Search results

The majority of economic crises impact the wealth of people which in turn affect their financial capacity to purchase residential properties. However, the home financing method may also have an impact on the behaviour of house prices. This chapter intends to test argued resilience of Islamic finance to situations of financial crisis by using an Islamic home financing product called Enhanced Musharakah Mutanaqisah (EMM) which was proposed by Asadov and Ibrahim (2018) as an example and compare its performance to conventional mortgage. Two different models of home financing, conventional and EMM based ones are developed with the former reflecting basic features of conventional mortgage and the latter using rental rates and house price indices for product pricing. Both models are compared using aggregate data for the US housing market for the past 30 years in order to demonstrate the resilience of the EMM model. The findings of the study show that EMM is more flexible in terms of reflecting real situations in both the housing market and aggregate economy as compared to the conventional model. Its pricing is more accommodating particularly during times of economic downturns, and it can potentially provide the solution to numerous mortgage defaults arising from such conditions. Despite the proposed models being tested using data only from the United States, the analysis can be generalized for other countries as well. The implementation of the EMM model, as an example of Shariah-based Islamic financial product, is expected to bring fairness and justice in the relationship between financial institutions and its clients. To the best of our knowledge, this is the first attempt of simulating a Musharakah Mutanaqisah based home financing using both actual rental rates and house prices for product pricing.

This study aims to investigate the interactions among macroeconomic variable shocks, banking fragility and home financing provided by conventional and Islamic banks in Malaysia. Identifying the causes of financial instability and the effects of macroeconomic shocks can help to foil the onset of future financial turbulence.

The autoregressive distributed lag bound-testing cointegration approach, impulse response functions (IRFs) and forecast error variance decomposition are used in this study to unravel the long-run and short-run dynamics among the selected macroeconomic variables and amount of home financing offered by both conventional and Islamic banks. In addition, the study uses Granger causality tests to investigate the short-run causalities among the selected variables to further understand the impact of one macroeconomic shock to Islamic and conventional home financing.

This study provides evidence that macroeconomic shocks have different long-run and short-run effects on amount of home financing offered by conventional and Islamic banks. Both in the long run and short run, home financing provided by Islamic banks is more linked to real sector economy and thus is more stable as compared to home financing provided by conventional banks. The Granger causality test reveals that only gross domestic product (GDP), Kuala Lumpur Syariah Index (KLSI)/Kuala Lumpur Composite Index (KLCI) and house price index (HPI) are found to have a statistically significant causal relationship with home financing offered by both conventional and Islamic banks. Unlike the case of Islamic banks, conventional home financing is found to have a unidirectional causality with interest rates.

This study has focused on analyzing the macroeconomic shocks on home financing. However, this study does not assess the impact of financial deregulation and enhanced information technology on amount of financing offered by both conventional and Islamic banks. In addition, it is not within the ambit of this present study to examine the effects of agency costs and information asymmetry.

The analysis of cointegration and IRFs exhibits that in the long run and short run, home financing provided by Islamic banks are more linked to real sector economy like GDP and House Prices (HPI) and therefore more resilient to economic vulnerabilities as compared to home financing provided by conventional banks. However, in the long run, both conventional and Islamic banks are more susceptible to fluctuations in interest rates. The results of the study suggest that monetary policy ramifications to improve banking fragility should focus on stabilizing interest rates or finding an alternative that is free from interest.

Because interest plays a significant role in pricing of home loans, the potential of an alternative such as rental rate is therefore timely and worth the effort to investigate further. Therefore, Islamic banks can explore the possibility of pricing home financing based on rental rate as proposed in this study.

This paper examines the unresolved issues in Islamic home financing where Islamic banks still benchmark their products especially home financing, to interest rates in dual banking system such as in the case of Malaysia. To the best of the authors’ knowledge, studies conducted in this area are meager and therefore is imperative to be examined.

The purpose of this paper is to explore the development of Islamic home financing and some of its practical issues. In addition, the study also intends to draw attention to some recommendations to the issues highlighted from the viewpoint of industrial experts.

