Exploring application of equity-based financing through musharakah mutanaqisah in Islamic Banks in Malaysia: perspective from the industry players

Due to the prohibition of interest in Islamic financial transactions as well as the nature of the Islamic banks which is based on the profit and loss sharing concept, the equity-based financing should be widely adopted rather than debt-based financing which is similar to that of the conv...

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Main Authors:	Mohd Ariffin, Noraini, Kassim, Salina, Abdul Razak, Dzuljastri
Format:	Article
Language:	English
Published:	International Islamic University Malaysia 2015
Subjects:	HG Finance HG1501 Banking
Online Access:	http://irep.iium.edu.my/46101/ http://irep.iium.edu.my/46101/ http://irep.iium.edu.my/46101/1/Noraini_IJEMA_2015.pdf

id	iium-46101
recordtype	eprints
spelling	iium-461012016-12-20T01:16:34Z http://irep.iium.edu.my/46101/ Exploring application of equity-based financing through musharakah mutanaqisah in Islamic Banks in Malaysia: perspective from the industry players Mohd Ariffin, Noraini Kassim, Salina Abdul Razak, Dzuljastri HG Finance HG1501 Banking Due to the prohibition of interest in Islamic financial transactions as well as the nature of the Islamic banks which is based on the profit and loss sharing concept, the equity-based financing should be widely adopted rather than debt-based financing which is similar to that of the conventional banks. As such, financing instruments such as Muḍārabah and Mushārakah are supposedly the major financing instruments offered by the Islamic banks. However, as argued in previous studies, the Islamic banks today are concentrating more on debt-based financing, particularly Murābaḥah and Ijārah contracts. Based on survey questionnaires on sixteen Islamic banks in Malaysia, this study examines the perceptions of the Islamic bankers with regard to issues on concept, pricing and compliance to Sharīʿah of equity-based financing in Islamic banks in Malaysia. It also investigates the challenges faced by Islamic banks in adopting equity-based financing, and examines the current practice of Mushārakah Mutanāqiṣah principle that has been applied by a few Islamic banks in Malaysia. Based on the findings of this study, the respondents generally agree that the principle of profit and loss sharing element under equity-based financing represents the true spirit of Islamic banking practices. However, due to constraints arising from the complex nature of equity financing products compared to conventional debt-based products, the Islamic banks are hesitant in applying the true concept of equity financing. Several recommendations on the possible ways to gradually shift from debt-based financing to equity-based financing are suggested, particularly on the needed financial infrastructure to support adoption of the equity-based financing by the Islamic banks. International Islamic University Malaysia 2015 Article PeerReviewed application/pdf en http://irep.iium.edu.my/46101/1/Noraini_IJEMA_2015.pdf Mohd Ariffin, Noraini and Kassim, Salina and Abdul Razak, Dzuljastri (2015) Exploring application of equity-based financing through musharakah mutanaqisah in Islamic Banks in Malaysia: perspective from the industry players. International Journal of Economics, Management and Accounting, 23 (2). pp. 241-261. ISSN 0128-006 http://journals.iium.edu.my/enmjournal/index.php/enmj
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English
topic	HG Finance HG1501 Banking
spellingShingle	HG Finance HG1501 Banking Mohd Ariffin, Noraini Kassim, Salina Abdul Razak, Dzuljastri Exploring application of equity-based financing through musharakah mutanaqisah in Islamic Banks in Malaysia: perspective from the industry players
description	Due to the prohibition of interest in Islamic financial transactions as well as the nature of the Islamic banks which is based on the profit and loss sharing concept, the equity-based financing should be widely adopted rather than debt-based financing which is similar to that of the conventional banks. As such, financing instruments such as Muḍārabah and Mushārakah are supposedly the major financing instruments offered by the Islamic banks. However, as argued in previous studies, the Islamic banks today are concentrating more on debt-based financing, particularly Murābaḥah and Ijārah contracts. Based on survey questionnaires on sixteen Islamic banks in Malaysia, this study examines the perceptions of the Islamic bankers with regard to issues on concept, pricing and compliance to Sharīʿah of equity-based financing in Islamic banks in Malaysia. It also investigates the challenges faced by Islamic banks in adopting equity-based financing, and examines the current practice of Mushārakah Mutanāqiṣah principle that has been applied by a few Islamic banks in Malaysia. Based on the findings of this study, the respondents generally agree that the principle of profit and loss sharing element under equity-based financing represents the true spirit of Islamic banking practices. However, due to constraints arising from the complex nature of equity financing products compared to conventional debt-based products, the Islamic banks are hesitant in applying the true concept of equity financing. Several recommendations on the possible ways to gradually shift from debt-based financing to equity-based financing are suggested, particularly on the needed financial infrastructure to support adoption of the equity-based financing by the Islamic banks.
format	Article
author	Mohd Ariffin, Noraini Kassim, Salina Abdul Razak, Dzuljastri
author_facet	Mohd Ariffin, Noraini Kassim, Salina Abdul Razak, Dzuljastri
author_sort	Mohd Ariffin, Noraini
title	Exploring application of equity-based financing through musharakah mutanaqisah in Islamic Banks in Malaysia: perspective from the industry players
title_short	Exploring application of equity-based financing through musharakah mutanaqisah in Islamic Banks in Malaysia: perspective from the industry players
title_full	Exploring application of equity-based financing through musharakah mutanaqisah in Islamic Banks in Malaysia: perspective from the industry players
title_fullStr	Exploring application of equity-based financing through musharakah mutanaqisah in Islamic Banks in Malaysia: perspective from the industry players
title_full_unstemmed	Exploring application of equity-based financing through musharakah mutanaqisah in Islamic Banks in Malaysia: perspective from the industry players
title_sort	exploring application of equity-based financing through musharakah mutanaqisah in islamic banks in malaysia: perspective from the industry players
publisher	International Islamic University Malaysia
publishDate	2015
url	http://irep.iium.edu.my/46101/ http://irep.iium.edu.my/46101/ http://irep.iium.edu.my/46101/1/Noraini_IJEMA_2015.pdf
first_indexed	2023-09-18T21:05:37Z
last_indexed	2023-09-18T21:05:37Z
_version_	1777410913299595264

Exploring application of equity-based financing through musharakah mutanaqisah in Islamic Banks in Malaysia: perspective from the industry players

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