Islamic Modes for Home Ownership Finance Essay

Home is a basic necessity for human life. Everyone needs a shelter for rest, sleep, comfort and protection from sun and rain. It is a place to dwell in comfort with family. Therefore, owning a good home is an aspiration of everyone. People fulfill this need by building a home on their own, purchasing it or renting it from others. Indeed, payment for home mortgage normally takes a good chunk of one's monthly income. Conventional home mortgages are, of course, interest-based and forbidden in Islam. Accordingly, Islamic financial institutions have introduced a number of Shari'ah-compliant modes for home ownership, the dominant of which are the al-Bay' Bithaman Ajil (BBA) and the Musharakah Mutanaqisah Partnership (MMP) contracts. The BBA is the popular concept in countries like Malaysia, Indonesia and Brunei whereas the MMP is widely practiced in the Middle East, United States, Canada, United Kingdom and Australia. The Middle Eastern Shari'ah scholars disapprove of the BBA contract, citing that it is similar to the conventional loans. Indeed, theory of finance predicts that the Islamic modes like BBA to converge to ties conventional counterpart due to the law-of-one-price. This convergence has caused Islamic finance to evolve greatly; from being a "profit-and-loss" banking to fixed-rate murabahah financing, and now towards a floating rate financing mode. The Central Bank of Malaysia, for example, has approved a "floating-rate" BBA where the customer pays a monthly installment amount that is on the higher end but thereafter gets a rebate based on the prevailing market interest rate. Indeed, many BBA customers have shown dissatisfaction over its implementation.

Caught without much choice, the widespread application of the BBA in this part of the world, has however, put customers as well bankers in jeopardy particularly during volatile economic conditions. This is because BBA is similar to fixed rate "debt financing". During the 1997 East Asian financial crisis, for example, when interest rates were soaring up, the Islamic banks were unable to react, thereby causing huge arbitrage opportunities. Additionally, this also caused liquidity and risk management problems. Accordingly Islamic banking and finance is being forced to change further; to be one that is Shari'ah-compliant and 'friendly' to the customer while also bearing liquidity and other risks 'comparable' to the conventional banking.

The BBA is basically a sale contract which provides the buyer the benefit of a deferred payment, whereby the deferred price of the sale object carries and additional profit. It is an extension of the murabahah (cost plus) contract, whereby the commodity exchanged is "delivered" immediately but the sale price (with profit) is paid in installments, over a long period (the murabahah itself being generally for short period). While the BBA is widely used in Malaysia, Indonesia, Brunei and few other countries, it has been subjected to much controversy among the fuqaha worldwide with regards to its permissibility; where most of the Middle East scholars have rejected it. Even through some Shari'ah councils have agreed on its permissibility, a guideline from the Council of Islamic Ideology (Pakistan) in its report on the elimination of interest states that:

"However, although this mode of financing is understood to be permissible under the Shari'ah, it would not be advisable to use in widely or indiscriminately in view of the danger attached to it of opening a back door for dealing on the basis of interest."

In the conventional system, home financing is, of course, usually interest-based and is forbidden in Islam. The current BBA home financing, however, does not alter much the above equation. Instead of charging the customer interest, financiers charge a profit derived through a buy-and-sell contract which is permitted in Islam, but regretfully, the profit rate is dependent on the market interest rate due to arbitrage activities. Therefore, while the BBA is practiced as Shari'ah compliant in some countries, it is, nonetheless converging to the conventional mode where the computation formulas are similar to the conventional and where the profit rate tracks the market interest rate.

The current difference between the fixed-rate BBA and the conventional mode is that once the profit rate is fixed in the BBA, say 7% per annum, it will remain the same for the entire duration of financing. This, in fact, causes problems for the financiers as it is difficult to estimate accurately the cost of funds and hence the appropriate profit rate over long periods like 20 years, due to the volatility of economic conditions. This encourages customers to refinance their home from BBA to conventional during low interest periods and vice versa.

