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risk of failure on behalf of the financier and the cost of administrative support ( which is often time consuming ). A PLS therefore aims to promote access to credit based on a partnership agreement thus reducing loan defaults in the process .
For Khan however , PLS financing has become increasingly less common due to general market uncertainty and the level of risk and time consumption suffered by banks using this method ( Khan , 2010 ). Instead non-PLS mechanisms like �������� and ����� have become more common due to their similarities with “ debt-financing .” What this highlights is a preference for conventional mechanisms that identifies with the needs of financial institutions who have to adapt and survive within a market of information asymmetry by mitigating their own risk ( Zaman , 2008 ), a position that runs in opposition to the proposed Islamic ethos . Using details from the 2007 Islamic Development Bank publication ( Islamic Development Bank , 2006 – 2007 ), Khan ( 2010 ) confirms this trend by acknowledging 92 % of the IDB ’ s profits in 2007 resulted from non- PLS financing . 6
This growth in non-PLS financing is linked to the conventional profit orientated system and demonstrates the attractions and limits of adopting traditional neo-liberal strategies . With bank profitability and survival placed above Islamic societal needs , investments that are considered “ high risk ” or offer minimal profits in return ( such as �������� ) are overlooked in favor of more secure investments . By going too much in this direction the Islamic banks run the risk of losing their social and developmental role in Islamic society . Alternatively , an Islamic banking sector that ignores the core rules of financial functioning , the basics of economic supply and demand and the need for at least limited interaction with the international system runs the risk of undermining its financial system and the larger developmental needs of the society . This tension is demonstrated by the differing tactics and outcomes of the Malaysian and Iranian Islamic banking sectors .
Malaysia : Flexible and Successful , but Is It Islamic ?
Malaysia ’ s first foray into Islamic financing occurred in 1963 through the government initiated ������� ���� Trust . It served as a ����� savings account for pilgrimages to Mecca while simultaneously encouraging economic activity within a financially underdeveloped market ( Abdul-Majid , Saal , & Battisti , 2009 , p . 3 ). In 1966 , in a bid to overthrow its colonized past , nationalization of the financial sector occurred . However , it was not until 1983 with the inauguration of the Islamic Banking Act that the first Islamic Bank , Bank Islam Malaysia Berhad , was established . This was eventually followed by the sale of Islamic products in conventional banks ( Islamic windows ) which itself spawned new Islamic banks from the profits gained ( Abdul-Majid , et al ., 2009 , pp . 3-4 ). Over the past few decades the Malaysian financial sector has embarked on a more capitalist orientated approach symbolized by the growth in Islamic products related to conventional financing such as ������ ( insurance ) and the packaging and sale of ������� compliant securities such as ����� ( including a global ����� in 2001 ) or unit trust funds .
The financial sector itself is regulated by the Central Bank of Malaysia ( BNB ) ( Bank Negara Malaysia , 2012 ) and functions as a parallel system , with both conventional and Islamic institutions abiding by the same rules but keeping their assets separate . In response to the growing demand for ������� products the National ������� Advisory Council ( SAC ) was established in 1997 and
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