Prof. Dr. Ahamed Kameel Mydin Meera
Islamic Banking & Financial Specialist
Plenary Session 2 – Pangkor Dialogue 2015



Housing affordability is becoming a key topic as housing prices have sky rocketed in recent times. Under the present monetary system, money is created from nothing with the total money in the economy growing exponentially but the real economy not demonstrating growth, almost in a straight line. This exponential money growth leads to inflation and disparity of wealth and income distribution. This fuels the rise in the price of housing with the excess money in circulation absorbed by the financial and property markets.

The current Islamic finance model, however, does not solve this issue as it is almost similar to the conventional system. In fact, the Bai Bithaman Ajil (BBA) could be even more detrimental. The current system is unsustainable because it is based on compounded interest. In particular, cases of default or early settlements where the overall amount is owed (albeit now it is being solved through discretionary rebate).

Musharakah Mutanaqisah presents a solution for cheaper and faster home ownership, while still aligning with the principles of Islamic finance. It is a partnership contract between the customer and the bank.

There are further disadvantages in BBA, including the fact that the selling price is way above the market price and the balance is always higher compared to the conventional loan system. This is different from Musharakah Mutanaqisah which uses the actual rental rate instead of interest ` and the financing amount will never exceed the original amount. The Ansar Housing Cooperative in Toronto, Canada, is a shinining example in implementing successfullly Musharakah Mutanaqisah since 1981. People are able to own houses within a much shorter time period i.e. between 7 -10 years through this kind of financing model.