ISLAMIC HOUSING FINANCING AND CONVENTIONAL HOUSING LOAN BY BANKS

BWFS 2053 ISLAMIC FINANCING MANAGEMENT 1
1.0 INTRODUCTION
House is defined as a building for human habitation, especially a person that is lived in by a
family or small group of people. For having our own house, we need money whether to buy, rent or
build it. This made it possible for veterans borrow money for the purchase or building of a home. For
many decades, people purchase a house by apply for a conventional house loan from a bank, credit
union or other private financial institution to obtain money.
In this assignment our group will discuss and analyse a conventional housing loan and
islamic house financing. Our group will take the Hong Leong Islamic Bank and Hong Leong Bank
Bhd as an example. Then we will compare the differences between Islamic Financing and
Conventional Loan also discusses issues relating to this topics.
We may think housing loans have been around for hundreds of years. But, actually it was
only in the 1930s, that housing loans actually got their start. Banks didn't forge ahead with this new
idea. However, insurance companies did. Insurance companies daring did this not because interest of
making money through fees and interest charges, but hopes of get the ownership of properties if
borrowers failed to pay back the loan.
Loans not guaranteed or insured by these agencies are known as conventional loans. These
loans are using Fannie Mae guidelines. Fannie Mae, or Federal National Mortgage Association, is a
corporation created by the federal government that buys and sells conventional loans. It sets the
maximum loan amount and requirements for borrowers.
Nowadays, many country exchanges their structure of financial institution by add an Islamic
home financing as one of tool to obtain money to purchase a house for example at Malaysia. There
are two types of Islamic house financing in Malaysia.
Firstly, Islamic financing are benevolent loans that are interest or profit free. Secondly,
contracts are technically not fianancing, but “Buy and Sell” or “Joint Partnership” agreements. The
most common form is based on Bai Bithamin Ajil (BBA), which is itself a subset of the Murabahah
concept. Less popular are facilities based on Musyarakah Mutanaqisah (MM). Malaysia has one of
the most advanced Islamic Finance industries in the world.
Since its initial introduction, Islamic financing products have evolved and matured to be
comparable to and just as competitive as other conventional loan packages. But there are some key

differences. For example, conventional housing loans have interest, which is not allowed in shariah
principal, whereas Islamic house financing does not have interest.

2.0 ABOUT THE COMPANY
Hong Leong Islamic Bank Berhad is fully owned subsidiary of Hong Leong Bank Berhad
which is member of the Hong Leong Group. Hong Leong Group is a leading conglomerate based in
Malaysia with diversified business in banking and financial service, manufacturing and distribution,
property development and investments, hospitality and leisure, and principle investment with present
in north and Southeast Asia, Western Europe and the UK, North America and Oceania.
Hong Leong Bank Berhad is a member of the Hong Leong Group Malaysia that listed in
company on Bursa Malaysia. These banks were headquartered in Malaysia and have been in the
financial services industry since 1968 through Hong Leong Finance Berhad and since 1982 through
Dao Heng Bank Ltd. in Hong Kong. Dao Heng Bank Ltd. has since been sold to another banking
institution.
This bank starts beginning in 1905 in Kuching, Sarawak under the name of Kwong Lee
Mortgage and Remittance Company and later in 1934, incorporated as Kwong Lee Bank Ltd.. In
1989, it was renamed MUI Bank, operating in 35 branches. On January 1994, the Group acquired
MUI Bank through Hong Leong Credit Berhad.
Next, in 2004, the finance company business of Hong Leong Finance Berhad was acquired
by Hong Leong Bank. In 2011, Hong Leong Bank completed the merger with EON Bank Group.
Today, Hong Leong Bank has over 300 Branches.
Hong Leong Islamic Bank Berhad (HLISB) is a fully owned subsidiary of Hong Leong Bank
Berhad (HLB) which is a member of the Hong Leong Group Malaysia. Which is beginning as the
Islamic Banking arm of HLB, the division was incorporated as a separate entity on 28 March 2005.
HLISB is a dedicated brand offering a comprehensive range of innovative solutions covering
areas like structured finance, capital market, Business Banking, personal financial services,
bancatakaful and wealth management. The Bank is ready towards reaching out to the needs of
customers seeking an alternative to conventional banking.
For the year ended 30 June 2004, the advances and financing of HLB's Islamic Banking
Division (IBD) grew almost 20%, while deposits from customers increased by around 3% during the

