End of interest rates for housing loans edges closer to approval

TDT | Manama

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It’s good news for housing loan takers. They may no longer be required to pay interest, as a law in this direction edges closer to approval.

The proposal, which seeks to align Bahrain’s housing loan system with Sharia principles, could relieve countless families of the financial strain caused by traditional interest payments. The final decision is set for a vote in the next parliamentary session this Tuesday.

In a significant move, the Public Utilities and Environment Committee has given its unanimous support to the plan to remove all forms of usury (riba) from government-backed housing loans.

However, the Ministry of Housing and Urban Planning has cautioned that implementing the proposal could strain its budget and Eskan Bank’s resources, potentially delaying services for those on waiting lists. The proposal was submitted by MPs Bader Saleh Al Tamimi, Hamad Farooq Al Doy, Mohammed Salman Al Ahmed, Jameel Mulla Hassan, and Mohammed Musa Mohammed.

Supporters say this move would provide moral clarity and financial relief to households dependent on government housing schemes.

The committee insists that housing transactions must fully adhere to Sharia principles, particularly as families often have no choice but to participate in existing schemes that may raise ethical concerns.

However, the Ministry of Housing and Urban Planning maintains that its services already comply with Sharia law. The Ministry highlights Eskan Bank’s Islamic financing methods, such as Ijara (lease-to-own) and Istisna (construction contracts), which have been in place since 2004.

These arrangements, overseen by a Sharia board, are designed to ensure compliance with Islamic principles. The Ministry clarified that service fees charged to beneficiaries are legitimate profits, not usury, according to established Islamic accounting standards.

The Ministry further noted that it provides housing to citizens at subsidised rates while absorbing higher borrowing costs itself. Despite these concerns, the committee is pushing forward, emphasising the public good and the importance of eliminating any form of usury. They call for a comprehensive overhaul of housing loan practices to ensure full compliance with Islamic teachings.