Debt-free diminishing Musharaka home finance in the United Kingdom: An empirical case study of primary finance

Islamic banking and finance in the United Kingdom (UK) has grown in the last few decades. However, Islamic banking has made available only debt-based financial products and in that respect, has not made a significant departure from conventional banking. The legal system in the UK has indirectly supported the growth of Islamic banks by making legislative changes designed to facilitate a level playing field for all financial services providers without giving favourable treatment to any form of financial arrangement over another. For example, UK law facilitated Diminishing Musharaka products by giving double Stamp Duty Land Tax relief to ‘financial institutions’ providing Home Purchase Plans, which involve purchase of a property by the financial institution and then an on-sale in instalments to the customer over the term of the mortgage. However, these changes continue to require that the financial products that can benefit from such relief must be debt-based. This chapter is an empirical overview of how a pioneering financial institution in the UK called Primary Finance is navigating the current UK legal framework to provide a truly debt free financial product, beginning with Home Purchase Plans, and extending to finance other types of tangible assets. It is submitted that Primary Finance’s Diminishing Musharaka product has the disruptive potential to change the face of finance, enabling Muslims and non-Muslims to buy their homes and other assets with finance that is affordable, aligned with their beliefs and free from the burden of debt. It also has the potential to have significant social impact and give access to financial services to the most financially excluded and marginalised members of society.