CONSUMER BEHAVIOUR CSBM 386... Index number QUESTION 1b (16 MARKS) Programme Option Signature There are two case studies. Read the cases and answer the questions that follows CASE 1 ISLAMIC BANK: RESPECTING THE PROPHET'S WORD Bank Islam, a bank in Malaysia, operates by the principles of Islam. Its customers deposit money with the bank, but do not receive any interest on it. The reason is that; Islam prohibits any interest as usury. So instead of being paid interest on their money, customers receive a share of the bank's profit. The bank was founded in Egypt about three decades ago simply to give religious Muslims a way to keep their money safe. Today, Islamic banks are common in the Middle East and they are spreading in the Philippines, Europe and the United States (US). In these countries, many countries, many customers like the availability of a bank that follows Islamic principles. Islamic bank pools deposit and in turn invest them in construction, commodities and other businesses that do not pay any interest on these investments. Instead, these commercial borrowers pay the bank share of their own profit. In turn, the bank shares the profit with their individual depositors. The combined assets of all the Islamic now totals about $70 billion. The leader of the pack in Malaysia is Bank Islam, with a total deposit of 3 billion ringgits, or $1.2 billion Islamic banks have devised new ways of lending and investing money. A customer who wants a car loan for example, agrees to make a series of payments totaling more than the sticker price of a car, which remains the bank property until all the payments have been made. In business market, importers and exporters employ a technique they call Murabaha. A bank buys goods and sells them to a customer who then pays the bank at a future date a total sum more than what the customer would have had to pay if the goods were bought with cash. This technique was approved by New York Fed. In Malaysia where the banks are expanding financial services most aggressively, Arab-Malaysian Bank has issued the first Islamic credit card-an interest free Visa Card. The bank charges no interest, but customers pay an annual fee that is a percentage of their purchases. The credit limit is equal to the amount in their deposit accounts in the bank. The Malaysian government is pushing for a country's financial services to go global and attract foreign capital. A member of Malaysian Islamic Investment funds hold shares worth $780 million, most of them in foreign companies. However, these companies are carefully screened to ensure that stocks are not linked to liquor, gambling, or other activities regarded as sinful by Islamic teachings. Conservative Muslims criticize the government for allowing banks to conduct both Islamic-oriented and interest paying services under the same roof. According to these critics, some Islamic stockbrokers are handling companies that make some of their profits from interest received. Some argue that, it is impossible for Islamic financial institutions to become a major player in the global financial industry because the interest-paying services are an inevitable part of modern day financial business. "That concern is true", says Nik Ramlah, an official of the Malaysian Securities Commissions, "but it just underlines the need to introduce the necessary Islamic Financial Products to meet the needs of modern day investors". Questions i. What role does religion play in customer behavior? Illustrate with the behavior of customers who follow the Islamic religion. (2 marks) ii. What is a market value? Which of the market values do Islamic banks offer to Muslim customers, specific to each of the buyer, user and payer? (4 marks) iii. Under what circumstances would Islamic bank products, such as the practice of Murabaha, be of value to non-Muslim customers? (2 marks)