same period. Following the transfer of IBD's business to HLISB, the latter will continue to tap on
HLB's infrastructure and strength in networking whilst developing its own business niche in fee-
based income and investment banking products.
Strategically, HLISB is focusing on provision of solutions on a holistic approach basis
encapsulating the tenets and principles of the Syariah law. Innovative solutions encompassing areas
in structured finance, capital market, equity joint venture financing, leasing for home purchases and
wealth management are amongst the repertoire of HLISB's offerings.
With over 180 HLB branches nationwide also operating as HLISB branches, Islamic banking
products and services will be easily accessible to Malaysian consumers to meet their multi-faceted
needs.

3.0 COMPARISON BETWEEN ISLAMIC BANK HOUSING FINANCING AND
CONVENTIONAL BANK HOUSING LOAN
For the comparison between Islamic bank housing financing and the conventional
bank housing loan, we had choose the Hong Leong Bank Berhad and the Hong Leong
Islamic Bank Berhad for distinguish this both types of the bank, their benefits and also the
differences that had appeared among them.
For information, the foundation of Islamic bank is based on the Islamic faith and
must stay within the limit of Islamic law or the Shariah in all of its actions and deeds.
Islamic law consider a loan to be given or taken, free of charge, to meet any contingency.
Thus, in Islamic banking, the creditors should not take any advantage of the borrower. When
money is lent out on the basis of interest, more often that it leads to the injustice.
The first Islamic principle, underlying for such kind of transactions, is “ deal not
unjustly and ye shall not be dealt with unjustly” (Quran,Chapter 2: 279 ) which explain why
Islamic commercial banking in an Islamic framework is not based on the debtor- creditor
relationship.
Meanwhile, contrary to the conventional bank which is essentially based on the
debtor- creditor relationship between the depositors and the bank on one hand, and between
the borrowers and the bank on other. Interest is considered to be the price of credit,
reflecting the opportunity cost of money.
As we know, the housing loan or the mortgage loan is the more secured form of
financing for both Islamic bank and the conventional bank. Under the conventional system,
housing loan is provided for interest, meanwhile, Islamic financial system facility is provided
through diminishing the Musharaka.
Under the diminishing of Musharaka, the house is purchased jointly by the Islamic
financial institutions and the customers. Then, the Islamic financial institutions rents out its
share in property to customer for an agreed amount of rent. Share of financier is divided in

units of small denominations. Customer pays the installments to Islamic financial institutions
consists of rental and plus purchase price of a units.
The Islamic housing loan actually based on the Musyarakah Mutanaqisah and Bai
Bithaman Ajil. Bai Bithaman Ajil or the deferred payments works on a selling price that is
fixed rate which is provides certainty, clarity and predictability in its transactions, while
Musyarakah Mutanaqisah may have a fixed price element built as a maximum cap but
overall the total amount depends on the reference rate tied to the product which is BLR or
the BFR.
To be clearly, actually there is a little difference between the both account and the
conventional account in terms of calculations. The major difference is that, for Bai Bithaman
Ajil, and also for most other Islamic financing products, there is a cap to the amount that
you pay which is the selling price. The selling price is stated in the contract as the absolute
amount to be paid but in events of refinancing to another bank or early settlement, the
amount to be settled is exactly what you will pay in the conventional loan.
If you take the conventional loans, you will not be able to determine the actual
amount of interest that you are going to pay at the end of the tenure. This is because,
there is no cap to the interest rate which is tied to the BLR which will move with the
market.
There is a little difference between Islamic bank and the conventional bank housing
loan if we look at the computation of the interest rate. Even the interest rate offered by
most banks for the both types of loan is similar. The documentation fee do varies between
bank and also between the two different types of loans.
However, there is no trend showing that document fee charge under Islamic loan is
higher compared to the conventional loan. In fact, there is some banks waive documentation
fee in order to make their housing loan or the mortgage loan package are more attractive.
As for early settlement fee, the terms under Islamic financing are actually more fairer
compared to the conventional.

