By Dr Hanudin Amin
Tapping into maqasid consumer preference index potential
THEORETICALLY, Islamic banking system was developed to cater for the financial needs of the Muslim millennials who are in need of financial transactions that are free from any prohibited elements like riba, gharar, maysir and other elements that go against Shariah. Universally, the first three are found to be the golden principles of Islamic banking, because everyone knows them regardless of their origins in terms of countries, nationalities and ethnics, to mention some.
Believe it or not, the survival of Islamic banking is overtly dependant on the acceptability of bank customers who use banking products. I don’t believe some individuals who come with a pathetic ideology that reads as “supply generates demand”. Supposedly, “demand generates supply”. If the latter follows, the demand emanated from bank customers can determine the success of the products. In effect, however, the former is more appealing at the expense of customers’ welfare.
Due to the significance of bank customers, many authors have attempted to explain their impact on products’ acceptance. From a customer’s perspective, the products are broken down into three perceptions of categories (PoC). The first category is the product that keeps on demanding by the customers - there exists a limited problem associated with it. The example is the product of financing for umrah and pilgrimage, having a goal congruence with maqasid al-Shariah. The benefit exceeds the harm. The second category is the product that keeps on criticising by customers owing to the pricing issue and modus operandi. Bay bithaman ajil home financing used to finance a mortgage purchase is the example. The third category is the product that comes with a natural notion of acceptance, either demanded or supplied subject to the peer pressure that influences one’s decision. Islamic unit trust products are one of the examples in this category.
Regardless of these categories, though sufficient, conventional yardsticks drawn from conventional consumer theories are not able to meet the maqasid purposes that are overtly intended in Islamic banking. The results might be significant but the usefulness of the significance may be questionable. This gap occurs since the former only considers the result without considering the evidence drawn from the primary sources.
This write-up is aimed at answering of three questions. Question #1 - What does MCPi mean? Question #2 - What are distinguishing features that make MCPi differs than its conventional peer? Question #3 - Do bank customers support it?
MCPi stands for maqasid consumer preference index. It is an index developed for Islamic banking to measure consumer acceptance of Islamic banking products including Islamic home financing products (e.g. tawarruq home financing). MCPi is based on the idea of integrating maqasid al-Shariah with consumer behaviour, in which the former determines the latter and not vice versa. Generally, Islamic banking is established to meet the purpose of Shariah, where Muslim folks are supplied with a safe and secured outlet of halal investment and financing for wealth generation and acquisition, respectively. Moreover, while Islamic banks are generating profits, the wellbeing of key parties covering both retail and corporate customers are upheld to ensure the benefits of having Islamic banking operations are equally shared among stakeholders to preserve the wealth generation and acquisition. In fact, the banks that are running a mortgagebased business is not only aimed at generating value to their shareholders but also to extend such a value to the customers who obtain the house without any complexities. Hypothetically, Islamic banks are not aimed at creating a second burden from the existing burden faced by the customers. The first burden is about inability of the customer to buy a house on a cash basis whilst the second is his inability to pay the mortgage should himself at any financial difficulties.
Evidently, MCPi is better than its conventional theories. Firstly, the battery items developed are extracted from the primary sources, which are later, extended by the Muslim researchers who studied maqasid al-Shariah. In contrast, however, conventional consumer theories have paid little attention on the primary sources but rather they placed more on primary data collection for inferences. The outputs obtained are sufficient if they are contrasted with the contents found in the sources.
Secondly, MCPi is developed to measure Muslims’ behaviour on any phenomenon exists in our society, where the end product is an adjustment of the behaviour according to the worldview of Islam. The existing theories are not able to leverage on the objective of Shariah because the framework built is only for the sake of self-popularity – without opening a door for the improvement of the behaviour of individuals at large. There exists a self-interest element in the extant theories.
Thirdly, MCPi provides a better overview pertinent to Shariah compliance of all Islamic banking products. Non-compliance towards Shariah typically generates Shariah compliance risk - defining as inability of Islamic banks to follow maqasid al-Shariah where legal tricks are of greater at the expense of public perception. In fact, the legal tricks have the same impact as the riba does. Conventional banks, however, are not interested in Shariah compliance but instead in profit compliance.
Fourthly, MCPi allows an improved benchmark for better practice. The indicators developed are within Islamic banking context without giving a leeway to conventional yardsticks to rule. ‘Islamic indicators’ and ‘Islamic consumerism’ are met. A significant result of one indicator drawn from the primary sources and Muslim researchers’ literatures are compatible with an Islamic consumerism for an improved understanding of specific role of a so-called ‘Islamic’ factor that determines the acceptance.
Furthermore, I conducted a survey virtually involving 128 respondents using GoogleForm in July 2018. MCPi is developed based on three indicators notably education, justice and welfare. In other words, education deals with information, justice deals with discriminationfree identification and welfare deals with fair treatment. Evidently, the mean scores for the indicators were 4.33, 4.20 and 4.19 for education, justice and welfare, respectively. A mean score of 4 and above on the Likert scale of 1 to 5 indicate a highly important construct. This reporting is directed to a bank in Kota Kinabalu, Sabah (not disclosed). This suggests that the bank meets the consumers’ perception in that the bank’s Islamic mortgage meets maqasid al-Shariah.
Overall, this write-up attempts to explain the relevance of MCPi and its link to Islamic banking products including home financing products. MCPi enables the bank to realise consumers’ need precisely based on education, justice and welfare that are directly captured the attributes of the products. With a proper disclosure, MCPi can become a successful index and yardstick to measure consumer acceptance effectively where maqasid al-Shariah is brought into play, at least.
*The author is an Associate Professor at the Labuan Faculty of International Finance, Universiti Malaysia Sabah, Labuan International Campus. He has a PhD from the International Islamic University Malaysia in Islamic Banking and Finance (PG310163). He can be contacted at hanudin@ums.edu.my
Acknowledgment: This writeup is funded by Fundamental Research Grant Scheme: FRG0438-SS-1/2016, Ministry of Higher Education, Malaysia. Dr Mohamad Rizal Abdul Hamid is the member of the Research Grant.