Breaking Free from Riba | A Discussion with Guidance Residential

Breaking Free from Riba | A Discussion with Guidance Residential

A conversation between the host from Miftah and the Senior VP and National Sales Manager from Guidance Residential, exploring Islam's relationship with wealth, the dangers of riba, and the Islamic home financing model.

Opening & Introduction

السَّلَامُ عَلَيْكُمْ وَرَحْمَةُ اللَّهِ وَبَرَكَاتُهُ. I hope you all are doing well. Today I'm honored to be sitting with the Senior VP and the National Sales Manager — in other words, a pretty big shot from Guidance — and he's visiting us at Miftah. We're planning to have this small conversation and we decided, you know what, why not have a conversation where others can also benefit from and take some lessons from.

I know for me, for sure, when Miftah travels and we go around — we have people from all across the country — one of the most common questions and one of the most common challenges that the community faces, regardless of where we are in America and even perhaps where people are on their religious journey and spiritual journey, the common questions have to do with relationships and finance. Because regardless of where a person is in that spiritual journey, they want to fit within the ethos of conforming to the Islamic ethics and rulings when it comes to their relationships and when it comes to their finance.

And one of the challenges — it's the most common conversation, but it's not the most commonly spoken about topic on platforms like Miftah or others — is where people can actually learn about it, understand what it is, what is Islam's relationship with wealth, and what is Islam's relationship with wealth creation. And that should be the feel for what we want to talk about today, insha'Allah. We'll give you some nitty-gritty details and some technical things, and I hope the audience can also benefit from it. But the goal is for us to be able to understand: where is wealth in Islam, and how does Islam even see wealth?

Islam's View on Wealth

Bismillah ar-Rahman ar-Rahim. First, I want to thank you for setting aside time to have this discussion. I think it's an important discussion for our Muslim Ummah. One of the things that I think we have to step back from and understand very clearly is that Islam did not come to influence people's perception of wealth in the sense that it does not look down upon wealth. It doesn't want Muslims to not seek wealth.

First, all the wealth that you can accumulate is from Allah. All the money in the world is really Allah's money, and this is how we should all see it. And as we aspire to create wealth for our families, for our children and our children's children, one of the most important things I think for us to connect to is the impact of wealth — the impact on the greater society.

A successful Muslim economy, or an economy where Muslims are successful — they essentially look at life in the sense that if we hoard our money, it doesn't benefit us. It actually hurts us as a community, as a Muslim Ummah. And so the accumulation of wealth should lead to the circulation of wealth, and that circulation of wealth will ultimately benefit the entire community and, I would say, bless that entire community with more wealth.

It's now more about a question of: how do you generate wealth in a manner that pleases Allah? It's interesting — Islam did not come to change the perception of wealth itself, but it definitely came to change the perception of how to accumulate that wealth and how to spend it.

So in all the narrations which speak about بِئْسَ عَبْدُ الدِّينَارِ، عَبْدُ الدِّرْهَمِ — there are narrations where the Prophet ﷺ speaks about how wretched or lowly is a person who has become a slave of the dollar, enslaved to wealth. That is in part to do with being over-infatuated by it. But also, when you conform to that type of "capitalism is God" mentality, it doesn't matter how you get it. So ethics and values are primarily non-existent, because that's not about the process, it's about the outcome.

Rather, in the Qur'an and in our narrations and prophetic tradition, we find that Allah uses words like khayr for wealth — this good. The Prophet ﷺ refers to the person of wealth:

(Sahih al-Bukhari, Hadith 1427; Sahih Muslim, Hadith 1033)

The hand that is above — the one that gives and supports — is better than the hand that is below. The person that is able to support others, primarily through wealth, is definitely going to be preferred in the eyes of Allah over the person who doesn't have wealth.

The Companions' Question About Wealth and Good Deeds

There are narrations where companions came to the Prophet ﷺ — the Muhajirun — and said, "Ya Rasulullah, our friends and brothers and sisters from the Ansar, the helpers, have surpassed us because they've supported us in ways that we can't compensate. They've given us so much — how are we going to catch up to them?" And in different narrations, the Prophet ﷺ teaches them different adhkar and kalimaat.

