Mortgage System Research Articles

Financing homes by employing Ijara based diminishing Musharaka

Purpose This paper aims to examine how homes can be purchased and financed by using Ijara-based diminishing Musharaka (IDM) modes of financing and thus both the home buyer (HB) and Islamic Bank (IB) become joint owners and share rental income jointly according to their respective shares. Such practice can help to avoid interest-based mortgage financing and eliminates excessive risks of bankruptcy as it often happens in conventional interest-based system. Design/methodology/approach A mathematical model as well as rental income, payments and share schedules for IDM will be developed where both the HB and IB will initially own the home. As the HB gradually pays off the principal amount, his or her share will increase while the share of the IB will gradually decrease as stipulated in the contract. Eventually, the HB will buy back all the shares and thus will own the home without paying for mortgage interest and taking excessive risks of foreclosures or living in constant fear of losing home over approximately 20 to 30 years of the tenure of the mortgage payments. Findings The HB can own home without paying any interest and without taking excessive risks of foreclosures. The HB is not borrower rather partners in business. In addition, the HB can minimize the total payments compared to interest-based mortgage financing. In the current IDM model, payments are flexible, and the HB will not be required to make regular installment payments, rather he or she receives regular rental income if the HB chooses not to live in the home. Even if HB lives in the home, part of the home can be rented, and the HB will receive regular share of rental income in each month. The HB will not lose the home even if he does not pay any installment while in interest-based mortgage system, the HB may lose the home if the HB stops installment payments even for a couple of months after paying for 29 years for 30 years mortgage. IDM mode of financing is risk free and worry free, and it instantaneously creates rental income for the HB, like any other business. Originality/value The current IDM model is one of the most recent, and unique approach of home financing, and it is extremely flexible and free from many restrictions compared to the existing similar models. Many of the existing diminishing Musharaka models impose many restrictions on the HB, such as the HB cannot even own or rent the place, cannot remodel or rebuild the place unless the HB pays off all the outstanding price of the home. If the current flexible IDM model is implemented, it will be truly revolutionary and even the people from other faith group will be extremely interested to join as HB and buy their homes by pursuing IDM mode of financing because it is risk free as well as it will free HB from the financial slavery of monthly installment payments for about two to three decades, especially during the most important and most valuable prime life time of the HB. The IDM model will unveil a potential and a promise to financial freedom by removing all constraints and preconditions in purchasing and financing homes.

The Low Use of Bankruptcy Procedures in Spain: Reasons and Implications for the Spanish Economy

This paper seeks to contribute to the understanding of the relative use of bankruptcy law. Namely, it explores the underlying reasons for the low rate of business bankruptcies in Spain, and the impact that this low usage of bankruptcy procedures may have for Spanish firms – and thereby for the Spanish economy. There are two main hypotheses that may explain the low level of business bankruptcies: (i) Spanish firms minimize ex ante the risk of bankruptcy; or (ii) Spanish firms resolve their financial trouble without using formal bankruptcy procedures. This paper proposes an intermediate hypothesis. Namely, it argues that, induced by both the legislator and secured creditors, Spanish firms choose asset and capital structures that minimize ex ante the risk of bankruptcy. Moreover, when insolvency already threatens, firms seem to avoid the use of bankruptcy procedures due to the unattractiveness of the Spanish bankruptcy system for both debtors and creditors. Likewise, this paper points out that the low rate of business bankruptcies might not be mainly associated, as previous studies have suggested, with the unattractiveness of the bankruptcy system and the efficiency of the mortgage system, but also – and perhaps more importantly – with other factors such as the design of a creditor-friendly corporate law, a poor the law of secured transactions, the use of workouts, and some economic and sociological factors usually generated or, at least, exacerbated by the legislator. These latter factors include: (i) the stigma associated with Spanish bankruptcy procedures; (ii) the high level of risk aversion faced by Spanish entrepreneurs (especially small and medium size entrepreneurs); (iii) the bad perception of the Spanish bankruptcy system; and (iv) the low recognition of business success linked to the bad connotations of business failure in Spain. Finally, it is argued that the high dependence of Spanish firms to bank finance and the poor culture of bank lending (mainly dependent on the debtor's ability to provide a security interest instead of focusing on the debtor´s ability to generate cash flows) contributes to the inefficient design of the asset and capital structure of Spanish firms. Moreover, it can create several externalities to society as the result of the overinvestment and underinvestment problems potentially created by this culture of bank lending. On the basis of this exercise, this paper contributes to the literature by introducing new variables that may help explain the relative of bankruptcy law. Likewise, it proposes a structural reform of the Spanish Bankruptcy Act 2003 to make bankruptcy procedures more attractive to both debtors and creditors, and it suggests several recommendations to promote the optimal design of the asset and capital structures of Spanish firms with the purpose of boosting the competitiveness and growth of the Spanish economy.

