Mutanaqisah Case Study

1.0 INTRODUCTION

Musharakah means partnership and Mutanaqisah means to diminish. So Musharakah Mutanaqisah means diminishing partnership. It is a joint partnership contract between the financial institution and its client. The client begins to purchase the share of the financial institution until he owns the whole property. In addition, at the same time the financial institution also leased his portion of share to the client. The client needs to promise that he will buy the share of the bank. So this contract is a combination of partnership of a business, buying and selling the share of the property and leasing. In a simple word, musharakah mutanaqisah can be concluded as a contract that based on diminishing
The profit rate will be differing according to the financing amount and whether the property is already completed or under construction. For home financing range between RM 100 thousand to RM 500 thousand, the rate for the completed home will be IBR at 1.70% while for the under construction home, the rate is IBR at 1.60%. While for the home financing above RM 500 thousand, the adjustment rate is higher by 1% for both completed and under construction. Same goes to the commercial property financing. The rate is different whether the amount of financing is RM 100 thousand below or above. For the completed property below RM 100 thousand, the rate is IBR at 1.30% while for under construction property, the rate is IBR at 1.20%. While for the financing amount above the RM 100 thousand, the adjustment rate is higher by 1% for both completed and under construction property. From here it seems that the bank still use conventional interest rate as a benchmark while if we follow the concept of Musharakah Mutanaqisah, the bank should use the rental rate. Besides that, as the IBR is based on Overnight Policy Rate of Bank Negara Malaysia, it may contains element of uncertainty as argued by Meera and Abdul Razak (2005) due to the interest rate is fluctuating every day and it may burdensome to the customer although the bank states that the profit rate is being capped at 10.25%. But, this
It is said to be done based on the mutual understanding between the customer and the bank. Moreover, the bank asserts that since the legal title of the property is possessed by the customer, they are the ones that should be responsible for the maintenance. Not only that, the bank argues that it would be impractical for them to be in charge of maintenance works due to the nature of the bank’s operation besides at the end of the contract, the customer will own the home or