Is an Income Share Agreement Halal?

23.11.20 08:29 PM Comment(s)

When trying to pay for school, it can be difficult to do so while staying within the guidelines of Islamic Finance. You want to avoid interest, but school is expensive and you don't see any other ways to finance your education. However, there now may be an option for you. With the rise of income share agreements lately, you may be able to avoid interest and still be able to pay for school. Or if you have existing student loans and want to avoid the interest on them, ​Defynance​ has an option for you too. But, is an income share agreement halal?

What is Halal. Are Loans Halal?

In Arabic, ​Halal​ is a word that means lawful or permitted. In the context of Islam, it refers to what is permitted according to Islamic Law. It's most often referred to in terms of what food can be consumed and how it must be prepared. However, it applies to a range of daily life to life tasks and provides guidelines for them. There is an entire category of finance called Islamic finance that follows the rules set in Islamic Law. In Islamic finance, the term Riba is used to refer to interest, which is deemed to not follow the guidelines and is thus not Halal. In Islam, Riba is seen as unjust or exploitative to people. Therefore, most Muslims will try to avoid any student loans, because they have an interest rate.

What is an Income Share Agreement?

Income share agreements, or ISAs for short, are a way to finance loans without the burden of interest. Instead of paying back debt with interest, you pay a percentage of your income over a period of time. In an ISA, payments will fluctuate with a person's income as it grows or falls. And in our case, if you ever make under $25,000 a year, you aren't responsible for making any payments until your income gets back above that point. An ISA aligns our goals with yours, because when you succeed, we succeed. We like to think of our agreements as a partnership. 

Income share agreements also have other protections, like a payment cap. If you share your income and get a huge raise, you could end up paying a lot. However, the payment cap prevents this. The cap is the max that you will ever pay and it's there to prevent those who are doing well from paying too much. It's not expected that you'll hit the cap, but you shouldn't have to worry about paying too much either.


Is an Income Share Agreement Halal?

A major aspect of having student loans is the interest that accumulates over time, therefore falling outside the Islamic guidelines. After gathering an expert opinion on the Islamic Finance guidelines, we have made sure our program follows Islamic guidelines and is Halal. When your student debt is refinanced with our ISA program, the aspect of interest is removed. Instead, you'll pay a percent of income for a period of time until you fulfill all your payments.

Our ISA program also let's you own a share of your ISA, giving you skin in the game. At the beginning of the ISA, you will pay 5% of your funding amount in order to become an owner of the income share agreement. This means that you will get a percentage of all the payments that you make. At the end of your ISA term, you will get all the payments that have accumulated over time as a joint-owner. 

Where can I get an Income Share Agreement?

Defynance​ currently offers income share agreements to refinance student loans. If you have student loans and want to get rid of the interest that's accumulating each month, you can apply for our program ​here​.