Academic journal article International Journal of Business and Society

Explaining the Decision to Choose Islamic Mortgage Financing: The Case of East Malaysia

Academic journal article International Journal of Business and Society

Explaining the Decision to Choose Islamic Mortgage Financing: The Case of East Malaysia

Article excerpt

1.INTRODUCTION

Back in 1983, Islamic mortgage financing is brought to the Malaysian mortgage market and Bank Islam Malaysia Berhad (BIMB) was the first Islamic mortgage financing provider in the nation. The muslim and non-muslim populations in Malaysia have shown a strong desire for Islamic home financing, but it is not a trouble-free matter to deduce from that an effective demand for any Islamic home financing facilities (Dar, 2002). In essence, there are no clear arguments expressed by well-known scholars concerning the significance of effective demand for Islamic home financing facilities (Mydin-Meera & Abdul-Razak, 2005; Abu-Backer, 2002). The only scholar who introduces effective demand concept into an Islamic perspective is Dr Humayoun A Dar. He wrote an article titled "Islamic house financing in the United Kingdom: Problems, Challenges and Prospects" in 2002, which extends the effective demand concept to Islamic financial products.

Given this fact, mortgage consumers are capturing both muslim and non-muslim who have an interest on Islamic banking products. These consumer segments are largely tapped by Islamic banks in Malaysia for an enhanced profit and customer base. At the end, the consumers are able to own a house using such an Islamic home financing facility whilst they are young. Yet, we identify a group of muslim consumers who do not like Islamic financial products including Islamic mortgage financing. By the same token, we also recognize a group of non-muslim consumers who also do not like Islamic financial products and argued the products are generally similar to that of conventional banking products in terms of features and prices. Similarly, they share a common view in that Islamic and conventional banking systems are identical, however but are only varied on the terminologies used. It is anticipate, however, that these groups may not make up an effective demand for Islamic home financing. Changing the attitudes of those bad-muslim and bad non-muslims in order to accept Islamic mortgage financing is a difficult test to handle by Islamic banks. Identifying attributes that enables to coax them to choose Islamic home financing is, therefore, a very vital consideration, which also warrants further investigations.

Today, however both muslim and non-muslim consumers are becoming increasingly demanding and financially sophisticated. Concerned with their acceptance for Islamic home financing, Islamic banks have to expect and rapidly respond to a growing new demand and expectation. To them, investing in house financing is a lifetime investment, which eats up a large fraction of their monthly income. For this reason, the study is eager to examine a potential homeowner's acceptance of Islamic mortgage financing. It is, therefore, of utmost importance to identify some but significant factors leading to the decision of selection Islamic mortgage.

Furthermore, predicting demand from both muslim and non-muslim consumers is sometimes challenging to the management of Islamic banks. The demand of Islamic mortgage financing is particularly uncertain, an elevation of the demand is depending on the consumer's acceptability whilst a decreased of Islamic mortgage financing demand is on the other angle based on the (un)willingness to take up the facility. In order to improve the decision to choose Islamic mortgage financing in the most effective and profitable manner, Islamic banks need to ascertain factors which consider to be the most important by potential homeowners. This study explicates attitude, subjective norm, service quality and perceived financial cost as the contributing factors for the decision to choose Islamic mortgage financing.

2.THEORY OF REASONED ACTION (TRA)

According to the TRA, a person's intention is a function of two basic determinants, one personal in nature and the other reflecting social influence. Thus, the TRA gives emphasis to intrinsic and extrinsic factors in explaining one's behavioural intention. …

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