And the companions were very intelligent and said, "What if they learn it too?" And they also recite:

And the Prophet ﷺ responded by saying that is simply the fadhl of Allah — that they were given that blessing. So we don't take an approach of what previous nations did, even in the Christian community, that we're supposed to run away from wealth. Rather, whatever is given to us:

The way Islam looks at wealth is: if Allah gave it to you, then Allah also dictates how it's spent and how it's used.

The Muslim Ecosystem: Believers Are One Body

The entire concept of being in the Muslim ecosystem — and I use the word ecosystem because the Prophet ﷺ said:

(Sahih al-Bukhari, Hadith 6011; Sahih Muslim, Hadith 2586)

Believers are like one body. If the head is hurting, the whole body is hurting. And the opposite is also true — if one part of the body or one part of the community is doing well, it benefits the entire community because it's cyclical in everything.

In our tradition we learn that if we want ourselves to be supported, then the Prophet ﷺ taught us:

(Sahih Muslim, Hadith 2699)

If you want Allah's support to be with you, then you must also be supporting someone else. If you want to be forgiven, the Prophet ﷺ taught us:

(Sunan Abu Dawud, Hadith 4941)

If you're not forgiving, you won't be forgiven. You have to forgive to be forgiven. If you want your sins to be hidden:

(Sahih Muslim, Hadith 2580)

You hide and conceal people's faults, Allah conceals your faults. And lastly, if you want wealth to be given to you:

(Sahih Muslim, Hadith 2588)

Wealth will not depreciate due to charity — which is a very different system. But you have to have it to be able to give it.

How Islam Regulates Wealth

So I think for most of us in America and in the Western world, we don't have to convince ourselves that wealth is good, because I think that's why the majority of people move to this country — there are opportunities of earning halal wealth and generating wealth for their families and their children. The challenge becomes in how to do it in a way that doesn't compromise our faith, our ethics, and our values.

Because all of the narrations and all of our tradition that speaks about wealth speaks about either how you earn it or how you spend it — nothing about the actual wealth itself. It will talk about how certain types of sales are impermissible. Not just riba — we'll get to that as well — but even, for example, ihtikaar (hoarding). The Prophet ﷺ prohibited us from najash — outbidding someone just for the sake of driving up the price, not intending to buy — which happens all the time in the capitalist system.

There is a book called The Prophet as a Statesman, written by Na'im Usman. In that book, they write that the Prophet ﷺ was actually the first pure capitalist — where he let the market dictate the price, but just set boundaries. Not boundaries in the sense of how much profit you can make, but boundaries to protect how the market sets the price: no najash to drive up prices, no ihtikaar to hoard and create a monopoly. That is how Islam speaks about wealth.

Home Ownership as the Foundation of Generational Wealth

From your perspective, being in this field for just over two decades — when you joined in 2003, our community was very different and our aspirations were also very different. In 2024 leading to 2025, we've changed. You got in at a time where Islamic finance wasn't a common discussion, neither was it something that people were even thinking about. We were thinking about survival, using different fatwas for different situations.

Now, as a household in the United States, you have access to the stock market, commerce, opening a business, and all kinds of vehicles. The how becomes a big deal first of all, and the permissible and impermissible should be front and center. But what we do know is that home ownership is the biggest wealth creator for families over generations.

For generations, Americans have inherited real estate from prior generations that has increased in value tenfold in some cases, and that has helped those Americans build their wealth. The biggest thing you'll inherit from a great-great-grandfather's estate is their actual real estate. If that's been passed down, then you have what we call a leg up against your peers. This is why, as an organization, Guidance Residential focuses on home ownership first and foremost as an Islamic finance institution — to enable and empower Muslim Americans to achieve home ownership without compromising not one iota of our deen, of our faith, in the aspect of riba.

