Article Review: The Effect of Conventional Interest Rates and Rate of Profit of Funds Deposited with Islamic Banking System in Malaysia

By Dr Sudin Haron & Norafifah Ahmad

            In conventional banks, the depositors will be informed exactly about the amount of the returns from their deposits while in Islamic banks this information will not be provided. Basically we can determine it based on assumption and historical fact.

            As we know, most of the banks get their major funds from depositor’s money including Islamic banks. The factors that influenced the depositor’s decision making in depositing their money with the Islamic banks need to be determined by the management of Islamic banks clearly. For instance, religion as a factor for the customers to choose the Islamic banks in Bahrain. However, in Turkey and Sudan a study shows religion is not the main reason for depositor choosing Islamic banks. While in Malaysia and Singapore both religion and profit are the factors.

            It has been pointed out that both the rate of profit applied in Islamic banking system and the rate of interest have solid relationship with the amount of deposits. The higher the profit rate, the higher the amount of money that will be saved into the account of the banks. The Islamic banks’ management are bound to follow the market rate when declaring the profit rate for their customers. They believe that the attitude of depositors is considered as similar between Islamic and conventional banks.

            The clear guideline has been given by Islam to be followed by its followers with regard to wealth and property. We believe that all properties that we have today belongs to Allah and he will take it back if we do not care about his rules. Profit is not the sole purpose to be achieved when dealing with Islamic banks. Instead, it is to receive the blessing from Allah and can be considered as the greatest action of managing the wealth.

            Furthermore, the establishment of Islamic banks is to improve the Muslim communities by operating based on interest free that are lawful in Islamic jurisprudence. We need to support these institutions thus, may be considered as people who achieved salvation as indicated in Surah Al-Taubah verse 20. All transaction that we do every day must be in line with the shariah guideline so we will be rewarded by Allah for our efforts in following His and the messenger’s order.