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JIMA
6,2
250
Received 14 May 2014
Revised 14 October 2014
20 October 2014
21 October 2014
Accepted 22 October 2014
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Journal of Islamic Marketing
Vol. 6 No. 2, 2015
pp. 250-267
© Emerald Group Publishing Limited
1759-0833
DOI 10.1108/JIMA-05-2014-0039
A review of the critical factors
affecting Islamic market
mechanisms in Malaysia
Md Arphan Ali
Faculty of Economics and Administration, University of Malaya,
Kuala Lumpur, Malaysia
Muhammad Khalilur Rahman, Mahfuzur Rahman and
Mohamed Albaity
Faculty of Business and Accountancy, University of Malaya,
Kuala Lumpur, Malaysia, and
Md Abdul Jalil
Faculty of Economics and Management Sciences,
International Islamic University Malaysia, Kuala Lumpur, Malaysia
Abstract
Purpose – The purpose of this paper is to explore the critical factors that influence Muslim consumers’
motivation towards the Islamic market mechanism.
Design/methodology/approach – The paper also attempts to formulate Ibnomer Mohamed
Sharfudddin’s “Islamic Administrative theory and Klaus Hurrelmann’s socialization theory” based on
the “productive processing of reality (PPR)” model. The data were collected by distributing a
self-administered questionnaire to a sample of 147 participants residing in the major cities in Peninsular
Malaysia. The constructs and items used in the questionnaire were derived from the basic guidelines
provided in the literature review and Al-Qur’an and Sunnah (Prophet’s deeds) on the conduct of
Malaysian business practices.
Findings – The results suggest that while awareness of the Islamic market mechanisms exists
amongst businesses, in practice, not many obey such rules. However, a significant relationship does
exist between the Muslim consumer motivational factors and Islamic market mechanisms.
Research limitations/implications – First, limitation in scope as only two main components
(productive service and commodity market) practices was examined. Future research may include other
types of variables practices in the Islamic market mechanism. Second, the sample size is small and
respondents were restricted to marketing and the academic sector. Future research should be done on
bigger sample size and more on diverse sample, such as extended to the manufacturing sector and the
service industry because manufacturing firms and the service sector might have different Islamic
market mechanism practices and outcomes compared to marketing and the academic sector.
Practical implications – Productive service and commodity market have positive impact on
consumers’ motivation towards the Islamic market mechanism. Government’s controlling and
monitoring in the market has positive effect on consumers’ motivation in selecting the Islamic market
mechanism.
Social implications – There is a need for more research on how to establish the Islamic market
mechanism practice. In addition, the outcomes of this paper are of particular significance to
policymakers, as it better informs them as to how best to design the Islamic market mechanism to make
it more practical regardless of various religious beliefs.
 Originality/value – This research is a rare attempt on the part of scholars and researchers in Islamic
Malaysia to relate the Islamic market mechanism practices and guidelines on a specific discipline. Based
on the researchers’ knowledge, it is the first study investigating the application of the Islamic market
market
mechanism practice in Malaysia. mechanisms
Keywords Islamic market segmentation, Islamic markets, The Muslim consumption pattern,
Selling to Islamic markets, Islamic pricing practices
Paper type Research paper
251
1. Introduction
The economic health of a country largely depends on the soundness of its market
mechanism. In the concept of conventional market mechanism, it is assumed that
individuals only look for maximizing his/her utility regardless of the fact that others can
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be affected badly. In contrast, according to the concept of market mechanism in Islam, it

is assumed that individuals not only look for maximization of his/her utility but also
care about the fact that others might be affected by their actions. Islamic market
mechanism is one of the highly debatable issues in many countries. Wilson et al. (2013)
argue that Islamic approaches to marketing and branding are currently viewed as niche
areas, while their audiences, geographies, impact and influence would suggest
something far more macroscopic and of greater significance. Furthermore, Wilson and
Grant (2013) posit that Islamic market mechanisms represent a novel focal phase, which
is acting visibly as the current torchbearer to challenge conventional notions of
marketing theory and practice. Regardless of the existing challenges, the concept of
Islamic market mechanism is getting popular, particularly among Muslim countries.
Socio-economic institutions such as a market which ensures the welfare of mankind is
not an unknown concept in Islam. Market is considered as a social institution where
buyers and sellers meet to buy and sell their goods, services and information (Hasan,
2014). The concept of market in Islam is an important institution where social and
economic conducts must reflect the moral and ethical order (Khan and Thaut, 2008). The
objective of Islamic market mechanism is not only to create a place for exchanging
goods and services between two parties for maximizing profits but also balance the
conduct of buyers and sellers to maximize the welfare of the society to attain success in
this world and hereafter. In Islam, there is no separation between achieving success in
this world as well as in the hereafter (Bashar, 1997). All transactions and activities
whether they are economic, political or social are incorporated as determinants of
success to ensure a greater welfare of mankind, which is considered as an essential part
of unity (Khan and Thaut, 2008).
Most prior research discussed the concept of market mechanism without any
empirical analysis. Previous work on this phenomenon focused on the core concepts of
the Islamic market mechanism, such as the difference between the conventional concept
of market mechanism and the Islamic concept of market mechanism, or various Muslim
scholars’ opinions about, both, the conventional and the Islamic concepts of market
mechanism. Most of prior empirical studies in market mechanism are about
conventional market mechanism either done in the USA or in a global scale (Hart, 1983).
This study is different from previous studies in many ways. First, this study focuses on
Malaysia. This is interesting in a sense that Malaysia is one of the potential markets
where the concept of Islamic market mechanism can be established, as Islamic banking
and finance industries have been well established here for more than a decade. Second,
 JIMA the Islamic concept of market mechanism is not very clear to the youth in the Muslim
6,2 world; thus, our findings would provide insight into the development of their basic
knowledge about it. Additionally, this paper will contribute to the emerging body of
literature on the Islamic market mechanism in developing countries by examining the
proposed research model in the context of Malaysia. The outcome of this paper is
significant for policymakers, as it informs them how to better design the Islamic market
252 mechanism to make it more practical regardless of various religious beliefs.
To take a step further, this paper, therefore, investigates students’ stances on the
Islamic market mechanism. It also examines participants’ opinions regarding the
Islamic market mechanism and explores whether respondents or consumers are aware
of the contemporary Islamic market mechanism. The extant literature has grouped
these Islamic market mechanism practices into:
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• productive service;
• commodity market;
• government role; and
• consumers’ motivation towards Islamic market mechanism.

