Loan is a financial method in facilitating publics in getting advance for capital. In Islam, loan has been permitted under certain rule. Among the rules are not involve with
Keywords: Islamic loanshariah complianceshariah committeeIslamic financeIslamic banking
Islamic banking in Malaysia was started in 1983 and has been growing tremendously well hitherto, where it has attained 16 full-fledged of Islamic banking institutions now (Trakic & Tajuddin, 2016). The impressive growth portrays the magnitude of the Islamic banking market, which can safely assume to exceed USD 150 billion (Abdullah, 2017). In this study, focus is given into loan or financial aid that was practiced under the Islamic banking system. Loan is referring to a transaction whereby a property is lent or given to someone on condition of return, or where the loan is of money, a repayment. Through the scheme, the publics has been facilitated under various contracts. The application of loan is vast, instead of borrowing money from a bank or single lending source, a company instead also borrows money from the public. Hence, the study will elaborate on the Islamic perspective of loan as well as the principle in facilitating publics and nation.
Loan in the Islamic Perspective
The word "loan" in Islam exist in many words such as
Instead terminology of loan, the approach of lending also known as debt or financing. Person who enter into loan is actually making a debt or apply for a debt. The party who provide the money is called the lender, while the party who ask for debt is known as the borrower. The act of loaning is permissible in Islamic law as a form of helping others. However, Islam have underlined several rules to be followed by Muslim in the loan activity to ensure no usury (
In general, there is no difference between loan and debt. Debt is a terminology that refer to loan with a set payment schedule over several months or years. However, there is a slightly different on the above terms, as loan applied from a bank or any other financial institution to fulfil one needs, whereas debt is a situation when an individual or a firm raises money for working capital or capital expenditures by selling bonds, bills or notes to investors. In return for lending the money, the individuals or institutions become creditors and responsible on the debt. In a meantime, an equity financing is a term that used to raise capital in the debt markets by issuing shares of stock in a public offering. Debt-based financing usually adopted by Islamic banks in the form of
In Malaysian, there are claims that some loaning products have involved in non-shariah activities, such as such as oppression (
Another issue is involving usury (
The implication of usury also occured in
Research questions is an inquiry that leads towards obtaining a solution through systematic and verifiable steps by the researcher (Schreier, 2012). The study has a few research question to be answered, as follow:
What is the position of loan in Islam?
What is the elements that prohibited by Islam in every transaction?
What kind of loan or debt-based financing that offered by banks or institutions?
What is the function of the Shariah Advisory Council towards banks activities?
What is the steps to safeguard the shariah compliance products in the market?
Purpose of the Study
The purpose of the study is a statement of "why" the study is being conducted, or the goal of the study. The goal of a study might be to identify or describe a concept or to explain or predict a situation or solution to a situation that indicates the type of study to be conducted (Creswell, 2014). In this research, the purpose of the study is to achieve an underline goal as below:
To scrutinize the position of loan in Islam
To underline elements that prohibited by Islam in loaning activities
To list recent contract in the market that involve Islamic loan and debt-based financing
To examine function of the Shariah Advisory Council of banks and their responsibilities
To suggest steps that should be followed by financial institutions to safeguard publics from encircling in the prohibited loan contract
Research method in science social studies is essential to guarantee the success, validity and reliability. The research methods in the study is using qualitative perspective.
Methods of Collecting Data
Data were collect through library research and information will be supported with expert interviews. Through library research, it has a considerable amount of literature/collections on Islam and its related disciplines are enough to provide the review that intended in the study. Pertaining to literature of Islamic law, Muslims have developed, saved, transmitted and preserved knowledge for thousands of years, even in times when it was very difﬁcult to produce multiple volumes (Idrees, 2011). In getting the material, the information was narrowed down into four theme that is, author, title, subjects and keywords. Instead of books, the data also have been picked from scholarly journal, newspaper and magazines.
The method of interview is also essential in qualitative study, as noted by Alshenqeeti (2014), qualitative data are ‘most often’ collected by researchers through interviews and questionnaires. However, interviews (compared to questionnaires) are more powerful in eliciting narrative data that allows researchers to investigate people's views in greater depth (Edwards & Holland, 2013). In a similar vein, Alshenqeeti (2014) added that interviewing is a valuable method for exploring the construction and negotiation of meanings in a natural setting.
