Projection Pricing for Musyarakah Mutanaqisah Home Financing with the use of Rental Yield as the Reference Benchmark Pricing
-
https://doi.org/10.14419/ijet.v7i3.35.29466
-
Islamic financial institution, Musyarakah mutanaqisah home financing, Reference benchmark pricing, Rental yield -
Abstract
The Islamic financial institution offers home financing products which are fully compliant with the Shariah. However, these Islamic financial products are in the absence of a reference benchmark pricing which is free from the interest rate. There is a call for introducing a reference benchmark pricing an alternative to interest-based borrowing and free from any of riba element. Usmani (2008) stressed that even though using an interest-based benchmark pricing is allowed and the practice is highly discouraged. He further argued that the practice of reference benchmarking pricing against interest rate does not advance the basic philosophy of promoting Islamic economy, whereby it makes no impact on the distribution system. The main objective of this study is to assess the projection of the pricing for musyarakah mutanaqisah home financing. The projection pricing is performed with the viability of adopting the rental yield as a reference benchmark pricing, which is the alternative to relying on the market interest rate. The forecasting technique of the Artificial Neural Network (ANN) model is adopted to assess the predictability of the rental yield of the housing market for a period of 20 years. Subsequently, the forecast data is used to project the pricing of musharakah mutanaqisah home financing product using simulation method. The projection pricing of musharakah mutanaqisah is compared with the bai bithaman ajil (debt-based financing) and the conventional home financing. Based on simulation exercise, there is a significance difference between total payment by the customer for these two products. The Islamic financial institution can consider relying on the rental yield as the reference benchmark pricing to price the home financing product.
Â
-
References
[1] Ahamed Kameel Mydin Meera, & Dzuljastri Abdul Razak. (2005). Islamic home financing through musharakah mutanaqisah and al-bay’ bithaman ajil contracts: A Comparative Analysis. Review of Islamic Economics.
[2] Ahamed Kameel Mydin Meera, & Dzuljastri Abdul Razak. (2009). Home financing through the musharakah mutanaqisah contracts: some practical issues. J. KAU: Islamic Economics, 22(1), 3–27.
[3] Ahamed Kameel Mydin Meera, Dzuljastri Abdul Razak, & Razali Haron. (2006). Musharakah mutanaqisah and al-bay’ bithaman ajil contracts as means for homeownership: a conceptual comparison. Young Scholars Conference, 18-20 April 2006, Langkawi.
[4] Ahmed, H. (2011). Maqasid al-shariah and Islamic financial products: a framework for assessment. ISRA International Journal of Islamic Finance, 3(1), 149–160.
[5] Bratley, P., Fox, B. L., & Schrage, L. E. (1987). A Guide to Simulation. Springer-Verlag New York.
[6] Eroğlu, A., Kalaycı, Ş., Özdemir, G., & Çetin, a C. (2012). Generalized formulae for Islamic home financing through the musharakah mutanaqisah contracts. Afro Eurasian Studies, 1(1), 126–133.
[7] Hanudin Amin, Abdul-Rahim Abdul-Rahman, & Dzuljastri Abdul-Razak. (2013). An integrative approach for understanding Islamic home financing adoption in Malaysia. International Journal of Bank Marketing, 31(7), 544–573.
[8] Lung. (2013). Musharakah mutanaqisah partnership in Islamic bank: a comparison between theory and practice. American Journal of Economics and Business Administration, 5(3), 95–106.
[9] Mahfudz, A. A., Ahmad, N. H., Yusoff, R. M., Naim, A. M., & Ali, T. (2016). Restructuring rental rate components to be more innovative Shariah compliance product in Islamic home Financing. European Journal of Islamic Finance, 5, 1–7.
[10] Mohd Radzi, M. S., Muthuveerappan, C., Kamarudin, N., & Mohammad, I. S. (2012). Forecasting house price index using Artificial Neural Network. International Journal of Real Estate Studies, 7(1).
[11] Mohd Yusof, R., Bahlous, M., & Haniffa, R. (2016). Rental rate as an alternative pricing for Islamic home financing: an empirical investigation on the UK Market. International Journal of Housing Markets and Analysis, 9(4)..
[12] Noor Mohammad Osmani, & Md. Faruk Abdullah. (2010). Musharakah mutanaqisah home financing: a review of literatures and practices of Islamic banks in Malaysia. International Review of Business Research Papers, 6(2), 272–282.
[13] Razak, D. A., & Taib, F. M. (2011). Consumers’ perception on Islamic home financing: empirical evidences on bai bithaman ajil (BBA) and diminishing artnership (DP) modes of financing in Malaysia. Journal of Islamic Marketing.
[14] Rosly, S. A. (2005). Critical Issues on Islamic Banking and Financial Markets. Dinamas Publishing, Kuala Lumpur.
[15] Saiful Azhar Rosly. (2005). Critical issues on Islamic banking and financial markets: Islamic economics, banking and finance, invesrments, Takaful and financial planning. Dinimas Publishing.
[16] Wasil Foundation. 2017. Connecting People to Opportunities. Retrieved 20 May 2017 from http://wasil.org.pk/guidingbeliefs.aspx
-
Downloads
-
How to Cite
Harena Redzuan, N., & Kassim, S. (2018). Projection Pricing for Musyarakah Mutanaqisah Home Financing with the use of Rental Yield as the Reference Benchmark Pricing. International Journal of Engineering & Technology, 7(3.35), 289-292. https://doi.org/10.14419/ijet.v7i3.35.29466Received date: 2019-06-09
Accepted date: 2019-06-09