Resilient homeownership: how partnership-based finance would have prevented the 2008 US mortgage crisis

Purpose The purpose of this study is to demonstrate that the conventional mortgage system is not appropriate for household finance because it encourages equity extraction and excessive leverage during housing boom and leads to negative equity during a housing bust, a situation that translates into mortgage defaults and foreclosures. Home financing could alternatively be structured as a diminishing partnership preventing the homeowner from ever having negative equity. Design/methodology/approach Using Johansen’s cointegration test, the authors provide evidence of a long-run relationship between the delinquency rates, volume of refinancing and the change in house price index (HPI) during the 1994–2019 period. To unravel the short run dynamics between these variables, the authors used a Granger causality test that concludes that the volume of refinancing and the change in the HPI Granger cause default rates. Findings The authors provide evidence that under the current conventional mortgage system, excessive refinancing opportunities and equity extraction that are the main factors determining delinquency rates leading to a non-sustainable homeownership. Practical implications If mortgages were such that they do not incentivize defaults and foreclosures during a housing downturn, the recovery of the housing market always leads to capital gains. Therefore, disincentivizing refinancing and equity extraction would lead to a more sustainable homeownership. Social implications Households would be encouraged to pursue sustainable homeownership through a partnership-based model with long-term wealth accumulation for themselves and their heirs rather than short-term home ownership through the conventional mortgage system, leading to negative equity and defaults when the housing market slumps. Originality/value Policymakers ought to rethink the mortgage design by promoting partnership-based finance to protect the equity a household accumulates over a lifetime and thereby enhancing stable and sustainable homeownership.

International Real Estate Review

The global economy is in the midst of a recession triggered by the ongoing pandemic of a novel coronavirus disease (COVID-19). The shutdown of the economy and a surge in the unemployment rate also cause stress to the US housing and mortgage system and create significant impacts on the default behaviour of mortgage borrowers. The potential rise in mortgage defaults may renew the long-standing debate over the empirical observation of why some mortgage borrowers do not default as "ruthlessly¨ as the finance theory predicts. In this paper, we propose an alternative theory to explain for the different default behaviours among mortgage borrowers. We hypothesize that the difference among time preferences across mortgage choices is one of the underlying factors that causes the heterogeneity in default patterns. Borrowers can either have a present-biased preference (overvaluing immediate outcomes), or a time-consistent preference (with standard exponential discounting). Borrowers with a present-biased preference are more likely to accept back-loaded mortgages that minimize up-front costs, even though this increases their risk of going ¡§underwater¡¨ and entering default when an adverse shock, such as the one from the ongoing pandemic, occurs.

The Impact of the Development of the Mortgage System on the Availability of Residential Real Estate

The article discusses approaches to solving the problem of ensuring housing affordability, which is relevant for many countries, including Russia. The concepts of «residential real estate market» and «housing affordability» are analyzed from various points of view; criteria that characterize housing affordability are defined. The possibilities of using various methods of acquiring residential real estate in a market eco­nomy are analyzed. The features of the Russian system of mortgage lending based on a comparison of approaches to determining the affordability of housing in Russia and abroad are noted. As a key area for solving the problem of housing affordability, the possibilities of a mortgage lending system are considered. Statistical data are presented. They demonstrate the relationship between the indicators cha­racterizing the state of the mortgage lending system and the dynamics of prices in the real estate market. The relationship between the availability of mortgages and the availability of housing is indicated.

