Islamic Modes For Home Ownership Finance Essay

Home is a basic necessity for human life. Everyone needs a shelter for remainder, slumber, comfort and protection from Sun and rain. It is a topographic point to brood in comfort with household. Therefore, having a good place is an aspiration of everyone. Peoples fulfill this demand by constructing a place on their ain, buying it or leasing it from others. Indeed, payment for place mortgage usually takes a good ball of one ‘s monthly income. Conventional place mortgages are, of class, interest-based and out in Islam. Consequently, Islamic fiscal establishments have introduced a figure of Shari’ah-compliant manners for place ownership, the dominant of which are the al-Bay ‘ Bithaman Ajil ( BBA ) and the Musharakah Mutanaqisah Partnership ( MMP ) contracts. The BBA is the popular construct in states like Malaysia, Indonesia and Brunei whereas the MMP is widely practiced in the Middle East, United States, Canada, United Kingdom and Australia. The Middle Eastern Shari’ah scholars disapprove of the BBA contract, mentioning that it is similar to the conventional loans. Indeed, theory of finance predicts that the Islamic manners like BBA to meet to ties conventional opposite number due to the law-of-one-price. This convergence has caused Islamic finance to germinate greatly ; from being a “ profit-and-loss ” banking to fixed-rate murabahah funding, and now towards a drifting rate funding manner. The Central Bank of Malaysia, for illustration, has approved a “ floating-rate ” BBA where the client pays a monthly installment sum that is on the higher terminal but thenceforth gets a discount based on the predominating market involvement rate. Indeed, many BBA clients have shown dissatisfaction over its execution.

Caught without much pick, the widespread application of the BBA in this portion of the universe, has nevertheless, put clients every bit good bankers in hazard peculiarly during volatile economic conditions. This is because BBA is similar to repair rate “ debt funding ” . During the 1997 East Asiatic fiscal crisis, for illustration, when involvement rates were surging up, the Muslim Bankss were unable to respond, thereby doing immense arbitrage chances. Additionally, this besides caused liquidness and hazard direction jobs. Consequently Muslim banking and finance is being forced to alter farther ; to be one that is Shari’ah-compliant and ‘friendly ‘ to the client while besides bearing liquidness and other hazards ‘comparable ‘ to the conventional banking.

The BBA is fundamentally a sale contract which provides the purchaser the benefit of a deferred payment, whereby the deferred monetary value of the sale object carries and extra net income. It is an extension of the murabahah ( cost plus ) contract, whereby the trade good exchanged is “ delivered ” instantly but the sale monetary value ( with net income ) is paid in installments, over a long period ( the murabahah itself being by and large for short period ) . While the BBA is widely used in Malaysia, Indonesia, Brunei and few other states, it has been subjected to much contention among the fuqaha worldwide with respects to its permissibility ; where most of the Middle East bookmans have rejected it. Even through some Shari’ah councils have agreed on its permissibility, a guideline from the Council of Islamic Ideology ( Pakistan ) in its study on the riddance of involvement provinces that:

“ However, although this manner of funding is understood to be allowable under the Shari’ah, it would non be advisable to utilize in widely or randomly in position of the danger attached to it of opening a back door for covering on the footing of involvement. ”

In the conventional system, place funding is, of class, normally interest-based and is forbidden in Islam. The current BBA place funding, nevertheless, does non change much the above equation. Alternatively of bear downing the client involvement, moneymans charge a net income derived through a buy-and-sell contract which is permitted in Islam, but regretfully, the net income rate is dependent on the market involvement rate due to arbitrage activities. Therefore, while the BBA is practiced as Shari’ah compliant in some states, it is, however meeting to the conventional manner where the calculation expressions are similar to the conventional and where the net income rate tracks the market involvement rate.

The current difference between the fixed-rate BBA and the conventional manner is that one time the net income rate is fixed in the BBA, say 7 % per annum, it will stay the same for the full continuance of funding. This, in fact, causes jobs for the moneymans as it is hard to gauge accurately the cost of financess and therefore the appropriate net income rate over long periods like 20 old ages, due to the volatility of economic conditions. This encourages clients to refinance their place from BBA to conventional during low involvement periods and frailty versa.

