Table of Contents

Table of Contents...................................................................................................................1
SECTION ONE: INTRODUCTION..........................................................................................3
1.1 RESEARCH TOPIC......................................................................................................3
1.2 ABSTRACT................................................................................................................... 3
1.3 INTRODUCTION..........................................................................................................3
1.4 PROBLEM STATEMENT / SCENARIO........................................................................5
1.5 RESEARCH OBJECTIVE.............................................................................................5
1.6 RESEARCH QUESTION..............................................................................................6
1.7 SIGNIFICANT OF STUDY............................................................................................6
1.8 LIMITATION..................................................................................................................7
1.9 SCOPE OF STUDY......................................................................................................7
1.10 HYPOTHESIS THEORY.............................................................................................8
SECTION TWO: LITERATURE REVIEW.............................................................................10
SECTION FOUR: RESEARCH DESIGN AND METHODOLOGY ........................................13
4.1 DATA COLLECTION...................................................................................................13
4.2 SAMPLING FRAME....................................................................................................14
4.3 VARIABLES AND MEASUREMENT...........................................................................14
4.4 DATA ANALYSIS........................................................................................................15
SECTION FIVE: CONCLUSION...........................................................................................18
REFERENCES..................................................................................................................... 19

Page 1 of 20

Page 2 of 20

SECTION ONE:
1.1

INTRODUCTION

RESEARCH TOPIC
Issues and Prospect in Implementing Dual Banking System in Affin Bank Berhad:
Case Study on Hire Purchase Centre of Affin Bank PJ SS2 Branch.

1.2

ABSTRACT
Malaysia is a leader for Islamic banking, which has been practicing Islamic banking
since 1983 with the adoption of Islamic Banking Act. Dual banking system is Islamic
banking system operating parallel with the conventional system. Malaysia is currently
having a significant number of Islamic banking institutions including full-fledged
Islamic banks, Islamic banking windows and Islamic banking subsidiaries.
During the first ten years of Islamic banking system in Malaysia (1983-1994), Islamic
hire-purchase was not fully developed yet even though ijrah facility had already
been introduced in the market. The idea of Islamic hire purchase came into reality
when the scholars introduced a new product via reasoning (ijtihd) based on the
Islamic traditional contract of ijrah and al-bay.
Recently, many argue that Islamic hire purchase financing (AITAB) is simply a
carbon copy of the conventional hire-purchase instrument as it is mainly based on
the conventional Hire Purchase Act 1967. Because of that, this study is conducted to
investigate the issues that need to be addressed to resolve the existing issues in
Islamic hire purchase implementation in dual banking system especially in Affin
Banking Group.

1.3

INTRODUCTION
In Malaysia, the first Islamic bank, Bank Islam Malaysia Berhad (BIMB) is the only
Islamic bank was operated since 1983. After 10 years, the government allowed other
conventional banks to offer Islamic banking services using their infrastructure and
branches in 1993 [Bank Negara Malaysia (BNM), 1994 and 1999]. The government
decided to allow the conventional banking institutions to offer Islamic banking
services or Islamic windows because this was thought to be the most effective and
efficient mode of increasing the number of institutions offering Islamic banking

Page 3 of 20

services at the lowest cost and within the shortest time frame (BNM, 1994 and 1999).
By so doing, it would also force the Malaysian banking industry to be more
competitive, which would then lead to an improved performance and enhanced
efficiency of the Islamic banking industry (Alias, Kamarulzaman and Bhupalan, 1994;
Kaleem, 2000).
The conventional banking framework assume that banks make profits by acquiring
deposits from the depositors at a low interest rate, then reselling those funds to the
borrowers at higher interest rate, thus making profits from the spread between the
interest rate received from borrowers and the interest rate paid to depositors. While
on the other hand Islamic banking performs the same intermediary function but does
not receive any interest from borrowers and does not pay any interest to the
depositors which is the amount of profits is based on the profit sharing agreements
with the depositors and also with the borrowers. Islamic banking is considered as a
different banking stream as it prohibits interest and replaces with profit sharing which
depends on the extent of the risk participation of the parties. The absence of interest
is based on Islamic philosophy and as interpreted using Shariah principles (Haron
et.al 2006).
AITAB became as an alternative for conventional hire purchase since its first
commencement in more than 10 years ago. Conventional banks in Malaysia are also
operating AITAB under Islamic banking scheme due to the growing demand by the
customers. Despite being one of the most popular products of the Islamic banks,
AITAB is being criticized by many people due to its lacking in explicit Shariah
regulatory framework (El-Din and Abdullah, 2007). El-Din and Abdullah (2007) have
further noted that the practice of AITAB in Malaysia does not seem to be 100%
Shariah-compliant because it involves several issues like Shariah framework,
ownership,

