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1. Introduction 1. Problem StatementThe application of Al-Bai Bithaman Ajil (BBA) Home Financing in Conventional Banks and Islamic Banks is used considerably in Malaysia. However, it is argued that the concept of Al-Bai Bithaman Ajil that is practiced in Malaysia is not a real BBA under the BBA principles, it is rather considered Bay' Inah (sell and buy back) in character which is contrary to a valid Islamic contract. Additionally, the Islamic banking transaction in Malaysia has to be applied and implemented within the existing common law system of courts and the regime of all other existing laws (includes substantive and procedural laws).

Therefore, this study aims to highlight the issues surrounding Al-Bai Bithaman Ajil Home Financing. This study shall identify whether the practice of Al-Bai Bithaman Ajil Home Financing in Conventional Banks and Islamic Banks in Malaysia comply with the real Islamic concept of BBA under Islamic Law. This is because the practice of BBA contract in Malaysia has the characteristics of bay al-inah contract which is not a valid Islamic contract. Furthermore, the decisions of Civil Courts in Malaysia relating to BBA cases shall also be analysed and discussed critically.

1. Objective of StudyThe overall aim of this research is to analyse and evaluate the application and practice of BBA Home Financing by the Banks in Malaysia. The objectives of this research includes the understanding the concept of BBA in relation to home financing and its application is Malaysia, determining whether BBA Home Financing in Malaysia is practiced in compliance with Islamic Law and whether it is a sale contract or a loan contract, also the study will analyse the legal aspect of BBA contract, and finally the study will try to find alternatives for Home financing that are in compliance with shariah.

1. Research Questions1. Does the practice of Al-Bai Bithaman Ajil Home Financing in malaysia comply with Islamic Law?2. Is Al-Bai Bithaman Ajil Home Financing in Malaysia is considered a real sale contract or loan contract?3. Does the Malaysian legal system help resolve BBA contract disputes under shariah law? To study and analyse the decisions of Civil Courts as regards to Al-Bai Bithaman Ajil Home Financing cases.4. Are there other alternatives for Home Financing which is in compliance with Syariah?

