Mohd Zakhiri Md Nor, Ani Munirah Mohamad, Alias Azhar, Hairuddin Megat Latif, Al-Hanisham Mohd Khalid, Yuhanif Yusof
Diminishing partnership or Musharakah Mutanaqisah (MM) is one of the underlying contracts adopted by Islamic financial institutions particularly for its property financing instruments. However, the implementation of MM in Malaysia has been surrounded with numerous legal challenges. Engaging in socio-legal approach, this study embarked upon the main objective of identifying the legal challenges surrounding the implementation of MM in Malaysia. Investigation was conducted involving three units of analysis: an Islamic bank, a legal firm, and an educational institution. Relevant parties were identified to be interviewed: a Shariah committee of the Islamic bank, a solicitor attending to the MM legal documentation and an academician teaching Islamic finance courses at the educational institution. The instrument employed was semi-structured interviews particularly to investigate the legal challenges of MM as an alternative for property financing in Malaysia. The findings revealed that there are numerous legal issues in the implementation of the MM in Malaysia, such as legal ownership of the MM property, major maintenance and repairs, restrictions imposed by the Malaysian laws and the duties and responsibilities of the MM partners i.e. the bank and the customer. In essence, the study is expected to contribute to the body of knowledge and serve as a guide for the policy makers in refining and improving the current process and procedure of MM contract as one of the preferred property finance products in Malaysia.