transfer

of

ownership,

maintenance

responsibility,

insurance

responsibility, disbursement, penalty in case of default, and legal treatment. Abdullah

and Dusuki (2004) also documented many issues that question the validity of AITAB
transaction for instance, intention and lack of understanding of parties, signing of two
separate documents in sequence, and interest-based calculation of profit.
As what we can see now, due to the issues of AITAB implementation has prompted
Islamic scholars to rethink to make it 100% Shariah compliant. Therefore, this study
is to investigate the issues that need to be addressed to resolve the existing issues in
Islamic hire purchase implementation in dual banking system. This study then
explores the prospects of AITAB in Affin Bank/Affin Islamic Bank. Lastly, this study

Page 4 of 20

provides several recommendations for further improvement of the Islamic hire

purchase implementation.
1.4

PROBLEM STATEMENT / SCENARIO

Malaysia has emerged as the first country to implement a dual banking system where
Islamic banking system operates side-by-side with the conventional banking system.
The Islamic banking system comprises full-fledged Islamic banks and Islamic
windows within the conventional banking institutions. Affin Bank for Hire Purchase
Centre was categorized in practising dual banking system as Islamic windows, but
Affin Islamic Bank was categorized as full-fledged Islamic bank. Since year 1999,
Affin Banking Group had introduced Islamic product to their consumer. Since then,
its perform and growth well with Islamic product. However, the major problem in
implementing AITAB in dual banking system in Affin Bank is lacking of sharia
framework. Hanudin Amin (2010) described Shariah as the centrepiece and
backbone of the religion of Islam. Currently AITAB is having several issues
regarding its operation (i.e., Lacking in Shariah framework, ownership and transfer of
ownership, maintenance and insurance responsibility, deposit payment, penalty in
case of default, legal treatment, intention and lack of understanding of parties,
signing of two separate documents in sequence, and interest-based calculation of
profit). Not only that, Affin Bank/Affin Islamic at PJ SS2 branch is the only one having
a problem due to the uniqueness of the branch. Within in the same roof, at the
banking hall, its operated only as Affin Islamic Bank (full-fledged Islamic bank)
whereas at the second and third floor, its operated as Affin Bank (Islamic window) as
Hire Purchase Centre. Because of this, theres a lots of issues arise regarding this
dual banking practice at PJ SS2 branch. Furthermore the researcher is part of the
management as he is currently holding the post of an executive to the bank. This is
the main reason why we has chosen this topic as the case study.

1.5

RESEARCH OBJECTIVE
To achieve the aim, the following research objectives are formulated:
i.

To identify and resolve the existing issues in Islamic hire purchase

implementation in dual banking system.

ii.

To explores the prospects of AITAB in Affin Bank/Affin Islamic Bank.

Page 5 of 20

iii.

To investigate the understanding and awareness of staffs regarding the dual

banking system.

iv.

To provides several recommendations for further improvement of the Islamic

hire purchase in dual banking implementation.

1.6

RESEARCH QUESTION
i.

What are the limitation and potencies of existing issues in Islamic hire
purchase implementation in dual banking system?

ii.

What are the limitation and potencies of the prospects in Islamic hire
purchase implementation in dual banking system?

iii.

What are the limitation and potencies of the understanding and awareness of
staffs in Islamic hire purchase implementation in dual banking system?

1.7

SIGNIFICANT OF STUDY
(a)

To Affin Bank/Affin Islamic Banks Management

The study will provide the information related to the issues that need to be
addressed to resolve the existing issues in Islamic hire purchase
implementation in dual banking system. Besides that, it helps the company to
make a decision in which issues should be focused more in order to getting
smooth operation. This research also may provide more strategy in tackling
the customers preferences.