The Origins of Guidance Residential

If you really look at the turn of the century in year 2000, there were no options for American Muslims to buy a home without delving into riba one way or another. This is the biggest purchase you'll ever make in your life, and you were about to be burdened with the highest amount of riba that you'll ever face. So it was essentially something that scared you as a practicing Muslim American.

What was there as a reassuring thought was a fatwa that was issued by an overseas scholar, a highly reputable one — Sheikh Yusuf al-Qaradawi — that stated specifically for Western Muslims that if no option was available to you, you were permitted through darurah (necessity) to buy a home using conventional methods — your first home that is fair for your family's standard. Your dwelling, where you plan to actually live and raise a family.

But for many, they were still uneasy with that. What we had was a community that was fractured in engaging in this wealth creation through real estate. And if you really think about the opportunity loss for Muslims over decades of just renting, Muslim wealth was essentially exiting the community as quickly as it came through rental payments. The instability that comes from that is also great, because you didn't know when your landlord was going to say your lease is up and ask you to leave.

When I joined Guidance, I had stumbled upon this institution that really took a very meticulous approach to creating a solution — not an overnight solution. This approach involved first a three-year research and development phase that included six of the world's leading scholars in Islamic financial transaction laws, led by Mufti Muhammad Taqi Usmani as the chair of the Sharia Supervisory Board. It involved 18 law firms amongst the U.S. housing industry. It involved Freddie Mac and Fannie Mae's legal divisions — the securitization arms of the U.S. mortgage industry.

The founders of this organization, who are Muslim businessmen, made it clear from very early on: we are designing something that should not have any compromises in relation to riba. No trace of riba — both with our interactions with the consumer and with our interactions on the back end when we securitize this. At every turn, lawyers would say, "It's much easier for you to just apply for a bank charter." But the problem with that, of course, is you're now in it. You're part of the problem. You can't provide a solution by being part of the problem. And so that was a hard no for us, even though it cost us a tremendous amount more in investment dollars, in time, and in profit margins going into the first eight to ten years.

Understanding Riba and the Banking System

Fractional Reserve Banking Explained

You only have two options in this space. You can either be a pure play and do what Guidance has done — and it's not easy — or you can go at it from a bank perspective and be a subsidiary of a bank. The compromise comes in a very simple manner: the profit you may be generating, you're sharing with your parent company — who is the promoter, generator, and supporter of riba.

The banking system as we know it today in the United States is a generator of riba like no other system in the history of civilization. You can google it now or use ChatGPT to help you understand it: fractional reserve banking. Even ask ChatGPT to explain fractional reserve banking to a 10-year-old. It literally said this:

"If you have 10 cookies and you needed a place to store those 10 cookies, you go to a bank and say, 'Please store my 10 cookies.' The bank takes 9 of those cookies and loans them out to people. They reserve 1 of the 10, but they will tell you that your 10 are always available if you want them. But if all the children went back to the bank and said, 'Can I have my 10 cookies back?' — there is a problem."

Because the bank created fictional cookies — which is the definition of riba. It creates something from nothing. And it's almost like the act of playing God on earth, where only Allah has the power to create something from nothing. And yet here they are creating things from nothing — and not only creating something from nothing, but actually using lender agreements, the loan contract, to do it. And in our tradition and faith, lending and borrowing of money is a charitable act.

A lot of people nowadays will ask, "Well, if I can't make a return off the loan, then how am I supposed to give a loan?" And the answer is: you're not supposed to make a profit off a loan. You can make a profit off partnerships and a profit-sharing model. But if someone needs a loan for something specific, that is qardan hasana — you're giving someone a loan because they need it, and then they're going to give it back to you. Ibn Kathir defines it as tib al-nafs — you give it with the goodness of your heart — and bashaashat al-wajh — you give it with some excitement, so the person doesn't feel burdened by it.

In a system like the conventional one, where everyone is making a return off that type of contract, you almost feel like you're the anomaly if you're not making money off a loan. So that $1,000 you deposit into a bank for safekeeping? Banks are supposed to be depository institutions — not creators of money. But fractional reserve banking has made them creators. That $1,000 — $100 stays with the bank. The $900, the bank utilizes your $900 to go and give out credit cards, personal loans, car loans, commercial property loans — all from deposits that are sitting there, that are your deposits.

