American Journal of Economics and Business Administration

MUSHARAKAH MUTANAQISAH PARTNERSHIP IN MALAYSIAíS ISLAMIC BANK: A COMPARISON BETWEEN THEORY AND PRACTICE

Lee Ching Lung

DOI : 10.3844/ajebasp.2013.95.106

American Journal of Economics and Business Administration

Volume 5, Issue 3

Pages 95-106

Abstract

Diminishing Musharakah Mutanaqisah Partnership (MMP) contract has been offered by Islamic banks in Malaysia, this study aims to presents the result of a comparison made between the theoretical explanations of how the MMP works and what is actually being done in practice. This study makes use of a qualitative approach in analysing how the MMP works in practice. It then makes a comparison between the MMP as being practiced in real situation and what theoretical writing tells us to expect by analysing an offer letter of a customer of HSBC Amanah Malaysia. Further research is carried out on home financing packages offered by 10 local Islamic banks and 6 foreign Islamic banks by calling the banks and walking into the branches. Our findings reveal that HSBC Amanah Malaysia is using base financing rate replacing the market rental rate of which the base financing rate is the same as base lending rate in the conventional housing loan. In addition, HSBC Amanah also imposes penalty charges on any early settlement and redemption. Other local and foreign banks are also using similar base financing rate to determine the rental rate and only a few of them are not imposing penalty charges on early settlement and redemption. This study provides result that HSBC Amanah’s Home Smart-i facility, the MMP in practice is moving towards a convergence to conventional banking and in fact, there is no difference with conventional housing loan. For HSBC Amanah to truly offer and reflect the principles and tenets behind MMP contracts, it has to make some amendments to the terms and conditions as stated in its offer letter for a diminishing musharakah mutanaqisah partnership contract.

Copyright

© 2013 Lee Ching Lung. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.