(b)

To Researcher
The researcher will gain more benefits since a depth analysis will be made.
This would be valuable information to the researcher since they will have to
experience it.

(c)

To Customer/Consumer
The importance of this study is to help the customers in terms expressing
their opinion, feelings, perception, and preferences about the dual banking
system in the Hire Purchase Centre Affin Bank PJ SS2 branch. So, it will give
the benefits to all parties.

Page 6 of 20

1.8

LIMITATION
(a)

Unwillingness to respond
It is impossible to get full cooperation from the respondents. This is because
certain respondents are unwilling to answer the questions honestly and
precisely. This can contribute a problem in conducting the analysis and bias
occur.

(b)

Time constraint
This is when data collection takes place where it is not easy to obtain all the
sources that related to the study. It happened when doing the interview with
the respondent and also with the company. Because of time, the result may
be doubted because the respondent selected may not appropriate that may
cause for sampling error.

(c)

Respondent constraint
The respondent may not will to spend a considerable time in responding to
the questionnaires. Therefore, the response may bias. There is time limitation
for find the existing customer and difficult to get time to interview with the
customer.

(d)

Financial
Financial resources also become one of the constraints to the researcher in
order to complete the study since there is a lot of cost incurred for the
printing, photocopying and others.

1.9

SCOPE OF STUDY
The study explores the issues and prospect in implementing dual banking system in
Affin Bank Berhad at Hire Purchase Centre PJ SS2 branch.

Page 7 of 20

1.10 HYPOTHESIS THEORY

Hypothesis is a logically conjectured relationship between two or more variables
expressed in the form of a testable statement. Relationship are conjectured on the
basis of the network association establish in the theoretical framework formulated for
the research study. The researcher used null and alternate hypotheses (Sekaran,
2003).
Relevant studies and researches are mostly focused on existing issues which is
focusing on lacking in Shariah framework, ownership and transfer of ownership,
maintenance and insurance responsibility, disbursement, penalty in case of default,
legal treatment, intention and lack of understanding of parties, signing of two
separate documents in sequence, and interest-based calculation of profit.
For the prospect, its more focused on the public acceptance towards dual banking
system which implemented in the mention branch. How they perceive the system and
their trust on the AITAB.
For the staffs in the bank mention, they will be focusing on their understandings and
awareness regarding the dual banking system operation to ensure all the Shariah
compliance was followed as expected.
As such, to seek answers in meeting the research objective, three hypotheses, one
for each proposed variable, are constructed to examine the relationship between
existing issues, prospect, staffs understanding and awareness towards dual banking
system at Hire Purchase Centre Affin Bank PJ SS2 Branch.
Our three (3) hypotheses are presented as follows:
(a)

Hypothesis 1
H1:

There is a relationship between existing issues towards dual banking

system at Hire Purchase Centre Affin Bank PJ SS2 Branch.

H0:

There is no relationship between existing issues towards dual banking

system at Hire Purchase Centre Affin Bank PJ SS2 Branch.

Page 8 of 20

(b)

Hypothesis 2
H2:

There is a relationship between prospects towards dual banking

system at Hire Purchase Centre Affin Bank PJ SS2 Branch.

H0:

There is no relationship between prospects towards dual banking

system at Hire Purchase Centre Affin Bank PJ SS2 Branch.

(c)

Hypothesis 3
H3:

There is a relationship between staffs understanding and awareness

towards dual banking system at Hire Purchase Centre Affin Bank PJ
SS2 Branch.

H0:

There is no relationship between staffs understanding and awareness

towards dual banking system at Hire Purchase Centre Affin Bank PJ
SS2 Branch.

