36 Int. J. Islamic Marketing and Branding, Vol. 1, No.

1, 2015

Conventional and Islamic banking: perspectives from

Malaysian Islamic bank managers

Michel Rod*
Sprott School of Business,
Carleton University,
1125 Colonel By Drive, Ottawa,
ON, K1S 5B6, Canada
Email: michel.rod@carleton.ca
*Corresponding author

Fawaz Baddar ALHussan

IESEG School of Management (LEM UMR CNRS 8179),
Universit Catholique de Lille,
3 Rue de la Digue, Lille 59000, France
Fax: +33 (0)320-57-48-55
Email: f.baddar@ieseg.fr

Tim Beal
School of Marketing and International Business,
Victoria University of Wellington,
P.O. Box 600, Wellington, New Zealand
Email: tim@timbeal.net.nz

Abstract: This paper attempts to provide a comprehensive review of the

Islamic banking extant literature from a Malaysian perspective. There is no
novel theoretical perspective; rather, the contribution that this paper makes is to
simply illustrate and summarise the range of research being conducted on
Islamic banking in a country known for its pioneering role in growing Islamic
banking and financing. Hence, this paper provides a comprehensive review of
the Islamic banking literature within the Malaysian context before briefly
illustrating perspectives of a number of Islamic banking managers in Malaysia.
Three themes emerge from interviews with these managers: 1) factor
influencing the choice of Islamic versus conventional banking/products; 2) the
influence of the Malaysian context; and 3) the issue of Shariah-compliance.

Keywords: conventional; Islamic; banking; Shariah; Malaysia.

Reference to this paper should be made as follows: Rod, M., ALHussan, F.B.
and Beal, T. (2015) Conventional and Islamic banking: perspectives from
Malaysian Islamic bank managers, Int. J. Islamic Marketing and Branding,
Vol. 1, No. 1, pp.3654.

Copyright 2015 Inderscience Enterprises Ltd.

 Conventional and Islamic banking 37

Biographical notes: Michel Rod is an Associate Professor in Marketing at

Carleton University, Canada. His research interests include Doing business in
Asia, service recovery performance, burnout, wine marketing, and
collaborative relationships amongst university, industry, and government
within the health sciences sector. His work is published in Industrial Marketing
Management, Journal of Business Research, Journal of Services Marketing,
Journal of Strategic Marketing, Journal of Retailing and Consumer Services,
Marketing Intelligence and Planning, Journal of Information and Knowledge
Management, Journal of Transnational Management Development, Managing
Service Quality and Science and Public Policy.

Fawaz Baddar ALHussan is an Assistant Professor in the Marketing

Department at IESEG School of Management, Universit Catholique de Lille
in France. His research interests include key account management,
business-to-business marketing, relationship marketing and international
marketing. He has published in Industrial Marketing Management and the
International Journal of Human Resource Management.

Tim Beal is a former Senior Lecturer and Research Fellow in the School of
Marketing and International Business at Victoria University of Wellington, in
New Zealand. He has considerable experience teaching, researching and
advising on subjects ranging from Chinese politics to international marketing at
universities in the UK, Japan, China and New Zealand.

This paper is a revised and expanded version of a paper entitled Conventional

and Islamic banking: perspectives from Malaysian Islamic bank managers
presented at 5th Global Islamic Marketing Conference, Kuala Lumpur,
2224 April 2014.

1 Introduction

There has been unprecedented growth of Islamic banking in the contemporary finance
world with Islamic banks holding in excess of US$ 900 billion in assets as of 2011 (Beck
et al., 2013) while operating in approximately 75 countries (Chaker and Jabnoun 2010).
Islamic banking operates on two basic principles under Islamic law (or Shariah); those
being the sharing of profit and loss as well as the prohibition of interest collection and
payment (Al Nasser and Muhammed, 2013) so it involves broader ethical and moral
considerations than simply the elimination of interest (Khan, 2010). Unlike conventional
banks whose operations are based on interest, Islamic banks operate an interest-free
system guided by the common principle that depositors, rather than receiving a fixed
return in the form of interest, share the risk of investment and receive part of the resulting
profits or bear part of the losses. However, Islamic banking is largely perceived as being
synonymous with interest-free banking and there appears to be a mismatch between the
structural design of Islamic banks and the objectives they are mandated to pursue
(Hasan, 2008; Archer and Karim, 2012) specifically in attempting to balance being
customer-centric and efficiency-driven without compromising being Shariah compliant
(Rashid et al., 2013). Ariff and Rosly (2011, p.301) comment that Shariah compliance
can be a futile exercise when the purpose of the law (maqasid al-shariah) is overlooked,
for there is much more to Islamic banking than the elimination of interest. Salleh (2012)
38 M. Rod et al.