1.1 Al-Bay ‘ Bithaman Ajil Legal Documentation

To further discourse the legal certification of BBA and how the option of defect came into consequence, it is of import understand the nature of the BBA legal certifications. A BBA legal certification must reflect the true nature of sale ( al-bay ‘ ) contract. The footings and conditions of al-bay ‘ such as the purchase and merchandising monetary values, the rights and responsibilities of a marketer and purchaser, consideration, etc. must be included. Any uncertainnesss and ambiguities about the rules of a sale contract can tantamount to a contract to be rendered void and null. Likewise, the nomenclatures used in the sale contract must reflect the regulations and rules regulating it ; such look such as loan, fixed returns must be purely avoided. Equally of import is the issue of ownership. The chief intent of a sale contract is to reassign ownership from the marketer to the purchaser. As such, this is the basic consideration that the purchaser is acquiring in return to the money he has paid to the marketer. The ownership should be unqualified/unconditional ; any efforts to measure up it could do the sale contract invalid at the option of the purchaser. In add-on, the issue of liability is besides overriding of import in a sale contract. Both parties, marketer and purchaser should be apt to each other and they must follow with their several rights and duties. Under no fortunes that one party can reassign all the hazards and liabilities to the other as this can do adversity to the other party while go forthing the other free from any hazards and liabilities whatsoever. Shari’ah advocates the rule of equal bargaining power whereby all the catching parties are deem to be equal at the eyes of Allah and the dealing they are involved in. As such, legal certification should be able to interpret all the rules of al-bay ‘ in conformance to Shari’ah. The regulation of interpreting and construing the proviso must be obvious and clear. If it is a BBA dealing, ipso facto it must be construed as one, thereby all the regulations and demand of a sale contract will follow suit. Under no fortunes, that the proviso allows that the contract to be construed otherwise. This following subdivision efforts to clarify how legal certification of BBA has been formulated and to discourse whether such pattern is acceptable by Shari’ah and if non, to offer some redress to it in position of reform.

2.0 Al-Bay ‘ Bithaman Ajil ( BBA ) in Malaya

In our Malaysia context, the Islamic Banking and Finance growing in Malaysia is really encouraging. The cardinal bank of Malaysia or Bank Negara Malaysia ( BNM ) has set a mark of 20 % of all sedimentations and funding in the banking industry to be under Islamic Banking by 2010. As of June 2006, the assets of Islamic banking in Malaysia were RM 143 billion or 12 % of the entire assets of the banking industry. Islamic banking sedimentation amounted to RM 107.5 billion while its portion of funding was RM 81.5 billion ( stand foring 12.8 % of the entire banking sedimentations and 13.3 % of the entire funding severally as at 30th June 2006 ) .1 The assets of Islamic banking continue to develop at a dual digit growing of 18 % in the recent five old ages. The Islamic sukuk market has now exceeded RM120 billion and represents the largest Muslim bond market in the universe.

The predominant construct for Islamic place funding presently in Malaysia is al-Bay ‘ Bithaman Ajil ( BBA ) . It has been practiced by about all fiscal establishments in this state since it was implemented by Bank Islam Malaysia Berhad ( BIMB ) in 1983. The BBA is a deferred installment sale whereby bank capitalizes its net income up forepart in the sale of the belongings to the client who in bend is required to pay a fixed amount until the term of office ends. It is similar to debt funding, which consequences in high cost and poses a load to one ‘s household duty. The BBA practiced in Malaysia is seen non to be in compliant with the Shariah rule as the bank does non take the hazard of ownership and liability on the belongings Rosly ( 2005 ) Sanusi ( 2006 ) and therefore non acceptable by international bookmans.

In add-on, BBA is dependent on market involvement rate as its bench grade. This causes job in merchandise pricing and selling for Islamic place funding as when the market involvement rate is low, the sum financed will be more expensive than the conventional loan. Thus, clients may retreat from Muslim Bankss and reassign its installation to conventional loan. Consequently, when the market involvement rate is higher than BBA net income rate, Islamic Bankss suffer losingss as it can non increase the net income rate in BBA due to its fixed merchandising monetary value.

