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INVESTOR SELECTION TOWARDS SHARIAH AND NON-SHARIAH COMPLIANT INVESTMENT FATIN SYAZWANI BINTI SAFIYUDDIN UNIVERSITI UTARA MALAYSIA 2012

Investor Selection Towards Shariah and Non-Shariah Compliant Investment

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Page 1: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

INVESTOR SELECTION TOWARDS SHARIAH AND

NON-SHARIAH COMPLIANT INVESTMENT

FATIN SYAZWANI BINTI SAFIYUDDIN

UNIVERSITI UTARA MALAYSIA

2012

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INVESTOR SELECTION TOWARDS SHARIAH AND NON-SHARIAH COMPLIANT INVESTMENT

FATIN SYAZWANI BINTI SAFIYUDDIN (201045)

THIS THESIS SUBMITTED IN PARTIAL FULFILLMENT

OF THE REQUIREMENTS FOR THE BACHELOR OF ISLAMIC FINANCE AND BANKING (HONS)

ISLAMIC BUSINESS SCHOOL COLLEGE OF BUSINESS

UNIVERSITI UTARA MALAYSIA

2012

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SUPERVISOR DECLARATION

I, the undersigned, certified that Fatin Syazwani binti Safiyuddin (201045) candidate for

the Bachelor of Islamic Finance and Banking has presented her thesis which is Investor

Selection Towards Shariah and Non-Shariah Compliant Investment have been examined

and accepted as a partial fulfillment of the requirements for the award of Bachelor of Islamic

Finance and Banking with Honors.

____________________________

DR. SELAMAH BINTI MAAMOR

Senior Lecturer /Supervisor

Islamic Business School

College Of Business

Universiti Utara Malaysia

Date:

Page 4: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

STUDENT DECLARATION

I agree and full responsible that this dissertation Investor Selection Towards Shariah and

Non-Shariah Compliant Investment is fully done by me. I bear full responsibility for

checking whether material submitted is subject to copyright or ownership right.

___________________________________________

FATIN SYAZWANI BINTI SAFIYUDDIN (201045)

Bachelor of Islamic Finance and Banking (Hons)

Islamic Business School

College Of Business

Universiti Utara Malaysia

Date:

Page 5: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

PERMISSION TO USE

In presenting this research paper in partial fulfillment of the requirement of my Degree in

Islamic Finance and Banking from Universiti Utara Malaysia, I agree that the University

Library may make in freely available for inspection. I further agree that permission for

copying of this research in any manner, in whole or in part, for scholarly may be granted by

my supervisor or in their absence by the Dean of College of Business. It is understood that

any copying or publication or use of this research or parts thereof for financial gain shall not

be allowed without my written permission. It is also understood that due recognition shall be

given to me and Universiti Utara Malaysia for any scholarly use which may be made of any

material from my research.

Requests for permission to copy or to make other use of materials in this research, in whole

or in part, should be addressed to

Dean of College of Business

Universiti Utara Malaysia

06010 Sintok

Kedah DarulAman

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ABSTRACT

The focus of this research is to study the investor selection towards shariah compliant investment (SCI) and non-shariah compliant investment (NSCI) which considers demographic background, current investment, knowledge and perception of the respondents. Such a study is important in order to know the literature review about the history of Islamic finance and SCI, decision making and selection towards SCI and NSCI, prohibition elements in SCI and criteria to determine the SCI. The research approach adopted in this dissertation includes descriptive and cross-tab analysis. The sample of this study is 100 staff in Universiti Utara Malaysia (UUM). The findings from this research provide evidence that professionals and management group prefer to invest in SCI. In addition, lack of knowledge and information are main factors that influence investor prefer in NSCI. Researcher also found that investors have a positive perception towards the advantages of SCI, the criteria and high confidence level in SCI, however, the consciousness to choose the SCI is still low. This dissertation recommends that the educational system should be restructured and aggressive promotion should be done.

Keyword: Shariah Compliant Investment (SCI), Non-shariah Compliant Investment (NSCI)

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PILIHAN PELABUR TERHADAP PELABURAN YANG PATUH DAN TIDAK PATUH SHARIAH

ABSTRAK

Fokus kajian ini adalah untuk mengkaji pemilihan pelabur terhadap pelaburan yang patuh dan tidak patuh shariah dengan mengambil kira faktor demografi, pelaburan semasa, pengetahuan dan persepsi responden. Kajian ini juga melihat kepada kajian-kajian lepas dan telah diklasifikasikan dari aspek sejarah kewangan islam dan pelaburan patuh shariah, proses membuat keputusan dan pemilihan terhadap pelaburan patuh dan tidak patuh shariah, unsur-unsur larangan dalam pelaburan patuh shariah dan kriteria yang diambilkira untuk menentukan status patuh shariah.Penyelidik menggunakan kaedah diskriptif dan cross-tab untuk menganalisis data yang telah diperolehi dari borang kaji selidik. Penyelidik telah mengambil 100 sampel yang melibatkan staf di Universiti Utara Malaysia. Kajian telah mendapati bahawa golongan profesional dan pengurusan memilih untuk melabur dalam pelaburan patuh shariah. Selain itu, kurang pengetahuan dan maklumat menyumbang kepada pemilihan pelabur terhadap pelaburan tidak patuh shariah. Penyelidik juga mendapati bahawa pelabur memberikan persepsi yang positif terhadap kebaikan pelaburan patuh shariah, kriteria untuk membuat pelaburan dan mempunyai keyakinan terhadap pelaburan patuh shariah namun, kesedaran mereka untuk memilih pelaburan patuh shariah masih rendah. Penyelidik memberi cadangan agar penstrukturan semula sistem pendidikan dan promosi yang lebih agresif untuk memberi kesedaran kepada pelabur terhadap pelaburan patuh shariah.

Kata kunci:Pelaburan Patuh Shariah, Pelaburan Tidak Patuh Shariah

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ACKNOWLEDGEMENT

Thanks to Allah for his blessing, so I could accomplish this academic research within the prescribed time. Countless thanks to my supervisor, Dr Selamah bt. Maamor for her opinions, guidances, encouragements and attentions throughout this academic research.

For my beloved parents, Safiyuddin b. Hj. Yusof and Fazillah bt. Megat Said in terms of motivation and financial support in completing this academic research.

Last but not least, thank you to the staff of Universiti Utara Malaysia for taking their precious time to answer the questionnaires and give an opportunity to me to complete this academic research.

Thank you also goes to Mr. Zamri Salleh, Hani Nabilah bt. Mazlan Ali, Siti Rahmah Yunita Abdul Rahim, Abdul Malik Abdul Rahim, Muhammad Firdaus Hj. Othman and friends who have contributed directly or indirectly during conducting this academic research.

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TABLE OF CONTENTS

PAGE

Supervisor Declaration i

Student Declaration ii

Permission to use iii

Abstract iv

Abstrak v

Acknowledgement vi

Table of content vii

List of table ix

List of exhibit x List of abbreviations xi

CHAPTER 1 INTRODUCTION

1.1 Introduction 1

1.2 Problem Statement 4

1.3 Research Objectives 6

1.4 Significance Of The Study 7

1.5 Scope Of The Study 7

1.6 Organisation Of Study 7

CHAPTER 2 LITERATURE REVIEW

2.1 Introduction 9 2.2 History of Islamic Finance and SCI 9 2.3 Decision Making and Selection Towards SCI and NSCI 12 2.4 Prohibition of SCI 14 2.5 The Criteria To Determine The SCI 15 2.6 Conclusion 18

CHAPTER 3 RESEARCH METHODOLOGY

3.1 Introduction 19 3.2 Questionnaire Design 19 3.3 Sampling Technique 21 3.4 Field Work 21 3.5 Analysis Plan 22 3.6 Conclusion 23

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CHAPTER 4 RESULT FINDINGS

4.1 Introduction 24 4.2 Demographic’s Background 25 4.3 Current Investment 26

4.4 Knowledge 28

4.5 Perception 29

4.6 Demographic’s Background, SCI and NSCI 32

4.7 Current Investment, SCI and NSCI 33

4.8 Knowledge, SCI and NSCI 34

4.9 Perception, SCI and NSCI 36

4.10 Conclusion 42

CHAPTER 5 CONCLUSION AND RECOMMENDATION

5.1 Introduction 44 5.2 Summary Of Findings 44 5.3 Policy Implication and Recommendation 46

REFERENCES -1-

APPENDIX -1-

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LIST OF TABLE

PAGE

Table 1.1 List of Shariah Compliant Stocks in Bursa Malaysia 5

Table 4.1 Demographic’s Background 25

Table 4.2 Current Investment 27

Table 4.3 Knowledge Towards Basic Islamic Principles and SCI 28

Table 4.5 Perception of Information 30

Table 4.6 Perception of The Advantages of SCI 30

Table 4.7 Perception of Criteria to Make Investment 31

Table 4.8 Confidence Towards SCI 32

Table 4.9 Demographic’s Background Towards SCI and NSCI 33

Table4.10 Current Investment Towards SCI and NSCI 34

Table 4.11 Knowledge Towards SCI and NSCI 35

Table 4.12 Perception of Information 36

Table 4.13 Advantages of SCI 38

Table 4.14 Criteria to Make Investment 40

Table 4.15 Confidence Towards SCI and NSCI 42

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LIST OF EXHIBIT

PAGE

Exhibit 3.1 Schematic Diagram of Research Population. 21

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LIST OF ABBREVIATIONS

KLSE Kuala Lumpur Stock Exchange

KLSI Kuala Lumpur Shariah Index

MESDAQ Exchange of Securities Dealings & Automated Quotation Bhd

NSCI Non-Shariah Compliant Investment

SAC Shariah Advisory Council

SC Securities Commission

SCI Shariah Compliant Investment

UUM Universiti Utara Malaysia

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CHAPTER 1

INTRODUCTION

1.1 INTRODUCTION

The world is now approaching of the second decade of the 21st century. After mid 2008,

the world was jolted by a new economic crisis and financial crisis. Effects are being

felt primarily the United States (U.S.) and Europe. The decline in the global financial sector

are more severe than the financial crisis that hit Asia in 1997. For this moment, U.S. fear the

current crisis, while at the same time the country is struggling with a serious crisis in the

money market. More financial institutions are affected by the credit crunch. Therefore, on

2nd October 2008, Russian President, Dmitry Medvedev in Russian-German Development

Forum said that the best way to overcome this problem was to build a new economic system

which enhance the principle of multi-polar world, the rule of law and concern with

the common needs. It is clear now that the banks are responsible for the decline in system that

impact the world financial crisis. As French President, Nicolas Sarkozy said that "Laissez-

faire was dead". The banking crisis happened because many banks create money on its own

without any collateral at a much higher rate plus an increased rate of real ability development

of the economy which impact the existence of ‘bubbles’. Regarding of this issue, the Former

Prime Minister, Tun Abdullah Ahmad Badawi also said that Islamic financial system has the

strength to face the world economic situations that cannot be expected compared to the

conventional financial system.