echoes this sentiment in highlighting that no-interest is merely one principle in Islamic
financial systems. Another perspective is shared by those that argue Islamic banking
profit-and-loss sharing is, in reality, only a small portion of Islamic bank financing where
deposits are not necessarily interest-free and that Islamic banks should be subject to the
same regulations as their western counterparts (Chong and Liu, 2009).
Thus, if a strong opinion exists that there may be difficulty in maintaining a customer
focus while still adhering to Islamic law, there is an opportunity to more closely examine
managerial perspectives regarding how Islamic banking can best compete with
conventional banking. This is an important topic given that research shows the impact
that frontline workers have on customer perceptions of service quality (Al-Mutawa and
Ibrahim, 2013; Misbach and Hadiwidjojo, 2013), the impact of service quality on
performance (Ahmad et al., 2010) and especially given evidence that barriers to service
quality seem to exist in some contexts (Chaker and Jabnoun, 2010). Service quality has
been shown to be a determining factor for choosing an Islamic bank (Subhani et al.,
2012) despite regulatory measures that seek to ensure that all Islamic banks compete on a
level playing field with each other and with traditional banks (Siddiqui, 2008;
Kamarulzaman and Madun, 2013) and under increasing pressure through the issuing of
fatwas advocating the harmonisation of Shariah rulings given the leniency and flexibility
in interpreting Shariah resolutions by Malaysian Islamic banks versus their Gulf
Cooperation Council (GCC) counterparts (Shaharuddin et al., 2012) in spite of arguments
that Malaysian civil courts and the Shariah Advisory Council in Malaysia should serve as
an exemplar for adjudicating Shariah issues in Islamic financial contracts (Trakic, 2013).
As one of the 75 previously-mentioned countries offering Islamic banking services,
Malaysia has been a pioneer in adopting dual banking systems where both Islamic and
conventional banking systems co-exist (Khiyar, 2012), and where conventional banks
have been allowed to open Islamic windows in taking a systematic planning approach to
growing Islamic finance systems in the region. In Malaysia, government has been the
main driver behind the development of an Islamic banking sector through its funding of
Islamic financial service banks and efforts to create legal frameworks (Al Nasser and
Muhammed, 2013). This paper attempts to provide a comprehensive review of the
Islamic banking extant literature from a Malaysian perspective. There is no attempt to
introduce any novel theoretical perspective; rather, the contribution that this paper makes
is to simply illustrate and summarise the range of research being conducted on Islamic
banking in a country known for its pioneering role in growing Islamic banking and
financing. Hence, this paper provides a comprehensive review of the Islamic banking
literature within the Malaysian context before briefly illustrating perspectives of a
number of Islamic banking managers in Malaysia.

2 Literature review

In the Malaysian Islamic banking context, there has been considerable academic research
published over the past 24 years (Ariff, 1989; Al Nasser and Muhammed, 2013).
Characteristics of Islamic financing suggest that it is a viable alternative to conventional
interest-free financial systems; especially with respect to specific Islamic finance
products such as mudarabah (trust financing), musharakah (equity financing), ijarah
(lease financing), murabadah (trade financing), qard al-hassan (welfare loan), bay bi
al-thaman al-ajil (deferred payment financing), istisna (progressive payments) (Samad
 Conventional and Islamic banking 39