Siddiqi ( 1983 ) ; Ahmad ( 1984 ) ; Siddiqui ( 2001 ) ; Rosly and Bakar ( 2003 ) and others argue that a fiscal system built dominantly around debt based manners of funding can non be superior than the bing interest-based system on the footing of equity, efficiency, stableness and growing. This is because these manners of funding are really similar to the conventional banking manners and therefore can non take the unfairnesss of the involvement based system. Net income devising is non the exclusive aim of Muslim Bankss as it besides has to integrate societal duty into their aims ( Ahmad 2000 ) . Ahmad ‘s position is supported by many other bookmans Chapra ( 1985 ) ; Siddiqi ( 1983, 1985 ) ; Ahmad ( 1984 ) ; Siddiqui ( 2001 ) ; Haron ( 1995, 2000 ) ; Rosly and Bakar ( 2003 ) ; Haron and Hashim ( 2003 ) and Naqvi ( 2003 ) . They opined that Islamic Bankss must besides take attention of the society and advance Islamic norms and values every bit good. This logical thinking is in line with the doctrine of Islam as manner of life ( Al-Din ) and therefore Muslim Bankss should non restrict their range to fiscal activities merely.

Customers are seemingly non happy with the current execution of BBA place funding as many of its characteristics mirror that of conventional mortgage funding. BBA is basically structured as a long term debt duty whereby the monetary value is fixed based on the market involvement rate. This makes the overall cost of funding higher compared to the conventional funding which is able to change its monetary value based on alterations in the market involvement rate. As such the merchandise poses a fiscal load to single and affects one ‘s household budget. Similarly when it comes to early salvation or in the event of default, the BBA contract ever carries a higher funding balance compared to the conventional loan of similar one-year per centum rate ( APR ) . The recent Affin Bank vs. Zulkifli4 is a land grade instance. When work in advancement to build a house is abandoned by the developer or due to catastrophe, the client still has to pay monthly installment even though the belongings cease to be. For the bankers, the BBA manner of funding brings in liquidness direction jobs. This is because its cost of financess, peculiarly the sedimentation rate is based on drifting rate while its income is preponderantly based on fixed long term rate doing fund mismatch in the continuance.

The usage of BBA is non limited to the Muslim clients as some Non-Muslim clients do prosecute in BBA to finance their place purchasing. Given the failings associated with BBA, it is of involvement to see if the positions are shared by both Muslim and Non-Muslim clients. The cognition of such information would hold a direct impact onto the alternate funding manner that could be used to get the better of the built-in failings in BBA. With those aims in head, this paper attempts to analyse the perceptual experience of Muslim and Non-Muslim clients with respect to certain characteristics of BBA notably those that are instead controversial in nature.

2.1 Example of al-Bay ‘ Bithaman Ajil ( BBA ) Financing

There are several types of funding in al-Bay ‘ Bithaman Ajil ( BBA ) . They are home funding, land funding, store and shophouse funding, Umrah and Ziarah funding, tour bundle funding, Naqad overdraft installation, vehicle funding, golf funding, and instruction funding. But today we will concentrate on BBA place funding. For illustration, assume that a client wishes to purchase a houses priced at RM200,000. The client puts a down payment of 10 per centum, RM20,000 and finances the staying 80 per centum, RM180,000 utilizing the BBA method. Besides assume that the Annual net income Rate ( APR ) charged by the bank is 10 per centum per annum and the continuance of funding is for 20 old ages. The Islamic bank would first purchase the house for RM180,000 and so sell the house to the client at a net income, with deferred payment over the 20-year period.

The monthly payment for the above funding is RM1,735.04, collectible for 240 months which adds up to RM416,889.35 in entire. The difference between this figure and the original funding of RM180,000 which equals RM236,889.35 is capitalized upfront in the BBA manner, unlike under the conventional mortgage is that of the balance of funding staying before the termination of the continuance of funding. For our illustration, the BBA balance after 10 old ages is the sum of the staying 120 payments, RM208,444.80 whereas under conventional mortgage, this sum would stand for the entire involvement paid for the early refund, but the sum of discount is determined at the discretion of the bank. Since the merchandising monetary value is a monetary value, so, Shari’ah prohibits the discount to be stated as portion of the contract. Note that even after ten old ages of refund, the balance under the BBA manner can even transcend the original funding of RM180,000. Nevertheless, sing all the socio-economic effects of fiat money, we regretfully assert that Islamic banking within the fractional modesty system can, so, be really detrimental to the economic system.

