Legal issues in Sharī‘ah-compliant home financing in Malaysia: A case study of a Bai Bithaman Ājil contract

• Main Authors: Oseni, Umar A., Ayob, Mohd Fairullazi, Abdul Rashid, Khairuddin
• Format: Conference or Workshop Item
• Language: English; English; English
• Published: 2016
• Subjects: HG Finance; HG1501 Banking; KBP Islamic Law; KBP1 Islamic law.Shariah.Fiqh; KBP173.25 Islamic law and other disciplines or subjects
• Online Access: http://irep.iium.edu.my/51934/1/MiCRA%202016%20BBA%20Housing%20Loan%20paper-FINAL%20060916.pdf; http://irep.iium.edu.my/51934/2/IIBF%20SEMINAR%20CERTIFICATE%20080916.IMG.pdf; http://irep.iium.edu.my/51934/3/Dr%20Fairullazi%27s%20letter.pdf; http://irep.iium.edu.my/51934/; http://www.iium.edu.my/iiibf/events/national-seminar-%E2%80%9Cabandoned-housing-projects-causes-solutions%E2%80%9D

Purpose – This paper provides a case study on a Sharī‘ah-compliant house loan contract based on the Bai Bithaman Ajil (BBA) contract generally used by Islamic banks in Malaysia. The study emphasises the need to comply with the existing legal framework and execute relevant contracts in line with the Sharī‘ah resolutions of the Sharī‘ah Advisory Council of Bank Negara Malaysia without causing harm (ḍarar) to the customers or introducing uncertain elements or procedures (gharar) in the execution of the agreements. This paper follows the other paper that has been presented elsewhere by the authors (Oseni, Ayob & Abdul Rashid, 2014). Design/methodology/approach – This paper is based on doctrinal analysis of the relevant issues as well as a qualitative legal research through content analysis of relevant BBA agreements, case law, as well as statutory provisions. The case study used in this paper is completely anonymised. Findings – The study finds that the execution of BBA agreements in Malaysia leaves much to be desired. Even though the regulatory framework for Sharī‘ah-compliant housing loans in Malaysia is robust, there are some legal and Sharī‘ah considerations which the stakeholders need to look into in order to project Malaysia as the main global hub of Islamic finance. Research limitations/implications – The study focuses only on Sharī‘ah and legal issues and does not touch on economic, financial or accounting aspects of the BBA housing loan contract. Practical implications – This study demonstrates the need for proper Sharī‘ah auditing of the practical execution of BBA agreements to avoid an incorporated element of gharar at the time of execution of the agreements which might ultimately lead to unforeseen reputation risks for the bank. Originality/value – Though there are several studies on the Sharī‘ah, financing, and accounting aspects of the BBA housing loan agreement, this study focuses on both Sharī‘ah and legal issues using the case study approach. The recommendations are expected to provide a good policy framework for the stakeholders in the Islamic banking industry in Malaysia.