1 PERCEPTION OF MALAYSIAN YOUTH ON ISLAMIC FINANCIAL SYSTEM

FOR

Research methodology MGT 3305

BY

FACULTY OF BUSINESS AND FINANCE INTERNATIONAL UNIVERSITY COLLEGE OF TECHNOLOGY TWINTECH

CHAPTER I INTRODUCTION 1.1 Overview

Since the 1970s, Islamic banking has emerged as a ne reality in the international !inancial scene" Its #hiloso#hies and #rinci#les are ho e$er, not ne , ha$ing been o%tlines i9n the &olly '%r(an and the S%nnah o! )ro#het M%hammad *#"b"%"h+ more than 1,,00 years ago" The emergence o! Islamic banking is o!ten related to the re$i$al o! Islam and the desire i! M%slims to li$e all as#ects o! their li$e in accordance ith the teachings o! Islam" In Malaysia, se#arate Islamic legislation and banking reg%lation e-ist side.by.side ith those !or the con$entional banking system" The legal basis !or the establishment o! Islamic banks as the Islamic /anking 0ct *I/0+ hich comes into e!!ect on 7 0#ril 1913" The I/0 #ro$ides /2M ith #o ers to s%#er$ise and reg%late Islamic banks, similar to the case o! other licensed banks" The Go$ernment In$estment 0ct 1913 as also enacted at the same time to em#o er the Go$ernment o! Malaysia to iss%e Go$ernment In$estment Iss%e *GII+, hich are go$ernment sec%rities iss%ed based on Syariah #rinci#les" 0s the GII are regarded as li3%id assets, the Islamic banks co%ld in$est in the GII to meet the #rescribed li3%idity re3%irements as ell as to in$ent their s%r#l%s !%nds" The !irst islamic bank established in the co%ntry as /ank Islam Malaysia /erhard */I/M+ hich commence o#eration on 1st 4%lly 1913" In line ith ist ob4ecti$es, the banking acti$ities i! banks are based on syarriah #rinci#les" 0!ter more than a decade in o#erations, /IM/ has

5 #ro$ed to be a $iable banking instit%tion ith its acti$ity e-#anding ra#idly thro%gho%t the co%ntry ith a net ork o! 10 branches and 1,500 em#loyees" The bank ass listed on the main board o! the 6%ala 7%m#%r Stock 8-change on 17 9ann%ary 1995" The long term ob4ecti$e o! /2M is to create an islamic banking system o#erating on a #arallel basis ith the con$entional banking system" &o e$er, similar to any banking system, an islamic banking system re3%res three $ital elements to 3%ali!y as a $iable system, i"e:. 0 large n%mber o! #layers 0 bread $ariety o! instr%ments; and 0n islamic money market"

In addition, an islamic banking system m%st also re!lect the socio.economic $al%es in islam, and m%st be islamic in bothh s%bstance and !orm" Recogni<ing the abo$e, /2M ado#ted a ste#.by.ste# a#roach to achie$e the abo$e ob4ecti$e" The !irst ste# to s#read the $irt%es o! islamic banking as to disseminateIslamic banking on a nation. ide basis, ith as many #layers as #ossible and to be able to reach all malaysian" 0!ter care!%l consideration o! $ario%s !actors, /2M decided to allo the e-isting banking instit%trions to o!!er islamic banking ser$ices %sing thier e-isting ins!rastr%ct%re and branches" The o#tion as seen as the most e!!ecti$e and e!!icient mode o! increasing the n%mber o! instit%tions o!!ering islamic banking ser$ices at the lo est cost and ithin the shotest time !rame" =ollo ing !rom abo$e , on , march 1993 /2M introd%ces a scheme kno n as >Skim )erbankan Tan#a =aeda? *Interest.!ree /anking Scheme+ or S)T= in short" In terms o! #rod%cts and ser$ices, there are more than ,0 islamic !inancial #rod%cts and ser$ices that may be o!!ered by the banks %sing $ario%s Islamic conce#ts s%ch as M%dharabah, M%syarakah, M%rabaha, /ai( /ithaman 04il */ai( M%a44al+, I4arah, 'ardh%l &asan, istina( and I4arah Th%me 0l./ai(" To link the instit%tion and the instr%ments, the Islamic Interbank Money market *IIMM+ as introd%sed on , 4an%ary 199," In october 199@, /2M iss%ed a model !inancial statement !or the banking instit%tions #artici#ating in the S)I re3%iring the banks to disclose the Islamic banking o#eration *balance sheet and #ro!it and loss acco%nt+ as an additional item %nder the notes to the 0cco%nts 1.2 Ba !"r#$%& This st%dy ill in$estigate on the #erce#tion o! Malaysian yo%th regarding Islamic =inancial System" 0s noted by Ar Beti 0khtar 0<i<, Go$ernor o! the Central /ank o! Malaysia, at the Malaysian Islamic =inance Iss%ers and In$estors =or%m 500@, 6%ala 7%m#%r, 1, 0%g%st 500@" >Islamic !inance in Malaysia has taken #lace in an en$ironment o! strengthening economic gro th that is %nder#inned by strong !%ndamentals"? This statement sho s that Islamic =inancial System are still ne in Malaysia" Many #eo#le are still searching in #ro$iding in!ormation on Islamic =inancial System" This is hy some #eo#le cond%cting analysis to !ind some ans er and ne a##roach to !ind hat is Islamic !inancial system" Islamic banking and !inance D 0nother 0##roach by 0"7"M 0bd%l Ga!oor #%blished by 0"S" 2oordeen 6%ala 7%m#%r Malaysia, saying that >Islamic =inancial System deser$ed serio%s consideration by the M%slim comm%nity as a hole as ell as by others interested in a

3 trans#arent system o! banking and a res#onsible !orm o! !inancing"? 0bd%l Ga!oor stresses the serio%sness o! Islamic !inancial system to M%slim #eo#le" Malaysia are consist o! ma4ority o! M%slim and that is hy M%slim ha$e to kno hat Islamic !inancial system are" 0ccording to a book #%blished by =resh!ields /r%ckha%s Aeringer 500@ titled Islamic =inance: /asic )rinci#les and Str%ct%re D a =oc%s on )ro4ect =inance, saying that there are !i$e main #rinci#le o! Islamic !inance" =irstly is the #rohibition o! taking or recei$ing interest" Second is ca#ital m%st ha$e a social and ethical #%r#ose beyond #%re ret%rn" Third is in$estment in b%siness dealing ith alcohol, gambling, dr%gs or anything else that the Shari(ah considers %nla !%l are deemed %ndesirable and #rohibited" =orth is a #rohibition on transaction in$ol$ing s#ec%lation or gambling *masir+" 7astly is #rohibition on gharar or %ncertainty abo%t the s%b4ect.matter and terms o! contracts, this incl%des a #rohibition on selling something that one does not o n" 1.' S(a(e)e%( #* (+e Pr#,-e) In Malaysia, Islamic !inancial system can be !o%nd in many banks !or e-am#le /ank Islam, bank M%ammalat and other banks that #ro$ide Islamic ser$ices like CIM/ Islamic" Islamic !inancial system is still ne in Malaysia" The main #roblem o! this sit%ation is to !oc%s on ho to market Islamic =inancial system in Malaysia" In order to market the Islamic =inancial System is to cond%ct cons%mer analysis based on yo%th #erce#tion" Eo%th is the biggest #otential cons%mers that range bet een 50 years old to ,0 years old" They are more likely in searching o! the best !inancial system that can ser$e them best"

1.. Ai) O* T+e S($&/ The st%dy aims to identi!y the #erce#tion o! Malaysian yo%th *age 50 D ,0+ on Islamic =inancial System in Malaysia" 1...1 O,0e (ive1 The ob4ecti$es o! the st%dy are as the !ollo ing : i" To identi!y Malaysian yo%th #erce#tion on Islamic !inancial system ii" To meas%re the statistical di!!erence o! cons%mers( #erce#tions on instit%tion by gender" iii" To meas%re the statistical di!!erence o! cons%mers( #erce#tions on instit%tion by 3%ali!ications i$" To meas%re the statistical di!!erence o! cons%mers( #erce#tions on instit%tion by age gro%# $" To meas%re the statistical di!!erence o! cons%mers( #erce#tions on instit%tion by location 1...2 Re1ear + 2$e1(i#%1 In order to achie$e the stated ob4ecti$es, the st%dy is g%ided by the !ollo ing 3%estions: i" Fhat are the #erce#tions o! Malaysian yo%th abo%t Islamic !inancial systemG ii" To hat e-tent the di!!erence o! cons%mers( #erce#tions on Islamic =inancial Instit%tion by genderG iii" To hat e-tent the di!!erence o! cons%mers( #erce#tions on Islamic =inancial Instit%tion by age gro%#G

Islamic !inancial Islamic !inancial Islamic !inancial Islamic !inancial

, i$" To hat e-tent the di!!erence o! cons%mers( #erce#tions on Islamic =inancial Instit%tion by 3%ali!icationG $" To hat e-tent the di!!erence o! cons%mers( #erce#tions on Islamic =inancial Instit%tion by locationG 1.3 H/4#(+e1i1 #* T+e S($&/ &o1 : There is no signi!icance di!!erence o! #erce#tions by gender" &a1 : There is a signi!icance di!!erence o! #erce#tions by gender" &o5 : There is no signi!icance di!!erence o! #erce#tions by le$el o! ed%cation" &a5 : There is a signi!icance di!!erence o! #erce#tions by le$el o! ed%cation" &o3 : There is no signi!icance di!!erence o! #erce#tions by location" &a3 : There is a signi!icance di!!erence o! #erce#tions by location" &o, : There is no signi!icance di!!erence o! #erce#tions by age gro%#" &a, : There is a signi!icance di!!erence o! #erce#tions by age gro%#" 1.5 Si"%i*i a% e #* (+e 1($&/ The signi!icances o! the st%dy are: i" To create a areness among Malaysians yo%ths regarding Islamic =inancial System" ii" To #ro$ide to #olicy makers regarding the !easibility o! im#lementing Islamic =inancial System in Malaysia" iii" To #ro$ide an initiati$e !or !%rther research in the intended areas" 1.6 Li)i(a(i#% Generalisations made by the st%dy re$ol$es aro%nd !indings collected !rom s%b4ects ho are !rom a gro%# o! 100 Eo%th in /angi area" Collection o! data is done cross.sectionally and no attem#t is made to obtain time series data" 1.7 O4era(i#%a- De*i%i(i#%1 The !ollo ing terms %sed in this st%dy are o#erationally de!ined as: 1. Y#$(+ Eo%th is the #eriod bet een childhood and ad%lthood, described as the #eriod o! #hysical and #sychological de$elo#ment !rom the onset o! #%berty to mat%rity and early ad%lthood" Ae!initions o! the s#eci!ic age range that constit%tes yo%th $ary" 0n indi$id%alHs act%al mat%rity may not corres#ond to their chronological age, as immat%re indi$id%als e-ist at all ages *)erlembagaan Malaysia, 191@+" 2. I1-a)i *i%a% ia- 1/1(e)

