Equity-Based Financing, Deposit And Investment accounts: Evidence Of Islamic Banks In Malaysia

by Assoc. Prof. Dr. Mohd Yaziz Bin Mohd and Prof. Datuk Seri Dr. Md. Zabid Hj.Abdul Rashid

Asia Pacific Journal of Research in Business Management, (2017), Vol. 8, Issue 1

Abstract

For the past few years many Islamic banking jurisdictions have registered double-digit growth rates surpassing their conventional counterparts. There is a great prospect for further growth given the fact that there are many potential markets with large Muslim population that remained untapped.

At the same time, the overall market penetration is still low in existing markets or not yet achieved the banking penetration levels of advanced countries. However, a closer look suggests that the market dynamics are changing. There are two indicators that warrant Islamic banks to relook at their products; declining growth rates and eroding profitability.

The Islamic Financial Services Board (IFSB) Islamic Financial Services Industry (IFSI) Stability Report dated May 2016 reported the Islamic funds’ assets have contracted by 6.3% to USD71.3 billion from USD75.8 billion a year ago. The key important reason for the relatively modest performance was the exchange rate depreciation. It can be deduced therefore, there is an urgent need to revisit the

Islamic financial products as an alternative banking platform given the declining growth rates and eroding profitability. In particular, the need to revisit equity-based financing as the equity-based financing is considered a core activity for Islamic banking. This is because in the intermediation of the equity-based financing, its principle of risk-sharing clearly fulfils one of core values in Islamic finance.

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