This is because, they do not penalize loan borrower for settling the loan earlier, in
fact, the penalty is not allowed in this financing. For the early settlement, the bank only
charge customer any expenses incurred if any, by the former and nothing more. Meanwhile,
as for the conventional loan, many bank have early settlement clauses which penalize the
borrower if they early settle the loan. The penalty is different among the bank. Usually, it
is around 2% to 3%.
Next, another perception of the differences between the Islamic housing loan and the
conventional loan is that with regards to the early settlement. For the conventional loan,
when you early settle, you have to pay off the balance outstanding plus whatever penalty
you incur for early settlement. If your principal balance outstanding is RM 140,000 and the
penalty is RM 10,000 the amount you must pay is RM 150,000.
However, under Bai Bithaman Ajil, the amount to settle is always confused with the
outstanding selling price which is include the future profit. Actually, for the early settlement,
the Bai Bithaman Ajil gives away the rebates on the selling price which is equivalent to
future profit not realized, although this is not stated explicity in the document. In short, the
settlement amount for the Bai Bithaman Ajil is actually the principle balance outstanding
which is the same as the amount under the conventional loans.
Furthermore, the differences between the Islamic housing loan and the conventional
loan also can be interpret in terms of transparency. As we know, public disclosure through
the publication of the financial statement has long been the source of information on
business performance of financial institutions. But, in recent years, final institutions under
pressure from market forces, have started focusing on the disclosure of wide range of
information, including management policy, risk exposures, and the risk of management
practices.
Given that disclosure discipline management of financial institutions and helps to
enhance the efficiency and transparency of the markets, and it has acquired great
significance in promoting the stability of the financial system. Like conventional bank,
Islamic bank also engaged in the business that dealing with the money. However, the fact

that which distinguish them, is that their dealing with the depositor are based on the profit
and loss sharing to be dealing in trust money.
Thus, depositors account holders trust in an Islamic banking ability to achieve the
investment goals and make a fair distributions of the revenue and the investment accounts
holders become paramount in the continuity of the Islamic banking system.Given this
importance, Islamic banking are obliged to be transparent which is no hidden cost in the
transactions by making adequate disclosures to their investment account holders, not only
with regard to their own financial condition as is the case with conventional banks but also
in respect of the management of trust money.
Meanwhile, for the conventional bank, the interest amount payable will vary
depending on interest rates movements. Given that housing loan financing is usually for long
tenors, there is a strong possibility of interest rates hovering higher in subsequent years than
that at the time the contract was executed. And it is not to allowed to disclosure the
information especially when it comes to the consumer public welfare, it is only the certain
parts that have been allowed to be disclose to the public.
This is because, not all people have good perception and acceptance, when it comes
to their account need to be disclose by the bank, in fact, by disclosure the information, the
customer worrisome become rise. So, to avoid this thing from happen and also for the sake
of efficiency of the bank, the conventional bank had decided not to disclosure all the
information except the needed only.
Besides that, the differences between the Islamic housing loan and the conventional
loan also can be evaluate through the terms of overdraft or credit card. For the conventional
bank, it offer the facility of overdrawing from account of the customer on interest. One of
its form is use of credit card whereby limit of overdrawing for customer is set by the bank.
Credit cards provides dual facility to customer including financing as well as facility of
plastic money which is customer can meet his requirement without carrying cash.

