Purchase Undertaking Issues in Musharakah Mutanaqisah Home Financing

Abstract

This article aims to discuss the issues of purchase undertaking in musharakah mutanaqisah home financing as practised by Islamic banks in Malaysia. This aim can only be achieved by analysing and examining its features in order to determine its inclination either towards shirkat al-milk (co-ownership) or shirkat al-'uqud (contractual partnership). On closer examination, the study also examines the legitimacy of first and second promises (wa'd) by the customer to gradually purchase the bank’s portion, and to give rights to the bank in the event of default: either to sell the bank’s portion in credit to the customer or to purchase the customer’s portion. The study applies the qualitative research method comprising document analysis and interviews with practitioners. The study shows that the home financing is a shirkat al-milk in its initial stage, but it cannot be considered permanently as shirkat al-milk as it does not comply with all the features of shirkat al-milk. The study also found that scholars were in dispute as to whether firstly, to allow a pre-determined price of the bank’s portion or share in the house and secondly, to stipulate a second promise in the event of default.

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