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

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  • M. Shahid Ebrahim

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Abstract

A formal home loan is onerous to subprime borrowers in efficient markets. This can deter homeownership for financially strapped individuals, leading to a market failure. This paper proposes a special form of cooperative mortgage financing (practiced in Oman) to overcome this market failure. We integrate the literature of Mortgage Design with that of informal savings schemes (i.e., 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 to formal mortgages in special cases.

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  • M. Shahid Ebrahim, 2009. "Can an Islamic Model of Housing Finance Cooperative Elevate the Economic Status of the Underprivileged?," Post-Print hal-00723634, HAL.
  • Handle: RePEc:hal:journl:hal-00723634
    DOI: 10.1016/j.jebo.2009.08.002
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00723634
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    Cited by:

    1. Abedifar, Pejman & Hasan, Iftekhar & Tarazi, Amine, 2016. "Finance-growth nexus and dual-banking systems: Relative importance of Islamic banks," Journal of Economic Behavior & Organization, Elsevier, vol. 132(S), pages 198-215.
    2. Pejman Abedifar & Shahid M. Ebrahim & Philip Molyneux & Amine Tarazi, 2015. "Islamic Banking And Finance: Recent Empirical Literature And Directions For Future Research," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 637-670, September.
    3. Ebrahim, M. Shahid & Jaafar, Aziz & Omar, Fatma A. & Salleh, Murizah Osman, 2016. "Can Islamic injunctions indemnify the structural flaws of securitized debt?," Journal of Corporate Finance, Elsevier, vol. 37(C), pages 271-286.
    4. Shaikh, Salman, 2014. "Alternate Proposal for Interest Free House Finance," MPRA Paper 53804, University Library of Munich, Germany.
    5. Aziz Jaafar & M. Shahid Ebrahim & Fatma A. Omar & Murizah Osman Salleh, 2016. "Can Islamic Injunctions Indemnify the Structural Flaws of Securitized Debt?," Working Papers 16001, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    6. Murizah Osman Salleh & Aziz Jaafar & M. Shahid Ebrahim, 2012. "Can an interest-free credit facility be more efficient than a usurious payday loan?," Working Papers 12008, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).

    More about this item

    Keywords

    G21 (Banks; Mortgages); Capital and Ownership Structures); C63 (Computational Techniques); G32 (Financing Policy; I31 (Welfare and Poverty Basic Needs); O17 (Formal and Informal Sectors; Institutional Arrangements); P13 (Cooperative Enterprises); ASCRA; Asset Bubble; Mutual Bank; Inflation; Mortgage Design; and ROSCA;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • P13 - Economic Systems - - Capitalist Systems - - - Cooperative Enterprises
    • R22 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Other Demand

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