The study also examines the effect of Islamic market mechanism practices in Malaysia.
Our results indicate that productive service and commodity market had effect on the
Islamic market mechanism throughout consumers’ motivation, but productive service
had no direct relationship with government role. Nevertheless, government role had no
direct effect on the Islamic market mechanism, but it had significant relationship
through consumers’ motivation towards the Islamic market mechanism. The remainder
of this paper is organized as follows:
• Section 2 briefly reviews the literature on the Islamic market mechanism,
productive service, commodity market, government role, consumer motivation
and theoretical foundation and the conceptual model.
• Section 3 illustrates the conceptual model and research hypotheses testing,
followed by a description of the methodology and results.
• The study concludes with a description of the significance of the results,
managerial implications and future research directions.

2. Literature review
2.1 Islamic market mechanism
Scholars have different opinions about the Islamic market mechanism. Islahi (2007)
documented that:
During the thirteenth and fourteenth century, the concept of just price to Muslim scholars and
their views about its determination was far superior and clearer than the contemporary
Western scholastics.
According to him, prices in the free market were determined by the forces of demand and
supply. The author believed that the price of the goods rise because of a decrease of
commodity or an increase of population. A decrease in commodity can be referred to as
a fall in supply, whereas an increase in population can be referred to as a rise in demand.
Ibn Taimiyyah believed that sometimes the price fluctuates because of the deficiency in
production or decline in import of the goods in demand (Islahi, 1985). He mentioned that
 any decrease in supply or an increase in population results from an increase in price. He Islamic
clarified two sources of supply. These are the domestic production and imports of the market
goods demanded. Any change in supply is defined as an increase or decrease in the
availability of the goods. He also described that the key determinants of demand for
mechanisms
the goods are taste or the desires for the goods.
Ibn Khaldun explained in his famous book “Muqaddimah” regarding why price of
certain goods were high in some places while the price of other goods are low. Ali (2006) 253
stated that “Ibn Khaldun did not characterize the market structure as competitive or
monopolistic while discussing market prices and allocation”. According to Ibn Khaldun,
there are two types of goods in the market. These are necessary goods and luxurious
goods. He believes that when a city expands and its population increases, the prices of
the necessary goods decrease because these goods are necessary for life and it gets the
first and foremost attention of everyone. Thus, the supply of the necessary goods will
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increase. Conversely, the price of luxurious goods will not increase much during the
expansion of the city, as it cannot attract everyone’s attention. The demand for
luxurious goods will increase if the life patterns of the people change. The view of Ibn
Khaldun and Ibn Taimiyyah regarding Islamic market mechanism is quite similar. Both
of them considered demand and supply as the most important determinants of price in
the market. According to Ali (2006), “Ibn Khaldun showed that prices were determined
in the market by the interplay of both demand and supply”. Islahi (2007) mentioned that:
Ibn Taimiyyah’s concept of just price referred to the price determined in the competitive
market by forces of demand and supply with full knowledge of the market actors without any
fraud.
Ibn Khaldun explained in detail about demand and supply by giving practical example.
He provided the clear examples of different goods and their supply in different countries
and their high or low prices according to their availability while he explained the
demand and supply in the market. Ibn Khaldun was more concerned about facts, while
Ibn Taimiyyah was more interested in policy issues.