Meanwhile, for the Islamic loan, as the facility of financing is concerned is not
offered by Islamic bank except in the form of Murabaha which is mean Islamic financial
institutions shall the deliver the desire commodity and not the cash.
However, facility to meet requirements is provided through debit card whereby a
customer can use his card if his account carries credit balance. Under the conventional
banking, a customer is charged with the interest, once the facility is availed, however,
Islamic financing, Murabaha is only profit is due when the commodity is deliver to the
customer.
In case of default customer, is charge with the futher interest for the extra period
under conventional system but however, extra charging is not allowed under the Islamic
financing. On top of that, the differences between the Islamic housing loan and the
conventional loan also can be discussed in the terms of deposits.
As information, the deposits are collected from savers under both types of
institutions for reward irrespective a bank is operating under conventional system or Islamic
system. The differences lies in the agreements of rewards. Under the conventional system
rewards is fixed and predetermined while under Islamic deposit are accepted through the
Musharaka and Mudharaba where reward is available.
Meanwhile, under the conventional banking, the return is higher in the long term
deposits and lower in short term of the deposits. Same with the practices in Islamic banking
to share profits with depositors. Higher weight for the profit sharing assigned to the long
term deposits which cannot be invested in long term projects. The only differences in
conventional and Islamic banking system is lies in sharing risk and also the rewards.
Under the conventional system, total risk is born by the bank and the total reward is
belong to it after servicing the depositors at a fixed rate, while under the Islamic system,
both risk and profits are shared with the depositors. The reward of depositors is linked with
the outcomes of investments that is made by the Islamic financial institutions.

Under the Islamic financial system only those Islamic financial institutions will be
able to collect deposits who can establish trust in the eyes of masses hence leading to the
optimal performance by the financial industry.

4.0 ISSUES IN ISLAMIC HOME FINANCING IN MALAYSIA.
Nowadays, Muslims will no need to worry yet if they want to purchase a
house in a force condition by borrow the money from conventional bank. It’s
because, now there are so many Islamic bank. Not only in Malaysia but in others
country too which provides an Islamic home financing product to the people
who want to purchase a house. But, there are some issues or challenges arise in
Islamic home financing. It’s regarding to the product which usually used for
home financing which are Bai Bithaman Ajil and Musharakah Mutanaqisah.
4.1 Bai Bithaman Ajil.
Bai Bithaman Ajil is a sale and purchase transaction for the financing of
assets on a deferred and an installment basis with a pre-agreed payment
period. The sale price will include a profit margin.
In Islamic finance, a sale of goods in which a bank purchases the goods
on behalf of the buyer from the seller and sells them to the buyer at a
profit, allowing the buyer to make installment payment.
The issues in the Bai Bithaman Ajil (BBA) in Home Financing:
4.1.1 Ownership on the House
Basically, BBA involves two contracting parties which are
buyers and sellers. For example is a Bank Hanif which wants to
sell a house to Arman as the customer must own the house before
sell the house to Arman.
But, in practice the bank is not allowed to run a business sale
and purchase of goods without own the assets first. Existing act
also only provides for the bank to provide financing facility to the
customer.

Furthermore, Islamic Banking Act (IBA) 1983 is a civil act.
Although it is include the Islamic banking system, but it is still
insufficient for overcoming the various problems at present now.
This situation causes a lack of ownership for the bank on the asset.
But, according to the Islamic law, a person cannot sell something
that does not belong to them.
As a solution to this problem, we create a scenario to give an
understanding how to settle this problem. For example, bank A
buys the house from Mr. Ismail based on the concept of BBA
through Property Purchase Agreement (PPA). Money paid by the
bank A to Mr. Ismail will be given directly to the developers.
When the bank A has a title to the house, then Bank A sells
back the house to Mr. Ismail through Property Sale Agreement
(PSA). At the same time, the assets will be used as a security and
the bank has the right sell the house to another person if Mr. Ismail
fails to pay the house as in the agreement. It should be noted that
the above scenario described the transaction how banks give a
financing to the buyer.
However, the existing banking laws do not allow the sale and
purchase transactions. Thus, the PPA agreement was introduced to
overcome the problems occurred. At the same time, the assets will
be used as security (collateral) and the bank has the right to sell the
asset if Pak Mat fails to pay the home as in the agreement.
It should be noted that the above described method of
transaction banks lend loan to the buyer. However, the law existing
banking banks do not allow the sale and purchase transactions.
Thus, the PPA agreement was introduced to overcome the
problems occurred.

