Review

Ijarah Muntahia Bittamleek (IMB): A risk management perspective

Mirza Vejzagic

Limkokwing University of Creative Technology Malaysia, Inovasi 1-1, Jalan Teknokrat 1/1, Cyber 3, 63000 Cyberjaya, Selangor, Malaysia

*Corresponding Author’s E-mail: mirza.v@limkokwing.edu.my or mirzav@hotmail.com

Accepted January 09, 2014

Abstract

The objective of this paper is to comprehensively review and analyze Ijarah Muntahia Bittamlik (IMB) product as offered by Islamic banks from Risk Management perspective. The paper is structured to first briefly present an overview of Ijarah Muntahiya Bittamlik (IBM) financing, along with a detailed review of its structure and mechanisms illustrating how a typical IBM operates. The paper then lists the various models of IMB financing as implemented across jurisdictions in practice, and studies the various forms of documentations as used by Islamic banks in offering this financing product. Subsequently, the paper provides a critical insight into the various issues and challenges that arise from the current practices. The differences in treatments by various banks in possible outcomes of default, termination, early settlement, etc are also elaborated upon and scrutinized. The discussion is finally analyzed from the perspective of Maqasid Shariah and whether the industry’s current practice violates or upholds its principles. The paper ends with concluding points and references.

Keywords: Finance, Risk Management, Islamic bank, Risk, IBM