It's natural you will have questions about Islamic finance, the process and costs involved in securing bridge finance, or perhaps you want to know more about the differences between an ethical finance provider like Offa and conventional lenders?
We've compiled responses to some of the most frequently asked questions. Do contact us if you would like more information or have any other queries.
If you have a specific query not answered here, please do get in touch and let our team of experts provide you with the information you need.Get In Touch
FTV is the Finance to Value ratio and is calculated based on the amount of capital we have invested against the market valuation of the underlying property.
FTC is the Finance to Cost ratio and is calculated based on the amount of capital we have invested against the total cost of purchasing the underlying property.
Both FTV and FTC are ratios which measure the amount of finance made available in each transaction.
You can view the maximum FTV and FTC amounts we offer for our various products on the Products Page. Where there is a shortfall in the amount of finance offered, this will need to be sourced by the customer themselves.
After performing an initial case assessment, we may decide to proceed by providing an Indicative Terms Agreement. You will need to return this together with other forms, which you can access on our website.
Subject to you passing our initial due diligence checks, the agreement will require you to fund the costs relating to the application process. This includes the cost of obtaining a property valuation and instructing solicitors.
Once we have performed all our checks and ensured everything is in order, the agreed finance is made immediately available.
Currently you can expect to receive financing within 2-3 weeks of applying.
We aim to release financing at the earliest opportunity. On some occasions, this may be before all solicitor documents are received, as this could take a further 3-5 weeks.
We are exploring initiatives to streamline and expedite this process further, which will reduce the application to financing period to 1-2 weeks.
The method we use removes any uncertainty in the transaction. The fixed profit element is agreed and capped from the outset, thus protecting the customer.
The Islamic Financing structure we currently use is termed “Commodity Murahaba”, which is based on a deferred sale and purchase of a commodity (usually a metal).
The difference between the sale and purchase price represents the cost of our finance to the customer. Neither the customer, nor Offa as the seller, actually take any risk of price fluctuation in the underlying commodity.
To start, Offa buys a commodity at the spot price in the market today and transfers the commodity contract to the customer at an agreed mark up.
The customer immediately sells the commodity contract for cash at the same spot price today. The cash proceeds represent the finance from Offa to the customer. Offa manages this entire process.
From the outset the customer agrees to repay the cash proceeds from the sale of the commodity with a fixed profit margin to the seller (representing the seller’s cost of finance) over an agreed period (the term of the finance agreement).
The Islamic finance structure we use is termed “Commodity Murabaha”, which is based on a deferred sale and purchase of a Sharia-compliant commodity (usually a Metal).
The difference between the sale and purchase price represents the cost of our finance to the borrower.
It works like this: Offa buys a Sharia-compliant commodity from the commodities market via a broker for the amount of financing required. The customer purchases that commodity from Offa at a fixed mark-up representing Offa’s profit – to be paid at the end of the agreed financing term.
The customer, who now owns the commodity, then sells that commodity via a different broker to the market (at the same price that Offa bought it for) and receives the proceeds (i.e. the finance amount).
The whole process is managed by Offa. No market risk is taken as the commodity pricing when buying and selling to the market happens in immediate succession and at pricing agreed with the brokers.
Although we operate a fixed profit element, we also state the equivalent percentage rates that these would translate to had the financing been provided as a standard loan, which expired within the agreed term of repayment. This is to allow our clients the ability to compare with ease our ethical products with financing provided by conventional lenders.
By outsourcing representation of ourselves and the client to independent, qualified third parties ensures that any disputes are handled in an open, fair and transparent manner. This also minimises conflicts of interest.
This is dependent upon several factors, including your individual circumstances, the valuation of the property and the finance product you want. We are always happy to talk you through the different options.
Once we have performed an initial assessment, we will send you indicative terms, which are subject to the valuation of the property. By agreeing to these terms, you undertake to pay the valuation fees.
After receipt of payment, we will instruct a qualified surveyor to prepare a valuation report. This independent valuation will allow us to decide whether the property allows for an adequate level of security relative to the financing amount (i.e. meets necessary FTV % criteria).
Yes – a condition of any finance provided is that suitable building insurance is in place on completion.
We have a Sharia Supervisory Board (SSB), which comprise of qualified ethical and Islamic Finance experts and scholars. The SSB remains independent from the business, but are active in overseeing and monitoring our operations. We are also regularly audited by SSB appointed auditors. The auditors regularly engage in gathering evidence, performing in-depth analysis, and reporting their findings to the SSB. They have complete and full access to all our systems, employees, and any transaction-related documentation.
In some instances, the requirements of Sharia exceed those set by industry bodies. This is visible in areas such as ESG (Environment, Social and Governance), where we cannot obtain Sharia accreditation unless we fulfil a variety of ethical criteria, while for many conventional lenders these remain voluntary acts.
Islamic finance is the system for managing money while adhering to the moral principles of Islam. This comprehensive system covers everything from savings, to investments, and borrowing to buy property.
Islam’s moral principles, which guide Muslims to live in accordance with their faith, is sometimes known as the ‘Sharia’. It is therefore common to describe Islamic financial services as ‘Islamic finance’ or ‘Sharia-compliant’.
No, Islamic banking & finance is popular across both Muslim and non-Muslim communities, and they are available in both Muslim-majority and Muslim-minority countries. In fact, many British banks have developed financial products that are Sharia-compliant.
Offa are, however, the first short-term bridge finance provider in the real estate sector whose products are both ethical and fully compliant with Islamic principles.
The term ‘ethical finance’ is used to describe finance which incorporates ethical considerations and criteria. This means taking into account sustainable development goals (SDG), as well as environmental, social and governance (ESG) factors that affect a borrower, their assets, and the wider community. Essentially ethical finance should benefit, not harm, society.
Unlike traditional corporate structures, where there can often be a disconnect between shareholder profit maximisation and corporate social responsibility, ethical financing puts the emphasis on society at large as a key stakeholder.
Ethical considerations will drive investment criteria, so finance will not be extended to activities that are deemed harmful, such as gambling, alcohol, tobacco, and weapons.
For Islamic finance providers like Offa, our ethics are primarily shaped by Sharia principles, which not only consider the environment and social issues, but also adds a sense of fairness to transactions. Sharia prohibits the charging or receiving of interest, and the profiting from another’s misfortune, such as when a customer is loss-making.
That means we will not take a draconian approach to late payments and will instead try to make a genuine effort to understand the customer’s circumstances before taking action. In the case where we do charge default penalties, this will go to charity and not be used for our own profit.
Another important difference is that ethical finance customers always know exactly how much to pay, and this does not deviate because of external market conditions. Everything is agreed in an open and transparent manner from the outset.
Ethical finance firms like Offa also donate a share of our profits to good causes, in our case charities such as WaterAid, Cancer Research, Islamic Relief and Donate to Educate.