Interest rates and Islamic commercial property financing: can there be a possible solution?

Siti Latipah Harun, Rosylin Mohd Yusof, Norazlina Abd. Wahab and Sirajo Aliyu

Journal of Islamic Accounting and Business Research, 2023, vol. 15, issue 6, 942-958

Abstract: Purpose - This study aims to investigate the dynamic interaction between interest rates and commercial property financing offered by Islamic banks in Malaysia. Design/methodology/approach - The authors use the autoregressive distributed lag (ARDL) cointegration methodology to analyse the short- and long-run effect of the interest rates and rental rates on commercial property financing of Islamic banks in Malaysia between 2010: Q1 and 2018: Q2. Findings - The findings reveal that changes in interest rates affect Islamic commercial property financing. This indicates that Islamic banks still rely on interest rates as a benchmark without fully implementing Islamic rental rates. This corroborates the subsequent finding, where overnight policy rates influence commercial property financing. Research limitations/implications - Despite the authors’ attempt to provide insights into Islamic commercial property financing, the study is limited to secondary data; further research can use survey information to obtain other details that are not included in this study. Similarly, this study does not cover the operation and financial lease debate in Musharakah Mutanaqisah. Future studies can examine the challenges faced by the financial institution towards implementing rental rates in other emerging and developing countries using a different methodology. Originality/value - This study is the first to investigate the dynamic changes in overnight policy rates, average lending rates and rental rates on Islamic commercial property financing in Malaysia using ARDL techniques. The authors uncover the research and institutional implications of Islamic commercial property financing rates and provide policy and future research directions coupled with the proposed modified rental rate to be developed.

Keywords: Islamic banks; Commercial property financing; Interest rate; Rental rate; ARDL; Autoregressive distributed lag; G210; R30 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
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:eme:jiabrp:jiabr-07-2021-0191

DOI: 10.1108/JIABR-07-2021-0191

Access Statistics for this article

Journal of Islamic Accounting and Business Research is currently edited by Dr Mohammad Hudaib and Prof Roszaini Haniffa

More articles in Journal of Islamic Accounting and Business Research from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().