et al., 2005), al-ijarah thumma al-bai (hire-purchase) (El-Din and Abdullah, 2007), and
sukuk (Islamic investment certificates/bonds) (Godlewski et al., 2013; Wilson, 2008).
Because the notion of accountability in Islam transcends the temporal world and the
eternal hereafter (Nahar and Yaacob, 2011), there has been a plethora of conceptual and
empirical work designed to assess these products in practice, addressing such topics as:
laws governing Islamic banks and legal issues associated with Islamic banking
innovations (Yaakub et al., 2011); the role of Islamic financial institutions in promoting
social and economic welfare as outlined by Shariah law (Aris et al., 2013); faith-based
investing and the demand for alternative investment vehicles that adhere to Sharia
principles (Hassan et al., 2010), their governance (Lewis, 2010), and their performance
relative to conventional unit trust funds (Abdullah et al., 2007; Saad et al., 2010); the
application of wad (unilateral promise) in Islamic banking contracts (Zaini and Isa,
2011); the determinants of profitability/performance comparing domestic versus foreign
Islamic banks (Muda et al., 2013a; Wasiuzzaman and Gunasegavan, 2013); the role of
venture capital versus Islamic finance in funding SMEs (Boocock and Presley, 1993); the
impact of macroeconomic variables on Islamic stock returns (Majid and Yusof, 2009),
and the role of Islamic and conventional stock markets in attracting foreign portfolio
investments (Yusof and Majid, 2008); perceptions of non-Muslim customers (Abdullah
et al., 2012); perceptions of corporate customers towards Islamic banking products and
services (Ahmad and Haron, 2002); the perceptions of loans officers regarding auditor
independence (Bakar et al., 2005); the evolution of an Islamic financial system (Laldin,
2008; Nakagawa, 2011), and its role in the Malaysian economy (Furqani and Mulyany,
2009; Sukmana and Kassim, 2010); assessing knowledge of and educating Malaysian
Muslims about Islamic banking (Hamid and Nordin, 2001); Islamic financing and bank
risk (Bacha, 2008; How et al., 2007); key issues in the measurement and management of
operational risk (Abdullah et al., 2011); the implications of deposit insurance (Abdullah
and Ahmad, 2012); the information content of the Islamic interbank money market rate
(Kassim and Manap, 2008); calculating the demand for money under Islamic financial
systems (Kaleem, 2000; Kaleem and Isa, 2006); disclosure and governance
(Satkunasingam and Shanmugam, 2004; Hassan and Christopher, 2005); compliance with
disclosure guidelines (Ameer et al., 2012); risk-management disclosure pre-, during, and
post-financial crises (Ismail et al., 2013b); accountability and governance (Magalhes and
Al-Saad, 2013; Nahar and Yaacob, 2011); securitisation (Zakaria and Ismail, 2008);
performance (Rosly and Bakar, 2003; Sufian, 2010a); customer attitudes towards Islamic
banking services (Haque, 2010; Thambiah et al., 2011); customers selection criteria for
using Islamic banks (Dusuki and Abdullah, 2007; Haque et al., 2009; Thambiah et al.,
2012; Echchabi and Olaniyi, 2012a, 2012b; Nawi et al., 2013); factors influencing
customers switching behaviours between banks offering Islamic banking products
(Abduh et al., 2013); determinants of internet banking acceptance (Amin, 2007a) and of
Islamic insurance acceptance (Rahim and Amin, 2011) and demand (Sherif and Shaairi,
2013); Shariah concerns associated with Islamic insurance (Wahab et al., 2007) and
associated disclosure compliance (Kasim, 2012); the impact of religion and region on
Islamic banking adoption (Thambiah et al., 2013); intent to use Islamic personal
financing (Amin et al., 2011a); the role of Islamic jurisprudence in implementing home
financing instruments that are Shariah compliant (Azli et al., 2011); criteria for choosing
Islamic home financing (Amin, 2008; Taib et al., 2008; Amin et al., 2009), the process of
adopting Islamic home financing (Amin et al., 2013), and the viability of using rental
40 M. Rod et al.