Islamic !inancial system or re!ers to a system o! b%siness that is consistent ith the #rinci#les o! Islamic la *Sharia+ and its #ractical a##lication thro%gh the de$elo#ment o! Islamic economics" Sharia #rohibits the #ayment or acce#tance o! interest !ees !or the lending and acce#ting o! money res#ecti$ely, *Riba, %s%ry+ !or s#eci!ic terms, as ell as in$esting in b%sinesses that #ro$ide goods or ser$ices considered contrary to its #rinci#les *&araam, !orbidden+ *Salah%ddin 0hmed, 500@+"

5 '. Per e4(i#% In #hiloso#hy, #sychology, and cogniti$e science, #erce#tion is the #rocess o! attaining a areness or %nderstanding o! sensory in!ormation" The ord I#erce#tionI comes !rom the 7atin ords #erce#tio, #erci#io, and means Irecei$ing, collecting, action o! taking #ossession, a##rehension ith the mind or senses"I Fhat one #ercei$es is a res%lt o! inter#lays bet een #ast e-#eriences, incl%ding one(s c%lt%re, and the inter#retation o! the #ercei$ed" I! the #erce#t does not ha$e s%##ort in any o! these #erce#t%al bases it is %nlikely to rise abo$e #erce#t%al threshold *)eter 7indsay J Aonald 0" 2orman: Human Information Processing: An Introduction to Psychology, 1977+" 1.8 S$))ar/ This cha#ter describes the introd%ction, backgro%nd o! the research, statement o! the #roblem, ob4ecti$es o! the st%dy, research 3%estions, and signi!icance o! the st%dy, limitation and o#erational de!initions" =rom the statement o! #roblem it is e$ident that e need an alternati$e method o! !inding ne a##roach to introd%ce Islamic =inancial System to #%blic" 0s Islamic =inancial system ha$e their o n ad$antages, #eo#le sho%ld consider and kno hat Islamic =inancial system can do !or them"

CHAPTER 2 REVIEW OF RELATED LITERATURE 2.1 I%(r#&$ (i#% The conce#t o! Islamic !inance dates back to ancient times" In the recent #ast, the gro th o! Islamic !inancial ser$ices orld ide has gathered moment%m" Islamic !inancial instit%tions are today #resent in more than si-ty co%ntries across the orld ith total assets r%nning in h%ndreds o! billions o! KS dollars" They ha$e increasingly e-#anded beyond the !rontiers o! M%slim co%ntries and are slo ly taking roots in estern !inancial systems" Islamic la s, or the Shariah, strictly #rohibits !i-ed or #re.determined rate o! interest, the Riba as it is re!erred to, on !inancial instr%ments or s%ch interest arising !rom dealings and transactions in risk instr%ments" * R /asant Roi: 5005+ 2.2 I1-a)i *i%a% e In essence, the #%r#ose o! Islamic economics is to identi!y and establish an economic order that con!orms to the #rece#ts o! the Islamic scri#t%re and the narrated traditions o! its #ro#het *Cha#ra, 1995 and 2a3$i, 199,+" In the contem#orary era, the mo$e to ards !orm%lating an Islamic economic !rame ork that as in sync ith #re$ailing economic needs took sha#e in the 19,0s, and three decades later e!!orts to im#lement them ere %nder ay in do<ens o! co%ntries *Rahnema J 2omani, 1990; 6%ran, 1993, 1995; and Malik, 199@+" Aes#ite the !act that Islamic economics contains many disting%ishing !eat%res, Islamic banking is no regarded as the de!ining characteristic o! an Islamic economic system *6%ran, 1995+" The

@ term >Islamic !inancial system? is relati$ely ne , a##earing only in the mid.1910s" In !act, all earlier re!erences to commercial or mercantile acti$ities con!orming to Islamic #rinci#les ere designated as either >interest !ree? or >Islamic? banking" The !irst modern e-#eriment ith Islamic banking as %ndertaken in 8gy#t" This #ioneering initiati$e based on the #ro!it. sharing #rinci#le as helmed by 0hmad 8l 2a44ar" It in$ol$ed the establishment o! a sa$ings bank in the 8gy#tian to n o! Mit Ghamr in l9@3" /y 19@7, the n%mber o! banks o#erating on the same #rinci#les had gro n to nine *Siddi3i, l911+" Th%s, they !%nctioned essentially as sa$ing. in$estment instit%tions rather than as commercial banks" The s%b4ect o! a <ero interest based economic system has been aro%nd !or o$er 1,00 years yet only in the #ast t o decades has there been st%dies and riting on the s%b4ect ithin the sco#e o! the modern !inance ind%stry" 2ot only is the a##lication o! the Islamic !inancial system gro ing, b%t also, the academic ritings and st%dies are also increasing" There are many misconce#tions abo%t the Islamic !inancial system and st%dies s%ch as Bineldin *1990+, 0l. Lmar and 0bdel.&a3 *199@+, 6han *1917+, and Saeed *199@+ are tr%ly instr%mental in establishing the #rinci#les and the de!inition o! $ario%s 0rabic terms that can ca%se m%ch con!%sion beca%se o! m%lti#le meanings" 0!ter the basic kno ledge abo%t the conce#t is set, the ne-t ste# is to see ho the theory is #%t into #ractice" In this regard, there are se$eral st%dies that s#eci!ically analy<e #racticing Islamic instit%tions $ia case st%dies" Some o! these st%dies incl%de 6a<arian*1993+, Filson *1990+, and 8l0shker *1917+" 6a<arian s#eci!ically com#ares the Islamic banking $ers%s con$entional banking as #racticed in 8gy#t" These three st%dies #ro$ided !inancial com#arison that is %se!%l in establishing the $iability o! the Islamic system" A%e to the sco#e o! this #a#er, detail com#arison o! !inancial in!ormation has to be de!erred" Lthers s%ch as 0li *1995+, I3bal *1997+, =reeland *1991+, Ae /elder and &assan *1993+, Are-hage *1991+, I3bal and Mirakhor *1999+, 6ah! *1999+, and &am i and 0yl ard *1999+ ha$e addressed $ario%s as#ects o! Islamic !inance and the s%ccess o! the Islamic system in this ne millenni%m" The Islamic !inancial system is com#licated and rooted in a dee# religio%s belie!" There!ore, to %nderstand the conce#t, one m%st !irst %nderstand and a##reciate the basic #rinci#le o! the religion" Islamic !inancial history is traced back to the religion o! Islam that began o$er 1,00 years ago" The M%slimsH li$es are bo%nd by the Islamic la s kno n as the ShariHa" 0ccording to 8l0shker *1917+, the so%rces o! the ShariHa are The &oly '%rHan, the Traditions kno n as S%nnah hich are the #ractices and saying o! the )ro#het M%hammad, and the 9%ris#r%dence com#oses o! religio%s scholars !rom the $ario%s schools o! o#inion" The Islamic !inancial system is sha#ed by the '%rHan strict !orbidden o! riba" 0s 0l.Lmar and 0bdel.&a3 *199@+ de!ines, Riba as Ian e-cess or increaseI" Technically meaning an increase hich is a loan transaction or e-change !or a commodity accr%ed to the o ner *lender+ itho%t gi$ing an e3%i$alent co%nter.$al%e or recom#ense *Hi ad+ in ret%rn to the other #arty; e$ery increase hich is itho%t an Hi ad or e3%al $al%eI *#" MNI+" Riba has o!ten been inter#reted as being synonymo%s ith interest" &o e$er, some schools o! tho%ght de!ine riba to incl%de not only interest b%t also s#ec%lation, %nla !%l ca#ital gains, mono#oly, hoarding, and absentee rents" Riba is stated e-#licitly in the '%rHan th%s not o#en !or inter#retation" The #aying or recei$ing o! interest or dealing ith interest.bearing instr%ments is strictly #rohibited to the M%slims" 0s I3bal *1997+ states, Idescribing the Islamic !inancial system sim#ly as Hinterest.!reeH does not #ro$ide a tr%e #ict%re o! the system as a hole" Kndo%btedly, #rohibiting the recei#t and #ayment o! interest is the n%cle%s o! the system, b%t it is s%##orted