The methodology for this study follows the qualitative research approach which aims to capture the thoughts and extensive knowledge of a few related experts in the field. Eight respondents who are mainly scholars and bankers in Islamic banking were selected for the interview purpose. A semi-structured interview was adopted to investigate a series of themes concerning the Islamic home financing in Malaysia.

In terms of development, the findings showed that a majority of the participants agreed that the Islamic banking and finance (IBF) is developing in line with its counterpart – the conventional banks. This is due to its innovation in products as well as offering a variety of financial products including home financing. Some of the practical issues highlighted by the respondents include pricing, adherence to conventional framework and interest rate movement. Islamic home financing is argued to be much more expensive and faces difficulty in working within a conventional framework. The issue of interest rate movement is also becoming a major hurdle in Islamic banking due to the absence of a proper benchmark for IBF. At present, IBF still follows the benchmark set by its conventional counterpart. Furthermore, the respondents also believed that the product of home financing, together with other financial products, are not in line with the teaching of Shariah principles and guideline. In addressing those issues, the respondents provided some suggestions to counter those problems, which include promoting Islamic home financing, particularly in terms of Musharakah Mutanaqisah (MM), ensuring the transparency of products, strengthening due diligence, legal aspect and others.

This study is limited in terms of the relatively small number of respondents used to generate its findings. Time constraint is another limiting factor of the research. Additionally, potential respondents in a higher position were unable to take part in the study. Due to these factors, the generalisation of the study’s findings will be visibly restricted.

This paper is expected to generate several practical implications. Firstly, the study’s exploration of the issues surrounding home financing will likely provide a general overview of the recent development in Islamic banking and the challenges it faces. Consequently, this will indirectly help policymakers and bankers alike to design a better policy when dealing with Islamic home financing issues. In the review of various literatures in the field, a majority of research studies were observed to mainly focus on a quantitative approach. Hence, in terms of methodological innovation, the study’s use of qualitative inquiry based on an interview method may provide a deeper understanding of the matter. The resolutions proposed by the various experts are hoped to contribute to shaping a better framework and system in Islamic and conventional home financing in Malaysia.

Despite having many literatures revealing mixed results concerning Islamic home financing, especially the Bai Bithaman Ajil and MM, addressing the issues of Islamic home financing, particularly from an expert perspective, has been lacking. The majority of research studies claim those issues from a theoretical viewpoint rather than a practical one. With this gap and lack of initiative, the current study is motivated to undertake an in-depth analysis on the issues of Islamic home financing and how to address those arising issues from an industrial expert’s point of view via a qualitative approach.

This paper aims to provide an analytical literature survey of selective studies on legal documentation in Islamic home financing with particular reference to Malaysia.

This study adopts the legal positivist methodology, with particular reference to inclusive legal positivism which takes into consideration the possibility of moral values challenging positive law. Within the context of this study, though positive law provides for rules that govern contractual matters in Islamic home financing, standardisation is a functionality of maslahah (or public interest) which transcends the mandatory provisions of positive law but helps to protect the interest of all stakeholders. This is analysed through a systematic literature review which aims to provide practical insights into industry practices relating to Islamic home financing in Malaysia.

This paper provides information on the standard documentation used by conventional banks and existing practices of diverse models of legal documentation in the home financing sector within the Islamic financial services industry in Malaysia. It also recognises the need for standard documentation that is not only Sharīʿah-compliant but also consumer-friendly, as the terms of any standard financing agreement ought to ensure consumer protection. There is also the need for a Shari’ah-compliant Sales and Purchase Agreement, as it forms part of the complete set of legal documentation for Islamic home financing.

It is not an exhaustive study, as it did not consider practices in other jurisdictions offering Islamic financial services and products but only focusses on Malaysia. Though one may not generalise the findings of this study, Malaysia remains a leading model and a global hub for Islamic financial services and products.

A very useful source of information on the current state of legal documentation in Islamic home financing in Malaysia and the prevailing practices in the industry, which may serve as a guide for policymakers such as the Association of Islamic Banks in Malaysia (AIBIM) to embark on a full scale project of standardisation of all the legal documentation used in Islamic home financing.

