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ISLAMIC BANKING REVOLUTION IN MALAYSIA: A REVIEW
Corresponding Author(s) : Soo-Fen Fam
Humanities & Social Sciences Reviews,
Vol. 7 No. 4 (2019): July
Abstract
Purpose of the study: The study aims to review the development of Malaysian Islamic banks from year 2008 to 2015 and its role in financing Malaysian economy.
Methodology: The sources of data were collectted from Malaysian banks, the reviews of the experience of Islamic banks in Malaysia has been discussed, then this study analysed the roles of Islamic banks in the allocation of resources in the banking system. finally, this study explined the overall development of performance in Islamic banks in Malaysia.
Main Findings and Novelty: The results of this study show that the Malaysian Islamic banks have contributed on the structure of the Malaysian economy; particularly in supporting the SME (small and medium entrepreneurship) industries as well the large projects, which create a good positive impact on Malaysian economy and became one of the main financial sources of Malaysian investment.
Applications of this study: Achieving the required requirements for the success of the desired Islamic financial system such as adherence to ethical controls and behavior would reduce the problematic ethical risks and the risks of information asymmetry and emphasis on the importance of participations in the banking system and the need to adopt them.
Keywords
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- Abdul Halim A. H & Norizaton A N. (2005). A Study On Islamic Banking Education And Strategy For The New Millenium - Malaysian Experience. International Journal of Islamic Financial Services, 2(4), 376–390.
- Abuazoum, A. A. A., Azizan, N., & Ahmad, N. (2013). Knowledge Sharing for the Islamic Banking Sector in Malaysia. International Journal of Computer and Communication Engineering, 2(3), 368–371. https://doi.org/10.7763/IJCCE.2013.V2.206 DOI: https://doi.org/10.7763/IJCCE.2013.V2.206
- Akram Laldin, M. (2008). Islamic financial system: the Malaysian experience and the way forward. Humanomics, 24(3), 217–238. https://doi.org/10.1108/08288660810899377 DOI: https://doi.org/10.1108/08288660810899377
- Aliyu, S., Hassan, M.K., Mohd Yusof, R., Naiimi, N. (2017). Islamic Banking Sustainability: A Review of Literature and Directions for Future Research. Emerging Markets Finace and Trade, 53(2), 440–470.
- Angelo M. Venardos. (2005). Islamic banking and finance in South-east Asia : Its development and future. Singapore: World Scientific Publishing. DOI: https://doi.org/10.1142/5751
- Ashraf, D., Ramady, M., & Albinali, K. (2016). Financial fragility of banks, ownership structure and income diversification: Empirical evidence from the GCC region. Research in International Business and Finance, 38, 56–68. https://doi.org/10.1016/j.ribaf.2016.03.010 DOI: https://doi.org/10.1016/j.ribaf.2016.03.010
- Azhar Rosly, S., & Afandi Abu Bakar, M. (2003). Performance of Islamic and mainstream banks in Malaysia. International Journal of Social Economics, 30(12), 1249–1265. https://doi.org/10.1108/03068290310500652 DOI: https://doi.org/10.1108/03068290310500652
- Azmat, S., Skully, M., & Brown, K. (2014). Journal of Economic Behavior & Organization Credit risk in Islamic joint venture bond. Journal of Economic Behavior and Organization, 103, S129–S145. https://doi.org/10.1016/j.jebo.2014.03.020 DOI: https://doi.org/10.1016/j.jebo.2014.03.020
- Azmi, A. C. (2017). Disclosure of Shari ’ Ah Non-Compliance Income. International Journal of Business and Society, 18(1), 45–58.
- Bacha, O. I. (2004). Dual Banking Systems and Interest Rate Risk for Islamic Banks. Munich Personal RePEc Archive, (12763), 1–38. https://doi.org/10.1016/j.jbankfin.2015.09.004 DOI: https://doi.org/10.1016/j.jbankfin.2015.09.004
- Bank Negara. (2015a). Financial stability and payment systems report. Malaysia.
- Bank Negara. (2015b). Monthly Statistical Bulletin. Retrieved April 8, 2018, from http://www.bnm.gov.my
- Bank Negara Malaysia. (2015). Financial Stability and Payment Systems Report. Malaysia.
