UNFAIR CONTRACT TERMS IN MALAYSIAN ISLAMIC BANKS: EMPOWERING BANK CONSUMERS BY ISLAMIC EDUCATION ETHICS

Purpose of study: The purpose of this study is to examine the importance of Islamic education ethics-based on the objectives of Shariah (maqasid al-Shariah) to bank consumers in raising their knowledge about their contractual rights and obligations since better-decision making empowers them to avoid unfair contractual terms in transactions with Islamic banks and manage their financial affairs responsibly. Methodology: Using qualitative analysis, this study reviews previously selected literature on Islamic education ethics and applies maqasid al-Shariahas a benchmark to determine the importance of Islamic financial literacy education. To emphasize such importance, the contents of both primary and secondary data are analyzed which include: official websites of Bank Negara Malaysia, books, academic journals, newspapers, and related industry reports. Result: Results shows that the Islamic educational ethics based on maqasid al-Shariah empowers bank consumers to improve their reading habits in making informed choices to assert their rights by being aware of the content and fairness of contract terms towards raising their financial literacy standard in avoiding unfair contractual terms and be equipped with Islamic financial knowledge and skill to demand for equitable contractual terms. Applications of this study: This study is important to Malaysian bank consumer empowerment since applying Islamic education ethics contributes to sound financial choice and better-decision making of whether or not to contract with IBIs since having no basic knowledge of contractual rights and obligations with Islamic banks, then they have little defense against one-sided and unfair contractual content. Novelty/Originality of this study: Because bank consumers do not read their contracts; this study promotes Islamic education ethics in empowering bank consumers to improve financial literacy in avoiding unfair contractual terms while making informed financial decisions and increase acceptability of Islamic banking products. This study contributes to the literature on Islamic ethics specifically on Islamic financial literacy educational ethics base on maqasid al-Shariah

Unfair contract terms in Malaysian Islamic banks: empowering bank consumers by Islamic education ethics

Purpose of study: The purpose of this study is to examine the importance of Islamic education ethics-based on the objectives of Shariah (maqasid al-Shariah) to bank consumers in raising their knowledge about their contractual rights and obligations since better-decision making empowers them to avoid unfair contractual terms in transactions with Islamic banks and manage their financial affairs responsibly. Methodology: Using qualitative analysis, this study reviews previously selected literature on Islamic education ethics and applies maqasid al-Shariahas a benchmark to determine the importance of Islamic financial literacy education. To emphasize such importance, the contents of both primary and secondary data are analyzed which include: official websites of Bank Negara Malaysia, books, academic journals, newspapers, and related industry reports. Result: Results shows that the Islamic educational ethics based on maqasid al-Shariah empowers bank consumers to improve their reading habits in making informed choices to assert their rights by being aware of the content and fairness of contract terms towards raising their financial literacy standard in avoiding unfair contractual terms and be equipped with Islamic financial knowledge and skill to demand for equitable contractual terms. Applications of this study: This study is important to Malaysian bank consumer empowerment since applying Islamic education ethics contributes to sound financial choice and better-decision making of whether or not to contract with IBIs since having no basic knowledge of contractual rights and obligations with Islamic banks, then they have little defense against one-sided and unfair contractual content. Novelty/Originality of this study: Because bank consumers do not read their contracts; this study promotes Islamic education ethics in empowering bank consumers to improve financial literacy in avoiding unfair contractual terms while making informed financial decisions and increase acceptability of Islamic banking products. This study contributes to the literature on Islamic ethics specifically on Islamic financial literacy educational ethics base on maqasid al-Sharia

A review on governance and best practices in waqf management for sustainable development in selected Malaysian States and other countries

Using the notion of sustainable impactful strategies for waqf management, this study examines the governance and best practices on idle waqf management by the Malaysian States Islamic Religious Councils (SIRCs) in selected states like Penang, Perak and Kuala Lumpur. The waqf management of the SIRCs is also assessed based on the model framework countries such as Singapore, Kuwait and United Arab Emirates (UAE). The findings of this chapter indicate that ineffective administration and management on waqf have hindered its development and expansion in Malaysia. Also, an effective and robust governance framework based on Shariah could and should be implemented to ensure that waqf in Malaysia are managed effectively to gain socio-economic sustainability of Muslim communities. The findings of this chapter will fill the research gap on good governance and best practices in waqf administration and management as a way forward for Malaysia by providing a way forward for SIRCs and policymakers in Malaysia, to enhance the performance of waqf entity using selected other countries as model framework of good governance and best practices. Furthermore, an emphasis on good governance and best practices is important to attract waqf donors. It is imperative to note that to date, there is no qualitative study that compare the impact of good governance and best practices on the management of waqf by selected SIRCs in Penang, Perak and Kuala Lumpur to Singapore, Kuwait and UAE as model framework countries