price (in comparison to lending rate) as a benchmark for fair pricing of Islamic home
financing products (Yusof et al., 2011); comparing Muslim and non-Muslim customers
banking needs (Haron et al., 1994); determinants of Islamic and conventional banking
deposits (Haron and Azmi, 2008); comparing Islamic and conventional retail deposit
products (Amin, 2013a); the potential for various Islamic banking products (El-Din and
Abdullah, 2007; Muneeza et al., 2011); Islamic credit card patronage (Amin, 2012,
2013b) usage intentions (Amin, 2007b) and impact on loyalty as a result of service tax
implementation (Hussin, 2012); brand preference (Ahmad et al., 2011); stakeholder
perspectives on Islamic banking objectives (Dusuki, 2008); customer satisfaction and
loyalty (Amin et al., 2011b); comparing Muslim and non-Muslim customers trust,
satisfaction and loyalty between fully-fledged Islamic banks and banks with
Islamic windows (Hoq et al., 2010); cost efficiency (Yudistira, 2004) and
productivity/performance (Abdul-Majid et al., 2011a, 2011b; Muda et al., 2013b);
assessing Muslim and non-Muslim sensitivities towards adopting Arabic terminology in
Islamic banks (Muhamat et al., 2011); comparing efficiencies between Islamic banks and
conventional banks Islamic windows (Sufian, 2007; Kamaruddin et al., 2008; Ahmad
and Rahman, 2012; Yahya et al., 2012; Rozzani and Rahman, 2013) as well as
conventional banks (Mokhtar et al., 2006); comparing efficiency between Islamic banks
and conventional banks (Ismail et al., 2013a); comparing the contribution of Islamic
banking to economic growth between Malaysia and GCC countries (Farahani and Dastan,
2013; Yusof and Bahlous, 2013); comparing risk management practices between Islamic
and conventional banks in Malaysia as well as selected Islamic banks outside of Malaysia
(Tafri et al., 2011); comparing efficiency between domestic versus foreign Islamic banks
(Sufian, 2006); comparing efficiency between Islamic banks in countries like Malaysia
with conventional banking systems with Islamic banks operating in countries where
Islamic banking is more directly government legislation such as in the Middle East
(Kablan and Yousfi, 2013); comparing productivity between Islamic and conventional
banks (Ismail and Rahim, 2013); comparing the nature and extent of productivity changes
between co-operative, Islamic and conventional banks (Othman et al., 2013); comparing
financial performance of Islamic and conventional banks in the nineties (Iqbal, 2001) and
during and after economic crisis (Kadir et al., 2013; Kassim and Majid, 2010); comparing
the investment performance of conventional versus Islamic real estate investment trusts
(REITs) prior to and after global financial crises (Ong et al., 2012); comparing
profitability, liquidity and operational efficiency between Islamic and conventional banks
based on the formers ideology (Arora and Raghu, 2011); comparing promotional tools
and practices used by conventional versus Islamic banks (Haque et al., 2010); comparing
management accounting systems between Islamic banks and conventional banks (Rasid
et al., 2011); competitive capabilities and efficiencies (Mokhtar et al., 2008); comparing
the factors influencing credit risk between Islamic and conventional banks (Ahmad and
Ahmad, 2004); Islamic rates of return (Ito, 2013) and the relationship between Islamic
and conventional banking depository returns (Kaleem and Isa, 2003); evaluating Islamic
bank resiliency to stock market fluctuation, interest rate or monetary conditions (Ibrahim
and Sukmana, 2011); the effect of interest rates of deposit account facilities of
conventional banks and past dividend rates on funds deposited by customers on the
Islamic deposit facilities of Malaysian banks (Haron and Ahmad, 2000); reasons for rapid
growth in Islamic banking (Chong and Liu, 2009); sources of productivity growth
(Sufian, 2009, 2010b); the role of Islamic banking in the Labuan International Offshore
Financial Center (Baba and Amin, 2009); the role of organisational learning in the growth
 Conventional and Islamic banking 41

of Islamic banking (Mansor et al., 2010); proposed Islamic micro-investment strategies to