Dilating Low-Income Housing Financing: Lessons for Emerging Market REITs

Asymmetric movements of housing demand and supply has consequently led to extraordinary house price increments, thereby making housing unaffordable and unsustainable for significant proportion of urban settlers in many emerging economies. This deficit in low-income housing delivery strengthens the pertinence of looking elsewhere for solutions. With the emergence of REITs as a vast source of real estate financing, literature has identified the potential of this investment vehicle in financing low-income housing delivery in the form of social purpose REITs. Worryingly, studies on the applicability of these REITs in financing low-income housing is almost inexistent in emerging economies, outside China. The study is aimed at the examination of empirical literature on the use of social purpose REITs as vehicle for ameliorating low-income housing delivery with a view to extricating pertinent lessons for emerging market REITs. Content analysis was conducted using TEXTPACK; and the resulting synthesis of extant literature produced 4 main lessons for emerging market REITs. It was concluded that to dilate the financing of low-income housing delivery, REITs in emerging markets should adopt policies that encourage the establishment of social purpose REITs. Such policies should lend towards the implementation of tax credits to social purpose REITs and an exemption of low-income housing developers from development costs. Also, Public-Private Partnerships for housing delivery should be reviewed to incorporate strategies that ameliorate indemnificatory housing, while the mortgage system should be revamped to accommodate mortgage tranche and long-term debt capitalization. Keywords: Low-income housing delivery, Social purpose REITs, housing finance, REITs, Emerging Markets DOI: 10.7176/EJBM/12-18-05 Publication date: June 30th 2020

A Study on the Aspect of Social Security of the Reverse Mortgage System and Activation Plan

A Study on the Aspect of Social Security of the Reverse Mortgage System and Activation Plan

Public Private Partnership for Affordable Housing in Abuja Nigeria: A Review

Public private partnership was recently recognized as an option to end the current crisis of housing shortage and affordable housing in the country by the Nigerian government in line with UN recommendation. This studies aim to identify the challenges of PPP for provision of affordable housing in Abuja. The study based on review found that PPP has not made any significant contribution in providing affordable housing; rather it is suddenly change towards providing housing for high- and middle-income earners. The paper reveals that the challenge of PPP for affordable housing provision as the Acquisition and access to land, high dependent of foreign building materials, adequate housing finance, difficulty of accessibility to mortgage facilities and land titles, poor Infrastructural facilities and cost recovery among others. It therefore suggests that the government should provide land at no cost, encouraging the use of local building materials at low price, provision of more financial institution at little or no interest, establishment of an effective mortgage system and incorporation of assisted-self-help and incremental housing into the Public–Private-Partnership housing delivery system will ensure better results. Consequently, there is possibility for government to develop a framework for PPP to achieve it dream by providing affordable housing in Abuja Nigeria.

TURKISH HOUSING LOAN MARKET AND SECONDARY MORTGAGE MARKET PERSPECTIVES

Housing finance is a major issue for emerging economies. The approval of “Turkish Mortgage Law” paved the way for an efficient mortgage system in Turkey. However, the system should be supported by a comprehensive legal framework covering laws for foreclosure and title registration, the implementation of a strong secondary market mechanism and stable economy policies for the achievement. This paper begins with giving brief information regarding the key components of mortgage systems and then gives a detailed macro - economic evaluation of Turkish housing loan market, by considering the European Union. In the final section, some secondary market practices are introduced and possible perspectives for Turkey are discussed.

Analysis of the residential mortgage market in the Ural Federal District

The relevance of this study stems from the fact that it analyzes the current situation on the mortgage market in Russia: the influence of macro-economic factors causes a fall in collateral value, dramatic increase in mortgage default and poor performance of the Agency for Housing Mortgage Lending (AHML). The study is aimed at investigating the current state of residential mortgage lending on the regional level in Russia by focusing on the case of the Ural Federal District. The study considers the interests of all the participants of this market: individual borrowers, state authorities, financial and credit institutions engaged in mortgage lending. The study analyzes statistical data on the primary residential mortgage market in the Ural Federal District provided by the Central Bank of the Russian Federation, Federal State Statistics Service and the AHML. Results. Modern approaches to mortgage system evaluation are compared in order to identify and systematize the key criteria and statistical indicators characterizing the current state of this form of lending relationships. The analysis also brings to light the negative trends in mortgage lending in the Ural Federal District. As a part of our further research, we are going to develop a procedure for evaluating the performance of a mortgage system.