7 by other #rinci#les o! Islamic doctrine ad$ocating risk sharing, indi$id%alsH rights and d%ties, #ro#erly rights, and the sanctity o! contractsI *#",5+" The de!inition o! riba conse3%ently determines the #rescribed str%ct%re o! Islamic banking and also the #ermissible banking instr%ments" Lne key element o! Islamic !inance is the re3%irement o! an element o! risk normally associated ith doing b%siness" &o e$er, one m%st kee# in mind that risk in b%siness sharing is allo ed hereas risk in the !orm o! gambling or mere s#ec%lation is #rohibited by Islamic 7a " The main idea is that in$estors sho%ld s#end their e!!ort searching !or #ro4ects that are so%nd, that adhere to the ShariHa, and share in the s%ccess or !ail%re o! the #ro4ect" The ob4ecti$e is that in$estments sho%ld #ro$ide a stim%l%s to the economy and enco%rage entre#rene%rs to ma-imi<e their e!!orts" The #ro!it or losses sho%ld be shared by all #arties in$ol$ed and earnings may not be g%aranteed or #redetermined" In addition, Islamic !inancial system restricts in$estments in certain b%siness sectors hose #rod%cts are !orbidden by the ShariHa s%ch as alcohol, #ornogra#hy, or gambling to name a !e " This limitation also e-tends to those ith 3%estionable moral $al%es that may not ha$e been directly stated in the Islamic la s s%ch as tobacco ind%stries, anything that may harm the en$ironment, or genetic e-#eriments s%ch as cloning" The latter is o#en !or $ario%s inter#retations de#ending on the $ario%s schools o! tho%ght" The need to clari!y certain as#ects o! the la s res%lted in the in$ol$ement o! the religio%s co%ncil kno n as the ShariHa /oard" The /oard is an ad$isory board hich acts as Islamic legal co%nsel in certi!ying the com#liance o! acti$ities ith Islamic #rinci#les" These restrictions are not %nlike the idea o! Socially Res#onsible In$estments no a$ailable among the Festern con$entional !inancial instit%tions" In short, there is more to the Islamic !mancical system than the absence o! interest" In addition, the system also restricts any acti$ities that do not com#ly ith the ShariHa, and there needs to be an element o! b%siness risk in$ol$ed by the #artici#ating #arties" Fithin these #arameters there are many in$estment #rod%cts c%rrently a$ailable that are #ermissible %nder Islamic la s" Lne o! the key conce#ts in the Islamic !inancial system is the idea o! #ro!it and loss sharing" The techni3%es allo ed in the Islamic !inancial system can be classed in t o broad classes; #ro!it and loss sharing or e3%ity.like contracts and mark.%# or debt like contracts" 0ccording to &am i and 0yl ard *1999+, the e3%ity.like contracts consist o! M%sharaka *#artnershi#+, and M%daraba *tr%st !inancing+" The debt.like #rod%cts are com#osed o! M%rabaha *cost.#l%s !inancing+, I4ara *leasing+, and Istisna *#rogressi$e #ayment+" M%sharaka *)artnershi#+ =irst, M%sharaka is a 4oint $ent%re agreement hereby money is the main in$estment" The instit%tion !%nds the orking ca#ital re3%irements o! an entre#rene%r" /oth #arties bear any losses inc%rred or share in the #ro!its according to the #re$io%sly agreed terms" There!ore, this instr%ment is also kno n as the #ro!it sharing or #artnershi#" This #rod%ct is similar to the modern conce#t o! a #artnershi#" There are t o schools o! tho%ght among the M%slim scholars; limited and %nlimited #artnershi#" 6hanHs *1917+ sho ed that one schoolHs em#hasis is on the e3%ality o! the #artners in #ersonal and !inancial stat%s and th%s in the contrib%tion to the #artnershi#" 7iability is %nlimited, and the #artnershi# is based on the #rinci#le o! m%t%al agency; each #artner being an agent o! his colleag%eHs action" There!ore, each #artner is !%lly liable !or the actions and commitments o!

1 the other in !inancial matters" Aissol%tion o! the #artnershi# co%ld res%lt !rom either the death o! any #artner or by consens%s agreement amongst the in$ol$ed #arties" 0nother $ie is a more restricted !orm o! #artnershi#" In this !orm, the e3%ality o! the #artners is not mandatory" 0lso, the m%t%al agency e-tends only to those commodities and areas o! trade agreed %#on" 7iability is strictly limited according to each #artnerHs contrib%tion to the total in$estment" Knder the M%sharaka the share in the #ro!it and the d%ration o! the 4oint $ent%re are agreed %#on in ad$ance" 7oss is shared in #ro#ortion to the contrib%tion o! each #arty to the ca#ital, %nless the indi$id%al is #ro$en to be the ca%se o! loss d%e to negligence or ill!%l action" The research sho s that this !orm o! Islamic !inancial instr%ment is similar to the con$entional #artnershi# b%siness organi<ation" The di!!erence is %nder the Islamic !inancial system, the #artnershi# can be bet een a bank and indi$id%als; hereas in the con$entional !inancial system, banks are not allo ed to be a #artner in this ty#e o! contract" M%daraba *Tr%st =inancing+ 0nother ty#e o! e3%ity.like instr%ment is kno n as M%daraba, or tr%st !inancing" M%daraba re3%ires t o #arties; the bene!icial o ner*s+ and the managing tr%stee" The instit%tion may act as a tr%stee ith the res#onsibility o! in$esting !%nds #ro$ided by the client" 0lternati$ely, the instit%tion may act as the o ner #ro$iding the !%nds to the client" The ratio o! distrib%tion o! #ro!it is agreed on by both #arties #rior to any %ndertaking o! b%siness" 0ccording to 6han *1917+, the key to this #artic%lar instr%ment is that the #ro!it sharing m%st be #ro#ortional and cannot be a g%aranteed ret%rn" The #ro!it may not be #redetermined or s#eci!ied !or either #arty" Instead, the #arties in$ol$ed are to share #ro!its in accordance ith an agreed %#on !orm%la" The contract is legally terminated hen the in$estor recei$es his #rinci#al a!ter #ro!it is shared" 0nother key element o! this instr%ment is the in$estor is not liable !or losses beyond the ca#ital he has contrib%ted, and the tr%stee does not share in the !inancial losses e-ce#t !or the loss o! his time and e!!orts" &o e$er, it is im#ortant to #oint o%t that the agent is liable !or a #ro$en loss res%lting !rom his negligence" Sometimes, the agent is obliged to re#ay the original s%m o! ca#ital to the o ner in case o! negligence" The st%dy done by Bineldin *1990+ indicates that the M%daraba certi!icates can be iss%ed as nominal or bearer" These can mat%re at a !i-ed date, at a !i-ed inter$al a!ter iss%e, or at call" These certi!icates entitle the holder to share in the #ro!its o! the in$estment acti$ities being %ndertaken by the com#any" This as#ect o! iss%ing certi!icates makes the M%daraba instr%ment similar to the con$entional stock market" Shares are iss%ed in !orm o! certi!icates, the certi!icates are trans!erable, and the holders o! the certi!icates entitled to a #ortion o! the #ro!it or loss o! his ca#ital i! the #ro4ect !ails" Similar to stock, neither the ret%rn o! the #rinci#al nor #ro!it is g%aranteed to the holder" The main di!!erence is that the #ro4ect certi!icate iss%ed m%st com#ly to the ShariHa" 0ltho%gh trading stock is #ermissible !rom an Islamic $ie #oint, a trans!erable contract o%ld lead to riba i! it allo s ca#ital gains !rom s#ec%lati$e acti$ity" In other ords, the b%ying or selling o! stock res%lted in riba, is !orbidden, hen an attem#t is made to ac3%ire a ret%rn by mani#%lation o! a market rather than by contrib%tion to real #rod%ction" 0s 6han *1917+ #ointed o%t in his book, Iit is d%e to the #ossibilities o! earnings $ia mani#%lation that some scholars ha$e %rged the elimination o! the stock market, des#ite the im#act it may ha$e on the mobili<ation and allocation o! !%ndsI *#"@7+"

9 0lso according to 6han *1917+, a ay aro%nd this s#ec%lation iss%e has been attem#ted by the Islamic In$estment Com#any o! the G%l!" The e-#eriment as to state the $al%e o! the certi!icate at reg%lar inter$als based on the act%al #rogress o! the #ro4ect" The $al%e o! the certi!icate at a gi$en time re!lects the #rinci#al #l%s or min%s the #ro!it or loss inc%rred, hich is added as a di$idend or s%btracted as a #enalty" 8-change o%ld be transacted on the basis o! this $al%e" This #roced%re #re$ents the !ace $al%e o! a certi!icate !rom di!!ering !rom its market $al%e, b%t it does cater to indi$id%al needs !or li3%idity" This sol%tion does not entirely resol$e the #roblem o! s#ec%lation" 0 #remi%m ill arise on certi!icates hich re#resent the better #er!orming com#anies" Similarly, li3%idity may remain an ill%sion !or certi!icates o! #oorly #er!orming com#anies" In the end, the sol%tion !or mani#%lation and other stock market ab%se may re3%ire care!%l reg%lation similar to the con$entional stock market" =or no , the ide #re$alence o! mani#%lation necessitates !ine discrimination to disting%ish bet een acce#table and non.acce#table !rom the $ie #oint o! the Islamic #rinci#les" &ence, there are t o Islamic !inancial instr%ments hich are based on the idea o! #ro!it sharing s%ch as M%sharaka or #artnershi#, and M%daraba or tr%st !inancing" 2e-t, the !oc%s ill be on debt.based #rod%cts" M%rabaha *Cost.)i%s )ro!it+ The !irst debt.like !orm o! Islamic !inancial instr%ment is kno n as M%rabaha" 0ltho%gh this ty#e o! contract is not based directly on any te-t o! the '%rHan or the S%nnah, it has been allo ed in Islamic 7a by the 9%rists" 0Ii * 1995+ de!ines it as a Icontract in hich a client ishing to #%rchase e3%i#ment or goods re3%ests the Islamic !inancial instit%tion to #%rchase these items on his behal! then sell them to him at cost #l%s a reasonable #ro!it" Ca#ital and #ro!it are d%e and #ayable on terms agreed bet een the #artiesI *#"33+" It is im#ortant to clari!y that only a legitimate #ro!it in addition to the act%al #rice is considered la !%l %nder Islamic la s" 0ny e-cessi$e addition beca%se o! de!erred #ayments is not allo ed since it o%ld become a #ayment based on the $al%e o! money o$er time hich is the same as interest" &ence, this conce#t is sometime kno n as cost#l%s !inancing or sale ith stated #ro!it" )er 9osh *1997+, this method is the most !amiliar s%bstit%te !or con$entional interest. based !inance, most commonly %sed in trade and commodity !inance" 0ccording to Saeed *199@+, the basic !eat%res o! a M%rabaha contract consist o! !o%r key !eat%res" =irst, the b%yer sho%ld ha$e !%ll kno ledge o! all related costs and the original #rice o! the commodity, and the #ro!it margin sho%ld be de!ined as a #ercentage o! the total #rice #l%s costs" The costs can incl%de b%t not be limited to a !ee co$ering handling charges, transaction costs, or risk #remi%m" second, the s%b4ect o! the sale sho%ld be goods or commodities and not money" Third, the s%b4ect o! sale sho%ld be in the #ossession o! the seller and o ned by him and he sho%ld be ca#able o! deli$ering it to the b%yer" =inally, the #ayment is de!erred ith s#eci!ic terms clearly stated in the contract" This !orm o! !inancial instr%ment is $ery #o#%lar beca%se o! the element o! #redetermined earnings" In !act, SaeedHs *199@+ research sho s that IIslamic banks in general ha$e been %sing M%rabaha as their ma4or method o! !inancing, constit%ting a##ro-imately se$enty.!i$e #ercent o! their assets" This #ercentage is ro%ghly tr%e !or many Islamic banks as ell as Islamic banking systems in )akistan and Iran" 0s early as 191,, in )akistan, M%rabaha.ty#e !inancing amo%nted to a##ro-imately eighty.se$en #ercent o! total !inancing in the

