An Appraisal of Islamic Home Financing Models: A Critical Assessment

Abstract

Research Objectives: This paper discusses the concepts, structures and pricing mechanism of Islamic home financing models such as Murabahah, Tawarruq, Musharakah-Muntanaqisah, Parallel Istisna and Build and Sell financing models. The discussion demonstrates that it is essential to have home financing based on Shariah principles which fulfill needs of Muslim consumers. The paper examines the various models with appropriate examples. It also evaluates critically products of Islamic home financing models. The availability of various home financing instruments in Islamic banks allows Muslim consumers to achieve their home financing needs. In this paper, we examine the various home financing models and propose an alternative home financing model. Reality: Currently, the application of the partnership or fee-based products and services are not popular ones. In other words, they are not major components of balance sheet of Islamic banks. The main components of Islamic commercial banks are sale-based products such as housing financing, car financing, personal financing and credit card facilities. These products are offered based on Islamic contracts Al Bai Bithaman Ajil (BBA), Murabahah, Parallel Istisna, Tawarruq Musharakah Muntanaqisah, AITAB, Al-rahnu, and among others.