While both the Islamic bank and the conventional bank create the original chief sums through fractional modesty banking system, a client owes more money in the Islamic manner than the conventional manner at any clip thenceforth until the loan is settled. This fact entirely is really attractive for even the conventional bankers to supply Islamic manner funding. But, however, sing the serious negative socio-economic deductions of fiat money-based fractional modesty banking, we regretfully conclude that Islamic banking under fractional modesty system is likely to speed up the said effect-default rates, transportation of wealth and sovereignty.

2.2 Operational issues of BBA Home Financing

BBA is a installation provided by the moneyman to help the client pay the cost of funding. For illustration a house, over the tenor of funding, 20 old ages at a fixed rate determined by the moneyman. The moneyman ab initio buys the house from the client ( cost of funding sum ) and sells it back to the client, plus of its net income border.

As the marketer of the belongings, the Shari’ah requires the bank to keep ownership of the belongings and to keep all liabilities originating, including defects. But presently, BBA documentations show that the bank simply acts as a moneyman instead than a marketer and excludes itself of all liabilities. This, of class, ignores the Shari’ah rule of “ al-Ghorm bil Ghonm ” ( no wages without hazard ) , “ Ikhtiar ” ( value-addition or attempt ) and “ al-Kharaj bil Daman ” ( any benefit must be accompanied with liability ) , thereby rendering the BBA net income to be implicated with riba.

The issue of concern here is the handiness of iwad ( antagonistic value ) in BBA funding. Harmonizing to Rosly ( 2005 ) , the Qur’an uses trade ( al-bay ) because the net income generated from trading incorporates risk-taking, while the contractual net income from loan minutess ( riba ) is riskless. It farther asserts that al-bay implies the being of iwad required by the Shari’ah to be a lawful net income in Islam. Three elements of iwad that should be are hazard ( ghorm ) , work and attempt ( ikhtiar ) and liability ( daman ) .

Iwad is the basic trait or the conditio sine quo non of a halal or lawful sale ( al-bay ) , because a sale is needfully an exchange of value against an just return and compensation for the goods or services exchanged. Harmonizing to Ibn al-‘Arabi ( d.543H/1148 ) , every addition which is without an iwad or equal counter value, is riba. Iwad is the necessary demand to be fulfilled in trading ( al-bay ) as it brings along a sense of equity and justness into a concern that rendered it superior to an interest-bearing system.

Rosly ( 2005 ) besides opined that there is no hazard taking in the current BBA funding, and, therefore, does non deserve the Qur’anic construct of al-bay. Daman ( liability ) should besides be in a trading dealing whereby the provider provides warrants on the goods sold. However in the current BBA place funding, the client is forced to confront the fiscal load of paying for the house even before it is completed, as he has engaged in a ‘debt contract ‘ with the bank at the beginning. By disregarding the construct of iwad, the BBA contract is non seen as conforming to the maqasid al-Shari’ah that removes adversity ( raf ‘ al-haraj ) and forestalling injury ( daf ‘ al-darar ) in the economic domain, thereby go forthing the public assistance of people unprotected – a possible offense when the dealing is done under an Islamic label.

Another issue that arises from the long-run BBA funding is the mismatching of the BBA financess against its short-run sedimentation tenor. Whilst conventional funding has the ability to turn to this mismatch in the cost of financess through the variable involvement rate ( BLR + a spread ) , BBA funding can non make this since clients are charged a fixed net income rate for the full period of funding.

2.3 Different Interpretation between Malaysia and Middle East

Rosly ( 2005 ) pointed out that bay ‘ al-‘nah by and large involves two contracts of sale at the same time which includes topographic point and recognition gross revenues such as al-Bay Bithaman Ajil notes. The secondary notes are contractual voucher net incomes, which is included in the refunds that are made by the issue of Islamic bonds and can merely be achieved by implementing the bay ‘ al-‘inah. This dealing is like a loan given by a creditor to a debitor. A company is more likely to obtain capital by publishing a bond instead than taking a loan straight from a bank because the voucher rate to be paid in bonds is cheaper than involvement charge by Bankss. Rosly besides stated that bay ‘ al-‘inah contract is a loan in the signifier of a sale. The sale is an visual aspect merely to demo the allowable dealing for debitor to acquire the money. To legalise the loan dealing under Islamic jurisprudence point of position, the creditor usage blind technique by making a fabricated object or plus and sells at higher monetary value collectible by installment in the hereafter. However, the parties who are involved do non hold purpose to utilize the object of sale for ingestion intents.