4.1.2 Problem related to the Fixed-Rate
As we know, BBA offering a selling price of house at a fixed
rate. This situation is follow to the Shariah requirements whereby
to prevent the occurrence of a double price in one transactions. In
contrast to conventional systems where house prices always
fluctuate according to changes in interest rate.
With the existence of fixed rate, the customer does need to
worry in the event of rising interest rates. But, the issue is arise if
the interest rate go down. This situation will give an impact to the
customer habits which usually will choose the lowest price offered
by banking institutions. In this case, if the interest rates decline in
the long run, it will certainly affect the BBA.
However, if interest rates continue to rise, it will benefit the
BBA customer. Therefore, one mechanism is required to make
BBA is a competitive an instrument. So, to overcome this problem,
the Bank Negara Malaysia in 2003 has introduced Islamic Veriable
Rate Mechanism (IVRM). This mechanism is an alternative to
fixed-rate BBA. IVRM using the rebate (ibra').
This method allows the BBA lower the rate of profit to make it
competitive at the time when interest rates fall. Malaysia has
implement low interest rates since 1999 until now to grow the
economy. The existence of IVRM maybe a little late, but it can
provide some comfort to the customer from pay a fixed rate in the
BBA .

4.1.3 Bai Bithaman Ajil in Home Financing is like a conventional Loan
BBA is a sale not a loan. But, it a sale with a deferred payment
and not a spot sale too. Still it constitutes one form of trading and
commerce. In the Al-Quran says that, “Allah has allowed trade and
commerce but prohibits riba.” (Al-Baqarah).
Hence, profit from sale is lawful and profit from loan is
unlawful. The issue here is in Islam, sale must be on the spot. If
not, it is consider as riba an-nasiah which the riba arise when the
late of payment, so the price of the house become higher.
4.2 Musyarakah Mutanaqisah (diminishing partnership)
Second issues that arrive in home financing in Islamic Banking System is in
Musyarakah Mutanaqisah. Before we precede the discussion of Musyarakah Mutanaqisah,
let us review the meaning of Musyarakah and Musyarakah Mutanaqisah. According to ISRA
(2013), from Hanafi scholars, Musyarakah can be defined as a “contract between partners on
both capital and profit”.
Maliki scholars defined Musyarakah as permission to transact where each of the
partners permits the other to transact with the partnership property while at the same time
retaining his own right to transact with the same property.
While for Shafi’i scholars, Musyarakah is defined as a “confirmation of right of two
or more people over a common property. To conclude it, Musyarakah is an agreement
between two or more parties to combine their asset, labour or liabilities for the purpose of
making profit.
Whereby, according to the ISRA (2013), Musyarakah Mutanaqisah or diminishing
Musyarakah is a form of partnership in which one of the partners promise (wa’d) to buy the
equity (in this case is house) share of the other partner gradually until the title of the equity is
completely transferred to the customer.
This can be concluding that, it is a concept of contract incorporated between the
financier who is the partner, giving rights to the other party or partners to own the asset with

lump sum or in deferred payment as agreed by both parties. However, in modern banking,
there were an issues arrive regarding this home financing under the Musyarakah
Muntanaqisah.
Issue related to Musyarakah Mutanaqisah:
4.2.1 The Holiday Payment
The first issue that I notify in this Musyarakah Mutanaqisah is about the
holiday payment. Holiday payment is a payment that the customer does not have to
pay in one period of time. It is may be one month in a year.
The issue arrive on what is the status of the instalment payment on that month.
Is it the amount of that month have been totally abolished or is it will be bring on
the next month. In normal Islamic business transaction that carried out
Musyarakah Mutanaqisah, the amount are being carried forward which is adding
with the amount that has to pay in the next month.
This means the customer still need to pay and the abolishment is not kind of
rebate or discount. It is more to deferment of the payment that are given by the
bank. The payment method for the next month is whether in lump sum or little by
little.
For example, instalment for every month is RM500, after the month that
payment holiday occur, the customer could pay in total RM1,000 or pay for
RM600 every month till the amount are being covered.
The customer also can pay by adding the year or month of payment. For
example, initially the payment should be in 30 years, after the payment holiday,
the customer have to pay in 30 years and 5 month.

