AN ANALYSIS OF ATTITUDES TO ISLAMIC AND CONVENTIONAL CREDIT CARDS IN MALAYSIA: PERSPECTIVES ON SELECTION CRITERIA AND IMPACT ANALYSIS

Abstract

The development of everyday financial instruments is an important dimension of modern life, and credit cards are considered to be the main instruments and facilitators of spending in modern economies. Together with the Internet, which facilitates the spending process, credit cards have become essential instruments of spending. In response to this, and due to the expansion of Islamic banking and finance, the Islamic equivalent of credit cards (Islamic credit cards or ICCs) have been engineered with their own sophisticated financing methods alongside conventional credit cards (CCCs). Malaysia is one of the pioneering countries in Islamic finance and has developed a number of ICC products.
This study aims to analyse the two main aspects of credit cards, namely, the selection criteria and the impact of credit cards in Malaysia in general, as well as the difference between ICCs and CCCs in particular. The selection criteria are investigated in terms of various factors, including those that explain the first motivation for credit card holding, selection factors influenced by the credit cards’ embedded features, the difference between the satisfaction and the loyalty level of CCC holders as compared to ICC holders, the customers’ perceptions of ICCs, an investigation into whether ICCs are perceived as being inferior to CCCs, religious commitments of ICC holders as opposed to CCC holders, and how the socio-demographic characteristics may have deterministic power over the holding of ICCs and CCCs. The impact of credit cards is investigated through their usage as well as the perceptions of the credit card holders.
In conducting the research, this study assembled primary data from Malaysia through a questionnaire survey with 507 participants. In addition, interviews with financiers or bankers, Shari’ah scholars, economists, and cardholders were conducted to verify the results that were established through a quantitative data analysis of the questionnaire.
The findings of this study, inter alia, indicate that Malaysian cardholders are found as perceiving credit card selection factors not much differently than individuals in other nations. ‘Protection’ and ‘convenience’ appear to be on the top of the selection list, while ‘reputation’ is in the lowest rank. Furthermore, in investigating the selection attributes, ICC holders were found to value religious factors more highly than in comparison with CCC holders. It was also revealed that ICC holders were less satisfied with having a credit card but they were more loyal than CCC holders. Interestingly, the results also revealed that ICC holders perceived ICCs to be more Islamic than CCC holders, although, in an overall evaluation, ICCs were perceived as inferior to CCCs by ICC holders. It should be noted that the religious commitments among the ICC holders were also higher than those of the CCC holders. Furthermore, the ‘ethnicity’ and ‘religion’ of the socio-demographic variables appear to be significantly related to the holding type. Therefore, the results reveal that religious factors are more influential in the selection process of the ICC holders as compared to CCC holders.
In terms of determining the impact of credit cards, the study indicates five determining factors for Malaysian revolving credit cardholders, namely, ‘education’, ‘income’, ‘credit behaviour’, ‘car loan’, and ‘number of credit cards held’. A further analysis to determine the impact between sixteen usage and perception variables with holding type indicates that ICC holders suffer a less negative impact for the use of credit cards in comparison with CCC holders. There is also a higher agreement among respondents in believing that credit card companies use aggressive strategies and misleading advertisements. Importantly, the results also indicate that there is, in reality, no obvious difference between ICC and CCC issuers in marketing their credit cards. It should also be noted that the respondents indicate rationality in their thinking, as the majority admit that widespread credit card debt is due to their self-attitude.
This study is useful for various parties, including customers, to examine how credit cards can create financial difficulty. It will also aid financial issuers in understanding the attitudes and perceptions of cardholders, hence, allowing a better strategy in structuring their credit cards. Policy makers, on the other hand, will be able to use it as a guide in implementing policies to curb credit card debt from proliferating.