Issues of implementing Islamic hire purchase in dual banking systems: Malaysia's experience

Abstract

Abstract Malaysia, being one of the first countries to promote Islamic finance, has experienced a dual banking system whereby a full‐fledged Islamic banking system operates on a parallel basis with a sophisticated conventional banking system. Operating within a dual banking system provides a relative advantage to Islamic banks as compared to operating in a single Islamic banking system. One of the latest innovations is the development of the Islamic hire‐purchase instrument, which is commonly known as al‐ijarah waiqtina' ; in the Malaysian experience, it is called al‐ijarah thumma al‐bai' (AITAB). This article aims to examine some critical issues arising from the implementation of AITAB from jurist, legal, and practical perspectives. It presents a comparative study with conventional practices to highlight similarities and differences, thus invoking a number of jurist, legal, and practical issues about the concept and implementation of AITAB. It is hoped through the assessment of the Malaysian experience to offer practicable solutions to help provide better and more legitimate structured implementation of Islamic hire purchase in financial institutions. © 2007 Wiley Periodicals, Inc.