How Do Property Rights Affect Credit Restrictions? Evidence from China's Forest Right Mortgages

Taking China’s recently developed Forest Right Mortgage System (FRMS) as an example, this paper examines the impact of the strength of farmers’ property rights on the intensity of credit restrictions imposed by lenders. Using the forest right mortgage policy documents we collected from eight key forestry counties (cities) in China’s southern collective forest regions and the corresponding data of 414 surveyed farmers in 24 villages, we quantify the exclusivity of farmers’ forest property rights and the extent of FRMS credit restrictions in the sampled regions, and explore whether and how the strength of farmers’ forest rights affect credit restrictions under FRMS. The results show that there exists a significant mediation effect of the forest rights exclusivity on credit restrictions intensity through its impact on the market value of forest rights. We further examine the relationship between each disaggregated forest right and the FRMS credit restrictions, and find that the strength of farmers’ forestland use rights, transfer rights and benefit rights are all statistically significant in increasing the market value of farmers’ forest right and thereby reducing the intensity of credit restrictions. Based on the analyses we also offer some policy suggestions.

New Geographies of Residential Capitalism: Financialization of the Turkish Housing Market Since the Early 2000s

AbstractThe post‐2001 financial crisis era in Turkey gave rise to twin booms in housing construction and credit markets, both of which suffered from the subsequent debt crisis. The financial transformation of the economy in conjunction with state‐led urban legislation reform had significant effects on the housing market in terms of commodification of housing, countrywide construction activities and substantial increases in household debt and construction company loans. The changing role and function of the state as a direct provider of housing can be regarded as actually existing neoliberalism providing favourable conditions for financialization, as it ushered in the commodification of housing. The Turkish government, together with the government‐backed housing agency, metropolitan municipalities and publicly owned real‐estate investment company, has been active in nationwide housing construction and urban regeneration projects. This article argues that there is a lack of synchrony between the commodification of housing and the financialization of the household sector owing to the institutional setting of the mortgage system and structural macroeconomic problems. Rather, housing commodification has been accompanied by the financialization of the corporate sector through a steep rise in the external debt burden of construction companies.

Principal agent in tree mortgage system on traditional agroforestry management in Moluccas Indonesia

The agroforestry system in land management has been carried out traditionally by societies in Moluccas. The practice is known as dusung, and includes the cultivation of nutmeg trees. Farmers face a number of problems, one of which is a system of debt bondage that inflicts financial loss upon the farmers. This study aims to explain the involvement of farmers with debt bondage system, namely the tree mortgage system (TMS). This research uses a case study approach, with the collection of interviews and participant conservation data. The data is analysed using principal agent theory. The results showed that nutmeg farmers (principal) have a risk when debt bondage (agent) denies an agreement/moral hazard or acts out an agreement. This occurs when agent exploits the access of information and nutmeg marketing prospects, which makes the position of farmers weak and disadvantaged. Improving contracts for TMS and local institutional strengthening is necessary, as it can improve the bargaining position of nutmeg farmers and encourage the preservation of forest resources through sustainable management of nutmeg dusung.

Economic and legal component of mortgage market development in Ukraine

The development of the economic and legal component of the mortgage lending system in Ukraine is traced. It was determined that the adoption of the Law of Ukraine «On Property» was the first step towards the formation of the mortgage market in the country. The mortgage system is studied as a factor influencing the accumulation of free funds, their redistribution and risk reduction. The role of mortgage lending in solving socio-economic problems of the country is considered. The necessity of studying the experience of other countries and taking into account national peculiarities for effective development of the mortgage system in Ukraine is substantiated. It was emphasized that the level of development of the mortgage lending market shows the maturity of the financial system development and the degree of confidence of the population of the country in the financial and credit system. The subject of the study is evolution of the economic-legal component of the mortgage market in Ukraine. The purpose of the work is to substantiate the logic of the economic and legal aspect of the formation and development of the system of mortgage lending in Ukraine. To achieve the goal, the system approach was used - to integrate the methodology of scientific knowledge of the history of the development of the financial system in Ukraine as part of the world financial system, which made it possible to establish the need to take into account world experience, current problems and taking into account national specificity; logical-critical analysis - in determining the sequence and extent of the importance of separate legal acts in Ukraine. The practical significance of the results is the possibility of their use to improve the theoretical basis of the formation of the system of mortgage lending in Ukraine. Conclusions. 1) The modern market of mortgage lending is the result of a long, gradual, logical development of the financial market; 2) The level of development of the mortgage lending market indicates the maturity of the financial system and the degree of confidence of the population of the country in the financial and credit system; 3) For a long historical period, the Ukrainian lands belonged to different state formations; accordingly, the laws and the procedure for the formation of the financial system changed, which contributed to its «lagging» in development from the western countries; 4) The first step in shaping the system of mortgage lending in independent Ukraine was the adoption of the Law of Ukraine «On Property», because private property issues are the cornerstone of the country's mortgage system; 5) Mortgage should become an effective financial mechanism that overcomes the problem of accumulation of financial resources of our country in conditions of high inflation; will help to solve the problem of introduction of technological innovations, modernization of agriculture, industrialization of industry, solving chronic and large-scale problems of residential unfinished projects.