In Malaysia, Islamic finance industry has shown a rapid transformation in recent

decades. It has grown into one of the competitive component of the financial system in

Malaysia and become one of the drivers of growth and development of the economy. As

stated by Syed Othman Al-Habshi (1992) Malaysia, as an Islamic country has the potential to

make the Islamic investment as a source that can support economic growth.

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With conventional and Islamic financial system operating in tandem, Malaysia continues

to foster the expansion of this sector at local and abroad. Malaysia has emerged as a country

that has the most comprehensive finance in the world, supported by all components required

of a financial system of Islamic banking, takaful and Islamic money market and equity, based

on its own legal system and comprehensive system.

Nor Mohamed Yakcop (1996) has described the concepts and theories of Islamic finance as

practiced in Malaysia. As one of the founders of Islamic financial system in Malaysia and a

vast experience in this field, he felt that the Islamic financial system that consists of a variety

of products and instruments must be developed and explored. Moreover, Zaharuddin (2008)

said that no doubt many of the names of renowned scholars, but not all can provide the right

verdict, especially in the field of modern financial instruments due to the existence of

modern-instrument is a thriving and foreign transactions as referred to in scripture and

classical literature. This situation definitely needs contemporary research in the field of

Islamic finance. Azizi (2009) also stated that Islamic financial market conditions in

Malaysia are growing rapidly, many things can be done to improve the global

competitiveness of Islamic financial products to be an important complement to the

conventional system as well as the need to increase awareness among investors about the

presence of Islamic products.

However, the community in Malaysia especially Muslims are still not aware of the Islamic

Finance Industry subsequently affect their selection towards non-shariah compliant

investment. In fact, every mukallaf has responsibility for making a choice in the daily

activities based on shariah. It should also be adopted in business transactions and investment

by taking into account the significance of religious as a guideline to achieve al-falah which

means happiness in this world and the hereafter.

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We are very curious about how individual make the decision to invest especially as a

muslim’s investor. Therefore, we choose to study about the selection towards shariah and

non-shariah compliant investment (NSCI). We believe that demographic’s background,

current investment, level of knowledge and perception are the main factors why muslims

make decision in investing non-shariah compliant investment. For example, the muslims do

not know the differences between islamic and conventional investment and the consequences

when they use their money which come from non-shariah compliant investment.

We want to know how far the individual’s aware the consequences if they invest and take the

profit from non-shariah compliant investment subsequently they are willing to take the

principal amount only in returns and the remainder they will donate it. Besides, they have low

level of appreciation pertaining the value of Islam in seeking of wealth and property. This

occurs through culture, influenced by family and friends without realizing the main goal for

the creation of man is worship to Allah.

Therefore, we believe that the knowledge of Islamic transaction especially in Islamic

investment should be explored and understood for common good. The problem statements

are also stated in the next section in order to explain details why we prefer to study about this

topic.

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1.2 PROBLEM STATEMENT

In Malaysia, economy continued to grow although at a moderate pace in the first quarter of

2011 due to unstable global economic conditions. In addition, second capital market master

plan was also launched on 12 April 2011 in order to create new growth opportunities more

diversified. In a report released by Bank Negara Malaysia, Islamic capital markets also give a

positive growth from time to time. Besides, the Treasury Department of Malaysia also stated

that Malaysia is a global leader in Islamic Fund Management Industry which is in the first

seven month of 2011, there was another one Islamic Fund Management companies had been

approved subsequently brought up total 16 companies in this year compared to 15 companies

in 2010. Islamic Unit Trust Funds also rose up from 152 funds (RM 24 billion) in 2010 to

160 funds (RM 26.4 billion) in 2011. Islamic Wholesale Funds was increased to 24 funds in

2011 compared to 19 funds in 2010. Exchange Traded Funds (ETF) was also increased from

RM 579 million in 2010 to RM626 million in 2011. As stated by 25 November 2011, there

are 847 listed companies in main market of Bursa Malaysia Berhad and 88% of the securities

are shariah-compliant investment (SCI). It represents two-thirds of Malaysia’s market

capitalisation. Therefore, investors have many choices to an extensive selection of shariah

compliant securities across diversified industries for broader and deeper investment

portfolios. Yahya and Joni (2009) had analyze the growth of the shariah compliant stocks in

Bursa Malaysia as shown in Table 1.1.

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Table 1.1: Shariah Compliant Stocks in Bursa Malaysia

Year The numbers of

stock in Bursa

Malaysia

The numbers of

shariah compliant

stocks

The numbers of shariah

compliant in main board

(KLSI)

The numbers of shariah

compliant in secondary

board

The numbers of shariah

compliant in MESDAQ

Percentage of shariah compliant

counter (%)

1999 757 544 278 286 - 73

2000 796 585 319 266 - 77

2001 812 636 364 272 - 79

2002 885 677 395 273 9 80

2003 906 699 436 240 23 81

2004 963 778 477 254 47 83

2005 1011 857 508 257 65 85

2006 1029 886 521 240 125 86

2007 991 853 513 220 120 86

2008 980 855 522 216 117 87

(Source: Yahya & Joni, 2009)

Based on growth-promoting of the Islamic Investment has been shown, we are still

wondering whether shariah-compliant investments is still not initiated by investors. We want

to see in detail whether the education level of investor will make them more aware of shariah-

compliant investments. In addition, we also wonder whether occupational impact for the

selection of shariah or non-shariah compliant investment. Perhaps the professional and

academician group are exposed about shariah-compliant investment or otherwise. We also

want to see the relationship between monthly income of the investor with the selection of

investment products. Moreover, probably lack of knowledge of the investor will influence

them to choose non-shariah compliant investment. It is possible also lack of the basic

knowledge regarding the principles of Islam itself make investor less concern with the

selection of investment products. Investors may only see that shariah-compliant investment or

halal in food and marriage aspects only and assume that the investment aspects as the

different thing that should not be taken into consideration either it is shariah or non-shariah

compliant investment. We are very curious whether the investor has a negative perception of

Page 19: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

shariah compliant investment which is new in capital market compared to non-shariah

compliant investment.

Therefore, several research questions were identified based on discussion of problems and

issues described above. This study will try to answer questions such as:

a) Is there a relationship of demographic’s background of the investor that influence

selection towards shariah compliant investment and non-shariah compliant

investment?

b) Is there a relationship of current investment of the investor that affect selection

towards shariah compliant investment and non-shariah compliant investment?

c) Is there a relationship of knowledge of the investor that influence selection towards

shariah and non-shariah compliant investment?

d) Is there a relationship of perception of the investor that influence selection towards

shariah and non-shariah compliant investment?

We are stated the objective of this study in the next section in order to make the study is in

the line with the topic.

1.3 RESEARCH OBJECTIVES

The objectives of this research are:

a) To study the relationship between the demographic’s background and the investor

selection towards shariah compliant investment and non-shariah compliant

investment.

b) To study the relationship between current investment and the investor selection

towards shariah compliant investment and non-shariah compliant investment.

c) To study the relationship between knowledge and the investor selection towards

shariah compliant investment and non-shariah compliant investment.

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d) To study the relationship between perception and the investor selection towards

shariah compliant investment and non-shariah compliant investment.

1.4 SIGNIFICANCE OF THE STUDY

We believe that this study is important to identify the dominant factors that contribute to the

selection of investors to the shariah compliant investment (SCI) and non-shariah compliant

investment (NSCI). Through this study, we will get the factors that influence of the investor

selection towards SCI and NSCI and the data will help the policy maker in order to make a

better improvement. We sincerely hopes that it will increase the understanding of the shariah

compliant investment thus bring awareness to the investor to choose shariah compliant

investment. In addition, the findings of this research will help to enrich the study of Islamic

finance especially in Islamic investment. Besides, this study is will be a source of reference

for researcher in the future. However, the researcher has scope and limit the study because of

several reasons as explained in the next section.

1.5SCOPE OF THE STUDY

This study is about the investor selection towards shariah and non-shariah compliant

investment. It only focusing on the demographic’s background, current investment,

knowledge and perceptions that probably influence the investor towards shariah and non-

shariah compliant investment. The population of this study involve only the staff in UUM.

The study through observations and questionnaires distributed randomly to the staff in UUM

only.

1.6 ORGANISATION OF STUDY

This research report consisted of 5 chapter. Chapter 1 is introduction chapter which divided

into 6 sections. The contents in chapter 1 is background about the global financial crisis and

then,Islamic finance had been suggested to solve the crisis. The chapter also include the

problem statement, objectives, significance and scope of study.

