PERCEPTION OF MALAYSIAN YOUTH ON ISLAMIC FINANCIAL SYSTEM final.doc

8/14/2019 PERCEPTION OF MALAYSIAN YOUTH ON ISLAMIC FINANCIAL SYSTEM final.doc

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PERCEPTION OF MALAYSIAN YOUTH ON ISLAMIC FINANCIAL SYSTEM

FOR

Research methodologyMGT 3305

BY

FACULTY OF BUSINESS AND FINANCEINTERNATIONAL 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 !inancialscene" Its #hiloso#hies and #rinci#les are hoe$er, not ne, ha$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 banksas the Islamic /anking ct *I/+ hich comes into e!!ect on 7 #ril 193" The I/

#ro$ides /2M ith #oers to s%#er$ise and reg%late Islamic banks, similar to the case o!other licensed banks" The Go$ernment In$estment ct 193 as also enacted at the sametime to em#oer 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" s the GII are regardedas li%id assets, the Islamic banks co%ld in$est in the GII to meet the #rescribed li%idityre%irements as ell as to in$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 193" In line ith ist ob4ecti$es, the banking acti$itiesi! banks are based on syarriah #rinci#les" !ter more than a decade in o#erations, /IM/ has


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#ro$ed to be a $iable banking instit%tion ith its acti$ity e-#anding ra#idly thro%gho%t theco%ntry ith a netork o! 0 branches and 1,00 em#loyees" The bank ass listed on themain board o! the 6%ala %m#%r Stock 8-change on 17 ann%ary 199"

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" &oe$er, similar to any banking system,an islamic banking system re%res three $ital elements to %ali!y as a $iable system, i"e:.

large n%mber o! #layers

bread $ariety o! instr%ments; and

n 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"

RecogniSkim)erbankan Tan#a =aeda? *Interest.!ree /anking Scheme+ or S)T= in short"

In terms o! #rod%cts and ser$ices, there are more than 0 islamic !inancial #rod%cts andser$ices that may be o!!ered by the banks %sing $ario%s Islamic conce#ts s%ch asM%dharabah, M%syarakah, M%rabaha, /ai( /ithaman 4il */ai( M%a44al+, I4arah, 'ardh%l&asan, istina( and I4arah Th%me l./ai(" To link the instit%tion and the instr%ments, theIslamic 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 re%iring the banks to disclose the Islamic banking o#eration *balancesheet and #ro!it and loss acco%nt+ as an additional item %nder the notes to the cco%nts

1.2 Ba!"r#$%&

This st%dy ill in$estigate on the #erce#tion o! Malaysian yo%th regarding Islamic =inancialSystem" s noted by Ar Beti khtar


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trans#arent system o! banking and a res#onsible !orm o! !inancing"? bd%l Ga!oor stressesthe serio%sness o! Islamic !inancial system to M%slim #eo#le" Malaysia are consist o! ma4orityo! M%slim and that is hy M%slim ha$e to kno hat Islamic !inancial system are"

ccording to a book #%blished by =resh!ields /r%ckha%s Aeringer 00@ 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$e a social and ethical #%r#ose beyond #%re ret%rn" Third isin$estment in b%siness dealing ith alcohol, gambling, dr%gs or anything else that theShari(ah considers %nla!%l are deemed %ndesirable and #rohibited" =orth is a #rohibition ontransaction in$ol$ing s#ec%lation or gambling *masir+" astly is #rohibition on gharar or%ncertainty abo%t the s%b4ect.matter and terms o! contracts, this incl%des a #rohibition onselling something that one does not on"

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 onho to market Islamic =inancial system in Malaysia" In order to market the Islamic =inancialSystem is to cond%ct cons%mer analysis based on yo%th #erce#tion" Eo%th is the biggest

#otential cons%mers that range beteen 0 years old to 0 years old" They are more likely insearching 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 0 D 0+ on Islamic=inancial System in Malaysia"

1..1 O,0e(ive

The ob4ecti$es o! the st%dy are as the !olloing :i" To identi!y Malaysian yo%th #erce#tion on Islamic !inancial systemii" To meas%re the statistical di!!erence o! cons%mers( #erce#tions on Islamic !inancial

instit%tion by gender"iii" To meas%re the statistical di!!erence o! cons%mers( #erce#tions on Islamic !inancial

instit%tion by %ali!ications

i$" To meas%re the statistical di!!erence o! cons%mers( #erce#tions on Islamic !inancialinstit%tion by age gro%#$" To meas%re the statistical di!!erence o! cons%mers( #erce#tions on Islamic !inancial

instit%tion by location

1..2 Reear+ $e(i#%

In order to achie$e the stated ob4ecti$es, the st%dy is g%ided by the !olloing %estions:i" Fhat are the #erce#tions o! Malaysian yo%th abo%t Islamic !inancial systemii" To hat e-tent the di!!erence o! cons%mers( #erce#tions on Islamic =inancial

Instit%tion by gender

iii" To hat e-tent the di!!erence o! cons%mers( #erce#tions on Islamic =inancialInstit%tion by age gro%#


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i$" To hat e-tent the di!!erence o! cons%mers( #erce#tions on Islamic =inancialInstit%tion by %ali!ication

$" To hat e-tent the di!!erence o! cons%mers( #erce#tions on Islamic =inancialInstit%tion by location

1.3 H/4#(+ei #* 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"&o : There is no signi!icance di!!erence o! #erce#tions by le$el o! ed%cation"&a : There is a signi!icance di!!erence o! #erce#tions by le$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*ia%e #* (+e ($&/

The signi!icances o! the st%dy are:i" To create aareness 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 noattem#t is made to obtain time series data"

1.7 O4era(i#%a- De*i%i(i#%

The !olloing terms %sed in this st%dy are o#erationally de!ined as:1. Y#$(+

Eo%th is the #eriod beteen 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 $ary" n indi$id%alHs act%almat%rity may not corres#ond to their chronological age, as immat%re indi$id%als e-ist at allages *)erlembagaan Malaysia, 19@+"