PENENTUAN NASABAH PENERIMA REWARD PRODUK GOLD DENGAN METODE SIMPLE ADDITIVE WEIGHTING (SAW) STUDI KASUS : PT. PINJAM INDONESIA

As an appreciation to their customer, PT Pinjam Indonesia has a Gold product. Gold is a product that allows customer to get 10% discount of total bill every 6 months, and is given to two customers. Until now, PT Pinjam Indonesia has difficulties in deciding which customer from Online mortgage system deserves to be rewarded with the Gold product, this problem occurs because of the many numbers of customer in the system. Therefore, Decision Support System is needed to help speed up and make the deciding process easier. Decision Support System decide the highest alternative value that deserves to receive the Gold product using the Simple Additive Weighting (SAW) method wtih prescribedcriterias. The basic concept of Simple Additive Weighting (SAW) method is to find the weighted additive from performance rating of every alternative’s attributes. SAW method needs a normalization process of the decision matrix to a scale that can be compared with every rated alternatives. A calculation process is applied to all the criterias to get the result of which alternative is best to receive the Gold product. This method could help the decision making process to be more objective.

Conceptual principles of the organization of the agricultural land land market in Ukraine

The article assesses the current state of the land fund of Ukraine in the light of the transformation processes of ownership. It is determined that after the reforms carried out, along with changes in the forms of land tenure, the forms of management have changed. Attention is drawn to the fact that the forms of management of the individual type, popular in Europe, are gaining momentum in Ukraine, which is manifested in the gradual growth of the area of ​​farms. It is noted that a significant proportion of private land holdings speaks of a sufficiently formed proposal in a potential land market, with regard to which perspectives in the Ukrainian society are being actively debated. The general results of sociological research conducted by a number of scientists in different regions of Ukraine are outlined, and the results of which determine the position of the population regarding the sale of agricultural land. Analyzing statistical data, and assessing scientific developments in the field of land sales, summarized key theses of the global trends in institutional conditions for the functioning of the land market in the leading EU countries. The key features of land resources and their market circulation are outlined. The specificity of the land is determined by the fact that it is immovable, therefore, unlike other resources that can be moved, only the rights to continuity of its use are sold on the land market. The emphasis is placed on the fact that the commodity in such a market is the right to land, which ensures comprehensive and predictable access to opportunities for profit from its exploitation, as well as obligations related to land and its exploitation, in accordance with the objectives of sustainable development. The article describes the price situation on the land market in the EU countries and states that an efficient land market can improve the productivity of the country's economy and increase its recovery, since it will allow landowners to turn their assets into capital that can be used for other purposes and the money received by farmers through the mortgage system, can be used to finance the development of production activities. Conceptual basis for the introduction of the market of agricultural land. land protection of interests of land plot owners; creation of a strong economically active middle class in rural areas; improvement of leasehold land relations; provision of sustainable land use; increase of employment of rural population; prevention of depreciation of agricultural land; introduction of mechanisms for preventing speculation in agricultural land and monopolizing it; increasing capitalization and liquidity of land as an economic asset. In our opinion, the fundamental positions of an efficient agricultural land market are: establishing a private ownership limit in one hand up to 200 hectares; in cultivation for farms – up to 1000 hectares; fixing of the minimum term of lease (already settled up to 7 years); development of a mechanism for preventing speculation and monopolization in the land market by establishing a land sales tax for the first 5 years (at the rate of 100% of the selling price); introduction of antitrust sanctions, by limiting the maximum area of ​​land use by one enterprise – no more than 30% of the area of ​​one OTG; consolidation of land for the establishment of a minimum land parcel that is not subject to parceling; prevention of depreciation of agricultural land through the introduction of a minimum price level; the development of mechanisms for mortgage lending to farmers for the purpose of land acquisition and financing for the development of production. Subjective composition of the land market, to include: citizens of Ukraine; family farms, established by citizens of Ukraine; 3) territorial communities; 4) the state in the person of the special regulatory institute. The main expected results from the introduction of regulated market turnover of agricultural land are: ensuring the constitutional rights of citizens to land and disposing of them; avoidance of depreciation of land; introduction of preventive mechanisms for market circulation of land; increasing the role of the state in the initial stage of the introduction of theland market in terms of its regulation. Key words: land relations, land market, mortgage lending, agriculture.