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Chapter two is literature review which contains about the basic of terminologies and

definition that will be easy to understand the contents. In addition, chapter two also explain

where the works that have been done and related works published by other researchers in this

field. The collection is from year 1992 until 2011. We also give some critics on behalf of her

opinion.

Chapter three about research methodology. The contents in this chapter is questionnaire

design, sampling technique, field work, analysis plan and conclusion. The method using for

this research also discussed in this chapter.

Chapter four about the analysis of results and findings from the data collection. In this

chapter, we use descriptive analysis and crosstab to analyse the result which use SPSS 16.0.

Chapter five, we make a conclusion and give some recommendations regarding the investor

selection towards shariah and non-shariah compliant investment.

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CHAPTER 2

LITERATURE REVIEW

2.1 INTRODUCTION

In this chapter, we have view previous research from other researchers regarding on the same

topic which is Shariah Compliant Investment (SCI). Previous research focused their study on

the SCI products, the prohibition elements in SCI products and the supervisory bodies that

monitor the shariah listed company which is Shariah Advisory Council (SAC) of Securities

Commission (SC). However, there is no studies found about the investor selection regarding

the shariah and non-shariah compliant investment (NSCI). Most of the previous research

focused their study in Malaysia.

This chapter will be a guideline in order to make this research more accurate and avoiding

bias. This chapter consists of 6 sections which is introduction, history of Islamic finance and

SCI, decision making towards shariah and non-shariah compliant investment, prohibition in

SCI and criteria to determine the SCI. The details about the history of Islamic finance and

SCI will be explained in the next section.

2.2 HISTORY OF ISLAMIC FINANCE AND SCI

Islamic finance has grown successfully since it first emerged in the 1970's and the core values

in Islamic finance is prohibition to any activities which involve interest, gambling and

speculative trading. Based on Akmal Hassan (2011), the existence of shariah-compliant

investments in Malaysia date back more than four decades but it was only in the last eleven

years that interest and investment in this sphere has really taken off.

According to Rusniyati (2009), the development of Islamic financial system in Malaysia

officially began with the establishment of Lembaga Tabung Haji in 1969. Even though it was

established to meet the objectives of the Muslims community to save and invest for the

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purpose of pertaining pilgrimage in Mecca, the existence of this agency shows that Malaysia

is moving towards Islamic finance which provide the interest free transaction.

Then, Maznah and Ain (2009) stated that the first Islamic banks namely Bank Islam Malaysia

Berhad was established in 1983 developed the Islamic financial system in Malaysia.

The development of Islamic financial system was expanded to the first Islamic insurance

company which is Syarikat Takaful Malaysia Berhad in 1984, clarified by Nasir (2009).

According to Fadhilah Mansor (2007), the development of Islamic finance followed with the

developments in Islamic financial market that involve the money market and capital market.

Islamic money market began in January 1994 and it was the first Islamic money market in the

world at that time.

According to Securities Commission websites, the Shariah Advisory Council was established

in May 1996. Hashim Yahya (2002) also stated that the history started since August 1995

when Securities Commission and Islamic Instrument Study Group (KPII) are collaborated

together in order to analyse the securities in KLSE which is now known as Bursa Malaysia.

From that, the basic criteria and guidelines was succesfully designed to evaluate the listed

securities whether it follow the shariah requirement or not. Then, Islamic Instrument Study

Group was upgraded to Shariah Advisory Council of Securities Commission to announce the

list of approved securities based on the Shariah principles in June 1997. It was because

Islamic finance industry is a relatively new entrance to the world of finance and the operating

principles differ from non-shariah compliant transaction or conventional finance which is

traditionally practiced in the West.

Yahya and Joni (2009) stated that Islamic Stock Market refers to a market whether in the

form of stock or on the counter market in which shares of the company’s activities involved

conducted in a manner that does not conflict with Islamic’s view and Shariah principles. He

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also stated that Islamic stock market applying Islamic law in the stock market transaction in

which the market is free from the elements of interest, uncertainty and gambling.

Besides, Yahya and Joni (2009) desribed that during the operational period of Islamic stock

market in Malaysia, a number of Islamic stock indices have been introduced to provide the

choices to the investor such as RHB Islamic Index (1996), Kuala Lumpur Shariah Index

(1999), Dow Jones-RHB Islamic Malaysia Index (2005) to replace the RHB Islamic Index,

FBM EMAS Shariah Index (2007) which replace the Kuala Lumpur Shariah Index and FBM

Hijrah Shariah Index (2007).

Based on Yahya and Joni (2009), in order to evaluate the listed securities, the Shariah

Advisory Council built the basic characteristics as a guideline. The characteristics based on

primary and secondary sources. The primary sources which is refered by Shariah Advisory

Council is Al-Quran and As-Sunnah. It is because, Islam encourages its followers to refer that

sources to solve the problems in life. Shariah Advisory Council also use secondary sources to

support their decision such as Ijma’, Qiyas, Maslahah, Istihsan, Istishab, Sadd Zari’ah, Urf,

Maqasid Syariah, Siyasah Syari’iyah, Ta’wil, Istiqra’ and Talfiq which are approved by

Islamic law.

In overall, the variety of shariah-compliant investment products are offered by banks and

financial institution year by year. However, the investors are still not aware the existence of

the products. It is probably due to negative assumptions towards shariah compliant

investment. Therefore, the bank and financial institution should take the appropriate action in

order to promote shariah compliant investment products and subsequently affect the investor

selection towards shariah and non-shariah compliant investment.

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2.3 DECISION MAKING TOWARDS SCI AND NSCI

After seeing the history of Islamic finance and shariah compliant investment, we continue to

the factors that would influence an investor selection towards shariah and non-shariah

compliant investment.

Several factors influence financial decision making. These factors, including past experience

(Juliusson, Karlsson, & Garling, 2005), age and individual differences (Bruin, Parker, &

Fischoff, 2007), belief in personal relevance (Acevedo, & Krueger, 2004), and an escalation

of commitment, influence what choices people make. Understanding the factors that

influence financial decision making process is important to understand what decisions are

made. That is, the factors that influence the process may impact the outcomes.

In addition, according to Schmidt and Sevak (2006), from the earlier studies, it shows women

invest their asset portfolios more conservatively than their male counterparts. Besides,

women’s investment has historically been lower than men’s for several reasons, including

social and various demographic concern.

Karthikeyan (2001) conducted research on Small Investors Perception on

Post office Saving Schemes and found that there was significant difference among the four

age groups, in the level of awareness for Kisan Vikas Patra (KVP), National Savings

Scheme (NSS), and Deposit Scheme for Retired Employees (DSRE), and the Overall Score

Confirmed that the level of awareness among investors in the old age group was higher

than in those of young age group.

Other than demographic’s background, Syed Othman Al-Habshi (1992) stated the aspects of

knowledge is a key factor to make an investment decision. It is shown from the perspective of

history, Islam is a religion which is based on practical wisdom. In addition, Arab societies

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have also been used to partnership contracts, the basic principles of contracts and business

complications since the 8th century. They came to know the insurance contracts in ensuring

sailing throughout the year. Then, Azizi (2009) added that they managed to do business as

well as to set up various companies and make all trade agreements and in accordance with

shariah compliant. However, everything is in history as Muslims currently faces two major

dilemmas and that are lack of knowledge and secondly moral problems.

Syed Othman Al-Habshi (1992) also stated lack of knowledge among Muslims is seen as a

major barrier to develop Islamic financial system. The Islamic products cannot be developed

unless the existence of large numbers of scholars to think about this problem.

Based on Saharudin (2003), lack of expertise and knowledge in banking, takaful and shariah

compliant securities are barriers in development of Islamic capital market today. This

phenomenon occurs not only in Malaysia but also worldwide.

Nowadays, there is no doubt that there are various forms of literature debate on Islamic

finance, especially in the aspects of shariah compliant securities investment but it is very

limited. In the modern Islamic references on this problem is not found and deeply discussed

and sometimes just a small topic in a book and magazine. This also can be seen in the

writings of Sya’ban Muhammad Islam al-Burwary (2007) about “Islamic Point of View in

The Stock Exchange” which explained the Islamic capital market industry but the explanation

was still limited.

Many papers and studies discussed about Islamic financial matters which consist about

shariah compliant investment, but the writing does not keep pace with the implementation as

now in Malaysia exist of variety contemporary transactions and sometimes the fiqh hukm on

that transaction does not specifically identified. Regarding of this issue, many people

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wondered whether this investment lawful implementation in Islam and also valid. Therefore,

the next section will explain details about the prohibition in shariah compliant investment.

2.4 PROHIBITION OF SHARIAH COMPLIANT INVESTMENT

This subtopic is very important to clarify to understand deeply about the prohibition elements

in shariah compliant investment. These prohibition elements have also been described in

previous research such as Yahya and Joni (2009), Azizi (2009), Hussin Salamon (2009) and

Hashim Yahya (2002). Therefore, we are very confident that this suptopic is very important

to disclose.

According to Hussin Salamon (2009), there are 7 prohibitions in shariah compliant

investment and that are prohibition of al-tanajusy, prohibition of al-gharar, prohibition of

tadlis al-‘aib, prohibition of al-ghabn al-fahisy, prohibition of al-ghalat, prohibition of riba

and prohibition of maisir. The terms had been stated by Hussin Salamon (2009) will be

detailed as below.

Al-tanajusy or known as market manipulation which is normally occur in capital market

especially in stock market. For example collusion between sellers and buyers who pretend to

what to buy at higher prices with intention to deceive other buyers.

