A Comparative Analysis of Conventional and Shari’ah for Residential Mortgage-backed Securities

The underlying objective of the study is to testify that Shari’ah residential Mortgage Backed Security (MBS) performs better than conventional issued by Cagamas with the equal issuance year, rating grades and maturity period. As a preliminary case study of Cagamas, the comparative financial performance for both Shari’ah and conventional MBS is measured by key financial ratios in terms of profitability, capitalization and debt coverage for one year before, during the year and one year after its each issuance, and key performance indicators. Interestingly, the initiation of Shariah MBS has demonstrated cheaper financing costs to Cagamas as an originator and much better investment returns to investors. Therefore, the findings support past studies on benefits of conventional asset securitization and interestingly verifying that Shari’ah MBS performs better than its conventional MBS for equal originator, rating and tenure.