Unfair terms in Islamic banking contracts: realizing Maqasid al-Shariah towards banking consumer protection in Malaysia

The use of unfair contract terms in Islamic banking contracts remains a serious problem in Malaysia. Most Islamic banking contracts are in standard form contracts, also known as ‘adhesion contracts’ which are predrafted by the party with strong bargaining power in the contract and contain terms that are potentially unfair. These contracts are presented on a ‘take it or leave it’ basis and non-negotiable, leaving banking consumers no realistic opportunity to bargain for more favourable terms, subsequently resulting in an unfair transaction. Further, the unfair contract terms have greater implications on the realization of Maqasid al- Shariah, as it does not comply with the principles of protecting public interests (maslahah), honesty, trustworthy, financial transparency, prevent harm/hardship and al-‘adl wal-ihsan (justice with benevolence) in the circulation of wealth in banking transactions. This paper aims to analyze various legal documentations of Islamic banks in Malaysia in the light of Maqasid al-Shariah in order to propose a fair, transparent and consumer-friendly banking contracts. This paper suggests that the unfair contract terms in legal documentation of various Islamic banks and the inequality of bargaining power (ghubn) in banking industry, which resulted in the rights of banking consumers being infringed, have failed to realize the Maqasid al-Shariah. Thus, it justified the need to protect banking consumers from unfair contract terms as well as sending a strong message to the bankers to do fair trading and transparency in dealings, such that unfair terms will not be tolerated. This paper adopts a combination of theoretical and content analysis methodology

The Application of Maqāṣid al-Sharī‘ah: Wasaṭiyyah as a Significant Aspect in the Banker-Customer Relationship in Malaysian Islamic Banks: تطبيق مقاصد الشريعة: الوسطية كأقوى جانب في العلاقة بين المصارف الإسلامية الماليزية والمتعامل معها

إن علاقة المصرف والعميل علاقة تعاقدية مبنية على ما تتعاقد المصارف الإسلامية وعملاؤها عليه. وتستخدم المصارف الإسلامية العقود الموحّدة، وتعرضها على العملاء على أساس "اقبل أو ارفض" إذ لا يُفتح مجال التفاوض في الشروط. وبالتالي، تمكّن هذه العملية المصارف الإسلامية من التمتع بالقوة الاقتصادية لاستغلال العقود.  والهدف الرئيس من هذا البحث هو دراسة الشروط والأحكام التي قد تؤدّي إلى اختلال التوازن بين الحقوق والالتزامات في علاقة المصرف مع العميل، والتي تسبّب الضرر على عملاء البنك. اكتشفت هذه الدراسة أن المساومة بين المصرف والعميل غير متكافئة، إذ أن العميل يستخدم أضعف القوة المساومية. واستُخدم المنهج التحليلي في الدراسة، وذلك لبيان مقاصد الشريعة في ضوء مبدأ الوسطية في علاقة المصرف مع العميل، لإعادة تشكيل الحوكمة الراشدة في المصارف الإسلامية ولاقتراح تعديلات للوثائق القانونية التي تحسّن المعاملة المصرفية. وأخيرا، تقوية علاقة المصرف والعميل هي الحل الوحيد لنجاح البنوك الماليزية. الكلمات المفتاحية: علاقة المصرف مع العميل، المصارف الإسلامية، مقاصد الشريعة، ماليزيا، وسطيةThe banker-customer relationship is a contractual relationship based on the contract between Islamic banks and its customers.  Islamic banks use standardized contracts and offer them on a ‘take it or leave it’ basis where the terms cannot be negotiated, subsequently creating the potential for Islamic banks with the economic strength to exploit the contracts. The main purpose of this study is to examine the terms and conditions that may result in significant imbalance between rights and obligations in the banker-customer relationship, which detriments banking consumers. Findings in this study reveal that there exists unequal bargaining power whereby the customer wields the weaker bargaining power. Using the content analysis method, this study analyses the application of Maqāṣid al-Sharī‘ah through the maxim of wasaṭiyyah in the banker-customer relationship to reshape good self-governance and propose improved legal documentation towards a just transaction. The strength of the banker-customer relationship will determine the future success of the Malaysian banking industry. Keywords: Banker-customer Relationship, Islamic Banks, Maqāṣid al-Sharī‘ah, Malaysia, Wasaṭiyyah https://doi.org/10.31221/osf.io/vf38

تطبيق مقاصد الشريعة: الوسطية كأقوى جانب في العلاقة بين المصارف الإسلامية الماليزية والمتعامل معها = The application of Maqāṣid al-Sharī‘ah: Wasaṭiyyah as a significant aspect in the banker-customer relationship in Malaysian Islamic banks

