Can an Islamic Model of Housing Finance Cooperative Elevate the Economic Status of the Underprivileged?

41 Pages Posted: 18 Nov 2008 Last revised: 17 May 2015

Date Written: November 17, 2008

Abstract

This paper investigates a special form of cooperative mortgage financing practiced in Oman. We integrate the literature of Mortgage Design with that of ROSCAs/ ASCRAs to illustrate that this mode of financing dissipates credit risk better than the formal mode of financing. It is also resilient to volatility of interest rates and allows prepayments without any additional charges. Finally, we verify the assertions of Besley et al. (1994) and Hart and Moore (1998) that cooperative mortgages are pareto-superior to formal mortgages in special cases. A manager of a cooperative is thus urged to diligently structure its portfolio to internally generate a capital surplus essential for sustaining its growth and ultimately improving the economic status of the underprivileged.

Keywords: ASCRA, Asset Bubble, Mutual Bank, Inflation, Mortgage Design, and ROSCA

JEL Classification: C63, G21, G32, N25, O17, P13, R22

Suggested Citation

Ebrahim, Muhammed Shahid, Can an Islamic Model of Housing Finance Cooperative Elevate the Economic Status of the Underprivileged? (November 17, 2008). Nottingham University Business School Research Paper No. 2008-04. Available at SSRN: https://ssrn.com/abstract=1302922 or http://dx.doi.org/10.2139/ssrn.1302922

Muhammed Shahid Ebrahim (Contact Author)

Durham Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

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