Experts' views on ḥiyal in Malaysian Islamic banks: the case of tawarruq-based deposit products

Abstract

PurposeThere are two purposes to this study: first, to identify the status of ḥiyal (legal trick) in the offering of deposit products based on the tawarruq contract in the Malaysian Islamic banking industry and second, to identify the reasons for the widespread offering of tawarruq-based deposit products by Malaysian Islamic banks (IBs). Both aims of the study are addressed from the viewpoint of Malaysian experts in the area of Islamic banking.Design/methodology/approachThe study used a qualitative method that involved interviews with Malaysian Sharī‘ah experts and Islamic banking operations experts.FindingsThe findings show that Malaysian IBs resolved to use the tawarruq munaẓẓam contract in deposit products due to several constraints in the existing banking system and in view of customer preferences.Research limitations/implicationsThis study solely focuses on tawarruq-based deposit products in the Malaysian Islamic banking industry, with no other products explored. The focus on tawarruq-based deposit products was due to the extensive application of tawarruq in Islamic banking deposit products that had also led to accusations against Islamic banking operations from various parties.Practical implicationsThe implication of the study is that more stringent procedures are required in the offering of tawarruq-based deposit products as they are extensively utilised and have sparked controversy among Sharī‘ah scholars. Moreover, to retain Malaysia's Islamic banking reputation and trustworthiness, new and less controversial contracts must be developed.Originality/valueThis paper discussed the extensive usage of ḥiyal-based contracts such as tawarruq in Islamic banking institutions' deposit products, with justifications from Malaysian Islamic banking experts. The widespread use of the tawarruq munaẓẓam contract in deposit-based product offerings is based on a reasonable view considering the constraints that Malaysian Islamic banking is currently facing, with strict operation procedures by Bank Negara Malaysia to ensure real operations and to avoid fictitious elements. This paper reveals the use of tawarruq munaẓẓam in deposit products which allows the Islamic banking industry to operate effectively under Malaysia's dominant conventional banking system.

Faithful Finance: Unlocking Banking Islamization in Afghanistan

“…Furthermore, it is observed that Islamic financial institutions heavily rely on hiyal (stratagems, tricks, ruses) to operate within the conventional financial system, reinforcing the perception that Islamic banking is merely old wine in new bottles. Overreliance on hiyal has led to a separation of morality from technicality and has undermined the noble objectives of Islamic economics (Syed and Omar 2017;Syahmi et al 2022). The opponents of Islamic banking, particularly in the case of Islamic banking windows, argue that, at the end of the day, deposits are collected into the same pools as conventional deposits and are treated in a similar manner.…”