Islamic Finance is an abstract concept until the first half of the twentieth century. In Malaysia, it has been almost three decades when the first Islamic bank makes its debut. Islamic banks have to compete with its competitors which is a conventional banks which have longer history than Islamic banks. For this competition, Islamic Finance have to know the awareness, understanding and perceptions of Malaysians towards it. Islamic Finance not only available for Muslims, but it also available for non-Muslims as well. In Malaysia, 40% of the population is non-Muslims and hence non-Muslims market is equally important to Islamic Finance (Bashir & Mail, 2011; Latiff, 2007).
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This report provides an overview of the Islamic Finance industry both globally and in Malaysia, the importance of Islamic Finance and the factors that lead researcher to conduct research in Islamic Finance. It highlights the background of the study, problem statement, objectives of the study, research and methodology, questions and hypothesis of the study, significance of the study, definition of terms, limitation of the study and lastly scope of the study.
2.1 The importance of Study
Islamic banking refers to a system of banking that complies with Islamic law. The underlying principles that govern Islamic banking are mutual risk and profit sharing between parties, the assurance of fairness for all and that transactions are based on an underlying business activity or asset. These principles are supported by Islamic banking's core values whereby activities that cultivate entrepreneurship, trade and commerce and bring societal development or benefit is encouraged. Activities that involve interest (riba), gambling (maisir) and speculative trading (gharar) are prohibited (BNM, 2010). As stated in the Quran “Allah forbids riba”. Riba means an increase and under shariah the term refers to the premium that must be paid by the borrower to the lender along with the principle amount as a condition for the loan.
Those who devour usury will not stand except as stand one whom the Evil one by his touch Hath driven to madness. That is because they say: "Trade is like usury," but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past their case is for Allah (to judge) but those who repeat (The offence) are companions of the Fire: They will abide therein (for ever).
(Al-Baqarah : 275)
Over the last three decades Islamic banking and finance has developed into a full- fledged system and discipline reportedly growing at the rate of 15 percent per annum. Today, Islamic financial institutions, in one form or the other, are working in about 75 countries of the world. Besides individual financial institutions operating in many countries, efforts have been underway to implement Islamic banking on a country wide and comprehensive basis in a number of countries. Islamic banking and finance has satisfy the Muslim community needs, to a multibillion dollar industry upholding Islamic principles since it undergone rapid transformation and growth from an industry striving. Islamic banking is now a well-known term and has emerged as one of the most important industries worldwide. Over recent decades, the Islamic banking industry has emerged as one of the fastest growing industries and has spread to all corners of the globe, receiving wide acceptance from Muslims and non-Muslims (Dr.Zaharuddin, 2012).
Now if we ask the question what is ‘Islamic Finance’?, many people will be taken by suprise. They would come up with diverse answer depending...