Hasan, Zubair (2012): Mortgage contracts in Islamic home finance: Musharakah Mutanaqisah program vs. Zubair diminishing balance model.
Download (495Kb) | Preview
The present paper attempts two demonstrations. First, it shows that the Excel formula Islamic banks invariably use to determine the fixed installment payments in home financing amortization has explicit compounding of return. Once the installment is based on that formula, the subsequent claims that in implementation the charge becomes free of interest hardly remain tenable. Second, the paper proposes an alternative home finance model where the mortgage contract has several merits over the structure in common use i.e. the musharakah mutanaqisa program or the MMP. The proposed model is cheaper for the buyer while the margin of return for the banker is not reduced; thus, painting a win-win situation for both. It attracts no juristic doubts. Some bankers of international repute have already hailed the model as an innovative useful breakthrough in the area of Islamic finance. Finally, the model aligns better than others with the maqasid or the objectives of the Islamic law.
|Item Type:||MPRA Paper|
|Original Title:||Mortgage contracts in Islamic home finance: Musharakah Mutanaqisah program vs. Zubair diminishing balance model|
|English Title:||Mortgage Contracts in Islamic Home Finance: Musharakah Mutanaqisah Program vs. Zubair Diminishing Balance Model|
|Keywords:||Home finance; conventional model; mortgages; MMP; ZDBM; Social view|
|Subjects:||G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages|
|Depositing User:||Zubair Hasan|
|Date Deposited:||28. May 2012 13:13|
|Last Modified:||12. Feb 2013 04:36|
American Finance House – LARIBA: Financing alternative to the conventional, Riba System, Lariba.com Home Financing – Accessed on 24.10.2011
Chambers, M. S, Garage, C and Sehlagehauf, D (September 2007): Mortgage contracts and housing tenure decisions, Working Paper, Federal Reserve Bank of St. Louis (Research Division), pp. 1-40.
Hasan, Zubair (2012): Islamic home finance, INCEIF Blog postings, 16 .5.12 and 18.5.12. www.inceif.org/blog. Hasan Zubair (2011): Islamic home finance in the social mirror, ISRA: International Journal of Islamic Finance, Vol. 3, No.1 June.
Hasan, Zubair (2011a): The Diminishing balance model for home financing, Journal of Islamic Banking & Finance, Karachi Vol 28 Issue 3 pp. 150-156.
Hasan Zubair (2011b): Riba in La-riba contracts – Where to turn in Islamic home financing? MPRA working paper # 35421
Hasan, Zubair (2010): Islamic house financing: current models and a proposal from social perspective, Journal of Islamic Banking & Finance, Karachi. Volume 27 Issue 4
Hussain, A (2010): Islamic Home Financing and Mortgages, .Islamic Mortgages.co.uk. Accessed on 1.1.2012.
ISRA (2011): Financing based on Musharikah Mutanaqisa contracts, Downloaded on 12.11. 2011.
LARIBA, Knowledge Center: Frequently asked questions: In answer to the question -- I heard that in your contract you have a term as interest. What does that mean? Accessed on 1.1.2012.
Malaysia International Islamic Finance Centre (November 12, 2011): Shaping Islamic Finance together – Musharikah Mutanaqisah – Last update Downloaded 12.11.2011.
Maybank2u.com (November 12, 2011: Musharkah Mutanaqisah Term Financing (MMTF-i) – A shari’ah compliant financing facility for asset acquisitions and refinancing. Downloaded 12.11.2011.
Meera, A. K. M & Razak, D. A (2009): Home financing through the Musharakah Mutanaqisah contracts: some practical issues, JKAU: Islamic Economics, Vol. 22, No.1, pp. 3-25.
Microsoft (2012): Amortization Calculation Formula – Excel, http://www.vertex42.com/ExcelArticles/amortization-calculation.html (Cached Page)
Microsoft (2011): How to calculate compound interest for an intra-year period in Excel http://support.microsoft.com/kb/213907
Osmania, N.M & Abdullah, M.F (July 2010): Mus harakah Mutanaqisa Home Financing: A Review of Literatures and Practices of Islamic Banks in Malaysia, International Review of Business Research Papers, Volume 6, and No. 2
Smolo, E. and Hasssn, M.K (2011): The potentials of musharakah mutanaqisa for Islamic housing finance. International journal of Middle Eastern Finance and Management, Vol.4; No.3 PP. 237 - 258
Zayan Finance: The declining balance program - integrity in financing; Shari'ah Compliance information.www.zayanfinance.com/ii-shariah-compliance.php - Accessed on 24.10.2011