Islamic norms, the excel formula and home financing models

Zubair Hasan

MPRA Paper from University Library of Munich, Germany

Abstract: This paper adds to the series of writings on Islamic home financing presented and published by the author since February 2010. It spells out certain norms Islamic banks must observe in home financing and demonstrates that the conventional model based on an Excel formula does not meet the stated norms. It may well be emphasized that in Islam the question of observing these norms arises before, and not after, the selection of the formula; additional juristic requirements may only follow subsequently. Is it not then strange many Islamic banks are using the formula to determine the periodic instalment payments in their home financing programs? The paper finds, for example, the popular Musharakah-Mutanaqisa Partnership (MMP) Islamic home financing model to be non-compliant with the stated norms. It presents a new model―the Zubair Diminishing Balance Method (ZDBM) ― and argues that the alternative is not only fully observant but is superior to the MMP model on some other counts as well.

Keywords: Home finance; Excel amortization formula; Compounding; Islamic norms; Justice. (search for similar items in EconPapers)
JEL-codes: G02 G2 (search for similar items in EconPapers)
Date: 2012, Revised 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published in ISRA: International Journal of Islamic Finance 1.5(2013): pp. 7-28

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