Pertinent Issues in Islamic Home Financing

Abstract

Home financing plays a significant role in today’s modern banking system. Aside from the fact that home financing is necessary to provide for housing, it is also important to mobilise deposits of banks. Moreover, home financing is crucial for financial deepening, development of the property sector and economic growth. Therefore, home ownership has been experiencing remarkable growth across the globe, particularly in Muslim countries as their demand has increased tremendously. Home financing is offered by both conventional and Islamic banks in many countries. The main difference between Islamic and conventional banks is that the former operate in accordance with the rules of the Sharīʿah (Islamic law) while the latter are based on secular principles, not religious laws (Shanmugam & Zahari, 2009). Conventional banks are primarily debt- and interest-based and practise risk transfer. In contrast, Islamic banks are asset-based, prohibit interest (ribā) and promote risk sharing (Hasan & Dridi, 2010).