Mortgage contracts in Islamic home finance: Musharakah Mutanaqisah program vs. Zubair diminishing balance model
AbstractThe present paper attempts two demonstrations. First, it shows that the Excel formula Islamic banks invariably use to determine the fixed installment payments in home financing amortization has explicit compounding of return. Once the installment is based on that formula, the subsequent claims that in implementation the charge becomes free of interest hardly remain tenable. Second, the paper proposes an alternative home finance model where the mortgage contract has several merits over the structure in common use i.e. the musharakah mutanaqisa program or the MMP. The proposed model is cheaper for the buyer while the margin of return for the banker is not reduced; thus, painting a win-win situation for both. It attracts no juristic doubts. Some bankers of international repute have already hailed the model as an innovative useful breakthrough in the area of Islamic finance. Finally, the model aligns better than others with the maqasid or the objectives of the Islamic law.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 39067.
Date of creation: Jun 2012
Date of revision:
Home finance; conventional model; mortgages; MMP; ZDBM; Social view;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-06-05 (All new papers)
- NEP-ARA-2012-06-05 (MENA - Middle East & North Africa)
- NEP-CWA-2012-06-05 (Central & Western Asia)
- NEP-URE-2012-06-05 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hasan, Zubair, 2011.
"Riba in La-riba contracts:where to turn in Islamic home financing?,"
34386, University Library of Munich, Germany.
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- Matthew Chambers & Carlos Garriga & Don Schlagenhauf, 2007. "Mortgage contracts and housing tenure decisions," Working Papers 2007-040, Federal Reserve Bank of St. Louis.
- Hasan, Zubair, 2011.
"Islamic house financing:current models and a proposal from social perspective,"
27919, University Library of Munich, Germany.
- Hasan, Zubair, 2010. ""Islamic house financing:current models and a proposal from social perspective," MPRA Paper 31638, University Library of Munich, Germany, revised 02 Apr 2011.
- Shaikh, Salman, 2014. "Alternate Proposal for Interest Free House Finance," MPRA Paper 53804, University Library of Munich, Germany.
- Hasan, Zubair, 2012. "Excel formula and Islamic norms for home financing," MPRA Paper 42835, University Library of Munich, Germany.
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