1.1 Al-Bay' Bithaman Ajil Legal Documentation

To further discuss the legal documentation of BBA and how the option of defect came into effect, it is important understand the nature of the BBA legal documentations. A BBA legal documentation must reflect the true nature of sale (al-bay') contract. The terms and conditions of al-bay' such as the purchase and selling prices, the rights and duties of a seller and buyer, consideration, etc. must be included. Any uncertainties and ambiguities about the principles of a sale contract can tantamount to a contract to be rendered null and void. Likewise, the terminologies used in the sale contract must reflect the rules and principles governing it; such expression such as loan, fixed returns must be strictly avoided. Equally important is the issue of ownership. The main purpose of a sale contract is to transfer ownership from the seller to the buyer. As such, this is the basic consideration that the buyer is getting in return to the money he has paid to the seller. The ownership should be unqualified/unconditional; any attempts to qualify it could make the sale contract invalid at the option of the buyer. In addition, the issue of liability is also paramount important in a sale contract. Both parties, seller and buyer should be liable to each other and they must comply with their respective rights and obligations. Under no circumstances that one party can transfer all the risks and liabilities to the other as this can cause hardship to the other party while leaving the other free from any risks and liabilities whatsoever. Shari'ah advocates the principle of equal bargaining power whereby all the contracting parties are deem to be equal at the eyes of Allah and the transaction they are involved in. As such, legal documentation should be able to translate all the principles of al-bay' in conformity to Shari'ah. The rule of construing and interpreting the provision must be obvious and clear. If it is a BBA transaction, ipso facto it must be construed as one, thereby all the rules and requirement of a sale contract will follow suit. Under no circumstances, that the provision allows that the contract to be construed otherwise. This next section attempts to elucidate how legal documentation of BBA has been formulated and to discuss whether such practice is acceptable by Shari'ah and if not, to offer some remedy to it in view of reform.

2.0 Al-Bay' Bithaman Ajil (BBA) in Malaysia

In our Malaysia context, the Islamic Banking and Finance growth in Malaysia is very encouraging. The central bank of Malaysia or Bank Negara Malaysia (BNM) has set a target of 20% of all deposits and financing in the banking industry to be under Islamic Banking by 2010. As of June 2006, the assets of Islamic banking in Malaysia were RM 143 billion or 12% of the total assets of the banking industry. Islamic banking deposit amounted to RM 107.5 billion while its share of financing was RM 81.5 billion (representing 12.8 % of the total banking deposits and 13.3 % of the total financing respectively as at 30th June 2006).1 The assets of Islamic banking continue to develop at a double digit growth of 18% in the recent five years. The Islamic sukuk market has now exceeded RM120 billion and represents the largest Islamic bond market in the world.

The predominant concept for Islamic home financing currently in Malaysia is al-Bay' Bithaman Ajil (BBA). It has been practiced by almost all financial institutions in this country since it was implemented by Bank Islam Malaysia Berhad (BIMB) in 1983. The BBA is a deferred installment sale whereby bank capitalizes its profit up front in the sale of the property to the customer who in turn is required to pay a fixed sum until the tenure ends. It is similar to debt financing, which results in high cost and poses a burden to one's family obligation. The BBA practiced in Malaysia is seen not to be in compliant with the Shariah principle as the bank does not take the risk of ownership and liability on the property Rosly (2005) Sanusi (2006) and thus not acceptable by international scholars.

In addition, BBA is dependent on market interest rate as its bench mark. This causes problem in product pricing and marketing for Islamic home financing as when the market interest rate is low, the amount financed will be more expensive than the conventional loan. Thus, customers may withdraw from Islamic banks and transfer its facility to conventional loan. Consequently, when the market interest rate is higher than BBA profit rate, Islamic banks suffer losses as it cannot increase the profit rate in BBA due to its fixed selling price.