provide capital for micro, small and medium enterprises (Abdul Rahman et al., 2013);
awareness of e-banking services (Mansor et al., 2012); perceptions of service quality
(Abedniya and Zaeim, 2011; Kumar et al., 2010) and customer satisfaction (Amin and
Isa, 2008; Osman et al., 2009); measuring service quality across Islamic and conventional
banks (Kumar et al., 2010; Taap et al., 2011); branding Islamic financial services (Alwi
and Melewar, 2013); comparing centralised (Malaysia) and decentralised (GCC) shariah
governance frameworks (Hamza, 2013; Hasan, 2011) as well as the extent of shariah
disclosures in annual reports (Abdullah et al., 2013); assessment as to the Sharia
compliance of certain Islamic banking products (Sawari et al., 2011) and the extent to
which shubuhat exists in full-fledged versus subsidiary Islamic banks (Ahmed et al.,
2013). So, as one can see, there has been a tremendous amount of research related to
Islamic banking in the Malaysian context. Against this background, we have undertaken
an empirical study underpinned by a discursive perspective.

3 Research method

Adopting the methodological approach to business networks outlined by Ellis and

Hopkinson (2010), we use the concept of the interpretive repertoire to facilitate the
study of discursive agency and constraint on the part of Islamic Banking managers in
Malaysia. Repertoires are recurrently used systems of terms viewed as building blocks
that speakers use strategically in explaining, justifying, excusing, etc. (Potter and
Wetherell, 1987). They effectively function as scripts (Welch and Wilkinson, 2002) that
can facilitate and/or restrict actors sense-making and identity construction. Repertoires
can be identified through the examination of certain words, metaphors, figures of speech
and grammar. They enable evaluative micro discursive constructions about the
behaviours of the self and others. These constructions are facilitated by drawing upon a
variety of normative macro discourses, such as relationship marketing, that demark
what an actor should do within the context of an inter-organisational relationship.
Discursive (spoken text) data was collected by researchers in New Zealand, with the
Malaysian component taking place in 2009. This took the form of transcripts from
semi-structured interviews with Senior Islamic Bank managers in Kuala Lumpur and
Labuan, the Secretary-General, Islamic Financial Services Board, Malaysia and the
Director-general, Labuan Offshore Financial Services Authority (LOFSA), Labuan. All
the participants were Malaysian, and the interviews, which were conducted in English,
lasted between 45 and 60 minutes, and were recorded on audio and video media.
Participants were asked open questions concerning their roles and the organisations they
represented as well questions about Islamic Banking products/services, their customers
and competitors. These included the initial scene-setting: Tell us about your
bank/organisation before then addressing more specific issues regarding Islamic and
conventional banking in Malaysia. An academic colleague in Malaysia helped to identify
and contact relevant senior management in Islamic banks, or banks offering
Islamic services in Malaysia as well as senior personnel in associated government
departments and academic institutions to arrange interviews. Although our sample was
convenience-based, snowballing out as it did from initial contacts, it allowed us to
42 M. Rod et al.

interact with representatives from industry, government and academia in order to gain
varied perspectives on the topic of interest.
To manage the interview data, our analysis involved identifying interpretive
repertoires that were employed within the relevant portions of the interviews. We sought
to develop an understanding of how repertoires were used by identifying the various
discursive forms of any one repertoire and exploring who used such forms, when and
with reference to what. These steps were facilitated by NVivo software which allowed for
a high degree of transparency and levels of agreement as each researcher in turn coded
the data. Consistent coding of text to repertoire nodes was guided by a protocol-based,
in part, on the management literature, but also on the emic responses of managers (cf.
Ellis and Hopkinson, 2010). In this way, we hope to have captured some of the subjective
perceptions of our participants (Zhu et al., 2005).

4 Findings

Several sets of linguistic resources were of significance to Malaysian managers. We have

organised these into three interpretive repertoires. Although the labels for each repertoire
are our own, the analysis was driven by the discourse of our participants as we moved
from in vivo talk, through first order themes, onto second order themes which became
increasingly induced by us as researchers in order to offer suggestions regarding the
functioning of each overarching repertoire [Nag et al., (2007), p.828]. The repertoires
thereby emerged from patterns of talk wherein the same phrases and terms were drawn
upon across the sample. In discourse analysis, it is not just the identification of linguistic
tools that is important; what speakers do with language is also crucial. Although we have
sought to identify repeated usages of language, the relative frequency of occurrence of
each repertoire is not necessarily the most significant issue in discourse analysis: rather, it
is the strategic use of language by speakers that matters more. So, while our identification
of repertoires was guided by noting re-occurring expressions and terms, we use the
interpretive themes that emerged from our analysis as the guiding framework for this
section (i.e., from a broadly macro to micro level of constructed entities), instead of
letting pure frequency dictate the order in which we discuss our findings. In the segments
of talk presented below, in those verbal exchanges where a co-construction of meaning
appears to be taking place, P represents the participant and R the researcher.