2. I-a)i *i%a%ia- /(e)

Islamic !inancial system or re!ers to a system o! b%siness that is consistent ith the #rinci#leso! Islamic la *Sharia+ and its #ractical a##lication thro%gh the de$elo#ment o! Islamiceconomics" Sharia #rohibits the #ayment or acce#tance o! interest !ees !or the lending andacce#ting o! money res#ecti$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 hmed, 00@+"


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'. Pere4(i#%

In #hiloso#hy, #sychology, and cogniti$e science, #erce#tion is the #rocess o! attainingaareness or %nderstanding o! sensory in!ormation" The ord #erce#tion comes !rom theatin ords #erce#tio, #erci#io, and means recei$ing, collecting, action o! taking #ossession,a##rehension ith the mind or senses" Fhat one #ercei$es is a res%lt o! inter#lays beteen

#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 indsay J Aonald " 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$es o! the st%dy, research %estions, and signi!icance o! the st%dy, limitation ando#erational de!initions" =rom the statement o! #roblem it is e$ident that e need an alternati$emethod o! !inding ne a##roach to introd%ce Islamic =inancial System to #%blic" s Islamic

=inancial system ha$e their on ad$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 groth o!Islamic !inancial ser$ices orldide has gathered moment%m" Islamic !inancial instit%tionsare today #resent in more than si-ty co%ntries across the orld ith total assets r%nning inh%ndreds o! billions o! KS dollars" They ha$e increasingly e-#anded beyond the !rontiers o!M%slim co%ntries and are sloly taking roots in estern !inancial systems" Islamic las, orthe Shariah, strictly #rohibits !i-ed or #re.determined rate o! interest, the Riba as it is re!erredto, on !inancial instr%ments or s%ch interest arising !rom dealings and transactions in risk

instr%ments"* R /asant Roi: 005+

2.2 I-a)i *i%a%e

In essence, the #%r#ose o! Islamic economics is to identi!y and establish an economic orderthat con!orms to the #rece#ts o! the Islamic scri#t%re and the narrated traditions o! its #ro#het*Cha#ra, 199 and 2a$i, 199+" In the contem#orary era, the mo$e toards !orm%lating anIslamic economic !rameork that as in sync ith #re$ailing economic needs took sha#e inthe 190s, and three decades later e!!orts to im#lement them ere %nder ay in do


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term >Islamic !inancial system? is relati$ely ne, a##earing only in the mid.190s" In !act, allearlier re!erences to commercial or mercantile acti$ities con!orming to Islamic #rinci#les

ere designated as either >interest !ree? or >Islamic? banking" The !irst modern e-#erimentith Islamic banking as %ndertaken in 8gy#t" This #ioneering initiati$e based on the #ro!it.

sharing #rinci#le as helmed by hmad 8l 2a44ar" It in$ol$ed the establishment o! a sa$ingsbank in the 8gy#tian ton o! Mit Ghamr in l9@3" /y 19@7, the n%mber o! banks o#erating onthe same #rinci#les had gron to nine *Siddii, l9+" Th%s, they !%nctioned essentially assa$ing. in$estment instit%tions rather than as commercial banks"

The s%b4ect o! a


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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! contracts *#"+" The de!inition o! riba conse%entlydetermines the #rescribed str%ct%re o! Islamic banking and also the #ermissible bankinginstr%ments" Lne key element o! Islamic !inance is the re%irement o! an element o! risknormally associated ith doing b%siness" &oe$er, one m%st kee# in mind that risk in

b%siness sharing is alloed hereas risk in the !orm o! gambling or mere s#ec%lation is#rohibited by Islamic a" 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 andenco%rage entre#rene%rs to ma-imi


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the other in !inancial matters" Aissol%tion o! the #artnershi# co%ld res%lt !rom either the deatho! any #artner or by consens%s agreement amongst the in$ol$ed #arties" nother $ie is amore restricted !orm o! #artnershi#" In this !orm, the e%ality o! the #artners is not mandatory"lso, the m%t%al agency e-tends only to those commodities and areas o! trade agreed %#on"iability is strictly limited according to each #artnerHs contrib%tion to the total in$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" oss 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" Theresearch shos that this !orm o! Islamic !inancial instr%ment is similar to the con$entional

#artnershi# b%siness organi


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lso according to 6han *197+, a ay aro%nd this s#ec%lation iss%e has been attem#ted by theIslamic In$estment Com#any o! the G%l!" The e-#eriment as to state the $al%e o! thecerti!icate at reg%lar inter$als based on the act%al #rogress o! the #ro4ect" The $al%e o! thecerti!icate at a gi$en time re!lects the #rinci#al #l%s or min%s the #ro!it or loss inc%rred, hichis 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 itsmarket $al%e, b%t it does cater to indi$id%al needs !or li%idity"

This sol%tion does not entirely resol$e the #roblem o! s#ec%lation" #remi%m ill arise oncerti!icates hich re#resent the better #er!orming com#anies" Similarly, li%idity may remainan ill%sion !or certi!icates o! #oorly #er!orming com#anies" In the end, the sol%tion !ormani#%lation and other stock market ab%se may re%ire care!%l reg%lation similar to thecon$entional stock market" =or no, the ide #re$alence o! mani#%lation necessitates !inediscrimination to disting%ish beteen acce#table and non.acce#table !rom the $ie#oint o!the Islamic #rinci#les"

&ence, there are to Islamic !inancial instr%ments hich are based on the idea o! #ro!itsharing s%ch as M%sharaka or #artnershi#, and M%daraba or tr%st !inancing" 2e-t, the !oc%sill be on debt.based #rod%cts"

