Housing is for many households around the world constitute both the largest expense and probably the single-most important asset. For the majority in developed countries, and for some in emerging market economies, housing is adequate. However, in Malaysia, as in other third world countries, rapid urbanisation has increased the ranks of the urban poor and created a demand for housing and more importantly—its mean of financing. Ebrahim (2009) argues that the formal housing finance system is onerous to the underprivileged. For instance, although some financial institutions, i.e. commercial banks and finance companies, are also populating provision for mortgage financing, the facilities tend to be extended to middle- and upper-income households …show more content…
It is a particular form of cooperative financial institution (herein after CFI). Essentially, this not-for-profit CFI consist of a group of people who share some bond of association through their profession, social interest, political inclination, and religious affiliation, which pooled their capital together, usually on a regular basis. These savings, or commonly known as ‘shares’ are then used to provide financing to its members. Since their main purpose is to help other members (and themselves) in obtaining lower-than-market profit rate financing, they have to contend with lower-than-market profit rate return on their deposit. They primarily rely on voluntary effort to organise and administer the pooled fund. Although some of these credit unions have since hired professional managers, and received on lending, the core, self-help principles still soldier on. Some of the prime examples of Shari'ah-compliant mortgage finance provider in those region are American Finance House LARIBA, Guidance Residential, LLC (both in the U.S) and Ansar and Islamic Cooperative Housing Corporation Ltd. …show more content…
Why? Shari’ah-compliant mortgage financing represents an important risk profile for many CFI—restrictions on how to raise finance (Cornforth and Thomas, 1990; Peterson and Kidwell, 1983). By venturing into the mortgage finance market however, these CFI may be repeating some of the mistakes made by the savings and loan industry in the U.S by expanding their financing into areas where they have little or no expertise in assessing default risk (Tripp and Smith, 1993). Therefore, in honouring the self-help principles of a cooperative society by providing Shari'ah-compliant mortgage financing to their religiously conscious-members, they will encounter issues and challenges that will inhibit their Shari’ah-compliant mortgage finance intermediation capabilities. Therefore, how are these CFI are going to address