10 in$estment o! )7S *#ro!it and loss sharing+ de#ositsI *#" 77+" Eet this $ery #oint o! #redetermined and g%aranteed earnings ha$e ca%sed contro$ersy among the M%slims and critics o! Islamic !inancing" Some M%slims and critics take the $ie that M%rabaha is not legitimate Islamic trade" Bineldin *1990+ stated that there are some ho !eel that the !act that M%rabaha enables a b%yer to !inance his #%rchase ith de!erred #ayment, as against acce#ting a mark.%# on the market #rice o! the commodity, means that the !inancier earns a #ro!it itho%t bearing any risk hence !alls %nder riba" Saeed * 199@+ also #oints o%t that !inancing a $ent%re on the basis o! M%rabaha to be re#aid at a #artic%lar #oint in time does not di!!er greatly !rom !inancing a $ent%re on the basis o! !i-ed interest" In both cases, it is a debt, and the cost o! !inancing, hether it is called interest or #ro!it, is !i-ed, and the time allo ed !or re#ayment is also !i-ed" The most signi!icant di!!erence sho%ld be in the case here the debtor !ails to re#ay the debt at the s#eci!ied time" The loan at interest o%ld generally inc%r an e-tra interest #enalty i! the loan is not #aid %#on mat%rity, hether the debtor as able to #ay or not" In the case o! Islamic !inance, the debtor sho%ld be gi$en time !or re#ayment i! he is %nable to #ay" &o e$er, in #ractice, Islamic instit%tions, ith s%##ort o! the Religio%s S%#er$isory /oards, ha$e narro ed the meaning to close the #otential loo#hole !or debtors ho might be remiss in #aying their debts des#ite being able to do so" To address this loo#hole, the Religio%s /oards allo ed !or H!ineH to be incor#orated in the contract, 0l.Lmar and 0bdel.&a3 *199@+" The Islamic instit%tions %se the name H!ineH hereas the traditional bank re!ers to it as HinterestH" =rom an economic #oint o! $ie , there is no s%bstantial di!!erence bet een mark.%# and interest" The main di!!erence bet een the t o is a legal one based on religio%s theories; the basis !or interest is loan contracts hile the mark.%# is !o%nded on the sale contract" In economic terms, !inancing on the basis o! mark.%# in #rice has no signi!icant economic merit o$er the interest.based system, e-ce#t in the name" There is a gen%ine !ear among the Islamic circles that i! interest is largely s%bstit%ted by mark.%#, it o%ld re#resent a change 4%st in name rather than in s%bstance" There!ore, some scholars are #%shing !or the e-cl%sion o! this instr%ment altogether *Saeed, 199@+ &o e$er, !or no , this !orm is allo ed and is binding among the #racticing Islamic !inancial instit%tions"

I4ara *7easing+ The second debt.based instr%ments a$ailable in Islamic !inance is the leasing conce#t" There are t o !orms o! leasing conce#t kno n as I4ara, hich is similar to con$entional leasing, and lease to #%rchase o#tion kno n as I4ara a Iktina" =irst, ith I4ara, the instit%tion o ns the e3%i#ment, b%ildings, or other !acilities as re3%ested by a client !or the #%r#ose o! leasing to the same client on a #re$io%sly agreed rental contract" 7easing is common in the con$entional !inancial system as longterm !inancing" In the #ast, it is generally associated ith real estate s%ch as land and b%ildings" &o e$er, today, it is #ossible to lease $irt%ally any kind o! !i-ed asset" There is no e!!ecti$e di!!erence bet een the Islamic and con$entional o#eration o! the leasing conce#t" &o e$er to be acce#table in an Islamic !rame ork, the leasing contract m%st meet certain conditions as disc%ssed by 0l.Lmar and 0bdel.&a3 *199@+" =irst, the ser$ice that the

11 asset is s%##osed to #ro$ide and !or hich it is being rented sho%ld be de!initely and clearly kno n to both #arties" =%rther, its %sage m%st com#ly to the Islamic la s" second, the asset remains in the o nershi# o! the lessor ho is res#onsible !or its maintenance so that it contin%es to gi$e the ser$ice !or hich it as rented" Third, the leasing contract is terminated hen the asset ceases to gi$e the ser$ice !or hich it as rented" I! the asset becomes damaged d%ring the #eriod o! the contract, the contract ill remain $alid" =o%rth, the #rice o! an asset that may be sold to the lessee at the e-#iration o! the contract cannot be #re. determined" It can be determined only at the time o! the e-#iration o! the contract" 0nother !orm o! leasing is the lease to b%y o#tion hich has been %sed !or ma4or asset !inancing" Knder the lease #%rchase, the !inancial instit%tion agrees to b%y the e3%i#ment, b%ildings, or hat e$er is re3%ested by the client" Then the assets are rented to the client based on negotiated terms agreed %#on" In ret%rn, the client is to make incremental #ayments into an in$estment acco%nt that ill contrib%te to ard the #%rchase o! the asset" 0ny #ro!its acc%m%lated in this acco%nt are !or the bene!it o! the client and to be a##lied to ard the #%rchase #rice" The client th%s becomes the o ner o! the !inanced e3%i#ment and the contract ith the !inancial instit%tion ends" 0ccording to Saeed *199@+, some M%slims !eel that this method is similar to the cost.#l%s !inancing conce#t called M%rabaha, disc%ssed earlier" There!ore, it also incl%des all the arg%ments o! hether or not this !orm o! instr%ment is allo ed %nder Islamic la s" Similarly, this leasing conce#t is c%rrently #ermissible and binding by the $ario%s Islamic instit%tions and by the Religio%s S%#er$isory /oards" 0s I3bal *1997+ #ointed o%t, leasing acco%nts !or abo%t 10 #ercent o! Islamic !inancial transactions" Istisna *)rogressi$e )ayment+ 0nother !orm o! debt.like instr%ment hich is relati$ely ne is hat is kno n as Istisna" 0ccording to &am i and 0yl ard *1999+, this ty#e o! in$estment is Ia contract !or ac3%isition o! goods by s#eci!ication or order, here the #rice is #aid #rogressi$ely in accordance ith the #rogress o! a4ob com#letion" This is %tili<ed, !or e-am#le, !or #%rchases o! ho%ses to be constr%cted here #ayments made to the de$elo#er or b%ilder are according to the stage o! ork com#letedI *#",09+" This is $ery similar to the con$entional make to order here the seller recei$es #ayment based on the #rogress o! the #ro4ect" There!ore, the seller bears the risk o! com#leting the #ro4ect" 0s mentioned, this is still a $ery ne #rod%ct in Islamic !inance" 'ard &asan *&%manitarian 7oan+ This is not an in$estment !or in$estor to make ret%rn" Rather it is $ie ed as a good deed hich the re ard ill be earned !rom God" 0s 0l.Lmar and 0bdel.&a3 *199@+ #ointed o%t, this is a #%re loan transaction in hich the client obtains cash !rom indi$id%als or instit%tions to be ret%rned at a sti#%lated !%t%re date, absol%tely !ree o! interest" The borro er has the right to re ard the lender !or the loan by #aying any amo%nt abo$e the amo%nt o! the loan e$en tho%gh he does not ha$e to" 0lso, the ret%rn o! the #rinci#al is not g%aranteed and %s%ally not e-#ected by the lender" This does not e-c%se the borro er !rom #aying his debt" Knder Islamic la s, the borro er is obligated to honor his contract and re#ay the debt i! he is able to" I! he enco%nters di!!ic%lty, he sho%ld ret%rn the debt at a later date hen it is not a b%rden !or him to do so" This is sometimes kno n as a good ill loan, and is %s%ally e-tended to the #oor ho need it !or basic li$ing" It is not kno n ho idely this loan is a##lied in #ractice"

15 0ltho%gh the conce#t o! Islamic !inancing e-isted !or o$er 1,00 years, it is still in an early stage o! de$elo#ment in order to com#ete ith the con$entional system" A%ring the research, there is a common theme among the $ario%s so%rces regarding the challenges enco%ntered in im#lementing the theoretical conce#t" I3bal and Mirakhor *1999+ s%ggest that Ithese challenges can be classi!ied in t o gro%#s; *a+ !inancial engineering challenges to a##ly #rinci#les o! Islamic !inance !or !%rther inno$ation and *b+ challenges to make o#eration o! the system more e!!icient, stable, and ell integrated ith international ca#ital marketsI *#"397+" =irst, one o! the ma4or #roblem ith Islamic in$estment instr%ments is the lack o! li3%idity and sa!ety" This is in #art d%e to lack o! %nderstanding and #artly d%e to the nat%re o! the instr%ment" 0ccording to I3bal *1997+, the secondary market !or Islamic #rod%cts is $ery shallo and illi3%id, and money markets are almost non.e-istent" So !ar, the Islamic instr%ments a$ailable are mostly short and medi%m.term; #rod%cts need to be de$elo#ed to handle e-treme short.term s%ch as o$ernight de#osits by banks, and long term in$estments needed !or economic de$elo#ment" In addition, there is a need !or risk.management tools to #ro$ide clients ith instr%ments to hedge against the high $olatility in c%rrency and commodities markets" =%rther, the market c%rrently lacks the alternati$e o#tion !or #%blic debt !inancing" I3bal and Mirakhor *1999+ stated that I!inancial engineering in Islamic !inance ill ha$e to !oc%s on the de$elo#ment o! #rod%cts that !oster market integration and attract in$estors and entre#rene%rs to the risk.ret%rn characteristics o! the #rod%ct instead o! hether it is Islamic or notI *#"391+" In the end, the ma4ority o! the #%blic ill be dra n to the #rod%cts beca%se o! the #otential earning more so than beca%se o! their religio%s choice" Second, the o#erational challenges need to be addressed !or the mo$ement to gro " 0nother obstacle is the lack o! standard inter#retation on $ario%s instr%ments by the $ario%s 4%rists" C%rrently, there is m%ch con!%sion regarding hich transactions are allo ed and hich are not beca%se o! the di!!erent r%lings by $ario%s religio%s boards" C%rrently, each Islamic instit%tion elects their o n religio%s board consisting o! religio%s scholars !rom the $ario%s schools o! o#inion" There!ore, a transaction may be considered Islamic at one instit%tion and may not be at another, hence ca%sing con!%sion and incom#atibility" It is $ery im#ortant to ha$e a %ni!ied ShariHa co%ncil hose decision is binding !or all #racticing Islamic instit%tions" This ill eliminate con!%sion and inconsistency th%s #romoting interaction ith other con$entional !inancial instit%tions" 0lso, the lack o! acco%nting #rinci#les and stardards is a serio%s limitation" Similar to the con$entional !inancial system, ell.de!ined #rinci#les and standards are cr%cial !or in!ormation disclos%re, b%ilding in$estorHs con!idence, !or monitoring, and s%r$eillance as I3bal *1997+ #ointed o%t in his st%dy" It is not #ossible to %se the con$entional acco%nting #rinci#les and a##ly it to the Islamic !inancial conce#ts beca%se the !rame ork !or the t o systems is too di!!erent" =%rther, the Islamic !inancial mo$ement lacks the technical sta!!s ho are !amiliar ith the system and ha$e ade3%ate kno ledge to enhance the im#lementation o! the moral and social $al%es o! the system" C%rrently, the ma4ority o! the sta!! in the Islamic instit%tions are made %# o! either one e-treme or the other, th%s limiting the gro th o! the system" Most o! the sta!! orking in Islamic instit%tions come !rom con$entional banks and are !amiliar only ith the con$entional a##roach" These em#loyees lack the kno ledge o! Islamic la s hich limits their ability to con$ey the la s to c%stomers or con$entional bankers" Ln the other e-treme, there are those ho are ell $ersed in the ShariHa b%t are $ery limited in mechanics o! the

