Current practices of Islamic home financing: a case of musharakah mutanaqisah in Malaysia

Islamic mortgage as being the housing finance tool ofIslamic banking and finance offers a home ownership for those who seek for halal alternative. There are indeed various type of instruments used as an underlying contract for Islamic mortgage, which comprise of debt based financing (murabaha, istisna', ijarah, bay 'bithaman ajil) and equity based financing (musharakah mutanaqisah). As the debt based products of Islamic mortgage are criticised for mimicking the conventional counterparts, the introduction of equity product of home financing based on musharakah mutanaqisah (MM home financing) is deemed to become a better alternative, which capable of fulfilling the true spirit of Shari 'ah and overcome the shortcomings of debt based products. As MM has been introduced to replace BBA, there are many issues surrounding its implementation. This study, therefore, aims to obtain a clear understanding of MM home financing practises and to analyse legal framework and its adequacy in governing the implementation of MM home financing. In achieving the aims, this study employed the interviews with 19 individuals who are actively involved in the implementation of MM home financing in Malaysia including Islamic bankers, Islamic economists, Shari 'ah advisor and regulator. The interview finding revealed that despite MM current operation, Malaysian legal system is in fact, not duly in place to accommodate the true implementation of MM equity financing which is regarded as relatively a new home financing product