The Good, the Bad and the Ugly of Islamic Credit Cards

Abstract

The Malaysian Islamic financial services have developed and thrived in the competitive domestic and global financial market especially in the last three decades. The Government has provided the industry conducive enabling environment to catalyse the industry growth and development. Islamic finance has gained prominence and been identified as the growth area in the nation’s financial sector. The Bank Negara Malaysia Annual Report 2020 published on 3 April 2020 amongst others highlights that with an advanced regulatory framework already in place, Islamic finance is poised to play a more prominent role in the coming period, particularly in its potential to apply shariah principles to expand social finance and address market gaps in innovative ways. With a range of innovative shariah compliant products and services, the halal financial services have gained market acceptance from both Muslims and non-Muslims alike, albeit with different levels of acceptance according to the products. Specifically, to a certain degree it appears that the market has been more receptive of other Islamic financial services such as loans for various purposes including purchases of securities, properties, vehicles; working capital and even personal loans than the credit cards. According to the Bank Negara Monthly Statistical Bulletin: Monthly Highlights and Statistics in September 2020, as of September 2020, Islamic banks had disbursed 35.7% or RM651.4 billion of the total loans in the banking system in September 2020. The Islamic credit cards however have a lower market share of 10.2% or RM3.7 billion of total credit card transactions. The slower growth pace, lower market share and performance of Islamic credit cards vis–a-vis conventional credit cards, and also compared with other Islamic financial products merit further scrutiny and analysis to help better understand the issues pertinent the growth of the Islamic credit cards. Issues such as why other Islamic loans and hire purchase products have performed better; why the slower growth of Islamic credit cards; customers and market expectation of Islamic credit cards; Islamic credit card product development and marketing strategies need to be carefully examined in order to overcome Islamic credit card growth conundrum.