Can an Islamic model of housing finance cooperative elevate the economic status of the underprivileged?

M. Shahid Ebrahim ()

Journal of Economic Behavior & Organization, 2009, vol. 72, issue 3, 864-883

Abstract: A formal home loan is onerous to subprime borrowers in efficient markets. This can deter homeownership for financially strapped individuals, leading to a market failure. This paper proposes a special form of cooperative mortgage financing (practiced in Oman) to overcome this market failure. We integrate the literature of mortgage design with that of informal savings schemes (i.e., ROSCAs/ASCRAs) to illustrate that this mode of financing dissipates credit risk better than the formal mode of financing. It is also resilient to volatility of interest rates and allows prepayments without any additional charges. Finally, we verify the assertions of Besley et al. (1994) and Hart and Moore (1998) that cooperative mortgages are pareto-superior to formal mortgages in special cases.

Keywords: ASCRA; Asset; bubble; Mutual; bank; Inflation; Mortgage; design; ROSCA (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167-2681(09)00198-X
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Can an Islamic Model of Housing Finance Cooperative Elevate the Economic Status of the Underprivileged? (2009)
Working Paper: Can an Islamic Model of Housing Finance Cooperative Elevate the Economic Status of the Underprivileged? (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:72:y:2009:i:3:p:864-883

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().