Why Islamic Banks Are Reluctant to Offer Musharakah Mutanaqisah for Home Financing: The Case of Maybank Islamic and Affin Islamic Bank

This paper focuses on the challenges faced by Maybank Islamic and Affin Islamic Bank in implementing Musharakah Mutanaqisah (MM) Home Financing. Drawing upon two in-depth semi-structured interviews with these two banks’ leading officers who are actively involved in Islamic banking, the paper offers a list of key challenges faced by Maybank Islamic in implementing Musharakah Mutanaqisah Home Financing which lead the bank to change to Commodity Murabahah (CM) Home Financing. The reasons are advance rental that needs to be returned to the customer if the house is abandoned, refinancing issue, and marketing decision. In addition, the paper discusses the factors contributing to Affin Islamic Bank’s decision to continue offering Musharakah Mutanaqisah Home Financing. The reasons are minimising the use of Tawarruq contract, conformity with Bank Negara Malaysia’s (BNM) Ijarah Guidelines, no previous case of abandonment, product diversification, and comprehensive risk mitigation plan. This paper concludes by suggesting recommendations that may be adopted by Islamic banks and the regulators to facilitate the promotion of Musharakah Mutanaqisah Home Financing products. Notably, this paper offers empirical findings which are different from the previous literature.This paper focuses on the challenges faced by Maybank Islamic and Affin Islamic Bank in implementing Musharakah Mutanaqisah (MM) Home Financing. Drawing upon two in-depth semi-structured interviews with these two banks’ leading officers who are actively involved in Islamic banking, the paper offers a list of key challenges faced by Maybank Islamic in implementing Musharakah Mutanaqisah Home Financing which lead the bank to change to Commodity Murabahah (CM) Home Financing. The reasons are advance rental that needs to be returned to the customer if the house is abandoned, refinancing issue, and marketing decision. In addition, the paper discusses the factors contributing to Affin Islamic Bank’s decision to continue offering Musharakah Mutanaqisah Home Financing. The reasons are minimising the use of Tawarruq contract, conformity with Bank Negara Malaysia’s (BNM) Ijarah Guidelines, no previous case of abandonment, product diversification, and comprehensive risk mitigation plan. This paper concludes by suggesting recommendations that may be adopted by Islamic banks and the regulators to facilitate the promotion of Musharakah Mutanaqisah Home Financing products. Notably, this paper offers empirical findings which are different from the previous literature.

Keywords:

Musharakah Mutanaqisah, Reluctant Reasons, Advance Rental,

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