- Bank Negara Malaysia. (2017). Financial Stability and Payment Systems Report. Malaysia.
- Bank Negara Malaysia. (2018). Financial Sector Blueprint 2011–2020. Malaysia.
- Beck, T., Demirgüc¸ -Kunt, A., Merrouche, O. (2013). Islamic vs. conventional banking: Business model, efficiency and stability. Journal of Banking and FinanceBanking& Finance, 37(2), 433–447. DOI: https://doi.org/10.1016/j.jbankfin.2012.09.016
- Buerhan Saiti. (2015). The Awareness and Attitude towards Islamic Banking: A Study in Malaysia. Global Review of Islamic Economics and Business, 2(3), 172–196. https://doi.org/10.14421/grieb.2015.023-02 DOI: https://doi.org/10.14421/grieb.2015.023-02
- Capital Market Masterplan 2 & Bank Negara Malaysia. (2018). Size of the financial system. Retrieved April 8, 2018, from https://www.bnm.gov.my/files/publication/fsbp/en/03_Overview.pdf
- Central Bank of Malaysia. (2013). laws of Malaysia, Act 756: Islamic Financial Services. Retrieved April 8, 2018, from http://www.bnm.gov.my/documents/act/en_ifsa.pdf
- Chowdhury, N. T., Road, G., Lecturer, F. S., & Avenue, K. A. (2015). Shariah Governance Framework of the Islamic Banks in Malaysia. International Journal of Management Sciences and Business Research., 4(10), 115–124.
- Dali, N., Yousafzai, S., & Hamid, H. (2013). The Development Of Islamic Banking & Finance. Underpinning Theory Affecting Islamic Banking Consumers Post Purchase Behavior. … On ASEAN Economics Development, …, (August 2013), 1–15. Retrieved from http://www.nuradli.com/2013p01.pdf
- Furqani H, M. R. (2009). Islamic banking and economic growth: Empirical evidence from Malaysia. Journal of Economic Cooperation & Development, 30(2), 59–74.
- Gait, A., & Worthington, A. (2008). An empirical survey of individual consumer, business firm and financial institution attitudes towards Islamic methods of finance. International Journal of Social Economics, 35(11), 783–808. https://doi.org/10.1108/03068290810905423 DOI: https://doi.org/10.1108/03068290810905423
- Haron, S., & Ahmad, N. (2000). The effects of conventional interest rates and rate of profit on funds deposited with Islamic banking system in Malaysia. International Journal of Islamic Financial Services, 1(4), 1–7.
- How, J. C. Y., Karim, M. A., & Verhoeven, P. (2005). Islamic financing and bank risks: The case of Malaysia. Thunderbird International Business Review, 47(1), 75–94. https://doi.org/10.1002/tie.20041 DOI: https://doi.org/10.1002/tie.20041
- Jan, A., & Marimuthu, M. (2016). Bankruptcy Profile of Foreign versus Domestic Islamic Banks of Malaysia : A Post Crisis Period Analysis. International Journal of Economics and Financial Issues, 6(1), 332–346.
- Jan, A., Marimuthu, M., Shad, M. K., Ur-Rehman, H., Zahid, M., & Jan, A. A. (2017). Bankruptcy profile of the Islamic and conventional banks in Malaysia: a post-crisis period analysis. Economic Change and Restructuring, 1–21. https://doi.org/10.1007/s10644-017-9220-7 DOI: https://doi.org/10.1007/s10644-017-9220-7
- Kadir, N. A., Jaffar, A., Abdullah, N. L., & Harun, N. (2013). Comparison of the financial performance of Islamic and conventional bank in Malaysia during and after economic crisis. AIP Conference Proceedings, 1557(2013), 247–251. https://doi.org/10.1063/1.4823913 DOI: https://doi.org/10.1063/1.4823913
- Karim, B. A., & Karim, Z. A. (2017). Determinants of Islamic Bank Financing in Malaysia : An Empirical Study Using Linear and Nonlinear ARDL Model ( Penentu Pembiayaan Bank Islam di Malaysia : Kajian Empirikal Menggunakan Model ARDL Linear dan Bukan Linear ), 51(2), 17–26. DOI: https://doi.org/10.17576/JEM-2017-5001-2
- Lee, A. L., & Nasaruddin, F. H. (2014). Application of Knowledge Management in Malaysian Banks – A Preliminary Study. In Proceedings of Knowledge Management International Conference (pp. 396–401). Retrieved from http://www.kmice.cms.net.my/ProcKMICe/KMICe2008/Pdf/396-401-CR172.pdf
- Malaysia International Islamic Financial Centre (MIFC). (2014a). Insights Global Financial Inclusion Islamic Finance Meets the Challenge. Malaysia. Retrieved from https://scholar.google.com.my
- Malaysia International Islamic Financial Centre (MIFC). (2014b). Islamic Finance and Economic Growth Mutually Reinforcing. Malaysia.