M%rabaha *Cost.)i%s )ro!it+

The !irst debt.like !orm o! Islamic !inancial instr%ment is knon as M%rabaha" ltho%gh thisty#e o! contract is not based directly on any te-t o! the '%rHan or the S%nnah, it has beenalloed in Islamic a by the %rists" Ii * 199+ de!ines it as a contract in hich a clientishing to #%rchase e%i#ment or goods re%ests the Islamic !inancial instit%tion to #%rchasethese 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 beteen the #arties *#"33+" It is im#ortant toclari!y that only a legitimate #ro!it in addition to the act%al #rice is considered la!%l %nderIslamic las" ny e-cessi$e addition beca%se o! de!erred #ayments is not alloed since ito%ld become a #ayment based on the $al%e o! money o$er time hich is the same asinterest" &ence, this conce#t is sometime knon as cost#l%s !inancing or sale ith stated

#ro!it" )er osh *1997+, this method is the most !amiliar s%bstit%te !or con$entional interest.based !inance, most commonly %sed in trade and commodity !inance"

ccording 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 knoledge 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$ering handling charges,transaction costs, or risk #remi%m" second, the s%b4ect o! the sale sho%ld be goods orcommodities and not money" Third, the s%b4ect o! sale sho%ld be in the #ossession o! theseller and oned by him and he sho%ld be ca#able o! deli$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 $ery #o#%lar beca%se o! the element o! #redeterminedearnings" In !act, SaeedHs *199@+ research shos that Islamic banks in general ha$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" s early as 19, in )akistan, M%rabaha.ty#e!inancing amo%nted to a##ro-imately eighty.se$en #ercent o! total !inancing in the


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in$estment o! )S *#ro!it and loss sharing+ de#osits *#" 77+" Eet this $ery #oint o!#redetermined and g%aranteed earnings ha$e ca%sed contro$ersy among the M%slims andcritics o! Islamic !inancing" Some M%slims and critics take the $ie that M%rabaha is notlegitimate Islamic trade" Bineldin *1990+ stated that there are some ho !eel that the !act thatM%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!ititho%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 ata #artic%lar #oint in time does not di!!er greatly !rom !inancing a $ent%re on the basis o! !i-edinterest" 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 alloed !or re#ayment is also !i-ed" The most signi!icantdi!!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 %#onmat%rity, hether the debtor as able to #ay or not" In the case o! Islamic !inance, the debtorsho%ld be gi$en time !or re#ayment i! he is %nable to #ay" &oe$er, in #ractice, Islamic

instit%tions, ith s%##ort o! the Religio%s S%#er$isory /oards, ha$e narroed the meaning toclose 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 alloed !or H!ineH to beincor#orated in the contract, l.Lmar and bdel.&a *199@+" The Islamic instit%tions %se thename 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 beteen mark.%# andinterest" The main di!!erence beteen the to 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" Ineconomic terms, !inancing on the basis o! mark.%# in #rice has no signi!icant economic merito$er the interest.based system, e-ce#t in the name" There is a gen%ine !ear among the Islamiccircles that i! interest is largely s%bstit%ted by mark.%#, it o%ld re#resent a change 4%st inname rather than in s%bstance" There!ore, some scholars are #%shing !or the e-cl%sion o! thisinstr%ment altogether *Saeed, 199@+ &oe$er, !or no, this !orm is alloed and is bindingamong the #racticing Islamic !inancial instit%tions"

I4ara *easing+

The second debt.based instr%ments a$ailable in Islamic !inance is the leasing conce#t" Thereare to !orms o! leasing conce#t knon as I4ara, hich is similar to con$entional leasing, andlease to #%rchase o#tion knon as I4ara a Iktina" =irst, ith I4ara, the instit%tion ons thee%i#ment, b%ildings, or other !acilities as re%ested by a client !or the #%r#ose o! leasing tothe same client on a #re$io%sly agreed rental contract" easing is common in the con$entional!inancial system as longterm !inancing" In the #ast, it is generally associated ith real estates%ch as land and b%ildings" &oe$er, today, it is #ossible to lease $irt%ally any kind o! !i-edasset"

There is no e!!ecti$e di!!erence beteen the Islamic and con$entional o#eration o! the leasing

conce#t" &oe$er to be acce#table in an Islamic !rameork, the leasing contract m%st meetcertain conditions as disc%ssed by l.Lmar and bdel.&a *199@+" =irst, the ser$ice that the


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asset is s%##osed to #ro$ide and !or hich it is being rented sho%ld be de!initely and clearlyknon to both #arties" =%rther, its %sage m%st com#ly to the Islamic las" second, the assetremains in the onershi# o! the lessor ho is res#onsible !or its maintenance so that itcontin%es to gi$e the ser$ice !or hich it as rented" Third, the leasing contract is terminatedhen the asset ceases to gi$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"

nother !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 e%i#ment,

b%ildings, or hat e$er is re%ested by the client" Then the assets are rented to the client basedon negotiated terms agreed %#on" In ret%rn, the client is to make incremental #ayments into anin$estment acco%nt that ill contrib%te toard the #%rchase o! the asset" ny #ro!itsacc%m%lated in this acco%nt are !or the bene!it o! the client and to be a##lied toard the

#%rchase #rice" The client th%s becomes the oner o! the !inanced e%i#ment and the contract

ith the !inancial instit%tion ends"

ccording 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 thearg%ments o! hether or not this !orm o! instr%ment is alloed %nder Islamic las" Similarly,this leasing conce#t is c%rrently #ermissible and binding by the $ario%s Islamic instit%tionsand by the Religio%s S%#er$isory /oards" s Ibal *1997+ #ointed o%t, leasing acco%nts !orabo%t 10 #ercent o! Islamic !inancial transactions"

Istisna *)rogressi$e )ayment+

nother !orm o! debt.like instr%ment hich is relati$ely ne is hat is knon as Istisna"ccording to &ami and ylard *1999+, this ty#e o! in$estment is a contract !orac%isition o! goods by s#eci!ication or order, here the #rice is #aid #rogressi$ely inaccordance ith the #rogress o! a4ob com#letion" This is %tili