This study fulfils an identified need of standardisation of legal documentation used in Islamic home financing in Malaysia and offers practical help to policymakers and future researchers starting out on systemic reforms.

This paper aims to propose a new pricing alternative called Rental Rate Index (RR-I) that captures the true value of property to be used by Islamic banks in Musharakah Mutanaqisah (MM) contract for home financing.

By formulating a profit rate based on Rental Index (RI) and House Price Index (HPI), the proposed rate eliminates conventional profit rate benchmarking, and, at the same time, suggests a fair, equitable and sustainable financing. This new RR-I (measured by RPI/HPI) enables computerization of the MM system in home financing to be easily implemented. A financial simulation is developed to demonstrate the feasibility of this newly proposed rate.

This newly proposed RR-I is found to be more stable, having less fluctuations, resilient to macroeconomic conditions and yet comparable to the conventional interest rates, without depending on them. It can also be regarded as a rate that is fair and sustainable to both the customer and the bank, as it measures the actual rate of return to both parties in MM contract.

The paper confines one contract, namely, MM, as it is claimed to be more Shariah-compliant than others.

The finding also sheds some light on the recommendation by Bank Negara Malaysia, which is to consider RR that is more indicative of the actual rental price while taking into account the competitiveness of the product. (BNM, 2007).

This paper wreaks customer patronage in selecting the contract of home financing.

This paper attempts to resolve the issue of benchmarking RR to the conventional interest rate in the MM contract. Studies conducted on this issue via simulation approach are meager.

The purpose of this paper is to analyze the possibility of relying on the rental rate to price Islamic home financing product.

By comparing two models consisting of either rental rate or lending rate (LR) and selected macroeconomic variables that could influence property value, the study focuses on the Malaysian data covering the period from 1990 to 2006. The study adopts several econometric time‐series analysis, such as the autoregressive distributed lag estimates, bi‐variate Granger causality, and multivariate causality based on the vector error‐correction model.

The study finds consistent evidence that the rental price (RP) is a better alternative than the LR to price Islamic home financing product. In particular, the rental rate is found to be resilient to short‐term economic volatility, while in the long run, it is truly reflective of the economic fundamentals.

This feature of the RP renders it as a fair pricing mechanism for the Islamic home financing product. Results of this study contribute towards finding an alternative benchmark for the Islamic home financing product which is currently using the conventional interest rate as its benchmark.

To the best of the authors' knowledge, the current study is the first of its kind which provides empirical evidence for the possibility of relying on the rental rate to price Islamic home financing product.

The aim of this research is to examine the selection criteria of customers for Islamic home financing in the context of Pakistan and to examine these factors with respect to gender, age, income, and occupation.

This study uses a quantitative approach to investigate the choice criteria for Islamic home financing. All 18 independent variables are taken from previous research; for their analysis, descriptive statistics, independent sample t‐tests and ANOVA was used. Data were gathered from the customers of Islamic banking who use the services of Islamic home financing. The sample consists of 200 respondents. For the collection of data, a survey questionnaire with closed‐ended questions and a five‐point Likert scale was employed. The questionnaire was designed into two sections, one consisting of demographic information and the second relating to the selection criteria of Islamic home financing.

The results indicate that the shariah principle, fast and efficient services, price, bank reputation, and terms and conditions of product flexibility are the five most important factors considered by customers in choosing Islamic mortgages.

The limitations relate to the sample area for the study, which is confined to Lahore, and due to the limited sample size, the findings cannot be generalized. Second, only four banks are considered.

This study is beneficial for practitioners in Pakistan by offering insight into choice criteria for Islamic home financing. The results should also be useful for Islamic bank managers who are also policy makers, as they can study and plan for attractive schemes and policies for customers through which they can fulfill their needs and expectations. For the researcher, this study will also add to the existing body of knowledge by providing novel evidence on the selection criteria used for Islamic home financing.