Al-gharar means uncertainty or lack of knowledge regarding the subject matter or price in a

contract of exchange. In fiqh literature term gharar is associated with risks and uncertainties

in contractual agreements. For example, one is dealing with forward, futures and option

trading such as a contract to buy or sell commodity and financial instrument at some date in

the future. This transaction have the ambiguities or uncertainties and it is not comply with

shariah principles.

Tadlis al-‘aib is any methods employed to conceal the defects found in the goods sold in the

contract of sale. Sales of goods, hire the handicapped should be returned and the contract is

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made void by itself. This situation is still void even the seller do not know about the defect of

the goods.

Al-Ghabn means less. If any element of this done deliberately as a way of cheating to gain

profit in a contract, it is forbidden in Islam whether it is done by the buyer or the seller of the

contract.

In conclusion, community especially investors are concern about the sources of income and

in flows of money because we already have the alternative which choose the Islamic

institution to deposit our money. Normally, people think of the lawful source of revenue

came from work and effort without considering small matter such as where the money we

saved and invested and how the transaction process. Many assumptions that we discussed in

research and mass media about the Muslim community today lack of moral values but believe

it or not the consequences of Muslim character because of the illegal sources of the income

itself. How can we develop the pure hearts of Muslim while in their flowing blood from

illegal sources and syubhah?

2.5 THE CRITERIA TO DETERMINE THE SCI

After stating the prohibition of shariah compliant investment, we will explain about the

criteria necessary for an investment to be classified as shariah compliant investment. These

criteria determined by Shariah Advisory Council of Securities Commission to ensure that a

company is meet the criteria and will be announced as a listed shariah compliant companies.

As Mehdi Sadeghi (2008) stated that the selection of shariah compliant investment

determined by the main activities of a financial institution or company in terms of products

and services offered. Rationally, the main activity that provides opportunities to financial

institution or companies subsequently distributed to shareholders in form of profits and

dividend. Therefore, SAC will do a screening process based on qualitative and quantitative

parameters.

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The qualitative parameters use in order to evaluate the status of companies and to ensure that

the companies do not involve in financial services based on riba (usury), gharar

(uncertainty), maisir (gambling) and production in non-halal goods.

Yahya and Joni (2009) described that the financial service based on riba as conducted by

conventional financial institutions including commercial banks, finance companies and

others. According to Muhammad Ayub (2007), riba means an increase, but it does not meant

all things that increased considered as riba according to law jurisprudence. Based on Hashim

Yahya (2002), riba has two categories which is riba al-Qurudh that occurs through debt or

loan and riba al-Buyu’ that occurs in selling and buying transaction.

In addition, Yahya and Joni (2009) mentioned that gharar normally occurs in conventional

insurance and that is why the conventional insurance is prohibited in shariah compliant

investment. Muhammad Ayub (2007) explained that gharar is refer to the uncertainty or

hazard caused by lack of clarity regarding the subject matter or the price in a contract of

exchange. A sale or any other business contract which entails an element of gharar is

prohibited.

According to Daud Bakar (2000), the jurists says that conventional contract is not allowed in

the laws because such contracts involve the elements of uncertainty in terms of total premium

and the amount of compensation received. Related to the conventional insurance issue, it

contains the element of gharar in term of policyholder enters into a business deal in which

his liability and the right both remain contingent. He losses the amount given as premium if

the event of insurance does not occur, as in the case of general insurance. The insurer or

company does not know how much he will owe to the insured. In many cases, an insured also

does not know how much he will ultimately to the insurer. In life policies, a policyholder has

generally to lose all premiums that he had paid if he cancels his policy within the first two or

three years of the contract.

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Furthermore, Yahya and Joni (2009) described that maisir such as casino and sport toto.

Muhammad Ayub (2007) explained that maisir or qimar is like games of chance and it refers

to easily available wealth or acquisition of wealth by chance, whether or not it deprives the

other’s right.

Last but not least, Yahya and Joni (2009) mentioned that provide non halal services or

products such as pork, wine and carcass. The other prohibition elements are tobacco based

products such as cigarettes, brokerage or trading securities that do not comply with shariah

and other activities found that do not comply with shariah such as the practice of prostitution

and immoral activities.

Mehdi Sadeghi (2008) also stated that SAC considers the additional criteria for the company

that involve in halal and non-halal elements such as public perception must be a good

corporate image and the company’s core activities give the maslahah (goodness in general) to

the Muslims and state and the elements that do not comply with shariah is very small and

involve umum al-balwa, ‘urf, and the rights of Muslims who are accepted by Islam.

Mehdi Sadeghi (2008) also stated that quantitative parameters are mainly used to determine

the level of mixed contribution from halal and non-halal elements towards revenue and

profits of the company. According to this parameter, if the contribution of non-halal elements

exceed the benchmark, the company will not be classified as shariah compliant. The

benchmark determined by Shariah Advisory Council of Securities Commission and further

explained by Yahya and Joni (2009) is 5% to measure the level of mixed contributions from

the activities that are clearly non-compliant shariah as usury, gambling, liquor and excessive

entertainment. Then, 10% to measure the level of mixed contributions from activities

involving umum al-balwa which is involve the most people and hard to avoid. For example

interest income from fixed deposit account of conventional bank and tobacco-related

activities. The benchmark cannot exceed 20% for rental receive from the activities which is

not comply with shariah such as rental of premises used in gambling, liquor and pub. In

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addition, 25% is used to measure the level of mixed contributions from the activities that are

generally in line with shariah and have maslahah to the public, but there are other elements

that may affect the status of shariah compliant activities such as operating hotels, share

trading, brokerage that probably involve other activities not in line with shariah.

In Malaysia, even though many studies in the Islamic finance and Islamic economics have

been conducted, but there is no specifically concern about the selection of investor towards

shariah and non-shariah compliant investment whereas it should be a pillar in an investment

decision. Therefore, studies in this field is very important to know in order to increase the

understanding about the criteria of the shariah compliant investment. Besides, this criteria

will be a meaningful information to the investor in order to make an investment decision.

This research could create a high personal building consequences from the exposure of the

Islamic financial system especially in shariah compliant investment.

2.6 CONCLUSION

Based on the literature review, shariah compliant investment which a part of Islamic Capital

Market is a popular topic to discuss in the context of ilmiah compared to the other areas such

as law, economic and social. However, the tendency of Islamic thinkers to discuss this issues

are very limited. Mostly the presented written before this just like a legal arbiterand lead to

the classical method based on the current environment. Therefore, refer back to the objective

in chapter 1 which is to study the investor selection towards shariah and non-shariah

compliant investment based on demographic’s background, current investment, knowledge

and perception then the methodology that used in this research had been explained in Chapter

3.

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CHAPTER 3

RESEARCH METHODOLOGY

3.1 INTRODUCTION

The objective of this research is going to determine whether demographic’s background,

current investment, knowledge and perception of investor have relationship with the investor

selection towards shariah compliant investment (SCI) and non-shariah compliant investment

(NSCI). In order to achieve the objective, we will use descriptive method to clarify the data

collection and also use cross-tab method to analyze specifically about the findings.

This chapter consists of 6 sections which are introduction, questionnaire design, sampling

technique, field work, analysis plan and conclusion. We also collect data as a central part of

study to gain a data. For the purpose of gaining the data, we had gathered the data through

questionnaire. The questionnaire consists of four parts and that are demographic’s

background, current investment, knowledge and perception. In sampling technique consist of

the population of this research and details of sample uses. The details about the questionnaire

design will be explain in the next section.

3.2QUESTIONNAIRE DESIGN

According to Mohammad Najib Abdul Ghafar (1999), the questionnaire method is one of the

most popular method among researchers as easily administered after the data was built. It is

easily processed to analyse. It is appropriate because the respondents will have the

opportunity and free to answer all the questions without any forcet. The questionnaires will

be distributes to the sample as well as interviewing through face to face. A questionnaire is

formalized set of question for eliciting information that will be given to 100 respondents. The

respondent of this questionnaire is staffs in UUM.

The questionnaire set consists 4 main sections which is demographic’s background, current

investment, knowledge and perception.

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The questions in the Section A asked about the demographic’s background of the

respondents that include gender, age, marital status, race, education level, occupation,

residence, monthly income and dependents.

Then, in the Section B, the respondents will be asked about their current investment including

the questions about the type of current investment whether it is shariah or non-shariah

compliant investment, current investment’s institution, current percentage of SCI, sources of

the investment, resources to invest, zakat payment and willingness for investment.

Last but not least, in Section C, the respondents will be tested about the knowledge towards

basic principles in Islam including the meaning of Islam, five pillars of Islam, faith pillars,

prayer obligation, fasting obligation, zakat obligation and aurat obligation. The questions

also ask about the basic knowledge in SCI principles such as the limitation of SCI, meaning

of usury and gambling, obligation to invest in SCI, the prohibition of investment in tobacco

and non-shariah compliant brokerage.

Next, in Section D, the questions about the perception of respondents towards SCI. In this

section, we use likert scale 1 (strongly disagree) to 5 (strongly agree) to know the perception

of the investor towards shariah and non-shariah compliant investment. It consists of four parts

such as part A about information, part B about the advantages of SCI, part C about the

criteria to make an investment and part D about confidence level towards SCI. Please refer to

the Appendix A for further details.

After the questionnaire was developed, we had conducted the pilot test. A pilot test is

conducted using a small of respondents with characteristic similar to the target populations. A

set of 10 pretest questionnaires will be distribute to measure its reliability and validity before

the actual numbers are distributed. The next section will explain about the research sampling.

