Application of musharakah mutanaqisah home financing as an alternative to traditional debt financing : lessons learned from the U.S. 2007 sub-prime crisis
One of the causes of the 2007 U.S. sub-prime crisis in 2007 is the use of traditional debt financing whereby the bank does not take risk of owning the property. Furthermore, the bank does not share its profit with customer and monthly instalment is pegged against market interest rate. This paper wil...
| Main Authors: | , |
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| Format: | Proceeding Paper |
| Language: | English |
| Published: |
2012
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| Online Access: | http://irep.iium.edu.my/25888/ http://irep.iium.edu.my/25888/1/%28C-9_%29_Paper_ID_-_MFAC_2012__FM-8_-_Assoc._Prof._Dr._Dzuljastri_Abdul_Razak.pdf |
| _version_ | 1848779544382668800 |
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| author | Abdul Razak, Dzuljastri Amin, Hanudin |
| author_facet | Abdul Razak, Dzuljastri Amin, Hanudin |
| author_sort | Abdul Razak, Dzuljastri |
| building | IIUM Repository |
| collection | Online Access |
| description | One of the causes of the 2007 U.S. sub-prime crisis in 2007 is the use of traditional debt financing whereby the bank does not take risk of owning the property. Furthermore, the bank does not share its profit with customer and monthly instalment is pegged against market interest rate. This paper will initially examine salient issues (e.g. interest charges, indebtedness) faced by customers and banks during the crisis. Secondly, it will propose an alternative model known as musharakah mutanaqisah or diminishing partnership whereby the bank jointly own the property with customer and real rental rates replaces interest rate as a benchmark to the determine monthly instalment. In studying the rental rates, the hedonic pricing theory is discussed. It is argued that the musharakah mutanaqisah concept can address issues of the crisis through the application of the Shariah principles and necessary changes to the regulatory framework.
Keywords: Islamic bank; Musharakah mutanaqisah; Rental index; Global financial crisis; Equity financing.
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| first_indexed | 2025-11-14T15:19:28Z |
| format | Proceeding Paper |
| id | iium-25888 |
| institution | International Islamic University Malaysia |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-14T15:19:28Z |
| publishDate | 2012 |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | iium-258882012-12-18T04:55:12Z http://irep.iium.edu.my/25888/ Application of musharakah mutanaqisah home financing as an alternative to traditional debt financing : lessons learned from the U.S. 2007 sub-prime crisis Abdul Razak, Dzuljastri Amin, Hanudin HG Finance One of the causes of the 2007 U.S. sub-prime crisis in 2007 is the use of traditional debt financing whereby the bank does not take risk of owning the property. Furthermore, the bank does not share its profit with customer and monthly instalment is pegged against market interest rate. This paper will initially examine salient issues (e.g. interest charges, indebtedness) faced by customers and banks during the crisis. Secondly, it will propose an alternative model known as musharakah mutanaqisah or diminishing partnership whereby the bank jointly own the property with customer and real rental rates replaces interest rate as a benchmark to the determine monthly instalment. In studying the rental rates, the hedonic pricing theory is discussed. It is argued that the musharakah mutanaqisah concept can address issues of the crisis through the application of the Shariah principles and necessary changes to the regulatory framework. Keywords: Islamic bank; Musharakah mutanaqisah; Rental index; Global financial crisis; Equity financing. 2012 Proceeding Paper PeerReviewed application/pdf en http://irep.iium.edu.my/25888/1/%28C-9_%29_Paper_ID_-_MFAC_2012__FM-8_-_Assoc._Prof._Dr._Dzuljastri_Abdul_Razak.pdf Abdul Razak, Dzuljastri and Amin, Hanudin (2012) Application of musharakah mutanaqisah home financing as an alternative to traditional debt financing : lessons learned from the U.S. 2007 sub-prime crisis. In: 14th Malaysian Finance Association Conference 2012, ‘Emerging Markets and Financial Resilience : Decoupling Growth from Turbulence , 1-3 June, 2012, , Parkroyal, Penang Resort, Penang, Malaysia. (Unpublished) http://www.mfa.com.my/conference.html |
| spellingShingle | HG Finance Abdul Razak, Dzuljastri Amin, Hanudin Application of musharakah mutanaqisah home financing as an alternative to traditional debt financing : lessons learned from the U.S. 2007 sub-prime crisis |
| title | Application of musharakah mutanaqisah home financing as an alternative to traditional debt financing : lessons learned from the U.S. 2007 sub-prime crisis |
| title_full | Application of musharakah mutanaqisah home financing as an alternative to traditional debt financing : lessons learned from the U.S. 2007 sub-prime crisis |
| title_fullStr | Application of musharakah mutanaqisah home financing as an alternative to traditional debt financing : lessons learned from the U.S. 2007 sub-prime crisis |
| title_full_unstemmed | Application of musharakah mutanaqisah home financing as an alternative to traditional debt financing : lessons learned from the U.S. 2007 sub-prime crisis |
| title_short | Application of musharakah mutanaqisah home financing as an alternative to traditional debt financing : lessons learned from the U.S. 2007 sub-prime crisis |
| title_sort | application of musharakah mutanaqisah home financing as an alternative to traditional debt financing : lessons learned from the u.s. 2007 sub-prime crisis |
| topic | HG Finance |
| url | http://irep.iium.edu.my/25888/ http://irep.iium.edu.my/25888/ http://irep.iium.edu.my/25888/1/%28C-9_%29_Paper_ID_-_MFAC_2012__FM-8_-_Assoc._Prof._Dr._Dzuljastri_Abdul_Razak.pdf |