4.1 Repertoire 1: quality of service and factors affecting choice of bank

products
The way that we organize our distribution, the way that we organize our risk
management can actually penetrate into this market because at the end of the
day what the customers are looking for is if you have good service, you have
fast turnaround time, sometimes they are willing to pay for, theyre not just,
theyre not just looking at the pricing, customers look at the service as well
especially today. (Senior manager of foreign bank operating Islamic subsidiary
bank)
We need to be competitive, so given the choice if they have two products one
conventional one Islamic and if they are both at par, no different in terms of
pricing is the same in terms of the documentation is the same, rate is the same
and all that, now very high chance that for the GLCs they [customer] will
 Conventional and Islamic banking 43

choose Islamic business. (Senior manager of foreign bank operating Islamic

subsidiary bank)
While we find one product today that can more or less compete with
conventional product but along the way you probably can share this, you have
some challenges as far as Shariah is concerned. You know there are some new
findings in the Shariah activity for example they say the old you know you
cant do this anymore. And thats the time that we try to find a new
replacement. (Senior manager of foreign bank operating Islamic subsidiary
bank)
So as more and more players being introduced in the market for the Islamic
banking and takaful business. Its not just bank its takaful and also the
investment banking. It will create competition number one. Number two it
reduce the cost, it will reduce price and when the price get reduced it benefit
the customers so there will come a time when the product of the Islamic bank
can be cheaper than the conventional bank as a result of all this. So then not
just the Muslim want to take it because the non-Muslim people will say hey this
is cheaper. Ill go to Islamic bank. (Senior manager of foreign bank operating
Islamic subsidiary bank)
If everything is very equal they [Muslims] will high chance they choose the
Islamic. It is the non-Muslim that you want to see which one will you choose.
Their mindset depends on the salesperson. (Senior manager of foreign bank
operating Islamic subsidiary bank)
The mindset is not that youre, youre not just working for the money, youre
working it because it is part of your duty to Godbecause in customer
service you have to do that extra mile without being asked to do. So if you are
monetarily motivated you will ask them to do something, what is in it for me.
So if you start asking what is in it for me so its quite difficult to get a natural
impromptu kind of quality service. The quality service will come but you will
not be natural, you will be half-hearted because Im being paid to do that.
(Senior manager fully-fledged Islamic bank)
So thats what I was saying that the training that continuously we are having to
ensure that our people are equipped with that knowledge of managing the
customer because if you manage it wrongly it can be the other way round. They
can tell another five customers that they have been victimized by the bank but
the training that we are giving is actually to make sure that our people know
how to manage and resolve the issue to the advantage of the bank. Thats why
we call it managing our critical and difficult customers. (Senior manager fully-
fledged Islamic bank)
We use a lot of our Shariah scholars to review and look at every single
transaction that we do in terms of the concepts and all that and we are coming
out clearer and clearer on this matter and I think Islamic banking in Malaysia is
at the stage where its moving towards another maturity level where then the
signs would be a lot more clearer in terms of the differential between
conventional banking and Islamic banking. (Senior manager fully-fledged
Islamic bank)
In the following exchange, we are speaking with a senior manager of a Saudi bank in
Malaysia.
P: At the end of the day I think Islamic banking okay theres something like
this. Maybe when we did our strategy theres something where we have low
hanging fruit, it obviously the people innately take to Islamic banking because
they understand it better which is the Muslim because Shariah to them might be
a little bit more understandable and palatable because its part of our whole
44 M. Rod et al.