13 !inancial ind%stry" There is a des#erate need !or committed Islamic !inanciers as training #rogram s#eci!ically in Islamic !inance" ell as a

In s%mmary, there are $ario%s obstacles hich limit the gro th o! the Islamic !inancial system as a com#etiti$e !inancial alternati$e to the traditional !inancial system" 0s disc%ssed, these challenges are lack o! li3%idity !or the instr%ments, more #rod%cts !or e-treme short.term and longterm mat%rity, a lack o! religio%s co%ncilHs r%ling, a lack o! standard acco%nting methods, and lack o! trained #ro!essionals in the !ield" &o e$er, des#ite the challenges, the market !or Islamic !inance is gro ing" 2.' Re-a(e& S($&ie1 Aar is 0bd Ra<ak *5001+ has cond%ct st%dy abo%t the de$elo#ment o! Islamic !inance in Malaysia" Aar is 0bd Ra<ak has collected in!ormation based on the %sage o! Islamic !inancial system on a co%ntry" They also collected in!ormation !rom the internet !or ider range o! in!ormation" In his st%dy, the data sho ing that the early e-istence o! Islamic !inance" S" 2a<im 0li, )h"A" *5000+ made a research on Islamic =inance and 8conomics as Re!lected on Reserch" In his research, sho s that The research o%t#%t in the !orm o! articles, books, con!erence #a#ers, and other materials as re#resented by I=) Aata/ank in the last three decades is remarkable, totaling @,1, #%blications" )rior to 1979 this n%mber as m%ch lo er, ith only abo%t 531 #%blications" This n%mber 4%m#ed to 1091 !rom 1910 to 1919" In the !ollo ing decade, 1990D1999, the n%mber more than do%bled to 5755" This ra#id increase in the n%mber o! #%blications can be directly attrib%ted to the establishment o! Islamic !inancial instit%tions" Mahmo%d 0" 8l.Gamal *500@+ sho s the irony in re#orts that >Islam !orbids interest?or >the '%r9 an !orbids interest,? !ollo ed by a statement o! the interest rate #aid by Islamic instr%ments *e"g", sukuk+" Some #ractitioners may be more cogni<ant o! this #roblem and choose to re#ort that the >#ro!it rate? or >ret%rn? #aid on their interest.!ree bond is a !i-ed , #ercent, or !loating 7I/LR #l%s 50 basis #oints" Indeed, many Islamic !inance #ractitioners o%ld be gen%inely o!!ended i! someone asked them abo%t the interest rate they charge, say, on Islamic mortgages" They may be slightly less o!!ended i! asked abo%t >the im#lied interest rate,? com#%ted !rom the de!erred #rice they charge in a credit sale, or the rent they charge in a lease.to.#%rchase or declining.#artnershi# agreement"

2..

S$))ar/

Mahmo%d 0min 8l.Gamal is )ro!essor o! 8conomics and Statistics at Rice Kni$ersity" &e is Chair o! Islamic 8conomics, =inance and Management in the Ae#artment o! 8conomics" =rom May 500, %ntil Aecember 500, he as Islamic =inance Scholar.in. Residence at the K"S" Treas%ry Ae#artment" ShariOa literally means >the ay? and is the 0rabic term !or Islamic 7a as a ay o! li!e, com#arable to the &ebre &alachah+" =i3h,

1, commonly translated as 4%ris#r%dence, is the inter#retation o! ShariOa !or s#eci!ic circ%mstances by s#eciali<ed !%3ha, or 4%rists" The 4%ristic.based %nderstanding o! !orbidden ribaP%s%ry s%ggested that Islamic !inance has to be >asset.based?, in the sense that one cannot collect or #ay interest on rented money, as one does in con$entional banking" There!ore, the easiest transactions to Islami<e ere sec%red lending o#erations, e"g", to !inance the #%rchase o! real estate, $ehicles, b%siness e3%i#ment, etc"

CHAPTER ' METHODOLOGY '.1 I%(r#&$ (i#% This cha#ter disc%sses the methodology that ill be em#loyed in this st%dy" It #ro$ides an e-#lanation o! the design o! the st%dy, research sam#les, research instr%ments, data collection #roced%res and data analysis" '.2 Re1ear + De1i"% The research ado#ted a 3%antitati$e research" The research %sed s%r$ey research design" The sam#les in the research ere gi$en set o! 3%estionnaire to ans er abo%t the Islamic !inance in Malaysia" '.' Sa)4-i%" a%& P#4$-a(i#%

The st%dy ado#ts a cl%ster sam#ling to identi!y 100 res#ondents" These res#ondents are chosen !rom $ario%s locations and ork#laces" In 3%antitati$e research, there is no single r%le that can be %sed to determine sam#le si<e" Cres ell *5005+ states that the sam#le si<e is directly related to the aim o! the research, the statement o! the #roblem, data collection #roced%res and a$ailability o! in!ormation" &ence, the st%dy concl%des the sam#ling techni3%e and si<e are s%itable to the needs o! its #%r#ose and ob4ecti$es" '.. I%1(r$)e%(a(i#%

The instr%ment %sed in this st%dy is a set o! 3%estionnaire #ertaining to Islamic =inancial System *0##endi- 0+"

15 Res#ondents are re3%ired to rate their res#onses according to the !i$e #oint 7ikert Scale as sho n in the !ollo ing table : Strongly Aisagree 1 '.3 Aisagree 5 Ta,-e '.1 Li!er( S a-e 2e%tral 0gree 3 , Strongly 0gree 5

Pi-#( S($&/

In order to ascertain the reliability o! the instr%ment, the st%dy has identi!ied a n%mber o! 55 res#ondents ho are not selected as the res#ondents o! the st%dy" They are in$ol$ed to determine the $alidity and reliability o! the intended instr%ment" '.3.1 Re-ia,i-i(/ Te1( The #ilot st%dy as done on t enty !i$e res#ondents" The reliability test as administered on the res#ondents and the res%lts are as !ollo s :
Case Processing Summary N Cases % Valid 25 100.0 a Excluded 0 .0 Total 25 100.0 a. Listwise deletion based on all variables in the procedure. Reliability Statistics

Cronbach s !lpha .%&1

N o" #te$s 10

The cronbach al#ha $al%e is 0"191 hich is greater than 0"7 the critical $al%e" 0ccording to Ao%glas *5007+ any cronbach(s al#ha $al%e greater than 0"7 indicates a $ery strong reliability inde-" Th%s it can be concl%ded that the items in the 3%estionnaire are highly reliable" '.3.2 Va-i&i(/ The lang%age lect%rers ere em#loyed to determine the !ace, content and constr%ct $alidity o! the instr%ment" T o lect%rers !rom =ac%lty o! 8d%cation and one !rom C7MS ere asked to edit and ascertain the $alidity o! each item" /ased on their comments and recommendation, the researcher has restricted each items and ret%rned to them again" /ased on edited $ersion, they ha$e agreed that the instr%ment has attained !ace, content and constr%ct $alidity"

'.3

Da(a C#--e (i#%

0n o!!icial a##ro$al !rom the st%dent a!!air o! IKCTT as obtained to im#lement the st%dy in the selected area" The st%dy commence !rom the 1st o! 9an%ary to the 30th o! May in 5010"

1@ A%ring the !irst eek o! May 5010 3%estionnaires data ere collected on the 10th o! May 5010" '.5 Da(a A%a-/1i1 ere distrib%ted to res#ondents and the

The 3%estionnaires ere analysed %sing S)SS $ersion 1@ to get the !re3%ency co%nt, mean and standard de$iation" Lne Fay 02LN0 as administered to test the hy#othesis on statistically signi!icant di!!erences in o#inions to ards Islamic !inances ithin and bet een gro%#s" '.6 S$))ar/ This cha#ter disc%sses the methodology o! the intended research that incl%ded the design o! the st%dy, research sam#les, research instr%ments, data collection and data analysis #roced%res" The 3%antitati$e research method is %sed to collect data" The descri#ti$e and in!erential statistical analysis are em#loyed !or the 3%antitati$e data" The descri#ti$e statistics incl%des mean and standard de$iation hile Lne. ay 02LN0 meas%res are the in!erential statistical analysis is also %sed in this st%dy" CHAPTER . RESEARCH FINDINGS ..1 I%(r#&$ (i#%

This cha#ter disc%sses the #ro!iles o! res#ondants and !indings" The analysis is based on the !orm%lated research 3%estions !or 3%antitati$e data" The analysis o! the in!erential statistic administered on the 3%antitati$e data is the main !oc%s o! the st%dy" 0nalysis o! data is based on the !orm%lated reserch 3%estions !or 3%antitati$e data" ..1 Pr#*i-e1 #* re14#%&e%(1

/ased on a cl%ster sam#ling techni3%e, the st%dy has identi!ied 100 res#ondents com#rising o! @1Q male and 35Q !emale" =%rther elaboration is made on the res#ondents based on age gro%#, race, le$el o! ed%cation income and em#loyment stat%s" Ta,-e ..1.1 : Di1(ri,$(i#% #* Re14#%&e%(1 A #r&i%" (# A"e
Age group 're(uenc) Valid 20+25 2-+.0 .1+.5 .-+,0 Total ,0 .20 , 100 *ercent ,0.0 .-.0 20.0 ,.0 100.0 Valid *ercent ,0.0 .-.0 20.0 ,.0 100.0 Cu$ulative *ercent ,0.0 /-.0 &-.0 100.0