Rosly ( 2005 ) cited from Rayner, such sort of dealing is considered valid in Malaysia but non in the Middle East states. The possible ground behind this is that Malaysia and Middle East follows different schools of idea. The Malayan shari’ah bookmans follow the Shafi’e school of idea while the Middle East bookmans follow the Hanafi, Hanbali and Maliki schools of idea as the footing for their sentiment on certain opinions in the operations of Islamic banking. Harmonizing to the Hanafi ‘s, Hanbali ‘s and Maliki ‘s, bay ‘ al-‘inah is non allowable, therefore Middle East investors consider it as improper patterns. Indeed, the Hanafi, Hanbali and Maliki bookmans agreed that the object of sale created to let a loan with involvement and the purpose among the parties is dishonest because they do non use the object. Hanafi, Hanbali and Maliki put a niyyah ( purpose ) as an of import component in finding the cogency of contract.

Hanbali bookmans emphasized that the nature of the sale and purchase contract is valid but when the contract consequences in riba, the contract is null. Furthermore, Hanbali gives precedence on existent purpose ( in bosom ) instead than declared purpose ( in the contract ) . Hanafi and Maliki bookmans agreed that there is no difference between existent and declared purpose and dishonest motivations depend on the peculiar individual ‘s act. This means that when they are involved in an illegal contract, it proves that their Acts of the Apostless are besides illegal and hence, non allowed under Islamic jurisprudence. This has been accepted by Middle East legal experts for non leting bay ‘ al-‘inah.

Shafi’e bookmans said the niyyah is an immaterial component and bay ‘ al-‘inah is acceptable. This sentiment was taken up by Shari’ah bookmans in Bank Negara Malaysia and Securities Commision, when they considered bay ‘ al-inah as a valid and allowable contract ( Rosly and Sanusi ; 1999 ) . In add-on, Shafie emphasized more on declared purpose as included in the contract or understanding between the parties involved. This is because cipher knows what is contained in the Black Marias of others ( Rosly ; 2005 ) . Rosly stated, “ Shafie regarded it as absolutely valid on the footing that 1 has the right to sell an object at a lessened monetary value to that which he himself paid. Example, Mr X sells an object worth RM 1,000 for RM 800 hard currency to Mr. Y and buys it once more from Mr. Y at RM 1,000 collectible by installment ” .

The different reading between these two schools of idea was taken from the matrimony contract, where the existent and declared purposes are an of import component under Shari’ah. The matrimony contract is known as muta. This contract is invalid, harmonizing to Shafie, when the parties declared their purpose and agreed that their matrimonial position is merely for certain period of clip. Hanbali, Hanafi and Maliki schools of idea considered this contract invalid even though the parties involved did non do any declaration about their purpose of divorce after an in agreement period of matrimonial life.

Harmonizing to the Shafi’e school, existent purpose can non be used as grounds in finding the cogency of contract but the of import component is the declared purpose ( written in the contract ) . However, Hanafi, Hanbali and Maliki schools of thought prohibit the immoral act as case in point over existent purpose. Therefore, the bay ‘ al-inah was applied under same mechanism.

The Islamic fiscal system employs the construct of engagement in the endeavor, using the financess at hazard on a net income and loss sharing footing. Net income and loss sharing is a construct which encourages better resource direction. Muslim Bankss are structured to retain a clearly differentiated position between stockholders ‘ capital and clients ‘ sedimentations in order to guarantee right net income sharing harmonizing to Islamic Law. Hence, musharakah mutanaqisah partnership is introduced to animate the component of sharing in footings of capital and liability between moneyman and client. Meera and Razak ( 2005 ) pointed out Musharakah Mutanaqisah Partnership ( MMP ) contract that consists of musharakah ( partnership ) and ijarah ( lease ) contracts is a better option to the BBA. It is strictly based on rental payments of belongings and the redeeming of the moneyman ‘s portions. Musharakah Mutanaqisah is based on a decreasing partnership construct. It has two parts of contracts. First, the client and the bank or financer enters a partnership under the construct of shirkah al-milk ( joint ownership ) . Then, the client will deliver the bank ‘s portion bit by bit in preset clip ( at the beginning of an understanding ) until the client to the full owns the plus such as a house.