2.2 Productive service

In the Islamic market, production and consumption of goods and services are restricted.
Buyers and sellers are not permitted to exchange goods or services such as alcohol,
gambling, magic, etc., which are not approved by shari’ah even if they meet the
maximization goals of profits and utilities. Transactions of these types of activities
harm the society as well as the nation. Likewise, the consumption in an Islamic market
consists of the bundle of goods and services that are strictly regulated and guided by
shari’ah. Furthermore, Islamic financing and halal market mechanism can play a vital
role. Recently, Islamic finance and halal industries are achieving far greater market
penetration (Wilson, 2014b). The focus of these inroads appears to be through a reliance
on being product-driven, whereby product quality and compliance, judged through the
atomization of ingredients, are monitored (Wilson, 2014a). In the Islamic market, a buyer
is free to choose any goods or services if the goods and services are recommended by
shari’ah. On the other hand, a seller in the Islamic market is not entitled to cheat his
counterpart by showing one kind of goods and then delivering another. Market
participants are prohibited from telling a lie while selling and buying goods and
services. It is mentioned in the Quran that “A market participant in Islam is prohibited
 JIMA to engage in an act of bribery in a mode of production and transaction” (Al-Quran: 2:188).
6,2 When the self-interest of a person becomes obstacle to his or her well-being in the
society, then the notion of self-interest is replaced by the notion of greater self-interest.
Hasan (2008a, 2008b) stated that the pursuit of self-interest often drives a wedge
between the individual and social interest. In the market, each participant is guided by
two motivational forces such as material and spiritual, or moral. Islam provides a
254 balance between material and spiritual well-being to achieve success in this world, as
well as in the hereafter. God says in the Quran, “Verily all things have we created in
proportion and measure” (54:49). In terms of the Islamic market mechanism, productive
service plays an important role, as the government is needed to control and monitor the
market to motivate consumers to participate in the market. Thus, the following
hypothesis is proposed:
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H1. Productive service has a direct relationship to government role and consumers’
motivation and an indirect effect on the Islamic market mechanism.

2.3 Commodity market

Commodity market is a place where trading commodities take place (Commodity
Online, 2014). In the commodity market, buyers and sellers have their set of brokers who
negotiate the prices for them. Moreover, price is one of the most common elements in the
market. It is determined by the quantity of demand and supply in the market. In the
market, the quantity demanded refers to the quantity of goods that the consumers are
willing to buy at different price levels. On the other hand, the quantity supplied is
defined as the quantity of goods that the producers are willing to sell at different price
levels. According to Khan and Thaut (2008), “the basic principle with regard to trade is
that the market should be left free to respond to the forces of supply and demand and
natural competition”. The market is in equilibrium or balance when the demand and
supply are equal. In a market, market mechanism refers to the tendency that the price
changes until the market is in equilibrium. The market faces a surplus when the
quantity supplied exceeds the quantity demanded. In this situation, the producers begin
to lower the price of the goods. Thus, the quantity demanded increases, and the quantity
supplied decreases until the price reaches equilibrium. However, the market is in
shortage when the quantity demanded exceeds the quantity supplied. Here, the
producers start to increase the prices of the goods until the prices reach the equilibrium
level. Islahi (2007) asserted that the fall of price due to the increase in quantity
demanded, and the rise of price due to the decrease in quantity demanded are considered
ceteris paribus. In fact, trade is one of the most liked professions for human beings. The
Holy Quran and Hadith of the Prophet Mohammad (peace be upon him) indicated the
utmost importance of the institution in Islam (Saeed et al., 2001). Islamic shari’ah, or
the Islamic legal system, provides a very elaborate code of rules and regulations for the
process of the trade organization (Khan and Thaut, 2008). These rules more or less
ensure a perfectly free commodity market, except in circumstances where a free market
may lead to misallocation of resources from the point of view of the Islamic legal system
(Khan, 1990) because the commodity markets in Islam have more or less similar
characteristics as are assumed by the conventional economic theory under ideal
conditions. Therefore, the following hypothesis is proposed:
 H2. The commodity market has a direct relationship to government role and Islamic
consumer motivation as well as an indirect relationship with the Islamic market market
mechanism.
mechanisms

