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Islamic Mortgages and Securitization

In: Food Security, Affordable Housing, and Poverty

Author

Listed:
  • Ahmet Suayb Gundogdu

    (Istanbul Sabahattin Zaim University)

Abstract

Residential mortgage debt as a percentage of GDP has increased since the 80s with lower interest rates and increased financial sector liberalization. With this increase, the risk for the financial sector has been getting ever higher. The main issue with mortgages and securitization is the mismatch between lending and resource mobilization. Lending FX resources mobilized from the international market with local currency and using three months tenor deposit funds to finance 10-year mortgages give rise to systematic risk in the banking sector. An alternative would be securitizing Islamic mortgages with the same currency and matching tenors in capital markets. The role of the public and private sectors in housing development should be distinguished. The houses should be built by the private sector, while the public sector should ensure standards in housing production and fair price formation. Funds for housing construction can be mobilized with crowdfunding as an alternative to resources of deposit-collecting commercial banks. Securitization can be done with Ijara Sukuk. The Islamic covenant on land use policy would lead to small and flexible housing development instead of significant real estate development projects. The chapter also suggests that deposit collection banking is not a good business model for housing finance, whether you are looking at Islamic finance or finance in general. The chapter is the product of a workshop conducted by the author with the Federal Mortgage Bank of Nigeria.

Suggested Citation

  • Ahmet Suayb Gundogdu, 2023. "Islamic Mortgages and Securitization," Palgrave Studies in Islamic Banking, Finance and Economics, in: Food Security, Affordable Housing, and Poverty, chapter 0, pages 27-55, Palgrave Macmillan.
    • Handle: RePEc:pal:psibcp:978-3-031-27689-7_2
    DOI: 10.1007/978-3-031-27689-7_2
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