Siddiqi (1983); Ahmad (1984); Siddiqui (2001); Rosly and Bakar(2003) and others argue that a financial system built dominantly around debt based modes of financing cannot be superior than the existing interest-based system on the basis of equity, efficiency, stability and growth. This is because these modes of financing are actually similar to the conventional banking modes and thus cannot remove the injustices of the interest based system. Profit making is not the sole objective of Islamic banks as it also has to incorporate social responsibility into their objectives (Ahmad 2000). Ahmad's view is supported by many other scholars Chapra (1985); Siddiqi (1983, 1985); Ahmad (1984); Siddiqui (2001); Haron (1995, 2000); Rosly and Bakar (2003); Haron and Hashim (2003) and Naqvi (2003). They opined that Islamic banks must also take care of the society and promote Islamic norms and values as well. This reasoning is in line with the philosophy of Islam as way of life (Al-Din) and hence Islamic banks should not limit their scope to financial activities only.

Customers are apparently not happy with the current implementation of BBA home financing as many of its features mirror that of conventional mortgage financing. BBA is essentially structured as a long term debt obligation whereby the price is fixed based on the market interest rate. This makes the overall cost of financing higher compared to the conventional financing which is able to vary its price based on changes in the market interest rate. As such the product poses a financial burden to individual and affects one's family budget. Similarly when it comes to early redemption or in the event of default, the BBA contract always carries a higher financing balance compared to the conventional loan of similar annual percentage rate (APR). The recent Affin Bank vs. Zulkifli4 is a land mark case. When work in progress to construct a house is abandoned by the developer or due to calamity, the customer still has to pay monthly installment even though the property cease to exist. For the bankers, the BBA mode of financing brings in liquidity management problems. This is because its cost of funds, particularly the deposit rate is based on floating rate while its income is predominantly based on fixed long term rate causing fund mismatch in the duration.

The use of BBA is not limited to the Muslim customers as some Non-Muslim customers do engage in BBA to finance their home buying. Given the weaknesses associated with BBA, it is of interest to see if the views are shared by both Muslim and Non-Muslim customers. The knowledge of such information would have a direct impact onto the alternative financing mode that could be used to overcome the inherent weaknesses in BBA. With those objectives in mind, this paper attempts to analyze the perception of Muslim and Non-Muslim customers with regard to certain features of BBA notably those that are rather controversial in nature.

2.1 Example of al-Bay' Bithaman Ajil (BBA) Financing

There are several types of financing in al-Bay' Bithaman Ajil (BBA). They are home financing, land financing, shop and shophouse financing, Umrah and Ziarah financing, tour package financing, Naqad overdraft facility, vehicle financing, golf financing, and education financing. But today we will focus on BBA home financing. For example, assume that a customer wishes to buy a houses priced at RM200,000. The customer puts a down payment of 10 percent, RM20,000 and finances the remaining 80 percent, RM180,000 using the BBA method. Also assume that the Annual profit Rate (APR) charged by the bank is 10 percent per annum and the duration of financing is for 20 years. The Islamic bank would first buy the house for RM180,000 and then sell the house to the customer at a profit, with deferred payment over the 20-year period.

The monthly payment for the above financing is RM1,735.04, payable for 240 months which adds up to RM416,889.35 in total. The difference between this figure and the original financing of RM180,000 which equals RM236,889.35 is capitalized upfront in the BBA mode, unlike under the conventional mortgage is that of the balance of financing remaining before the expiry of the duration of financing. For our example, the BBA balance after 10 years is the total of the remaining 120 payments, RM208,444.80 whereas under conventional mortgage, this amount would represent the total interest paid for the early repayment, but the amount of rebate is determined at the discretion of the bank. Since the selling price is a price, indeed, Shari'ah prohibits the rebate to be stated as part of the contract. Note that even after ten years of repayment, the balance under the BBA mode can even exceed the original financing of RM180,000. Nevertheless, considering all the socio-economic effects of fiat money, we regretfully assert that Islamic banking within the fractional reserve system can, indeed, be very damaging to the economy.

