An Exploratory Study on the Understanding of the Concept of Riba and Factors Determining Patronization of Conventional Banks among Muslims in Malaysia

Abstract

Currently, there are 27 banking institutions consisting of 16 Islamic banks and 18 conventional banking institutions offering Islamic banking products and services under the Islamic Banking Scheme (IBS) in Malaysia. Hence it can be a valid question to ask that why Muslims in Malaysia are still patronizing the conventional banks when there are enough alternatives now. This study has been conducted to unearth the reasons for whyMuslims in Malaysia haveaccounts in conventional banks and to examine the level of knowledge and understandingabout riba among Malaysian Muslims. It is important to check the level of knowledge about riba because initially interest intruded in Muslim countries through disagreement among scholarsin the past, scholars have differed over the technical definition of riba. A total of 563 respondents were surveyed and their responses were analyzed using SPSS. The most important fact revealed by this study is that Muslims in Malaysia possess a good understanding of the concept of riba. The lack of knowledge about riba is not a reason fordealing with conventional banks. The result also shows that being familiar with the bank is the dominant reason for choosing one bank over another, among customers of conventional banks. When the relationship between demographic profile and various misconceptionsabout ribawas tested, academic qualification appears to be a significant factor. The findings of this study can help in designing effective promotional strategy for Islamicbanks.