Specific aspects and comparative analysis of traditional and islamic mortgage

Abstract

Islamic economy and finance, which entered the economy and finance system of the world countries as a new direction and a unique method, became a big turning point in the world finance system. The specific aspects of Islamic financial instruments and the increase in regular profitability indicators have attracted the attention of economists. Nowadays, the introduction of elements of Islamic economy and finance into the economy is on the agenda of many countries. Establishing investment activities in our country, diversifying banking services and products taking into account the needs of the population and business entities will have a positive effect on other sectors of the economy. Mortgages are long-term loans with constant nominal payments, interest and amortization. A fixed-rate mortgage has a fixed nominal interest rate and constant nominal payments for the entire term of the loan; A variable rate mortgage, on the other hand, sets nominal payments over periods so that the loan is expected to be paid off in full over the remaining term, given the current short-term nominal interest rate. Belgium, Denmark, Germany, France and the United States are countries where the mortgage market has traditionally been dominated by fixed-rate mortgages with fixed interest rates for at least 10 years .

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Abdullaeva, A. (2024). Specific aspects and comparative analysis of traditional and islamic mortgage . Перспективы реформирования и устойчивого развития национальной экономики, 1(1), 201–205. Retrieved from https://inlibrary.uz/index.php/dev-national-economy/article/view/58504
Aziza Abdullaeva, Tashkent State University of Economics
Teacher of the Department of Accounting and Audit
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Abstract

Islamic economy and finance, which entered the economy and finance system of the world countries as a new direction and a unique method, became a big turning point in the world finance system. The specific aspects of Islamic financial instruments and the increase in regular profitability indicators have attracted the attention of economists. Nowadays, the introduction of elements of Islamic economy and finance into the economy is on the agenda of many countries. Establishing investment activities in our country, diversifying banking services and products taking into account the needs of the population and business entities will have a positive effect on other sectors of the economy. Mortgages are long-term loans with constant nominal payments, interest and amortization. A fixed-rate mortgage has a fixed nominal interest rate and constant nominal payments for the entire term of the loan; A variable rate mortgage, on the other hand, sets nominal payments over periods so that the loan is expected to be paid off in full over the remaining term, given the current short-term nominal interest rate. Belgium, Denmark, Germany, France and the United States are countries where the mortgage market has traditionally been dominated by fixed-rate mortgages with fixed interest rates for at least 10 years .


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“MILLIY IQTISODIYOTNI ISLOH QILISH VA BARQAROR RIVOJLANTIRISH ISTIQBOLLARI”

mavzusida xalqaro ilmiy-amaliy konferensiyasi

201

сельскому хозяйству. Они используются на освоение новых земель,

содержание общей ирригационной системы, создание и развитие

производственной инфраструктуры, внедрение в сельскохозяйственное

производство крупных достижений науки.

Вторая

группа

-

социально

-

экономическая

сфера.

Это

государственные дотации к закупочным ценам на сельскохозяйственную

продукцию (применяются в том случае, когда степень приоритетности,

обеспечиваемая экономическим методом, недостаточна), компенсация

государством определенной части цены крупной и дорогостоящей

сельскохозяйственной техники и быстрорастущих цен на горюче

-

смазочные материалы, льготное налогообложение и льготные цены или

даже беспроцентные банковские кредиты.

Третья группа

-

чисто социальная сфера, охватывающая условия

жизни работников сельского хозяйства и в целом сельского населения.

Государственные инвестиции в виде непроизводственных

капитальных

вложений направляются на развитие социальной инфраструктуры. Сюда

входят также различные социальные фонды, пособия, льготы и т.д.,

выделяемые из государственного бюджета.

Список литературы

1.

Закон Республики Узбекистан «О конкуренции» от 3 июля 2023г № ЗРУ

-850.

2.

Усманов, А. С. (2022). ПРИНЦИПЫ РАЗРАБОТКИ СТРАТЕГИИ РАЗВИТИЯ

КОНКУРЕНЦИИ

И

ФОРМИРОВАНИЯ

КОНКУРЕНТНОЙ

СРЕДЫ.

Архив

научных

исследований,

4(1).

3. Хазраткулова, Л. Н., & Усманов, А. С. (2020). ВАЖНЕЙШИЕ АСПЕКТЫ

СТРУКТУРНЫХ ПРЕОБРАЗОВАНИЙ БЮДЖЕТНОЙ СИСТЕМЫ УЗБЕКИСТАНА НА

СОВРЕМЕННОМ ЭТАПЕ.

In

Фундаментальные и прикладные аспекты глобализации

экономики

(pp. 189-192).

4. Выписка из газеты «Народное слово» от 8 февраля 2017 года № 28

SPECIFIC ASPECTS AND COMPARATIVE ANALYSIS OF TRADITIONAL

AND ISLAMIC MORTGAGE

Abdullaeva Aziza Murot kizi

Teacher of the Department of Accounting and Audit of

Tashkent State University of Economics

Islamic economy and finance, which entered the economy and finance

system of the world countries as a new direction and a unique method, became
a big turning point in the world finance system. The specific aspects of Islamic

financial instruments and the increase in regular profitability indicators have

attracted the attention of economists. Nowadays, the introduction of elements of

Islamic economy and finance into the economy is on the agenda of many


background image

“MILLIY IQTISODIYOTNI ISLOH QILISH VA BARQAROR RIVOJLANTIRISH ISTIQBOLLARI”

mavzusida xalqaro ilmiy-amaliy konferensiyasi

202

countries. Establishing investment activities in our country, diversifying banking

services and products taking into account the needs of the population and

business entities will have a positive effect on other sectors of the economy.

Mortgages are long-term loans with constant nominal payments, interest and

amortization. A fixed-rate mortgage has a fixed nominal interest rate and

constant nominal payments for the entire term of the loan; A variable rate

mortgage, on the other hand, sets nominal payments over periods so that the

loan is expected to be paid off in full over the remaining term, given the current

short-term nominal interest rate. Belgium, Denmark, Germany, France and the

United States are countries where the mortgage market has traditionally been
dominated by fixed-rate mortgages with fixed interest rates for at least 10 years

[1].

Mortgage payments are usually made monthly and consist of four main

parts:

1. The principal debt is the total amount of the loan. For example, if an

individual takes out a mortgage loan for $250,000 to buy a home, then the

principal loan amount is $250,000. Lenders typically require a 20% down

payment on a home purchase. So, if a $250,000 mortgage is 80 percent of the

home's appraised value, then home buyers will have a down payment of $62,500
and a total home purchase price of $312,500.

2. Interest - monthly interest added to each mortgage payment. Lenders and

banks simply lend money to individuals without expecting anything in return.

Interest is money that a lender or bank makes or charges on money they lend to

homebuyers.

3. Taxes. In most cases, mortgage payments include property taxes that an

individual must pay as a homeowner.

4. Insurance. A mortgage also includes homeowner's insurance, which is

required by lenders to cover damage to the home as well as the property inside

it. The mortgage also includes private mortgage insurance if the individual
makes a down payment of less than 20% of the home's value. This insurance is

designed to protect the lender or bank if the borrower defaults on the loan.

The most common way to pay off a secured mortgage is to make regular

payments of principal (also called principal) and interest over a fixed period of
time. The principal amount is sometimes referred to as amortization [

2].

Mortgage insurance is an insurance policy designed to protect the

mortgagor (lender) against any default by the mortgagor (borrower). It is

typically used on loans with more than 80% loan-to-value and is used in

foreclosures and foreclosures.

This policy is usually paid for by the borrower as a component of the final

nominal rate, either in a lump sum or as a separate and detailed component of

the monthly mortgage payment.


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There are many types of mortgages used around the world, but several

factors broadly define the characteristics of a mortgage. All of this must be

subject to local regulations and legal requirements.

According to a report by the Islamic Research and Education Institute

(IRTI), the Islamic Development Bank and the Islamic Financial Services Board

(IFSB), Islamic home mortgages have grown rapidly over the past five years, with

a number of countries major providers of Islamic mortgages are licensed as non-

banking financial institutions.

Housing financing by Islamic banks varies and suits the economic

environment of the respective countries. In Western countries (North America,
Europe and Australia) with a mature and deep housing financing system, as well

as a traditional mortgage market, there are some successful experiences with

Islamic mortgages. There are currently four models. In practice, Islamic

mortgage, contract based on lease, contract based on diminishing musharaka

(partnership in shares), contract based on murabahah and the fourth model

cooperative societies were developed, where members are members of

mudarabah (share) buys and society funds

The main difference between Islamic and conventional housing finance is

that the former is equity-based and the latter is debt-based. In an Islamic
mortgage, both the bank and the customer share ownership (equity) and

therefore share the risk of equity ownership. In a traditional bank, the customer

owns the equity, and the bank's loan to the customer is guaranteed by the value

of the property. Any type of property-based contracts (including Murobaha and

Ijara) can be used for housing fund financing; However, Mushorakah (property

financing through joint ownership with the client) mortgage loans by Islamic

banks

Comparative analysis of traditional and Islamic mortgage [3]

Traditional mortgage

Islamic mortgage

The lender provides funds to the borrower
and charges [interest] for the use of these

funds.

Islamic mortgages on the basis of trade
(murabaha) and leasing (ijara) are interest-

free.

Credit reports, sources of income that

show the ability to repay the loan before
the age of 65.

Credit references, sources of income to be able

to refinance the loan until retirement age.

Most lenders do not have a lower limit on

the value of the property.

The minimum property value is set.

Up to 125% of the property value.

Up to 85% of the property value.

Life and building insurance is mandatory

in most cases.

Life and building insurance is not required.

The lender never owns the property.

The bank is the owner of the property.

Relatively high risks.

Short, medium and long term offers are
available.

Murabaha up to 15 years, minimum 5 years;
Lease minimum 7.5 years up to 25 years


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Ensuring justice in the financial system consists in fulfilling two conditions

in addition to stability. First, the financier must share the risk; secondly, it is

desirable to partner with an equal share in lending to the poor. The musharak

form of Islamic mortgages is an innovative financing method called "Decreasing

musharak". According to the details of this financing agreement, the property

will be purchased under the joint ownership of the Islamic bank and the

customer. A certain part of the property value (usually 15% to 30%) is

contributed by the client, and the rest is financed by the Islamic bank. The use of

the property is entrusted only to the customer.

The bank's share of the total

capital is divided into a large number of small units (usually equal to the number
of monthly payments), and the client must purchase these capital units from the

bank at the price agreed upon at the time of purchase. In addition, the rental

income of the property is agreed between the client and the bank; and the

customer is obliged to pay rent to the bank every month, taking into account his

share. As soon as the client buys all capital units from the bank, ownership of the

property is transferred to the client and the project is closed. Islamic mortgages

are superior to conventional mortgages for the following reasons, based on the

theoretical position of the diminishing musharah contract, as stated by Shariah

scholars:

investments are made with the property under the control and

participation of the Islamic bank. Cash is not given to the customer, but paid to

the seller of the property

- providing a link between the real and financial sectors. In addition, the

Islamic Bank provides due care and due diligence on investments; and only

projects with potential income are selected for cooperation.

return of property is return to partners. Any profit from the property,

including rent, as well as any increase in market value, is shared between both

parties.

the risk of ownership (including vacancy, destruction and decline in

market value) is shared by both partners.

From the above information, it can be seen that the Islamic financial system

has the ability to offer several models of Islamic mortgages and other types of

financing in housing financing, which further increases the interest in Islamic

finance in the modern world, where the demand for housing is high. is causing

Conclusions and suggestions.

In the modern world, a mortgage loan is one of the main instruments of

banks and is in high demand among the population. This social banking practice

is one of the effective contracts offered by Islamic financial institutions. Many

countries see the Islamic financial system as an alternative to the traditional
financial system. There is no doubt that the introduction of Islamic finance will

not affect mortgage issues in domestic markets. However, Islamic housing

financing faces a number of legal and financial obstacles that may negatively

affect its growth and development.


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“MILLIY IQTISODIYOTNI ISLOH QILISH VA BARQAROR RIVOJLANTIRISH ISTIQBOLLARI”

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An appropriate legal, institutional and fiscal framework is a prerequisite for

building strong financial institutions and markets. Islamic law offers its own

framework for conducting commercial and financial contracts and transactions.

However, many countries do not have adequate commercial, banking and

company laws for Islamic banking and financial contracts.

International

acceptance of Islamic financial contracts requires that they be Sharia compliant

as well as acceptable in mainstream legal regimes such as common law and civil

law systems.

Financial barriers are barriers related to the supply and demand of Islamic

mortgages, such as:

- the bank's ability to balance the terms of deposits to the bank, which are

usually of a long-term nature, with the payment terms of funds invested in

housing construction financing, which are usually of a long-term nature;

- the bank's ability to coordinate between maximizing shareholders' profits

and providing affordable housing funds to its customers.

Proponents of Islamic banking see these institutions as a viable alternative

to interest-based banks in the markets in which they operate. They argue that

Islamic profit and loss sharing contracts effectively allocate capital for long-term

productive investments.

In addition, the mission of Islamic financial institutions is to best serve small

entrepreneurs and rural businesses who are unable to obtain credit through the

traditional banking system, which is mainly located in urban areas. For these

reasons, Islamic banking can be an engine of growth and development in Islamic

countries. Islamic banking doctrine favors harmonization and mutual

recognition of terms and standards across markets and countries. This will

reduce transaction costs and help integrate national and regional capital

markets.

Literature

1.

https://www.proeducate.com/courses/Finance/MortgageLoan.pdf

2. Asadov, A. and others, (2018). “Musharakah Mutanaqisah home financing: issues in

practice”, Journal of Islamic Accounting and Business Research, Vol. 9 No. 1,

pp. 91-103.

https://doi.org/10.1108/JIABR-08-2015-0036

3. Campbell, J. Y., Cocco, J. F., (2003). Household risk management and optimal mortgage

choice. Quarterly Journal of Economics 118, 1449

94.

4. Hanif, M. and Hijazi, S.T. (2010), “Islamic House financ

ing A Critical Analysis and

Comparison with Conventional Mortgage”, Middle E

astern Finance and Economics, Issue 6, pp.

99-107.

5. Khan, F. (2010), “How ‘Islamic’ is Islamic Banking”, Journal of Economic Behavior &

Organization, Vol. 76 No.3, pp. 805-20.

6. Robin Matthews and others, (2003). Recent Developments in the Market for Islamic

Mortgages: Theory and Practice, p 60.

7. Scanlon, K., Whitehead, C., (2004). International trends in housing tenure and mortgage

finance. Special report for the Council of Mortgage Lenders, London School of Economics. p 4.

References

https://www.proeducate.com/courses/Finance/MortgageLoan.pdf

Asadov, A. and others, (2018). "Musharakah Mutanaqisah home financing: issues in practice", Journal of Islamic Accounting and Business Research, Vol. 9 No. 1, pp. 91-103. https://doi.org/10.1108/JIABR-08-2015-0036

Campbell, J. Y„ Cocco, J. R, (2003). Household risk management and optimal mortgage choice. Quarterly Journal of Economics 118,1449-94.

Hanif M. and Hijazi, S.T. (2010), "Islamic House financing A Critical Analysis and Comparison with Conventional Mortgage", Middle Eastern Finance and Economics, Issue 6, pp. 99-107.

Khan, F. (2010), "How ’Islamic’ is Islamic Banking", Journal of Economic Behavior & Organization, Vol. 76 No.3, pp. 805-20.

Robin Matthews and others, (2003). Recent Developments in the Market for Islamic Mortgages: Theory and Practice, p 60.

Scanlon, K., Whitehead, C, (2004). International trends in housing tenure and mortgage finance. Special report for the Council of Mortgage Lenders, London School of Economics, p 4.