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Banking Product? Reconsidering Product Development's Approaches “Islamic” or “Islamizing” Banking Product? Reconsidering Product Development’s Approaches in the Malaysian Islamic Banking Industry Dissertation Zur Erlangung des akademischen Grades eines Doktors der Philosophie (Dr. phil.) der Philosophischen Fakultät der Universität Erfurt vorgelegt von Shahrul Azman bin Abd Razak aus Kedah, Malaysia Erfurt, 2014 Erstes Gutachten: Prof. Dr. Jamal Malik (Lehrstuhl für Islamwissenschaft, Universi- tät Erfurt) Zweites Gutachten: Prof. Dr. Friedrich Thießen (Lehrstuhl für Finanzwirtschaft und Bankbetriebslehre, Technische Universität Chemnitz) Datum der Einreichung: 30.01.2014 Datum der Promotion: 10.06.2014 ABSTRACT This study critically delves the approaches and challenges in developing Islamic banking products in the Malaysian Islamic banking industry from the perspective of Sharīʿah. Specifically, the study examines the concept of product development and the application of Sharīʿah in developing Islamic banking products. The study also deliber- ates on the adequacy of legal and regulatory framework, which aims to ensure the Is- lamicity of Islamic banking’s product development. Finally, the study scrutinizes the is- sues of ḥiyal (legal artifices) in Islamic banking’s product development. In order to inte- grate the theory and the practice, the study selected three Islamic banks in Malaysia with three products of the banks; namely Maybank Islamic Berhad, Bank Kerjasama Rakyat Malaysia Berhad and Kuwait Finance House (Malaysia). The products chosen are Islamic credit card, Islamic mortgage, and Islamic house financing. The study investigates the Sharīʿah contracts applied, Sharīʿah legal rulings, the structure and the contentious issues of the products to support the theoretical assumptions discussed in the study. This study utilizes two qualitative methods, namely content analysis and case studies, as the meth- odology. The study demonstrated that the Islamicity of Islamic banking products is based on the principles of Sharīʿah, namely to believe in the Oneness of God (tawhid), to con- form to legal principles (fiqh) and to embrace the Islamic moral and ethical standards (akhlaq). These principles are then transformed to the objectives of Islamic economics and Islamic moral economy that aim to realize the socio-economic objectives and the creation of just and ethical society. Nonetheless, the study found that the current ap- proach taken by Islamic bankers tend to Islamize or replicate conventional products in order to imitate the efficiency and effectiveness of the products, whereas the features of ribā (interest/usury) are still saliently existent. This approach only emphasizes on the form rather than the substance of contract, where it could not ensure the Islamicity of Is- lamic banking products. In this respect, the legal and regulatory framework, which aims to provide the legitimate expediency and efficiency of the product, is still insufficient to support the development of genuine Islamic banking products in parallel with the Sharīʿah objectives and Islamic economic principles. Furthermore, the method of ḥiyal has been wrongly used to structure Islamic banking products to circumvent the prohibi- tion of ribā. However, not all ḥiyal are categorized under the prohibited ḥiyal, but there are some ḥiyal, which are permited in the Sharīʿah, namely makhārij (jurisprudential ex- its). The method of makhārij must be judiciously justified in Islamic banking to avoid the products developed fall under the category of the prohibited ḥiyal. From the three case studies investigated, it was found that Sharīʿah issues, such as the issues of combination of contracts, legal, ownership, and riba, are still existent. The results show that the prod- ucts developed require some improvements in terms of product structures and features in order to potray that they are genuinely Islamic and Sharīʿah compliant, which fulfil the requirements of the Islamic economics and Sharīʿah objectives. urn:nbn:de:gbv:547-201400505 i ACKNOWLEDGEMENTS All praises, thanks, gratitude and abundance of blessings belong to Allāh, the Al- mighty God. Firstly, my deepest gratitude to Prof. Dr. Jamal Malik, Chair of Islamic Studies at the University of Erfurt for his willingness to give me an opportunity to work under his supervision. His encouragement, guidance, and support have enabled this study to be completed on schedule. This appreciation also goes to the second supervisor cum external examiner, Prof. Dr. Friedrich Thiessen, Chair of Finance, and Banking, at the Chemnitz University of Technology, who has meticulously examined this study. I am al- so deeply indebted to the Public Service Department of the Malaysian Government (Jab- atan Perkhidmatan Awam Malaysia) for the full scholarship awarded that allowed me to pursue this study at the University of Erfurt specialized in Islamic banking and finance. This study would not have been possible without the support of family member. There- fore, I would like to express the utmost gratitude to my lovely wife; Dr. (med.) Syaha- ratul Patimah Kamarudin, for her countless sacrifices and supports. To my children - Syazwina Aisyah, Syamil Amri and Syahir Amsyar (born in Erfurt, 28 February 2013), thank you so much for the love, passion and patient for my absentee. Voluminous appre- ciation to family members; especially to my father, Abd Razak Abd Lateh and my moth- er, Shafiah Ahmad, my brothers and a sister, and my family-in-law in Malaysia, for their continuous assistance and encouragement during our staying in Germany. Finally, this thesis is also dedicated to my colleagues, friends, mentors, teachers and professors in Germany as well as Malaysia, who have consistently assisted and motivated me in com- pleting the thesis. Shahrul Azman bin Abd Razak Warschauer Strasse 8/801 99089 Erfurt Germany 12.01 am; 1 January 2014 [email protected] ii TABLE OF CONTENTS ABSTRACT .............................................................................................................................. i ACKNOWLEDGEMENTS ..................................................................................................... ii TABLE OF CONTENTS ........................................................................................................ iii LIST OF TABLES AND FIGURES..................................................................................... viii LIST OF CASES AND STATUTES ...................................................................................... ix A NOTE ON TRANSLITERATIONS AND ABBREVIATIONS ......................................... x GLOSSARY OF ARABIC TERMS ...................................................................................... xii INTRODUCTION 1. Background ................................................................................................................... 1 2. Problem Statement ........................................................................................................ 5 3. Research Question ......................................................................................................... 7 4. Objective ....................................................................................................................... 8 5. Methodology ................................................................................................................. 8 6. Rationale ..................................................................................................................... 12 7. Research Gaps ............................................................................................................. 13 8. Outline ......................................................................................................................... 20 CHAPTER 1: ISLAMICITY OF ISLAMIC BANKING PRODUCTS 1.1. Introduction ................................................................................................................. 22 1.2. What is Sharīʿah? ........................................................................................................ 23 1.2.1. Defining Sharīʿah ............................................................................................. 23 1.2.2. Sharīʿah and Fiqh ............................................................................................. 25 1.2.3. The objectives of Sharīʿah ............................................................................... 29 1.2.4. Sharīʿah and Islamic banking ........................................................................... 31 1.3. The Concept of Islamic Economics ............................................................................ 33 1.4. Siddiqi and Ismail’s Model of Islamic Banking ......................................................... 38 1.4.1. Siddiqi’s Model ................................................................................................ 39 1.4.2. Ismail’s Model ................................................................................................. 42 1.4.3. Analysis............................................................................................................ 45 1.5. Sharīʿah Standards in Legalizing Islamic Banking Products ...................................... 49 iii 1.5.1. The primary and secondary sources ................................................................. 50 1.5.2. Islamic legal maxims ....................................................................................... 50 1.5.3. Sharīʿah resolutions ........................................................................................
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