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Striving for authenticity: enhancing Shariah-compliance in home financing products within Malaysia's Islamic finance industry

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Date
2023
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Abstract
Islamic finance, founded on the principles of promoting genuine economic activities through Shariah-compliant commercial contracts, has evolved significantly since its formal institutionalisation in the 1960s. However, the prevailing focus on rule-based Shariah compliance rather than authentic economic engagement has raised pertinent questions about the industry's direction. This study aims to scrutinise the landscape of Islamic finance products employed in home financing within Malaysia and explore avenues to enhance authenticity in Islamic finance. Employing a qualitative approach, utilising the content review method to investigate the subject matter, the research identifies a prevalent reliance on tawarruq contracts among Malaysian banks' home financing products. This overreliance on tawarruq prompts concerns regarding the authenticity and Shariah compliance of these financial instruments. The study emphasises the imperative need to address this challenge and offers a set of recommendations to bolster the authenticity and Shariah compliance of home financing products. Key among these recommendations is the call to move away from tawarruq-based contracts, drawing inspiration from countries like Oman, where tawarruq is generally prohibited except in exceptional circumstances. This proactive shift towards authenticity can pave the way for Malaysia's Islamic finance sector to offer more genuinely Shariah-compliant financial solutions and align more closely with the industry's core objectives of promoting economic justice and ethical financial practices.
Keywords
Islamic finance , Shariah compliance , Home financing , Malaysia , Financial industry
Citation
Badeeu , F. N., & Muneeza, A. (2023). Striving for authenticity: enhancing Shariah-compliance in home financing products within Malaysia's Islamic finance industry. International Journal of Islamic Economics and Finance Research, (1), 48-62. https://doi.org/10.53840/ijiefer112
Publisher
International Research Centre of Islamic Economics and Finance (IRCIEF), Kolej Universiti Islam Antarabangsa Selangor (KUIS)
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