Credit Management in Full-Fledged Islamic Bank and Islamic Banking Window: Towards Achieving Maqasid Al-Shariah

Najihah Muhammad,Nabihah Muhammad,Sharifah Faigah Syed Alwi

doi:10.5430/ijfr.v11n3p92

Abstract

The percentage of non-performing loans (NPL) and non-performance financing (NPF) in Malaysia commercial banks is under control and does not increase in its percentage since the year 2014 to 2016. These scenarios are the result of the stringent credit management procedures in the commercial banks which if not properly followed could affect banks’ profitability and liquidity. However, there are critics by the public on how Islamic banks normally tend to punish their customers who are the real traders or businessman without fixed monthly income when they slightly late in paying their periodical payment for the bank’s facility or financing. Islamic bank is supposed to help the customer in order for it to achieve maqasid al-Shariah (objectives of Shariah). Thus, this study intends to compare the credit management’s procedure in one of the full-fledged Islamic banks and one of the conventional banks which also offer Islamic banking window. This study also aims to identify the achievement of maqasid al-Shariah through the procedures of credit management in the two banks. This study adopted the qualitative methodology where semi-structured interviews are conducted with 2 bankers from one of the full-fledged Islamic banks and one of the conventional banks which also offer Islamic banking window. Results from this study indicated that each banks has their own strategies and procedures with regard to credit management. Their credit management plans were structured to help customers to secure their loans, financing and assets as well as protecting them from bankruptcy and insolvency which basically comply with maqasid al-Shariah. From this study, it is recommended for commercial banks to apply a strict approval process for loan and financing as well as a strict credit monitoring system to avoid NPL and NPF.

Highlights

According to Abdullah and Abd Wahab (2015), the Islamic banking system has emerged as a competitor and a feasible substitute for the conventional banking system during the last three decades
There is a possibility of non-performing loans (NPL) and non-performing financing (NPF) to incur
This study aims to analyse the achievement of maqasid al-Shariah through the procedures of credit management in the two respective banks

Summary

Introduction

According to Abdullah and Abd Wahab (2015), the Islamic banking system has emerged as a competitor and a feasible substitute for the conventional banking system during the last three decades. According to Bakar (2016), numerous Islamic bankers look at the corporate client‟s behaviour as officers of credit, instead of looking from any business point of view They cannot even comprehend the dynamics of cash flow, management as well as the complete cycles and ecosystem of the business. This is because of the nature of corporate business sector, whereby their cash flow cycle is unstable compared to the salaried customers in retail or consumer financing which received fixed wages every month If this kind of mentality and practices is to be continued, eventually it would bring more disgrace to Islamic financial institutions and their senior management. This study aims to analyse the achievement of maqasid al-Shariah through the procedures of credit management in the two respective banks

Methodology

A Way Forward

Conclusion