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Musharakah Mutanaqisah and Al-Bay’ Bithaman Ajil Contracts as means for homeownership: a conceptual comparison

Home financing takes a large chunk of peoples’ income. As alternatives to conventional interest-based home financing modes, several Islamic modes are currently in existence, the dominant among which are the al-Bay’ Bithaman Ajil (BBA) and the Musharakah Mutanaqisah Partnership (MMP) contracts. The...

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Main Authors: Mydin Meera, Ahamed Kameel, Abdul Razak, Dzuljastri, Haron, Razali
Format: Conference or Workshop Item
Language:English
Published: 2006
Subjects:
HG1501 Banking
Online Access:http://irep.iium.edu.my/9750/1/A-_Young_Conference_UiTM-Musharakah_%26_BBA_%28BNM%29.pdf
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spelling my.iium.irep.97502014-09-07T04:24:02Z http://irep.iium.edu.my/9750/ Musharakah Mutanaqisah and Al-Bay’ Bithaman Ajil Contracts as means for homeownership: a conceptual comparison Mydin Meera, Ahamed Kameel Abdul Razak, Dzuljastri Haron, Razali HG1501 Banking Home financing takes a large chunk of peoples’ income. As alternatives to conventional interest-based home financing modes, several Islamic modes are currently in existence, the dominant among which are the al-Bay’ Bithaman Ajil (BBA) and the Musharakah Mutanaqisah Partnership (MMP) contracts. The BBA is a murabahah contract, based on buy-and-sell principle while the MMP consists of a musharakah (partnership) contract and an ijarah (rental) contract where the equity of the financier follows a diminishing balance method. Scholars are consensus on the Shari’ah permissibility of the MMP contract, but nonetheless, are not consensus on the permissibility of the BBA contract. Middle Eastern scholars generally disapprove of the BBA, which on the contrary is popular in Malaysia, Indonesia, and Brunei etc. This paper is a theoretical paper that compares these two contracts for the financing of assets, from Islamic and economic perspectives. The paper concludes that the MMP has several advantages over the BBA for the customer. Apart from being consensus Shari’ah-compliant, it can be made to avoid interest (riba) totally by means of using some rental or house price index while reducing the cost of homes and the duration of financing. The balance of financing, at any point in time, never exceeds the original price of the asset, unlike under the BBA where it can. When implemented through cooperatives, the MMP can also provide an investment avenue for members while not contributing to macroeconomic problems through the fractional reserve money creation process; and hence is argued to be consistent with the maqāsid al-Sharī’ah. The paper also provides a mathematical derivation note for the MMP. 2006 Conference or Workshop Item REM application/pdf en http://irep.iium.edu.my/9750/1/A-_Young_Conference_UiTM-Musharakah_%26_BBA_%28BNM%29.pdf Mydin Meera, Ahamed Kameel and Abdul Razak, Dzuljastri and Haron, Razali (2006) Musharakah Mutanaqisah and Al-Bay’ Bithaman Ajil Contracts as means for homeownership: a conceptual comparison. In: Young Scholars Conference, 18-20 April 2006, Langkawi. (Unpublished)
institution Universiti Islam Antarabangsa Malaysia
building IIUM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider International Islamic University Malaysia
content_source IIUM Repository (IREP)
url_provider http://irep.iium.edu.my/
language English
topic HG1501 Banking
spellingShingle HG1501 Banking
Mydin Meera, Ahamed Kameel
Abdul Razak, Dzuljastri
Haron, Razali
Musharakah Mutanaqisah and Al-Bay’ Bithaman Ajil Contracts as means for homeownership: a conceptual comparison
description Home financing takes a large chunk of peoples’ income. As alternatives to conventional interest-based home financing modes, several Islamic modes are currently in existence, the dominant among which are the al-Bay’ Bithaman Ajil (BBA) and the Musharakah Mutanaqisah Partnership (MMP) contracts. The BBA is a murabahah contract, based on buy-and-sell principle while the MMP consists of a musharakah (partnership) contract and an ijarah (rental) contract where the equity of the financier follows a diminishing balance method. Scholars are consensus on the Shari’ah permissibility of the MMP contract, but nonetheless, are not consensus on the permissibility of the BBA contract. Middle Eastern scholars generally disapprove of the BBA, which on the contrary is popular in Malaysia, Indonesia, and Brunei etc. This paper is a theoretical paper that compares these two contracts for the financing of assets, from Islamic and economic perspectives. The paper concludes that the MMP has several advantages over the BBA for the customer. Apart from being consensus Shari’ah-compliant, it can be made to avoid interest (riba) totally by means of using some rental or house price index while reducing the cost of homes and the duration of financing. The balance of financing, at any point in time, never exceeds the original price of the asset, unlike under the BBA where it can. When implemented through cooperatives, the MMP can also provide an investment avenue for members while not contributing to macroeconomic problems through the fractional reserve money creation process; and hence is argued to be consistent with the maqāsid al-Sharī’ah. The paper also provides a mathematical derivation note for the MMP.
format Conference or Workshop Item
author Mydin Meera, Ahamed Kameel
Abdul Razak, Dzuljastri
Haron, Razali
author_facet Mydin Meera, Ahamed Kameel
Abdul Razak, Dzuljastri
Haron, Razali
author_sort Mydin Meera, Ahamed Kameel
title Musharakah Mutanaqisah and Al-Bay’ Bithaman Ajil Contracts as means for homeownership: a conceptual comparison
title_short Musharakah Mutanaqisah and Al-Bay’ Bithaman Ajil Contracts as means for homeownership: a conceptual comparison
title_full Musharakah Mutanaqisah and Al-Bay’ Bithaman Ajil Contracts as means for homeownership: a conceptual comparison
title_fullStr Musharakah Mutanaqisah and Al-Bay’ Bithaman Ajil Contracts as means for homeownership: a conceptual comparison
title_full_unstemmed Musharakah Mutanaqisah and Al-Bay’ Bithaman Ajil Contracts as means for homeownership: a conceptual comparison
title_sort musharakah mutanaqisah and al-bay’ bithaman ajil contracts as means for homeownership: a conceptual comparison
publishDate 2006
url http://irep.iium.edu.my/9750/1/A-_Young_Conference_UiTM-Musharakah_%26_BBA_%28BNM%29.pdf
http://irep.iium.edu.my/9750/
_version_ 1643606299788705792
score 13.211869

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