{"id":53758,"date":"2022-09-22T14:15:34","date_gmt":"2022-09-22T06:15:34","guid":{"rendered":"http:\/\/wordpress-my-161844363.ap-southeast-1.elb.amazonaws.com\/articles\/?p=53758"},"modified":"2024-02-05T17:54:56","modified_gmt":"2024-02-05T09:54:56","slug":"how-does-islamic-banking-work","status":"publish","type":"post","link":"https:\/\/www.imoney.my\/articles\/how-does-islamic-banking-work","title":{"rendered":"How Does Islamic Banking Really Work To The Real Economy Of Malaysia?"},"content":{"rendered":"

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Living in Malaysia, Islamic banking is a very ubiquitous term we see everywhere, especially within our financial institutions. There are Islamic financing, Islamic credit cards, Islamic investing, among others.<\/span><\/p>\n

But even with just how commonplace Islamic banking and the facilities they offer is, there are still a lot of misunderstandings and confusion regarding Islamic banking.<\/span><\/p>\n

According to Bank Negara (BNM), <\/span>\u00a0<\/span>in 2021, Islamic banking assets formed 42.5% or RM886.6\u00a0 billion of the banking industry\u2019s total assets.<\/span><\/p>\n

That means funds under Islamic banking assets now represent over one third of Malaysia’s banking sector assets. Clearly, Islamic banking is growing at a rapid pace and similarly, its impact on the Malaysian economy is even more significant.<\/span><\/p>\n

Before we take a closer look at the impact of Islamic banking on the economy and your finances, let us recap the objective of Islamic banking first which defines the central role it plays in our economy.<\/span><\/p>\n

<\/span>What is Islamic banking?<\/strong><\/span><\/h2>\n

In an article written by Muhammad Ali Jinnah, a Shariah Committee member of Maybank Islamic Berhad, he said Islamic banks\u2019 objective is to establish a just social order in which the material and spiritual aspects are welded together.\u00a0<\/span><\/p>\n

In Islamic banking, values that are important in Islam, such as honesty, transparency and others are stressed upon, while also rejecting any practice that goes against the Shariah, such as riba (usury), gharar (uncertainty), and maysir (gambling).<\/span><\/p>\n

The latest journey of Islamic banking is working on Islamic social finance from zakat, waqf and sadaqah funds where through this scheme, the facilities granted will impose lower profit and is more customer centric compared to normal financing.\u00a0<\/span><\/p>\n

This, according to Muhammad Ali Jinnah, will give underserved segments more opportunity to apply for the facilities and cater to their financial needs.<\/span><\/p>\n

<\/span>What role does Islamic banking play in our economy<\/strong><\/span><\/h2>\n

Due to the importance placed in Islam towards universal values such as justice, fairness, and honesty among others, Islamic banking helps protect the consumers from dealings that are unfair for them, thus protecting their ability to be a part of the Islamic banking ecosystem.<\/span><\/p>\n

As it is also mentioned in Islam\u2019s holy book, the Qur\u2019an states\u00a0 that a certain proportion of one\u2019s wealth should be funnelled back to the community, Islamic banks also work toward this particular goal by establishing zakat, <\/span>waqf<\/span><\/i> and <\/span>saddaqah<\/span><\/i> funds.<\/span><\/p>\n

Through these funds, Islamic banks are on their journey to work on Islamic social finance where from such schemes, the facilities granted\u00a0 will impose lower profit rates\u00a0 when compared to interest rates imposed in conventional loans. This in turn, offers more opportunity for the underprivileged segment of society to apply for these financing facilities to cater to their specific financial needs.<\/span><\/p>\n

While the advantages and benefits of Islamic banking for the consumers are clear, its\u00a0 role in bringing\u00a0 impact to the\u00a0 Islamic economy ecosystem as well as the overall economy of our country, is of no less significant<\/span><\/p>\n

Key facts on how Islamic banking impacts the economy<\/b><\/p>\n