3.3 SAMPLING TECHNIQUE

In order to meet the objectives of this study, we get the total number of staff in Universiti

Utara Malaysia (UUM) from Registrar Department of UUM. The total number of staff is

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3102 from 36 departments in UUM. From this figure, we assume that only 50% of them are

investors. Then, we target to collect the data from 150 respondents. However, because of time

constraint and some other problems, we only get 100 respondents to answer the questionnaire

and it is still appropriate according to Sekaran (2009), the rules of thumb for determine the

sample size is larger than 30 and less than 500 are appropriate for most research in order to

avoid the inaccurate and unreliable. The details about the research population will be

explained in Exhibit 3.1 as below.

Exhibit 3.1: Schematic diagram of research population

Sampling is a strategy to obtain information about a population of some of the

individuals who comprise the population (Mohd Najib Konting, 2004). According to Sekaran

(2009), non-probability sampling technique refers to the elements do not have a known or

predetermined chance of being selected as subjects. In addition to that, according to Malhotra

(2006), probability sampling as a sampling procedure in which each element of the

population has a fixed probabilities chance of being selected for the sample.

3.4 FIELD WORK The field work process consist of 5 steps include set up questionnaire, pilot test, editing

questionnaire, and distribute the questionnaires. The first step began on September 2011

which have several sections related to the objective of the study. Then, the pilot test was

conducted where 10 respondents with similar characteristics of the respondents was selected.

The purpose is to test the understanding of the questionnaire. Then, we will make

100 OF STAFF WILL BE CHOOSE

RANDOMLY

9 OF SELECTED DEPARTMENTS

IN UUM

STAFF IN UUM

SUBJECT POPULATION SAMPLING FRAME SAMPLE

STAFF IN

UUM

9 SELECTED

DEPARTMENTS

IN UUM

100 OF STAFF

WILL BE CHOOSE

RANDOMLY

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modification based on the finding during the pilot test and the questionnaire will be tested

again. Finally, the questionnaire will be distribute to the staff randomly in several

departments starting on 31 October 2011. This step was conducted almost 1 month to

accomplish all the questionnaire. The table below shows the timeline in field work process.

Date Description

September Set up questionnaire

2nd October 2011 Pilot test

11th October 2011 Questionnaire editing

18th October 2011 Questionnaire testing

31st October 2011 Questionnaire distribution

29th November 2011 End of questionnaire distribution

3.5 ANALYSIS PLAN

In overall, we use the descriptive analysis to know the frequency of demographic’s

background, current investment, knowledge and perception to achieve the objectives of this

study.

In demographic’s background, there are 9 questions had been asked including gender, age,

marital status, race, level of education, occupation, residence, monthly income and

dependents. The descriptive analysis will show the frequency of the output. Because of only

100 respondents involved in this research, we do not show the percentage because it has

similar figure with the frequency.

In Section B, there are 8 questions about the current investment include the type of

investment, investment’s institution, percentage of shariah compliant investment, purpose of

the investment, sources, resources, zakat payment obligation and the percentage of

willingness for investment.

Then, in Section C, there are two parts which is knowledge towards basic Islamic principles

and knowledge towards shariah compliant investment. In this part, we have to mark the

answer first because some of the questions are wrong statement. In order to know the level of

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knowledge of the respondent, we will identify the frequency of correct and wrong answer

from the respondent.

Last but not least, in Section D, there are four parts regarding the perception of the

respondents such as information, the advantages of SCI, criteria to make an investment and

confidence level. The likert scale from 1 (strongly disagree) to 5 (strongly agree) are given in

this section. The frequency shows how many of respondents choose 1, 2, 3, 4 or 5.

Furthermore, to analyze the relationship between demographic’s background of the investor,

current investment, knowledge and perception towards shariah and non-shariah compliant

investment, we use cross-tab method. We also use mean analysis to analyse the question in

Section C and Section D to know the tendency of the investor towards shariah and non-

shariah compliant investment.

3.6 CONCLUSION

In conclusion, this research will analyze the investor selection towards shariah and non-

shariah compliant investment which use the data of demographic’s background, current

investment, knowledge and perception of the respondents. All the data will be analyze in

SPSS 16.0 version and the statistical results will be discussed in Chapter 4.

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CHAPTER 4

RESULT FINDINGS

4.1 INTRODUCTION

The objective of this study is to study the relationship between demographic’s background,

current investment, knowledge and perception of the investor selection towards shariah

compliant investment (SCI) and non-shariah compliant investment (NSCI). The first

objective will be analyzed by using descriptive methods while the second objective will be

analyzed using cross-tab method to know the relationship between the demographic’s

background, current investment, knowledge and perception towards shariah and non-shariah

compliant investment. By using the methodology that we had explained in Chapter 3, the

research objective achieved. Therefore, this chapter will elaborate in details the findings.

This chapter is divided into two parts which are descriptive and cross-tab. In descriptive part

consisted of demographic’s background, current investment, knowledge and perception. The

cross-tab part consist of demographic’s background with shariah and non-shariah compliant

investment, current investment with shariah and non-shariah compliant investment,

knowledge with shariah and non-shariah compliant investment and perception with shariah

and non-shariah compliant investment.

The discussion is divided into 9 sections. The following section shows the descriptive

analysis for analysis for demographic’s background including gender, age, marital status,

race, level of education, occupation, residence, monthly income and dependents. The second

section will discuss about the current investment and followed by the knowledge in third

section. Then, section four about perception of the respondents. In section five, we make a

conclusion and give some recommendations.

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4.2 DEMOGRAPHIC’S BACKGROUND

The respondents of this study are from Universiti Utara Malaysia (UUM) staff where 100 of

staff was selected from the professional and management level, academicians and

administration staff. The respondents from the data collection shows that most of respondent

are female which are 76% compared to male only 24%. Most of the respondent’s age

between 21-30 years old which are 44% and age between 51-60 years old is 6%. The staff in

Universiti Utara Malaysia mostly married which is 79% while single is only 21%. Most of

respondents are 48% in Master or PhD level and the least is 9% in STPM or Diploma level.

Most of respondents work as administration staff which is 49% while 9% work as

professional and management. Most of the respondents urban area in city which is 46%.

Most respondents have monthly income less than RM2000 which is 43% and the least is

more than RM8001 which 1%. Most of respondents have no dependents which 37% while

dependents more than 10 is 4%.

Table 4.1: Demographic’s Background

Details Frequency (n=100)

Gender

Female 76

Male 24

Age

21-30 44

31-40 39

41-50 11

51-60 6

Status

Married 79

Single 21

Education

SPM 12

STPM/ Diploma 9

Bachelor Degree 31

Master/PhD 48

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Occupation

Administration staff 49

Academicians 42

Professional and Management 9

Residence

City 46

Small Town 37

Rural 17

Monthly Income

< RM2000 43

RM2001-RM4000 21

RM4001-RM6000 29

RM6001-RM8000 6

> RM8001 1

Dependents

0 37

1-5 39

6-10 20

>10 4

4.3 CURRENT INVESTMENT

The section of current investment is the investment’s information of respondents in order to

know which type of investment they used and preferred to use. The finding shows that most

of respondent choose shariah compliant investment which are 68% and most of them choose

bank to invest which is 64% compared to other financial institutions (26%). However, only

47% of the respondents confident that their investment percentage is 100% in shariah

compliant investment. The purpose of the investment of the respondent mostly said that for

retirement which is 80% and the least is for other purpose which is only 3%. Most of

respondents got information from electronic or print media which is 70% while the least is

from seminar and workshop only 8%. The resources of their investment mostly come from

their saving or excessive income which is 50%. The finding of this study also found that only

43% of the respondent confident that their zakat was paid. In addition, 84% of the

respondents willings to invest below than 20% of their income.

Page 40: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

Table 4.2: Current Investment

Details Frequency (n=100)

Shariah Compliant Investment Yes 68 No 32

Non-Shariah Compliant Investment Yes 5 No 95

Not sure whether SCI or NSCI Yes 30 No 70

Institution-Bank Yes 64 No 36

Institution-Takaful Yes 44 No 56

Institution-Financial Institution Yes 26 No 74

Percentage of SCI

100% 47 80-99% 5 60-79% 15 40-59% 25 20-39% 8

Purpose-Retirement Yes 80 No 20

Purpose-Children Education Yes 53 No 47

Purpose-Land, Property Yes 31 No 69

Purpose-Business Capital Yes 7 No 93

Purpose-Financial Freedom Yes 24 No 76

Purpose-Protect from Inflation Yes 6 No 94

Purpose-Dividend Yes 57 No 43

Purpose-Not sure Yes 4 No 96

Purpose-Others Yes 3 No 97

Sources of Information Electronic/ Media Print 70

Seminar/ Workshop 8 Friends and Relatives 22

Resources

Saving/ Excess Income 50 Loan 7

Monthly Income 42 Others 1

Zakat payment Yes 43 No 25

Not sure 32

Willingness to invest <20% 84

21-30% 9 31-40% 7

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4.4 KNOWLEDGE

This section shows the level of respondent’s knowledge towards basic principles of Islam and

knowledge about the basic principles of SCI. We had marks the questionnaire first in order to

know the correct and wrong answers given by respondents. The highest mean shows the

failure of respondents to answer correctly. Based on the Table 4.3, the report found that most

of respondents cannot answer the question about the meaning of gambling correctly (mean

1.85). Moreover, all the respondents correctly answered the question about 5 pillars of Islam,

fasting obligation and aurat obligation (mean 1.00).

