Mortgage contracts in Islamic home finance: Musharakah Mutanaqisah program vs. Zubair diminishing balance model

Zubair Hasan

MPRA Paper from University Library of Munich, Germany

Abstract: The present paper attempts two demonstrations. First, it shows that the Excel formula Islamic banks invariably use to determine the fixed installment payments in home financing amortization has explicit compounding of return. Once the installment is based on that formula, the subsequent claims that in implementation the charge becomes free of interest hardly remain tenable. Second, the paper proposes an alternative home finance model where the mortgage contract has several merits over the structure in common use i.e. the musharakah mutanaqisa program or the MMP. The proposed model is cheaper for the buyer while the margin of return for the banker is not reduced; thus, painting a win-win situation for both. It attracts no juristic doubts. Some bankers of international repute have already hailed the model as an innovative useful breakthrough in the area of Islamic finance. Finally, the model aligns better than others with the maqasid or the objectives of the Islamic law.

Keywords: Home finance; conventional model; mortgages; MMP; ZDBM; Social view (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2012-06
New Economics Papers: this item is included in nep-ara, nep-cwa and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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