Now think about it this way. What happens if they decide to issue a loan to a casino owner who wants to expand his casino operation? They're using your money to loan it out to things you don't agree with. They're charging interest to those borrowing it, and they're telling you that they'll share some of those spoils with you — which you can't take because they're structuring them as loans. And that loan contract is sacred in our deen. It's something where people are in hardship, and we need to use that contract to protect them, not to take advantage of their situation.

Allah's Warning Against Riba

In the Meccan period, you actually find many of the verses that refer to the reasons why the people of Mecca could not accept Islam was simply because of how they used their money. They were so accustomed to a certain process, and it was so normal to them. Allah says, for example, verses that talk about not taking the wealth of orphans. And that became the norm — "I'm serving the orphan, so I should be able to take a certain amount from them." So in the Meccan surahs, that became the reason Allah highlights that many of the people of Mecca could not accept the deen — they wanted to stay in the cycle of their financial ecosystem.

They used to say, as well, that this thing you're calling haram is the same as what you're doing. "You're making a profit too." And Allah had to stipulate an entire verse that spoke about:

Allah has permitted trade and has forbidden riba. We're not going into all the details of riba from the Qur'an and hadith, but the idea is that there is a distinct difference between the two — and that difference can be felt and seen even at the most nuanced level. Not only at the level of "I'm buying something from you and you're selling" — but at the level of how even the liquidation of shares is done in a way that does not capitalize on or take advantage of a person's situation. Because that would be not only unethical, it would be extremely sinful. The whole goal of a believer is to lift the person back up.

The Musharaka Mutanaqisa Structure Explained

What Is Musharaka?

So the structuring of Guidance's program — it being a Musharaka Mutanaqisa structure — all the way from the organization itself to how it securitizes these co-ownership contracts, all of it from A to Z had to be in accordance with what our scholars advised us.

Musharaka means to be co-owners and partners in an asset. The asset — the house — has shares. Person A owns 70% of those shares, person B owns 30%, and the ultimate goal is that the home buyer is buying their shares back at a price that obviously includes a profit, because the shares accumulate and grow in value over time.

In simple terms: if someone wants to purchase a home and I'll use $100,000 as a simple example — they've saved up $5,000. Guidance would come in with $95,000. We establish this Musharaka Mutanaqisa structure — this co-ownership commitment agreement — which stipulates that we're going to be 95% owners of this asset, and you're going to be 5%. Your obligation to us is simple: buy us out over a term that you select. And when you're buying us out, you're going to be given exclusive use and enjoyment of 95% of the property that we own at that starting point.

So we're giving up our access to that 95%, and we're saying: pay us a usage fee for that. We call it a profit rate. That is how we generate revenue. Every month, your ownership shares increase and our ownership decreases. To establish ownership on the property, we create an LLC for every single home — we've created more LLCs on residences than probably any other institution in the United States. We've done over 40,000.

The Two Cornerstones of Islamic Finance

There are two cornerstones of an Islamic financial structure that make it Islamic: ownership and loss sharing (risk sharing). If they're not there, then it's not structured Islamically. We have real ownership in the actual property, and you can only have risk sharing because you have ownership — one leads to the other.

And one of the biggest distinctions: if a home appreciates from $100,000 to $150,000, all of the proceeds, all of the appreciation goes back to the consumer, not to us. We don't make any profit off the value of the property increasing. That is a key distinction.

Late Fees: $50 vs. 5%

When we were structuring this program and it came to the topic of late fees, the scholars asked us: "What does it cost you when somebody does not make their payment? Hard costs." And we had to conduct a study. We hired a firm to give us an idea of what it costs to send a reminder letter and have a department make a call — because by law, you have to send a reminder letter and make a call to remind the individual they're late. We looked at those hard costs and it was about $50 in administrative expenses, down to the stamp and the envelope. So our late fee is $50 just to offset our costs. That's it.

