Q: Is zakāh payable on the value of on account payments for a person who has an Islamic Home Purchase Plans?
الجواب حامدًا و مصليًا و منه الصدق و الصواب
A: Ownership of the on account payments, both under the Ijarah home purchase plan and the Diminishing Musharakah home purchase plan, remains vested in the client and does not transfer to the financier until the on account payments are utilised to purchase the property or a portion thereof respectively. However, as the client does not have access to the on account payments, his ownership is deemed to be incomplete as ‘complete ownership’ is defined as ownership that comprises both proprietorship and [actual or constructive] possession characterised by the ability tobenefit through effecting increase.
Zakāh is liable on only what is termed ‘productive’ wealth – al-maal al-naami. Wealth may be intrinsically productive – khilqi, such as gold and silver, or productivity may result as a consequence of one’s action – fi‘li, i.e., acquisition with the intent of trade. Productivity may be either real – haqiqi, by way of breeding or profit through trade, or constructive – taqdiri, on account of having the ability to effect increase through one’s possession or that of one’s agent.
Thus, despite ownership of the on account payments, as the client is unable to effect actual or constructive increase as a consequence of not having access, zakāh is not payable on such funds due to absence of the condition of productivity.
For a detailed breakdown, please see the Zakāh on Islamic Home Purchase Plans research paper on the Al Qalam website.