Generalized Formulae for Islamic Home Financing through the Musharakah Mutanaqisah Contracts

Authors : Abdullah Eroğlu, Şeref Kalayci, Hayrettin Usul

Pages : 126-133

View : 14 | Download : 7

Publication Date : 2012-06-01

Article Type : Research

Abstract :The origin of Musharakah is an Arabic term which signifies the sharing of an item. In the system of Musharakah, all parties share the profit or loss in a joint enterprise. It arose as an ideal alternative for interest-based financing systems for both the production and service sectors (Usmani, 1999). The model of Musharakah Mutanaqisah Partnership (MMP) is an interest-free financing model in which capital is not permanent and every repayment of capital by the entrepreneur will diminish the total capital ratio for the capital provider. When the capital ratio for the capital provider declines to zero, the entrepreneur becomes the sole owner for the business (Abdul Rahman, 2007). Generally, the MMP models are related to home financing and repayments are constant. In this study, general formulae are derived for the case in which repayments occur as a linear-gradient series for the MMP model. In addition, an illustrative exampleis presented
Keywords : Musharakah, Mutanaqisah Partnership, Home Financing, Interest-free Mortgage