3 research outputs found
Critical Perspectives on Musharakah Mutanaqisah Home Financing in Malaysia: Exploring Legal, Regulative and Financial Challenges
Get PDFABSTRACT
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
Profit-Sharing Deposit Accounts in Islamic Banking: Analysing the Perceptions and Attitudes of the Malaysian Depositors
Get PDFIslamic banking deposits are fundamentally structured in a different way than the conventional banking deposits. Each type of Islamic banking deposits, such as savings, demand, and timed deposits, is devised using the approved Shari’ah contracts such as qard, wadiah, murabahah, and mudarabah. These contracts are opposed to the conventional concepts, as they are based on the concept of a ‘lender-borrower’ relationship. In addition, the Shari’ah-approved contracts are unique as they feature a different nature of risk and return. This is especially the case for mudarabah contracts (henceforth referred to as profit-sharing contracts). The uniqueness of profit-sharing contracts in deposit products has been given due recognition in theory and also in practice, as most of the Islamic banks in Malaysia offered this product. In addition, the unique features and characteristics of profit-sharing based deposit accounts are also highlighted in the prudential standards issued by prominent regulatory bodies such as AAOIFI and IFSB which, have been adopted by the Bank Negara Malaysia (Central Bank of Malaysia).
Nevertheless, it is argued by many Islamic banks practitioners, especially in Malaysia, that the concept of profit-sharing in deposits products is not practical in reality, because the depositors do not behave according to, nor accept the principles that have been laid down in the Shari’ah. Thus it is argued that both the depositors and the Islamic bankers have treated the product similar to any other conventional banking deposits products.
The main aim of this study, hence, is to explore and examine the level of awareness, knowledge, perceptions, and attitude of the Islamic banking depositors in Malaysia towards characteristics of profit-sharing deposits accounts in accordance with the fundamental Shari’ah principles but also the regulations prevailing. In addition, this research also attempts to explore the significant determinant factors that encourage the depositors to engage with Islamic banking deposits accounts in general and profit-sharing deposits accounts in particular.
In fulfilling the aim of the study, primary data collection research was adopted through a survey questionnaire technique. The questionnaires were distributed to eight Islamic banks representing various types of Islamic banks in Kuala Lumpur and Selangor. The questionnaire asked various pertinent questions, which intended to elicit the depositors’ opinions, perceptions, and attitudes towards the unique characteristics of profit-sharing contract as specified in Shari’ah muamalah principles. The characteristics among others are: (i) concept of uncertain deposits returns; (ii) concept of non-guarantee for the deposits; (iii) concept of profit equalization reserve. A total 649 of the returned questionnaires were complete and fit for analysis purpose. The data were analysed using various statistical analysis techniques ranging from simple frequency distribution analysis to the more advanced analyses such as non-parametric statistical analysis, factor analysis, and logistic regression.
In general, the results of the study show that the level of awareness of the need to have Islamic banking deposits accounts because of religious reasons is considered as high among the Malaysian depositors. Nevertheless, the results also indicate that a high level of awareness is not being translated into a high level of understanding concerning the objectives of the products which are structured in accordance to the Shari’ah-compliant contracts. This can be seen in the major findings of this study: the characteristics of profit-sharing contracts, which arguably are the most desirable Shari’ah-compliant contracts, are not acceptable to the depositors. This indirectly implies that they are still strongly influenced by the nature of conventional banking products. In addition, the logistics regression results further proved that related factors (‘financial services’ and ‘income’) emerged as the main determinants in creating demand for profit-sharing deposits accounts.
The results of the research should draw the attention of the Islamic bankers and also the regulators to finding ways for improving the level of understanding among the depositors. However, the critical successful factor in educating the depositors is highly dependent on the level of knowledge exhibited by the Islamic bankers themselves, which can be a real concern as highlighted by the findings of this study