Page 9 of 20

SECTION TWO:

LITERATURE REVIEW

Dual banking system of Malaysia creates competitive environment where an innovative

product like AITAB provides advantages for banks. Therefore, it should be closely monitored
to ensure its legitimacy (El-Din & Abdullah, 2007). Empirical assessments on the merits of
an interest-free banking system have been initiated by Darrat (1988) who showed that the
banking system in Tunisia becomes more stable without interest-bearing assets than if these
assets were to exits. Samad (1999), Kaleem (2000), and Samad and Hassan (2000) are
among the many studies which provide empirical supports on the stability of the Islamic
monetary instruments in a dual banking system in Malaysia. For instance, Kaleem (2000)
analyse the Malaysian data over the period from January 1994 to December 1999 and finds
that Islamic banking system is more crises-proof due to its asset-linked nature. Baldwin
(2002) finds that there is a general lack of awareness in adopting the best risk management
practices in the Islamic banking institutions due to an erroneous belief that an Islamic bank,
by virtue of its interest-free nature, is not subjected to the internet rate fluctuations. Rosly
(1999) finds that Islamic banks in Malaysia are at disadvantage compared to the
conventional banks when there is an increase in market interest rates.
The emergence of Islamic banking had eliminated the roles of riba, (usury or interest), maisir
(gambling) and gharar (uncertainty) which were implemented by conventional banking
system. On the other hand, Islamic banks can generate on halal activities, promoting profit
lost sharing, quest for justice, ethical and sanctify contract (Mohd. Bakir Mansor, 2008).
Hence the Islamic bank is expected to run according to shariah principles, mobilize and
utilize the financial resources for the sack of Muslims, and to serve the ummat ai-Islam
(Sudin Haron, 1999).
Over the last decade, Islamic hire purchase financing which is recognised as Al-Ijarah
Thumma Al-Bay (AITAB) became the most demanding product provides by the Islamic
banks in Malaysia. Bank Islam Malaysia Berhad is the first Islamic bank in Malaysia that has
implemented AITAB in 1995(Abdullah and Dusuki, 2004). Abdullah and Dusuki (2004) also
documented many issues that question the validity of AITAB transaction for instance,
intention and lack of understanding of parties, signing of two separate documents in
sequence, and interest-based calculation of profit. Sale and ijara contract are the most
desirable contracts and 100% Shariah complaint (i.e., there are many verses in the Quraan
&hadith) among all Islamic transactions. But the both contracts does not fully comply Islamic
principles in its real life applications (Hashim et al., 2012). Almost all of the Islamic banks in
Malaysia are using AITAB for buying motor vehicles. But the mechanism of AITAB does not

Page 10 of 20

comply 100% Shariah principles. As researchers Abdulla & Dusuki (2012) have explained
the mechanism of AITAB financing in Malaysia: (i) the client for AITAB financing usually
identifies a car dealer and selects the car that he needs, (ii) the customer will approach the
bank for the car financing and make an agreement to purchase the car after the bank has
purchased the car from the car dealer, (iii) the bank purchases the car from the dealer, and
hence retains ownership of the car while the car is leased to the client for a specified period
of time, (iv) upon having the ownership of the vehicle, the bank and the customers will enter
the Ijarah or lease agreement, and (vi) at the end of leasing tenure, both will enter a second
contract in which the car will be sold to the same client at agreed price (ISRA, 2012; El-Din &
Abdullah, 2007).
Another important indicator determining customers positive or negative perception is their
patronage criteria towards the service provider. In one of the earliest patronage studies on
Islamic banking, Erol and El-Bdour (1989) discovered that the most important criteria
considered by customers in patronising Islamic banks are provision of fast and efficient
services, the banks reputation and image, and confidentiality. This finding is supported by
Naser, Jamal and Al-Khatib (1999) who studied Jordanian customers satisfaction which
mainly focused on the banks name, image, confidentiality policy and reputation. A study on
Singapore by Haron, Ahmad and Planisek (1994) revealed that only 40 percent of Muslim
customers consider religion as an important factor in patronizing banks. Similarly, there is
general lack of awareness of Islamic banking system among Singaporean communities, be
they Muslims or non-Muslims. These results suggest that Islamic banks do not need to rely
on the religious factor as a strategy in attracting customers, but they should focus more on
provision of quality and efficient services. Nevertheless, Ahmad and Haron (2002) concluded
that both religious and economics are significant patronage factors among the Malaysian
corporate customers towards Islamic banking products. Majority of corporate customers
somehow viewed that Islamic banks have not done enough in educating their customers and
promoting products and services. This is evidenced by their findings that 65 percent of the
customers have limited knowledge of Islamic banking products and services.
AITAB has no specific law and its application is based on the conventional Hire Purchase
Act 1967. As Chong (2009) noted that conventional and Islamic hire purchase are not
significantly different. However, Ayub (2007) has documented that Islamic finance experts
believe Ijarah has endless potential as an alternative to interest based financing in respect of
evolving a Shariah-compliant financial system.