2.4 Government role

Government involvement in the market should work just as a monitor in the market.
The government should intervene in the market in controlling the price of goods and
255
other managerial things in the market. In the market, the seller knows very well how to
determine the price level because they have direct interaction with the customer. But the
intervention of the government discourages the sellers in determining the fair price level
of the goods. Instead of direct intervention, the government can monitor the market to
make sure that the markets are free from corruption, bribery and other illegal activities.
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Thus, the government acts as a guardian in the Islamic market. The government is able
to solve the problem of the producers as well as the consumers whenever they face
difficulties. The Prophet (peace be upon him) used to inspect the market and give
necessary instructions to make just and fair dealings (Islahi, 2006). Islam encourages
cooperation rather than competition in the market. Islamic and Muslim leadership are
more considerably influenced by urbanites, who maintain rural connections. The
Prophet Muhammad (peace be upon him) is such an exemplar, alongside and Islamic
market mechanism. (Wilson, 2012). One producer will take care of other producers as
well as customers. Sometimes consumers will give valuable information to the
producers regarding the products and the prices for which they know which product
they should produce and what price they should impose, for which the consumer can be
able to buy. The government should intervene in a monopoly market. A monopoly
market is controlled by a single seller. In a monopoly market, the producer has ultimate
power over the price level. He can increase or decrease the price of the products
whenever he wants. Al-Zarqa (2010) stated that “Unlike competitors in pure
competition, a monopolist can set the price of his product”. The monopoly market is
involved in some unfair activities such as bribery, buying off competitors, false
advertisement campaigns, sabotage, coercion of supplier of raw materials, etc. These
immoral and unethical activities are not permitted in Islam. Islam strongly discourages
monopoly, as it produces unlawful profit and increases inequality (Khan and Thaut,
2008). Islamic shari’ah principles are not rigid; rather, they are equipped to be able to
respond to market growth and trends that are generating interest (Wilson and
Hollensen, 2013). Allah says in the Holy Quran that:
Woe to those that deal in fraud. Those who, when they have to receive by measure from men,
exact full measure. But when they have to give by measure or weight to men, give less than
due. Do they not think that they will be called to account? (83:1-4).
Indeed, the monopoly market practices price discrimination which is selling the same
products at different prices to different customers. Such practices are prohibited in
Islam. The seller must sell the commodity to the buyer with its existing price (Hasan,
2008a, 2008b). Islahi (2007) stated that price is the actual amount that the producer
charges on to the customer. Therefore, the government should regulate the monopoly
price and fix a maximum price that they can charge. As a result, buyers are able to bear
their expense which helps them to buy the goods that they want. Besides, the
government does not need to intervene in those markets which are perfectly competitive.
 JIMA The reason is that in those markets, people already have perfect information about the
6,2 price and the quantity of the products. In a perfectly competitive market, buyers know
what they are buying and sellers know what they are selling. In a perfectly competitive
market, there are many buyers and sellers where buyers are selling uniform products to
the sellers. Sellers are price takers in the perfectly competitive market, for which the
seller has to sell their products at market price, and there is no way he can raise the price
256 of the products (Al-Zarqa, 2010). In a perfectly competitive market, the sellers sell
homogeneous products in which the buyers do not prefer one seller to another. At the
same time, there is no barrier to exit or entry for any firm in the market. They do not have
to bear any special cost which makes them difficult to enter in the market, and they have
freedom to exit from the market if they cannot make any profit.
Based on the above discussion, it is clear that in a competitive market, sellers do
justice to buyers while trading. They do not have any intention of cheating or
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committing fraud with the buyers. The concept of maslahah exists in this market. But
from the Islamic point of view, the sellers cannot sell any goods that they want in a
competitive market. They must sell only those goods that are permitted by shari’ah. For
instance, sellers are not allowed to sell pork and alcoholic products. Islam also
discourages imposing taxes, subsidies and other trade barriers in the market by the
government. Hasan (2008a), (2008b) illustrated that some types of government policy
interventions, such as taxes, subsidies, bailouts, wage and price controls, including
regulations to correct market failure, may also lead to inefficiencies in the allocation of
resources or in distribution of incomes. Khan and Thaut (2008) asserted that price
controls, tariffs and any other barriers should be detached so that trade can be free and
fair. Thus, we have proposed the following hypothesis:
H3. Government role has significant relationship with consumers’ motivation and
the Islamic market mechanism.

2.5 Consumers’ motivation

One of the significant challenges that human beings face in their daily lives is to limit
stress. In this regard, motivation plays a major role to limit stress in our daily lives. The
motivational degree varies from one person to another, depending on the stage of life
which they are experiencing. However, the consumer motivation to consume particular
goods and services depends on many factors, among them:
• products’ prices;
• products’ promotion; and
• advertisement (Alom and Haque, 2011).

These factors create positive tones in consumers’ minds to buy particular goods and
services. The Islamic market mechanism is guided by several critical motivational
factors where productive service, price exchange, mutual consent and commodity
market are the important components (Bashar, 1997). The government role, productive
and factor market, quality mechanism and mutual consent are the key factors that may
influence consumers’ motivation towards the Islamic market mechanism. Therefore, the
following hypothesis is proposed:
H4. Consumers’ motivation has a significant effect on the Islamic market
mechanism.
 2.6 Theoretical foundation and conceptual model Islamic
Socialization is the process by which human beings begin to acquire the skills necessary market
to perform as a functioning member of their society (Evans and Heinz, 1994). Humans mechanisms
need social experiences to learn their culture, norms and values. Hurrelmann (2009)
developed the “Model of Productive Processing of Reality (PPR)”. The core concept is
that socialization refers to an individual’s personality development. It is the outcome of
the productive processing of interior and exterior realities. The socialization theory can 257
be referred to consumers as the key motivational factors (productive service, commodity
market and government role) towards the Islamic market mechanism development. The
socialization theory within the Islamic market mechanism is the process of learning the
consequences of economic decision. This theory influences decisions regarding social
values of consumption alternatives, acceptable alternatives for consumption, nature of
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involvement in consumption and establishment of dominant values (Hurrelmann, 1988).