Table ,"1"1 sho s the distrib%tion o! res#ondent according to the age gro%#"

17 There are !o%r age gro%#s o! the res#ondents" =orty #ercent o! res#ondents is !rom the range !rom 50 till 55 year old hich is !ollo ed by 3@Q !rom age gro%# 5@.30" Then, 50Q !rom age gro%# 31.35 and !inally ,Q !rom age gro%# 3@.,0 years old" Ta,-e ..1.2 : Di1(ri,$(i#% #* Re14#%&e%(1 a #r&i%" (# Ge%&er
gender 're(uenc) Valid $ale "e$ale Total -% .2 100 *ercent -%.0 .2.0 100.0 Valid *ercent -%.0 .2.0 100.0 Cu$ulative *ercent -%.0 100.0

0ccording to the table abo$e, @1Q o! the res#ondents are male and 35Q are !emale" Ta,-e ..1.. : Di1(ri,$(i#% #* Re14#%&e%(1 a #r&i%" (# (+eir Leve- O* E&$ a(i#%
education 're(uenc) Valid diplo$a de0ree $asters others Total 2. .0 25 22 100 *ercent 2..0 .0.0 25.0 22.0 100.0 Valid *ercent 2..0 .0.0 25.0 22.0 100.0 Cu$ulative *ercent 2..0 5..0 /%.0 100.0

Re!erring to the abo$e table, the highest #ercentage o! res#ondents is 30Q as degree holders and the lo est is 53Q as di#loma holders" This is !ollo ed by master degree holder *55Q+ and others *55Q+"

Ta,-e ..1.3 : Di1(ri,$(i#% #* Re14#%&e%(1 A #r&i%" (# L# a(i#%

location 're(uenc) Valid urban rural Total 50 50 100 *ercent 50.0 50.0 100.0 Valid *ercent 50.0 50.0 100.0 Cu$ulative *ercent 50.0 100.0

The table sho s an e3%al distrib%tion o! res#ondents based on location" =i!ty #ercent o! res#ondents is !rom the %rban area and the remaining 50Q is !rom the r%ral area" Ta,-e ..2.1 : T+e C#%1$)er Per e4(i#% T#war&1 Fi%a% ia- I1-a)i I%1(i($(i#%

11
Item 1 : Islamic financial system in Malaysia is based on syariah law. 're(uenc) Valid 1 2 . , 5 Total . ,2 12 2% 15 100 *ercent ..0 ,2.0 12.0 2%.0 15.0 100.0 Valid *ercent ..0 ,2.0 12.0 2%.0 15.0 100.0 Cu$ulative *ercent ..0 ,5.0 5/.0 %5.0 100.0

The table abo$e sho s the highest #ercentage o! res#ondents *,5Q+ agree ith item 1 and the lo est #ercentage is 3Q that strongly agree" Fhile 55Q disagree and 15Q strongly disagree ith item 1" Lnly 15Q o! res#ondents are %ndecided"
Item : Islamic financial system does not depend on interest. 're(uenc) Valid . , 5 Total 2, ,, .2 100 *ercent 2,.0 ,,.0 .2.0 100.0 Valid *ercent 2,.0 ,,.0 .2.0 100.0 Cu$ulative *ercent 2,.0 -%.0 100.0

The table abo$e sho s the highest #ercentage o! res#ondents *,,Q+ disagree ith item 5 and the lo est #ercentage is *5,Q+ %ndecided" Fhile 35Q is strongly disagree ith item 5"
Item! : Islamic financial system offers fle"ible bands. 're(uenc) Valid 2 . , 5 Total % 2. .& .0 100 *ercent %.0 2..0 .&.0 .0.0 100.0 Valid *ercent %.0 2..0 .&.0 .0.0 100.0 Cu$ulative *ercent %.0 .1.0 /0.0 100.0

The table abo$e sho s the highest #ercentage o! res#ondents *39Q+ disagree ith item 3 and the lo est #ercentage is 1Q that agree ith item 3" Fhile 30Q strongly disagree ith item 3 and only 53Q o! res#ondents is %ndecided"

19
Item # : It is safe to deposit money in Islamic ban$s. 're(uenc) Valid 2 . , 5 Total % 2. .& .0 100 *ercent %.0 2..0 .&.0 .0.0 100.0 Valid *ercent %.0 2..0 .&.0 .0.0 100.0 Cu$ulative *ercent %.0 .1.0 /0.0 100.0

The table abo$e sho s the highest #ercentage o! res#ondents *39Q+ disagree ith item , and the lo est #ercentage is 1Q that agree ith item ," Fhile 30Q strongly disagree ith item , and only 53Q o! res#ondents is %ndecided"
Item % : Islamic ban$s help Muslims and non Muslims doing business. 're(uenc) Valid 2 . , 5 Total . 1% ,& .0 100 *ercent ..0 1%.0 ,&.0 .0.0 100.0 Valid *ercent ..0 1%.0 ,&.0 .0.0 100.0 Cu$ulative *ercent ..0 21.0 /0.0 100.0

The table abo$e sho s the highest #ercentage o! res#ondents *,9Q+ disagree ith item 5 and the lo est #ercentage is 3Q that agree ith item 5" Fhile 30Q strongly disagree ith item 3 and only 11Q o! res#ondents is %ndecided"
Item& : Islamic financial system is more efficient than con'entional system. 're(uenc) Valid . , 5 Total 1, 5, .2 100 *ercent 1,.0 5,.0 .2.0 100.0 Valid *ercent 1,.0 5,.0 .2.0 100.0 Cu$ulative *ercent 1,.0 -%.0 100.0

The table abo$e sho s the highest #ercentage o! res#ondents *5,Q+ disagree ith item @ and the lo est #ercentage is *1,Q+ %ndecided" Fhile 35Q is strongly disagree ith item @"
Item( : Islamic ban$s help to pay )a$at. 're(uenc) Valid 2 . , 5 Total % 2. .& .0 100 *ercent %.0 2..0 .&.0 .0.0 100.0 Valid *ercent %.0 2..0 .&.0 .0.0 100.0 Cu$ulative *ercent %.0 .1.0 /0.0 100.0

The table abo$e sho s the highest #ercentage o! res#ondents *39Q+ disagree ith item 7 and the lo est #ercentage is 1Q that agree ith item 7" Fhile 30Q strongly disagree ith item 7 and only 53Q o! res#ondents is %ndecided"

50
Item, : Islamic financial system offers speedier operation. 're(uenc) Valid 2 . , 5 Total 5 20 50 25 100 *ercent 5.0 20.0 50.0 25.0 100.0 Valid *ercent 5.0 20.0 50.0 25.0 100.0 Cu$ulative *ercent 5.0 25.0 /5.0 100.0

The table abo$e sho s the highest #ercentage o! res#ondents *50Q+ disagree ith item 1 and the lo est #ercentage is 5Q that agree ith item 1" Fhile 55Q strongly disagree ith item 1 and only 50Q o! res#ondents is %ndecided"
Item* : Islamic financial system is more efficient. 're(uenc) Valid 1 2 . , 5 Total . .2 5 ,5 15 100 *ercent ..0 .2.0 5.0 ,5.0 15.0 100.0 Valid *ercent ..0 .2.0 5.0 ,5.0 15.0 100.0 Cu$ulative *ercent ..0 .5.0 ,0.0 %5.0 100.0

The table abo$e sho s the highest #ercentage o! res#ondents *,5Q+ disagree ith item 9 and the lo est #ercentage is 3Q that strongly agree" Fhile 15Q strongly disagree and 35Q is agree ith item 1" Lnly 5Q o! res#ondents is %ndecided"

Item1+ : I prefer Islamic transaction because its di'idends are more. 're(uenc) Valid 1 2 . , 5 Total & .0 & .% 1, 100 *ercent &.0 .0.0 &.0 .%.0 1,.0 100.0 Valid *ercent &.0 .0.0 &.0 .%.0 1,.0 100.0 Cu$ulative *ercent &.0 .&.0 ,%.0 %-.0 100.0

The table abo$e sho s the highest #ercentage o! res#ondents *31Q+ agree ith item 10 and the lo est #ercentage is 9Q that strongly agree and %ndecided" Fhile 30Q agree ith item 10" Lnly 1,Q o! res#ondents is strongly disagree" Min Inter#retation Table *IM+ Score Min ,"30 D 5"00 3"50 D ,"59 Inter#retation Nery &igh &igh Symbol N& &

51 5"50 D 3",9 0"00 D 5",9 0$erage 7o 0 7

2o Items 1 Islamic !inancial system in Malaysia is based on syariah la " 5 Islamic !inancial system does not de#end on interest" 3 Islamic !inancial system o!!ers !le-ible bands" , It is sa!e to de#osit money in Islamic banks" 5 Islamic banks hel# M%slims and non M%slims doing b%siness" @ Islamic !inancial system is more e!!icient than con$entional system" 7 Islamic banks hel# to #ay <akat" 1 Islamic !inancial system o!!ers s#eedier o#eration" 9 Islamic !inancial system is more e!!icient" 10 I #re!er Islamic transaction beca%se its di$idends are more"

Min 3"1 ,"01 3"91 3"91 ,"0@ ,"11 3"91 3"95 3"37 3"11

SA IM 1"19 0 0"75 & 0"95 & 0"95 & 0"77 & 0"@5 & 0"95 & 0"11 & 1"1@ 0 1"55 0

..3

Re1$-(1 O* O%e Wa/ ANOVA

55
A-./A 0gender1 1u$ o" 1(uares (1 3etween 4roups 5ithin 4roups Total (2 3etween 4roups 5ithin 4roups Total (. 3etween 4roups 5ithin 4roups Total (, 3etween 4roups 5ithin 4roups Total (5 3etween 4roups 5ithin 4roups Total (3etween 4roups 5ithin 4roups Total ,2./-0 (/ 3etween 4roups 5ithin 4roups Total (% 3etween 4roups 5ithin 4roups Total (& 3etween 4roups 5ithin 4roups Total (10 3etween 4roups 5ithin 4roups Total 1.205 %2.&%5 %,.1&0 .2-5 -,.,%5 -,./50 1./,, 1...5-1.5..10 .2.1 15-.52& 15-./-0 && 1 &% && 1 &% && 1 &% && 1 &% && .2.1 1.5&/ .1,, ./05 1./,, 1..-. 1.2/& .2-1 .2-5 .-5% .,02 .52/ 1.205 .%,/ 1.,2. .2..02& 1,0.&/1 1,1.000 .01, 55..,55..-0 1.205 %2.&%5 %,.1&0 1.205 %2.&%5 %,.1&0 ..&2 5&.2,% 5&.-,0 .00. ,2./5/ d" 1 &% && 1 &% && 1 &% && 1 &% && 1 &% && 1 &% .00. .,..00.&.% ..&2 .-05 .-,% .,2. 1.205 .%,/ 1.,2. .2.1.205 .%,/ 1.,2. .2..01, .5-5 .02.%/. 2ean 1(uare .02& 1.,.% ' .020 1i0. .%%/

