Musharakah Mutanaqisah and Legal Issues: Case Study of Malaysia

Turkish Journal of Islamic Economics (TUJISE), 2019

This paper focuses on the challenges faced by the Malaysian Islamic Banks in implementing Musharakah Mutanaqisah (MM) Home Financing. Even though the study is specifically on the Malaysian Islamic banks, but the issues and recommendations addressed in this study are also pertinent to other Islamic banks across the world since they are also offering it. Drawing upon in-depth semi-structured interviews with the senior officers in two leading Islamic banks in Malaysia, one is the bank which terminated its MM Home Financing products however the other one continues to offer it. Knowing the contradicting perspectives of both banks gives insight of the real challenges faced by them in offering MM for home financing which are advance rental and the system's incapability to capture the unique nature of MM, and at the same time to know the motivation of offering it i.e. product diversification and comprehensive risk mitigation.

The practice of Islamic banking has become a fast growing and widespread phenomenon, not only in the Muslim countries, but also in the Non-Muslim countries too, such as UK, USA, Canada and Singapore. The transformation from a conventional form of banking to a banking system based on interest-free banks has generated a great deal of interest to call for Human Capital Development HCD in the field to ensure sustainability, good performance and good competitive market in the Islamic financial industry. Even though Sudan is the pioneer in taking the initiative of Islamizing its financial industry since 1980s, yet we realized that other countries are taking the leading international and regional hub of Islamic finance such as Malaysia in the Asian region and UK in European countries, and recently Canada is also calling to become one of the hub of Islamic finance in the far west. Africa is also highly expected to host many Islamic financial institutions in the near future as there is a great demand for the Islamic financial products, especially sukuk which has already started. This urged the authors to shed some light on the role of Sudan Academy for Banking and Financial Sciences SABFS and its vision to become a hub for Human Capital Development and in promoting Islamic Finance not only in the African region but also in the Arab countries too.

ISRA International Journal of Islamic Finance , 2018

Purpose – This study aims to validate a potential synergistic venture between cash waqf (Islamic endowment) institutions (CWIs) and financial cooperatives (FCs) in the provision of affordable Islamic home financing (IHF) in Malaysia. Design/methodology/approach – The study adopted semi-structured interviews with ten experts to validate the cash waqf-financial-cooperative-musharakah mutanaqisah (CWFCMM) model. Thematic analysis technique was used to analyse the verbatim texts. Findings – The findings show that the majority of the informants have positive perceptions of the potential of the CWFCMM model to provide financially affordable IHF products in Malaysia. Nevertheless, this study sheds light on the varying degrees of latent issues and challenges that might arise in the implementation of this model. For example, FCs need to practice the correct business model, implement good governance structures and employ the right people. Meanwhile, CWIs need to work on their accountability issues by publishing their audited accounts in mainstream newspapers, much like what is being done by non-governmental organisations such as the widely recognised Malaysian Medical Relief Society (MERCY Malaysia). Research limitations/implications – This study interviewed a small, industry-specific number of informants in generating its findings. Time and budget constraints are some of the limiting factors in carrying out the study. Because of these factors, the generalisation of the study’s findings will be limited. Practical implications – First, the CWFCMM model offers an alternative, financially affordable IHF instrument to low- and middle-income households in Malaysia. Second, the involvement of third-sector institutions such as FCs and CWIs in the provision of IHF will reduce the burden of the government in its spending on home financing solutions for civil servants. Third, this model will harness the potential of waqf-based financing beyond the contemporary limited applications to mosques, graveyards and tahfīz (Qurʾan memorization) schools. Originality/value – This study presents an alternative IHF model that transcends the current institutional framework that is heavily dominated by Islamic commercial banks and government-owned home financing institutions. The study does not focus on a single third-sector institution but on an integration of at least two of them, CWIs and FCs, in implementing the IHF model.