- Mohamed, M., Said, T., & Umachandran, K. (2018). Prospecting the Islamic Generations through Bediuzzaman Said Nursi ’ s Vision. International Journal of Economics, Business, and Entrepreneurship |, 1(1), 1–9. DOI: https://doi.org/10.31023/ijebe.101.0001
- Moisseron, J., Recherche, I. De, & Ird, D. (2015). Islamic finance : A review of the Literature. International Business & Economics Research Journal, 14(5), 745–762. DOI: https://doi.org/10.19030/iber.v14i5.9375
- Muhammad Ridhwan AB Aziz. (2013). Islamic banking and finance in Malaysia: System, Issues and challenges. Malaysia: USIM.
- Nawaz, T., & Haniffa, R. M. (2017). Determinants of financial performance of Islamic banks: An intellectual capital perspective. Journal of Islamic Accounting and Business Research, 8(2), 130–142. https://doi.org/10.1108/JIABR-06-2016-0071 DOI: https://doi.org/10.1108/JIABR-06-2016-0071
- Nejib Hachicha, A. B. A. (2015). Does Islamic bank financing contribute to economic growth? The Malaysian case. International Journal of Islamic and Middle Eastern Finance and Management, 8(3), 349–368. DOI: https://doi.org/10.1108/IMEFM-07-2014-0063
- Nomran, N., Haron, R., & Hassan, R. (2016). Shari’ah Supervisory Board Characteristics Effects On Islamic Banks’ Performance: Evidence from Malaysia. DOI: https://doi.org/10.2139/ssrn.3598723
- Noordin, F., Kadir, A., Erne, O., & Kassim, S. (2016). Proceedings of the 2nd Advances in Business Research International Conference (p. 389). https://doi.org/10.1007/978-981-10-6053-3 DOI: https://doi.org/10.1007/978-981-10-6053-3
- Norma Md. Saad & All. (2004). Macro Economic Application in South East Asian Countries. International Islamic University of Malaysia Press, p. 52. Retrieved from https://www.google.com
- Rahman, R. A., Alsmady, A., Ibrahim, Z., & Muhammad, A. D. (2014). Risk Management Practices In Islamic, 30(5), 1295–1304. DOI: https://doi.org/10.19030/jabr.v30i5.8786
- Reuters’s articles. (2016). Fitch: Islamic Finance in Malaysia: An Evolved Sector. Retrieved April 8, 2018, from http://www.reuters.com/article/idUSFit948982
- Reuters’s articles. (2018). Fitch: Islamic Finance in Malaysia: An Evolved Sector. Retrieved April 7, 2018, from http://www.reuters.com/article/idUSFit948982
- Rika Nakagawa. (2009). The evolution of Islamic finance in Southeast Asia: The case of Malaysia,. The Journal of Applied Business Research, 25(1), 116. DOI: https://doi.org/10.19030/jabr.v25i1.1053
- Safiullah, M., & Shamsuddin, A. (2018). Risk in Islamic banking and corporate governance. Pacific Basin Finance Journal, 47(October 2017), 129–149. https://doi.org/10.1016/j.pacfin.2017.12.008 DOI: https://doi.org/10.1016/j.pacfin.2017.12.008
- Shahrul Azman bin Abd Razak. (2014). Islamic or Islamizing Banking Product: Reconsidering Product Development’s Approaches in the Malaysian Islamic Banking Industry,. University of Erfurt, Germany.