The banker-customer relationship is a contractual relationship based on the contract between Islamic banks and its customers. Islamic banks use standardized contracts and offer them on a ‘take it or leave it’ basis where the terms cannot be negotiated, subsequently creating the potential for Islamic banks with the economic strength to exploit the contracts. The main purpose of this study is to examine the terms and conditions that may result in significant imbalance between rights and obligations in the banker-customer relationship, which detriments banking consumers. Findings in this study reveal that there exists unequal bargaining power whereby the customer wields the weaker bargaining power. Using the content analysis method, this study analyses the application of Maqāṣid al-Sharī‘ah through the maxim of wasaṭiyyah in the banker-customer relationship to reshape good self-governance and propose improved legal documentation towards a just transaction. The strength of the banker-customer relationship will determine the future success of the Malaysian banking industry

Demystifying the contractual duty of care of Islamic banks in Malaysia

The general relationship between a bank and customer is contractual in nature. For conventional banks, the banker-customer relationship is based on the debtor-creditor relationship with the bank earning a profit from a spread made between interest charged on the borrower of funds and interest paid to the depositors. In Islamic banking, due to the different contractual transactions of Islamic banking operation, it is based on a multi-contractual relationships. However, bank consumers perceive that banks enhance their profits by treating consumers unfairly and failing to take responsibility when things go wrong. This study examines the duty of care of conventional and Islamic banks towards bank consumers. It also focuses on the Islamic banks’ duty of care from the perspective of maqāṣid al-Sharī‛ah, to those who use their services. Adopting the doctrinal analysis method, this study analyses and compares the duty of care of both conventional and Islamic banks. Findings of this study include that misconduct by banking industries remains rife and that unfair treatment of customers are frequent. As for Islamic banks, the maqāṣid al-Sharī‛ah based duty of care is found missing in their Islamic banking operation. This study suggests that the duty of care for both banks should be reformed to improve bank consumers’ experience. For Islamic banks, an improved standard is useful in performing their duties based on Islamic values

How does values-based banking counter unfair terms in consumer contracts and notices in Islamic banks in Malaysia?

In July 2017, Bank Negara Malaysia (BNM) in collaboration with Malaysian Islamic finance industry, released a ‘Strategy Paper on Value-based Intermediation (VBI)’. This paper articulates strategies to promote the application of VBI which aims to improve the products and services offered by Islamic banking institutions (IBIs) towards a better facilitation of entrepreneurship, community well-being, sustainable environment and economic growth, without compromising on shareholders’ returns. The VBI is based on SharÊ‘ah, which determines the underlying values, moral compass and priorities in Islamic banks. With the adoption of VBI, IBIs will need to consider the impact of their activities and actions on a wider range of stakeholders, including the financial consumers. The main purpose of this study is to highlight the voice of banking consumers on detriments due to unfair terms in consumer contracts and notices, which is rarely heard by IBIs and BNM. Finding in this study reveals that although BNM has issued a number of standards and guidelines to improve fairness, transparency and governance, but the adoption and enforcement of the standards is highly uneven across the Islamic banks in Malaysia. Using content analysis, this study analyses the impact of values-based banking and governance in solving the problem of unfair contract terms and notices in Islamic banks. Therefore, this paper recommends that IBIs to take the leadership role in advocating values-based banking and governance in ensuring fair treatment, ethical banking and a more socially responsible banking environment to the consumers/community in line with sustainable development goals of SharÊ‘ah. The outcome of this study will be helpful to IBIs in enhancing their branding image and reputation towards facilitating business success over time

Consumer Rights Act 2015 (United Kingdom): is it a good model in protecting banking consumers from unfair terms in Islamic banking consumer contractsin Malaysia?

As the Islamic banking industry becomes more advanced and complex, it is crucial that transactions in acquiring goods and services are reduced in writing of whatever terms and conditions agreed upon. These terms and conditions could potentially be deemed as unfair when relied on, would cause detriment (whether financial or otherwise) to banking consumers and, can cause significant imbalance in the rights and obligations of contracting parties. The objective of this article is to discuss the current flaws and highlight the inadequacies of consumer protection laws on unfair terms in consumer contracts in Malaysia. Findings in this study reveals that the abuse of power by the Islamic banks is due to one-sided contract which is not negotiated between the contracting parties. Furthermore, it is offered on a ‘take it or leave it’ basis and can make it difficult for banking consumers to discern risks in the contracts. Using content analysis and doctrinal legal method, this article analyses the potential of unfair terms in Islamic banking consumer contracts and to consider whether the wider scope of fairness and transparency assessment under the Consumer Rights Act 2015 (CRA) of the United Kingdom could provide a potential practical solution. Therefore, this article recommends that a statutory controlling mechanism such like the CRA of the United Kingdom, should be adopted to protect banking consumers from unfair contract terms in Malaysia. This article intends to contribute to policy priorities for the Malaysian government towards a better protection for banking consumers from unfair contract terms