Second, in the process of delivering the bank ‘s portion, the bank leases the ownership of the house to the client under the construct of ijarah by bear downing a rent. At the same clip, the client will pay periodic leases to the bank for utilizing the bank ‘s portion of the plus. Consequently, the client ‘s portion ratio would increase after each rental payment until the plus is finally to the full owned. The MMP is widely practiced in the Middle East, United States, Canada, United Kingdom and Australia. Bendjilali and Khan ( 1995 ) and Taqi Usmani ( 2002 ) agreed that the merchandise could assist people to trust less on BBA. Furthermore, the MMP can be implemented for lodging funding and machinery funding whereby the assets can be leased out harmonizing to hold rental payments ( Taqi Usmani ; 2002 ) .

Besides that, MMP is suited to be practiced by lodging co-ops, where the financess are provided by the members for benefit of the members themselves. This construct provides cheaper lodging payments and it besides provides returns from the leases and the sale of plus Shari’ah bookmans have compromised on the permissibility of MMP contract internationally. It can be implemented to avoid involvement ( riba ) wholly and cut down the cost of assets and the continuance of funding. MMP is non similar BBA where the balance of finance will non transcend the original monetary value of plus. Furthermore, MMP is a just instrument compared to the conventional loan and the BBA where no involvement is charged in the contract ( Meera and Razak ; 2005 ) .

2.4 The Differences between the BBA and the MMP Contracts

In drumhead, the chief differences between the joint ownership MMP and debt-type BBA funding are as follows:

1. There are two separate contracts under the MMP method. The first is a musharakah where the client is a spouse and the 2nd 1 is an ijarah which involves the leasing of the belongings. The BBA, on the contrary, follows the murabahah construct of purchasing and merchandising of belongings.

2. Under BBA, the merchandising monetary value of the house does non reflect the market value since the mark-up for the deferred payment is rather significant. On the contrary, the value of the house under MMP ever reflects the market monetary value and the lease is determined by the market rental values.

3. The return to the BBA is based on a fixed merchandising monetary value ( that uses the prevalent involvement rate as the benchmark ) . But under MMP, the financer need non be tied to a fixed net income rate throughout the funding tenor. This is because the rental rate can be revised sporadically to reflect current market conditions. Indeed, as argued earlier, the lease can be tied to some economic variables like Rental Index, House Price Index etc.

4. The moneyman can pull off the liquidness risks better as rental payments can be adjusted at the terminal of each subcontract period. This is non possible under the current fixed-rate BBA as the net income rate is a changeless throughout the full tenor of funding.

5. Even compared with a floating-rate BBA, the MMP still differs in the balance of funding at any point in clip before the terminal of the contract. Under MMP the balance can ne’er be larger than the original price/finance of the house. Rebates for early salvation under BBA can non be specifically stated in the contract.

6. The MMP is a more flexible funding construction than the BBA as the client can have the belongings earlier by delivering faster the chief amount of the moneyman, without the demand to calculate discounts as in BBA.

7. In the event of payment defaults, the punishment charges under BBA can be challenged, while under MMP, defaults will do the equity of moneyman to stay changeless and hence entitled to higher rental parts when payments made later.

8. Presently many clients opine that the BBA is similar to the conventional loan with some “ disadvantages ” for the client peculiarly for early salvations.

9. The MMP is accepted internationally as Shari’ah-compliant whereas the BBA is recognized preponderantly in the E, i.e. in Malaysia, Indonesia, Brunei etc.

3.0 Decision

Since the debut of Islamic banking in Malaysia, BBA has enjoyed the privilege of being the most prevailing construct of Islamic place funding. BBA is nevertheless, based on debt construct which consequences in high cost and poses a load to one ‘s household duty. Besides, BBA as practiced in Malaysia is seen non to be in compliant with the Shari’ah rule as the bank does non take the hazard of ownership and liability on the belongings ( Saiful 2005 ) ( Sanusi 2006 ) and therefore non acceptable by international bookmans. Given the controversial characteristics of BBA place funding, there is high dissatisfaction among the present and possible clients of BBA. However, such grounds had been absent or had non been collected consistently to measure the credence degree of BBA. This paper has filled the spread by analyzing the perceptual experience of Muslim and Non-Muslim clients toward BBA.

