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Articles
Greater Choice And Benefits Derived From Islamic
Banking
The Islamic banking system has generated much interest in the last
few years both locally and internationally. The government’s
efforts in positioning Malaysia as an international Islamic financial
hub have shown much progress evidenced by the double-digit percentage
growth of Islamic based assets and liabilities of the banking sector
between the year 2000 to 2004. Other initiatives include the liberalization
of the Islamic banking sector through the granting of licenses to
major foreign Islamic financial institutions three years earlier
than planned and encouraging the setting up of Islamic subsidiaries
through joint-ventures between local banking groups and foreign
Islamic banking institutions.
The Islamic banking system can attain further significant growth
when its value proposition is better understood. Any misconceptions
held about Islamic banking, once eliminated, will certainly drive
more consumers to switch to Islamic banking. One of the key misperceptions
is that Islamic banking is exclusively for Muslims. The bold step
taken by Bank Negara Malaysia in 2003 to affix an “i”
to Islamic products rather than applying its Arabic name, has
to a certain extent, made the products more approachable and friendlier
to non-Muslims.
Islamic banking products and services address the requirements
of all, regardless of race, religion or creed. They fulfill various
requirements, be it from the religious, ethical or dynamic value
proposition perspective e.g. for Muslims, it is to fulfill their
religious obligations while to non-Muslims, it provides viable
alternatives to their conventional banking products. The latter
is pre-dominantly driven by a floating interest rate system, as
opposed to Islamic banking which subscribes to fixed rate mechanism
and profit sharing concept, thus, promoting certainty, clarity
and predictability in its financial transactions. Investors can
enjoy higher returns as profit generated from investment is equitably
shared between the bank and its customer, as opposed to the conventional
banking model where profits reside in the hands of the bank. Determination
of buying and selling price upfront, which are sacrosanct in any
Islamic financing contracts are principles that enable consumers
to better manage their cash flow effectively given that Islamic
financing contracts provide for clarity, certainty and predictability
in the distribution of risk and return.
These are a few of the many benefits, which can be derived from
Islamic banking. A series of articles on the value proposition
of Islamic banking and its products contributed by Hong Leong
Islamic Bank in the coming weeks will give you a better perspective
of the system. We believe that you will better appreciate these
products, services and solutions once you get to understand their
benefits.
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