MUSYARAKAH MUTANAQISAH AN ALTERNATIVES TO BBA IN HOME FINANCING
UNIVERSITI TEKNOLOGI MARA(UiTM)SHAH ALAMMBA 770GROUP PROJECT
AZLINDA BINTI HARUN2011149521HAJAR BINTI AHMEDY2011157475MUSYARAKAH MUTANAQISAH AS ANALTERNATIVE TO BBA INHOME FINANCING
Musharakah Mutanaqisah Partnership (MMP) MMP based on diminishing partnership concept. MMP consists of three contracts which are musharakah,ijarah as well as bay’ First, the customer enters into a musharakah under the concept of‘Shirkat-al-Milk’ (joint ownership) agreement with the bank to co-own the asset being financed Second, the bank leases its share in the asset ownership to thecustomer under the concept of ijarah.
BBA as Home Financing A sale contract which provides the buyer the benefit of adeferred payment The price is deferred and BBA can also be categorized as acredit sale and if the payment is made by installments. This concept has been widely used in Asia country forexample Malaysia, Indonesia and Brunei
Case of Arab Malaysian Finance Berhad vs Taman IhsanJaya (2008) The BBA in house financing, is regarded as a loan transaction andnot a sale and purchase transaction BBA prescribed that if the borrower defaulted on the loan, thedefaulting borrower is to repay to the bank the whole total of the saleprice BBA was held not only contain the riba’ element, its nature andoperation were also deemed inequitable and unjustto purchasers/borrowers
Impact of BBA to customers Customers must pay the home installments or purchaseddespite the home has been neglected by the developer BBA give higher cost compared to the conventional
Advantages of MM Bank MM is based on partnership and leasing contract where bothMushakarah partners assume the risks of property acquisition. MM is accepted internationally Easy restructuring / rescheduling process, need not be tied tothe bank sale price Customers Just product Customers own the asset 100% upon full redemptionunder MM financing
Different between BBA and MMBBA MUSYARAKAH MUTANAQISAHDebt Type Financing A joint ownershipMore complicated, and buyer only can ownthe property right after the full payment ofthe full tenor has been made.More flexible, can own the property earlier byredeeming earlier the principal sum of the bankwithout the need to compute the rebates.The return of the BBA is based on fixedselling priceThe bank needs not bind to a fixed profit ratethroughout the financing tenor.The rental can be revised periodically to reflect thecurrent market situationThe customer will always end paying almostfour times the original cost as it may beburdened for the lower-income group inparticular.There is no interest charge or advanced profitinvolved as it is based on the concept of rentalpayments and redeeming the bank’s shares in thepropertyMany may be of the opinion that BBA issimilar to conventional loans.It is accepted internationally as Shari’ah compliant
Challenges in Implementing MusyarakahMutanaqisah How Islamic banks can utilize Musharakah Mutanaqisahbased financing contract to cater the low income customers. To educate the representation of Islamic banks on the trueobjectives of Islamic banks To promote Musharakah Mutanaqisah Islamic banks are bound to Bank Negara Malaysia’sregulations
Conclusion To conclude, Islamic finance has continued to expand in themore challenging and competitive international financialenvironment. The products that they are offering now have beenimproved from time to time. With the cooperation among government, regulators,bankers, Shariah scholars as well as customers, thisproduct has lots of potential and more Shariah complaintcompared to previous financing product, which is Bai’Bithaman Ajil.