This paper has been prepared in response to requests from different law and business students in my Islamic Finance class at the Law School and the Wharton School of the University of Pennsylvania. They requested a simple, generic introduction to, and survey of, the transactional structures and rudimentary principles applicable to Shariah-compliant home purchase financing. That introduction took form as a serialized discussion, in client alerts and blog postings, for the Oman Law Blog of Curtis, Mallet-Prevost, Colt & Mosel LLP. Those alerts and postings were presented in the context of (a) the 2012 introduction of an Islamic banking framework into the Sultanate of Oman and (b) the adoption, also in 2012, of a new mortgage law, aimed largely at home purchase financing, in the Kingdom of Saudi Arabia.2 This paper retains the generic, summary blog format. The hope is that an overview of this type will find a broader audience that will delve further into a more rigorous study of these topics.

The paper summarizes six of the most frequently used home purchase financing structures provided by banks and financial institutions that provide Shari`ah-compliant alternatives. They are: (a) the lease (ijara); (b) the diminishing partnership or diminishing musharaka (Musharakah mutanaqisa); (c) the cost-plus sale (murabaha and tawarruq); (d) the deferred payment sale (bay bithaman ajil), which is used in Malaysia and Indonesia but only infrequently elsewhere; and (e) the two-tier construction contract financing (istisna’a –parallel istisna’a).