In this study, the Islamic administrative theory can clarify the behaviour of
organizations, groups and individuals that are yet to be developed (Sharfuddin, 1987).
The Islamic administrative theory emphasizes n all variables and factors (productive
service, commodity market and government role) that affect the administrative cycle in
the Islamic market mechanism and its understanding of consumers’ behaviour in the
light of social and cultural forces. The basic postulation of the Islamic administrative
theory focuses on social philosophy and enforces the moral and ethical principles of a
larger society (Saeed et al., 2001). The theory can also emphasize the economic variables
and strive to fulfil individuals’ physiological needs (Sharfuddin, 1987). Furthermore,
this theory emphasizes the decision-making and administrative processes through
shurah (consultation) and nasiha (advice). The Islamic administrative theory pays
attention to the organization of work, hierarchical relationships, organizational
structure and obedience to formal authority (Sharfuddin, 1987).
It is clearly seen from Table I that the factors from the 11 papers are mostly relevant
to the Islamic market mechanism. Although these 11 studies are not empirically tested,
the factors of these studies have a potential link to the Islamic market mechanism. In this
study, the most relevant constructs were selected through calculating an average scale
(bold italic). However, based on the extant literature review, theoretical foundation and
summary of the Islamic market mechanism, the following conceptual model is
developed in Figure 1.

3. Methodology
3.1 Participants, procedure and measures
In this paper, the convenient sampling technique was used, as the participants were
heterogeneous and was drawn from different types of sectors. The respondents of this
study were marketing executives, business administrative staffs, academic
professional, marketing managers, students and consumers of retail shops in Peninsular
Malaysia. We distributed a total of 300 questionnaires for collection of data between
October 2013 and January 2014 in Peninsular Malaysia. Only 147 usable questionnaires
were returned and were subsequently screened and analysed. No missing values were
found, and a response rate of 49 per cent was obtained. The response rate was
considered good, given the allotted time and geographical constraints. Hair et al. (2010)
suggested a 300 sample size using seven or less latent constructs. They also offered the
 JIMA No. Authors Outcome PS CM GR FM COM MC PM QM
6,2
1 Khan (1990) Islamic market practice ✓ ✓ ✓ ✓ ✓
2 Hasan (1984/2014) Profit mechanism in Islam ✓ ✓ ✓ ✓ ✓
3 Saeed et al. (2001) Marketing ethics ✓ ✓ ✓ ✓ ✓ ✓
4 Khan and Thaut (2008) Fair trade in Islam ✓ ✓ ✓ ✓
258 5 Bashar (1997) Price mechanism in Islam ✓ ✓ ✓ ✓
6 Adham et al. (2012) Economic prosperity, ✓ ✓ ✓
Western and Islamic view
7 Javid and Hassan (2013) Capitalism in Islam ✓ ✓ ✓ ✓
8 Yusoff (2013) Profit mechanism in Islam ✓ ✓ ✓ ✓
9 Islahi (1985) Islamic market mechanism ✓ ✓ ✓ ✓ ✓ ✓
10 Alom and Haque (2011) Islamic market mechanism ✓ ✓ ✓ ✓ ✓
✓ ✓ ✓
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11 El-Din and Tajel-din Islamic stock market

(2002)
Total 10 9 9 2 7 4 6 2
Overall percentage 26.3 23.6 23.6 5.2 18.4 10.5 15.8 5.2

Table I. Notes: “✓” indicates the study has mentioned directly or indirectly illustrated the Islamic market
Determinants of mechanism initiatives; determinants: PS ⫽ productive service; CM ⫽ commodity market; GR ⫽
Islamic market government role; FM ⫽ factor market; COM ⫽ consumers’ motivation; MC ⫽ mutual consent; PM ⫽
mechanism price mechanism; QM ⫽ quality mechanism

Productive Government
Service Role
Islamic Market
Mechanism
Figure 1. Commodity Consumersಬ
Conceptual Market
framework Motivation

