The viability of a fully-integrated islamic financial and investment institution concept toward the achievement of maqasid al-shari`ah : a case study of Malaysia

Abstract

The fully-integrated Islamic financial and investment institution concept (“the FIIFII concept”) is basically an integration of all the functions and activities of Islamic banking, Islamic insurance and Islamic capital market under the one roof concept. This concept is similar to the “Islamic Universal Banking” concept whereby such an integrated institution has the capability to provide its customers with a wide range of financial and/or capital market products and/or services within the confinement of the Shari’ principles that provide the equity objective and the Tabi’ principles that provide efficiency objective. The concept is being formulated toward achieving the main components of maqasid al-Shari’ah (“the higher objectives and intents of Islamic laws or the Shari’ah”) namely; the justice, the wisdom, the mercy and the benefits. To-date, there has been no fully-integrated Islamic financial and capital market institutions in existence anywhere in this world. Therefore, it would be difficult to make performance comparisons with the conventional counterparts. The principal objective of this research is to study the viability of the FIIFII concept toward achieving maqasid al-Shari’ah in the case of Malaysia. There are two quantitative aspects in this research that had been undertaken by using the secondary information sources gathered from Malaysia’s conventional financial and capital market groups. There are also two qualitative aspects in this research that had been undertaken by using the primary information sources gathered through the survey techniques vide the use of questionnaires and/or interviews with the experts comprising the Shari’ah and Islamic financial scholars, the Islamic financial practitioners, the regulators, the advisers and the politicians and these experts would come from the local universities, Islamic financial institutions, Bank Negara Malaysia, the Securities Commissions, Bursa Malaysia and the federal and state religious institutions. The research on the viability of this FIIFII concept had been done in three parts. The first part had been to measure and compare the financial and efficiency performances of three fully-integrated financial and capital market groups with those of the other three semi-integrated counterparts by using the respective Conventional Financial Analysis (“the CFA”) and Data Envelopment Analysis (“the DEA”) techniques. The second part had been undertaken vide the surveys to ascertain that the FIIFII concept could operate better should maqasid al-Shari’ah act as the guiding principles in its operations. The third part had been undertaken vide the surveys to study on the viability of the FIIFII concept toward the achievement of maqasid al-Shari’ah. The findings and analysis from the use of the CFA and DEA techniques had shown that the three fully-integrated financial and capital market groups have on a 10-year period to the 2011 financial year, performed better financially and efficiently than their semi-integrated counterparts. The surveys undertaken had found that all the functions and activities of the FIIFII concept would be inseparable from those components of maqasid al-Shari’ah and should be aimed at achieving the maqasid. The surveys undertaken on the viability of the FIIFII concept had found that the FIIFII concept would be feasible in the context of Malaysia and would be a better alternative to the country’s existing Islamic financial and capital market system. It is therefore, recommended that Malaysia should seriously consider developing the FIIFII concept of the Three-tier structure whereby the FIIFII Foundation would act as the policy decision entity, the FIIFII Holding Company as the coordinating entity, and the FIIFII Main Subsidiaries as the implementing entities. It is proposed that the FIIFII concept should be operating in a competitive environment and in parallel to the country’s existing Islamic institutions in order to be profitable, efficient and more importantly, the FIIFII should be able to achieve the maqasid. It is also proposed that the FIIFII should not be owned or controlled by the Government as its intervention would not necessarily bring success. In the final analysis, it is felt that the FIIFII concept should be a viable financial alternative to Malaysia’s existing Islamic financial and capital system and this FIIFII concept should urgently be developed in stages to meet the challenges of the twenty-first century.