ADOPTION OF MURABAHAH (COST-PLUS) FINANCING IN SINGAPORE

Abstract

Islamic cost-plus financing (Murabahah) is a popular real estate financing method which has been used in Singapore for corporate financing. On a personal consumer basis, Murabahah has proven to be a popular home purchase financing option in countries such as Malaysia and Indonesia. Murabahah has been used by both Muslims and non-Muslims in these countries. Such a product, however, is currently unavailable in Singapore despite efforts by the Monetary Authority of Singapore to encourage financial institutions to introduce it. As such, there is a need to investigate the dynamics of consumer behaviour towards such a product in Singapore. Therefore, the objective of the study is to examine the factors which would influence the decision to adopt Murabahah in Singapore as well as the attitudes of different groups of people (Muslim and non-Muslim; Existing Islamic financial product holder and non-holder) towards adopting Murbahah. In order to examine various factors, a survey research was conducted to obtain responses and information from Singaporeans. Primary data was subsequently analysed using descriptive statistic and multivariate analyses to determine the factors which would affect Murabahah adoption amongst Singaporeans. The study found that the consumer’s level of perceived knowledge of Murabahah and Islamic finance is critical in adopting Murabahah. Knowledge refers to being aware of the existence of the product and the ability to use it effectively. Perceived knowledge of Murabahah and Islamic finance was found to be low amongst Singaporeans. Knowledge is essential as it is the initial stage of the decision-making process. This study extends previous literature by applying product diffusion theory to an Islamic financial product. In terms of practical implications, the study helps providers of Islamic financial in developing effective marketing strategies, especially in new product development, positioning and promotion.