A Suggestion on Mortgage Financing of Islamic Banks: Diminishing Musharakah

Dinç, Yusuf

doi:10.18178/ijtef.2017.8.1.534

Cited by 8 publications

(6 citation statements)

References 7 publications

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“…The Bausparkessen is allowed to issue mortgage Pfandbriefe and can invest their distributable funds in equities with some limitations (Demir, 2014). DM is a form of partnership based on the coownership of business or tangible assets in predetermined shares (Taib et al , 2008; Dinc, 2017). One partner gradually purchases the other partner’s shares in installments until the title of asset or business is completely owned by the buying partner.…”

Section: Literature Reviewmentioning

confidence: 99%

An alternative interest-free home financing model

Sümer

2022

IJHMA

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Purpose This study aims to determine the relationship between the banking industry and home financing by conducting a regression analysis between the mortgage loan interest rates and the number of housing sales, and based on the results of the analysis, this paper proposes a new and alternative interest-free home financing model by directing the savings of the people in pension funds into real estate investment funds (housing fund), specifically established to provide a bank loan-free home financing solution. Diminishing Musharakah (partnership) is also integrated into the model from an interest-free and saving economy perspective. The model developed also provides opportunities to increase the size of the real estate investment funds and provide alternative investment tools to pension funds. Design/methodology/approach While the global financial crisis resulted from the mortgage crisis in the USA in very recent history, the world has been experiencing the evolution of a new health crisis, COVID-19, a pandemic that has been heavily affecting the global economy in the past two years. The housing sector is among one of the major industries that may be affected by this new global crisis because of the high dependency of the current home financing models on the banking industry, which is carrying the burden of the pandemic. The rapid increase in global debt volume, housing prices, inflation and interest rates are observed as bad signs that may increase the risks of the housing industry. A potential decrease in purchasing power because of high inflation rates may decrease the welfare of people and reduce the income level. While the total debt keeps increasing worldwide, and central banks are considering increasing the interest rates, any potential default in the repayment of the mortgage loans may trigger a new mortgage crisis as the bank loan-dependent financing system of the housing industry lacks alternatives. Thus, a relationship analysis between the banking and housing sectors is required to figure out the dependency of home financing on the banking industry, and a new sustainable home financing model is needed to protect the housing industry and the homebuyers from a negative effect of a new possible financial crisis. Findings The results of the analysis exhibit that there is a strong negative relationship between the mortgage loan interest rates and the total home sales. As a result, the new model is suggested and this new model is tested in an emerging country, Turkey, with the real housing sector and economic data where the interest rates are high and the home prices are booming. The results exhibit that the new interest-free home financing model provides a more economic financing solution compared with the high financing costs of bank loans. Research limitations/implications The model proposed in this study is unique, and there is no such system that has integrated the pension funds, the real estate investment funds and diminishing partnership in one ecosystem. It is expected that the model may decrease the dependency of home financing on the banking industry and decrease the risks of the housing sector in the case a new financial crisis occurs. Social implications While providing a sustainable and alternative interest-free home financing tool, the model also provides individuals who do not prefer to use any bank loan because of religious or other concerns an opportunity to purchase their houses. Originality/value The model proposed in this study is a unique and original model that aims to provide a bank loan-free, sustainable home financing solution by integrating the pension funds, real estate investment funds and diminishing partnership in one ecosystem.

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Section: Literature Reviewmentioning

confidence: 99%

An alternative interest-free home financing model

Sümer

2022

IJHMA

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“…Murabaha and Ijarah were only devices for protection against interest and are offered for overnight period only, and these are not the ideal Islamic banking products, this can be described as major cause of this paradigm shift from Murabaha and Ijarah financing to profit and loss sharing instruments such as MM. In the practices in Pakistan, the rent or the profit share is assessed in Karachi Inter Bank Offer Rates, which is also known as KIBOR (Dinc, 2017).…”

Section: Malaysiamentioning

confidence: 99%

“…However, financing property using Musharakah Mutanaqisah is considered to have less risk than other financings (Juliyanti & Wibowo, 2021). Moreover, it may also have a role that prevents economic crises based on mortgage (Dinc, 2017).…”

Section: Malaysiamentioning

confidence: 99%

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Musharakah Mutanakisah "MM" Financing:, Experience Of Islamic Banks

Dalal¹,

Hichem²

2021

المجلة الدولية للأداء الاقتصادي

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This study aims to analyze the concepts and practices of Musharakah Mutanakisah (MM) by Islamic banks. The findings revealed that the MM is a hybrid contract that combines three independent contracts namely: partnership, leasing and sale. MM could be used it for financing asset acquisition as well as for other types of partnership. Hence, MM has been successfully implemented by Islamic banks in Islamic and non-Islamic countries for house financing.

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“…In Turkey Murabaha financing is used by Islamic banks. Dinc (2017)in his study analyzed that Diminishing Musharakah is an interest-free financing model and beneficial to the clients and much better than Murabaha Financing.…”

Section: Independent Journal Of Management and Production (Ijmandp)mentioning

confidence: 99%

House finance for low income groups in Pakistan

Hanif

Shamshir

Alwi

2020

Ind. Jour. Manag. & Prod.

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Shelter is the third basic need of human beings after food and clothing. Everyone has a desire to own a house. Pakistan is a developing country and due to limited resources, is unable to fulfill the complete demand of shelter of the population. In the four provinces, different housing schemes are offered by the government but due to the scarcity of resources, they are not enough to satisfy people. Governments should introduce new housing schemes in each of the four provinces, other than the existing ones. Private sector should also help the government in this regard by constructing employee’s colonies and deduct the nominal amount from their salaries, so that by the time of their retirement they become the owners of their houses. Descriptive statistics technique is used to analyze the housing schemes with the comparison of population accordingly in each province. Pakistan is an Islamic country and due to religious issues people are not in favor of availing financing facilities provided by conventional banks and HBFC. But after the establishment of Islamic banks up to some extent this issue has been slightly resolved. Islamic banks should introduce house financing facility to women on easy terms and then up to some extent, help the government to solve the problem of providing shelter to the population. Banking sectors should easy the procedure of house financing to increase the number of borrowers.

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A Suggestion on Mortgage Financing of Islamic Banks: Diminishing Musharakah

Abstract: I.

Cited by 8 publications

References 7 publications

An alternative interest-free home financing model

An alternative interest-free home financing model

Musharakah Mutanakisah "MM" Financing:, Experience Of Islamic Banks

House finance for low income groups in Pakistan

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