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ltho%gh the conce#t o! Islamic !inancing e-isted !or o$er 100 years, it is still in an earlystage o! de$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 inim#lementing the theoretical conce#t" Ibal and Mirakhor *1999+ s%ggest that thesechallenges can be classi!ied in to 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 markets*#"397+"

=irst, one o! the ma4or #roblem ith Islamic in$estment instr%ments is the lack o! li%idityand sa!ety" This is in #art d%e to lack o! %nderstanding and #artly d%e to the nat%re o! theinstr%ment" ccording to Ibal *1997+, the secondary market !or Islamic #rod%cts is $eryshallo and illi%id, and money markets are almost non.e-istent" So !ar, the Islamicinstr%ments a$ailable are mostly short and medi%m.term; #rod%cts need to be de$elo#ed tohandle e-treme short.term s%ch as o$ernight de#osits by banks, and long term in$estmentsneeded !or economic de$elo#ment" In addition, there is a need !or risk.management tools to

#ro$ide clients ith instr%ments to hedge against the high $olatility in c%rrency andcommodities markets" =%rther, the market c%rrently lacks the alternati$e o#tion !or #%blicdebt !inancing" Ibal and Mirakhor *1999+ stated that !inancial engineering in Islamic!inance ill ha$e to !oc%s on the de$elo#ment o! #rod%cts that !oster market integration andattract in$estors and entre#rene%rs to the risk.ret%rn characteristics o! the #rod%ct instead o!hether it is Islamic or not *#"39+" In the end, the ma4ority o! the #%blic ill be dran 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" notherobstacle 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 alloed and hich arenot beca%se o! the di!!erent r%lings by $ario%s religio%s boards" C%rrently, each Islamicinstit%tion elects their on religio%s board consisting o! religio%s scholars !rom the $ario%sschools o! o#inion" There!ore, a transaction may be considered Islamic at one instit%tion andmay not be at another, hence ca%sing con!%sion and incom#atibility" It is $ery im#ortant toha$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 othercon$entional !inancial instit%tions"

lso, the lack o! acco%nting #rinci#les and stardards is a serio%s limitation" Similar to thecon$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 asIbal *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 !rameork !or the tosystems is too di!!erent"

=%rther, the Islamic !inancial mo$ement lacks the technical sta!!s ho are !amiliar ith thesystem and ha$e ade%ate knoledge to enhance the im#lementation o! the moral and social$al%es o! the system" C%rrently, the ma4ority o! the sta!! in the Islamic instit%tions are made%# o! either one e-treme or the other, th%s limiting the groth o! the system" Most o! the sta!!orking in Islamic instit%tions come !rom con$entional banks and are !amiliar only ith thecon$entional a##roach" These em#loyees lack the knoledge o! Islamic las hich limits

their ability to con$ey the las to c%stomers or con$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


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

In s%mmary, there are $ario%s obstacles hich limit the groth o! the Islamic !inancial systemas a com#etiti$e !inancial alternati$e to the traditional !inancial system" s disc%ssed, these

challenges are lack o! li%idity !or the instr%ments, more #rod%cts !or e-treme short.term andlongterm 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" &oe$er, des#ite the challenges, the market !orIslamic !inance is groing"

2.' Re-a(e& S($&ie

Aaris bd RaIslam !orbids interest?or >the'%r9 an !orbids interest,? !olloed by a statement o! the interest rate #aid by Islamicinstr%ments *e"g", sukuk+" Some #ractitioners may be more cogni#ro!it rate? or >ret%rn? #aid on their interest.!ree bond is a !i-ed

#ercent, or !loating I/LR #l%s 50 basis #oints" Indeed, many Islamic !inance #ractitionerso%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 interestrate,? com#%ted !rom the de!erred #rice they charge in a credit sale, or the rent they charge ina lease.to.#%rchase or declining.#artnershi# agreement"

2. S$))ar/

Mahmo%d min 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 00 %ntil Aecember 00 he as Islamic =inance Scholar.in.

Residence at the K"S" Treas%ry Ae#artment" ShariOa literally means >the ay? and is therabic term !or Islamic a as a ay o! li!e, com#arable to the &ebre &alachah+" =ih,


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commonly translated as 4%ris#r%dence, is the inter#retation o! ShariOa !or s#eci!iccirc%mstances by s#eciali


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15

Res#ondents are re%ired to rate their res#onses according to the !i$e #oint ikert Scale asshon in the !olloing table :

Ta,-e '.1 Li!er( Sa-e

Strongly Aisagree Aisagree 2e%tral gree Strongly gree

1 3 5

'.3 Pi-#( S($&/

In order to ascertain the reliability o! the instr%ment, the st%dy has identi!ied a n%mber o! 5res#ondents ho are not selected as the res#ondents o! the st%dy" They are in$ol$ed todetermine the $alidity and reliability o! the intended instr%ment"

'.3.1 Re-ia,i-i(/ Te(

The #ilot st%dy as done on tenty !i$e res#ondents" The reliability test as administered on

the res#ondents and the res%lts are as !ollos :

Case Processing Summary

N %

Cases Valid 25 100.0

Excludeda 0 .0

Total 25 100.0

a. Listwise deletion based on all variables in the procedure.

