The Implication of Musharakah Mutanaqisah in Malaysian Islamic Banking Arena: A Perspective on Legal Documentation

Abstract

This paper observes the implication of Musharakah Mutanaqisah (MM) in the current Malaysian Islamic banking arena. Musharakah Mutanaqisah was previously suggested as a better alternative for Islamic home financing to replace the controversial Bay` Bay`Bithaman Ajil (BBA). However, till date, almost half of the Malaysian Islamic banks that offer Musharakah Mutanaqisah financing have stopped providing it. Many studies have been done on the theory, Shariah issues, features and usage of Musharakah Mutanaqisah instruments, but there are limited studies conducted on the implementation of Musharakah Mutanaqisah from the viewpoint of the Islamic banks and customers. The objective of this paper is to discuss the implication of Musharakah Mutanaqisah implemented by the Islamic banks in Malaysia, focusing on the context of legal documentations from the perspective of academicians, banks, and customers. The result shows that due to the documentation issues, Islamic banks face higher risks, and there is an increase in the documentation costs for the customers while implementing Musharakah Mutanaqisah. The finding also shed some lights on the Islamic finance industry in Malaysia.