The banking industry charges 5%. On a $3,500 a month mortgage, that's $175. And then it compounds — so if you're late a second month, the $175 goes on to the $3,500, and it's multiplied by 5% again. And it's pure profit. The profit motive is there even when you experience hardship. You're literally the beneficiary of someone being on their knees.

Default: The Musharaka Difference

In the conventional system, if you default and a $100,000 home gets sold for $70,000 but you owe the bank $90,000 — they have recourse. They can come after you for the $20,000 difference plus compounding late fees. This happened in the United States in the mortgage crisis of 2007–2008, where a record number of Americans turned in their keys. The banks still went to court and issued deficiency judgments against these poor souls who were trying to rebuild their lives. The judgments were served by a sheriff a year, two, even four years later — wherever they were residing, even across state lines — demanding the difference plus years of compounding late fees.

In contrast, in Guidance's co-ownership model: we have to liquidate the property. That's all we have access to — what ties us together is the asset, our ownership in it. So in the example of $70,000, if it's sold for less, we would take a $20,000 loss while the customer takes a $10,000 loss — in proportion to our respective ownership shares. We share in the loss pro rata. That is what our contract says. Look at any other lender agreement from a bank or a so-called Islamic structure from a bank subsidiary, and you'll see legal terms that have been manipulated to sound like they're sharing — but they don't.

Natural Disaster and Eminent Domain

Here's something that no institution in the United States does: in the case of a natural disaster or eminent domain, where the trigger event was something out of everyone's control, and the insurance company only pays out $70,000 on a home that had $90,000 in it — the proceeds come to us, $70,000. What do we do? We take $70,000 and divide it in the same pro rata: 90% of $70,000 goes to us, 10% of $70,000 goes to the consumer.

This happened with Hurricane Harvey in Texas, where many homes were destroyed by floodwaters even though they were not in a flood zone. They never took out flood insurance. Their homeowners insurance couldn't pay what the home was originally worth — there was a shortfall. And Guidance shared in that loss pro rata. That is real. That is not theoretical.

Non-Muslims who have looked at our contract have said: "You guys have the most consumer-friendly home financing agreement in the nation." And we say to them: it's consumer-friendly because of the timeless values that anchor our decision-making. The core of the organization is the timeless values of our deen. That's what drives us.

The Western economic monetary system has what they call a "value-neutral core." Value neutral means their purpose is profits. If it's profitable, we get into it. If we can't get into it, we'll deregulate it to get into it. These are two completely different systems — one has a timeless values core, one has a value-neutral core. What's best for the organization financially is what leads the way in one. In ours, we create value without discarding our values.

Securitization Through Freddie Mac and Fannie Mae

Freddie Mac and Fannie Mae are chartered by Congress — they are Government Sponsored Enterprises (GSEs). The U.S. government, many years ago in the late 1960s and early 1970s, knew they needed a securitization vehicle to allow more liquidity to help the housing market. They created essentially a sukuk-type structure, but unfortunately applied it to an interest-based contract.

What Freddie Mac and Fannie Mae do is they don't lend or borrow — they purchase mortgages from banks and financing institutions, pool them into a mortgage-backed security, and offer them to international investors. China's pension funds, for example, are buying into these. So we went to Freddie Mac and Fannie Mae and said: we're not producing loans, we're producing co-ownership contracts. These generate revenue from the usage fees we collect on the customer using our portion of the property.

They said, "Wait — are you co-owning the properties with them?" We said, "Absolutely. We want you to find us international investors for these so that we can liquidate our ownership and maintain the servicing rights." With every customer, they're always going to be dealing with Guidance — we're always the front and center of the agreement because it's our LLC on that property. But we're essentially sharing the revenue with investors who want to invest.

And so Freddie Mac and Fannie Mae agreed to participate in these Musharaka-structured mortgages and issue them as securities for international investors. This was monumental — and there is absolutely no borrowing or lending of money on interest in that relationship. We don't borrow any money from Freddie Mac because Freddie Mac and Fannie Mae do not lend money. We convinced them to be silent investors that purchase the sukuk — our Musharaka Mutanaqisa structured mortgages — and the revenue generated each month benefits everyone.

And the next step? Offering consumers the opportunity to invest in these Musharaka contracts themselves. That will be something available, insha'Allah, sooner than you may think. That was always the plan for many years — we just needed stability first, because our risk is higher, we accept it, and we don't have bank deposits to fall back on should something go wrong.

The Cyclical Impact on the Muslim Community

Guidance has helped over 40,000 families and provided over $10 billion in this structured method of financing — without any bank money. If you really think about what that has done for the community — the homes are worth more than that now. The appreciating value on those homes since each person closed is more than $10 billion. And when a Muslim has that kind of equity, they want to support things that align with their values — an Islamic school, the masjid down the street, institutions of knowledge.

And the idea that it becomes cyclical: when someone does have a home, it's easier to support institutions. It's easier to give in ways you feel comfortable, because now you have a space that is yours. Whereas if a person doesn't have that, the fear of giving can overwhelm them. Our non-profit sector is built on charity. If we have people that are able to give, we're able to produce more for our community — students and professionals that go out and then give back. The whole cycle is built on, in many ways, a person not being worried about where they're going to live and how they're going to live.

And at a certain point, you have to own a home for that purpose — and it should be an option through halal means. Why would we have to take on a sin for something which has a need, especially where there are options now, alhamdulillah?

Out of the questions we are asked on the Day of Judgment, we can't move from our spot until we're asked about five things — and amongst them are the two questions about wealth: how they earned it and how they spent it. I think this conversation today would hopefully not only pique the interest of people wanting to purchase homes, but those who are purchasing homes to pique their interest in using a system which benefits Muslims.

I would also hope that it piques the interest of people to look deeper into our Islamic finance infrastructure — whether that's musharaka of partnerships and sharing, or murabaha, profit sharing, or the ijara model of lending. And to see: once upon a time, the founders of Guidance sat down and thought about this. We have so many things that are out there now — crypto banking, and so on. Take a stab at it, and create the same opportunities for people.

There are a lot of youngsters out there who are in the finance sector and are so talented — this is an opportunity for you to see how you can use your talent and skill set to bring the model of a Sharia-compliant system of finance into our communities at other levels, whether that's small business loans or other products. Once upon a time, the people that started Guidance were just an equity firm. They used their talent and skill set to bring benefit to the deen — and now Muslims have an opportunity because of it.

Deen is not just about praying and going for Hajj. It's an ecosystem. Everything connects. And whatever deen enters, it always elevates it. Guidance has been elevated because of deen — not the opposite. It's not like we brought value to deen. Deen brought value to us.

Closing Remarks

I think this was truly insightful. I learned so much and benefited. And I'm sure everyone watching and listening is also able to benefit and start their journey as well. Anything in our deen that is doubtful — we try to find the right opportunities to find that which is not doubtful. It's one of our principles of deen: whatever it is, try to avoid what's doubtful. We do that with food, we do that with relationships, and Guidance, insha'Allah, provides that benefit in the space of home financing. It fulfills the fard kifaya for us to be able to live in this country to a certain degree without having to worry about certain aspects we would have had to worry about without it.

May Allah give you all more success. May Allah grant you whatever aspirations you have and allow them to be fulfilled with ease and afiyah. And insha'Allah, it is also clear that it benefits the entire community. May Allah give us istiqama on our vision of making sure that we're providing value without discarding our values.

We're process-centric, not outcome-driven. Allah reward you and bless you, insha'Allah. Hopefully we're able to have you join us again when Guidance starts their next tier of products.

JazakAllah khair. BarakAllahu feekum. Thank you so much for all the work that you do. We're so very proud of Miftah. And I'll be honest — this is something we've always dreamt of for decades: to see incredible institutes of knowledge not only be around and available but to actually make the kind of impact that you've been making. Many more years of success, insha'Allah.

Amin, amin. Insha'Allah, Allah reward all people watching.

وَالسَّلَامُ عَلَيْكُمْ وَرَحْمَةُ اللَّهِ وَبَرَكَاتُهُ