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Islamic norms, the excel formula and home financing models

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  • Hasan, Zubair

Abstract

This paper adds to the series of writings on Islamic home financing presented and published by the author since February 2010. It spells out certain norms Islamic banks must observe in home financing and demonstrates that the conventional model based on an Excel formula does not meet the stated norms. It may well be emphasized that in Islam the question of observing these norms arises before, and not after, the selection of the formula; additional juristic requirements may only follow subsequently. Is it not then strange many Islamic banks are using the formula to determine the periodic instalment payments in their home financing programs? The paper finds, for example, the popular Musharakah-Mutanaqisa Partnership (MMP) Islamic home financing model to be non-compliant with the stated norms. It presents a new model―the Zubair Diminishing Balance Method (ZDBM) ― and argues that the alternative is not only fully observant but is superior to the MMP model on some other counts as well.

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File URL: http://mpra.ub.uni-muenchen.de/47955/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 47955.

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Date of creation: 2012
Date of revision: 2013
Publication status: Published in ISRA: International Journal of Islamic Finance 1.5(2013): pp. 7-28
Handle: RePEc:pra:mprapa:47955

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Related research

Keywords: Home finance; Excel amortization formula; Compounding; Islamic norms; Justice.;

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  1. Hasan, Zubair, 2012. ""Riba in La-riba contracts: where to turn in Islamic home financing?," MPRA Paper 38166, University Library of Munich, Germany.
  2. 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.
  3. Edib Smolo & M. Kabir Hassan, 2011. "The potentials of musharakah mutanaqisah for Islamic housing finance," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, Emerald Group Publishing, vol. 4(3), pages 237-258, August.
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