finance company that would decline financing a property or a business if the return on investment based on the actual market rent of similar properties in the same neighborhood were not attractive, using market parameters as will be detailed later.
Applying the Discipline of Marking the Property to the Market Each property has a market value, which is best defined by what its lease value would be if it were leased on the open market. The LARIBA RF finance model assumes that the property is leased at fair market value, as defined by the location and specifications of the property, and as mutually agreed upon between the client and the RF bank. Here is the detailed procedure:
1. The customer is asked to research the actual long-term rental of a home, car, property, or businesses with the same specifications and in the same neighborhood. This can be done, in case of buying a house for example, by calling three different real estate agents in the area and documenting the findings. The RF bank officer does the same.
2. Based on the six data points collected above, the customer and LARIBA agree on a fair market rent value of the property.
3. The RF bank calculates the customer's monthly payment using the proprietary LARIBA RF algorithm and computer model. This monthly payment consists of two parts: the RonC (portion of the rent that belongs to the RF bank for renting its share of the usufruct of the item) and the RofC (repayment of the capital paid as interest-free credit to the customer).