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Islamic norms, the excel formula and home financing models

  • Hasan, Zubair

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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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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  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. 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, vol. 4(3), pages 237-258, August.
  3. Hasan, Zubair, 2011. "Islamic house financing:current models and a proposal from social perspective," MPRA Paper 27919, University Library of Munich, Germany.
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