The difference of Shariah risk potential and Shariah risk in personal financing products based on tawarruq munazzam contracts practised in Malaysia

Purpose - This paper aims to investigate the differences in the practice oftawarruq munazzamcontracts based on personal financing products. The researcher will then analyse the said differences based on the potential for risk to occur and risk from a Shariah perspective. Design/methodology/approach - This study’s methodology is qualitative, in which the data are collected through library research and field studies. The library research is conducted by examining books, articles, statutes and related circulars. From the practical aspect, field studies were conducted in an unstructured interview method with officers used in Islamic banks. The snowball method was used to determine the number of Islamic banks to be studied until no new information was obtained on the different practices oftawarruq munazzamcontracts based on personal financing products. Findings - The results show that there are differences in the practice oftawarruq munazzamcontracts based on personal financing products practised by the Islamic banks studied. These differences have brought significant influence in determining the level of Shariah risk potentials and Shariah risks, respectively. The results also show that the highest number of the Shariah risk potential and Shariah risk in the Islamic financial institutions (IFIs) studied is 10 i.e. covering the issues of customer engagement,wa’ad(promise), commodity asset,gharar(uncertainty),wakalah(representative),ta’widandgharamah, the willing but not an able debtor,qalb daynand two prices in a transaction. Meanwhile, the least amount of the Shariah risk potential and Shariah risk in the IFIs studied is four, i.e. covering the issues of customer engagement,wakalah, the willing but not an able debtor and two prices in a transaction. Findings prove that there are opportunities for IFIs to minimise Shariah risk potential and risk in the personal financing products offered. Research limitations/implications - This study is limited to the practice oftawarruq munazzamcontracts based on personal financing products practised by IFIs in Malaysia. Practical implications - The differences in thetawarruq munazzamcontract practice show the distinctive elements in both Shariah risk potential and Shariah risk. Therefore, the findings of this study can be a guideline for IFIs to improve the practice oftawarruq munazzamcontracts, especially in personal financing products in minimising Shariah risk potential and Shariah risk. Social implications - The public confidence in Islamic banking is increasing as Islamic banks can minimise the Shariah risk potential and Shariah risk intawarruq munazzamcontracts based on the personal financing products offered. Originality/value - This study analyses the differences in the practice oftawarruq munazzamcontracts based on personal financing products by IFIs in Malaysia, which can impact Shariah risk potential and Shariah risk.