Reliability Statistics

Cronbachs!lpha N o" #te$s

.&1 10

The cronbach al#ha $al%e is 0"91 hich is greater than 0"7 the critical $al%e" ccording toAo%glas *007+ any cronbach(s al#ha $al%e greater than 0"7 indicates a $ery strong reliabilityinde-" Th%s it can be concl%ded that the items in the %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" To lect%rers !rom =ac%lty o! 8d%cation and one !rom CMS ere asked toedit and ascertain the $alidity o! each item"/ased on their comments and recommendation, the researcher has restricted each items andret%rned to them again" /ased on edited $ersion, they ha$e agreed that the instr%ment hasattained !ace, content and constr%ct $alidity"

'.3 Da(a C#--e(i#%

n o!!icial a##ro$al !rom the st%dent a!!air o! IKCTT as obtained to im#lement the st%dy inthe selected area" The st%dy commence !rom the 1 sto! an%ary to the 30tho! May in 010"


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1@

A%ring the !irst eek o! May 010 %estionnaires ere distrib%ted to res#ondents and thedata ere collected on the 10tho! May 010"

'.5 Da(a A%a-/i

The %estionnaires ere analysed %sing S)SS $ersion 1@ to get the !re%ency co%nt, meanand standard de$iation" Lne Fay 2LN as administered to test the hy#othesis onstatistically signi!icant di!!erences in o#inions toards Islamic !inances ithin and beteengro%#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 %antitati$e research method is %sed to collect data"

The descri#ti$e and in!erential statistical analysis are em#loyed !or the %antitati$edata" The descri#ti$e statistics incl%des mean and standard de$iation hile Lne.ay2LN 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 %estions !or %antitati$e data" The analysis o! the in!erential statisticadministered on the %antitati$e data is the main !oc%s o! the st%dy" nalysis o! data is basedon the !orm%lated reserch %estions !or %antitati$e data"

.1 Pr#*i-e #* re4#%&e%(

/ased on a cl%ster sam#ling techni%e, the st%dy has identi!ied 100 res#ondents com#rising o!@Q male and 3Q !emale" =%rther elaboration is made on the res#ondents based on agegro%#, race, le$el o! ed%cation income and em#loyment stat%s"

Ta,-e .1.1 : Di(ri,$(i#% #* Re4#%&e%( A#r&i%" (# A"e

Age group

're(uenc) *ercent Valid *ercentCu$ulative

*ercent

Valid 20+25 ,0 ,0.0 ,0.0 ,0.0

2-+0 - -.0 -.0 /-.0

1+5 20 20.0 20.0 &-.0

-+,0 , ,.0 ,.0 100.0

Total 100 100.0 100.0

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


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17

There are !o%r age gro%#s o! the res#ondents" =orty #ercent o! res#ondents is !rom the range!rom 0 till 5 year old hich is !olloed by 3@Q !rom age gro%# @.30" Then, 0Q !rom agegro%# 31.35 and !inally Q !rom age gro%# [email protected] years old"

Ta,-e .1.2 : Di(ri,$(i#% #* Re4#%&e%( a#r&i%" (# Ge%&er

gender


*ercent

Valid $ale - -.0 -.0 -.0

"e$ale 2 2.0 2.0 100.0

Total 100 100.0 100.0

ccording to the table abo$e, @Q o! the res#ondents are male and 3Q are !emale"

Ta,-e .1. : Di(ri,$(i#% #* Re4#%&e%( a#r&i%" (# (+eir Leve- O* E&$a(i#%education


*ercent

Valid diplo$a 2 2.0 2.0 2.0

deree 0 0.0 0.0 5.0

$asters 25 25.0 25.0 /.0

others 22 22.0 22.0 100.0

Total 100 100.0 100.0

Re!erring to the abo$e table, the highest #ercentage o! res#ondents is 30Q as degree holdersand the loest is 3Q as di#loma holders" This is !olloed by master degree holder *5Q+and others *Q+"

Ta,-e .1.3 : Di(ri,$(i#% #* Re4#%&e%( A#r&i%" (# L#a(i#%

location


*ercent

Valid urban 50 50.0 50.0 50.0

rural 50 50.0 50.0 100.0

Total 100 100.0 100.0

The table shos an e%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#%$)er Pere4(i#% T#war& Fi%a%ia- I-a)i I%(i($(i#%


18/32


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19

Item # : It is safe to deposit money in Islamic ban$s.

're(uenc) *ercent Valid *ercent Cu$ulative *ercent

Valid 2 .0 .0 .0

2 2.0 2.0 1.0

, & &.0 &.0 /0.0

5 0 0.0 0.0 100.0Total 100 100.0 100.0

The table abo$e shos the highest #ercentage o! res#ondents *39Q+ disagree ith item andthe loest #ercentage is Q that agree ith item " Fhile 30Q strongly disagree ith item and only 3Q o! res#ondents is %ndecided"

Item % : Islamic ban$s help Muslims and non Muslims doing business.


Valid 2 .0 .0 .0

1 1.0 1.0 21.0, ,& ,&.0 ,&.0 /0.0

5 0 0.0 0.0 100.0

Total 100 100.0 100.0

The table abo$e shos the highest #ercentage o! res#ondents *9Q+ disagree ith item 5 andthe loest #ercentage is 3Q that agree ith item 5" Fhile 30Q strongly disagree ith item 3and only 1Q o! res#ondents is %ndecided"

Item& : Islamic financial system is more efficient than con'entional system.


Valid 1, 1,.0 1,.0 1,.0, 5, 5,.0 5,.0 -.0

5 2 2.0 2.0 100.0

Total 100 100.0 100.0

The table abo$e shos the highest #ercentage o! res#ondents *5Q+ disagree ith item @ andthe loest #ercentage is *1Q+ %ndecided" Fhile 3Q is strongly disagree ith item @"

Item( : Islamic ban$s help to pay )a$at.


Valid 2 .0 .0 .0

2 2.0 2.0 1.0

, & &.0 &.0 /0.0

5 0 0.0 0.0 100.0

Total 100 100.0 100.0

The table abo$e shos the highest #ercentage o! res#ondents *39Q+ disagree ith item 7 andthe loest #ercentage is Q that agree ith item 7" Fhile 30Q strongly disagree ith item 7and only 3Q o! res#ondents is %ndecided"


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The table abo$e shos the highest #ercentage o! res#ondents *50Q+ disagree ith item andthe loest #ercentage is 5Q that agree ith item " Fhile 5Q strongly disagree ith item and only 0Q o! res#ondents is %ndecided"

Item* : Islamic financial system is more efficient.


