A reappraisal of the legality and viability of sales and partnership concepts in islamic home financing

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

The Islamic financial system globally has witnessed a tremendous growth in terms of demand, acceptance and development. The variety of products offered is to meet the ever sophisticated consumers' demand and economic changes. For home financing, the application of sales concept under al-Bay' Bithaman Ajil (sale with deferred payment) contract is widely used in countries like Malaysia, Indonesia and Brunei even though most of the Middle East scholars have rejected it. Nevertheless, al-Bay' Bithaman Ajil contract is heavily criticised for its conceptual and practical problems particularly related to the inconsistencies of the sales concept used for financing purposes. On the other hand, Musharakah Mutanaqisah (diminishing partnership) contract is another innovation that offers a viable alternative which is based on partnership and leasing. The objective of this article is to analyse the strength and practical problems of Musharakah Mutanaqisah contract in Islamic home financing. The study revealed that the partnership foundation of Musharakah Mutanaqisah contract may add to the diversification of the Islamic financial products and attend more to the consumers' needs and interests globally. The strength of the concept lies on revenue sharing between the parties, namely the financier and the customer who proportionally share their profits and risks as agreed in the contract. However, practical problems may arise in determining rental rate and risks distributions which the financiers would adapt according to their interests. Ultimately, any Islamic financing packages may need to be made compatible with the prevailing practices of the conventional financing and conceptually, that may attract more controversies.

Original languageEnglish
Pages (from-to)121-129
Number of pages9
JournalPertanika Journal of Social Science and Humanities
Volume20
Issue numberSPEC. ISS.
Publication statusPublished - Jun 2012

Fingerprint

legality
sales
Brunei
leasing
demand
financial system
sale
economic change
diversification
Middle East
Indonesia
Malaysia
Viability
Financing
revenue
profit
customer
acceptance
innovation

Keywords

  • Al-Bay' Bithaman Ajil
  • Islamic Finance
  • Musharakah Mutanaqisah

ASJC Scopus subject areas

  • Arts and Humanities(all)
  • Business, Management and Accounting(all)
  • Economics, Econometrics and Finance(all)
  • Social Sciences(all)

Cite this

@article{b36ce08d8bc6491b9c654716d06edbef,
title = "A reappraisal of the legality and viability of sales and partnership concepts in islamic home financing",
abstract = "The Islamic financial system globally has witnessed a tremendous growth in terms of demand, acceptance and development. The variety of products offered is to meet the ever sophisticated consumers' demand and economic changes. For home financing, the application of sales concept under al-Bay' Bithaman Ajil (sale with deferred payment) contract is widely used in countries like Malaysia, Indonesia and Brunei even though most of the Middle East scholars have rejected it. Nevertheless, al-Bay' Bithaman Ajil contract is heavily criticised for its conceptual and practical problems particularly related to the inconsistencies of the sales concept used for financing purposes. On the other hand, Musharakah Mutanaqisah (diminishing partnership) contract is another innovation that offers a viable alternative which is based on partnership and leasing. The objective of this article is to analyse the strength and practical problems of Musharakah Mutanaqisah contract in Islamic home financing. The study revealed that the partnership foundation of Musharakah Mutanaqisah contract may add to the diversification of the Islamic financial products and attend more to the consumers' needs and interests globally. The strength of the concept lies on revenue sharing between the parties, namely the financier and the customer who proportionally share their profits and risks as agreed in the contract. However, practical problems may arise in determining rental rate and risks distributions which the financiers would adapt according to their interests. Ultimately, any Islamic financing packages may need to be made compatible with the prevailing practices of the conventional financing and conceptually, that may attract more controversies.",
keywords = "Al-Bay' Bithaman Ajil, Islamic Finance, Musharakah Mutanaqisah",
author = "{Mohd. Ali}, Hasani and Ruzian Markom and Jasri Jamal",
year = "2012",
month = "6",
language = "English",
volume = "20",
pages = "121--129",
journal = "Pertanika Journal of Social Science and Humanities",
issn = "0128-7702",
publisher = "Universiti Putra Malaysia",
number = "SPEC. ISS.",

}

TY - JOUR

T1 - A reappraisal of the legality and viability of sales and partnership concepts in islamic home financing

AU - Mohd. Ali, Hasani

AU - Markom, Ruzian

AU - Jamal, Jasri

PY - 2012/6

Y1 - 2012/6

N2 - The Islamic financial system globally has witnessed a tremendous growth in terms of demand, acceptance and development. The variety of products offered is to meet the ever sophisticated consumers' demand and economic changes. For home financing, the application of sales concept under al-Bay' Bithaman Ajil (sale with deferred payment) contract is widely used in countries like Malaysia, Indonesia and Brunei even though most of the Middle East scholars have rejected it. Nevertheless, al-Bay' Bithaman Ajil contract is heavily criticised for its conceptual and practical problems particularly related to the inconsistencies of the sales concept used for financing purposes. On the other hand, Musharakah Mutanaqisah (diminishing partnership) contract is another innovation that offers a viable alternative which is based on partnership and leasing. The objective of this article is to analyse the strength and practical problems of Musharakah Mutanaqisah contract in Islamic home financing. The study revealed that the partnership foundation of Musharakah Mutanaqisah contract may add to the diversification of the Islamic financial products and attend more to the consumers' needs and interests globally. The strength of the concept lies on revenue sharing between the parties, namely the financier and the customer who proportionally share their profits and risks as agreed in the contract. However, practical problems may arise in determining rental rate and risks distributions which the financiers would adapt according to their interests. Ultimately, any Islamic financing packages may need to be made compatible with the prevailing practices of the conventional financing and conceptually, that may attract more controversies.

AB - The Islamic financial system globally has witnessed a tremendous growth in terms of demand, acceptance and development. The variety of products offered is to meet the ever sophisticated consumers' demand and economic changes. For home financing, the application of sales concept under al-Bay' Bithaman Ajil (sale with deferred payment) contract is widely used in countries like Malaysia, Indonesia and Brunei even though most of the Middle East scholars have rejected it. Nevertheless, al-Bay' Bithaman Ajil contract is heavily criticised for its conceptual and practical problems particularly related to the inconsistencies of the sales concept used for financing purposes. On the other hand, Musharakah Mutanaqisah (diminishing partnership) contract is another innovation that offers a viable alternative which is based on partnership and leasing. The objective of this article is to analyse the strength and practical problems of Musharakah Mutanaqisah contract in Islamic home financing. The study revealed that the partnership foundation of Musharakah Mutanaqisah contract may add to the diversification of the Islamic financial products and attend more to the consumers' needs and interests globally. The strength of the concept lies on revenue sharing between the parties, namely the financier and the customer who proportionally share their profits and risks as agreed in the contract. However, practical problems may arise in determining rental rate and risks distributions which the financiers would adapt according to their interests. Ultimately, any Islamic financing packages may need to be made compatible with the prevailing practices of the conventional financing and conceptually, that may attract more controversies.

KW - Al-Bay' Bithaman Ajil

KW - Islamic Finance

KW - Musharakah Mutanaqisah

UR - http://www.scopus.com/inward/record.url?scp=84864657484&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84864657484&partnerID=8YFLogxK

M3 - Article

VL - 20

SP - 121

EP - 129

JO - Pertanika Journal of Social Science and Humanities

JF - Pertanika Journal of Social Science and Humanities

SN - 0128-7702

IS - SPEC. ISS.

ER -