While both the Islamic bank and the conventional bank create the original principal amounts through fractional reserve banking system, a customer owes more money in the Islamic mode than the conventional mode at any time thereafter until the loan is settled. This fact alone is very attractive for even the conventional bankers to provide Islamic mode financing. But, nonetheless, considering the serious negative socio-economic implications of fiat money-based fractional reserve banking, we regretfully conclude that Islamic banking under fractional reserve system is likely to accelerate the said effect-default rates, transfer of wealth and sovereignty.

2.2 Operational issues of BBA Home Financing

BBA is a facility provided by the financier to assist the customer pay the cost of financing. For example a house, over the tenor of financing, 20 years at a fixed rate determined by the financier. The financier initially buys the house from the customer (cost of financing amount) and sells it back to the customer, plus of its profit margin.

As the seller of the property, the Shari'ah requires the bank to hold ownership of the property and to hold all liabilities arising, including defects. But currently, BBA documentations show that the bank merely acts as a financier rather than a seller and excludes itself of all liabilities. This, of course, ignores the Shari'ah principle of "al-Ghorm bil Ghonm" (no reward without risk), "Ikhtiar" (value-addition or effort) and "al-Kharaj bil Daman" (any benefit must be accompanied with liability), thereby rendering the BBA profit to be implicated with riba.

The issue of concern here is the availability of iwad (counter value) in BBA financing. According to Rosly (2005), the Qur'an uses trade (al-bay) because the profit generated from trading incorporates risk-taking, while the contractual profit from loan transactions (riba) is risk-free. It further asserts that al-bay implies the existence of iwad required by the Shari'ah to be a lawful profit in Islam. Three elements of iwad that should exist are risk (ghorm), work and effort (ikhtiar) and liability (daman).

Iwad is the basic trait or the conditio sine quo non of a halal or lawful sale (al-bay), because a sale is necessarily an exchange of value against an equitable return and compensation for the goods or services exchanged. According to Ibn al-'Arabi (d.543H/1148), every increase which is without an iwad or equal counter value, is riba. Iwad is the necessary requirement to be fulfilled in trading (al-bay) as it brings along a sense of equity and justice into a business that rendered it superior to an interest-bearing system.

Rosly (2005) also opined that there is no risk taking in the current BBA financing, and, hence, does not merit the Qur'anic concept of al-bay. Daman (liability) should also exist in a trading transaction whereby the supplier provides guarantees on the goods sold. However in the current BBA home financing, the customer is forced to face the financial burden of paying for the house even before it is completed, as he has engaged in a 'debt contract' with the bank at the outset. By ignoring the concept of iwad, the BBA contract is not seen as conforming to the maqasid al-Shari'ah that removes hardship (raf' al-haraj) and preventing harm (daf' al-darar) in the economic sphere, thereby leaving the welfare of people unprotected - a possible crime when the transaction is done under an Islamic label.

Another issue that arises from the long-term BBA financing is the mismatching of the BBA funds against its short-term deposit tenor. Whilst conventional financing has the ability to address this mismatch in the cost of funds through the variable interest rate (BLR + a spread), BBA financing cannot do this since customers are charged a fixed profit rate for the entire period of financing.

2.3 Different Interpretation between Malaysia and Middle East

Rosly (2005) pointed out that bay' al-'nah generally involves two contracts of sale simultaneously which includes spot and credit sales such as al-Bay Bithaman Ajil notes. The secondary notes are contractual coupon profits, which is included in the repayments that are made by the issuance of Islamic bonds and can only be achieved by implementing the bay' al-'inah. This transaction is like a loan given by a creditor to a debtor. A company is more likely to obtain capital by issuing a bond rather than taking a loan directly from a bank because the coupon rate to be paid in bonds is cheaper than interest charge by banks. Rosly also stated that bay' al-'inah contract is a loan in the form of a sale. The sale is an appearance only to show the permissible transaction for debtor to get the money. To legalize the loan transaction under Islamic law point of view, the creditor use subterfuge technique by creating a fictitious object or asset and sells at higher price payable by installment in the future. However, the parties who are involved do not have intention to use the object of sale for consumption purposes.