4.2.2 Time Of Economic Crisis
The second issue that arrive in Musyarakah Mutanaqisah is in the time of
economic crisis. Is it will be influenced by the Base Financing Rate (BFR), because
the BFR are influenced by the Overnight Policy Rate (OPR) and OPR are
influenced by the current economic state and government policy?
In this case, the banks already have the solutions for this problem. The
solutions is every products that the Islamic bank introduce, there are the ceiling rate
(cap rate) and the banks will never goes up more than the ceiling rate in prescribing
the profit. If the current BFR are low, the customer will enjoy the benefit and if the
current BFR are high, the bank will ensure that it will not be uncertainty amount
that will increase accordingly.
4.2.3 The Use of Islamic Bank Rate (IBR) with Adjustment as the Profit Rate
The third issue that arise is the use of Islamic Bank Rate (IBR) with
adjustment as the profit rate. The profit are differed according to the amount of
financing and whether the house is under financing or already completed.
For example, in home financing, if the range of financing is between RM100
thousand to RM500 thousand, the IBR will be 1.70% while for the house that are
under construction, the IBR will be 1.60%. for the range of financing above the
RM500 thousand, the adjustment rate will be increased by 1% from both
completed and under construction.
From the percentage that shown above, it shows that the bank still use the
conventional interest rate as benchmark. In the real practice of Musyarakah
Mutanaqisah, the bank should use the rental rate.

4.2.4 Bank Charged for the Penalty Fee
The fourth issue that I noticed in Musyarakah Mutanaqisah is the bank still
charged for the penalty fee to the customer for rescheduling their payment when
they are not capable to pay the instalment amount according to the initial
schedule.
The customer will ask for the bank to reschedule their payment amount
according to their capability and the consequences is the payment period will be
longer and the bank has to change their agreement contract.
The issue arrive here is, the bank will charge a fee for the rescheduling of
payment amount and the penalty fee for the dispute of the initial agreement.
Besides that, the customer also has to pay back the services charge in
rescheduling of the payment. This means, the customer has to bear the second
payment or charge in producing the rescheduling of the payment.
This issue clearly shows that the banks are not truly followed the principle of
Musyarakah accordingly because in Musyarakah, every cost and profit are shared
between both parties that are entered into the agreement.
Moreover, every cost that is charged in partnership should be incurred by
both parties because they have agreed to be a partnership whether they got profit
or losses and the capital are contributed by both parties.
In the banking system, every cost that is occurring in the partnership is bared
only by the customer and the bank only bear for the cost from capital.
This clearly showed the unfairness in incurring the problems arrive in the
partnership. The banks also imposed a penalty charge to the customer for the
failed in instalment as in initial scheduled.
Hence, according to the original Musyarakah, in the case of profit and loss,
both party is actually have to bear. This will lower the burden between the parties
in payment of the management cost.

