Musharakah Mutanaqisah home financing: issues in practice

Abstract

Purpose This paper aims to examine the practical issues in the Musharakah Mutanaqisah (MM) financing and subsequently, recommends possible solutions to mitigate these issues and improve the current practice. Design/methodology/approach This paper analyses the theory and current practices of MM offered by Islamic banks. Findings It is suggested that Islamic financial institutions consider revaluation of property’s value to its fair value, especially during termination of MM contract and annual or agreed periodic review of the market value of the assets to determine the “rental” payments by the customer. It is also recommended that Islamic financial institutions should share all associated costs in performing the contract. Research limitations/implications Research findings reported in this paper contribute to the body of knowledge on MM in general and to the Islamic finance practices in Malaysia and abroad. Indeed, the Malaysia Central Bank (i.e. Bank Negara Malaysia) should form a special committee to look into the issues highlighted in this paper and recommend strict guidelines for Islamic financial institutions to improve their practices. Practical implications Islamic banks should extend the use of MM contract in automobile and trade financing where rent or profit could be easily identified and value of the asset is more certain. The regulators and Islamic financial standard setting authorities need to oversee the Shari’ah board decisions on MM contracts and keep the gates in the interest of ensuring a more viable and authentic Islamic finance industry. Originality/value This paper briefly views the current mode of MM contracts, specifically for home financing, and highlights the incompliance to Shari’ah requirements in exercising these contracts in practice.

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

“…Hassan (2011) added that MM can be operated in a Shariah compliant way because it shuns interest. Asadov et al (2018) stated that MM is a global product that may be applied in many types of financing that could be arranged as partnership. Zaidi and Mohammed (2018) propose the usage of cash waqf in MM model.…”

“…Nonetheless, it is vital for Islamic banks to be equipped with appropriate risk mitigation mechanisms, backed by risk officers with the right expertise. Besides, practising the MM contract in its true Shariah spirit, the use of MM contract should be extended to automobile and trade financing where rent or profit could be easily identified, and the value of the asset is more certain (Asadov et al, 2018).…”

“…Musharakah Mutanaqisah is an alternative contract that can be offered under home financing and can replace Bai' Bithaman Ajil (BBA) as BBA is similar to fixed rate 'debt financing' or Murabahah (Asadov et al, 2018;Mydin Meera & Abdul Razak, 2005;Osmani & Abdullah, 2010;M. Ridwan & Shahruddin, 2013, Maulin, 2017Subky etal., 2017).…”

Analisis Kesesuaian Penerapan Produk Pembiayaan Musyarakah Berdasarkan Psak 106 Pada Pt. BPRS Hikmah Wakilah

“…Hasil penelitian terdahulu mengenai penerapan produk pembiayaan musyarakah berdasarkan PSAK 106 telah dilakukan oleh Widyarini & Hadi (2016), Asadov et al (2016), Linaria & Chintya (2017), Meutia & Adam (2017), dan Jabar et al (2018). Hasil penelitian masing-masing menunjukkan bahwa ternyata pada praktiknya produk pembiayaan musyarakah ini belum terimplementasikan dengan baik, terdapat beberapa kerancuan pada saat pengukuran dan penyajian akuntansi serta masih ada beberapa masalah praktis yang disarankan untuk dapat diselesaikan agar sesuai dengan tujuan terlaksananya akad musyarakah tersebut.…”

Analisis Implementasi Pembiayaan Musyarakah Mutanaqishah Pada Perbankan Syariah di Indonesia

“…Kesepakatan MMQ terdiri dari dua atau tiga subkontrak (akad), yakni kemitraan (partnership) berdasarkan kepemilikan diantara dua orang atau lebih, penyewaan bagian seorang rekanan ke rekanan lain, dan penjualan bagian dari seorang rekanan kepada rekanan lain (Ayub, 2007;Asadov, Sori, Ramadili, Anwer, & Shamsudheen, 2016;Lahsasna, 2012). Dalam beberapa kasus, kemitraan dalam perdagangan aset yang tidak melibatkan penyewaan hanya akan melibatkan dua subkontrak (Akad) yaitu kemitraan dan penjualan (Ayub, 2007).…”