Rosly (2005) cited from Rayner, such kind of transaction is considered valid in Malaysia but not in the Middle East countries. The possible reason behind this is that Malaysia and Middle East follows different schools of thought. The Malaysian shari'ah scholars follow the Shafi'e school of thought while the Middle East scholars follow the Hanafi, Hanbali and Maliki schools of thought as the basis for their opinion on certain rulings in the operations of Islamic banking. According to the Hanafi's, Hanbali's and Maliki's, bay' al-'inah is not permissible, thus Middle East investors consider it as unlawful practices. Indeed, the Hanafi, Hanbali and Maliki scholars agreed that the object of sale created to allow a loan with interest and the intention among the parties is dishonest because they do not utilize the object. Hanafi, Hanbali and Maliki put a niyyah (intention) as an important element in determining the validity of contract.

Hanbali scholars emphasized that the nature of the sale and purchase contract is valid but when the contract results in riba, the contract is void. Furthermore, Hanbali gives priority on real intention (in heart) rather than declared intention (in the contract). Hanafi and Maliki scholars agreed that there is no difference between real and declared intention and dishonest motives depend on the particular person's act. This means that when they are involved in an illegal contract, it proves that their acts are also illegal and therefore, not allowed under Islamic law. This has been accepted by Middle East jurists for not allowing bay' al-'inah.

Shafi'e scholars said the niyyah is an immaterial element and bay' al-'inah is acceptable. This opinion was taken up by Shari'ah scholars in Bank Negara Malaysia and Securities Commision, when they considered bay' al-inah as a valid and permissible contract (Rosly and Sanusi; 1999). In addition, Shafie emphasized more on declared intention as included in the contract or agreement between the parties involved. This is because nobody knows what is contained in the hearts of others (Rosly; 2005). Rosly stated, "Shafie regarded it as perfectly valid on the basis that one has the right to sell an object at a diminished price to that which he himself paid. Example, Mr X sells an object worth RM 1,000 for RM 800 cash to Mr. Y and buys it again from Mr. Y at RM 1,000 payable by installment".

The different interpretation between these two schools of thought was taken from the marriage contract, where the real and declared intentions are an important element under Shari'ah. The marriage contract is known as muta. This contract is invalid, according to Shafie, when the parties declared their intention and agreed that their marital status is only for certain period of time. Hanbali, Hanafi and Maliki schools of thought considered this contract invalid even though the parties involved did not make any declaration about their intention of divorce after an agreed period of marital life.

According to the Shafi'e school, real intention cannot be used as evidence in determining the validity of contract but the important element is the declared intention (written in the contract). However, Hanafi, Hanbali and Maliki schools of thought prohibit the immoral act as precedent over real intention. Thus, the bay' al-inah was applied under same mechanism.

The Islamic financial system employs the concept of participation in the enterprise, utilizing the funds at risk on a profit and loss sharing basis. Profit and loss sharing is a concept which encourages better resource management. Islamic banks are structured to retain a clearly differentiated status between shareholders' capital and clients' deposits in order to ensure correct profit sharing according to Islamic Law. Hence, musharakah mutanaqisah partnership is introduced to inspire the element of sharing in terms of capital and liability between financier and customer. Meera and Razak (2005) pointed out Musharakah Mutanaqisah Partnership (MMP) contract that consists of musharakah (partnership) and ijarah (lease) contracts is a better alternative to the BBA. It is purely based on rental payments of property and the redeeming of the financier's shares. Musharakah Mutanaqisah is based on a diminishing partnership concept. It has two portions of contracts. Firstly, the customer and the bank or financer enters a partnership under the concept of shirkah al-milk (joint ownership). Then, the customer will redeem the bank's share gradually in predetermined time (at the beginning of an agreement) until the customer fully owns the asset such as a house.