- Sole, J. (2007). Introducing Islamic Banks into Conventional Banking Systems. International Monetary Fund, 43(7), 1–28. https://doi.org/10.5089/9781451867398.001 DOI: https://doi.org/10.5089/9781451867398.001
- Syariah-compliant schemes to provide further aid to Malaysia’s SME growth. (2013). Retrieved April 8, 2018, from http://www.theborneopost.com
- Wajdi Dusuki, A., & Irwani Abdullah, N. (2007). Why do Malaysian customers patronise Islamic banks? International Journal of Bank Marketing, 25(3), 142–160. https://doi.org/10.1108/02652320710739850 DOI: https://doi.org/10.1108/02652320710739850
- Yusoff, M. B. (2013). Rib Ó , Profit Rate , Islamic Rate , and Market. International Journal of Economics, Management and Accounting, 21(1), 33–63.
References
Abdul Halim A. H & Norizaton A N. (2005). A Study On Islamic Banking Education And Strategy For The New Millenium - Malaysian Experience. International Journal of Islamic Financial Services, 2(4), 376–390.
Abuazoum, A. A. A., Azizan, N., & Ahmad, N. (2013). Knowledge Sharing for the Islamic Banking Sector in Malaysia. International Journal of Computer and Communication Engineering, 2(3), 368–371. https://doi.org/10.7763/IJCCE.2013.V2.206 DOI: https://doi.org/10.7763/IJCCE.2013.V2.206
Akram Laldin, M. (2008). Islamic financial system: the Malaysian experience and the way forward. Humanomics, 24(3), 217–238. https://doi.org/10.1108/08288660810899377 DOI: https://doi.org/10.1108/08288660810899377
Aliyu, S., Hassan, M.K., Mohd Yusof, R., Naiimi, N. (2017). Islamic Banking Sustainability: A Review of Literature and Directions for Future Research. Emerging Markets Finace and Trade, 53(2), 440–470.
Angelo M. Venardos. (2005). Islamic banking and finance in South-east Asia : Its development and future. Singapore: World Scientific Publishing. DOI: https://doi.org/10.1142/5751
Ashraf, D., Ramady, M., & Albinali, K. (2016). Financial fragility of banks, ownership structure and income diversification: Empirical evidence from the GCC region. Research in International Business and Finance, 38, 56–68. https://doi.org/10.1016/j.ribaf.2016.03.010 DOI: https://doi.org/10.1016/j.ribaf.2016.03.010
Azhar Rosly, S., & Afandi Abu Bakar, M. (2003). Performance of Islamic and mainstream banks in Malaysia. International Journal of Social Economics, 30(12), 1249–1265. https://doi.org/10.1108/03068290310500652 DOI: https://doi.org/10.1108/03068290310500652
Azmat, S., Skully, M., & Brown, K. (2014). Journal of Economic Behavior & Organization Credit risk in Islamic joint venture bond. Journal of Economic Behavior and Organization, 103, S129–S145. https://doi.org/10.1016/j.jebo.2014.03.020 DOI: https://doi.org/10.1016/j.jebo.2014.03.020
Azmi, A. C. (2017). Disclosure of Shari ’ Ah Non-Compliance Income. International Journal of Business and Society, 18(1), 45–58.
Bacha, O. I. (2004). Dual Banking Systems and Interest Rate Risk for Islamic Banks. Munich Personal RePEc Archive, (12763), 1–38. https://doi.org/10.1016/j.jbankfin.2015.09.004 DOI: https://doi.org/10.1016/j.jbankfin.2015.09.004
Bank Negara. (2015a). Financial stability and payment systems report. Malaysia.
Bank Negara. (2015b). Monthly Statistical Bulletin. Retrieved April 8, 2018, from http://www.bnm.gov.my
Bank Negara Malaysia. (2015). Financial Stability and Payment Systems Report. Malaysia.
Bank Negara Malaysia. (2017). Financial Stability and Payment Systems Report. Malaysia.
Bank Negara Malaysia. (2018). Financial Sector Blueprint 2011–2020. Malaysia.