1. Literature ReviewHome mortgage is defined as a loan given by financial institutions and secured by a mortgage on real property and provide a schedule of payments of interest as well as repayments of the principal to a bank (Tse, 1997). However, according to Alam et al (2012), the establishment of the Islamic home financing is triggered by the nature of conventional home mortgages. Whilst conventional banks deal with interest in financing homes, cars or other appliances, the Islamic banks limit to transactions that are free from interest, usury, ambiguity, cheating etc. (Osmani & Abdullah, 2010). Dzuljastri & Fauziah (2011) also made a similar statement that the Shari`ah law prohibits any trading that involves the interest element or usury. The values which are dominant within the sphere of the Shari`ah, are expressed not only in the details of Islamic transactions but in the extensiveness of its role in realizing the Maqasid al-Shari`ah (Abozaid & Dusuki, 2007). According to Abdul Karim Al-Zaidan,Maqasidal-Shari`ah refers to an act of achieving and protecting the benefits and good (masalih) for the sake of human beings. Likewise, Imam al-Ghazali also describesMaqasidal-Shari`ah in a view that benefits (masalih) that should be consistent and in line with the objective of the Shari`ah, since the basic purpose of Islamic legislation is to protect the interest of people against harm (mafsadah). According to the Muslim scholars, the benefits (masalih) of Maqasid al-Shari`ah can be categorized into three which are necessities (dharuriyyat), convenience (hajiyyat) and refinement (tahsiniyyat). In the first category ofMaqasidal-Shari`ah which is necessities (dharuriyyah), there are five key components that require to be protected and one of them is the property or wealth (maal) protection. In relation with Islamic finance, it is important to ensure the implementation of the system is in line with the ultimate objective of Shari`ah (Maqasidal-Shari`ah) which is to protect the property and the just distribution among the society. Hence, in order to achieve the highest objective of Shari`ah in protecting the wealth and property, the Islamic finance system is required to oblige several key principles that have been underlined in Shari`ah commercial law and to promote justice in its application.Thus, for home financing, Islamic banks have adopted several products to keep them free from the elements prohibited by the Shari`ah. Among the more dominant home financing products in Islamic are the al-Bay Bithaman Ajil (BBA) and the Musharakah Mutanaqisah Partnership (MMP) contracts. The BBA is the more popular concept in countries like Malaysia, Indonesia and Brunei whereas the MMP is widely practiced in the Middle East, United States, Canada, United Kingdom and Australia. (Aris et al., 2012). In 1983, Bank Islam Malaysia Berhad (BIMB) implemented the BBA in Malaysia. BBA is a facility provided by the financier (the Islamic bank) to a customer to buy a house, over a tenor of say, 20 years, at an either fixed, variable or mixed rate which is set by the financier (Aris et al., 2012). At the initial stage of the BBA, the financier will buy the house from the customer at a price equal to the financing amount and sells it back to the customer, at a price plus profit margin (Meera and Abdul Razak, 2005). The Islamic bank capitalizes its profit up front in the sale of the property to the customer who in turn is required to pay a fixed sum until the tenure ends. According to Razak et al. (2008), BBA is similar to debt financing, which results in high cost and poses a burden to ones family obligation. BBA uses the concept of Bay al-Inah which is said to be one of the most controversial products of Islamic banking and finance (Abozaid & Dusuki, 2007). Abozaid & Dusuki (2007) also mentions that in Bay` al-`Inah applications, the Islamic bank is to act as a trader selling or buying, as the word bay` suggests. However, in reality the Islamic bank merely acts as a financier who provides money without taking any risk and without being involved in the investment process, if any. Here, it is evident that the concept of Bay` al-`Inah ignores the Shari`ah principle of al-Ghorm bil Ghonm (no reward without risk), Ikhtiar (value-addition or effort) and al-Kharaj bil Daman (any benefit must be accompanied with liability), thereby rendering the BBA profit to be implicated with riba (Meera & Razak, 2005). Bay` al-`Inah here is resorted to as a legal device (hilah) to circumvent riba-based financing, but as far as the substance is concerned Bay` al-`Inah-based financing and the conventional riba-based financing are the same, they serve exactly the same contractors purposes, and share exactly the same economic substance and consequences, even though their form may be different (Abozaid & Dusuki, 2007).Musharakah Mutanaqisah (MM) on the other hand is based on the concept of diminishing partnership. This contract combines two basic Islamic concepts. First, the customer enters into a partnership (musharakah) under the concept of Shirkat al-milk (joint ownership) agreement with the bank. Secondly, the bank leases its share in the house ownership to the customer under the concept of ijarah (leasing). MM is not widely used in Malaysia but is regarded as one of the modes of financing in Pakistan Islamic banks. Meezan Bank of Pakistan has been implementing this mode of finance for house financing. Usmani (2002) has described the characteristics of MM in Pakistan and made a detailed discussion on the operational method of house financing in Meezan Bank. The International Fiqh Academy of OIC in its 15th session has made a discussion on MM where the Shari`ah scholars have discussed the fundamental characteristics of this contract, its permissibility in the Shari`ah, its conditions and other Shari`ah principles related to this contract. (International Fiqh Academy of OIC, 2004). Usmani (2005) has defined the MM contract and described its mode of applications in home financing, trade and business services while maintaining Shari`ah principles. Al-Kawamelah (2008) made a detailed explanation of MM and its Shari`ah ruling. Smolo (2007), in his dissertation made comparison between the BBA and the MM. Meera & Abdul Razak (2005) argued that MM is a better alternative to BBA home financing. They compared between BBA home financing and MM home financing and concluded that MM is more Shari`ah compliant. They argued that the current practice of BBA does not change the interest based system as it follows the similar computation formulas to the interest based system where the profit rate is quite similar to the interest rate in the market. Furthermore, the profit rate in BBA is fixed as it is a fixed selling price which cannot be changed. This leads the financiers and the customers in difficulties. However, Aris et al. (2012) stated that MM is still not favourable among the practitioners. It is said to be less attractive to bankers because the MM does not charge interest of advance profits. As such the banks cannot make money as MM is purely based on rental payment. However, the majority of house financing in Malaysia is still using BBA and MM only acts as an alternative product.

