Benchmark on Underlying Asset Value for Islamic Banking Product: A Practitioner’s Perspective

In current Islamic banking products particularly in financing facility, the purpose of financing could be for asset acquisition or to obtain cash. In addition, financing may be given on secured or clean basis. For financing with secured asset, normally the value of security asset will match the financing amount whereas for unsecured facility, the underlying asset is merely to facilitate the transaction in which the value may not match the financing amount. In other words, the contracting parties may enter into transaction using an asset in which the price may be higher or lower than the actual market value. Such arrangement may lead to the issue on the permissibility to transact asset at different price than the actual cost or market value. This paper discusses on the Shariah and operational concerns in relation to possible benchmark on underlying asset value for Islamic banking transaction. This article is based on qualitative research approach which is purely based on primary data gathered through library research and observation from practitioner perspective. The outcome from the literature review can be applied as the possible asset value benchmark.