Selection Criteria for Islamic Home Financing in Malaysia

By Ismail, Shafinar; Azmi, Farah et al. | International Journal of Business and Society, January 2014 | Go to article overview

Selection Criteria for Islamic Home Financing in Malaysia


Ismail, Shafinar, Azmi, Farah, Thurasamy, Ramayah, International Journal of Business and Society


ABSTRACT

Islamic home financing over the ten year period showed an increasing rate from RM6.8 billion to RM23.3 billion. It is crucial to understand what are the factors that will determine the satisfaction of both Muslims and non-Muslims customer towards Islamic home financing. Therefore, this study investigates the important factors that influence selection of Islamic home financing among working adults in Malaysia. Questionnaires were distributed to the 160 employees in one financial institution. The sampling procedure adopted in this research was stratified random sampling. The questionnaire was designed in two sections, one consisting of demographic information and the second relating to the selection determinants of Islamic home financing. The result indicates that reputation, service quality, religious, media advertisement and social influence becomes the important factors that influence selection of Islamic home financing. Reputation is the best predictor as most of customers are confidents to select Islamic home financing because the Islamic bank has a good reputation and image. This research has been conducted in aggregate form. The study also refers to the employees in one financial institution. Future research could account for employees from other financial institution. The analyses presented in this research can be used by policymakers and managers as a guide to promote Islamic product and services. The study makes a contribution to the literature on Islamic banking in Malaysia. It is the first study to particularly investigate the home selection criteria in Malaysia. The findings achieved in this research will be of interest for practitioners and academics concerned with developments of the Malaysian Islamic banking industry.

Keywords: Personal Finance; Banking; Loans; Islam; Malaysia.

1. INTRODUCTION

Home is a basic necessity for human life. Human needs a shelter for rest, sleep, comfort and protection from sun and rain. Home is a place to dwell in comfort with family. Housing has been classified by Islam as one element of needs or as human Daruriyyat needs. A definition Daruriyyat need in Islam is to protect religion (al-Deen), life (al-Nafs), property (al-Mal) and intellectual (al-Aql) for Muslims. Housing is important in the human life and its society. Housing has a tremendous social and economic impact on peoples' lives, and the way people live. It has direct and immediate influence on health, education, economy, environment, political and social life of any society (Sinha, 1978).

Owning a house is a main goal for many people as, they are willing to involve in debt to buy a house (Ismail et al., 2011). To fulfil this goal, people build a home on their own, purchasing it or renting it from others. However, it is quite difficult to buy a house in cash regarding the price of the house showing an increase trend. As a solution a home buyer can obtain financing either to purchase or secured against the property from a financial institution. Thus, the dual banking system in Malaysia has to offer two forms of home financing method, the conventional home loan and the Islamic home financing. The concept of financing in Islam differs with that of conventional financing; Islamic home financing or Islamic mortgage financing is a Shariah- based home financing and elements of interest rate are prohibited (Khir et al., 2007). Unlike conventional mortgage loans, Islamic mortgage financing based on flat rate or profit rate (Rosly, 1999).

Islamic home financing in Malaysia is based on cost-plus arrangement or known as the murabahah which is combined with payment of the price is deferred to future date contracts known as the bai-bithaman-ajil (BBA) (Yusof et al., 2011). However, Muslim's scholars in the Middle East countries reject of the implementation of the BBA- murabahah concept in home financing because it is argued to be similar to that of a conventional home financing (Yusof et al., 2011). …

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