Critical Perspectives on Musharakah Mutanaqisah
Home Financing in Malaysia:
Exploring Legal, Regulative and Financial Challenges

Abstract

ABSTRACT

Critical Perspectives on Musharakah Mutanaqisah Home Financing in Malaysia: Exploring Legal, Regulative and Financial Challenges
Hanira Hanafi

As shelter is one of basic needs for the human beings, the financing for housing need is also an essential need. Since individuals are not in a position to pay for their houses in one go, the availability of mortgage is an imperative in ensuring homeownership.
Islamic mortgage as being the housing finance tool of Islamic banking and finance offers a home ownership for those who seek for halal alternative. There are indeed various type of instruments used as an underlying contract for Islamic mortgage, which comprise of debt based financing (murabaha, istisna’, ijarah, bay’bithaman ajil) and equity based financing (musharakah mutanaqisah). As the debt based products of Islamic mortgage are criticised for mimicking the conventional counterparts, the introduction of equity product of home financing based on musharakah mutanaqisah (MM home financing) is deemed to become a better alternative, which capable of fulfilling the true spirit of Shari’ah and overcome the shortcomings of debt based products.
As MM based Islamic mortgage has just been in the Malaysian market for seven years, there are many issues surrounding its implementation. This study, therefore, aims to explore and critically analyse the supply and demands side issues related to MM home financing by paying particular attention to challenges and prospects of MM home financing in Malaysia. In particular, this study explores legal and Shari’ah related operational issues associated with the implementation of MM home financing and also examine the prospects of this product through customers’ perceptions and expectations.
In achieving the aims, this study employed mixed method whereby the data obtained from the questionnaire survey and interviews. The sample size of the questionnaire survey is 260 respondents who have either Islamic or conventional mortgage and are from Klang Valley area of Malaysia. The interviews were conducted with 19 individuals who are actively involved in the implementation of MM home financing in Malaysia including Islamic bankers, Islamic economists, Shari’ah advisor and regulator.
The interview finding revealed that besides several legal issues such as inadequate of legal framework, treatment in the event of default, non-standardised agreement, issue of ownership and Shari’ah issues such as use of purchase undertaking or wa’d, there are number of other issues involved in MM home financing. These include takaful and its maintenance, issue of rental benchmarking. All these together are believed to hinder and ‘pollute’ the MM home financing operation. The study also noted the problems that also arose from the banks and customers itself.
The finding of the survey, also, revealed that the customers’ awareness on Islamic mortgage products is still very low, particularly for MM home financing. In addition, take-up reason for Islamic mortgage is mainly due to religious factor and non take-up reason is due to the price. However, it is very interesting to note that the majority of the respondents expected Islamic mortgage to be capable of safeguarding their interest. In other words, majority of the respondents expect Islamic mortgage could realise the inherent advantages associated in it which capable of serving the individual but also social interest. This factor is crucial to the Islamic banks, as this position seems generally agreed and expected by majority of the respondents. Therefore, capable of fulfilling this factor will ensure a promising future for MM home financing as the price for MM home financing is as competitive as the conventional counterparts making Islamic mortgage having extra advantages for the customers to opt for.
Based on the findings of the study, several recommendations are also proposed in order to revive the soul and spirit of Shari’ah which ultimately portray the efficiency and effectiveness of Islamic finance particularly in dealing with home financing for the benefit of all the stake holders.