Secondly, in the procedure of redeeming the bank's share, the bank leases the ownership of the house to the customer under the concept of ijarah by charging a rent. At the same time, the customer will pay periodic rentals to the bank for using the bank's share of the asset. Consequently, the customer's share ratio would increase after each rental payment until the asset is eventually fully owned. The MMP is widely practiced in the Middle East, United States, Canada, United Kingdom and Australia. Bendjilali and Khan (1995) and Taqi Usmani (2002) agreed that the product could help people to rely less on BBA. Moreover, the MMP can be implemented for housing financing and machinery financing whereby the assets can be leased out according to agreed rental payments (Taqi Usmani; 2002).

Besides that, MMP is suited to be practiced by housing cooperatives, where the funds are provided by the members for benefit of the members themselves. This concept provides cheaper housing payments and it also provides returns from the rentals and the sale of asset Shari'ah scholars have compromised on the permissibility of MMP contract internationally. It can be implemented to avoid interest (riba) totally and reduce the cost of assets and the duration of financing. MMP is not like BBA where the balance of finance will not exceed the original price of asset. Furthermore, MMP is a fair instrument compared to the conventional loan and the BBA where no interest is charged in the contract (Meera and Razak; 2005).

2.4 The Differences between the BBA and the MMP Contracts

In summary, the main differences between the joint ownership MMP and debt-type BBA financing are as follows:

1. There are two separate contracts under the MMP method. The first is a musharakah where the client is a partner and the second one is an ijarah which involves the leasing of the property. The BBA, on the contrary, follows the murabahah concept of buying and selling of property.

2. Under BBA, the selling price of the house does not reflect the market value since the mark-up for the deferred payment is quite substantial. On the contrary, the value of the house under MMP always reflects the market price and the rental is determined by the market rental values.

3. The return to the BBA is based on a fixed selling price (that uses the prevailing interest rate as the benchmark). But under MMP, the financer need not be tied to a fixed profit rate throughout the financing tenor. This is because the rental rate can be revised periodically to reflect current market conditions. Indeed, as argued earlier, the rental can be tied to some economic variables like Rental Index, House Price Index etc.

4. The financier can manage the liquidity risks better as rental payments can be adjusted at the end of each subcontract period. This is not possible under the current fixed-rate BBA as the profit rate is a constant throughout the entire tenor of financing.

5. Even compared with a floating-rate BBA, the MMP still differs in the balance of financing at any point in time before the end of the contract. Under MMP the balance can never be larger than the original price/finance of the house. Rebates for early redemption under BBA cannot be specifically stated in the contract.

6. The MMP is a more flexible financing structure than the BBA as the customer can own the property earlier by redeeming faster the principal sum of the financier, without the need to compute rebates as in BBA.

7. In the event of payment defaults, the penalty charges under BBA can be challenged, while under MMP, defaults will cause the equity of financier to remain constant and therefore entitled to higher rental portions when payments made later.

8. Currently many customers opine that the BBA is similar to the conventional loan with some "disadvantages" for the customer particularly for early redemptions.

9. The MMP is accepted internationally as Shari'ah-compliant whereas the BBA is recognized predominantly in the east, i.e. in Malaysia, Indonesia, Brunei etc.

3.0 Conclusion

Since the introduction of Islamic banking in Malaysia, BBA has enjoyed the privilege of being the most predominant concept of Islamic home financing. BBA is however, based on debt concept which results in high cost and poses a burden to one's family obligation. Besides, BBA as practiced in Malaysia is seen not to be in compliant with the Shari'ah principle as the bank does not take the risk of ownership and liability on the property (Saiful 2005) (Sanusi 2006) and thus not acceptable by international scholars. Given the controversial features of BBA home financing, there is high dissatisfaction among the present and potential customers of BBA. However, such evidence had been absent or had not been collected systematically to assess the acceptance level of BBA. This paper has filled the gap by examining the perception of Muslim and Non-Muslim customers toward BBA.

