GROWTH AND DEVELOPMENT IN ISLAMIC BANKING AS CURRENTLY PRACTISED IN MALAYSIA IS NOT NECESSARILY BENEFICIAL TO THE MUSLIM COMMUNITY

Islamic banking in essence for Muslims is “the way to the source of life” which is to live in a way that is in conformity with the Shariah law which is the divine law. Today, Islamic banking has grown by leaps and bounds in Malaysia and its rules and principles have been codified to the  current legal system.

The underlying intentions or objectives of Islamic finance can be stated as follow:

·         for the elimination of riba’ (literally means increase of addition) i.e. usury or rent on money in all forms  and intents which is the very opposite of conventional banking;

·         prohibition of involvement in haram or non-permissible transactions or economic activities such as alcohol, non-halal food, pork production, gaming/ number forecasting, prostitution;

·         prevention of excessive leveraging;

·         strong, direct linkages to productive economic activities;

·         avoidance of maisir (speculation or gambling) and gharar (preventable uncertainty or ambiguity in transactions);

·         deterrence of zulm (oppression and exploitation);

·         introduction of safety net mechanisms for the benefit of the poor and the less-have through zakat (tithe) or Islamic tax, sadaqah (alms), waqaf (trust) and qard hasan (benevolent loan);

·         upholding universal social, moral and ethical values with emphasis on maslahah (public interest);

·         achieving ‘adalah (justice) and musawah (fairness) in the distribution of resources.

As stated above, the intentions and objectives of Islamic banking is therefore can be summarised as being in total contrast with conventional banking methods which is centered on credit worthiness and the ability of a proposed client to repay loans and most importantly; interest-based transactions. In Islamic finance the ethical and moral consideration of Islamic banks cannot be detached and their behaviour should be consistent with the moral and ethical standards laid down by the Islamic Shariáh. The Islamic judicial system is committed to fairness and equity as the fundamental belief that riba’ or interest-based transactions are inherently unfair, giving guaranteed return to the lender without any guarantees for the borrower. On the other hand, the basic principle of Islamic banking is the sharing of risk, with shared responsibility for profit and loss.

In this regard, the Quran is very clear about the prohibition against riba’ or usury based transactions with the revelation of the verses below:

“Those who devour usury cannot stand... That is because they say, trade is only like usury; yet Allah has allowed trade and forbidden usury... Allah does not bless usury, and He causes charitable deeds to prosper, and Allah does not love any ungrateful sinner. Oh you who believe! Be careful of your duty to Allah and relinquish what remains due from usury, if you are believers. If the debtor is in difficulty, grant him time until it is easy for him to repay. But if you remit it by way of charity, that is best for you if you only knew”. Quran 2:275-280.

“O you who believe! Do not devour usury, making it double and redouble, and be careful of (your duty to) Allah, that you may be successful”. Quran 3:130.

In addition to the Quranic verses, the Prophet (pbuh) has also cursed the consumer of interest, the one who pays it to the others, the witnesses to such a contract, and the one who records it in writing. From this, it is apparent that to be a devout Muslim, one should avoid any part of the conventional banking as it clearly operates and prospers on interest which bear similarities with usury and riba’.

The  development of Islamic banking in Malaysia started by the establishment of an Islamic bank in 1983, known as Bank Islam Malaysia Berhad. Together with the establishment, the Central Bank of Malaysia had also introduced an Act of Parliament which is the Islamic Banking Act 1983 (IBA). The IBA regularises the Islamic banking activities in Malaysia and had specifically stated in the Act that Islamic banking business in Malaysia can only be transacted by a licensed Islamic bank. Since the introduction of Islamic banking in Malaysia, it has grown tremendously with the establishment of other local Islamic banks and also Islamic arm or window for other global banks.

The quantitative value of the development of Islamic banking in Malaysia can easily be tracked with the mushrooming of Islamic banks or Islamic branch of almost all local banks and quite a huge number of international banks. However, the same could not be said on the qualitative values of all of these mushrooming Islamic banks from the Shariah point of view. The reason behind this is derived from the notion that: Is Islamic banking really is Islamic and whether it has served its purpose to provide Halal banking and safety from riba’ to all Muslim? This is a question which had been debated by many Muslim scholars from different countries all over the world. However, as other issues or controversies surrounding Shariah laws, this matter eventhough has been agreed by some Muslim Scholars to be Islamic but it is still to date, did not form a unanimous decision.