Table 4.3: Knowledge Towards Basic Principles in Islam and SCI

NO ITEM

Frequency

(n=100)

MEAN

1

Gambling is the interest rate is

guaranteed for an investment made

Correct 25

1.85 Wrong 65

Not sure 10

2

Usury is a bet to get a profit

Correct 16

1.84 Wrong 84

Not sure 0

3 The fifth pillar of Faith is pilgrimage

Correct 36 1.64

Wrong 64

4 Production and sale of tobacco

products is not allowed in Islam

Correct 70

1.49 Wrong 11

Not sure 19

5 Islam means peaceful

Correct 72 1.28

Wrong 28

6 Brokerage and trading of securities

are not prohibited in the Islamic

shariah compliant

Correct 84

1.24 Wrong 8

Not sure 8

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7 Shariah-

compliant investments arenot

limited to Muslims only

Correct 91

1.15 Wrong 3

Not sure 6

8 Muslims must pray 17 rakaat per

day

Correct 86 1.14

Wrong 14

9 Muslims are encouraged to help the

poor through zakat

Correct 97

1.03 Wrong

3

10 Muslims must choose shariah-

compliant investment

Correct 99 1.01

Wrong 1

11 Muslims fasting during Ramadhan

Correct 100 1.00

Wrong 0

12 Muslims who have reached

puberty mustcover his/ her aurat

Correct 100 1.00

Wrong 0

13 There are 5 pillars of Islam

Correct 100 1.00

Wrong 0

4.5 PERCEPTION This sections consists of four parts which are information towards basic Islamic principles,

advantages of shariah compliant investment, criteria to make investment and confidence

towards shariah compliant investment. The details of information as below.

A) INFORMATION

Table 4.4shows the level of information towards shariah compliant investment.

There are 3 questions asked. The result found that most of the respondents do not

have much information about shariah compliant investment because the tendency

of them in choosing disagree according to likert scale given. The highest mean

shows that the respondents have a lot of information of the items asked. Most of

the respondents have adequate information about SCI which represent the mean

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2.96. Moreover, most of respondents have adequate information regarding the

differences between SCI and NSCI which represent the mean (2.84). Most of

respondents have adequate information on elements do not comply with shariah

(mean 2.76).

Table 4.4: Perception of Information

No Items 1 2 3 4 5 MEAN 1 I have a lot of information

about SCI 15 21 31 19 14

2.96 2 I have a lot of information

about the differences between SCI and NSCI

15 30 25 16 14

2.84

3 I have a lot of information on elements that do not comply with shariah

16 29 25 23 7 2.76

*n=100 B) ADVANTAGES OF SCI

Table 4.5 shows the level of advantages towards shariah compliant investment. There are 7

questions asked. The highest mean shows that the respondents agree with the items asked to

them. Most of respondents are strongly agree when asked whether SCI is free from the

interest (mean 4.58). The least of respondents agree about the statement of SCI can reduce

the unemployment rate with represent the mean (3.82).

Table 4.5: Perception of the Advantages of SCI

No Items 1 2 3 4 5 MEAN 1 SCI is free from the interest

0

0

7

28

65

4.58

2 SCI could help economic growth 0

0

1

42

57

4.56

3 SCI can increase social welfare 0 7 1 27 65 4.50 4 SCI can increase the norms

of personal and family 6

0

5

32

57

4.34

5 SCI guarantees a safe investment 0

7

3

42

48

4.31

6 SCI will diversify the financial portfolio

0

11

9

39

41

4.10

7 SCI can reduce the unemployment rate

6

0

27

40

27

3.82

*n=100

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C) CRITERIA TO MAKE INVESTMENT

The study also tries to identify the most important criteria that convince the respondents to

take into their consideration in making an investment. The result found that most of the

respondents would choose only a safe investment which mean 4.42. Another criteria of

concern is respondents would prefer SCI products only which mean 4.41. The criteria

that are rarely given attention is respondents would select investment based on advertising

only which mean 2.37 and respondents would invest if they are pressured by family which

mean 2.28. The details show in Table 4.6 as below.

Table 4.6 : Perception of Criteria To Make Investment

No Items 1 2 3 4 5 MEAN 1 I will choose only a safe investment 0 0 15 28 57 4.42 2 I would prefer SCI products only 0 8 4 27 61 4.41 3 I will choose the financial institution

that has a good image and performance only

0 6 7 33 54

4.35

4 I will choose investments that provide high returns only

0

4

22

23

51

4.21

5 I will choose the FI / investment company that has been approved by the Securities Commission Shariah Advisory Council only

0 12 12 30 46

4.10

6 I will choose the investment of institutional services quickly and efficiently only

0 1 31 26 42

4.09

7 I will invest only if there is extra money 6 4 20 36 34 3.88 8 I will diversify my investment products 3 10 18 41 28 3.81 9 I will choose the

financial institution serving customers with a friendly and good manner only

9

20

13

29

29

3.49

10 I will choose a low-risk investment 6 19 34 14 27 3.37 11 I will select investments based on

the views of my friends and family 20 24 21 18 17

2.88

12 I will select investments based on advertising only

28 27 28 14 3

2.37

13 I will invest if pressured by family 39 18 24 14 5

2.28

*n=100

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D) CONFIDENCE TOWARDS SCI

This section explains about confidence level of the respondents towards shariah and non-

shariah compliant investment. There are four questions asked. According to this table, most

of the respondents are strongly agree with the statement of SCI is stronger in the market

which mean 4.00. Besides, most of the respondents have high confidence in SCI in the

market today which mean 3.98. Another report found that most of the respondents are

strongly agree to accept lower returns as long as SCI which mean 3.63. The least of

respondents disagree with the statement ensuring that SCI returns to be gained must be equal

to the NSCI returns which mean 2.81.

Table 4.7 : Confidence Towards SCI

No Items 1 2 3 4 5 MEAN 1 For me, SCI is stronger in the

market 0

11

16

35

38 4.00

2 I have high confidence in SCI in the market today 4 15 6 29 46

3.98

3 I am willing to accept lower returns as long as SCI 2 19 23 26 30

3.63

4 I will ensure that SCI returns to be gained must be equal to the NSCI returns 23 22 20 21 14

2.81

*n=100

4.6 DEMOGRAPHIC’S BACKGROUND, SCI AND NSCI This sections explains about the demographic’s background of the respondents towards

shariah and non-shariah compliant investment. According to the Table 4.9, it shows thatmost

of respondentswhich invest in SCI are Master or PhD holders (41%), are working as

anadministration staff (54%) and having monthly income below than RM2000 (44%).

Meanwhile, most of respondents which invest in NSCI are Master or PhD holders (63%), are

working as an academicians (63%) and having monthly income between RM4001-RM6000

(47%).

Page 46: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

Table 4.8: Demographic’s Background Towards SCI and NSCI

NO

ITEM SCI

NSCI

n=68 % n=32 %

1

Level of Education

SPM 10 14.8 2 6.25

STPM/ Diploma 8 11.76 1 3.13

Bachelor Degree 22 32.35 9 28.13

Master/ PhD 28 41.18 20 62.5

2

Occupation

Professional and Management 9 13.24 0 0

Academicians 22 32.35 20 62.5

Administration Staff 37 54.41 12 37.5

3

Monthly Income

<RM2000 30 44.12 13 40.62

RM2001-RM4000 19 27.94 2 6.25

RM4001-RM6000 14 20.59 15 46.88

RM6001-RM8000 4 5.88 2 6.25

>RM8001 1 1.47 0 0

4.7 CURRENT INVESTMENT, SCI AND NSCI

This section shows the current investment information of the respondents towards shariah and

non-shariah compliant investment. Table 4.9 shows that most of the respondents which invest

in SCI are choosing insurance or takaful companies as an investment institution (59%), 69%

are confident that their percentage of SCI is 100%. Besides, they gain knowledge about their

investment from electronic or print media (62%) and confidents that their zakat was paid

(49%).

While in NSCI, most of respondents are choosing bank as an investment institution (84%)

and 47% confident that their percentage of SCI is only 40-59%. Moreover, they gain

knowledge about their investment from electronic and print media (88%) and confidents that

their zakat was paid (31%).

Page 47: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

Table 4.9: Current Investment Towards SCI AND NSCI

NO

ITEM SCI

NSCI

n=68 % n=32 %

1

Investment

Institution

Bank Yes 37 54.41 27 84.38

No 31 45.59 5 15.63

Insurance companies/

takaful

Yes 40 58.82 4 12.5

No 28 41.18 28 87.5

Financial Institution Yes 21 30.88 5 15.63

No 47 69.12 27 84.38

2

Percentage SCI

100% 47 69.12 0 0

80-99% 5 7.35 0 0

60-79% 6 8.82 9 28.13

40-59% 10 14.7 15 46.88

20-39% 0 0 8 25

3

Sources

Electronic media/ print 42 61.76 28 87.5

Friends and Relatives 21 30.88 1 3.13

Seminar/ workshop 5 7.35 3 9.38

4

Zakat

Yes 33 48.53 10 31.25

No 19 27.94 6 18.75

Not sure 16 23.53 16 50

4.8KNOWLEDGE, SCI AND NSCI This section shows the level of respondent’s knowledge towards basic princples of Islam and

knowledge about the basic principles of SCI in order to know whether the level of knowledge

affecting their choice in making investment. Table 4.10 shows that most of respondents

which invest in SCI are wrongly answer about the meaning of gambling (60%) and 81% are

wrongly answer about the meaning of usury.

While most respondents which invest in NSCI are wrongly answer about the meaning of

gambling (75%) and 91% are wrongly answer the meaning of usury and the pillar of faith.

Page 48: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

All the respondents which invest in SCI and NSCI are correctly answer the question about

fasting obligation, aurat obligation and five pillars of Islam.