&o1 : There is no signi!icance di!!erence o! #erce#tions by gender" &a1 : There is a signi!icance di!!erence o! #erce#tions by gender" The signi!icance le$el is more than 0"05, the le$el o! signi!icance" Th%s the $al%e gi$es signi!icance e$ident to acce#t n%ll hy#othesis and re4ect alternati$e hy#othesis"

53
A-./A 0education1 1u$ o" 1(uares (1 3etween 4roups 5ithin 4roups Total (2 3etween 4roups 5ithin 4roups Total (. 3etween 4roups 5ithin 4roups Total (, 3etween 4roups 5ithin 4roups Total (5 3etween 4roups 5ithin 4roups Total (3etween 4roups 5ithin 4roups Total (/ 3etween 4roups 5ithin 4roups Total (% 3etween 4roups 5ithin 4roups Total (& 3etween 4roups 5ithin 4roups Total (10 3etween 4roups 5ithin 4roups Total 11.-20 12&..%0 1,1.000 1.20/ 5,.15. 55..-0 -.1/. /%.01/ %,.1&0 -.1/. /%.01/ %,.1&0 ,.552 55.0%% 5&.-,0 1.&-,0./&, ,2./-0 -.1/. /%.01/ %,.1&0 ../.% -1.012 -,./50 5.1-% 1.0.1,2 1.5..10 &.11. 1,/.-,/ 15-./-0 d" . &&& . &&& . &&& . &&& . &&& . &&& . &&& . &&& . &&& . &&& ..0.% 1.5.% 1.&/5 .12. 1./2. 1..51.2/1 .2%& 1.2,.-.1.&-0 .125 2.05% .%1. 2.5.2 .0-2 .-55 .,25 1.5,2 .20& 1.51/ .5/, 2.-,, .05, 2.05% .%1. 2.5.2 .0-2 2.05% .%1. 2.5.2 .0-2 .,02 .5-, ./1. .5,2ean 1(uare ..%/. 1..,% ' 2.%/, 1i0. .0,0

&o5 : There is no signi!icance di!!erence o! #erce#tions by le$el o! ed%cation" &a5 : There is a signi!icance di!!erence o! #erce#tions by le$el o! ed%cation" The signi!icance le$el is more than 0"05, the le$el o! signi!icance" Th%s the $al%e gi$es signi!icance e$ident to acce#t n%ll hy#othesis and re4ect alternati$e hy#othesis"

5,

A-./A 0location1 1u$ o" 1(uares (1 3etween 4roups 5ithin 4roups Total (2 3etween 4roups 5ithin 4roups Total (. 3etween 4roups 5ithin 4roups Total (, 3etween 4roups 5ithin 4roups Total (5 3etween 4roups 5ithin 4roups Total (3etween 4roups 5ithin 4roups Total (/ 3etween 4roups 5ithin 4roups Total (% 3etween 4roups 5ithin 4roups Total (& 3etween 4roups 5ithin 4roups Total (10 3etween 4roups 5ithin 4roups Total .1-0 1,0.%,0 1,1.000 .000 55..-0 55..-0 ,.,10 /&./%0 %,.1&0 ,.,10 /&./%0 %,.1&0 1.&-0 5/.-%0 5&.-,0 .1-0 ,2.-00 ,2./-0 ,.,10 /&./%0 %,.1&0 ..-10 -1.1,0 -,./50 .010 1.5..00 1.5..10 .1-0 15-.-00 15-./-0 d" 1 &% && 1 &% && 1 &% && 1 &% && 1 &% && 1 &% && 1 &% && 1 &% && 1 &% && 1 &% && .1-0 1.5&% .100 ./52 .010 1..%1 .00/ .&.2 ..-10 .-2, 5./%.01% ,.,10 .%1, 5.,1/ .022 .1-0 .,.5 ..-% .5,5 1.&-0 .5%& ....0 .0/1 ,.,10 .%1, 5.,1/ .022 ,.,10 .%1, 5.,1/ .022 .000 .5-5 .000 1.000 2ean 1(uare .1-0 1.,./ ' .111 1i0. ./.&

&o3 : There is no signi!icance di!!erence o! #erce#tions by location" &a3 : There is a signi!icance di!!erence o! #erce#tions by location" The signi!icance le$el is more than 0"05, the le$el o! signi!icance" Th%s the $al%e gi$es a signi!icance e$ident to acce#t n%ll hy#othesis and re4ect alternati$e hy#othesis"

55
A-./A 0age group1 1u$ o" 1(uares (1 3etween 4roups 5ithin 4roups Total (2 3etween 4roups 5ithin 4roups Total (. 3etween 4roups 5ithin 4roups Total (, 3etween 4roups 5ithin 4roups Total (5 3etween 4roups 5ithin 4roups Total (3etween 4roups 5ithin 4roups Total (/ 3etween 4roups 5ithin 4roups Total (% 3etween 4roups 5ithin 4roups Total (& 3etween 4roups 5ithin 4roups Total (10 3etween 4roups 5ithin 4roups Total %.,/% 1.2.522 1,1.000 ..&.5 51.,25 55..-0 5.1%, /&.00%,.1&0 5.1%, /&.00%,.1&0 1./5& 5/.%%1 5&.-,0 2.--0 ,0.100 ,2./-0 5.1%, /&.00%,.1&0 1..00 -..,50 -,./50 -.-.% 12%.-/2 1.5..10 1,.2/& 1,2.,%1 15-./-0 d" . &&& . &&& . &&& . &&& . &&& . &&& . &&& . &&& . &&& . &&& ,./-0 1.,%, ..20/ .02/ 2.21. 1..,0 1.-51 .1%. .,.. .--1 .-5.5%1 1./2% .%2. 2.100 .105 .%%/ .,1% 2.12. .102 .5%.-0. .&/. .,0& 1./2% .%2. 2.100 .105 1./2% .%2. 2.100 .105 1..12 .5.2.,,& .0-% 2ean 1(uare 2.%21..%0 ' 2.0,/ 1i0. .112

&o, : There is no signi!icance di!!erence o! #erce#tions by age gro%#" &a, : There is a signi!icance di!!erence o! #erce#tions by age gro%#" The signi!icance le$el is more than 0"05, the le$el o! signi!icance" Th%s the $al%e gi$es a signi!icance e$ident to acce#t n%ll hy#othesis and re4ect alternati$e hy#othesis" CHAPTER 3 CONCLUSION AND RECOMMENDATION 3.; INTRODUCTION

This cha#ter disc%sses the !indings o! the research and recommendation !or !%rther st%dies" The !indings o! the st%dy ha$e been #resented in the earlier cha#ter" 3.1 SUMMARY OF RESEARCH FINDINGS

5@ The !indings yielded !orm the 3%estionnaire sho an a$erage and high mean inter#retation" The mean !or item 1, RIslamic !inancial system in Malaysia is based on syariah la ( is 3"1 and its standard de$iation o! 1"19 ith an a$erage mean inter#retation" The mean !or item 5, RIslamic !inancial system does not de#end on interest( is ,"01 and standard de$iation o! 0"75 ith a high mean inter#retation" The mean !or item 3, RIslamic !inancial system o!!ers !le-ible band( is 3"91 and standard de$iation o! 0"95 ith a high mean inter#retation" The mean !or item ,, RIt is sa!e to de#osit money in Islamic banks( is 3"91 and standard de$iation o! 0"95 ith a high mean inter#retation" The mean !or item 5, RIslamic banks hel# M%slims and non M%slims doing b%siness is ,"0@ and standard de$iation o! 0"77 ith a high mean inter#retation" The mean !or item @, RIslamic !inancial system is more e!!icient than con$entional system( is ,"11 and standard de$iation o! 0"@5 ith a high mean inter#retation" The mean !or item 7, RIslamic banks hel# to #ay Bakat( is 3"91 and standard de$iation o! 0"95 ith a high mean inter#retation" The mean !or item 1, RIslamic !inancial system o!!ers s#eedier o#eration is 3"95 and standard de$iation o! 0"11 ith a high mean inter#retation" The mean !or item 9, RIslamic !inancial system is more e!!icient( is 3"37 and its standard de$iation o! 1"1@ ith an a$erage mean inter#retation" The mean !or item 10, RI #re!er Islamic transaction beca%se its di$idends are more( is 3"11 and its standard de$iation o! 1"55 ith an a$erage mean inter#retation" Lne ay 02LN0 on testing di!!erences bet een gender, le$el o! ed%cation, age gro%# and location sho s the !ollo ing res%lts: =or testing di!!erences bet een genders, the signi!icance $al%e !or all items is more than 0"05" Th%s it can be concl%ded that there is no signi!icance di!!erence on cons%mers #erce#tion on Islamic !inancial instit%tion bet een gender" =or testing di!!erences by le$el o! ed%cation, the signi!icance $al%e !or all items e-ce#t item 1 is more than 0"05" =or item 1 the signi!icance $al%e is 0"0, hich is less than 0"05" Th%s it can be concl%ded that as a hole there is no signi!icance di!!erence on cons%mers #erce#tion on Islamic !inancial instit%tion by le$el o! ed%cation" =or testing di!!erences by location, the signi!icance $al%e !or all items e-ce#t item ,, item 7 and item 1, is more than 0"05" =or item , the signi!icance $al%e is 0"055, item 7 is 0"55 and item 1 is 0"11 hich are less than 0"05" Th%s it can be concl%ded that on the a$erage there is no signi!icance di!!erence on cons%mers( #erce#tion on Islamic !inancial instit%tion by location" This can be in!erred as there is no signi!icant di!!erence bet een res#ondent !rom the %rban area and r%ral area" =or testing di!!erences by age gro%#, the signi!icance $al%e !or all items e-ce#t item 10, is more than 0"05" =or item 10 the signi!icance $al%e is 0"057 hich is less than 0"05" Th%s it can be concl%ded that on the a$erage there is no signi!icance di!!erence on cons%mers #erce#tion on Islamic !inancial instit%tion by age gro%#" Th%s it can be concl%ded that there is no signi!icance di!!erence on cons%mers #erce#tions by gender, le$el o! ed%cation, location and age gro%#" 3.2 DISCUSSION ON RESEARCH FINDINGS The con$entional banking and !inancial instit%tions in e-istence today are based entirely on the conce#t o! interest.bearing instr%ments" It is hard to imagine that there is an alternati$e to the interest bearing !inancial system" This alternati$e method is commonly kno n as Islamic !inance beca%se o! its dee# roots in the Islamic religion" The ob4ecti$e o! this st%dy is to create a areness o! the basic conce#t o! Islamic !inance, to ha$e an o$er$ie kno ledge o!

