If interest isn’t charged, how does commercial property finance work in practice?

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).