Table 4.10: Knowledge Towards SCI and NSCI

NO

ITEM

SCI

NSCI

n=68 % n=32 %

1

Gambling is the interest rate is

guaranteed for an investment made

Correct 20 29.41 5 15.63

Wrong 41 60.3 24 75

Not sure 7 10.29 3 9.38

2

Usury is a bet to get a profit

Correct 13 19.12 3 9.38

Wrong 55 80.88 29 90.63

Not sure 0 0 0 0

3 The fifth pillar of Faith is pilgrimage

Correct 33 48.53 3 9.38

Wrong 35 51.47 29 90.63

4 Production and sale of tobacco products

is not allowed in Islam

Correct 42 61.76 28 87.5

Wrong 7 10.29 4 12.5

Not sure 19 27.94 0 0

5 Islam means peace

Correct 44 64.71 28 87.5

Wrong 24 35.29 4 12.5

6 Brokerage and trading of securities are

not prohibited in the Islamic shariah

compliant

Correct 56 82.35 28 87.5

Wrong 4 5.88 4 12.5

Not sure 8 11.76 0 0

7 Shariah-compliant investments are not

limited to Muslims only

Correct 59 86.76 32 100

Wrong 3 4.41 0 0

Not sure 6 8.82 0 0

8

Muslims must pray 17 rakaat per day

Correct 54 79.41 32 100

Wrong 14 20.59 0 0

Not sure 0 0 0 0

9 Muslims are encouraged to help the Correct 65 95.59 32 100

Page 49: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

poor through zakat Wrong 3 4.42 0 0

Not sure 0 0 0 0

10 Muslims must choose shariah-

compliant investment

Correct 68 100 31 96.88

Wrong 0 0 1 3.13

Not sure 0 0 0 0

11 Muslims fasting during Ramadhan

Correct 68 100 32 100

Wrong 0 0 0 0

12 Muslims who have reached

puberty mustcover his/ her aurat

Correct 68 100 32 100

Wrong 0 0 0 0

13 There are 5 pillars of Islam

Correct 68 100 32 100

Wrong 0 0 0 0

4.9 PERCEPTION, SCI AND NSCI This section consists of four parts which is perception of the information, perception of the

advantages of shariah compliant investment, perception of the criteria to make investment

and perception of the confidence towards shariah compliant investment.

A) INFORMATION

This section shows the perception in the level of information towards shariah

compliant investment. The result found that most of the respondents do not have

much information about shariah compliant investment because the tendency of them

in choosing near to strongly disagree according to likert scale given. Most of

respondents which invest in SCI, 33% are in the third level in terms of information

towards SCI, 28% are near to strongly disagree in terms of the differences between

SCI and NSCI. Moreover, 26% are near to strongly disagree towards information on

elements that do not comply with shariah.

Page 50: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

While most of the respondents which invest in NSCI, 34% are near to strongly

disagree towards the information about SCI, the differences between SCI and

NSCI (34%) and the elements that do not comply with shariah (34%).

Table 4.11: Perception of Information

No Items 1 2 3 4 5 1 I have a lot of

information about SCI SCI n=68 %

9 13.24

10

14.71

23

33.82

14

20.59

12

17.65

NSCI n=32 %

6

18.75

11 34.38

8

25

5

15.63

2

6.25

2 I have a lot of information about the differences between shariah and non-shariah compliant investment

SCI n=68 %

9

13.24

19

27.94

17

25

11

16.18

12

17.65

NSCI n=32 %

6

18.75

11

34.38

8

25

5

15.63

2

6.25

3 I have a lot of information on elements that do not comply with shariah

SCI n=68 %

10

14.71

18

26.47

17

25

17

25

6

18.75

NSCI n=32 %

6

18.75

11

34.38

8

25

6

18.75

1

3.13

B) ADVANTAGES OF SCI

This section shows the perception of the advantages towards shariah compliant investment

in order to know whether the perception affecting the respondents choice towards SCI and

NSCI. Based on the Table 4.12, most of the respondents which invest in SCI, 69% are

strongly agree that SCI is free from the interest, 56% are strongly agree that SCI could help

economic growth and 65% are strongly agree that SCI can increase social welfare.

Furthermore, most of respondents which invest in SCI are strongly agree that SCI can

increase the norms of personal and family (57%) and guarantees a safe investment (50%).

They also strongly agree that SCI will diversify the financial portfolio (43%) and 38% are

in the third level in terms of SCI can reduce the unemployment rate.

Page 51: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

Meanwhile, most of respondents which invest in NSCI, 56% are strongly agree that SCI is

free from the interest, 59% are strongly agree that SCI could help economic growth and

65% are strongly agree that SCI can increase social welfare. Moreover, most of respondents

which invest in NSCI are strongly agree that SCI can increase the norms of personal and

family (56%) and near to strongly agree in terms of guarantees a safe investment (47%).

They also near to stronglyagree that SCI will diversify the financial portfolio (53%) and SCI

can reduce the unemployment rate (56%).

Table 4.12: Advantages of SCI

No Items 1 2 3 4 5

1 SCI is free from the interest

SCI n=68 %

0

0

0 0

7

10.29

14

20.59

47

69.12

NSCI n=32 %

0 0

0 0

0 0

14

43.75

18 56.25

2 SCI could help economic growth

SCI n=68 %

0

0

0 0

1

1.47

29

42.65

38 55.88

NSCI n=32 %

0

0

0 0

0 0

13

40.63

19 59.38

3 SCI can increase social welfare

SCI n=68 %

0

0

6

8.82

1

1.47

17

25

44

64.71

NSCI n=32 %

0

0

1

3.13

0 0

10

31.25

21

65.63

4 SCI can increase the norms of personal and family

SCI n=68 %

6

8.82

0 0

5

7.35

18

26.47

39

57.35

NSCI n=32 %

0 0

0 0

0

0

14

43.75

18

56.25

5 SCI guarantees a safe investment

SCI n=68 %

0 0

4

5.88

3

4.41

27

39.71

34

50

NSCI n=32 %

0 0

3

9.38

0 0

15

46.88

14

43.75

Page 52: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

6 SCI will diversify the financial portfolio

SCI n=68 %

0 0

8

11.76

9 13.24

22

32.35

29

42.65

NSCI n=32 %

0 0

3

9.38

0 0

17

53.13

12

37.5

7 SCI can reduce the unemployment rate

SCI n=68 %

3

4.41

0 0

26

38.24

22

32.35

17

25

NSCI n=32 %

3

9.38

0 0

1

3.13

18

56.25

10

31.25

C) CRITERIA TO MAKE INVESTMENT

This section details the perception of the criteria to make an investment in order to know

whether the perception of the criteria to make investment affect the selection of the

respondents towards SCI and NSCI. According to the Table 4.13, most of the respondents

which invest in SCI, 58% are strongly agree that they will choose only a safe investment and

71% are strongly agree that they will prefer SCI products only. Besides, most of respondents

which invest in SCI, 51% are strongly agree that the criteria should be concern is the good

image and performance of the financial institution and the investments that provide high

returns only. Most of respondents which invest in SCI are strongly disagree that they will

invest if they have been pressured by family (32%).

While most of respondents which invest in NSCI, 53% are strongly agree that they will

choose only a safe investment, prefer SCI products only (41%) and choose the good image

and performance of the financial institution (59%). Furthermore, most of respondents which

invest in NSCI, 50% are strongly agree that they will choose the investments that provide

high returns only and most of respondents are strongly disagree that they will invest if they

have been pressured by family (53%).

Page 53: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

Table 4.13: Criteria For Making Investment Items

No Items 1 2 3 4 5 1 I will choose only a safe investment SCI

n=68 %

0 0

0 0

15

22.06

13

19.12

40

58.82

NSCI n=32 %

0 0

0 0

0 0

15

46.88

17

53.13

2 I would prefer SCI products only SCI n=68 %

0 0

1

1.47

4

5.88

15

22.06

48

70.59

NSCI n=32 %

0 0

7

21.88

0 0

12

37.5

13

40.63

3 I will choose the financial institution that has a good image and performance only

SCI n=68 %

0 0

6

8.82

7

10.29

20

29.41

35

51.47

NSCI n=32 %

0 0

0 0

0 0

13

40.63

19

59.38

4 I will choose investments that provide high returns only

SCI n=68 %

0 0

4

5.88

19

27.94

10

14.71

35

51.47

NSCI n=32 %

0 0

0 0

3

9.38

13

40.63

16

50

5 I will choose the financial institution / investment company that has been approved by the Securities Commission Shariah Advisory Council only

SCI n=68 %

0 0

6

8.82

7

10.29

18

26.47

37

54.41

NSCI n=32 %

0 0

6

18.75

5

15.63

12

37.5

9

28.13

6 I will choose the investment of institutional services quickly and efficiently only

SCI n=68 %

0 0

1

1.47

23

33.82

20

29.41

24

35.29

NSCI n=32 %

0 0

0 0

8

25

6

18.75

18

56.25

7 I will invest only if there is extra money SCI n=68 %

4

5.88

4

5.88

17

25

18

26.47

25

36.76

NSCI n=32 %

2

6.25

0 0

3

9.38

18

56.25

9

9.38

8 I will diversify my investment products SCI n=68 %

2

2.94

5

7.35

12

17.65

29

42.65

20

29.41

NSCI n=32 %

1

3.13

5

15.63

6

18.75

12

37.5

8

25

9 I will choose the financial institution serving customers with a friendly only.

SCI n=68 %

8

11.76

8

11.76

7

10.29

20

29.41

25

36.76

Page 54: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

NSCI n=32 %

1

3.13

12

37.5

6

18.75

9

28.13

4

12.5

10 I will choose a low-risk investment SCI n=68 %

3

4.41

7

10.29

34

50

9

13.24

15

22.06

NSCI n=32 %

3

9.38

12

37.5

0 0

5

15.63

12

37.5

11 I will select investments based on the views of my friends and family

SCI n=68 %

11

16.18

18

26.47

15

0.22

11

16.18

13

19.12

NSCI n=32 %

9

28.13

6

18.75

6

18.75

7

21.88

4

12.5

12 I will select investments based on advertising only

SCI n=68 %

15

22.06

20

29.41

25

36.76

5

7.35

3

4.41

NSCI n=32 %

13

40.63

7

21.88

3

9.38

9

28.13

0 0

13 I will invest if pressured by family SCI n=68 %

22

32.35

13

19.12

21

30.88

7

10.29

5

7.35

NSCI n=32 %

17

53.13

5

15.63

3

9.38

7

21.88

0 0

D) CONFIDENCE TOWARDS SCI This section shows the perception in the level of confidence towards shariah compliant

investment. According to the Table 4.14, most of the respondents which invest in SCI are

strongly agree that SCI is stronger in the market (40%) and 41% and are strongly agree that

they have high confidence in SCI in the market today.Besides, 32% are strongly agree that

they are willing to accept lower returns as long as SCI. 29% are in the third level in terms of

ensuring the SCI returns to be gained must be equal to the NSCI returns.