Page 11 of 20

SECTION THREE: THEORETICAL FRAMEWORK

The variables used in this study can be categorized into two main types which are the
dependent and independent variables.
Dependent Variable
The dependent variable for this study is implementing dual banking system in Affin Bank
Berhad at Hire Purchase Centre PJ SS2 branch
Independent Variable.
For this study, there are three variables that need to be measured. There are existing issues,
prospects and staffs understanding and awareness.

Variables
Independent Variables

Dependent Variable

Existing Issues
Dual Banking
System (Hire

Prospect

Purchase Centre
Affin Bank PJ SS2

Staffs
awareness &
understanding

Page 12 of 20

SECTION FOUR:

RESEARCH DESIGN AND METHODOLOGY

Research methodology is the process of finding solutions and how the data obtained. It will
have framework that specifies the particulars for conducting the research. In this chapter, it
will explain the data collection method, sampling techniques and variables.
The objective of this study was to gather information on the study to examine the relationship
between existing issues, prospect, staffs understanding and awareness towards dual
banking system at Hire Purchase Centre Affin Bank PJ SS2 Branch.
4.1

DATA COLLECTION
It is not an easy task to produce a convincing report statement or conclusion. One
way to achieve this is through data collection method. This study defines data
collection method as a way of gathering and completing data to be transformed or
changed into more useful and meaningful information.
According to Sekaran (2006), data collection method includes face-to-face interview,
telephone interview, and personally administered questionnaires, electronic mail,
conventional mail or observations.

4.1.1

Primary Data
A.

Personal Observation and Analysis

As mentioned in the Problem Statement in earlier, the researcher is blessed
since he is appointed as an employee in the company. Therefore the
researcher is privileged to confidential information and data. The researcher
has full backing to perform this research and this paper would be of significant
basis for the company to make its decision accordingly. In fact the findings
and analysis from this research will be forwarded to the top management of
Affin Banking Group for necessary action.

B.

Questionnaire
The researcher is stationed at the PJ SS2 branch. In this capacity the
researcher will use questionnaire to obtain and analyze the data. This method
is widely used around the world because the data that we received is the
actual feeling and opinions from the respondent. We, as the researcher will

Page 13 of 20

know actually what and why the respondents answer the questions in such a
way. Compared, if this study uses only secondary data, the researcher will
not be able to know the truth about the problems. This results the researcher
only depends to other researchers finding.
4.1.2

Secondary Data
These are the documentation related to the existing issues in the bank. As mentioned
since the researcher enjoys an executive position in the company such information
would be readily available upon request.

4.2

SAMPLING FRAME
The research uses questionnaires to collect data from customer of various
backgrounds in Hire Purchase Centre Affin Bank PJ SS2.
The questionnaires will be distributed to customers from various backgounds, who
applying any types of facility (conventional or AITAB) in Affin Bank PJ SS2.

4.3

VARIABLES AND MEASUREMENT

The variables used in this study can be categorized into two main types which are
the dependent and independent variables.

4.3.1

Dependent Variable
The dependent variable for this study is implementing dual banking system in Affin
Bank Berhad at Hire Purchase Centre PJ SS2 branch

4.3.2

Independent Variable
For this study, there are three variables that need to be measured. There are existing
issues, prospects and staffs understanding and awareness.

Page 14 of 20

4.4

DATA ANALYSIS
Approximately 150 questionnaires are to be distributed. Since this will involve
customer of different background, a period of one month is estimated to be sufficient
for the survey. The answers collected will be analyzed by using SPSS.
The process of analyzes a data and finding analysis began after all the data and
information had been gathered through the data collection method. Through this
process, the researcher determined the influence between the variable through
descriptive analysis in order to test all the research questions. Later the tabulated
results are interpretation. In this study, reliability analysis (Cronbachs Alpha),
frequency distribution, bivariate correlation, and regression were used.