aspect of being a Muslim to understand Shariah. So those are the low hanging
fruits we picked up fast. Being the Islamic bank, largest bank, Islamic bank in
the world coming from the Holy land. They are all businessmen and with
Shariah values so we will engage on these things.
R: Just to interrupt does that coming from the Holy land, coming from Saudi
does that give you some stronger Islamic credentials in the market here
But compared with say Bank Islam which is a local, a Malaysian bank but not
coming from the Holy land. Youre coming from the Holy land with a non
Malaysian which is the stronger image?
P: I think we both have our own niche segments because I must say Bank Islam
you cannot take a fruit and theyre one of the, theyre the oldest Islamic bank
here, over twenty years. Now the thing is its also about making customer
increase its not only Shariah. When you go into a bank you expect service, you
expect a lot of things that are around. So thats where we always wanted to be
different. We positioned ourselves in terms of service carrying. You know our
teams start from basic things from meet and greet you know, your bread and
butter comes from servicing them right and thats something which we
hopefully did right. And we also realize in this market we have packaging. You
know there you could basically make a customer you know we want to be
everything to some customers. Not everything to everyone but we want to be
everything so in that way we probably did a bit of bundling in terms of our
product offering which also helped in terms of what shall I say capturing
that customer in terms of the Shariah wallet, we had those things basically put
in the way. Part of our KPIs is if you go to our branches its cross selling. So
these are things that we from day one kind of embedded into our whole plan of
getting our strategy right. We shouted out in the market a few things. We
talked about here is the largest Islamic bank thats going to give you products
that are transparent and etiquette. So if you look my whole campaign was based
on three words truth, respect, honour. Thats all but I must tell you Ive been
in advertising also with the two banks. It did wonders for us. It did wonders for
us so that acting on the first two years were still, were still driving that
perception and cashing our branches. It was a very simple campaign because all
our hoardings were truth, respect, honour and then we came to the tag line just
values, with the honour on the word just. You know being just and fair and
value. So it all this you know basically brought us into the market. They said
wow here is a bank at least that, you know that intuition to excite that mind.
Lets find out what it was. It was more a corporate campaign bringing Al Rajhi
into the foray of saying here is a bank. Now we still, people dont know what
the hell we are doing you know, what it is all about. But we brought out the fact
that we were the largest Islamic bank. When you look at a bank I always
believe people look for stability, security, sleep well with your money you
know. So we brought in the simple stuff and just values also basically became a
talking point you know what is just values is all about. I mean there were critics
also about it because we were also kind of evolving and in the end didnt have a
kind of perfect model they want. We had little issues with the systems, with
people, there were a lot of training. We did a lot. We have a permanent training
centre in our head office if you go down there are two huge classrooms, it just
continues to keep doing it. (Senior Executive of a Saudi Bank in Malaysia)

4.2 Repertoire 2: the Malaysian context

A lot of other countries want to do Islamic banking. But i think as youre
probably aware as well as Islamic bank for it to grow you really need some
changes in the regulatory framework and in the legal framework of the country
itself. If this is not changed then i think its going to be a long, long process for
 Conventional and Islamic banking 45

you to have Islamic banking in that country. Now Malaysia has been fortunate
because the government used the amendment of the regulatory framework and
the legal framework to make the industry conducive for it to grow business. But
elsewhere is very much demand driven as opposed to regulatory framework
changes. (Senior Manager of Foreign Bank Operating Islamic Subsidiary Bank)
The other thing that prevent, well not prevent, that stifles the growth of Islamic
bank is the existing laws in the country. For example in this country you have
the Hire Purchase Act and you know you can only repossess a car through the
Hire Purchase Act so like it or not the Islamic banking have to follow that. So
these are some of the things. So whilst one wants to develop Islamic banking in
the country one has also got to look at the central bank being the regulator and
the existing laws that exist to cater and to allow for Islamic banking to try it
because it is a transaction which is not quite a lending transaction. It is a
buy/sell transaction or a deferred payment type transaction. So this is where the
countries have not been able, Malaysia is the most progressive but even the
progress on Malaysia is not as great as what it should be. So then you come and
you know face all these issues on the PPA and all that that recently happened
and these are, these are I would say legal and you know regulatory issues that
needs to be coming out of it.. the Islamic Banking Act actually allows for
you know a repossession outside Hire Purchase Act. (Senior manager
fully-fledged Islamic bank)
But at the end of the day you know in summary Islamic banking is all about
ethical banking. Its about following the religion in terms of the way you
maumalat you deal with people and secondly is that the transactions are
premised on tangible economic activity. Every transaction that is done has an
economic activity. That is Islamic banking. If you know somebody buys house,
its an actual purchase with a, with a payment and with a capital benefit that
comes out of that person through whatever and if there is a financing through a
person that is an underlying asset along with it. Thats really it so the economic,
the transaction mirrors the economic activity. And thats really it. So you cant
get out of the realms of writing an option or writing something else to create
another value which over and above that economic value. (Senior manager
fully-fledged Islamic bank)

