Islamic home financing: analysis of shariah and legal issues in BBA and musharakah mutanakisah

Abstract

The Muslim population in many parts of the world has been growing significantly over the years. The demand for home loans has increased and Many Muslims by the day are turning their attention to Shariah compliant Home financing. In the case of Malaysia, Islamic home financing was first offered in 1983 with the establishment of Bank Islam Malaysia Berhad. The home financing scheme at that time was based On BBA or deferred payment sale. Ever since, BBA has become popular with Muslims in Malaysia, wanting to buy property through shariah compliant Financing. As a result the BBA concept accounts for the largest share of Islamic Home Financing offered by Islamic Banks presently. Nevertheless over the last few years there has been a lot of controversy surrounding BBA in Malaysia especially after the high court ruling In July2008wherein the application of the BBA contracts in the case of Arab Malaysian Finance Berhad V Taman Ihsan Jaya & Others (2008) was rendered to be contrary to the Islamic Banking Act 1983 (IBA). As a result opponents of BBA have suggested the use of Musharakah Mutanakisah as a viable alternative to BBA home financing. A few banks in Malaysia have started implementing the concept of Musharakah Mutanakisah for Home Financing. In this thesis the researcher aims at ascertaining whether the present practice of Musharakah Mutanakisah serves as a viable alternative to BBA. In doing so, the researcher has scrutinized the legal documentation of BBA and MM form various banks and raised all possible shariah issues pertaining to the legal documentation. A survey has been conducted in order to evaluate the students` perception of BBA and Musharakah Mutanakisah. In light of all shariah issues raised in the legal documentation of BBA and Musharakah Mutanakisah, the researcher finally proposes a few solutions to the issues raised .