The Potentials of mushārakah mutanāqisah for Islamic Housing Finance
International Journal of Islamic and Middle Eastern Finance and Management, Vol. 4 No. 3, 2011, pp. 237-258
Posted: 7 Nov 2018
Date Written: 2011
Purpose – The main purpose of this paper is to provide a comprehensive review of musharakah mutanaqisah (MM; diminishing partnership) technique and its potentials for Islamic ﬁnancial institutions.
Design/methodology/approach – Based on an extensive literature review, this paper aims to highlight, explain and discuss the basic principles underlying implementation of MM and its distinctive features when compared to other modes of ﬁnance.
Findings – Islamic banks, throughout the years, developed several modes of ﬁnance which are more or less similar to their conventional counterparts. In fact, al-Bay bithaman al-ajil (BBA) and murabahah are the two instruments most commonly used by Islamic banks and ﬁnancial institutions. Investment and ﬁnancing through the proﬁt and loss sharing instruments is almost nonexistent within the Islamic ﬁnancial system. MM technique is an alternative ﬁnancial instrument available for Islamic banks. It is a relatively new and very little used product available for Islamic banks. The paper claims that MM is more in line with Shari’ah teachings and as such should be used more by Islamic ﬁnancial institutions. The study indicates that MM possibly has a comparative advantage for both ﬁnancier and the customer when compared with conventional loans and BBA.
Research limitations/implications – As a relatively new and untested mode of ﬁnance, the paper offers a theoretical overview only. Further studies should discuss more practical issues that keep banks away from utilizing MM more efﬁciently.
Originality/value – The comprehensive overview of the MM and underlying issue discussed in this paper is a very good foundation for further studies on the topic. It gives a clear theoretical base for practical implementation of MM.
Keywords: Islamic ﬁnance, Shari’ah-compliant, Musharakah mutanaqisah, Banks, Equity capital ﬁnancing
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