Does Islamic personal financing matter during a pandemic

DEBT taking is a reservoir of funding to support the need of family members, prioritised according to the hierarchy of need ranged from food to shelter. When one is in dire need, the debt taking is therefore obligatory for halal spending and consumption.

Recently, one may visit an Islamic bank for personal financing for numerous constancies. For instance, one opts the facility to acquire a piece of land for house construction for family shelter for refined well-being. In other words, he is in general cannot afford to purchase tangibles as well as non-tangibles.

Led by charitable activities, one may intend to request financing from an Islamic bank for the faith to help others who are affected most during the pandemic – COVID19. The financing obtained is used to help others who are adversely affected by the pandemic for sustainability.

There is also a focal point to take up debt financing to meet personal needs like a marriage and the purchase of durable goods, among others.

The debtor is not characters in trouble but commands a secure purchasing power from the given projected cash flows of enduring income. The financing obtained is used for the satisfaction of the moderated spending and consumption.

A personality who runs a petty business is interested to get the facility for business expansion or increasing their investments. The fund obtained is used to expand a business operation through the purchase of raw materials, pieces of machinery and equipment on a cash basis. The fund is also used to open up plants and funding working capital requirements.

Given this viewpoint, two questions are answered. Q#1 – What are the best practices (BP) when applying for Islamic personal financing during the pandemic? Q#2 – Are there any issues sprung from the taking during the pandemic?

One should exercise his discretion when using the offered best practices associated with the financing facility.

BP # 1 – INFORMATION DIGESTION: When one intends to get a financing facility during the pandemic, he should learn about the importance of details of the offered. These include the pricing that covers the costs associated with the debt taking, the modus operandi, the documents involved and the procedure of the payment of the financing, to mention some. Market research to secure one's well-being is the rule.

BP #2 – AMOUNT THAT YOU CAN AFFORD: Obtaining personal financing in the pandemic era can provoke undesirable anxiety. Consider a financing amount, which is suited to your need along with wisdom in selected the confined period of repayment.

The maximum is 10 years based on the Bank Negara Malaysia (BNM)'s directive issued in 2013 to avoid burden to the customer and avoids excessive household indebtedness.

BP # 3 – SECOND OPINION: Debt taking involves long-term reverberation stemmed from the unexpected vulnerability associated with the confined amount of income earned monthly. However, it is quite steady when one's profession is noble in demand and continuously significant even without the appearance of the pandemic. Soliciting one's spouse advice is viewed trivial but the impact that it can offer is immense for mutual well-being.

BP # 4 – Weighed BASIC NEEDS: The idea of obtaining money for vacation travels or other leisure and pleasurable purposes is not encouraged in Islam. To some extent, purchasing a luxury car through the reflection of Islamic personal financing obtained as a deposit can trigger them to fall into a severe indebtedness. The debt taking is strongly associated with the fulfilment of basic needs instead of basic wants.

BP # 5 – KNOW THE RISKS: Whenever one asks for financing, there is always an inherent risk. Risk is always linked to the debt taking involving the transacting parties. Default risk is shaped via a debtor's vision of subjectivity. Systematic and unsystematic risks can lead a debtor into bankruptcy when the debt taking is at MYR50, 000.

Today, obtaining a financing facility during the pandemic is risky when one depends on a single source of income to survive without any sources of buffers. Lack of savings and non-existence of passive income source promise broken his sustainability during the era of current pandemic.

Debt taking is shaped from different environments, explaining the profit rate offered is entirely different from one situation to another. It might be greater during the inflation leg and vice versa. The profit rate lies in the overnight policy rate (OPR) determined by BNM. The rate is higher when the money supply is exceeding and vice versa. Our current OPR is 1.75 per cent compared with its earlier rate of 3.25 per cent on the 24 November 2008.

It is hypothesised that the low rate of OPR leads to the low-profit rate that induces demand, implying the shift of the supply curve to the right. A debtor should be well-informed about this trend to derive a well-balanced decision.

Paradoxically, the decreased OPR has resulted in the explicit increment in the quantity of financing demand by a bank customer. This means that the unit financed is increased, say from a low of 6 to a high of 8 units. This is sourced from a lower cost of financing associated with the financing facilities, justifying the product is cheaper.

The offered financing facility is stable in terms of the proven profit rate – be it rate or fixed. Lack of knowledge pertinent to the pricing can explain why some folks are selecting a mistake that leads the second feud follows.

In a nutshell, the offered Islamic personal financing is still robust during the pandemic due to the Shariahcompliant feature along with the proper risk control system introduced by Islamic banks. The banks have taken serious and innovative measures in ensuring the survival of the product. These include debt consolidation to improve debtor's well-being as well as a financial literacy programme to curb the acute indebtedness.

In all, the debt taking during a pandemic should be rationale in which the repayment ability is observed whilst the considered debts are used for some purposes that give benefits in return, where extended happiness is shared by the debtor with his family members, at least.

*The author is an Associate Professor at the Labuan Faculty of International Finance, Universiti Malaysia Sabah, Labuan International Campus. He has a PhD from the International Islamic University Malaysia (IIUM) in Islamic Banking and Finance (PG310163). He can be contacted at hanudin@

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