Islamic home financing instruments in Malaysia: the emerging issue of financial (Un)affordability

• Main Authors: Md Zabri, Mohd Zaidi, Haron, Razali
• Format: Conference or Workshop Item
• Language: English; English
• Published: 2018
• Subjects: HG1501 Banking; HG3368 Islamic Banking and Finance
• Online Access: http://irep.iium.edu.my/70254/1/70254%20-%20Islamic%20Home%20Financing%20Instruments%20in%20Malaysia.pdf; http://irep.iium.edu.my/70254/2/70254%20-%20programme%20book.pdf; http://irep.iium.edu.my/70254/; http://aicif.net/
• Institution: Universiti Islam Antarabangsa Malaysia

This study compares and contrasts Islamic home financing instruments such as bay bithaman ajil and musharakah mutanaqisah (MM) by Islamic commercial banks, government-owned home financing institution and financial cooperative. Mathematical simulations were carried out in examining the purchase- and repayment-affordability of Islamic home financing instruments by the above-mentioned providers. We have shown that Islamic home financing instruments by Islamic commercial banks are an unaffordable option for most Malaysians, even vis-à-vis the conventional home loan. Although government-owned home financing institution provides the cheapest option for homeowners, it is, however, restricted to civil servants. MM by the financial cooperative, on the other hand, is a workable, more financially affordable option to potential homeowners. The reason for this is that, unlike Islamic commercial banks, MM uses rental rates as a benchmarking tool which is more flexible as well as more responsive to its member-customers’ specificities of localities and types of homes. As a result, it may reduce the cost of home acquisition (purchase-affordability) and the amount of monthly instalments (repayment-affordability) by homeowners in Malaysia.