A Very Brief of Legitimacy of Islamic Product in Malaysia

The main objective of Islamic Bank is to help Muslims to use their surplus in getting reward base on the Islamic teaching in Quran and Sunnah. This means the activities by Islamic banks should be legitimate or halal in accordance with Shariah. For the activities to be eligible in Islam, the activities should not involve any form of interest (Riba or usury), uncertainty and gambling element.

To comply with the Shariah, Islamic banks offer their product by applying some Islamic concept into the designation of the products. We can see this in the Islamic products themselves. Saving account apply the concept of Al Wadiah. Al Wadiah refers to goods or deposits, which have been deposited by depositors (owner) to the bank (custodian) who is not the owner, for safekeeping. As wadiah is a trust, the depository becomes the guarantor and, therefore guarantees repayment of the whole amount of the deposits, or any part thereof, outstanding in the account of depositors, when demanded. The depositors are not entitled to any share of the profits but the depository may provide returns to the depositors as a token of appreciation.

Meanwhile, for financing, Islamic banks offer public variety of products which follow the concept of Mudarabah (profit sharing), Musharakah (joint venture), Ijarah (leasing) and etc. If we further study these concepts, we will find out that they do not involve any Riba but they provide rewards and profit sharing as return, for instance, Mudarabah. Mudarabah refers to an agreement made between a capital provider and another party (entrepreneur), to enable the entrepreneur to carry out business projects, based on a profit sharing basis, of a pre-agreed ratio. In the case of losses, the losses are borne by the provider of the funds. While for Musharakah, it refers to a partnership or joint venture for a specific business. The distribution of profits will be apportioned according to an agreed ratio. In the event of losses, both parties will share the losses on the basis of their equity participation.

From the above, we can do an assumption that, if the Islamic banks apply the Islamic concept to their products offering then the products are legitimate in the view of Islam. In Malaysia, the Islamic banks are governed by the Bank Negara Malaysia under the Islamic Banking Act. Thus, through the governing of BNM, the legitimacy of Islamic products could be assured.