The findings suggest a high degree of dissatisfaction among the clients as evidenced by their low purpose to utilize BBA in the future place funding pick. Muslim clients in general are concerned about the characteristics of BBA notably its compliant with Shari’ah every bit good as its inability to carry through the wide aim of justness, equality and social good being. The Non-Muslim clients nevertheless seem to hold greater beliefs in BBA and its ability to carry through socially desirable aims. BBA has surely overstayed its welcome and there is a desperate demand to happen an alternate to BBA. Bankers should be looking for a feasible option particularly one that could get the better of the Shari’ah compliant issues good. Decreasing Partnership is one of the freshly emerging constructs that fulfill the Shari’ah demands and is fast deriving credence. Bankers should be reading the strong signal sent by findings of this survey and accordingly fix for another degree of conflict in Islamic place funding.

At the last portion, comparative analysis between the al-Bay Bithaman Ajil ( BBA ) and Musharakah Mutanaqisah Partnership ( MMP ) contracts as agencies for place ownership. While a place is basic necessity, it consumes a big ball of peoples ‘ income for long periods. In the present interest-based decree pecuniary system, having a place is progressively going burdensome. Indeed, mortgages are one of the important causes of bankruptcies. While monetary value of places maintain lifting, the mortgage continuance besides maintain rise, till two-generation mortgages are even being talked about.

In this respect, this paper attempted to reason in favor of the MMP as a better option to the conventional mortgage and the Islamic BBA. The BBA is a murabahah contract, that is based on a buy-and-sell rule while the MMP consists of a musharakah ( partnership ) contract and an ijarah ( rental ) contract where the equity of the moneyman follows a diminishing balance method. Shari’ah bookmans are consensus on the permissibility of the MMP contract internationally, but merely bookmans in the east by and large permit the BBA contract. The paper concludes that the MMP has several advantages over the BBA for the client. Apart from being consensus Shari’ah-compliant, it can be made to avoid involvement ( riba ) wholly and can cut down the cost of places and the continuance of funding. The balance of finance, at any point in clip, ne’er exceeds the original monetary value of the plus, unlike under the BBA where it can.

When a place is purchased from a developer and financed utilizing the present conventional or Islamic BBA, the client would stop up paying about four times the original cost ( both the developer and the bank are assumed to do a gross 100 percent mark-up ) . This, doubtless, can burthen peculiarly the low income group. But, Musharakah Mutanaqisah Partnership is in line with the aims of Shari’ah as it allows people to ain places with limited initial capital. In making so, it promotes the public assistance of the people. Anything that protects or promotes these is considered as functioning the maslahah and hence desirable. As al-Ghazzali remarked:

“ The really aims of the Shari’ah are to advance the public assistance of the people, which lies in safeguarding their religion, their life, their mind, their descendants and their wealth. Whatever ensures the safeguarding of these five serves public involvement and is desirable ”

True though, the MMP is less attractive to the banker compared to the BBA. For that affair, a feasible avenue to implement the MMP is through a concerted scene. When implemented through co-ops, the MMP can besides supply an investing avenue for members while well cut downing the monetary value of house and the continuance of funding. The construct has a positive impact on the economic system and reduces rising prices as no extra money is created in the system compared to debt-financing, as presently done under the fractional modesty banking system.

The MMP is merely and just compared to the conventional loan and the BBA as there is no involvement charge or ‘advanced ‘ net income involved in the Musharakah Mutanaqisah Partnership contract. It is strictly based on rental payments of belongings and the redeeming of the moneyman ‘s portions.

As a benchmark, the paper suggested the usage of a Rental Index or House Price Index in finding the lease to be charged for each specified ijarah contract period.

The MMP construct is a feasible option to the conventional floating rate funding since the rental rate can be adjusted if there are fluctuations in the economic system. Hence, it is more flexible, wherein the Islamic bank will non be faced with excessively many uncertainnesss due to fluctuations in economic conditions.

As for the society, the MMP brings stableness into the economic system by advancing positive partnership alternatively of negative liability therefore helping in the just distribution of society ‘s wealth ; minimising the big figure of debt defaults and bankruptcies that are observed in the current fiscal system.