57 the $ario%s instr%ments a$ailable, and to determine hether or not this interest.!ree economy is a $iable alternati$e to the con$entional !inancial system" 0ll res#ondents o! the st%dy agree that Islamic =inancial system is a good alternati$e to the e-isting !inancial interest bearing system hich is strongly rooted in syariah la " The Islamic !inancial system is based %#on the sharing o! #ro!it and loss, rather than on the #ayment o! interest" 0ltho%gh the system does not allo !or the #ayment or recei$ing o! interest, there are a ide $ariety o! instr%ments allo ed that in$estors can choose !rom de#ending on his or her risk tolerance" The main idea behind the Islamic !inancial system is more than generating ealth" It is a !inancial system intended to #romote economic gro th hile maintaining the morals o! the comm%nities" Res#ondents in the st%dy conc%r that the Islamic =inancial system o!!er $arieties o! mechanisms in ch%rning #ro!it de#ending on the risk o! tolerance" 0ltho%gh the method o! interest.!ree economy has not been $ery ell kno n by the general #%blic, there is an emergence in the %nderstanding and a##lication o! this conce#t by the M%slim comm%nities as ell as the traditional !inancial instit%tions" This is #artly d%e to the gro ing interest by the M%slims !or o#tions that do not in$ol$e interest to satis!y their religio%s obligations" =%rther, the Festern !inancial instit%tions are taking a closer look at this system not only to reach the niche market b%t beca%se there is money to be made" 0s o! the end o! 199@, there are abo%t 1@@ o! Islamic !inancial instit%tions in 3, co%ntries according to Tim ell *1991+" Table I #ro$ides !inancial highlights based on 199@ res%lts hich are hel#!%l in com#rehending the scale o! the o$erall market" In s%mmary, most o! the e-isting Islamic instit%tions are c%rrently in the Middle 8ast and So%th 8ast 0sia" There is a h%ge #otential !or e-#ansion in 8%ro#e and 2orth 0merica" Islamic !inance is not only a techni3%e b%t a hole economic system o! !inance" The system !rame ork is based on the Islamic !aith th%s the name" The key elements to this system are the #rohibition o! interest, the com#liance ith the Islamic la s, and the #rohibition o! a g%aranteed or a #redetermined earning" 0ll res#ondents agree that Islamic =inancial system does not de#end on interest and more e!!icient syst m" Fithin the g%idelines o! the ShariHa, there are a $ariety o! in$estment o#tions allo ed in both e3%ity.based and debt.based instr%ments" The #ro!it sharing #rod%cts are M%sharaka also kno n as a #artnershi#, and M%daraba kno n as tr%st !inancing" In addition, the debt.like instr%ments are M%rabaha hich is cost.#l%s #ro!it; I4ara similar to leasing; and Istisna also called #rogressi$e #ayment method" In addition to the e3%ity and debt.like #rod%cts, there is a h%manitarian loan kno n as 'ard &assan hich does not res%lt in any ret%rn" Most res#ondents agree that Islamic !inancial system o!!ers s#eedier o#eration and #romotes better b%siness gro th in the co%ntry" 0s ith any ind%stry str%ggling to establish itsel!, Islamic !inance !aces a n%mber o! obstacles in its de$elo#ment" These challenges are a lack o! li3%idity in the instr%ments, a lack o! standard inter#retations by the religio%s boards, a lack o! standard acco%nting #rinci#les, and a lack o! technical sta!!" &o e$er, des#ite the challenges, the market contin%es on an %# ard trend" The st%dy also #oints to e-am#les s%ch as the &%b )o er )ro4ect in )akistan, and CitibankHs commitment in /ahrain to sho that Festern !inancial instit%tions are getting in$ol$ed as ell" Ma4ority o! res#ondents belie$e that Islamic =inancial system is $iable !or !%rther e-#ansion"

51 In concl%sion, ma4ority o! res#ondents agree that Islamic !inance is a legitimate !inancial system ith $ario%s instr%ments to meet the g%iding #rinci#les" The system is not limited to M%slims only, it is o#en to anyone ho is looking !or an alternati$e to the interest based system" There is a h%ge #otential market !or Islamic !inance to thri$e, and it is belie$ed that it ill com#ete alongside the e-isting con$entional system in the near !%t%re" Its s%ccess ill be mainly d%e to the !act it is a #ro!itable system and not so m%ch d%e to its religio%s #hiloso#hy" 3.' RECOMMENDATION ON FURTHER RESEARCH

0s the st%dy is e-#loratory in nat%re, it strongly recommends that !%rther research in Islamic =inancial System are im#lemented in the !ollo ing areas 5"3"1 Sam#ling =%rther research sho%ld encom#ass more range in age gro%#s to ca#t%re #otentials cons%mers in Malaysian banking" Increment sho%ld not only be con!ined in n%mbers b%t also the sam#ling techni3%es to mirror the act%al #o#%lation o! the nation" Th%s, it is recommended that a #ro#ortionate strati!ied random sam#ling is %sed to ca#t%re the sam#le according to each strata and #ro#ortion o! the #o#%lation" 5"3"5 Research Aesign It is strongly recommended that !%rther research in$ol$e direct h%man to%ch s%ch as inter$ie s and obser$ation" The incl%sion o! elements o! the 3%alitati$e a##roach enables interested researchers in this areas are able to %nderstand this #henomenon in a ider realm o! sco#e i! !%t%re research designs are a mi-t%re o! 3%antitati$e and 3%alitati$e methods" 5"3"3 Time Series Aata 0t the #resent moment, data are collected cross.sectionally" It is im#erati$e that e!!orts are made to cond%ct time series data collection to monitor the changes or establishment o! o#inions and #erce#tions o! cons%mers to ards Islamic !inancial system" This ill yield a better and stable generali<ation to ards the in$estigated iss%e" 5"3", Com#arati$e St%dy It is recommended that !%t%re research ind%lge in e!!orts to com#are and contrast bet een Islamic !inancial system and the e-isting ca#italistic !inancial system !rom cons%mers( #oint o! $ie " This is to enable researchers and #olicy.makers to ha$e a better %nderstanding regarding the con!idence and ske#ticism o! Malaysian cons%mers to ards both !inancial systems"

59

3..

CLOSURE

It is o!ten mis%nderstood that the Islamic !inancial system in$ol$es only the absence o! interest and only a##lies to those ho #ractice the Islamic !aith" 0ltho%gh the #aying or recei$ing o! interest is strictly !orbidden to the many million #racticing M%slims all o$er the orld, this system can be an alternati$e to the e-isting method !or e$eryone" =%rther, the conce#t o! Islamic !inance in$ol$es more than <ero interest" There are other #rinci#les s%ch as #rohibition o! g%aranteed earning, transactions to com#ly ith a set o! Islamic la s kno n as ShariHa, and the em#hasis on the element o! b%siness risk" C%rrently, the Islamic !inancial system is mostly #racticed in co%ntries ith IIslamicI go$ernments" 8$en then most M%slim co%ntries ha$e con$entional banking as the main system, and the Islamic instit%tions e-ist alongside it" 8-am#les incl%de Malaysia, 8gy#t, Sa%di 0rabia, 9ordan, and many other Middle 8ast co%ntries" Lnly three co%ntries so !ar solely %tili<e the Islamic !inancial system, and they are Iran, )akistan, and S%dan" 0ccording to I3balHs st%dy *1997+, the ind%stry has been gro ing at a rate o! more than 15Q ann%ally !or the #ast !i$e years" I3balHs st%dy also s%ggests that the marketHs ann%al t%rno$er as estimated to be S70 billion in 1997 com#ared to S5 billion in 1915, and is #ro4ected to be o$er S100 billion by the t%rn o! the cent%ry" The gro th o! Islamic !inance is a re!lection o! the IIslami<ationI mo$ement ithin the M%slims comm%nities here M%slims are ret%rning to teaching o! The '%rHan" 0s s%ch, the demand !or ethically acce#table !inancial mechanisms is increasing" 0ccording to 9osh *1997+, there are 1 million to 10 million M%slim residents in the Knited States alone ho are seeking Islamic !inancial tools" This #resents a h%ge niche market that has yet to be e-#lored" In addition, the ind%stry is gro ing not only among the M%slim comm%nities b%t among estern !inanciers as ell" =ollo ing are some e-am#les to ill%strate the gro ing trend o! the Islamic !inancial system being %tili<ed by both M%slims and non.M%slims" 0 $ery high #ro!ile e-am#le is the &%b )o er )ro4 ect in )akistan" This is a S 1"@ billion #ro4ect hich began in 1915 by the )akistani go$ernment as an initiati$e to enco%rage #ri$ate #artici#ation in #o er generation *&am i J 0yl ard, 1999+" 0s &am i and 0yl ard *1999+ #oint o%t, the im#ortance abo%t this #ro4ect !rom the Islamic !inancing stand#oint is that it is the !irst #ro4ect !inancing I!eat%ring an Islamic mark.%# based limited reco%rse !acility and the !irst #ro4ect to recei$e mobili<ation !inance in the !orm o! an Istisna !acilityI *#.,17+" 0nother indication that the conce#t is e-tending into to the con$entional !inancial instit%tions is set by Citibank" 0ccording to Are-hage *1991+, Citibank is the !irst con$entional international bank to set %# an Islamic instit%tion called Citilslamic In$estment /ank in 199@ located in /ahrain, Sa%di 0rabia" In addition, 9osh *1997+ indicated that m%ltinational com#anies s%ch as General Motors, I/M, and Mero- ha$e raised money thro%gh a K"S" based Islamic leasing !%nd set %# the Knited /ank o! 6% ait" 0lso, oil giants s%ch as 8nron and Shell ha$e %sed Islamic banks to !inance their acti$ities in the 0rabian G%l! and Malaysia"

30

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