Security Contracts Used in Malaysian Islamic Banking for Home Financing

Faricha Maf’ula, Nur Ameerah Abd Rasid, Nurhafizah Ghazali, Thariq Ansar Nazeer Ali, Aishath Muneeza

Abstract


When structuring a product or service for an Islamic bank, the contracts involved are deemed as the key elements. The objective of this research is to discuss about the security contracts used for home financing products by Islamic banks in Malaysia, focusing on hawalah (transfer of debt), kafalah (surety ship) and rahn (pledges). This is an exploratory research where practical analysis of the security contracts applied by eleven Islamic banks in Malaysia are analysed by referring to the official website and the product disclosure sheets of the respective banks. This research revealed that rahn is the most commonly applied security contract in home financing Islamic products by the Islamic banks in Malaysia while Kafalah is the second most commonly used security contract. The next most used contracts have been Urbun and Hawalah. The contemporary application of security contracts is not much discussed, though these contracts are important for credit risk mitigation in the Islamic banking industry. This research assists to comprehend the significance of these security contracts with reference to its application in Islamic banking industry in Malaysia.

Keywords


security contracts, home financing, Islamic Banking, collateral, risk mitigation, Hawalah, Kafalah, Rahn, Urbun, Hamish Jiddiyah



DOI: https://doi.org/10.28992/ijifm.v1i1.33

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