Time to consider tawarruq home financing – a new insight
TAWARRUQ home financing is a growing segment of Islamic home financing for many banks in Malaysia. For instance, an annual report by Bank Islam Malaysia Berhad (BIMB) indicates that its tawarruq home financing well-performed - on 31st December 2014, the bank managed to reap a financing value of RM3.9 billion and increased to RM9.5 billion on 31st December 2016 (Bank Islam, 2014; 2016). An increase of 143.59 percent. It is reported that tawarruq home financing was a vital segment that contributed to the bank’s profit and increased its customer base. Though it is now a growing segment of Islamic home financing, there exists a fallacy among laymen who still believe that tawarruq home financing is another dimension of BBA that carries a different terminology but brings the same implications. This may influence the magnitude of consumer acceptance.
More importantly, tawarruq home financing demand is also affected by a fallacy that exists in the marketplace. For instance, a person may claim the pricing for tawarruq is expensive when compared to its conventional peers. In reality, however, it is groundless. This mars the receptiveness of prospective customers for tawarruq home financing. Generally speaking, poor knowledge, negative peer influence, the lack of critical information available on Islamic mortgage and limited product lines have been some of the many contributing factors leading to the fallacy. Without an effective measure, the fate of the product will also end up similar to the previous ones and the ability to gain a greater public acceptance of tawarruq home financing will be weakened.
The present write-up intends to address this issue by providing, to a certain extent, some specific indicators to strengthen the marketability of the product accordingly.
Two questions are of significance. Q#1: What are the contributing factors that increase the interest in tawarruq home financing in Malaysia? Q#2: Of the examined factors, which of these are influential? For this purpose, a questionnaire survey has been conducted covering three geographical areas in Malaysia. These include KL/Selangor, Negeri Sembilan and Sabah, which are chosen based on their economic development. These states experience a strong development for the housing industry in Malaysia. The sample size was 629 respondents. In more detail, data was collected from staff at Universiti Islam Antarabangsa Malaysia (UIAM) situated in KL/Selangor, Universiti Sains Islam Malaysia (USIM) situated in Negeri Sembilan and Universiti Malaysia Sabah (UMS) situated in Sabah. The university staff employed were proxies to symbolise the actual customers of Islamic banks. The staff are full-time employees who have several years of experience in patronising Islamic banking products.
The demographic distribution shows that 43.7 percent of the respondents are male and the remaining 56.3 percent of the respondents are female. In terms of marital status, 32.4 percent of the respondents are single and 67.6 percent of the respondents are married respondents. As for jobs, 41.8 percent are academic staff, followed by management staff with 24.5 percent and the remaining of 33.7 percent representing supporting staff.
This research reports an interesting discovery on patronage factors of tawarruq home financing. Five factors are examined, notably, quality of maqasid compliance, product attractiveness, attitude, subjective norm and perceived behavioural control. These factors are identified through literature analyses. I define these factors as follows:
F#1 Quality of maqasid compliance defined as customers’ belief that the operation of tawarruq home financing is nothing but an agreement with maqasid al-Shariah. This means that tawarruq home financing is not only about the product per se but also about the well-being of homebuyers, where maqasid al-Shariah comes into play.
F#2 Product attractiveness means the customers’ assessment that tawarruq home financing has competitive attractive terms compared to other alternatives products. Product attractiveness can convert one’s query on tawarruq home financing into actual behaviour. It also serves as an important role to increase our understanding pertinent to the likelihood of success or failure of the product.
F#3 Attitude is defined as the evaluative effect of positive or negative feelings of individuals in performing a particular behaviour. It perceives how people think on a particular subject, drawn from their IQs. If the result is good, then the attitude generated is somehow good but otherwise, it is a type of defiance – performing an undesirable behaviour to denote a bad attitude.
F#4 Subjective norm is defined as a person’s perception that most people who are important to her or him should or should not perform the behaviour in question. It can also be defined as a financial recommendation or people influences.
F#5 Perceived behavioural control can be defined as being “the perceived ease or difficulty of performing the behaviour and it is assumed to reflect past experience as well as anticipated impediments and obstacles”. In our context, however, perceived behavioural control is related to consumer’s self-efficacy, financial resources and times that are related to the product.
To evaluate the importance of the factors under contemplation, a multiple regression model has been employed. Evidently, this study discovers that quality of maqasid compliance has a significant positive effect on the willingness to opt tawarruq home financing (t = 10.286, p = 0.000). Similarly, product attractiveness is discovered to have a significant effect on the willingness to opt tawarruq home financing (t = 9.178, p = 0.000). Attitude, subjective norm and perceived behavioural control are reported to be instrumental in determining the willingness to choose tawarruq home financing.
Of these, quality of maqasid compliance is found to be superior that suggests the formation of belief to accept tawarruq home financing is developed when customers believe that the banks have aligned their product with maqasid al-Shariah. Maqasid al-Shariah acts like a caretaker that enhances customers’ trust and confidence on the product, which help to improve the demand and enhanced customer base for this segment of Islamic home financing.
All in all, it is worth noting that the maqasid and product attractiveness that are designed for this work has a more predictive power unlike the other three conventional factors.
This study also provides a guideline on how to market tawarruq home financing successfully, via developing a perception among bank customers on quality of maqasid compliance, where the roles of social media and quick questionnaire database are refined for an improved public confidence and thus to enhance consumer receptiveness.
Acknowledgment: This write-up is funded by Fundamental Research Grant Scheme (FRGS): FRG0438-SS-1/2016, Ministry of Higher Education (MOHE), Malaysia.