Beck, T., Demirgüc¸ -Kunt, A., Merrouche, O. (2013). Islamic vs. conventional banking: Business model, efficiency and stability. Journal of Banking and FinanceBanking& Finance, 37(2), 433–447. DOI: https://doi.org/10.1016/j.jbankfin.2012.09.016
Buerhan Saiti. (2015). The Awareness and Attitude towards Islamic Banking: A Study in Malaysia. Global Review of Islamic Economics and Business, 2(3), 172–196. https://doi.org/10.14421/grieb.2015.023-02 DOI: https://doi.org/10.14421/grieb.2015.023-02
Capital Market Masterplan 2 & Bank Negara Malaysia. (2018). Size of the financial system. Retrieved April 8, 2018, from https://www.bnm.gov.my/files/publication/fsbp/en/03_Overview.pdf
Central Bank of Malaysia. (2013). laws of Malaysia, Act 756: Islamic Financial Services. Retrieved April 8, 2018, from http://www.bnm.gov.my/documents/act/en_ifsa.pdf
Chowdhury, N. T., Road, G., Lecturer, F. S., & Avenue, K. A. (2015). Shariah Governance Framework of the Islamic Banks in Malaysia. International Journal of Management Sciences and Business Research., 4(10), 115–124.
Dali, N., Yousafzai, S., & Hamid, H. (2013). The Development Of Islamic Banking & Finance. Underpinning Theory Affecting Islamic Banking Consumers Post Purchase Behavior. … On ASEAN Economics Development, …, (August 2013), 1–15. Retrieved from http://www.nuradli.com/2013p01.pdf
Furqani H, M. R. (2009). Islamic banking and economic growth: Empirical evidence from Malaysia. Journal of Economic Cooperation & Development, 30(2), 59–74.
Gait, A., & Worthington, A. (2008). An empirical survey of individual consumer, business firm and financial institution attitudes towards Islamic methods of finance. International Journal of Social Economics, 35(11), 783–808. https://doi.org/10.1108/03068290810905423 DOI: https://doi.org/10.1108/03068290810905423
Haron, S., & Ahmad, N. (2000). The effects of conventional interest rates and rate of profit on funds deposited with Islamic banking system in Malaysia. International Journal of Islamic Financial Services, 1(4), 1–7.
How, J. C. Y., Karim, M. A., & Verhoeven, P. (2005). Islamic financing and bank risks: The case of Malaysia. Thunderbird International Business Review, 47(1), 75–94. https://doi.org/10.1002/tie.20041 DOI: https://doi.org/10.1002/tie.20041
Jan, A., & Marimuthu, M. (2016). Bankruptcy Profile of Foreign versus Domestic Islamic Banks of Malaysia : A Post Crisis Period Analysis. International Journal of Economics and Financial Issues, 6(1), 332–346.
Jan, A., Marimuthu, M., Shad, M. K., Ur-Rehman, H., Zahid, M., & Jan, A. A. (2017). Bankruptcy profile of the Islamic and conventional banks in Malaysia: a post-crisis period analysis. Economic Change and Restructuring, 1–21. https://doi.org/10.1007/s10644-017-9220-7 DOI: https://doi.org/10.1007/s10644-017-9220-7
Kadir, N. A., Jaffar, A., Abdullah, N. L., & Harun, N. (2013). Comparison of the financial performance of Islamic and conventional bank in Malaysia during and after economic crisis. AIP Conference Proceedings, 1557(2013), 247–251. https://doi.org/10.1063/1.4823913 DOI: https://doi.org/10.1063/1.4823913
Karim, B. A., & Karim, Z. A. (2017). Determinants of Islamic Bank Financing in Malaysia : An Empirical Study Using Linear and Nonlinear ARDL Model ( Penentu Pembiayaan Bank Islam di Malaysia : Kajian Empirikal Menggunakan Model ARDL Linear dan Bukan Linear ), 51(2), 17–26. DOI: https://doi.org/10.17576/JEM-2017-5001-2
Lee, A. L., & Nasaruddin, F. H. (2014). Application of Knowledge Management in Malaysian Banks – A Preliminary Study. In Proceedings of Knowledge Management International Conference (pp. 396–401). Retrieved from http://www.kmice.cms.net.my/ProcKMICe/KMICe2008/Pdf/396-401-CR172.pdf
Malaysia International Islamic Financial Centre (MIFC). (2014a). Insights Global Financial Inclusion Islamic Finance Meets the Challenge. Malaysia. Retrieved from https://scholar.google.com.my
Malaysia International Islamic Financial Centre (MIFC). (2014b). Islamic Finance and Economic Growth Mutually Reinforcing. Malaysia.
