Why Islamic Banks Are Reluctant to Offer Musharakah Mutanaqisah for Home Financing: The Case of Maybank Islamic and Affin Islamic Bank

Year 2019, Volume: 6 Issue: 1, 51 - 66, 15.02.2019

Nurul 'iffah M A Zaaba , Rusni Hassan

Abstract

This paper
focuses on the challenges faced by Maybank Islamic and Affin Islamic Bank in
implementing Musharakah Mutanaqisah (MM) Home Financing. Drawing upon two
in-depth semi-structured interviews with these two banks’ leading officers who
are actively involved in Islamic banking, the paper offers a list of key
challenges faced by Maybank Islamic in implementing Musharakah Mutanaqisah Home
Financing which lead the bank to change to Commodity Murabahah (CM) Home
Financing. The reasons are advance rental that needs to be returned to the
customer if the house is abandoned, refinancing issue, and marketing decision.
In addition, the paper discusses the factors contributing to Affin Islamic Bank’s
decision to continue offering Musharakah Mutanaqisah Home Financing. The
reasons are minimising the use of Tawarruq contract, conformity with Bank
Negara Malaysia’s (BNM) Ijarah Guidelines, no previous case of abandonment,
product diversification, and comprehensive risk mitigation plan. This paper
concludes by suggesting recommendations that may be adopted by Islamic banks
and the regulators to facilitate the promotion of Musharakah Mutanaqisah Home Financing
products. Notably, this paper offers empirical findings which are different
from the previous literature.This paper
focuses on the challenges faced by Maybank Islamic and Affin Islamic Bank in
implementing Musharakah Mutanaqisah (MM) Home Financing. Drawing upon two
in-depth semi-structured interviews with these two banks’ leading officers who
are actively involved in Islamic banking, the paper offers a list of key
challenges faced by Maybank Islamic in implementing Musharakah Mutanaqisah Home
Financing which lead the bank to change to Commodity Murabahah (CM) Home
Financing. The reasons are advance rental that needs to be returned to the
customer if the house is abandoned, refinancing issue, and marketing decision.
In addition, the paper discusses the factors contributing to Affin Islamic Bank’s
decision to continue offering Musharakah Mutanaqisah Home Financing. The
reasons are minimising the use of Tawarruq contract, conformity with Bank
Negara Malaysia’s (BNM) Ijarah Guidelines, no previous case of abandonment,
product diversification, and comprehensive risk mitigation plan. This paper
concludes by suggesting recommendations that may be adopted by Islamic banks
and the regulators to facilitate the promotion of Musharakah Mutanaqisah Home Financing
products. Notably, this paper offers empirical findings which are different
from the previous literature. 

 

Keywords

Musharakah Mutanaqisah, Reluctant, Reasons, Advance Rental

References

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