Although in the end of the period, the equity will be owned by the customer,
in the time of partnership, the cost should be bared by both parties in order to
lower the cost or burden of the partner.
This is because, in the end of the partnership, the bank will also enjoy the
profit from the partnership. As we already know that the amount of instalment
that the customer have to pay are higher than the amount that the bank have to pay
to the developer.
4.2.5 The Payment of Guarantee Takaful to the House
The fifth issue that arise in Musyarakah Mutanaqisah house financing is about
the payment of guarantee takaful to the house. This guarantee should be bared by
both parties because in the beginning, the ownership of the equity is owned by both
parties and the cost occurs should be bared by both parties as well. In partnership,
they are responsible to bear the cost of guarantee and not only by one party.
This is because, the protection to the equity will benefit by both party involve
and as a guarantee to the equity. From what have been discovered, the bank
nowadays only followed the principle of Musyarakah Mutanaqisah in providing a
takaful or suggests takaful company to the customer as a guarantee to the property.
In contrast, the bank did not involve in guarantee the equity. Both of the party
is actually should bared the equity. However, in partnership, both of the party in
conjunction to make sure that the equity are in safe and protect the equity from
destruction or defect.
4.2.6 Production of the Documentation
The last issue that have been discussed in producing the documentation that
relate to the Musyarakah Mutanaqisah. The local Islamic bank faces the problem in
preparing the documentation of the contract due to the lack of the Shariah lawyers
that are expert and well understand the Musyarakah Mutanaqisah contract.

To sum up, in financing equity by using Musyarakah Mutanaqisah, it will be
more practical by increasing the quality of concept according to Shariah. This will
lead to the improvement and development of the contract of Musyarakah
Mutanaqisah because this contract is actually effective in house financing. Hence,
any changes in the responsibility for the property should be referred to the original
contract and any changes should be beneficial by both parties.
As a newly implemented product, Musyarakah Mutanaqisah based contract is
not excluded from having some flaws and limitations. However, there are still some
rooms for improvement to make it a better product.
The collaboration from various parties and economic scholars is very
important in improving Musyarakah Mutanaqisah based contract to make it more
Shariah compliant and assessable to all type of income group and still maintaining
its commercial value.
In addition, the bank are considered as Islamic that are being guided by
philosophies of Islamic business, which are, firstly, the philosophies will be used by
the management or policy makers of the bank in the process of formulating
corporate objectives and policy.
Secondly, these philosophies serve as an indicator as to whether the particular
Islamic bank is upholding true Islamic principles. The representatives should know
these philosophies.
Other than that, Islamic banking is a subset of the overall Islamic economic
system. They must strive for a jut, fair and balanced society as envisioned and
deeply inscribed of Shariah.

5.0 CONCLUSION
After discussing about this assignment, we can see that Hong Leong Group consisting two
types of banking, which are Conventional Hong Leong Banking and Hong Leong Islamic Banking.
Its both play an important role in our nation banking industry by serving not only for wealth
management service, deposit and business banking but also consisting of other services such as
conventional house loan or Islamic house financing.
Malaysian should be proud because here we have a variety house loan or financing products
to help us especially the new workers or young people to own their house by the easiest way.
However, applicants actually should have some knowledge about these both types of conventional
house loan and Islamic house financing.
It is because some of us still have not much information about the differences between their
principle, calculation and especially about the debtor- creditor relationship between the depositors
and the bank that only applied by conventional bank and not Islamic bank.
So, when the conventional bank using this relationship, it also mean that they will charge the
interest to the customers which is not allowed or permissible by Islam. The conventional loans
actually make us don’t know about the actual amount of interest that we are going to pay at
the end of the tenure.
The public should understand about the interest rate charged by most banks including in
housing loan can make them loss if they pay late rather than choose Islamic housing financing.
However, for the documentation fee, it is actually varies depends to the bank and different
types of loans but basically, there is no trend showing that document fee charge under
Islamic loan is higher compared to the conventional loan.
So, to help the Muslim customers, Islamic product is developed in this country which then
was replaced by Bai Bithaman Ajil and Musharakah Mutanaqisah which the Islamic financial
institutions rents out its share in property to customer that pays the installments to Islamic
financial institutions.

We also can see that everyone now have a choice either want to choose Islamic housing
financing or conventional housing loan but until now, many public still have negative mindset that
Islamic financing also provide interest including for Islamic housing loan financing because some of
them snot have not much understanding about the issue such as the use of Islamic Bank Rate (IBR)
with adjustment as the profit rate, the penalty fee and the payment of guarantee takaful to the house.
The conclusion is, as Muslims, of course we should support our Islamic products including
by support of Islamic housing financing beside broader our knowledge about the principal in this
financing which is important so that we can differentiate professionally and take the best decision
when apply either Islamic house financing or conventional loan.