4.3 Repertoire 3: Sharia and Sharia compliance

From the perspective of a Western academic such as me, the most interesting discussion
in these interviews was when the conversation turned to Shariah and products that were
being offered by banks and the extent to which they were actually Shariah-compliant, as
seen in the following excerpts:
So we are a new bank we want to get it right here so we also have our proper
sharing ratio in place to make sure. But we continue to pay hiba to give them
something that is basically acceptable. So this is what Im saying you know that
amount of modernization that can happen in eastern banking is there. Some
people think its archaic, thats what I want to tell you, it is not. There are
things that Shariah can adapt to meet the changing environment. Now I am not
saying it is just the means of putting things to meet our standards, no because
hiba is hiba. Its about the bank wants to in its own magnanimous way be free
to do anything about is okay. (Senior Executive of a Saudi Bank in Malaysia)
We provide Shariah advisory, through our audit and stock screening services.
Shariah audit, not that many are willing to come forward because you are
opening a can of worms. (Chief Executive of an Islamic Banking Institute)
46 M. Rod et al.

P: So we see a place like South Korea we approve their Shariah Islamic private
funds with people with 1billion and these funds will be used to finance and
endorse Shariah compliance areas.
R: But the money itself this is one billion coming from South Korea but I mean
does the money or the earning of the money or the origin of the money have to
be Shariah compliant?
P: No. No. I explain this way. The promotion of the finances that they
already do in South Korea but the investment or the funds are actually from the
Middle East. The funds theyre using are from the East and then it is a clean
fund to be used like in to invest into the area, lets say in Taiwan, in Korea or
even the Middle Eastern countries as well. In Shariah compliant products, yes.
R: But when the funds from the Middle East can come from different sources? I
mean whether its legal or illegal you dont know.
P: I think in Shariah we learned not to ask questions. (Senior Executive Labuan
Offshore Financial Services Authority)
And another excerpt between the interviewer and a senior official at Bank Islam:
P: See sometimes people like me you know we are protecting Islamic business
at the bank, sometime charges are very unpopular to the customers that we are
having, so what we do is we call our Shariah people to see otherwise.
R: Can I just clarify this, looking at the Bank Islam you have the Board of
Directors, yes but you also have the Shariah supervisory council, so this is what
you are talking about?
P: That is very powerful. In case of Bank Islam they can practically close down
Bank Islam.

5 Discussion and conclusions

As previously mentioned, Islamic banking and finance should embrace more than the
simple elimination of interest by involving broader ethical and moral considerations
(Khan, 2010). In this paper, I have provided a broad but very superficial review of the
range of research that has been conducted on the topic of Islamic banking in the
Malaysian context given that Malaysia has been a pioneer in adopting dual banking
systems where both Islamic and conventional banking systems co-exist (Khiyar, 2012),
and where government has been a major driver in the development of an Islamic banking
sector through its funding of Islamic financial service banks and efforts to create legal
frameworks (Al Nasser and Muhammed, 2013).
The results of an empirical study exploring the perspectives of a number of senior
Malaysian Islamic banking officials was presented according to three major themes that
were identified in their discussions with me, including the quality of service and factors
affecting choice of bank products, issues related to Malaysia as the context, and finally,
issues related to offering Islamic products and the extent to which Shariah compliance is
being adhered to. This latter theme raises the ongoing issue as to whether (and to what
extent do) Islamic banking practices reflect these broader ethical and moral
considerations dictated by Shariah principles.
 Conventional and Islamic banking 47

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