Mohamed, M., Said, T., & Umachandran, K. (2018). Prospecting the Islamic Generations through Bediuzzaman Said Nursi ’ s Vision. International Journal of Economics, Business, and Entrepreneurship |, 1(1), 1–9. DOI: https://doi.org/10.31023/ijebe.101.0001
Moisseron, J., Recherche, I. De, & Ird, D. (2015). Islamic finance : A review of the Literature. International Business & Economics Research Journal, 14(5), 745–762. DOI: https://doi.org/10.19030/iber.v14i5.9375
Muhammad Ridhwan AB Aziz. (2013). Islamic banking and finance in Malaysia: System, Issues and challenges. Malaysia: USIM.
Nawaz, T., & Haniffa, R. M. (2017). Determinants of financial performance of Islamic banks: An intellectual capital perspective. Journal of Islamic Accounting and Business Research, 8(2), 130–142. https://doi.org/10.1108/JIABR-06-2016-0071 DOI: https://doi.org/10.1108/JIABR-06-2016-0071
Nejib Hachicha, A. B. A. (2015). Does Islamic bank financing contribute to economic growth? The Malaysian case. International Journal of Islamic and Middle Eastern Finance and Management, 8(3), 349–368. DOI: https://doi.org/10.1108/IMEFM-07-2014-0063
Nomran, N., Haron, R., & Hassan, R. (2016). Shari’ah Supervisory Board Characteristics Effects On Islamic Banks’ Performance: Evidence from Malaysia. DOI: https://doi.org/10.2139/ssrn.3598723
Noordin, F., Kadir, A., Erne, O., & Kassim, S. (2016). Proceedings of the 2nd Advances in Business Research International Conference (p. 389). https://doi.org/10.1007/978-981-10-6053-3 DOI: https://doi.org/10.1007/978-981-10-6053-3
Norma Md. Saad & All. (2004). Macro Economic Application in South East Asian Countries. International Islamic University of Malaysia Press, p. 52. Retrieved from https://www.google.com
Rahman, R. A., Alsmady, A., Ibrahim, Z., & Muhammad, A. D. (2014). Risk Management Practices In Islamic, 30(5), 1295–1304. DOI: https://doi.org/10.19030/jabr.v30i5.8786
Reuters’s articles. (2016). Fitch: Islamic Finance in Malaysia: An Evolved Sector. Retrieved April 8, 2018, from http://www.reuters.com/article/idUSFit948982
Reuters’s articles. (2018). Fitch: Islamic Finance in Malaysia: An Evolved Sector. Retrieved April 7, 2018, from http://www.reuters.com/article/idUSFit948982
Rika Nakagawa. (2009). The evolution of Islamic finance in Southeast Asia: The case of Malaysia,. The Journal of Applied Business Research, 25(1), 116. DOI: https://doi.org/10.19030/jabr.v25i1.1053
Safiullah, M., & Shamsuddin, A. (2018). Risk in Islamic banking and corporate governance. Pacific Basin Finance Journal, 47(October 2017), 129–149. https://doi.org/10.1016/j.pacfin.2017.12.008 DOI: https://doi.org/10.1016/j.pacfin.2017.12.008
Shahrul Azman bin Abd Razak. (2014). Islamic or Islamizing Banking Product: Reconsidering Product Development’s Approaches in the Malaysian Islamic Banking Industry,. University of Erfurt, Germany.
Sole, J. (2007). Introducing Islamic Banks into Conventional Banking Systems. International Monetary Fund, 43(7), 1–28. https://doi.org/10.5089/9781451867398.001 DOI: https://doi.org/10.5089/9781451867398.001
Syariah-compliant schemes to provide further aid to Malaysia’s SME growth. (2013). Retrieved April 8, 2018, from http://www.theborneopost.com
Wajdi Dusuki, A., & Irwani Abdullah, N. (2007). Why do Malaysian customers patronise Islamic banks? International Journal of Bank Marketing, 25(3), 142–160. https://doi.org/10.1108/02652320710739850 DOI: https://doi.org/10.1108/02652320710739850
Yusoff, M. B. (2013). Rib Ó , Profit Rate , Islamic Rate , and Market. International Journal of Economics, Management and Accounting, 21(1), 33–63.