Valid 1 .0 .0 .0

2 2 2.0 2.0 5.0 5 5.0 5.0 ,0.0

, ,5 ,5.0 ,5.0 5.0

5 15 15.0 15.0 100.0

Total 100 100.0 100.0

The table abo$e shos the highest #ercentage o! res#ondents *5Q+ disagree ith item 9 andthe loest #ercentage is 3Q that strongly agree" Fhile 15Q strongly disagree and 3Q isagree ith item 1" Lnly 5Q o! res#ondents is %ndecided"

Item1+ : I prefer Islamic transaction because its di'idends are more.


Valid 1 & &.0 &.0 &.0

2 0 0.0 0.0 &.0

& &.0 &.0 ,.0

, .0 .0 -.0

5 1, 1,.0 1,.0 100.0

Total 100 100.0 100.0

The table abo$e shos the highest #ercentage o! res#ondents *3Q+ agree ith item 10 andthe loest #ercentage is 9Q that strongly agree and %ndecided" Fhile 30Q agree ith item10" Lnly 1Q o! res#ondents is strongly disagree"

Min Inter#retation Table *IM+

Score Min Inter#retation Symbol

"30 D 5"00 Nery &igh N&3"50 D "9 &igh &

Item, : Islamic financial system offers speedier operation.


Valid 2 5 5.0 5.0 5.0

20 20.0 20.0 25.0

, 50 50.0 50.0 /5.0

5 25 25.0 25.0 100.0Total 100 100.0 100.0


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1

"50 D 3"9 $erage 0"00 D "9 o

2o Items Min SA IM

1 Islamic !inancial system in Malaysia is basedon syariah la"

3"1 1"19

Islamic !inancial system does not de#end oninterest"

"0 0"75 &

3 Islamic !inancial system o!!ers !le-ible bands" 3"91 0"9 & It is sa!e to de#osit money in Islamic banks" 3"91 0"9 &

5 Islamic banks hel# M%slims and non M%slimsdoing b%siness"

"0@ 0"77 &

@ Islamic !inancial system is more e!!icient thancon$entional system"

"1 0"@5 &

7 Islamic banks hel# to #ay


22/32

A-/A 0gender

u$ o" (uares d" ean (uare ' i.

(1 3etween 4roups .02& 1 .02& .020 ./

ithin 4roups 1,0.&/1 & 1.,

Total 1,1.000 &&

(2 3etween 4roups .01, 1 .01, .02- ./

ithin 4roups 55.,- & .5-5

Total 55.-0 &&

( 3etween 4roups 1.205 1 1.205 1.,2 .2-

ithin 4roups 2.&5 & .,/

Total ,.1&0 &&

(, 3etween 4roups 1.205 1 1.205 1.,2 .2-


Total ,.1&0 &&

(5 3etween 4roups .&2 1 .&2 .-, .,2ithin 4roups 5&.2, & .-05

Total 5&.-,0 &&

(- 3etween 4roups .00 1 .00 .00- .&

ithin 4roups ,2./5/ & .,-

Total

,2./-0 &&

(/ 3etween 4roups 1.205 1 1.205 1.,2 .2-


Total ,.1&0 &&

( 3etween 4roups .2-5 1 .2-5 .,02 .52/

ithin 4roups -,.,5 & .-5

Total -,./50 &&

(& 3etween 4roups 1./,, 1 1./,, 1.2/& .2-1

ithin 4roups 1.5-- & 1.-

Total 15.10 &&

(10 3etween 4roups .21 1 .21 .1,, ./05

ithin 4roups 15-.52& & 1.5&/

Total 15-./-0 &&

&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 $al%e gi$essigni!icance e$ident to acce#t n%ll hy#othesis and re4ect alternati$e hy#othesis"


23/32


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A-/A 0location


(1 3etween 4roups .1-0 1 .1-0 .111 ./&

ithin 4roups 1,0.,0 & 1.,/

Total 1,1.000 &&

(2 3etween 4roups .000 1 .000 .000 1.000

ithin 4roups 55.-0 & .5-5

Total 55.-0 &&

( 3etween 4roups ,.,10 1 ,.,10 5.,1/ .022

ithin 4roups /&./0 & .1,

Total ,.1&0 &&

(, 3etween 4roups ,.,10 1 ,.,10 5.,1/ .022


Total ,.1&0 &&

(5 3etween 4roups 1.&-0 1 1.&-0 .0 .0/1

ithin 4roups 5/.-0 & .5&

Total 5&.-,0 &&

(- 3etween 4roups .1-0 1 .1-0 .- .5,5

ithin 4roups ,2.-00 & .,5

Total ,2./-0 &&

(/ 3etween 4roups ,.,10 1 ,.,10 5.,1/ .022


Total ,.1&0 &&( 3etween 4roups .-10 1 .-10 5./- .01

ithin 4roups -1.1,0 & .-2,

Total -,./50 &&

(& 3etween 4roups .010 1 .010 .00/ .&2

ithin 4roups 15.00 & 1.1

Total 15.10 &&

(10 3etween 4roups .1-0 1 .1-0 .100 ./52

ithin 4roups 15-.-00 & 1.5&

Total 15-./-0 &&

&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 asigni!icance e$ident to acce#t n%ll hy#othesis and re4ect alternati$e hy#othesis"


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5

A-/A 0age group


(1 3etween 4roups .,/ 2.2- 2.0,/ .112

ithin 4roups 12.522 &- 1.0

Total 1,1.000 &&

(2 3etween 4roups .&5 1.12 2.,,& .0-

ithin 4roups 51.,25 &- .5-

Total 55.-0 &&

( 3etween 4roups 5.1, 1./2 2.100 .105

ithin 4roups /&.00- &- .2

Total ,.1&0 &&

(, 3etween 4roups 5.1, 1./2 2.100 .105


Total ,.1&0 &&

(5 3etween 4roups 1./5& .5- .&/ .,0&ithin 4roups 5/.1 &- .-0

Total 5&.-,0 &&

(- 3etween 4roups 2.--0 ./ 2.12 .102

ithin 4roups ,0.100 &- .,1

Total ,2./-0 &&

(/ 3etween 4roups 5.1, 1./2 2.100 .105


Total ,.1&0 &&

( 3etween 4roups 1.00 ., .-5- .51

ithin 4roups -.,50 &- .--1

Total -,./50 &&

(& 3etween 4roups -.- 2.21 1.-51 .1

ithin 4roups 12.-/2 &- 1.,0

Total 15.10 &&

(10 3etween 4roups 1,.2/& ,./-0 .20/ .02/

ithin 4roups 1,2.,1 &- 1.,,

Total 15-./-0 &&

&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 asigni!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