6.0 ATTACHMENT
Wisma Hong Leong group which is located at 18 Jalan Perak, 50450 Kuala Lumpur
Hong Leong Bank and Hong Leong Islamic Bank corporate’s logo

Hong Leong conventional online housing loan, which can be apply directly from
https://www.ecloan.com.my/mgAcqCpgn/mgacqcpgn.asp?pcode=PropertyLoan

Hong Leong Islamic Financial Report 2013, which shown their housing financing is RM 6 756 902 000 for
30 June 2013, increase than previous years value.

Product which usually used for Hong Leong Islamic Home Islamic financing, Bai Bithaman Ajil is RM 8 764 050
000 for 30 June 2013, shown a positive increment rather than previous years.

Conventional Hong Leong Bank house loan financial statement for 30 June 2013 is only RM 3 092 687 000
compare than their housing Islamic financing which is RM 6 756 902 000 at the same date.

7.0 REFERENCES
Internet
 Islamic versus conventional financing. Retrieved :March 22, 2014, from,
http://loanstreet.com.my/learning-centre/islamic-vs-conventional-financing
 Islamic home loan / Financing in Malaysia Explained. Retrieved : March 22, 2014, from,
http://loanstreet.com.my/learning-centre/islamic-home-loans-explained
 The difference between Islamic loan and conventional loan. Retrieved: March 19,
2014, from, http://finance.advice.my/585824/May-I-know-what-is-the-difference-
between-Islamic-loans-vs-conventional-loans
 How to choose between Islamic and conventional home financing. Retrieved: March 19,
2014 from http://1stophomefinance.wordpress.com/home-loan-interest-rate-application-
property-financing-packages-islamic-conventional-blr/choosing-between-islamic-home-
financing
 The Islamic and Conventional Journal, Volume 2. Retrieved: March 19, 2014, from,
http://www.ijbssnet.com/journals/Vol._2_No._2%3B_February_2011/20.pdf
 The article of the differences between Islamic and Conventional bank. Retrieved: March
19, 2014, from, http://zaharuddin.net/senarai-lengkap-artikel/38/297-differences-between-
islamic-banks-a-conventional.html
 The article of Islamic banking. Retrieved: March 20, 2014, from, http://www.islamic-
banking.com/iarticle_5.aspx
 The Hong Leong Islamic Bank. Retrieved : March 18, 2014, from,
http://www.hlisb.com.my/lss/iart08.htm
 The Hong Leong Bank Berhad. Retrieved : March 18, 2014, from,
http://www.hlb.com.my/pfs/loan/loanhl_f.jsp?flag=loanhl_f
 Hasan. (2010). Bai Bithaman Ajil. Retrived: March 20, 2014, from
http://islamic-finance-simple.blogspot.com/2010/04/bai-bithaman-ajil-
bba.html

 Ustaz Nazri. (2009). Issues on Bai Bithaman Ajil. Retrived: March 20,
2014, from http://usnazri.blogspot.com/2009/10/bai-bithaman-ajil.html
 Muhamad Asyraf. (2010). Bai Bithaman Ajil 2. Retrived: March 20, 2014,
from http://www.academia.edu/3721385/Bai_Bithaman_Ajil_2
 Mohd Sollehudin bin Shuib, Joni Tamkin Borhan & Azizi Abu Bakar (2011). Musharakah
mutanaqisah home financing products: an implementation analysis, Product Advantages and
Issues at Citibank (Malaysia) Berhad. Retrieved from
http://penerbit.uthm.edu.my/ojs/index.php/JTS/article/viewFile/364/248 (musyarakah
muntanaqisah)
Book
 International Shariah Research Academy for Islamic Finance ISRA (2013). Islamic financial
system. page 244-249
 Abdul Ghafar Ismail (2010). Money, Islamic Banks and the Real Economy. Published by
Cengage Learning, page 73-75

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