Methods of Analysing Data
Mckinney (2013) describe data analysis as the process of bringing order, structure and meaning to the mass of collected data. In short, as Ngulube (2015) so aptly points out, qualitative data analysis is a process of transformation of collected qualitative data, done by means of analytic procedures, into a clear, understandable, insightful, trustworthy and even original analysis. In the analysis tool, the analysis and interpretation of data represent the application of deductive and inductive logic to the research. Inductive approach begins with specific observations which resulted generalization in the conclusions. However the deductive approach constitutes developing of an assumption based on the existing theories (Zalaghi & Khazaie, 2016). In this study, an analysis also using a content analysis that widely used in qualitative research technique.
Content analysis is a research tool used to determine the presence of certain words or concepts within texts or sets of texts. It represents a systematic reaction to the research question through what to analyse and what to create (Elo, Kaarianinen, Kanste, Polkki, Utriainen & Kyngas, 2014). Researchers quantify and analyse the presence, meanings and relationships of such words and concepts, then make inferences about the messages within the texts, the writer(s), the audience, and even the culture and time of which these are a part. Texts can be defined broadly as books, book chapters, journals, interviews, discussions, newspapers, articles, documents, and etcetera. Content analysis have been done by scrutinizing information about loan in Islam and the practise in Malaysia nowadays. Every product have been touch the researcher before and input has been gathered into positive and negative remark to be analysed deeply.
Such analysis can be regarded as valid if it adequately represents the concepts, which captures what was intended (Schreier, 2012). Thus, in reporting cases as well as one study, results are described by selected approach either deductive or inductive. In add, inductive is moving from the specific to the general, while deductive begins with the general and ends with the specific; arguments based on experience or observation are best expressed inductively, while arguments based on laws, rules, or other widely accepted principles are best expressed deductively. Schreier (2012) say that the deductive researcher “works from the ‘top down’, from a theory to hypotheses to data to add to or contradict the theory”. In contrast, they define the inductive researcher as someone who works from the “bottom-up, using the participants’ views to build broader themes and generate a theory interconnecting the themes”.
Based on the discussion above, the validity, reliability and trustworthy of the analysis is an ultimate goal in every study. Therefore, at the end of analysis, the researcher also compares the data with interview remark to ensure the information that was gathered is in line with the real practice outside.
Islam is a religion that move in parallel with the needs of human being. Muslim are urged to assist among them during living. In Muslim country, Islamic bank which has been established within the ambit of Shariah should expected to be guided by an Islamic economic objectives, in assisting people and to ensure that wealth is fairly circulated among as many hands as possible without causing any harm (Ghazali, 2014). As the Prophet have said, "The individual who fulfils the need of his Muslim brother, Allah will fulfil his need. That individual who removes a difficulty from his Muslim brother, Allah will remove his difficulty on the Day of Judgement" (Dawud, 2008). Therefore, in general, loan is an act of permissible in Islam. It was shaped to help another Muslim from difficulty, without adding further difficulty. Therefore, Islam forbid an act of usury in practicing loan.
Muslim jurist unanimously on opinion that the practice of usury is totally forbidden in Islam. There is neither flexibility nor leeway in the law. Hence, any elements of usury that are hidden under any contract, by such a delay, mark up over postponement on the time value as well as in fitting the dividend in advance, have a remark of practicing usury. The goal of prohibiting the usury is that, it bring
Instead juristic law in the books (
In sum, the above theoretical and statutory provisions have an ability to ensure the application of Islamic financial banking are comply with the shariah rule. It also revealed that Malaysia have sufficient regulation in guaranteeing the public's welfare from being manipulation by the said institutions or individuals.
The First Player of World-wide
Malaysia is now a leading country that offered an Islamic banking and financial facilitation. According to Bank Negara in 2016, Malaysia have 27 institutions which offering more than 100 financial products. In addition, Islamic banking assets in Malaysia now stand at more than a quarter, or 27 per cent, of the total banking system. As a result, Malaysia has ranked at the second place in global leaders of the Islamic finance industry after Saudi Arabia, out of nine Muslim majority countries according to a research conducted by Kuwait Finance House Research (Abdullah, 2017; Hussain et al., 2015).