recommendation for the minimum sample size of 150, depending on the model
complexity and basic measurement model characteristics.
The study examined the critical factors that influenced consumers’ motivation
towards the Islamic market mechanism (four items), commodity market (three items),
productive service (four items), government role (two items) and consumers’ motivation
(three items), comprising 16 items, which were adapted from various sources (Khan and
Thaut, 2008; Saeed et al., 2001; Khan, 1990; Hasan, 1984). Each of the measurement
constructs in this paper had two to four items, which were measured by a five-point
Likert scale ranging from strongly disagree (1) to strongly agree (5). This study applied
partial least square (PLS) using Smart PLS M3 Version 2.0. PLS (Ringle et al., 2005;
Wold, 1975; Wold et al., 1984) created score vectors (components, latent vectors) by
using the existing correlations between different sets of constructs, and it has been
proven to be useful in situations where the number of observed variables is much
greater than the number of observations (Rosipal et al., 2003; Goodhue and Lewis, 2006).
The PLS has been a popular modelling, regression, discrimination and classification
technique in its domain of origin-chemometrics (Rosipal et al., 2003). The PLS has
 special abilities that make it more appropriate than other techniques, such as multiple Islamic
regression, when analysing small sample sizes (Goodhue and Lewis, 2006; Vinzi et al., market
2010; Chin, 1998). The PLS allows the latent constructs in the proposed model to be
analysed as formative or reflective indicators (Ringle et al., 2005). In addition, the PLS is
mechanisms
fit for identifying the key driver constructs (Goodhue and Lewis, 2006), which matches
the aim of the study.
259
4. Results and discussions
The majority of the participants were male (77.5 per cent). In terms of the respondents’
marital status, 66 per cent were single and 34 per cent were married. The majority of the
participants (60.5 per cent) were below 35 years old, which was followed by 36 to 40
years old (32.5 per cent) and above 40 years old (7 per cent). With regards to the
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respondents’ professions, half of them were marketing executives (50.0 per cent),
followed by students (26.5 per cent) and academic staff (23.5 per cent). The descriptive
statistics for the exogenous and endogenous constructs were computed. Consumers’
motivation towards the Islamic market mechanism practices in terms of productive
service (M ⫽ 3.79, SD ⫽ 0.63) and commodity market (M ⫽ 3.85, SD ⫽ 0.57) scored the
highest. The Islamic market mechanism applied in terms of government role (M ⫽ 3.48,
SD ⫽ 0.61) was considered moderate. Consumers’ motivation (M ⫽ 3.64, SD ⫽ 0.46) was
considered high, followed by selection of the Islamic market mechanism (M ⫽ 3.55,
SD ⫽ 0.66).
The structural model is used to examine the direction of assumed relationship
between the latent constructs. In this structural model, the arrows are assumed to
support the relationship between independent and dependent variables. The factor
loadings, composite reliability (CR) and average variance extracted (AVE) were used to
assess convergent validity (Vinzi et al., 2010). Convergent validity aims at examining
whether specific items measure a latent variable which it is supposed to measure (Nils
and Frederik, 2010; Vinzi et al., 2010). In this study, the factor loadings of the latent
variable were above 0.70 as proposed by Chin (1998). PLS-based structural equation
model computes several model fit indices:
• average path coefficients (APC);
• average R-squared (AR);
• CR; and
• AVE.

A model is robust when the p-value is less than 0.05 for APC and AR (Claudia, 2012;
Kock, 2011), AVE ⱖ 0.5 (Fornell and Larcker, 1981) and CR ⱖ 0.7 (Gefen et al., 2000). The
AVE measures the variance captured by the indicators relative to the measurement
error (Barclay et al., 1995). The AVE ranged from 0.45 and 0.71. Although the AVE for
selection of the Islamic market mechanism does not achieve the minimum required level
0.50 (Barclay et al., 1995), the model is well fit. On the other hand, Fornell and Larcker
(1981) specified 0.70 as the minimum value for internal consistency for latent variables.
The CR values ranged from 0.763 to 0.865. Hence, it can be concluded that the
measurement model of this study was reliable. AVE should be greater than 0.50
(Rahman, 2014; Rahman et al., 2014; Rahman and Jalil, 2014), and the CR should be
greater than 0.60 (Wheaton et al. (1977) as cited by Rahman et al., 2014).
 JIMA Consequently, the measurement model was established on its discriminant validity.
6,2 To assure divergent validity, the square root of AVE for each latent variable should be
greater than any of the bivariate correlations involving the latent constructs in question
(Fornell and Larcker, 1981; Tanka and Huba, 1985). The discriminant validity of the
measures was assessed by examining the correlations between the measures of
potentially overlapping constructs. In this study, the square roots of the AVE of the
260 latent variables were ranged between 0.668 and 0.852, exceeding the correlations of
other constructs. The result indicated that all items showed sufficient convergent and
discriminant validity, as the loading of each item was greater than all of its
cross-loadings (Chin, 1998). The convergent validity was conducted on the basis of
combined loadings and cross-loadings amongst indicators to test whether indicators
load more inside their construct than they do with other constructs (Jewell, 2011). The
cross-loading for each item and indicators’ load were very well on their construct, and
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we assumed that measurements have convergent validity.

In this study, to develop structural model, we proceeded with the path analysis to test
nine hypotheses. Selection of the Islamic market mechanism is conceptualized as a
third-order construct which comprises the first-order constructs (productive service and
commodity market) and the second-order constructs (government role and consumers’
motivation). Because the Islamic market mechanism is a third-order construct, items
representing each Islamic market mechanism construct were computed to provide a
score on a composite variable. Figure 2 showed the structural model for this study. The
R-squared value of government role was 0.426 proposing that 42.6 per cent of the
variance in government role can be explained by productive service and commodity
market. The R-square value of consumers’ motivation was 0.418, proposing that 41.8 per
cent of the variance in consumers’ motivation can be clarified by productive service,
commodity market and government role. Finally, the R-square value of the Islamic
market mechanism was 0.528 recommending 52.8 per cent of the variance can be
explained by productive service, commodity market, government role and consumers’
motivation in selecting the Islamic market mechanism.
In this study, we conducted the bootstrapping procedure with 500 re-samples to test
the significance of the regression coefficient. The results presented that productive
service had a direct relationship (␤ ⫽ 0.288, p ⬍ 0.01) with consumer motivation and an
indirect effect (␤ ⫽ 0.318, p ⬍ 0.05) with the Islamic market mechanism, but there was
no significant impact of productive service on government role. Thus, H1b and H1c are