1. Proposed Model5. Situational analysis5. Marketing objectiveNowadays, Islamic banking and finance have become the important element in the financial institutions since they have been introduced in the 1980s. Up until today, there are a lot of Islamic products that have been introduced since the emergence of Islamic banking. The steadily increasing pattern since its establishment shows that Islamic products have been accepted among the people especially the Muslims. It also shows the level of awareness among the Muslims on how important it is to avoid riba as it is one of the prohibitions in Islam. In the context of Malaysia, even the Muslim scholars have tried their best in producing Islamic products in-line with the Shari`ah, however arguments are still being sparked among Muslim jurists on the permissibility of the product in Islam. Yet, it creates confusion among the customers on the permissibility of the products. Based on our research, in the context of home financing in Malaysia, the concept of Bay al-`inah has been extensively used in most of the Islamic banks which give the same impact as mentioned above. Thus, in order to create a healthy environment between the customers and the Islamic banks, the Musharakah Mutanaqisah is the suitable contract to be used in the home financing. Hence, since this contract is still considered quite young in the market, extensive marketing is needed to create awareness about its existence. One of the marketing objectives of the Musharakah Mutanaqisah is to gain 35% of market share by 2016. Besides that, it aims to gain interest and support from the Muslims as well as non-Muslims within the region to use the Musharakah Mutanaqisah home financing contract. Thirdly, it also aims to create the product competitiveness in the market. For example, if the product can be accepted in the market after going through the marketing activities, it can slowly make the Islamic banking institutions change their home financing contracts which currently uses Bai` Bitham al-Ajil or Bai` al-`inah contract to the new contract Musharakah Mutanaqisah. These objectives have been derived from the SMART approach in the marketing tools as follows: Specific The primary need of the Muslim customers is to avoid riba` in their transactions. Furthermore, having a home is considered as part of Daruriyyat in the Maqasid Shari`ah. Measurable Based on the World Islamic Banking Competitiveness Report 2013 2014, the Malaysian Islamic Banking industry has dominated 20% market share with the it even growing faster than conventional banking. After implementing this product in the market, we are assuming that the market share will be increased by 15% as it can attract more investor from the Middle East country. Achievable These objectives can be achievable by having strong technical support and commitment of all personnel involved in implementation of the marketing strategies as well as operation. Strong knowledge of the marketing team is also vital in order to make the important elements in the contract be properly implemented. Strong Shari`ah and accounting educational background of the marketing staff can also be an added value to the Islamic banking Institution in delivering precise information to the customers. Realistic These objectives are realistic as the marketing resources are in place to conduct the segmenting and targeting exercise and access to information required. Time Specific The increase in market share is to be achieved within 24 months, with regular progress updates which will be reported every month to track level of success of this product in the market and the impact of this product to the customer financial as well as Islamic banking profitability. 5. Target markets5. Product concept5. Integrated marketing communications

5. Place and distributionAn important element in the marketing mix is place and distribution. The strategic location of the information resources will enable the customer to have easy access to the product as well as information related to the product. Hence, it will make the marketing goals to be achieved without much difficulty. In addition, recognizing the distribution strategy is also the key of successful in Islamic banks. According to Haronet. Al (1994), there are five factors that Muslims need to consider in selecting the bank for them to deal with, which are as follows:1. Fast and efficient services2. Speed of transactions3. Friendliness of bank personnel4. Confidentiality of bank5. Knowledge about the needs of customerHowever, on the other hand non-Muslim customers ranked the following as the main factors in order for them to select their banks to deal with:1. Friendliness of bank personnel2. Fast and efficient services3. Reputation and image of the bank4. Speed of transactions5. Confidentiality of bankBased on the research above, there are is a contrast on the criterions on choosing a bank where the Muslim customer prefers bank staff that understands and acknowledges the customer needs whereas the non-Muslim customer prefers to select a bank based on its reputation and image. Based on this finding also, it is important to assign the human resources in the proper places so that it can satisfy the needs of the customers. According to the Dr. Wan Nursofiza (May, 2005), the current practice of the Islamic banks is by introducing mini-branch as well as kiosks which provides the basic information of the banking facilities to the customers. Since our product is still new and needs very strong support from the customers, we would use the approach of doing a nationwide road show in order to reach the target market. Besides that, we will also place a knowledgeable person in marketing or customer service in order to ensure the information can be delivered clearly to the relevant parties.5. Cash flow budgeting1. Analysis and Findings1. Conclusion1. References1. Appendices

Islamic Financial System and Environment (FIN 6640) | 8