The findings suggest a high level of dissatisfaction among the customers as evidenced by their low intention to use BBA in the future home financing choice. Muslim customers in general are concerned about the features of BBA notably its compliant with Shari'ah as well as its inability to fulfill the broad objective of justice, equality and societal well being. The Non-Muslim customers however seem to have greater beliefs in BBA and its ability to fulfill socially desirable objectives. BBA has certainly overstayed its welcome and there is a dire need to find an alternative to BBA. Bankers should be looking for a viable alternative especially one that could overcome the Shari'ah compliant issues well. Diminishing Partnership is one of the newly emerging concepts that fulfill the Shari'ah requirements and is fast gaining acceptance. Bankers should be reading the strong signal sent by findings of this study and consequently prepare for another level of battle in Islamic home financing.

At the last part, comparative analysis between the al-Bay Bithaman Ajil (BBA) and Musharakah Mutanaqisah Partnership (MMP) contracts as means for home ownership. While a home is basic necessity, it consumes a large chunk of peoples' income for long periods. In the present interest-based fiat monetary system, owning a home is increasingly becoming burdensome. Indeed, mortgages are one of the significant causes of bankruptcies. While price of homes keep rising, the mortgage duration also keep rising, till two-generation mortgages are even being talked about.

In this regard, this paper attempted to argue in favour of the MMP as a better alternative to the conventional mortgage and the Islamic BBA. The BBA is a murabahah contract, that is based on a 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. Shari'ah scholars are consensus on the permissibility of the MMP contract internationally, but only scholars in the east generally permit the BBA contract. 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 and can reduce the cost of homes and the duration of financing. The balance of finance, at any point in time, never exceeds the original price of the asset, unlike under the BBA where it can.

When a home is purchased from a developer and financed using the present conventional or Islamic BBA, the customer would end up paying about four times the original cost (both the developer and the bank are assumed to make a gross 100 percent mark-up). This, undoubtedly, can burden particularly the low income group. But, Musharakah Mutanaqisah Partnership is in line with the objectives of Shari'ah as it allows people to own homes with limited initial capital. In doing so, it promotes the welfare of the people. Anything that protects or promotes these is considered as serving the maslahah and hence desirable. As al-Ghazzali remarked:

"The very objectives of the Shari'ah are to promote the welfare of the people, which lies in safeguarding their faith, their life, their intellect, their posterity and their wealth. Whatever ensures the safeguarding of these five serves public interest and is desirable"

Admittedly though, the MMP is less attractive to the banker compared to the BBA. For that matter, a viable avenue to implement the MMP is through a cooperative setting. When implemented through cooperatives, the MMP can also provide an investment avenue for members while substantially reducing the price of house and the duration of financing. The concept has a positive impact on the economy and reduces inflation as no additional money is created in the system compared to debt-financing, as currently done under the fractional reserve banking system.

The MMP is just and fair compared to the conventional loan and the BBA as there is no interest charge or 'advanced' profit involved in the Musharakah Mutanaqisah Partnership contract. It is purely based on rental payments of property and the redeeming of the financier's shares.

As a benchmark, the paper suggested the use of a Rental Index or House Price Index in determining the rental to be charged for each specified ijarah contract period.

The MMP concept is a viable alternative to the conventional floating rate financing since the rental rate can be adjusted if there are fluctuations in the economy. Hence, it is more flexible, wherein the Islamic bank will not be faced with too many uncertainties due to variations in economic conditions.

As for the society, the MMP brings stability into the economy by promoting positive partnership instead of negative indebtedness thus assisting in the equitable distribution of society's wealth; minimizing the large number of debt defaults and bankruptcies that are observed in the current financial system.

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