A study on laws applicable to Musharakah Mutanaqisah home financing in Malaysia

Abstract

Musharakah Mutanaqisah Home Financing is a hybrid contract consisting of Musharakah (partnership), Ijarah (lease) and Bai’(sale). Despite its status as Islamic financing product, the present practise of Musharakah Mutanaqisah Home Financing in Malaysia is subject to conventional laws which are not intended to facilitate the application of Islamic law. Thus, this research aims to identify the applicable laws relating to Musharakah Mutanaqisah Home Financing in Malaysia for the purpose of determining the legal conflicts and legal problems as a result of the operation of the present legal framework. In pursuant thereto, this research employs a qualitative method in identifying and analysing the existing laws which consist of regulatory laws, substantive laws and procedural laws that include Islamic Financial Services Act 2013, Financial Services Act 2013,Central Bank of Malaysia Act 2009, National Land Code 1965, Rules of Court 2012 and Bankruptcy Act 1967. This research finds that whilst some of the existing laws do facilitate the operation of Musharakah Mutanaqisah Home Financing in Malaysia and have substantially improved the statutory position of Musharakah Mutanaqisah as one of the modes of Islamic financing recognised in Malaysia, the present legal provisions are still inadequate and incompatible with the implementation of Musharakah Mutanaqisah Home Financing. The research also finds significant number of legal issues derived from the implementation of the laws which require legal reform. Therefore, this research proposes legal solutions in term of amendments to the existing legal regime in order to facilitate the implementation and practises of Musharakah Mutanaqisah Home Financing. The proposed legal solutions should prove to be adequate and compatible to govern Musharakah Mutanaqisah Home Financing in Malaysia, thus resolving legal conflicts and problems in the current legal framework.