Malaysian banking: is the current practice of ibrā’ (rebate) reflecting its true meaning?

Abstract

Purpose This paper aims to investigate the current regulation of ibrā’ (rebate) set by the Central Bank for the Islamic banks in Malaysia and how far its original concept has been compromised to make it adaptable to the modern financial system. Design/methodology/approach This study, with regard to practising ibrā’ in Islamic banking in Malaysia, is qualitative in nature, using semi-structured interviews carried out with two types of informant: members of either the National Sharīʿah Advisory Council (NSAC) or the Internal Sharīʿah Committee (SC). All data are analysed based on the content analysis method. Findings The findings reveal that while stipulating an ibrā’ clause makes practising ibrā’ stray from its original concept, it has successfully tackled the current problem. However, the long-term consequences should be a concern, particularly Islamic banking products, which have been significantly influenced by the conventional system, including interest rates and the debt structure, neither of which should be identified with Islamic banking. Research limitations/implications This study is limited because it focusses on the practice of ibrā’ in Malaysian Islamic banking. Moreover, data are collected from nine interviewees from NSAC and SC from different Islamic banks. Thus, the results cannot be generalised to other countries. Originality/value This paper provides a fresh discussion of ibrā’ from the perspective of regulators and the experience of practitioners in Malaysia, particularly in respect of aspects of Sharīʿah and current actual practice.