CRITIQUE ON RISKS IN ISLAMIC HOME FINANCING

This article examines the housing and financing market in Malaysia and consequently investigates how risk impacts on the Rental Rate Index (RR-i), proposed as an alternative to interest rate in Islamic home financing by researchers in an earlier research. It looks at both inherent and market-wide categories of risks and variables used in deriving the rental rate in the pricing for Islamic home financing. Qualitative research methodology was used, adopting both descriptive and explanatory research design in analysing secondary data retrieved and also reviewing the literature on Islamic home financing. This approach analyses risks that affect determinants of the rental price, through causal or chain explanations between the variables used in the original RR-i research. The study found risks peculiar to the industry arising from Islamic financing contracts rendering potential rental price index a real challenge in maintaining solvency. Credit risk, market risk and operational risk forming part of the risk premium calculations in deriving the rental rate and economic indicators also have issues needing a more robust and resilient variables that will depict an exact measure of rental values. Specifically the research limitation include the longitudinal effects because the eight year analysis on house price and financing used in this investigation to measure change or stability over time is much constrained and may not be sufficient to witness real change occurring.