Risk Management in Musyarakat Mutanaqisat Home Financing Contract: Analysis in Rhb Islamic Bank Berhad and Affin Islamic Bank Berhad

Abstract

The Musyarakat Mutanaqisat financing contract in Malaysia is still inadequate compared to other countries such as those in the Middle East. In Malaysia, there are 10 Islamic local banks comprise of Affin Islamic Bank Berhad, Maybank Islamic Berhad, CIMB Islamic Bank Berhad, Hong Leong Islamic Bank Berhad, RHB Islamic Bank Berhad and others. As for now, only two local banks in Malaysia offer the Musyarakat Mutanaqisat home financing contract. The banks are Affin Islamic Bank Berhad & RHB Islamic Bank Berhad. Musyarakat Mutanaqisat home financing contract is less favoured by local banks in Malaysia because it brings higher risk compared to other home financing contracts (Muhammad, 2014). The high risk has to be borne by the banks especially due to the sharing element in Musyarakat Mutanaqisat home financing contract (Rulindo, 2009). Is this statement true? If so, what are the actions that banks need to take in order to control these risks? This article aims to identify, analyse, and summarise the risk management in the implementation of Musyarakat Mutanaqisat home financing contract in Malaysia. A total of four informants includes the informants from Affin Islamic Bank Berhad and RHB Islamic Bank Berhad as well as two academic experts in the field of Islamic banking are involved in the discussion of risk management in the Musyarakat Mutanaqisat home financing contract. Purposive sampling method is used in this study with the semi-structured interview being conducted with the informants. The findings of this study comprise of discussions on the types of risks inherent in the Musyarakat Mutanaqisat home financing contract. The risks consist of credit risk, liquidity risk, Syariah risk, operational risk and investment equity risk. The risk management of the Musyarakat Mutanaqisat home financing contract by Islamic banking institutions includes three stages namely the early stage of the agreement, the current stage of the agreement and the final stage of the agreement. Keywords: