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IJHMA
12,4
708
Received 20 June 2018
Revised 29 October 2018
Accepted 1 November 2018
International Journal of Housing
Markets and Analysis
Vol. 12 No. 4, 2019
pp. 708-721
© Emerald Publishing Limited
1753-8270
DOI 10.1108/IJHMA-06-2018-0044
A new model for Islamic
cooperative mortgage of
housing finance
Aslina Nasir and Lazim Abdullah
Mathematics Department, Universiti Malaysia Terengganu, Kuala Terengganu,
Terengganu, Malaysia
Abstract
Purpose – This study aims to propose a new model of Islamic cooperative mortgage of housing finance
(ICOM) to provide a lower monthly initial amount with a longer tenure for the low- and middle-income
members. This model is developed to ease the burden on borrowers concerning the high initial down
payment (ID).
Design/methodology/approach – The ICOM model is a no-interest mortgage and is developed based
on the cooperative home mortgage model by Ebrahim (2009). The model is verified using numerical examples
to ensure its feasibility to produce lower monthly initial amounts and compared to the cooperative home
mortgage.
Findings – From the numerical example, the ICOM model shows a lower monthly initial amount with a
longer tenure compared to the cooperative home mortgage. The monthly payment is also lower than the
cooperative home mortgage.
Research limitations/implications – The authors compare their model with Ebrahim’s (2009)
cooperative home mortgage because of a constraint of limited previous studies on housing finance. Therefore,
this model is developed by considering the unaffordability of the initial down payment among low-income
borrowers. As this model introduces a lower monthly initial amount, the authors expect it can reduce the
unaffordability problem of high initial down payment.
Practical implications – The authors also expect that a lower monthly initial amount with a longer
tenure can ease the burden among the low-income borrowers by reducing their consumption on housing.
Originality/value – This paper provides a non-interest Islamic cooperative mortgage and lower monthly
initial amount with a longer tenure for the low- and middle-income borrowers.
Keywords Islamic, Home, Cooperative, Mortgage, Amount, Initial
Paper type Research paper
1. Introduction
Conventional and Islamic home mortgages share the same purpose of preventing market
failure and advancing the country (Hussin et al., 2013). The conventional mortgage is based
on an interest rate and debt. Meanwhile, Islamic mortgages impose a service charge
(interest-free) (Chong and Liu, 2009) based on a sales and purchases concept (Abdullah,
2016). According to Ebrahim (2009), the conventional home mortgage was quite onerous to
the lower-income earner in the efficient market because of the high interest rate that
increased with longer tenures. Islamic mortgages comply with the Shari’ah (Gait and
Worthington, 2007) to ensure financial balance (Zehri et al., 2012). Islamic mortgages are
non-usurious (Kameel and Meera, 2012) and implement a deferred payment sales to make
the deferred monthly instalment (Khan et al., 2014).
In addition, almost 50 per cent of the population in Malaysia consider the Islamic
financial contract (Bay’ Bithaman Ajil [BBA] and MM) as less flexible and difficult to adopt
since it must comply with Shari’ah rules (Selvaraja and Man, 2016). However, both of these Islamic
systems are difficult for borrowers since the total amount of loan payment and the profit cooperative
gained is concealed by the lender (Shahwan et al., 2013). Additionally, based on Razak et al.
(2016), BBA financing puts all the problems and burden on the customers and is not
mortgage
responsible for upholding justice. Therefore, even though the MM concept in Islamic home
financing is better than BBA, Malaysians remain unaware of its benefits. Even though MM
complies with Shari’ah laws, its high-profit margin should be highlighted. At the same time,
this concept should aim to provide a lower mortgage that offers advantages to both lenders 709
and borrowers while focussing on middle- and low-income earners.
However, since the BBA and Musharakah Mutanaqisah partnership (MMP) impose a
high interest rate, it affects the affordability of housing. The degrees of financial leverage
are statistically significant to house prices (Rebi, 2014). According to Said et al. (2016), the
affordability of housing in Malaysia is related to low priced and low-quality houses.
Through their study, they found that the house price is the dominant factor concerned by
most of the population in Kota Kinabalu, Sabah compared to other factors. The Malaysian
government has acted to overcome the crisis by developing viable and attractive residential
areas. It has concentrated on developing quality and affordable housing among low-income
groups in urban and rural areas as enshrined in the Tenth Malaysian Plan (RMK-10) from
2011 to 2015 and the Eleventh Malaysian Plan (RMK-11) from 2016 to 2020 (Malaysian
Economic Planning Unit, 2011, 2016). The housing price is associated with housing finance
the cooperative home mortgage is the medium for providing cheaper financing.
Islamic and cooperative finance mortgages share a similar ideology of assisting
communities without exploiting them. These combinations have developed an Islamic
cooperative mortgage that provides a loan to its members after they manage to accumulate
their savings (Blackwell and Kohl, 2017). The savings are referred to as an initial down
payment (ID) and are in line with Islamic principles (Al-Muharrami and Hardy, 2014). The
cooperative society plays significant roles towards the economic development in Malaysia
(Mahazril ‘Aini et al., 2012). The cooperative reduces the risks of its members by limiting the
increments in interest in the financial market (Hullgren, 2017; Bachet, 2012). However, there
is still weakness in the cooperative home mortgage. Accumulating the high initial down
payment is a significant constraint for lower-income earners. Even though they are offered
the option to pay the down payment periodically, it still takes them a long time to
accumulate the ID. This is burdensome, as they also have to pay monthly housing rent.
Ismail et al. (2015) and Fuster and Zafar (2015) found that high ID affects the affordability of
housing finance. Moreover, the down payment was linear spline in the wealth to house value
ratio term to capture the effect of down payment constraints. Additionally, they have to
change from a mortgage to rental, as they cannot afford the high monthly payments (Marais
and Cloete, 2015).
From observations, it is difficult to find a mortgage that offers a lower ID (Bajari et al.,
2013). Based on Nuruddin et al. (2015), mortgages with affordable down payments should be
provided so that low-income earners can afford to purchase a house. A lower down payment
is important to overcome the unaffordability problem which is a significant issue in many
countries including Malaysia, particularly among the younger generation who are not
capable of paying the ID (Sohaimi et al., 2017). Some borrowers had to change from a
mortgage to rental, as they were not able to pay the monthly instalments and high interest
rate (Marais and Cloete, 2015). The model developed by Ebrahim (2009) is efficient in
providing an interest-free mortgage, but it did not focus on the affordable down payment.
The high monthly initial amount offered in Islamic cooperative home mortgages (Ebrahim,
2009) is a significant constraint for low-income borrowers. The disadvantage of this model is
IJHMA it fails to resolve the high monthly initial amount that should be paid within a specified
12,4 period. Besides, it is necessary to provide a new model that imposes lower affordable
monthly initial amounts among low-income borrower.
This study focuses on the issue of down payment and interest rate as significant and
often overlooked challenges in the housing mortgage among lower-income groups. The
long-term payment is one approach to reducing the mortgage problem. This study develops
710 a new model for Islamic cooperative mortgage of housing finance (ICOM) without interest
and lowers down payment to address this gap. The ICOM model modifies the ID in
Ebrahim’s (2009) model to reduce the initial monthly amount. We refer to Ebrahim’s (2009)
model, as it is the only model pertaining to Islamic cooperative housing mortgage since there
is a lack of studies that developed or modified the model of affordable housing finance. Most
of them only used applied studies such as empirical analysis.

2. Literature review
This study divides the literature into previous studies on cooperative home mortgage and
previous models of cooperative home mortgage (Ebrahim, 2009).

2.1 Previous studies on Islamic and cooperative home financing

Islamic banking emerged in the 1970s and evolved in the 1990s (Ada, 2014). It has grown
rapidly over the past three decades even though it did not match with the existing financial
frameworks and business practices. More than 50 countries implemented Islamic banking
by the end of 2008 (Hanif, 2011). The two types of Islamic financing contracts being
practised in most countries are BBA and MMP. The BBA contract provides a deferred
instalment sale where the bank imposes its profit according to the sale of property (Baber,
2017). It is similar to debt financing in which the interest charges increase along the tenure of
the mortgage. BBA also depends on interest rate and mirror that of conventional mortgage
financing. From the comparison between conventional and BBA financing in Razak and
Taib (2008), they found the total profit is capitalised upfront in the BBA financing model,
unlike the conventional loan where the interest due is unearned until the elapse of time.
Moreover, the initial down payment practised by BBA financing is similar to the
conventional.
The MMP model is interest-free and not permanent in which the total capital ratio for the
capital provider is reduced by the capital of monthly repayment by the borrowers. In the
MMP model, the house price of P0 is purchased in which the initial down payment C is paid
by the borrower and the remaining balance Q0 is incurred by the lender. Therefore, the ratio
of sharing between lender and borrower at the time of purchasing is Q0: C. It includes Q0 is
the ratio of shares is owned by the lender and C is the ratio of shares is owned by the
borrower. The borrower will occupy the house by paying the rent. The borrower only needs
to pay the rent based on the value percentage of Q0 respect to the house price. At the same
time, the borrower also needs to make the repayment to the lender periodically together
with the rent. Thus, the ownership of the lender towards the house is gradually diminished
until the end of the financing period. Along the payment period, the share of the borrower
increases until he/she owns it wholly (Eroglu et al., 2012; Sollehudin, 2011).
Instead of BBA and MMP models, Islamic cooperative home mortgages are also
available in most countries. Islamic cooperatives are non-banking financial institutes set up
to increase its members’ economic and social welfare, reduce interest, help the unaffordable
income earners to accumulate funds and reduce unaffordability of high initial down
payment among the low-income borrowers. An Islamic cooperative home mortgage
provides a mutual fund to the cooperative members based on their savings (Azmi, 2011) and
prioritises its members’ interest (Balmer and Gerber, 2017). The existing Shari’ah Islamic
Governance Framework for Islamic cooperatives was explored by Itam@Ismail et al. (2016) cooperative
using a qualitative legal method. They found that Islamic cooperatives were comparable to
Islamic financial institutions in giving advantages to all levels of income earners because of
mortgage
its regulatory frameworks. This finding is in line with the study of Sukumar (2001).
Furthermore, an innovative strategy should be identified to overcome the housing market
challenges (Bakar et al., 2017). The government also plays an important role in achieving the
effectiveness of housing cooperatives (Oyewole, 2010). 711
Zabri et al. (2015) introduced an analytical framework based on cooperative theory. They
stated that it could assist the related parties to overcome the issues and challenges of
Shari’ah-compliant mortgage financing products. Moreover, according to Cabré and Andrés
(2017), La Borda, one of the cooperatives in Barcelona, was a role model of social innovation
that managed to provide affordable housing. Their study also found that the long-term
effect of cooperatives was greatly affected by financing, labour, housing markets, society’s
perception and social innovation support in the housing sector. Moreover, Lang and Novy
(2013) introduced a multi-scalar concept that connects the social capital to the vertical ties
between residents and influential people in conventional institutions. It identifies the
purpose of housing cooperatives for social cohesion in a city. It was tested by using two-
level analysis and found that top-down and neoliberal governance had limited room for
participatory practices among cooperative housing. Whereas, Aernouts and Ryckewaert
(2018) expressed that cooperatives were formed for different purposes which included
increasing capacity building and social capital among participating inhabitants.
In addition, according to Mohd (2014), the finance mortgage implemented should comply
with the Shari’ah laws and have non-interest. He developed two interest-free models to
overcome the usury problem and ascertain the sales and purchases that complied with the
Shari’ah. These models were periodic without usury model (MTRBak) and reasonable
without usury model (MTRAW). The MTRBak model, an interest-free mortgage,
concentrated on the compliance of agreement between borrower and lender in which the
amount financed should be settled in a mortgage period that is shorter than usual. The
amount financed and monthly instalment determine the mortgage period. While in the
MTRAW model, the lenders must invest the instalment paid at every time interval by
the expected profit return ((1 þ r)N – 1)P, with r = interest rate and P = capital investment, in
time interval obtained to achieve a profit.
To retain the capital since it is a non-interest mortgage, the cooperative should ascertain
the capital investment is sufficient to replace the capital that has been distributed to the
member. One solution to reduce this issue is by conducting mortgage-backed security
(MBS). In the mortgage-backed security carrying credit guarantees, the regional lender can
lend mortgages to the borrowers without having to worry in case the borrowers have no
asset to cover the loan. Instead, the lender acts as a middleman between the borrowers and
the investment market participants. Capital market investors have a significant effect on the
yields of determining how fast a liquid market is capable of expanding (Pryke and Freeman,
1994). It is in line with Harun and Othman (2007) who found that the impact of securitisation
is applicable and relevant to mortgage market yields. Also, the securitisation has
transformed housing finance in Malaysia by increasing the liquidity of the mortgage
market, while its benefits to borrowers remain unclear in the case of Malaysia.
From the observation above, we conclude that a mortgage should be non-interest and
have an affordable initial down payment. However, we found that most of the previous
studies only focussed on the empirical analysis of housing finance. Other studies of housing
finance only focussed on the reverse mortgage as an essential tool for revitalising the assets
IJHMA of retirees and solving an under-funded retirement life for lower-income groups (Davidoff
12,4 et al., 2017; Lee et al., 2017). MTRBak, MTRAW models, BBA and MM contracts do not
focus on the lower monthly initial amount instead of initial down payment. This is the
reason why we concentrate on the model of Islamic cooperative home mortgage (coop) that
is adopted from Ebrahim (2009) as it imposes the initial monthly amount with no interest.
Hence, it is the appropriate model that can be compared with our proposed model. To make
712 it clear, we illustrate the cooperative home mortgage in Section 2.2 before discussing our
proposed model. As we consider our ICOM model is free of the problem of capital
accumulated among the cooperative, we concentrate on the reduction of the lower monthly
initial amount instead of high down payment.

2.2 Model of Islamic cooperative home mortgage

In the cooperative home mortgage of Ebrahim (2009), the borrower needs to accumulate the
amount of S by making periodic payment from time t = T1 (prior to the purchase of the
house) until t = T2. Before purchasing a house, the borrower is required to make the initial
monthly amount of S/(T1 þ T2 þ 1) from t = T1 to t = 0. Meanwhile, starting from t = 1,
the borrower should make the periodic payment (cooperative due) of S/(T1 þ T2 þ 1) with
additional principal payment of P0/T3 in which the real tenure of T2 is shorter than the
“notional” tenure of T3. Hence, the net amount owed Qt by the lender is obtained as:
X t Xt  
P0 S t SðT1 þ t þ 1Þ
Qt ¼ P0   ¼ P0 1   (1)
T
i¼1 3 i¼T
T 1 þ T 2 þ 1 T 3 T1 þ T2 þ 1
1

Therefore, the amount financed is given by:

 
T1 þ 1
Q0 ¼ P0  S (2)
T1 þ T2 þ 1


Note that the second term in equation (2) is akin to the initial down payment. 
Whereas, the gross amount owed to the cooperative at time t equals P0 1  Tt3 . Besides,
the capital accumulated by the borrower to assist finance fellow cooperative member at time
t = T2 is considered offsetting the liability of the borrowers to the association. Hence the
amount S is expressed by:
 
T2
S ¼ P0 1  ; (3)
T3

By inserting equation (3) to equation (1), we obtain that QT2 equal to zero
 
T2 ðT1 þ T2 þ 1Þ
QT 2 ¼ P 0 1  S ¼0 (4)
T3 T1 þ T2 þ 1

Or can be simplified as:

 
T2 S 1 1 S
¼1 ) ¼ 1 ; (5)
T3 P0 T3 T2 P0
The assumption T2 < T3 is assumed which implies S < P0, then, by substituting
equation (5) into equation (1), the amount owed can also be expressed by:
    
t t ðT1 þ t þ 1Þ Islamic
Qt ¼ P0 1  þS  : (6)
T2 T2 T1 þ T2 þ 1 cooperative
mortgage
2.2.1 Asset value constraint in cooperative home mortgage. Based on Ebrahim (2009), Q0 #
P0e–as is applied to reduce the moral hazard by restricting the loan to value ratio an
equivalent function of safety margin. Substituting Q0 from equation (2) yields: 713
 
S T1 þ T2 þ 1
 ð1  eas Þ
P0 T1 þ 1

 
Smin T1 þ T2 þ 1
¼ ð1  eas Þ; (7)
P0 T1 þ 1

where s is monthly risk. Note that the ratio between capital accumulated Smin and house
price P0 is less than 1 since the value of capital accumulated Smin is lower than house price
P0. Thus, we have:

T1 > T2 ðeas  1Þ  1 (8)

We substitute equation (9) with equation (5) and obtain

1 eas ð1  eas Þ
¼  (9)
T3 T2 ðT1 þ 1Þ

2.2.2 Income constraint of cooperative home mortgage. According to Ebrahim (2009), the
borrowers are ascertained to have adequate income y to meet their mortgage commitments
that comprise cooperatives because of CD and additional principal instalments of RPP:

Income of Borrowerð yÞ
 Income MultiplierðbÞ (10)
Monthly Instalment ðCD þ RPPÞ

Substituting equation (10) to equation (11), we obtain:

 as 
e
y  bP0 (11)
T2

Therefore, tenure of cooperative home mortgage of Tcoop is presented as:

bP0 as
T2 ¼ Tcoop  ðe Þ: (12)
y

Therefore, the total amount of loan payment is:

Rcoop ¼ Bcoop Tcoop : (13)

IJHMA 3. Proposed model
12,4 We introduce our proposed model of Islamic cooperative mortgage of housing finance
(ICOM) based on the cooperative home mortgage by Ebrahim (2009). Our ICOM model is a
no-interest mortgage and introduces a lower monthly initial amount with a longer tenure for
low-income members. The ICOM model also produces a moderate initial amount with a
moderate tenure for the middle-income members and the same monthly initial amount for
714 high-income members. We assume that our ICOM model is free from the problem of
retaining the capital accumulation.

3.1 Islamic cooperative mortgage of housing finance

Suppose that C is the initial monthly amount that should be accumulated by a prospective
borrower (member of the cooperative) before purchasing a house at price P0. Thus, it is more
convenient to refer C as the accumulated initial amount. The cooperative members make a
loan Q0 at t = 0:

X
0
C
Q0 ¼ P0  ¼ P0  C ¼ D (14)
t¼T1
T1 þ 1

Note that the accumulated initial amount C is akin to initial down payment. Then, the total
cost is given by:

X
0
C X
T2
D
FICOM ¼ C þ D ¼ þ (15)
t¼T1
T1 þ 1 t¼1 TICOM

where T2 is the tenure. Since the ICOM model is a no-interest mortgage, hence, the sum of C
and D is equal to housing price P0. Alternatively, the sum of C and D is equal to the total
amount of loan payment. This assumption can be simplified in Figure 1.
Then, the net amount owed (Qt)ICOM to the association at time t  0 is given by:

X
0 X
t  
C D y
ðQt ÞICOM ¼ P0  þ ¼ P0  C þ t ¼ P0  C þ Bmax t
t¼T1
T1 þ 1 t¼1 TICOM b
(16)

Referring to the calculation of income constraint in Ebrahim (2009), we divide income by

income multiplier to obtain initial monthly amount as follows:

C y
¼ (17)
T1 þ 1 b

Figure 1.
Timeline of ICOM
model
Therefore, we classify the income multiplier b into three categories of reference Islamic
income multiplier to distinguish the level of income members[1] which are b low for cooperative
the low-income, b middle for the middle-income and b high for the high income as
follows:
mortgage

P0
blow ¼ (18)
12y1 715

P0
bmiddle ¼ (19)
12y2

P0
bhigh ¼ (20)
12y3

By these three reference income multipliers, monthly initial amount is obtained as Blow #
Bmax, Bmiddle # Bmax and Bhigh = Bmax. Therefore, the respective tenures of accumulated
initial amount payment of low, middle and high-income members can be evaluated in
equation (21) to equation (23) as follows:

C
T1 þ 1 ¼ (21)
Blow

C
T1 þ 1 ¼ (22)
Bmiddle

C
T1 þ 1 ¼ (23)
Bhigh

We assume the accumulated initial amount C or IDmin is 10 per cent from the housing price
which the minimum initial down payment required for housing finance mortgage in
Malaysia. Besides, using the similar calculation to Ebrahim (2009), the monthly payment of
Bmax in this ICOM model can be calculated as:

D y
¼ ; (24)
T2 bhigh

Thus, TICOM is given by:

D
TICOM ¼  (25)
Bmax

As the ICOM model is a no-interest mortgage, then the total amount of loan is equal to the
amount financed D. Therefore, the total amount of loan payment can be evaluated as
follows:
IJHMA RICOM ¼ Bmax TICOM ¼ D (26)
12,4
Next, we validate our model using the numerical example and compare with the
conventional and cooperative home mortgage.

3.2 Numerical illustration

716 Suppose that the income borrower is RM2,000, housing price P0 = RM100,000, amount
financed (Q0)max = D = RM90,000, and income multiplier b = 3.333.
We assume P0 = RM100,000, y1 = RM1500, y2 = RM2,000 and y3 = RM2,500, from
equation (18) to equation (20), then, we calculate blow = 5.556, bmiddle = 4.167 and blow = 3.333
as follows,
Hence, we substitute the income multiplier blow = 5.556 into equation (21), then, we can
obtain the tenure of the initial monthly amount as follows:

RM10000ð5:556Þ
T1 þ 1 ¼ ¼ 27:78 months:
2000

Therefore, from equation (21), the initial monthly amount is given by:

C 2000
¼ ¼ RM359:97:
T1 þ 1 5:556

Then, we calculate the accumulated initial amount as:

C¼ RM359:97  27:78 months  RM10000:00

By substituting Bmax = RM600.06 into equation (25), the TICOM we can be obtained as:

RM90000ð3:333Þ
TICOM ¼ ¼ 149:985 months:
2000

We obtain that at amount financed RM90,000, the low-income borrower of RM 2,000 should
pay RM600.06 monthly instalment for 149.985 months. Therefore, the total amount of loan
payment for t = 1 to t = T2 is calculated as:

RICOM ¼ RM600:06  149:985 months  RM90; 000

where RICOM = D. Then, the total cost of housing can be evaluated as FICOM = C þ D =
RM90,000 þ RM10,000.00 = RM100,000.00 which is FICOM = P0.
Figure 2 shows that the ICOM model provides a lower monthly initial amount and longer
time for accumulating the initial amount compared to Ebrahim’s (2009) model for the income
borrower of RM2000. It indicates that using the ICOM model, the borrower can pay the
lower payment in a longer tenure and simultaneously reduce their housing expenses.
Next, we compare the monthly payment of Bcoop with Bmax and Tcoop with TICOM, TICPM
and (TICPM)discount in different housing price of P0. Besides, the tenure of T1 (ICOM model)
with T1 (cooperative model) is also compared. We obtain that the monthly payment of Bcoop
is higher than Bmax for all income levels. Meanwhile, Tcoop is equal to TICOM imply that the
borrower can pay the lower on monthly payment in ICOM model at the same tenure with the
cooperative home mortgage. Furthermore, we obtain a lower monthly initial amount of B1
 30
RM 359.97,
Islamic
ICOM model cooperative
27.78 months
25 mortgage
RM 569.49,
Tenure (months)

20
15.665 months

15 Cooperative home 717

mortgages (Ebrahim, 2009)
10

0 Figure 2.
0 100 200 300 400 500 600 Initial monthly
amount
Initial monthly amount

with the longer tenure of T1 (ICOM model) compared to the initial monthly amount of
cooperative home mortgage (RPP) with the same tenure (Table I).

3.3 Housing ownership estimation

Finally, we conduct the dynamic panel analysis to identify the effect of the total amount of
loan payment of the cooperative home mortgage and ICOM model together with the number
of households, income of the household, number of infrastructures and house rent towards
housing ownership.
3.3.1 Housing ownership by cooperative home mortgage model. Table II shows the result
of a cooperative home mortgage towards housing ownership. We also obtain the PMG as the
best estimator for a model of cooperative home mortgage towards housing ownership. The
PMG result in Table II shows that the cooperative model and number of households negatively
contribute to the housing ownership in the long-term. Meanwhile, the number of households
and income positively contribute to housing ownership. However, rent is not significant with
housing ownership which implies that it does not contribute to housing ownership.
3.3.2 Housing ownership by ICOM model. Table III presents the estimation result of the
ICOM model towards housing ownership. According to the Hausman test, we obtain that
the PMG is the best estimator to represent this model. We also obtain that total amount of
loan for ICOM model and household number is significant and negatively contributes to the
housing ownership in the long-term. Whereas, there are positive effects between household
income and a number of infrastructure towards housing ownership. We also obtain that rent

Cooperative
home mortgage ICOM model Table I.
TICOM Comparison of the
y (RM) RPP T1 (months) Bcoop (RM) Tcoop (months) B1 (RM) T1 (months) Bmax(RM) (months) monthly payment of
Bcoop with Bmax, the
2,000 406.49 21.22 603.46 149.99 359.97 55.56 600.06 149.99
4,000 1,031.09 8.52 1,202.53 74.99 719.94 13.89 1,200.12 74.99 tenure of T1 and
6,000 1,638.00 5.06 1,801.65 49.99 1,439.89 6.95 1,800.18 49.99 tenure of Tcoop with
8,000 2,241.28 3.44 2,401.30 37.49 1,199.90 5.21 1,919.85 37.49 TICOM for different
10,000 2,391.85 2.51 3,001.13 29.99 2,399.81 4.17 3,000.30 29.99 housing price of P0
IJHMA has an insignificant impact on housing ownership which indicates that, in this model, rent
12,4 does not influence housing ownership.

