Affordable Islamic housing finance models: A critical analysis of Musharakah Mutanaqisah (MM) implementation in Malaysia (2024-2026)

Abstract

Despite the maturity of Islamic finance in Malaysia, homeownership remains difficult for many B40 and lower-M40 households. This study critically re-evaluates the implementation of Musharakah Mutanaqisah (MM) home financing in Malaysia during the 2024-2026 period, with particular attention to pricing benchmarks, risk allocation and maqasid-based affordability outcomes. Using a structured conceptual-review design supported by documentary content analysis and illustrative affordability simulation, the study synthesises regulatory documents, selected Product Disclosure Sheets (PDS), official housing and household-income evidence, and relevant academic literature. The analysis shows that the affordability problem does not lie in the Shariah validity of MM alone, but in the way rental/profit components are frequently linked to SBR/OPR-based pricing and in the way ownership-related costs are often borne by customers. The paper proposes a Fair Rental Index (FRI) and Social-MM/Waqf-MM pathway to reduce benchmark mimicry, stabilise payment obligations and strengthen the maqasid objectives of wealth protection, justice, hardship reduction and public welfare. Its main contribution is a structured framework linking MM implementation, pricing benchmarks, risk allocation, affordability and maqasid evaluation.