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@

The !indings yielded !orm the %estionnaire sho an a$erage and high mean inter#retation"The mean !or item 1, Islamic !inancial system in Malaysia is based on syariah la( is 3"1 andits standard de$iation o! 1"19 ith an a$erage mean inter#retation" The mean !or item ,Islamic !inancial system does not de#end on interest( is "0 and standard de$iation o! 0"75ith a high mean inter#retation" The mean !or item 3, Islamic !inancial system o!!ers !le-ible

band( is 3"91 and standard de$iation o! 0"9 ith a high mean inter#retation" The mean !oritem , It is sa!e to de#osit money in Islamic banks( is 3"91 and standard de$iation o! 0"9ith a high mean inter#retation" The mean !or item 5, Islamic banks hel# M%slims and nonM%slims doing b%siness is "0@ and standard de$iation o! 0"77 ith a high meaninter#retation" The mean !or item @, Islamic !inancial system is more e!!icient thancon$entional system( is "1 and standard de$iation o! 0"@5 ith a high mean inter#retation"The mean !or item 7, Islamic banks hel# to #ay Bakat( is 3"91 and standard de$iation o! 0"9ith a high mean inter#retation" The mean !or item , Islamic !inancial system o!!erss#eedier o#eration is 3"95 and standard de$iation o! 0"1 ith a high mean inter#retation" Themean !or item 9, Islamic !inancial system is more e!!icient( is 3"37 and its standard de$iationo! 1"1@ ith an a$erage mean inter#retation" The mean !or item 10, I #re!er Islamic

transaction beca%se its di$idends are more( is 3"1 and its standard de$iation o! 1"5 ith ana$erage mean inter#retation"Lne ay 2LN on testing di!!erences beteen gender, le$el o! ed%cation, age gro%# andlocation shos the !olloing res%lts:

=or testing di!!erences beteen 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 onIslamic !inancial instit%tion beteen gender"

=or testing di!!erences by le$el o! ed%cation, the signi!icance $al%e !or all items e-ce#t item 1is 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 onIslamic !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 7and item , is more than 0"05" =or item the signi!icance $al%e is 0"0, item 7 is 0" anditem is 0"1 hich are less than 0"05" Th%s it can be concl%ded that on the a$erage there isno signi!icance di!!erence on cons%mers( #erce#tion on Islamic !inancial instit%tion bylocation" This can be in!erred as there is no signi!icant di!!erence beteen res#ondent !romthe %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, ismore than 0"05" =or item 10 the signi!icance $al%e is 0"07 hich is less than 0"05" Th%s itcan be concl%ded that on the a$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 bygender, le$el o! ed%cation, location and age gro%#"3.2 DISCUSSION ON RESEARCH FINDINGS

The con$entional banking and !inancial instit%tions in e-istence today are based entirely onthe conce#t o! interest.bearing instr%ments" It is hard to imagine that there is an alternati$e tothe interest bearing !inancial system" This alternati$e method is commonly knon as Islamic

!inance beca%se o! its dee# roots in the Islamic religion" The ob4ecti$e o! this st%dy is tocreate aareness o! the basic conce#t o! Islamic !inance, to ha$e an o$er$ie knoledge o!


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the $ario%s instr%ments a$ailable, and to determine hether or not this interest.!ree economyis a $iable alternati$e to the con$entional !inancial system" ll res#ondents o! the st%dy agreethat Islamic =inancial system is a good alternati$e to the e-isting !inancial interest bearingsystem 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" ltho%gh the system does not allo !or the #ayment or recei$ing o!interest, there are a ide $ariety o! instr%ments alloed that in$estors can choose !romde#ending on his or her risk tolerance" The main idea behind the Islamic !inancial system ismore than generating ealth" It is a !inancial system intended to #romote economic grothhile maintaining the morals o! the comm%nities" Res#ondents in the st%dy conc%r that theIslamic =inancial system o!!er $arieties o! mechanisms in ch%rning #ro!it de#ending on therisk o! tolerance"

ltho%gh the method o! interest.!ree economy has not been $ery ell knon 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 thegroing interest by the M%slims !or o#tions that do not in$ol$e interest to satis!y theirreligio%s obligations" =%rther, the Festern !inancial instit%tions are taking a closer look at thissystem not only to reach the niche market b%t beca%se there is money to be made"

s o! the end o! 199@, there are abo%t 1@@ o! Islamic !inancial instit%tions in 3 co%ntriesaccording to Timell *199+" Table I #ro$ides !inancial highlights based on 199@ res%ltshich are hel#!%l in com#rehending the scale o! the o$erall market" In s%mmary, most o! thee-isting Islamic instit%tions are c%rrently in the Middle 8ast and So%th 8ast sia" There is ah%ge #otential !or e-#ansion in 8%ro#e and 2orth merica"

Islamic !inance is not only a techni%e b%t a hole economic system o! !inance" The system!rameork is based on the Islamic !aith th%s the name" The key elements to this system arethe #rohibition o! interest, the com#liance ith the Islamic las, and the #rohibition o! ag%aranteed or a #redetermined earning" ll res#ondents agree that Islamic =inancial systemdoes not de#end on interest and more e!!icient systm"

