According to Fitch Ratings Inc in a report by The Malaysian Reserve, despite Malaysia’s Islamic industry having plenty of potential for growth, limited public awareness and lack of confidence in the Shariah-compliant level of Islamic financial products remain a key challenge for the industry, especially in markets where the industry has a niche presence.
In various jurisdictions, especially those with low awareness, many stakeholders, including customers, regulators and employees of Islamic financial institutions, often view Islamic products to be very similar to conventional interest-based products, given the way they are marketed and priced.
Meanwhile, Moody’s Investors Service projects that growth prospects for Islamic banking will remain strong in Southeast Asia over the long term with demand expected to be driven by young, growing populations as well as government efforts to develop the sector; as reported by The Edge Markets recently.
Malaysia a prime candidate as the region’s first digital-only Islamic bank
Moody’s analyst Tengfu Li points out that prime-age populations, or those aged 25 to 54, are growing fast in this region, with Pakistan and Malaysia taking the lead among the Muslim-majority markets.
He also notes that Malaysia stands out as a prime candidate to come out with the region’s first digital-only Islamic bank. The government plans to give out up to five digital banking licenses.
Moody expects that Islamic financing will continue to expand faster than conventional lending in Malaysia, where they project that Islamic financing will grow at around 10% in 2021. Growth last year as of September 30 stood at above 9%, double that of the overall banking industry’s 4.4% despite the Covid-19 outbreak.
Misconceptions surrounding Islamic finance
As noted by Fitch Ratings Inc, many are still under the false impression that Islamic financial products are very similar to conventional interest-based products, which is understandable given the way they are marketed and priced; causing a lot of confusion.
The term “Shariah finance” itself could sound daunting for certain groups. Add in all these unfamiliar Islamic or Arabic terms into the mix and any layperson would become confused, especially non-Muslims where some of them still think Islamic banking products and services cater only to Muslims.
The fact is, Islamic finance refers to how individuals and businesses raise capital that is in accordance with Shariah (Islamic) law. Any Islamic product and service is open to anyone. However, all Islamic banking products and services are under Shariah law.
If you’re still unfamiliar with Shariah-compliant banking products and services, for example, Islamic financing, these are nine advantages in getting Islamic financing; whether you’re planning to make investments, further your education, home renovation, debt consolidation, wedding, and many others with the funding received:
Fairness and justice Islamic Banking model has a foundation that is based on the principle of profit-sharing, which means any risk will be shared by the customer and the bank. This means the distribution of wealth and income is more equitable.
Non-discriminatory towards non-Muslim customers Islamic Banking may be based on the principles of Shariah, but it doesn’t mean that only Muslims could reap the benefits of Islamic banking. Non-Muslims customers are more than welcome to obtain any Islamic financial product or service.
Transparency Conducting business in a transparent, honest, and fair manner is a must in Islamic Banking. Customers will be guided along the way for them to fully understand the costs and risks that may come with a product or service.
Moral and ethical dimensions When conducting and selecting business activities that require Islamic financing, everything must be done ethically and with good morals.
Speculation is out of the question Transactions that are speculative in nature are the sources of instability. This means there will be a capital misallocation, therefore all Islamic Banks are forbidden to carry out such transactions. Instead, they’re required to deploy the capital towards socio-economic justice.
Streamlined contracts Though Shariah law in Islamic banking features its own set of complex rules, it’s still easier to understand in comparison to conventional banking. This is because all institutions of Islamic financial institutions have a board of scholars ready to impart their knowledge and offer consumers guidance with whatever venture. In addition, they will also ensure that each transaction that is being carried out is done in accordance with Shariah law. When it comes to contracts, Islamic financing is a lot stricter and more thorough.
Investments stability In Islamic banking, investments are treated with a slower, more insightful decision-making process in comparison to conventional banking. Intensive audits, scrutinisation and reduction of risk, and frequent analysis are constantly carried out. As a result, this reduces the risk while allowing for greater investment stability.
Financial inclusion According to the World Bank’s definition, financial inclusion refers to businesses and individuals having access to affordable and useful financial products and services that meet their needs – whether insurance, credit, savings, payments, or transactions – and are delivered in a sustainable and responsible way. If you pay attention to the conventional banking systems, you may notice that the system is based on payments of interest on rates that have been set on deposits; meaning that your debt will increase. In contrast, under Shariah law, such interest is prohibited.
Reducing the impact of harmful practices and products Transactions that support activities or industries featuring the forbidden elements, such as maisir (speculation), riba’ (usury) and gambling cannot be carried out as they are forbidden under Shariah law. Islamic banking therefore only businesses that adhere to moral and ethical standards are permissible and supported by Islamic banking.
In these challenging times where the Covid-19 pandemic is still ongoing, many of us are facing financial issues. If you would like to expand your business reach by offering Syariah compliant financing products to consumers then you are on the right platform. Contact us today for a consultation or better a full presentation!