INTRODUCTION

Financial operations that follow Shariah (Islamic law) are known as Islamic banking, also
known as Islamic finance or Shariah-compliant finance. Sharing in profits and losses and
forbidding lenders and investors from collecting and paying interest are two key tenets of
Islamic banking. Based on the idea of Bai' Al-'Inah, personal loans are offered by Islamic banks
in Malaysia. The word "personal financing," which is frequently used in Islamic banking in
place of the term "personal loan," is a notion that is regularly employed by Islamic financial
institutions.

ARTICLE SUMMARY

In relation to emergency loans taken out using employees' provident fund savings as collateral,
the government will use Islamic financing loan methods. This article explores how this can
reduce service costs compared to traditional financing loan methods. This article also addresses
the advantages of Islamic finance over conventional money and how it benefits people more
generally.

ISSUES

Prohibition of riba (interest) or usury in loan lending

Riba is a term used in Islamic banking to denote the practice of charging interest. It has also
been referred to as usury, or the charging of unreasonably high interest rates. Most Islamic
jurists also believe that there is another form of riba, which denotes the simultaneous exchange
of goods of unequal quantities or qualities. Here, however, we will be referring to the practice
of charged interest. Sharia law forbids riba for a few different reasons. It is intended to
guarantee fairness in transaction. Its purpose is to protect people's wealth by making unfair and
unequal exchanges illegal. Riba is Arabic for excess, growth, or addition. It can be understood
as an excessive reward or an inappropriate return in a loan, borrowing, or sale transaction from
a Shariah perspective. The most typical example is taking out a loan from a conventional bank:
the bank lends money, and the borrower repays it later with a portion more than it originally
cost. Riba in loan contract are called Riba al-Nasiyah. Due to the borrower's late payment, the
lender will charge the borrower a higher payment than the original loan amount. Only loans
qualify for this form of riba; credit sales do not. Interest is viewed as a grave sin in the al-
Qur'an because it encourages inequality. Anyone who receives interest is supposed to
contribute the money to a charitable organization since it is believed that interest widens the
social gap between the rich and the poor.

Acceptance of Islamic financing among people

Customers' favorable opinions about Islamic banking are much more important in Malaysia
because there is a dual banking system in place where Islamic banks must compete with long-
established conventional banks. Malaysia has had a dual banking system since 1983, where the
conventional banking system coexists with the Islamic banking system. Today, Islamic banking
and finance have become a significant part of Malaysia's entire financial system and a factor
in the expansion and improvement of the country's economy. We can infer from the discussion
above that a person's level of understanding of Islamic banking concepts will be a deciding
factor in whether they accept it. However, because there are more Muslims than non-Muslims
in this country, there may be differences in how these two groups comprehend and accept
certain ideas. Following that, a few questions arise, such "to what extent are local people aware
of the culture of Islamic banking?" for a country like Malaysia where the majority of the
population is Muslim. The second question is, "How do the locals feel about Islamic banking?"
Third, "What factors do locals take into consideration when choosing a bank?" A suitable
comparison can be formed by taking samples from both the non-Muslim minority and the
Muslims in the majority.

DISCUSSION

Why non-Muslims prefer Islamic financing better?

• Fairness and transparency

Fairness, which dictates that all parties participating in a financial transaction should be treated
equally and fairly, is one of the major tenets of Islamic banking. This is accomplished by using
contracts and agreements that are well-defined and compliant with sharia law. Non-Muslims
may find this transparency particularly appealing if they are worried about the lack of fairness
and transparency in conventional financial systems.

• Ethical investment

An ethical investment is another essential Islamic finance tenet. This means that investing
involves doing more than just maximizing profits; it also involves doing good and avoiding
doing bad. Investment in sectors and activities that are viewed as harmful or immoral, such as
gambling, cigarettes, alcohol, and weaponry, is forbidden in Islamic finance. For non-Muslims
seeking a financial system that is consistent with their own personal values and beliefs, this can
be a crucial consideration.

What are the benefits of Islamic financing?

• It aids by assisting financial inclusion

Financial inclusion is defined by the World Bank as "having access to useful and reasonably
priced financial products and services that meet one's needs, including transactions, payments,
savings, credit, and insurance, delivered in a responsible and sustainable manner." The
foundation of the traditional banking system is the pre-set rate of interest payments on cash
deposits. Muslims refrain from banking since it is against Shariah Law to pay or receive
interest. Islamic banking, on the other hand, can support financial inclusion and increase the
amount of savings in the national and international economies.

• Reducing the impact of harmful products and practices

Any transactions that assist businesses or activities that are against Islamic law are prohibited
under Shariah rules. For instance, whether these are permitted in the location of the transaction
or not, usury, speculation, and gambling.

• Encouraging stability in investments

In contrast to conventional finance, Islamic finance approaches investments with a slower,
more deliberate decision-making process. Islamic financing firms typically steer clear of
businesses with dangerous financial practices and operations. By conducting thorough audits
and analysis, Islamic finance encourages risk mitigation and makes room for more stable
investment opportunities.

CONCLUSION

Islamic banking is also known as Islamic finance or financing that complies with Shariah. It
alludes to financial or banking operations that adhere to Islamic law. The techniques for
allocating profit and loss and the ban on interest collection and payment by lenders and
investors are two of the most significant distinctions between Islamic finance and conventional
finance. Shariah forbids lending with interest as well. Instead of charging interest, equity
participation—the process by which a borrower shares in the bank's profits—is how Islamic
banks make money.