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Mortgage contracts in Islamic home finance: Musharakah Mutanaqisah program vs. Zubair diminishing balance model

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  • Hasan, Zubair

Abstract

The 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.

Suggested Citation

  • Hasan, Zubair, 2012. "Mortgage contracts in Islamic home finance: Musharakah Mutanaqisah program vs. Zubair diminishing balance model," MPRA Paper 39067, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:39067
    as

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    File URL: https://mpra.ub.uni-muenchen.de/39067/1/MPRA_paper_39067.pdf
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    References listed on IDEAS

    as
    1. Hasan, Zubair, 2011. "Riba in La-riba contracts: where to turn in Islamic home financing?," MPRA Paper 35421, 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. Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2007. "Mortgage contracts and housing tenure decisions," Working Papers 2007-040, Federal Reserve Bank of St. Louis.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Shaikh, Salman, 2014. "Alternate Proposal for Interest Free House Finance," MPRA Paper 53804, University Library of Munich, Germany.
    2. Hasan, Zubair, 2012. "Excel formula and Islamic norms for home financing," MPRA Paper 42835, University Library of Munich, Germany.

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    More about this item

    Keywords

    Home finance; conventional model; mortgages; MMP; ZDBM; Social view;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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