The study examines existing practices and pertinent issues affecting Islamic banks and their customers in abandoned housing projects (AHPs) to ensure compliance with Shariah and statutory requirements. A series of semi-structured interviews were conducted with representatives from five Islamic banks and from the Persatuan Pemilik Bangunan Terbengkalai Malaysia, which is also called Abandoned Property Owners Association Malaysia (Victims). The results indicate the major factors of the AHP conundrum to be developer default, underlying contracts, regulatory arbitrage and bureaucracy, the attitude of customers, and the sell-then-build approach.
The study concludes that the acute effects of financial hardship arising from indebtedness from AHPs can be effectively managed based on three fundamental Shariah principles: justice, public interest and removal of hardship. It recommends both short- and long-term solutions that have been developed on the basis of these Shariah principles to manage financial hardship. The short-term solutions emphasise the relationship between Islamic banks and their customers. They include:
• Settlement of financial dues
• Treatment of AHP customers
• CCRIS for rescheduling
• Different recovery processes
• Disclosure of recovery process
• Fair and balanced contract
• Shariah treatment in the existing contracts
The long-term solutions deal with:
• policy amendments,
• establishment of AHP customer protection funds, and
• a home completion takaful certificate (HCTC).
Finally, the study suggests that Islamic banks use an internally rated periodic importance-performance matrix to assess and determine the extent to which each recommendation is implemented.
Keywords: Islamic home financing abandoned housing projects, financial hardship, indebtedness management, homebuyers, housing developers.