4.4.1

Obtaining Descriptive Statistics: Frequency Distributions

Frequency distribution will explain extreme values as well as insights into the central
tendency, variability and shape of underlying distribution. Frequency distribution also
can be defined as a process of organizing a set of data by summarizing the number
of times a particular value of a variable occurs. The process begins by recording the
number of times that a particular value of variables occurs. The purpose of the
frequency distribution is to obtain a count of the number of responses associated with
different values of one variable where these amounts are usually in percentage.
Frequencies produce tables of frequency counts and percentages of the values of
individual variables. Frequencies are used to obtain frequencies and statistics for
categorical variables and to obtain statistics and graphical displays for continuous
variables. This method has been used for this study in demographic profile that is
consists of gender, age, marital status and the job position of the respondents.
Graphical displays that available for this study are bar chart and pie chart.

4.4.2

Reliability of Measures: Cronbachs Alpha

Frequency distribution will explain extreme values as well as insights into the central
tendency, variability and shape of underlying distribution. Frequency distribution also
can be defined as a process of organizing a set of data by summarizing the number
of times a particular value of a variable occurs. The process begins by recording the
number of times a particular value of variables occurs. (Sekaran, 2003) published
that the reliability of measure indicates the extent to which it is without bias (error
free) and hence ensures consistent measurement across time and across the various

Page 15 of 20

items in the instrument. In other words, the reliability of a measure is an indication of

the stability and consistency with which the instrument measures the concept and
helps to assess the goodness of a measure.

Alpha

4.4.3

Coefficient

Strength

Range

Association

<.6

Poor

.6 < .7

Moderate

.7 < .8

Good

.8 < .9

Very Good

.9

Excellent

of

Descriptive Statistics
According to Uma Sekaran (2006), descriptive statistics such as maximum, minimum,
means, standard deviations and variance were obtained for the interval-scaled
independent and dependent variables.

4.4.4

Correlation Analysis
Pearson correlation analysis will be used to analyze the relationship between two
variables or to measure the degree of association between variables (Parasuraman,
1986).In analyzing the result, the researcher want to investigate the relationship
exists between two variables, dependent and independent variable. The analysis can
be interpreted as high, moderate and low correlation based on the score computed.
From the SPSS revision book (version 6), correlation is a bivariate measure of
association (strength) of the relationship between two variables. It varies from 0
(random relationship) to 1 (perfect linear relationship) or -1 (perfect negative linear
relationship). It is usually reported in terms of its square (r 2), interpreted as percent of
variance explained. For instance, if r2 is .25, then the independent variable is said to
explain 25% of the variance in the dependent variable.

Page 16 of 20

Table Rules Of Thumb about correlation coefficient size

4.4.5

Coefficient range

Strength Of Association

#. 91 to #1.00

Very strong

#. 71 to #. 90

High

#. 41 to #. 70

Moderate

#. 21 to #. 40

Small but definite relationship

#. 01 to #. 20

Slight, almost negligible

Regression Analysis
Multi Linear regression analysis is an analysis of the relationship between one
variable (dependent variable) and set of variable (independent variables). It is used
by the researcher to test the hypothesis. As in all hypothesis tests, the goal is to
reject the null hypothesis and accept the alternative hypothesis.

Page 17 of 20

SECTION FIVE: CONCLUSION

This study will add to the body of knowledge that is useful in providing the information
related to the issues that need to be addressed to resolve the existing issues in Islamic hire
purchase implementation in dual banking system. Besides that, it helps the company to
make a decision in which issues should be focuses more in order to getting smooth
operation. This research also may provide more strategy in tackling the customers
preferences.
Not only that, this study also will helps the customers in terms expressing their opinion,
feeling, perception, and preferences about the dual banking system in the Hire Purchase
Centre Affin Bank PJ SS2 branch. So, it will give the benefits to all parties.

Page 18 of 20

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