Islamic Banking System In Malaysia

CHAPTER 1

INTRODUCTION

1.1 INTRODUCTION

Islamic banking System was established in accordance with sharia-compliance policies and laws in order to provide competitive transactions. Majority of the people were attracted to this type of financial concept that solely focused on the Islamic principles as the Islamic Sharia Law provides interest free banking concept and any other transactions that are not ‘haram’ or prohibited in accordance with the doctrine of the Islamic principles in order to avoid any lack of justice and social equity among others, especially in the Muslims societies. Therefore, the Islamic banking System has successfully managed to attract customers, including the non-Muslims due to the unique and captivating characteristics

It is fully supported by the government who has seen the benefits and the opportunities in the Islamic banking industry and how the industry may contribute to the Malaysian economy. Therefore, numerous efforts have been developed by the government of Malaysia in order to intensify the industry. It began with the formation of the Malaysian Pilgrims Fund Board (Tabung Haji) and the country’s first Islamic Bank, Bank Islam Malaysia Berhad (BIMB), which began its operations on the 1stof July 1983. Ever since then, BIMB has become the core element of Malaysia’s Islamic financial system. With its initial objective confined to the development of a viable and modern alternative to meet the financial needs, the Malaysian model is now one of the most advanced Islamic banking systems in the world. Later on, Bank Muamalat Malaysia Berhad (BMMB) was formed after a decade of the establishment of Bank Islam Malaysia Berhad (BIMB). Eventually, Malaysia has successfully managed to enforce a dual banking system and is known as the very first country that has reached full development of the Islamic banking

Customers’ satisfaction is an essential that direct any organizations towards success as it assist the organizations to gain more competitive advantage in the market among other competitors. The survival of the banks in the market lies upon the customers’ satisfaction. However, an intense competition among the competitors that results from an increased amount of new competitors entering the market, has made it difficult for the Islamic banking sector to compete and gain competitive advantage and to conquer shares in the market. Consequently, there is a strong competition in the market among the Islamic banking sector and the Conventional banking sector. When the competition intensifies, customers’ satisfactions are the main determinant of the competitiveness for both sectors. Therefore, it is required for the banks to pay more attention to customers’ satisfaction towards the Islamic banking system and also, to uphold the loyal customers. Customers’ satisfaction is mostly depending on the services quality and advantages for the customers provided by the Islamic banks. An atrocious quality of services and lack of opportune services will directly leads to the decremented number of