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A comparative analysis of financial affordability in Islamic home financing instrumentsin Malaysia

Mohd Zaidi Md Zabri (School of Management, Universiti Sains Malaysia, Minden, Penang, Malaysia)
Razali Haron (IIUM Institute of Islamic Banking and Finance, Kuala Lumpur, Malaysia)

International Journal of Housing Markets and Analysis

ISSN: 1753-8270

Article publication date: 29 May 2019

Issue publication date: 23 September 2019

686

Abstract

Purpose

This study aims to compare and contrast the financial affordability of Islamic home financing instruments such as bay’ bithaman ajil and musharakah mutanaqisah (MM) offered by various home financing institutions in Malaysia.

Design/methodology/approach

Mathematical simulations were carried out in examining the financial affordability (or lack thereof) of various Islamic home financing by both Islamic commercial banks (ICB) and financial cooperatives (FC).

Findings

This study has shown that MM by FC is a workable, more financially affordable option to potential homeowners. Unlike ICB, MM by FC uses rental rates as a benchmarking tool because of its inherent nature of flexibility.

Research limitations/implications

MM by FC has the potential to reduce the cost of home acquisition (purchase affordability) and the amount of monthly installments (repayment affordability) of homeowners in Malaysia.

Originality/value

This study shows the financial implication of unaffordable Islamic home financing instruments may have on the Malaysian households, which were derived from using official data from various government agencies.

Keywords

Citation

Md Zabri, M.Z. and Haron, R. (2019), "A comparative analysis of financial affordability in Islamic home financing instrumentsin Malaysia", International Journal of Housing Markets and Analysis, Vol. 12 No. 6, pp. 1093-1112. https://doi.org/10.1108/IJHMA-11-2018-0090

Publisher

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Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

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