'No interest' gains interest

Peter Ford wrote in CSMonitor When Abul Rahman and Shalina Begum, two young Bangladeshi immigrants to Britain, got married five years ago, their parents urged them to get into the housing market quickly. They would have liked to, but they couldn't. It would have meant taking out a mortgage, and paying interest on the loan. Mr. Rahman and his wife are devout Muslims; paying interest is forbidden by the Koran. The British banking system could not help them. They found a place to rent, instead. Today, however, the young couple are proudly living in their own three-bedroom terraced house in east London - and not breaking any religious rules. They are among thousands of families taking advantage of a boom in Islamic finance in Britain, offering Muslims bank accounts, home financing, and insurance policies that comply with sharia, Islamic religious law.... Strictly speaking, Rahman and his wife don't own their home. Their bank bought it from the previous owners, and now rents it to the couple, whose monthly fee includes capital repayment. When their payments amount to the price of the house plus an administrative fee, in about 20 years, the bank will transfer ownership to them.

So rather than renting from a landlord, who would have to do certain maintenance on the house, they pay rent to a bank, and before they will own the house they must pay the price of the house plus an administrative fee, rather than the amount of the house plus interest. Sounds to me like they are just calling interest by a different name. But what if they decide they want to sell the house before they have paid the purchase price plus the administrative fee. If the bank owns the house and if they were just paying rent, they don't have any accrued equity. So the bank would just rent the house to some other poor smuck, and Rahman and his wife are out of luck. And they don't even collect any interest on the money they have in the bank.