Challenges in Implementing Musharakah Mutanaqisah Islamic Home Financing in Malaysia

Abstract

This study aims to identify the challenges surrounding the implementation of Musharakah Mutanaqisah Islamic home financing in Malaysia. Despite it is more Shariah compliant than other products such as Bay Bithaman Ajil home financing, Musharakah Mutanaqisah home financing is still not in favor of the Islamic banks in Malaysia when they structure their mortgages. This study employs library/literature based method which is a kind of qualitative research methodology. Relevant literature is selected from available databases using convenience sampling technique. Using inductive approach, the study reveals that there are 9 major challenges that hinder the implementation of Musharakah Mutanaqisah home financing by Islamic banks in Malaysia. The identified challenges are (1) Ownership issue; (2) Legal framework; (3) Repayment issue and default; (4) Client’s unwillingness to share the profits and the tax issue; (5) Risk of loss; (6) Secrecy of the business; (7) Dishonesty and moral hazard; (8) Awareness of the Mortgage Products; and (9) Rental rate benchmarking. This study is expected to help Islamic banks in Malaysia in setting up internal strategy, policies and procedures to tackle the identified challenges. The study also can be an input for Islamic banks’ regulator in this case Bank Negara Malaysia (BNM) to set up rules and regulation to ease the implementation of MM home financing by Islamic banks in Malaysia. Mortgage clients in Malaysia also can use this study in helping them to understand the concept of MM home financing well and to be aware of the reasons why MM is preferable by Shariah scholars than BBA home financing.