Application of Musharakah Mutanaqisah Home Financing as an alternative to traditional debt financing: lessons learned from the U.S. 2007 subprime crisis

One of the causes of the 2007 U.S. subprime crisis in 2007 is the use of traditional debt financing whereby the bank does not take risk of owning the property. Furthermore, the bank does not share its profit with customer and monthly instalment is pegged against market interest rate. This paper will...

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Main Authors:	Abdul Razak, Dzuljastri, Amin, Hanudin
Format:	Article
Language:	English
Published:	Islami Bank Training and Research Academy 2013
Subjects:	HG1501 Banking HG4001 Financial management. Business finance. Corporation finance.
Online Access:	http://irep.iium.edu.my/30821/ http://irep.iium.edu.my/30821/ http://irep.iium.edu.my/30821/1/Article_JIEBF_pdf.pdf

id	iium-30821
recordtype	eprints
spelling	iium-308212013-07-22T01:58:54Z http://irep.iium.edu.my/30821/ Application of Musharakah Mutanaqisah Home Financing as an alternative to traditional debt financing: lessons learned from the U.S. 2007 subprime crisis Abdul Razak, Dzuljastri Amin, Hanudin HG1501 Banking HG4001 Financial management. Business finance. Corporation finance. One of the causes of the 2007 U.S. subprime crisis in 2007 is the use of traditional debt financing whereby the bank does not take risk of owning the property. Furthermore, the bank does not share its profit with customer and monthly instalment is pegged against market interest rate. This paper will initially examine salient issues (e.g. interest charges, indebtedness) faced by customers and banks during the crisis. Secondly, it will propose an alternative model known as musharakah mutanaqisah or diminishing partnership whereby the bank jointly own the property with customer and real rental rates replaces interest rate as a benchmark to the determine monthly instalment. In studying the rental rates, the hedonic pricing theory is discussed. It is argued that the musharakah mutanaqisah concept can address issues of the crisis through the application of the Shariah principles and necessary changes to the regulatory framework. Islami Bank Training and Research Academy 2013-07-19 Article PeerReviewed application/pdf en http://irep.iium.edu.my/30821/1/Article_JIEBF_pdf.pdf Abdul Razak, Dzuljastri and Amin, Hanudin (2013) Application of Musharakah Mutanaqisah Home Financing as an alternative to traditional debt financing: lessons learned from the U.S. 2007 subprime crisis. Journal of Islamic Economics, Banking and Finance, 9 (3). pp. 1-16. ISSN 2070-4658 http://ibtra.com/journal index.html
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English
topic	HG1501 Banking HG4001 Financial management. Business finance. Corporation finance.
spellingShingle	HG1501 Banking HG4001 Financial management. Business finance. Corporation finance. Abdul Razak, Dzuljastri Amin, Hanudin Application of Musharakah Mutanaqisah Home Financing as an alternative to traditional debt financing: lessons learned from the U.S. 2007 subprime crisis
description	One of the causes of the 2007 U.S. subprime crisis in 2007 is the use of traditional debt financing whereby the bank does not take risk of owning the property. Furthermore, the bank does not share its profit with customer and monthly instalment is pegged against market interest rate. This paper will initially examine salient issues (e.g. interest charges, indebtedness) faced by customers and banks during the crisis. Secondly, it will propose an alternative model known as musharakah mutanaqisah or diminishing partnership whereby the bank jointly own the property with customer and real rental rates replaces interest rate as a benchmark to the determine monthly instalment. In studying the rental rates, the hedonic pricing theory is discussed. It is argued that the musharakah mutanaqisah concept can address issues of the crisis through the application of the Shariah principles and necessary changes to the regulatory framework.
format	Article
author	Abdul Razak, Dzuljastri Amin, Hanudin
author_facet	Abdul Razak, Dzuljastri Amin, Hanudin
author_sort	Abdul Razak, Dzuljastri
title	Application of Musharakah Mutanaqisah Home Financing as an alternative to traditional debt financing: lessons learned from the U.S. 2007 subprime crisis
title_short	Application of Musharakah Mutanaqisah Home Financing as an alternative to traditional debt financing: lessons learned from the U.S. 2007 subprime crisis
title_full	Application of Musharakah Mutanaqisah Home Financing as an alternative to traditional debt financing: lessons learned from the U.S. 2007 subprime crisis
title_fullStr	Application of Musharakah Mutanaqisah Home Financing as an alternative to traditional debt financing: lessons learned from the U.S. 2007 subprime crisis
title_full_unstemmed	Application of Musharakah Mutanaqisah Home Financing as an alternative to traditional debt financing: lessons learned from the U.S. 2007 subprime crisis
title_sort	application of musharakah mutanaqisah home financing as an alternative to traditional debt financing: lessons learned from the u.s. 2007 subprime crisis
publisher	Islami Bank Training and Research Academy
publishDate	2013
url	http://irep.iium.edu.my/30821/ http://irep.iium.edu.my/30821/ http://irep.iium.edu.my/30821/1/Article_JIEBF_pdf.pdf
first_indexed	2023-09-18T20:45:03Z
last_indexed	2023-09-18T20:45:03Z
_version_	1777409619548700672

Application of Musharakah Mutanaqisah Home Financing as an alternative to traditional debt financing: lessons learned from the U.S. 2007 subprime crisis

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