4. Conclusion, discussion and recommendation

The ICOM model is developed based on the cooperative home mortgage of Ebrahim (2009)
to provide a lower monthly initial amount according to income levels. In the ICOM model,
718 the initial monthly amount is lower than the monthly payment for lower and middle-income
borrowers. Meanwhile, the initial monthly amount is equal to the monthly payment for the
high-income borrowers. We compared the ICOM model and cooperative home mortgage and
found that the initial monthly amount for the ICOM model for low- and middle-income
borrowers are lower than cooperative home mortgages. Therefore, given the result of the
lower monthly initial amount in the ICOM model, we assume that it is capable of reducing
the unaffordability of paying the accumulated initial amount for low-income borrowers.
The ICOM model is recommended as it can reduce the unaffordability of the initial down
payment. It could not resolve the problem of the capital constraint among the cooperatives
whereby they have encountered difficulties in accumulating capital since the mortgage provided
is a non-interest mortgage. The solution to overcoming this problem should be implemented in
ensuring the borrower can make the non-interest loan but at the same time does not neglect the
problem to accumulate the capital among the cooperatives. A new cooperative housing finance
mortgage model should be conducted by introducing a lower initial amount, reduce the tenure of
mortgage and overcome capital accumulation constraints. Therefore, the borrower can pay a
higher monthly payment in a shorter tenure. All borrowers can pay more monthly which should

Cooperative home mortgage

Variables MG estimator PMG estimator

Rcoop 0.9426 (1.06) 0.0396 (−.28)**

Household 0.6352 (0.85) 0.0144 (−3.21)***
Income 2.1736 (1.51) 0.3156 (5.20)***
Infrastructure 63.0848 (0.97) 0.4673 (1.88)*
Rent 45.3408 (1.10) 0.5373 (−1.02)
Error correction 0.7065 (4.78)*** 0.4597 (−4.59)***
Table II.
Hausman 1.25 (0.9401)
Cooperative home
mortgage towards Notes: Figure in parentheses are t-statistics except for Hausman test (H) which are p-values. ***, **and
ownership *indicate significance at the 1, 5 and 10% levels, respectively

ICOM model
Variables MG estimator PMG estimator

RICOM 0.5926 (1.86) 0.0323 (1.78)*

Household 0.3012 (1.15) 0.0147 (3.39)***
Income 0.5533 (0.57) 0.2968 (4.77)***
Infrastructure 25.6707 (1.18) 0.4888 (1.95)*
Rent 23.9618 (1.77) 0.5213 (1.00)
Error Correction 0.6984 (4.66)*** 0.4577 (4.44)***
Hausman 1.50 (0.9126)
Table III.
ICOM Model towards Notes: Figure in parentheses are t-statistics except for Hausman test (H) which are p-values. ***, **and
ownership *indicate significance at the 1, 5 and 10%, respectively
not be a problem since no interest is charged. Furthermore, a shorter mortgage tenure can ease Islamic
the cooperatives to turn around the capital in a shorter period. cooperative
From all the estimation results, we conclude that the total amount of loan payment for
cooperative home mortgage and ICOM models are significant and negatively affect the housing
mortgage
ownership in the long-term. Both models show that the number of households is also significant
and negatively affects house ownership. It could occur as to the increase in the number of
households will increase household consumption. We also obtain that income is significant and
has a positive impact on the housing ownership for all models. It implies that housing ownership 719
is affected by income. It is also affected by the number of infrastructures for both models.
However, we have limited data for the number of housing ownership, as the data used are
only based on the existing housing finance mortgage. Because our models are new, we may
ascertain the respondents’ perceptions towards them as to whether they are willing or not to
purchase a house using our proposed models. Therefore, we can compare our proposed models
with the existing housing finance mortgage with the expectation that a higher number of
willingness to pay will attract more people to purchase a house in the future. Furthermore, our
proposed models can be conducted using the primary data analysis in future research for
different income level respondents to identify the context of willingness to purchase the house
using our models compared to the existing mortgages. Hence, in the next study, the willingness
to purchase the house for different models is tested. The model with the highest record of
willingness to purchase indicates the recommended models that can increase house ownership.

Note
1. The income levels refer to the Department of Statistics Malaysia (2016), low income earners in the
range below RM 4360, middle income earners in the range RM4360 and RM9619 and high income
earners in the range RM9620 and above.

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Corresponding author
Aslina Nasir can be contacted at: aslina3833@gmail.com

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