GRM 2010 GRM 2011

Abstract Details

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Title of Paper:
Islamic Housing Finance in GCC and MENA Countries - Lessons from Global Models and Practices
Paper Proposal Text :
Demand for Shariah-compliant financing products and services have gained momentum in the Middle East as well as in other regions of the world. All segments of Islamic finance including banking, capital markets, insurance, and NBFIs are experiencing high growth. The Islamic banking industry of this region has reported asset growth rates of up to 15 % per year during the last decade. Notwithstanding the growing importance of Islamic finance in the region, the supply of housing finance products has trailed behind. The shortfall has been the result of limited land supply, ineffective land administration systems, low affordability levels, and underdeveloped capital markets. Additionally, national housing polices have not been effective to stimulate the construction of houses.

Given increasing urbanization and continuous demand for housing in the region, this paper is aimed at comparing the housing finance systems in practice globally as well as in the region. The paper will make reference to important developments in key conventional as well as Islamic financial markets (e.g. Malaysia) to draw lessons, best practices, and conclusions and make policy recommendations for the development of housing finance markets in the GCC and the MENA region. The paper argues that the asset-based nature of Islamic finance has a natural fit for housing finance provided that conducive and enabling environment, proper incentive structures, securitization friendly financial systems, and growth promoting policy are in place. It is argued that development and growth of housing finance through asset-based finance such as Islamic finance could play an important role in much needed uplifting of economies and economic growth in the region.

The paper will be organized in the following way: the first part provides an assessment of the housing finance markets of the region. Criteria will be developed to facilitate the comparison among the individual markets as well as identify gaps in their development. The second part concentrates on recommendations to improve the supply of Shariah-compliant housing finance products. The paper also includes the analysis of capital market structures as they allow lenders to obtain long-term funds in local currency. Finally, having identifying the gaps, the paper makes policy recommendations for stimulating housing finance market as well Islamic financial markets.