Introduction to Special Issue: The Appropriate Role of Government in U.S. Mortgage Markets

The U.S. mortgage finance system was one of the focal points of the 2007-08 financial crisis, yet legislative decisions about the appropriate role of the federal government in the system remain unsettled. Policy deliberations have focused on Fannie Mae and Freddie Mac—the two enormous government-sponsored enterprises that were placed into federal conservatorship in September 2008. The two GSEs have long been the centerpieces of a mortgage finance system that relies on capital market financing of U.S. residential mortgages. This volume contains eight articles that touch on several key components of housing finance reform. We hope that the insights offered here will assist legislative efforts aimed at promoting a more efficient, equitable, and financially sound mortgage system in the future.

Reorganization of the technology and procedures for conducting mortgage transactions

The article considers the structure of mortgage lending of PJSC "VTB24", presents the functions of the Department of mortgage lending and the Department of conclusion and support of mortgage transactions. The scheme of the mortgage transaction is analyzed and its advantages and disadvantages are given. At the moment, there is a high probability of further curtailment of Bank licenses and the flow of depositors ' funds to larger banks at lower interest rates. At the same time, the Central Bank allows for a 2 – fold drop in profits from banking activities to the level of 300 billion rubles a year. At the present stage of development of the Russian economy, the banking sector is no longer experiencing a period of rapid growth, as it was a year and a half earlier. However, credit institutions continue to slowly increase the volume of lending operations, thus trying to ensure the gradual saturation of the Russian market of banking services. The growth of assets of Russian banks is based on the increase in the volume of loans granted. Lending to the economy and the population has firmly taken the place of the main type of banking activity. The most rapidly developing segment of the credit services market is lending to the population. The mortgage market should be considered as part of the interaction between the banking market, the real estate market, the insurance market and the securities market and their derivatives. The level of development of the mortgage market depends on the level of development of these markets. They are interrelated and interdependent elements of a single mortgage system in the country. In turn, the mortgage market can also be seen as a necessary element of the above markets

Did specialised courts affect the frequency of business bankruptcy petitions in Spain?

Spanish small businesses rarely file for bankruptcy, and Spanish bankruptcy rates are abnormally small. The historical inadequacy of the Spanish insolvency system has led most enterprises to rely on the de facto alternative mortgage system and to overinvest in fixed tangible assets: a distortion that may trigger significant adverse effects, for instance on the enabling environment of novel entrepreneurship. The reform of the bankruptcy law that took place in Spain some 10 years in order to modernise the insolvency system involved, as a main novelty, the establishment of specialised commercial courts (Juzgados de lo Mercantil). Since the net benefits of specialised judicial functions are in principle ambiguous, we study empirically whether these new bodies had any impact, over and above the economic crisis, on the use of the bankruptcy system. Exploiting the staggered timing of the new courts geography, we estimate an endogenous treatment model with a binary policy variable which allows to measure the effect of the reform on bankruptcy rates. The results support the view that the new bankruptcy law took the right path, but the size of the estimated parameters call for further policy efforts in that direction.

Litigasi Hybrid Contract Gadai pada Lembaga Keuangan Syariah

The article examines the hybrid contract that is still debated although the contract has framed pawn products in Islamic financial institutions. The pawn system which has been regulated by the DSN-MUI, however, still leaves a problem. The problem arises because the mortgage system is a combination system of several contracts that require collateral. Collateral is used to build bank trust and the customer’s responsibility that the customer will return the loan in accordance with the contract. The used contracts are the loan, mortgage and lease agreements. If the financing in the mortgage system is default, the collateral item becomes the compensation for the repayment of the remaining debt of the customer. Pawn systems that require sublimation of several contracts in pawn products still become a subject of criticism. Hadiths about the prohibition of bay‘ and salaf, prohibitions requiring additional debt, and the prohibition of charging fees for collateral are those that criticize and are not aware of pawn hybrid contract. Even though the pawn hybrid contract is still criticized, the demand for contemporary transactions in sharia financial institutions cannot be ignored, even its presence is a necessity as long as it does not violate sharia norms and values.