Figure 2.
Structural mode
 supported, and H1a is not supported. The commodity market had direct effect on Islamic
government role (␤ ⫽ 0.608, p ⬍ 0.01) and consumer motivation (␤ ⫽ 0.141, p ⬍ 0.05) market
and an indirect relationship with the Islamic market mechanism (␤ ⫽ 0.356, p ⬍ 0.01).
Therefore, H2a, H2b and H2c are accepted. The government role had a relationship with
mechanisms
consumer motivation (␤ ⫽ 0.376, p ⬍ 0.01), but there was no significant effect between
the government role and the Islamic market mechanism. Thus, H3a is accepted and H3b
is not accepted. However, consumer motivation (␤ ⫽ 0.190, p ⬍ 0.05) had a positive 261
impact on the Islamic market mechanism; therefore, H4 is accepted (Table II).
As we have seen, Islam encourages perfectly competitive markets because they
charge fair price in the market. Normally, there are two types of prices. One is the price
of input, and another is the price of final goods. The difference between these two goods
is the profit for the sellers in the market. In the perfectly competitive market, sellers are
just satisfied with this marginal profit (Hasan, 2008a, 2008b). Nevertheless, many people
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disagree with the perfectly competitive market as being shari’ah-compliant. However, a

survey had been conducted amongst the students of the Economics Department (IIUM)
to get a proper response about the Islamic market mechanism. In the questionnaire, we
have asked the respondents questions including government involvement in the market,
price fixing while it rises up and other questions. The majority of the respondents agree
that sometimes the government should take some necessary actions for removing
corruption and bribery from the market. If the government monitors the market, then
the sellers will be afraid to give customers wrong and unfavourable goods that they do
not expect. In terms of price fixing in the market, we asked questions regarding whether
prices should be fixed when it goes higher. Majority of the respondents replied that it
should be fixed. Importantly, we also found that only rich people will benefit when the
price of the goods rise because their income is higher. On the other hand, poor people are
unable to buy the products because of their low income. In terms of prohibited goods and

Hypothesis Relationship Beta Standard error t-value Decision

H1a Productive service ¡ government role 0.097 0.108 0.601 Not supported
H1b Productive service ¡ consumer 0.288 0.101 2.849** Supported
motivation
H1c Productive service ¡ Islamic market 0.318 0.155 2.044* Supported
mechanism
H2a Commodity market ¡ government 0.608 0.080 4.534** Supported
role
H2b Commodity market ¡ consumer 0.141 0.086 1.639* Supported
motivation
H2c Commodity market ¡ Islamic market 0.356 0.135 2.637** Supported
mechanism
H3a Government role ¡ consumer 0.376 0.108 3.477** Supported
motivation
H3b Government role ¡ Islamic market 0.052 0.142 0.370* Not supported
mechanism
H4 Consumers’ motivation ¡ Islamic 0.190 0.113 1.677* Supported
market mechanism
Table II.
Notes: * p ⬍ 0.05; ** p ⬍ 0.01 Hypothesis testing
 JIMA services, majority of the respondents strongly agree that the sellers are not allowed to
6,2 sell any prohibited goods. Most of them believe that if the sellers sell prohibited goods,
then their income is unlawful as well. On the other hand, the individuals that disagree
believe that the sellers can sell non-halal goods because in Islam, every individual has
their own right to perform their religion. For these reasons, sellers, except non-Muslims,
should avoid non-halal goods in the market. According to the Islamic principle, there is
262 a shari’ah complaint board that decides the price in the market for every goods and
services. Thus, in this situation, it is easy to determine the price of the goods based on
reality whether the people can afford to buy the product with this price. However, Allah
says in the Holy Quran that “O you who believe! Eat not up your property among
yourselves unjustly except it is a trade amongst you, by mutual consent” (Al-Quran,
4:29).
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In this survey, most of the respondents strongly agree that if the sellers intend to
change the price of the goods, then they should inform the buyers before that. The
reason is that they have to make their own budget, where they have to spend what
amount and where they spend more and where less. On the other hand, those who
disagree believe that it is not necessary to inform them before they change the price of
the product because they think it does not affect them. As a matter of fact, the changes
in the price of the goods affect the people who have low income. Furthermore, we found
that majority of the respondents agree that they should check the goods before they buy
it. The buyers have to ensure that they buy the right product. Sometimes the sellers
mistakenly give customers different products that the customers do not want. Thus,
after buying the goods it is difficult to change it again. For this reason, the better solution
is that they should check before they buy it. In the meantime, Islam encourages a person
to be careful in his daily transactions. Generally, price fixing is not supported by Islam.
It is considered an injustice towards sellers. Fixing the price in the market is similar to
forcing the seller to sell at the fixed price and stopping him from enjoying the reward
provided by Allah (swt). Once the Prophet (peace be upon him) mentioned that “Let the
people seek their own livehood provided by Allah for them”. But when the price level is
higher, it can be fixed at that time. Ibn Taimiyyah mentioned that “if fixing prices leads
to fairness and justice (adl) among the people or preventing them from harms, then it
becomes lawful”. In the market, the government can monitor to ensure that fraud and
manipulation do not occur in the market. The main objective of monitoring is to create a
healthy market which is totally followed by shari’ah. The Prophet (peace be upon him)
himself was unwilling to interfere in the fixing of prices in the market after finding that
the price was determined by market forces and not by any act of manipulation. In
market, sellers cannot charge extra price while they are going to sell the products to the
buyers. Charging extra price is equivalent to riba. The word riba means excess of
something which is directly prohibited in Islam. Allah (swt) specifies in the Holy Quran
that:
O you who believe! Observe your duty to Allah, and give up what remaineth (due to you) from
usury, if you are (in truth) believers. And if you do not, then be warned of war (against you)
from Allah and His messenger. And if you repent, then you may have your principal (without
interest). Wrong not, and ye shall not be wronged (Al-Quran, 2: 278-279).
A seller is not allowed to sell any product that is prohibited by shari’ah. In the Holy
Quran, it is mentioned that:
 Verily, those who recite the Book of Allah, and perform As-Salat, and spend out of what I Islamic
have provided for them, secretly and openly, they hope for them their wages in full, and
give them more out of his grace. Verily He is the Forgiving, most ready to appreciate market
(Al-Quran, 4:29-30). mechanisms
If the seller sells haram goods in the market then he is doing the business of haram
goods. Thus, he is earning profit from a haram business.
263
5. Conclusion
From an Islamic perspective, the market is a sacred institution. It is not a value-free
concept. Participating agents of markets, from the Islamic perspective, combine two
objectives:
(1) maximization of profits/utility, that is welfare in this world; and
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(2) maximization of success in the world hereafter, that is achievement of paradise.

