Shari’a prohibits riba, haram, gharar, and maysir in business and financial transactions. Consequently, Islamic finance is a banking technique that comprises a conglomerate of fairness, sharing, profit, loss, and real operations, which articulate Islamic law. According to Domat (2018), the model is less than 30 years old but commands asset worth more than $1.5 trillion in assets distributed in 60 countries. Shalhoub (2017) reports that the world hosts 622 institutions with 201 of them offering Islamic finance degrees, which are responsible for generating graduates to grow the industry to $3.5 trillion by 2021. Meanwhile, the Islamic financing model features numerous mode, meaning that external factors determine the suitability of a certain mode of funding for a particular product.
Shari’a prohibits trade in goods and commodities that are illegal. Al Quran 17:70 requires the children of Adam to be contented with At-Tayyibat (lawful good things), mainly the resources that are useful for humans (Marifa Academy, 2014). Lichtfous (n.d.) notes that companies that derive their income from haram activities, such as conventional banking, non-halal meat, gambling, and gambling do not constitute part of an Islamic investor’s portfolio. Therefore, the nature of a country’s judicial system, laws, constitution, legislature, and bureaucracy that influence human and political rights institute a critical factor that determines a suitable model for financing a particular product (Hussain, Shahmoradi, & Turk, 2015). The feature is crucial in defining legal and haram activities in a given country.
Islamic finance mainly involves goods and commodities rather than money. Therefore, clients get products with different rates of liquidity or resources they need within different time intervals (Iqbal, 2017). The hajah (need or necessity) of an individual determines the appropriate mode of financing (Nathie, 2017). Urgent need for money requires commodities with high liquidity rate in comparison to low-level necessities such as funds for enacting a house or starting a business (McKenna, 2017). In this regard, Ahmed (2012) contends the ability of a customer to provide collateral dictate the urgency of executing Islamic financing. The practice ensures that a client accesses the required resources or meets a hajah within the established timeframe. Therefore, a financial institution should assess the monetary urgency of a customer before determining the most suitable financing model for a given product.
The culture of a given community influence perception to ethnicity, gender, transparency, and gender. Bank Negara Malaysia (2018a) indicates that institutions and communities embrace products and communities that align with the local culture. Ahmed (2012) notes that Islamic knowledge as a fundamental component of the local culture is essential in the development of appropriate institutions and organizations. Therefore, leaders and policymakers should evaluate professional background, ethnicity, and gender to achieve high-quality decisions that promote sustainable business practices. Moreover, the consideration of culture determines compliance of practices, conduct, and offerings with Shari’a (Bank Negara Malaysia, 2018). According to Ernst & Young (2016), institutions assume approaches that will lower the cost of services, increase choice, empower consumers, speed up transactions, and foster inclusivity in the financial system. Thus, the dynamism of culture is crucial in determining the mode of financing.
Islamic financing needs to feature the evaluation of several factors to enhance the selection of the most appropriate model of funding a particular product. The process improves customer satisfaction, acceptance of services, and sustainability of financial institutions. Therefore, policymakers and Islamic bankers should consider the legal framework of a country to ensure that the mode of financing does not involve haram. The evaluation of a company or customer’s hajah will facilitate timely access to the required resources. Moreover, the consideration of culture will allow financing model to articulate expectations and demands of customers.
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