Malaysia have specific rules and laws in ensuring a systematic structure and operation of shariah institutions in the country. The Shariah Governance Framework of 2011 for Islamic Financial Institutions (IFIs) is very important rule that practice in Malaysia. It provides a sound Shariah decision-making as well as offer an independence of the board of directors in issuing shariah resolution, in which later on will provide continuous public confidence on the industry. Furthermore, the Islamic Financial Services Act of 2013 was enacted to reinforce the BNM’s mandate to safeguard financial stability as well as to statutorily monitor and enforce Shariah compliance. The more centralised of approach in shariah governance framework as implemented in Malaysia is no doubt makes the development of Islamic financial system is more systematic and transparent. However, Malaysia only applied 0.5 per cent of its Islamic banks that is based on profit and loss sharing principles (Abdullah, 2017; Yussof, 2013).
Islamic Loan or Debt-Based Financing
The first and foremost key point in Islamic loan or debt-based financing is plain from any usury, uncertainty, gambling and deception. In Malaysia, debt-based financing is widely used since 1983 by using different kinds of Islamic business contracts (Jusoh & Khalid, 2013). According to Aljifri (2013), the method of debt-based financing or Islamic loan can be seen through many contracts: (1) participatory profit loss-sharing modes like
Notwithstanding the variety of names, the Islamic bank in Malaysia has been claim of using many controversial debt-based financing. It is obvious that Malaysian banks have tendency to adopt any opinion that comfort to their business plan. Therefore, the banks seem to apply more controversial model than the safer contracts in order to gain profit. Even though such contracts claim to be as a back door to
The Islamic banking should restrict their products to those that are all shariah compliance and released themselves from debatable contracts such as
Islamic banking in Malaysia needs to improve more in term of equity and profit loss sharing ventures. Islamic scholars unanimously agreed that the principle can play critical role in alleviating the living standard of society (Abdullah, 2017). In this case, IFIs should play its paramount role, sustain the trust of customers as social capital and back to the objective in facilitating them (Asni & Sulong, 2018).
The Shariah Advisory Council
One of the distinctive model of Islamic banking is having the shariah advisory council or also known as Shariah board (SB) to consult on religious matter. The members are an expert of both Islamic Jurisprudence and finance (Wardhany & Arshad, 2012). Every Islamic banking/financial institutions is required to establish the board as to ensure shariah compliance instead of shariah advisory on a central level (Central Banks Act 1958, 2003). Their task is to act as an advisory at the regulator’s level, centralized fatwa, issue guidelines on the governance of shariah committee for the Islamic financial institution (IFI), conduct shariah compliance review and centralized appointment of shariah committees of IFI. In sum, Islamic banking is about religious identity and duty to expose an Islamic value in the whole operation and outlook such as to social justice (Wahab, Aziz, Abuzraida, Sanousi, Hinai & Ibrahim, 2014).
Some statute has been provided to enforce the governance the SB. In 2011 BNM has introduced the guidelines for Shariah Governance Framework for Islamic Financial Institutions (IFIs), in order to develop sound as well as efficient Shariah governance. The ultimate goal of this framework is to ensure continuous public confidence on the strength and credibility of Islamic finance industry (Abdullah, 2017). Likewise, the Islamic Financial Services Act of 2013 was enacted to reinforce the BNM’s mandate to safeguard financial stability as well as to statutorily monitor and enforce Shariah compliance. Besides the local guidelines and legislations, every Islamic banking institutions in Malaysia acknowledged the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standard (Abdullah, 2017). The steps is to enhance the credibility of IFIs.
However, there is a few aspects that need to be improved, such as on appointment of the shariah committee that comes from the Board of Directors with the approval of shareholders at general meeting (Wardhany & Arshad, 2012). In order to sound independent, shariah board should be appointed by shareholders during general meeting with recommendation of BODs and the shariah board is allowed to attend the BOD‟s meetings to discuss the religious aspects of their decision (Hussain et. al., 2015). On this practiced, the resolution of the SB will look more self-determining and impartial.
On the whole, Islamic banking and financial institutions should concerned more on achieving
This research was financially sponsored under the Fundamental Research Grant Scheme (FRGS) Phase-1/2017 of the Malaysian Ministry of Highest Education
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31 December 2018
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Company, commercial law, competition law, Islamic law
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Sulong*, J. (2018). Issues Of Shariah In Islamic Loan In Malaysia: A Review. In A. Abdul Rahim, A. A. Rahman, H. Abdul Wahab, N. Yaacob, A. Munirah Mohamad, & A. Husna Mohd. Arshad (Eds.), Public Law Remedies In Government Procurement: Perspective From Malaysia, vol 52. European Proceedings of Social and Behavioural Sciences (pp. 884-894). Future Academy. https://doi.org/10.15405/epsbs.2018.12.03.90