Market in Islam accomplishes the dual objectives when buyers and sellers are
engaged in transactions over the bundles of goods and services.

Participants are subject to the “Shari’ah law” during the production and
consumption of goods. Many Muslim scholars such as Abu Yusuf, Al Ghazali, Ibn
Taimiyah and Ibn Khaldun made revolutionary contributions towards the
development of market mechanisms long before concepts relating to market and
price determination with its concomitant implications for producers and consumers
were developed by the so-called father of conventional economics Adam Smith in the
later part of the eighteenth century.
Our study offers several implications for the Islamic market mechanism practice.
Each variable used in this study to explore the critical factors that influence Muslim
consumers’ motivation towards the Islamic market mechanism had direct and
indirect implication for the Islamic market mechanism practice. For instance,
productive service and commodity market had positive impact on consumers’
motivation towards the Islamic market mechanism. Government’s controlling and
monitoring in the market had positive effect on consumers’ motivation in selecting
Islamic market mechanism. This served as motivation to encourage Islamic market
mechanism practice. The government can monitor firms or the market for
evaluating the Islamic market mechanism practice. This will ensure that the
products and services produced by the Islamic market are environmental friendly.
Managers of the firms should view Islamic market mechanism practices positively
and provide full support and cooperation to the implementation of productive
service and commodity market in markets. The framework and proper
implementation of the Islamic market mechanism practices are expected to
contribute further in bringing the overall efficiency and welfare to the consumers. It
is also expected that the Islamic market mechanism will have significant
implications in establishing fair transactions in economic activities. For example, in
the Islamic market mechanism, buyers and sellers are prohibited to lie while selling
or buying goods and services. In addition, it is mentioned in the Quran that “A
market participant in Islam is prohibited to engage in an act of bribery in a mode of
production and transaction” (Al-Quran: 2:188). Furthermore, in the Islamic market
mechanism, each participant is guided by two motives such as material and
spiritual or moral. Therefore, the findings suggest the market in Islam accomplishes
 JIMA dual objectives for buyers and sellers and facilitates fair transactions amongst the
6,2 market participants.
The principal limitations of this study can be viewed from two main aspects.
First, limitation in scope as the two main component (productive service and
commodity market) practices were examined. Future research may include other
types of variables practices in the Islamic market mechanism. Second, the sample
264 size was small and the respondents were restricted to marketing and academic
sectors. Future research should be done on a bigger sample size and more on diverse
samples, such as extending to the manufacturing sector and service industry
because manufacturing firms and service sectors might have different Islamic
market mechanism practices and outcomes compared to marketing and academic
sectors. Finally, similar studies which use more than one Islamic market data,
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variables and methodologies would contribute towards further understanding of the

Islamic market mechanism practices.

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Corresponding author
Mahfuzur Rahman can be contacted at: mahfuzanam@gmail.com

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