Issues In Islamic Project Financing In Building Works
Islam as the religion, embraces all aspects of life and continue to be accepted by 1. 8 billion people, making up to 24% of the total population in the world. Malaysia, one of the countries with majorities of the people are Muslims provide various institutions in various sector based on the principle of Islam. One of the prominent branch of knowledge which has gain traction globally and locally is the Islamic finance. The Islamic banking industry or Islamic Financial Institution (IFI) in Malaysia with various competitive products has provide complement alternatives to conventional banks and has significantly improved during the past years. A report by Bank Negara Malaysia highlights that the Islamic Finance market share of 5. 3% in 2000 now accounts to 34. 9% of total loans and financing.
Meanwhile, another aspect which contributes to the growth of a country is the construction industry. Malaysia’s construction industry is expected to contribute RM 58, 005 million this year with an increase of 7. 5% from last year. With the constant increase in construction industry contribution to the Gross Domestic Product (GDP) to the economy growth, the need for large amount of capital to run and finance the projects from public and private sector also increases. Issues like payment, cash flow, market and financial resource has occurred in several projects and causes delay in the schedule.
Malaysia, for the past decade has seen the rise of interest in the use of Islamic finance provided by the IFI among the Muslims. Muhammad (2007) and Asyraf (2011) agrees that implementation of Islamic banking before 1970s was a dream due to obstacles faced. The absence of interest or Riba as well as avoidance of any Gharar or uncertainty in the transaction of finance also became an advantage for Islamic finance compared to conventional bank.
One of the earliest effort in developing an Islamic Financial sector in Malaysia occurred in 1962 with the founding of Tabung Haji or the Pilgrims Fund Corporation. The first Islamic bank in Malaysia, Bank Islam Malaysia Berhad was introduced in 1983 to provide shariah compliant financial products and services. Now, after decades of preparation, Malaysia has provided separate Islamic legislation and banking regulations provided by Bank Negara Malaysia in the form of Shariah Advisory Council (SAC) with the purpose to co-exist with the conventional banking system. The needs and necessity to choose Shariah-based products among Muslim consumers is necessary. This is even supported by the verse 275 in Surah Al-Baqarah which translates to “But Allah hath permitted trade and forbidden usury”. IFI plays an important role in providing instruments or products that can be used by Muslims in Malaysia for financial transaction and attract non-Muslims customers to use IFI. The various financial instruments provided under the Shariah are considered as Shariah compliant. Other form of financial system is also available as mode of finance like Musyarakah Mutanaqisah as well as Bai al-Dayn, Tawarruq and al Rahn to help existing financial instruments in the housing sector.
Most of the available researches available only discussed the prospects of Islamic finance in the economic sector, with several researches regarding Islamic finance relating to construction industry. Other researchers have focused in each specific financial instrument and its application in the housing sector and the industry like the use of Bai Bithaman Ajil, Ijara, Istisna’, the use of Takaful and Musyarakah Mutanaqisah while Sharifuddin (2012) in his dissertation highlights the use of Islamic finance for contractors. With the increase in information as well as interest in Islamic Finance in Malaysia throughout the years, the researcher believe that a significant amount of the financial instrument provided by the IFI is currently in used in the construction industry.