Fithin the g%idelines o! the ShariHa, there are a $ariety o! in$estment o#tions alloed in bothe%ity.based and debt.based instr%ments" The #ro!it sharing #rod%cts are M%sharaka alsoknon as a #artnershi#, and M%daraba knon as tr%st !inancing" In addition, the debt.likeinstr%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 e%ity and debt.like #rod%cts, there is ah%manitarian loan knon as 'ard &assan hich does not res%lt in any ret%rn" Mostres#ondents agree that Islamic !inancial system o!!ers s#eedier o#eration and #romotes better

b%siness groth in the co%ntry"

s ith any ind%stry str%ggling to establish itsel!, Islamic !inance !aces a n%mber o! obstaclesin its de$elo#ment" These challenges are a lack o! li%idity in the instr%ments, a lack o!standard inter#retations by the religio%s boards, a lack o! standard acco%nting #rinci#les, anda lack o! technical sta!!" &oe$er, des#ite the challenges, the market contin%es on an %#ardtrend" The st%dy also #oints to e-am#les s%ch as the &%b )oer )ro4ect in )akistan, andCitibankHs 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"


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In concl%sion, ma4ority o! res#ondents agree that Islamic !inance is a legitimate !inancialsystem ith $ario%s instr%ments to meet the g%iding #rinci#les" The system is not limited toM%slims only, it is o#en to anyone ho is looking !or an alternati$e to the interest basedsystem" There is a h%ge #otential market !or Islamic !inance to thri$e, and it is belie$ed that itill 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

s the st%dy is e-#loratory in nat%re, it strongly recommends that !%rther research in Islamic=inancial System are im#lemented in the !olloing 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 becon!ined in n%mbers b%t also the sam#ling techni%es to mirror the act%al#o#%lation o! the nation" Th%s, it is recommended that a #ro#ortionatestrati!ied random sam#ling is %sed to ca#t%re the sam#le according to eachstrata and #ro#ortion o! the #o#%lation"

5"3" Research Aesign

It is strongly recommended that !%rther research in$ol$e direct h%man to%chs%ch as inter$ies and obser$ation" The incl%sion o! elements o! the%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 researchdesigns are a mi-t%re o! %antitati$e and %alitati$e methods"

5"3"3 Time Series Aata

t the #resent moment, data are collected cross.sectionally" It is im#erati$ethat e!!orts are made to cond%ct time series data collection to monitor thechanges or establishment o! o#inions and #erce#tions o! cons%mers toardsIslamic !inancial system" This ill yield a better and stable generali


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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" ltho%gh the #aying orrecei$ing o! interest is strictly !orbidden to the many million #racticing M%slims all o$er theorld, this system can be an alternati$e to the e-isting method !or e$eryone" =%rther, theconce#t o! Islamic !inance in$ol$es more than


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REFERENCES

l.Lmar, =" J M" bdel.&a, *199@+" Islamic /anking: Theory, )ractice J Challenges,6arachi: L-!ord Kni$ersity )ress"

li, L" M"*199+" Making sense o! Islamic banking, International a Re$ie, 30.33"

stb%ry, S"*199+" Malaysia: Model banking !or M%slims, sian /%siness, 30.31"

/h%#inder Singh /anking on Islamic =inance" Malaysian /%siness" " =indrticles"com" 03Se#" 00" htt#:PP!indarticles"comP#ParticlesPmin@07Pis00051@Pain9075@1

Cha#ra, M" Kmer, *199+" Islam and the 8conomic Challenge *eicester" Islamic =o%ndation"

Collett, 2" *1997+" ir!inance and Islam: Religio%s /ond, sset =inance International, 3.35"

Ae /elder, R" 6" J M" &assan *1993+" The changing !ace o! Islamic banking, International=inancial a Re$ie, 3.@"

Ai-on, R" *199+" Islamic banking, International o%rnal o! /ank Marketing, 3.37"

Are-hage, G" *199+" Islam: ne so%rce o! !inance, Cor#orate =inance, "

8l.shker, " " *197+" The Islamic /%siness 8nter#rise, 2e &am#shire: Croom &elm

td"

8l.Gamal, Mahmo%d 003 >Interest and the Paradox of Contemporary Islamic Law andFinance?,Fordham International Law e!iew"

8l.'orchi Mohammed *005+" Islamic =inance Gears K#. Fhile gaining gro%nd, the ind%stry!aces %ni%e reg%latory challenges"Finance and de!elopment maga"ine I#F, *+"

=reeland, R" *199+" Fays to lend itho%t interest, 8%romoney, 11.10"

G%r% /", " Sta%nton and /alashanm%gam" *00+" Aeterminants o! commercial bank#ro!itability in Malaysia" $ni!ersity #ultimedia working papers

&alls, M" *199+" Interest !ree banking comes o! age, )ro4ect J Trade =inance, [email protected]"
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&ami, /" J " ylard" *1999+" Islamic !inance: groing international market,Th%nderbird International /%siness Re$ie, 07.0"

Ibal, B" *1997+" Islamic !inancial systems, =inance J Ae$elo#ment, .5"

Ibal, B" J " Mirakhor" *1999+" )rogress and challenges o! Islamic banking, Th%nderbirdInternational /%siness Re$ie, 31.03"

osh, M" *1997+" Islamic banking raises interest, Management Re$ie, 5.9"

6ah!, M" *1999+" Islamic banks at the threshold o! the third millenni%m, Th%nderbirdInternational /%siness Re$ie, 5.59"

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Filson, R" *1995+" Going global, The /anker, 5"

Eong Een 2ie *007+, Malaysia way ahead in Islamic financehtt#:PP"theedgedaily"comPcmsPcontent"4s#idUcom"tms"cms"article"rticle!aa15a.cb73c03a.!!ee!100.9d@!@!!5

Bineldin, M" *1990+" The 8conomics o! Money and /anking: Theoretical and 8m#iricalSt%dy o! Islamic Interest.=ree /anking, Stockholm: lm$ist, J Fiksell International"

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