INCEIF University Journals
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Purchase Undertaking Issues in Musharakah Mutanaqisah Home Financing
No full textThis article aims to discuss the issues of purchase undertaking in musharakah mutanaqisah home financing as practised by Islamic banks in Malaysia. This aim can only be achieved by analysing and examining its features in order to determine its inclination either towards shirkat al-milk (co-ownership) or shirkat al-'uqud (contractual partnership). On closer examination, the study also examines the legitimacy of first and second promises (wa'd) by the customer to gradually purchase the bank’s portion, and to give rights to the bank in the event of default: either to sell the bank’s portion in credit to the customer or to purchase the customer’s portion. The study applies the qualitative research method comprising document analysis and interviews with practitioners. The study shows that the home financing is a shirkat al-milk in its initial stage, but it cannot be considered permanently as shirkat al-milk as it does not comply with all the features of shirkat al-milk. The study also found that scholars were in dispute as to whether firstly, to allow a pre-determined price of the bank’s portion or share in the house and secondly, to stipulate a second promise in the event of default
The Applicability of International Financial Reporting Standards (IFRS) In Islamic Financial Transactions: An Analysis from The Shari’ah Perspective
No full textIslamic financial institutions (IFIs) must comply with the Shar ah tenets. Shar ah breaches thus need to be avoided, or if already having occurred in IFIs, need to be mitigated depending on the level of seriousness or materiality of the breach as indicated by the Shari'ah. Financial reporting from the Islamic perspective, according to the Malaysian Accounting Standards Board (MASB) (2007) in its paper to the Shari'ah Advisory Council of Bank Negara Malaysia, is the reporting of adequate information to enable users to make decisions that are Shari'ah compliant
Shari'ah Parameters of Musharakah Mutanaqisah in Islamic Finance: The Experience of Australian Institutions Offering Islamic Financial Services
No full textThe paper’s purpose is threefold: (1) probing what makes Islamic financing so important for the largest Muslim minority in a highly diversified multicultural Australia, (2) realising musharakah mutanaqisah (MM) as the real alternative for interest-based conventional finance and (3) evaluating the practice of MM by Australian Institutions offering Islamic Financial Services (AIIFS) from Islamic legal perspectives. By comparing the two systems - Islamic and conventional finance - the study finds that the latter is exploitative and thus creates conflict, stress and insecurity, while contributing to greater disparities of income and wealth. The practice of Islamic finance, on the other hand, is found to reduce conflict, stress and insecurity and make for a more harmonious and equitable society. In this context, the paper recommends that the regulatory impediments are removed to facilitate AIIFS to provide greater security, liquidity and diversity in order to meet the demand of investors in the Muslim community in Australia
Musharakah Mutanaqisah and Legal Issues: Case Study of Malaysia
No full textThis paper explores home financing through musharakah mutanaqisah in Malaysia and possible legal issues. This paper explains that there are a few methods in the practice of implementing musharakah mutanaqisah legally. The first is where the customer is registered as the owner of the property and a charge is created in favour of the bank, and the second is where the bank is registered as the legal owner as the trustee for itself and the customer. As for the implementation of musharakah mutanaqisah in the event of default, it depends whether there is a wa d or not. This paper also elucidates the issues facing musharakah mutanaqisah home financing for properties under construction and proposes an alternative model for solving the highlighted issues. Lastly this paper raises and analyses possible legal issues that may arise in enforcing a musharakah mutanaqisah home financing contract where a legal charge is created and where a trust is created
Islamic Home Finance in the Social Mirror
No full textShelter is one of the basic needs for human beings. Its availability for the people is an Islamic imperative. In view of the appalling living conditions of a substantial proportion of the population in most countries around the world, especially Muslim, Islamic banks have entered the field with various schemes for home financing. In this infant industry, this effort is understandably guided by the profit motive, but a social dimension has to surface in the course of time. Unfortunately, the models banks currently use for home financing remain under the juridical gaze, more so as the practice is not always found to be transparent. This paper looks at Islamic home financing models in a broader societal context. It evaluates the efficacy of the current financing structures practised and suggests a new approach. The proposed model is shown as superior to the existing ones. It meets the norms of equity, fair play and openness and does not, presumably, violate any other Islamic norm. Finally, the paper makes some policy suggestions to integrate Islamic home financing into the broader social goals of an Islamic economy