This study is aimed at explaining factors influencing the intention to be a partner amongst bank customers in musharakah mutanaqisah home financing. Drawing upon the theory of planned behavior (TPB), this study assesses the model in order to examine the effects of three explanatory factors namely attitude, subjective norm and perceived behavioral control on the intention to be a partner in the context of Islamic home financing. This study modifies the TPB to reflect musharakah mutanaqisah home financing. The model of the study is assessed using survey data from 168 respondents among bank customers. The findings suggest that attitude, subjective norm and perceived behavioral control are significantly influencing the intention to be a partner. The relationship between attitude and subjective norm is also significant. The findings demonstrate the applicability of the TPB in the musharakah mutanaqisah home financing context. The findings are also useful to bank managers in effectively managing Islamic home financing facilities.

Islamic Banking and Finance Review (IBFR) Volume 4 , 2017

During the colonial period, the zakat system in both Uzbekistan and Malaysia experienced serious changes due to imperial powers’ intervention. The zakat system was an important source of economy for these states. This paper highlights the zakat practices of pre-colonial and colonial Uzbekistan and Malaysia and clarifies the nature of encounters of different civilizations such as Islamic and Christian in these regions. The main objective of this study is to find similarities and differences in the imperialists’ influence on the structural level of taxation and zakat systems between the countries studied. This study reveals that there are similarities such as in the administration of zakat collection after the arrival of the imperial powers, wherein both countries, the colonial powers appointed supervisors over local zakat collectors, in order to control revenues. This research also found some important differences that arose because of the intervention of the colonialists, where the British helped in establishing centralized zakat collection, whereas Russians totally abolished the zakat system by turning it into conventional taxation. Keywords: Zakat, Zakat institution, colonialism, Muslim society

islamic banking and finance

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Journal of Legal, Ethical and Regulatory Issues, 2019

Diminishing partnership or Musharakah Mutanaqisah (MM) is one of the underlying contracts adopted by Islamic financial institutions particularly for its property financing instruments. However, the implementation of MM in Malaysia has been surrounded with numerous legal challenges. Engaging in socio-legal approach, this study embarked upon the main objective of identifying the legal challenges surrounding the implementation of MM in Malaysia. Investigation was conducted involving three units of analysis: an Islamic bank, a legal firm, and an educational institution. Relevant parties were identified to be interviewed: a Shariah committee of the Islamic bank, a solicitor attending to the MM legal documentation and an academician teaching Islamic finance courses at the educational institution. The instrument employed was semi-structured interviews particularly to investigate the legal challenges of MM as an alternative for property financing in Malaysia. The findings revealed that there are numerous legal issues in the implementation of the MM in Malaysia, such as legal ownership of the MM property, major maintenance and repairs, restrictions imposed by the Malaysian laws and the duties and responsibilities of the MM partners i.e. the bank and the customer. In essence, the study is expected to contribute to the body of knowledge and serve as a guide for the policy makers in refining and improving the current process and procedure of MM contract as one of the preferred property finance products in Malaysia.

Deferred payment contracts involving use of al-bai' bithaman ajil, al-murabahah and bai' al-inah have been extensively used in design of Malaysian in Islamic financial products. It is widely argued that Islamic banking is the replication of conventional system by imitating the conventional banking products excepting that they are presented in syariah compliance mechanism. The deferred payment sales are one of the example. The issues of form and substance in Islamic banking products and instruments has been frequently debated. Therefore, this paper endeavour to analyse the nature and content of Islamic financial products with particular reference to the debt-based transactions of Al-Bai' Bithaman Ajil, Al-Murabahah and bai' al-inah as practiced in the Malaysian Islamic banking. By analysing legal documents, reports, fiqh and Islamic jurisprudence's views, this paper suggests that the debt-based transactions have been proven to be a reliable and efficient way of conducting commercial transactions which are in conformity with the syariah. Nevertheless, the practice of these modes of transactions ought to be enhanced and perfected to avoid intentional or unintentional deception in its implementation.