Some may argue the matter by highlighting certain aspects of the current Islamic banking which is what is the difference in the methodology between the two systems, can a common man differentiate when he deals with an Islamic bank in comparison with a conventional bank and whether interest is completely weeded out, even at the benchmarking level, from the Islamic banking system.

Much understanding of not only of both banking systems are required to enable one to derive to an answer of this issue but also an understanding of the Islamic religion as a whole is pertinent in order to shed some light on this issue. The idea behind this is that Islam and Islamic banking are one. Islamic banking system is based on the believe that as a Muslim, one should strive to map his life in line with the Shariah laws. This in  mind, witnessing how the other global banks such as Deutsche Bank, HSBC, JP Morgan, Standard Chartered Bank, to name a few, which have established their Islamic banking arm or window in order to offer Islamic banking products and to be competitive in Muslim majority countries seems a bit off from the tangent of the Islamic goals. This may seem like an assumption but the fact of the matter here, their goal is again ultimately just to maximise profit and has nothing to do with the ethical and philantrophic elements of an Islamic finance and the people behind the veil of the banks are highly unlikely are not Muslim and do not believe in Shariah law.

The difference in intentions can pose as a hindrance. The banks have the ultimate intention to maximise profit by expanding its products base to attract more Muslim clientele and the intention of Muslim which is to streamline his life in accordance with Shariah law may be of an issue in the discussion of how Islamic is an Islamic banking. This issue should be discussed simultaneously as one may effect the other. Nonetheless, how vital this issue is, may depend on how Islamic a Muslim aims to be in his life. Faith amongst Muslims is an utmost priority and thus, should the objective of the banks and Muslims are not in sync, this may not be beneficial to the Muslim but instead only profiting the related banks.

This controversy may also be highlighted on the fact that some may argue that there is no such thing as Islamic banking as the Quran has clearly state Allah wrath against anyone who practised riba’ or usury or interest, which in this case is the main source of income of conventional banking system. This matter is further aggravated by the fact that the Base Financing Rate (BFR) is benchmarked by the performance of the Base Lending Rate (BLR) of conventional banks most of the time, which may be perceived to be similar in nature and only a word play game. This matter has been discussed at length by Muslim scholars. Some are in support but somehow are not so keen because of its similarities with conventional banking. The supportive argument on BFR have pointed out that the benchmarking is merely to gauge and monitor the performance between conventional and Islamic banking system but the concept is not same which makes it Shariah compliant and is not an apple to apple comparison to BLR. There is no limit in BLR rate however in BFR, the rate will be pre-agreed in the contract. If BFR rate exceeds the pre-agreed rate, the pre-agreed rate will prevail, however if it is lower than the pre-agreed rate, the client will be given rebate to match the BFR rate. As this eliminates the element of gharar in the contract, most Muslim scholars are agreeable that BFR is Shariah compliant and on top of that it is also can be seen to be an added value to Islamic banking instruments as it is seen to be more transparent and competitive.

Muslim scholars have been debating on this issue. Majority of Muslim Scholars agreed that Islamic banking is not acceptable should the main focus is interest-based transactions such as loan and dealing with intangible assets however Islamic finance is acceptable as it is deemed to be Shariah compliant as it involved in financing of tangible assets which is in accordance with Shariah laws.

Nonetheless, based on the argumentative nature of the the system, the people behind the veil and the nature of the products, this issue will still have an adherent effect on the Muslim significantly. This matter is  considered to be significant is because in Islam, the most important goal for a Muslim is to gain Allah’s pleasure and how to achieve this is first in its “niyat” or intention. The more we emphasise on the Islamisation of Islamic banking, the more we will need to have an Islamic economy and the more we would want an Islamic economy, the more we will have to be good Muslim in all aspect of our society and our way of life.

Whether Islamic banking practised in Malaysia necessarily give benefit to the Muslim or not is still arguable as it is believed that emphasise should be given to enhance the system so that it will be a truly Shariah compliant system by all intents and purposes. Muslim needs to enhance their knowledge and at the same time their faith to follow the true Islamic teaching as revealed by the Quran. This is truly the best way and may save Muslims both from the punishment in the after life and also from the wrath of conventional banking system which has time and time again shown its weaknesses. By exercising Islamic banking as it is meant to be, god willing, it will show Muslims to the right path and achieve Allah pleasure here and the hereafter.