Tab 1

CUSTOM IS ARBITRARY: CHALLENGES IN MURABAHAH IMPLEMENTATION IN

ISLAMIC BANKING

FBF 20803
QAWAID FIQHIYAH

SARJANA MUDA PENTADBIRAN PERNIAGAAN (KEWANGAN ISLAM) DENGAN

KEPUJIAN

CLASS:
BBAIF2A

PREPARED BY:

NAME MATRIC NUMBER

HARIS IDZHAM BIN ABDUL RASHID 081528

PREPARED FOR:

MR SALMAN BIN LAMBAK

Report submitted in the fulfillment of the requirement for the degree of Islamic Finance in the
faculty of Business and Management

University Sultan Zainal Abidin

INTRODUCTION

This report explains an Islamic finance product offered by Bank Islam Malaysia Berhad. The
product is called Vehicle Financing-i. The financing is done through a fixed monthly payment and
does not involve interest (riba), which is not allowed in Islam.

Vehicle Financing-i is a type of loan that allows customers to buy either a new or used
vehicle. However, it is not like a normal bank loan. It is based on Islamic principles, especially a
concept called Murabahah, where the bank first buys the vehicle and then sells it to the customer at a
price that includes a known profit. The customer then pays this price in monthly instalments over a set
number of years.

The product uses the Murabahah to the Purchase Orderer (MPO) concept. This means the
customer chooses the vehicle they want and applies for financing from the bank. If the application is
approved, the customer agrees to buy the vehicle from the bank. At the same time, the bank appoints
the customer as its agent to help buy the car from the dealer. The bank then pays the dealer and
becomes the owner of the car. After that, the bank sells the car to the customer at a fixed price (cost
plus profit). The customer then pays the bank back every month until the full amount is paid. The
vehicle is also used as security, so if the customer fails to pay, the bank has the right to take back the
car.

This product was introduced as part of the growth of Islamic banking in Malaysia. More
people today are looking for financial products that follow Islamic values. Vehicle Financing-i shows
how Islamic finance can be used in daily life, such as buying a car. This product is a good example of
how Islamic finance works in practice. It avoids riba (interest), follows proper contracts, and makes
sure both the bank and the customer are treated fairly. It uses real transactions, the bank really buys
the car and then sells it. There is no gambling, cheating, or hidden charges. The product helps people
get what they need in a halal and responsible way, and it shows that Islamic finance can be just as
modern and useful as conventional banking.

ISSUE: Custom and Consumer Confusion in Bank Islam’s Vehicle Financing-i

One important issue related to the legal maxim “Al-‘Adah Muhakkamah” (custom is
arbitrary) in Bank Islam’s Vehicle Financing-i product is how closely its structure resembles
conventional car financing. Even though the product uses Shariah-compliant contracts like Murabahah
or AITAB, the way it is carried out including fixed monthly payments, set financing terms, and late
payment charges looks very similar to conventional hire purchase agreements. This design is based on
the common practice (‘urf) in Malaysia, where buying a car through instalments is widely accepted.
According to the maxim, customs can be used as a legal source if they are well established, widely
practiced, and not against Islamic teachings. However, this situation raises a concern: does making
Islamic products look too much like conventional ones cause confusion or create a sense of shubhah
(doubt) among consumers? Although the legal contracts are different, the overall experience for
customers may feel the same. This can lead to misunderstanding or even reduce trust in Islamic
finance, as people may not see a clear difference between halal and non-halal products. Therefore,
while following custom is allowed under this maxim, it should be applied carefully to protect the clear
identity, ethical values, and purpose of Shariah-compliant financial products.

SOLUTION

One possible solution is for Islamic banks like Bank Islam to improve education and
transparency about how their products work. Even though the structure of Vehicle Financing-i looks
similar to conventional hire purchase, banks should explain clearly how the Shariah contract (like
Murabahah) is different from a normal loan. They can do this through brochures, videos, websites, or
staff training. This will help customers understand that although the payment method may look the
same, the contract and intention behind it are different. This supports the maxim Al-‘Adah
Muhakkamah, because following custom is allowed, but only if it does not cause confusion or go
against Islamic values.

Another solution is to develop more unique Islamic finance models that don’t just copy
conventional structures. For example, instead of only using Murabahah (cost-plus sale), banks can
offer more models like Ijarah (leasing) or Musharakah Mutanaqisah (diminishing partnership) for
vehicle financing. These contracts give a more distinct experience compared to conventional loans. If
Islamic banks become more creative and less reliant on mimicking conventional products, it can
reduce the feeling of doubt (shubhah) and help customers feel confident that they are choosing a truly
Islamic solution.

A third solution is to strengthen Shariah governance and product review processes. The
Shariah committees of banks should regularly review whether the product still serves the true purpose
(maqasid) of Shariah, not just the legal form. Even if a product uses valid contracts, if it causes
confusion or is too close to non-Islamic finance, the Shariah board can recommend changes. This
helps ensure that custom (‘urf) is followed in a responsible way, in line with Al-‘Adah Muhakkamah,
without damaging the ethical identity of Islamic finance.
 Another idea is to encourage more public discussions between scholars, bankers, and
customers. When people openly talk about what feels confusing or unclear, it can help banks improve.
For example, forums or webinars can be organised where Islamic finance experts explain why certain
products are designed in a certain way, and listen to public concerns. This creates trust, which is
important for any system that wants to grow. Custom is important, but if the public starts to lose trust
in how it’s applied, the whole industry can be affected.

Lastly, Islamic banks can make the customer journey feel more “Islamic”, even if the contract
is already Shariah compliant. For example, they can include reminders about ethics, fairness, and
responsibility in their documents or during the financing process. They can offer value-added services
like Takaful with waqf elements or green vehicle discounts, which give the product a more socially
responsible identity. This helps separate it from conventional loans, and keeps the spirit of Islamic
finance alive, not just the form.

REFERENCES

Bank Islam Malaysia Berhad. (2024, August 12). Product Disclosure Sheet: Vehicle Financing-i /
Vehicle Financing-i GradONE. Retrieved from
https://www.bankislam.com/wp-content/uploads/PDS_Generic_Eng-030724.pdf

Bank Islam Malaysia Berhad. (2024, December 12). Terms and conditions / Terma-terma dan syarat
[PDF]. https://www.bankislam.com/wp-content/uploads/TC-MPO-VF-121224.pdf

Investopedia. (2023). Murabaha: Definition, Example, and Purpose in Islamic Finance. Retrieved
from https://www.investopedia.com/terms/m/murabaha.asp