While most of the respondents which invest in NSCI, 34% are strongly agree that SCI is

stronger in the market, 56% are strongly agree that they have high confidence in SCI in the

market today and 31% are near to strongly disagree that they are willing to accept lower

returns as long as SCI. Besides, 44% of the respondents are near to strongly agree that they

will ensure the SCI returns to be gained must be equal to the NSCI returns.

Page 55: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

Table 4.14: Confidence Towards SCI

No Items 1 2 3 4 5 1 For me, shariah

compliant investments is stronger in the market

SCI n=68 %

0

0

6

8.82

10

14.71

25

36.76

27

39.71

NSCI n=32 %

0 0

5

15.63

6

18.75

10

14.71

11

34.38

2 I have high confidence in Shariah compliant investments in the market today

SCI n=68 %

1

1.47

13

19.12

6

8.82

20

29.41

28

41.18

NSCI n=32 %

3

9.38

2

6.25

0

0

9

28.13

18

56.25

3 I am willing to accept lower returns as long as Shariah compliant investment

SCI n=68 %

0 0

9

13.24

17

25

20

29.41

22

32.35

NSCI n=32 %

2

6.25

10

31.25

6

18.75

6

18.75

8

25

4 I will ensure that SCI returns to be gained must be equal to the NSCI returns

SCI n=68 %

18

26.47

19

27.94

20

29.41

7

10.29

4

5.88

NSCI n=32 %

5

15.63

3

9.38

0 0

14 43.75

10

31.25

4.10 CONCLUSION

As a conclusion, there are 100 respondents. All respondents were

testedquestionnaires on 3 sections which is current investment, knowledge towards

basic Islamic principles and SCI principles and perception. Overall, most of

respondents choose to invest in bank and gain the information from electronic

media or print. Besides, respondents are lack of knowledge towards SCI principles

and they cannot answer the questions about basic principles of Islam correctly.

However, most of the respondents admit the advantages of SCI and they have high

confidence level towards SCI.

Besides, from the cross-tab analysis, it shows that most of respondents which invest

in SCI are having the highest level of education and they are choosing insurance or

takaful companies as an investment institution. Furthermore, most of respondents

Page 56: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

which invest in SCI and NSCI gain the information from electronic and print media

and they are lack of knowledge and information towards SCI. Most of respondents

which invest in SCI are strongly agree that they will prefer SCI products only while

the respondents which invest in NSCI are strongly agree that they will choose the

financial institution that has good image and performance only.Finally, all the

findings will be concluded and some policy implication also suggestion details

regarding this topic had been described in Chapter 5.

Page 57: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

CHAPTER 5

CONCLUSION AND RECOMMENDATION

5.1 INTRODUCTION

This chapter will conclude this study from chapter 1 to chapter 4 and subsequently further to

policy implication. The objective of this paper is to study the relationship between

demographic’s background, current investment, knowledge and perception of the investor

selection towards shariah and non-shariah compliant investment. From the previous research,

many of researchers only discussed about the criteria to determine the status of shariah

compliant investment without considering the investor selection towards shariah and non-

shariah compliant investment. Therefore, we are very interested in understanding the factors

that influence the selection of the investor towards shariah and non-shariah compliant

investment. To study the selection of the investor, we used descriptive analysis and cross-tab

as explained in the chapter 3 and the details of findings in chapter 4.

Besides, this chapter will also suggests the recommendation to the policy maker and

financial institution in order to enhance the investor selection towards shariah compliant

investment. The next section will discuss about the summary of findings.

5.2 SUMMARY OF FINDINGS

The findings in chapter 4 shows that, the respondents which have high level of education are

more exposed to the investment. However, most of them invested in non-shariah compliant

investment. Besides, the findings also shows that most of respondents are not alert whether

the zakat from their investment were paid or not. According to the result, only 48.5% of the

respondents who invest in shariah compliant investment confident that their zakat were paid.

According to the findings, most of the respondents are lack of knowledge in basic principles

of Islam and shariah compliant investment principles. Most of respondents are unable to

Page 58: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

answer correctly about the pillars of faith, meaning of Islam, prayer obligation, zakat and the

obligation to choose the shariah compliant investment. The report shows that all respondents

can answer the fasting obligation, aurat obligation and five pillars of Islam correctly. It

means that the respondents only alert the things that occur around them. The respondents

also cannot understand the correct meaning of gambling and usury. It means that the

respondents do not know the meaning or difference of these two terms. Moreover, the

respondents are still confused about the investment in the production and sale of tobacco

products. From this finding, it also shows that most of the respondents who are wrongly

answered the questions about the definition of gambling,usury and others invested in non-

shariah compliant investment. In other words, lack of knowledge of the respondents affect

their decision in making investment. Probably, the respondents only think that investment is

not a part of ibadah and therefore they do not care whether the investment is comply with

shariah or not, instead of food that always all people realize to choose only the halal food.

In addition, the findings show that most of respondents are confused regarding the

information of shariah compliant investment, the difference between shariah and non-shariah

compliant investment and the elements that do not comply with shariah. It means, even

though they choose shariah compliant investment, it is not the decision that come from their

pure heart.

According to the findings, most of respondents realize the advantages of shariah compliant

investment is free from interest. Besides, shariah compliant investment could help the

economic growth and shariah compliant investment can enhance the social welfare. It means

that this is the best time to promote shariah compliant investment in this area.

The findings shows that safe investment is most priority in making an investment.

Rationally, safe investment is important to attract the investor to invest. The second criteria is

the respondents prefer shariah compliant investment. It means that the shariah compliant

Page 59: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

investment is acceptable nowadays. The respondents also choose the financial institution that

has a good image and performance only. This criteria is important in order to reduce the risk

of loss.

According to the findings, most of respondents agree about shariah compliant investment is

more stronger in the market and they are highly confidence in shariah compliant investment

in the market today. It means, the respondents realize about shariah compliant investment is

the best way to solve the financial crisis in the middle of 2008.

For overall evaluation, there is a relationship between demographic’s background, current

investment, knowledge and perception towards shariah and non-shariah compliant

investment. The objectives of this study are successfully achieved.

5.2 POLICY IMPLICATION AND RECOMMENDATION

Based on the findings of this research, an improvement should be implemented in order to

increase the investor awareness towards shariah and non-shariah compliant investment. It is

important to build a free-interest financial system especially in investment. Here are some of

the recommendation that should be considered by government as a policy regulator and other

financial institution.

First, a transformation for educational system should be implemented. Apart from providing

academic instruction through educational syllabus, other curriculum in religious aspects need

to be increased. This is important because as seen in chapter 4, most of respondents who are

higher educational level invested in non-shariah compliant investment. It means that even

though they are excellent in studies in their field, they are still lack in terms of religious

knowledge. Therefore, a new syillabus should be restuctured in order to build not only an

expert person in their field only but also meet the demands of their religious and subsequently

make them are very aware about the investment product selection before they invest. Besides,

most of respondents are still unable to answer the question relating to the basic Islamic

Page 60: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

principles. If the educational syllabus is not emphasized about the demands of religious,

awareness and knowledge of the religion of Islam itself getting lost subsequently the investor

will be greedy to generate the income without identifying the sources of money is permissible

in Islam.

Furthermore, the other suggestion is to provide more information towards shariah and non-

shariah compliant investment. Based on findings, most of respondents are lack of

information. Therefore, to overcome this problem, information about shariah compliant

investment should be given to public, especially to muslims. Electronic media is the best way

to promote the shariah compliant investment because from the findings, most of respondents

got information from that medium. Next, the continuous promotion should be done. As we

know, promotion is the best way to introduce the new products in order to increase the

information about shariah compliant investment. The promotion can be done from time to

time in the places that visited by many people such as shopping centers, colleges, goverment

offices, non-govermental organizations and others. The information also should be provided

by an easy access system and one regulation company will monitor the system to make the

information can be spread quickly and accurately.

In addition, this study found that most of respondent realize about the advantages of shariah

compliant investment but their selection of non-shariah compliant investment is still high.

Therefore, the financial instituion and banking sector which offer shariah compliant

investment products should make a program such as seminar or workshop to explain about

the importance of shariah compliant investment deeply. The financial institution and bank

need to make a better plan of action to promote shariah compliant investment product is not

offered for fun but it is an alternative to provide an opportunity to generate the income in

Islamic way. This step is in line with a goal of Islam is not only to have the wealth but simply

having the wealth to ummah. Moreover, investors should realize that even though shariah

Page 61: Investor Selection Towards Shariah and Non-Shariah Compliant Investment

compliant investment sometimes offer the low return investment, it is considered as a jihad if

they are willing to invest in shariah compliant investment with the intention to help the

growth of shariah compliant investment.