Applying interest rate is not only prohibited under shariah rule, but also made a world crisis. Similar to conventional, Islamic banking nowadays uses the same component to determine cost of capital in home financing. Islamic scholars then come out with rental rate as replacement of interest rate. This paper attempts to discuss the possibility of using rental rate as the basis in Musharakah Mutanaqisah Partnership (MMP) calculation. Furthermore, this study does comparison between interest rate mortgage and Islamic Musharakah Mutanaqisah and proves that rental rate is better than interest rate in terms of home financing. The result shows that rental rate is lower than interest rate and will vary for each type and location of the house. This study also finds that rental rate tends to be higher in urban areas or close to urban areas. The result of correlation analysis shows that rental rate has positive weak correlation to interest rate. Another interesting fact that emerged from this study is the rental rate tends to be more stable when compared to the interest rate, even in condition of financial crisis in 1997/1998. However, single story in Kuala Lumpur has negative correlation and condominium in Kuala Lumpur has strong correlation to interest rate. Thus we believe that rental rate can be used as an alternative to interest rate for home financing because it reflects the market value of the house and beneficial to society. This paper hopefully is useful for the progress of Islamic banking in the world in terms of implementation of rental rate as a financial product innovation and also an alternative to interest rate.
ISLAMIC BENCHMARKING: AN ALTERNATIVE TO INTEREST RATE
Tanggal Publikasi: 6 Jan 2023
Interest rate, rental rate, musharakah mutanaqisah.