Purpose – This study aims to compare and contrast the financial affordability of Islamic home financing
instruments such as bay’ bithaman ajil and musharakah mutanaqisah (MM) offered by various home
financing institutions in Malaysia.
Design/methodology/approach – Mathematical simulations were carried out in examining the
financial affordability (or lack thereof) of various Islamic home financing by both Islamic commercial banks
(ICB) and financial cooperatives (FC).
Findings – This study has shown that MM by FC is a workable, more financially affordable option to
potential homeowners. Unlike ICB, MM by FC uses rental rates as a benchmarking tool because of its inherent
nature of flexibility.
Research limitations/implications – MM by FC has the potential to reduce the cost of home
acquisition (purchase affordability) and the amount of monthly installments (repayment affordability) of
homeowners in Malaysia.
Originality/value – This study shows the financial implication of unaffordable Islamic home financing
instruments may have on the Malaysian households, which were derived from using official data from
various government agencies