Development of Islamic Capital Markets in Offshore Jurisdictions: A Cross-Country Analysis
No full textAccording to the McKinsey Global Institute Report (2007: 58), it is expected that petrodollar flows in the global markets will reach USD 628 billion annually by 2012 if oil prices average USD 70 per barrel over the coming years – implying new petrodollar investments of USD 2 billion a day and total stock of petrodollar assets growing to USD 6.9 trillion by 2012. Creating new dynamics in the global financial markets, this expected increase in petrodollar flows is leading countries worldwide to position themselves as strategic locations to tap into part of this growing pool of funds. The development of Islamic capital markets has been a key strategy for attracting these foreign investments
An Overview of Shari'ah Issues Regarding the Application of the Islamic Letter of Credit Practice in Malaysia
No full textThe Letter of Credit (LC) serves as an instrument of payment in international trade. Its aim is to facilitate trade between seller and buyer in different countries. To date, the Islamic banking environment promotes the use of the Islamic LC as a method of financing in international trade, particularly to Muslims and to the general public as a whole. Thus far, this facility is offered not only by Islamic banks, but also by all commercial banks. It is basically governed by the same rules of the UCP 600 that regulate the conventional LC. Realising the peculiarity in the application of this conventional rule to the Islamic LC, this paper focuses on the aim of harmonising the practice of the Islamic LC with the requirements of Shar ah principles where elements such as interest (riba) and uncertainty (gharar) are prohibited. It begins by giving the background of the Islamic LC in Malaysia. Next, it discusses the definition and types of Islamic LCs, murabahah (cost-plus sale), wakalah (agency) and musharakah (partnership), as the issuance of the Islamic LC is based on these three concepts. In addition, it highlights comparisons between these three concepts. Furthermore, the focal point of discussion is on Shar ah issues in the practice of the Islamic LC, such as governing rule, subject-matter, interest, INCOTERMS and insurance, contract ('aqd), discrepancy fee, and exclusion of risk of goods in the Islamic LC. Discussion of these issues leads us to identify whether they are in compliance with Shari'ah principles. In relation to this, various proposals are suggested to harmonise the rules applicable to the Islamic LC and Shari'ah principles
Determinants of Economic Performance of Micro-Credit Clients and Prospects for Islamic Microfinance in Malaysia
No full textThis study is divided into two parts. The first part of the study utilises econometric models to assess the economic performance of clients participating in the microcredit programme of Amanah Ikhtiar Malaysia (AIM). Several proxies are used for the economic performance variable (dependent variable), including level of earnings/income, ratio of spending to income and value of assets. The regressors (independent variables) used are education level, age, amount of loan, source of income and ownership of assets. The second part of this study concentrates on analysing the prospects of introducing Islamic microfinance products to be used in microfinance activities in Malaysia. In the first part of the study, we find that the economic performance of AIM participants is significantly determined by the amount of money borrowed from AIM. Other factors found to influence the respondents’ economic performance are education level, age, gender, assets owned before joining AIM and area of residence. Because level of education is found to contribute significantly to the economic performance of AIM participants, it is suggested that AIM work to educate its borrowers, and more specifically, to provide business training. In the second part of the study, the results show that there is a great demand for Islamic microfinance products in Malaysia. The findings of the study could serve as general guidelines for microfinance institutions in designing Islamic microfinance products for either Muslims or non-Muslim micro-entrepreneurs
A New Retakaful Model Based on Wadiah
No full textRe-takaful (Islamic reinsurance) has gained more attention lately as takaful’s significance at the international level has increased. As the demand for takaful coverage increases, the demand for retakaful will also grow. Thus, re-takaful plays an integral role in the development and growth of the takaful industry
New Musharakah Model in Managing Islamic Investment
No full textA musharakah contract is a joint venture between two or more parties and the profit is shared according to the agreed profit-sharing ratio. The new musharakah model internalises this concept and takes into account the investment of two parties, the rate of profit, as well as two profit-sharing rates. At present, this model is the only model that uses two profit-sharing rates to ensure justice in a joint venture investment. This can create opportunities to generate other Islamic investment or banking products that will attract more foreign investors who are keen on mush rakah products. Apart from this, this can initiate other researches and collaborations in Islamic banking/financing and investment, thus enhancing the Islamic investment status. The system of the musharakah model can definitely be commercialised