This topic has never been examined in the context of Pakistan, so this study initiates the choice criteria for Islamic home financing among Pakistani banks' customers. The paper provides potentially useful information for both customers (in selecting Islamic banks) and bank managers to identify the factors needed to attract customers.

This study aims to examine the factors that determine consumer behaviour of ijarah home financing using the Islamic theory of consumer behaviour (ITCB). In particular, the specific contract used is al-ijarah muntahia biltamleek. Subsequently, the term al-ijarah muntahia biltamleek home financing is used throughout the paper.

Drawing upon the ITCB, the present study examines patronage factors for al-ijarah muntahia biltamleek home financing. This study’s data were drawn from valid 409 usable questionnaires.

Partial least square results suggest that the role of iman, Islamic mortgage support and maqasid consumer index are significantly related to consumer behaviour. In turn, consumer behaviour is instrumental in determining religious satisfaction.

Two limitations were observed that provide direction for future studies. Firstly, the current study is only tested in one particular Islamic home financing product that may explain why the generalisation is an issue. Secondly, the theory is still in its infancy stage, which, of course leads to some criticisms pertinent to its parsimony and applicability to other settings. Despite these limitations, however, this study aims to suggest a so-called Islamic model of factors that can explain consumer behaviour of a particular Islamic home financing product. In particular, scrutinising the product acceptance from the context of the ITCB can open a new debate in this area.

This study indeed reduces the theory–practice gap by suggesting new indicators that are workable to improve consumers’ positive perception of Islamic home financing. Given the results obtained, the ITCB provides a better prediction for consumer behaviour of al-ijarah muntahia biltamleek home financing.

This study expands the applicability of the ITCB to include al-ijarah muntahia biltamleek home financing.

This study aims to examine the disputable Shari’ah and the technical issues underlying the implementation of the Musharakah Mutanaqisah partnership (MMP) model in home financing by Islamic banks in Malaysia. It assesses whether this much-lauded facility is in line with Shari’ah rules and whether it diverges from or converges to the Bay’ Bithaman Ajil (BBA) and conventional loan models.

This study uses a qualitative methodology based on in-depth interviews to achieve these objectives.

With regard to the issue of convergence, it is obvious from the interviewees’ perceptions that the MMP model is converging with the BBA and conventional housing loans.

Many factors were mentioned as the reasons for this convergence, with the most important being that Islamic banks are not operating in a fully fledged Islamic financial system, reducing the risk weightage and regulatory restrictions. As for Shari’ah compliance, controversy may result from the enhanced features that structure this facility. Though these enhanced features are Shari’ah compliant, it transforms the MMP model into a debt rather than a partnership contract.

The purpose of this paper is to examine customers' perception on two modes of home financing namely Bai Bithaman Ajil (BBA), debt‐based financing, and diminishing partnership (DP), an equity‐based financing, focusing on the concepts used, methods of computation and pricing, Shariah compliant, justice and equality, societal well being and equitable distribution of wealth and income and preference for the products.

The perception of respondents towards BBA and DP home financing were obtained by distributing a self‐administered survey questionnaire to a sample of 320 postgraduate students from three universities. Postgraduate students are considered suitable samples for this study because they are educated and own a house or intended to own one in the future.

Customers are dissatisfied with the prevailing mode of BBA financing as the bank's profit is computed upfront resulting in high pricing, injustice and a burden to individuals and society. On the other hand, the DP home financing mode is more preferred as profit and risk is shared between the customer and bank resulting in greater fairness, justice and equity. Its features also meet the purpose of the Shariah (Maqasid al Shariah).

The use of convenience sampling and postgraduate students may not sufficiently capture the variations that could potentially exist in the market.

There is a need for Islamic banks to move away from their dependence on debt mode of financing such as Murabahah and BBA to equity financing. The latter mode provides them with greater flexibility and innovation which can be used to fulfill customers' needs and wants.

The paper provides empirical evidence on the viability of home ownership based on equity financing which reduces customers' debt over a long period. This is due to the flexibility of purchasing the bank's share to own the house earlier. The DP model can also be used for the purchase of equipment and vehicles. It can also be applied to joint ventures and private equity arrangements.