Do Bank Customers Prefer Profit Sharing Investment Accounts? A Proposed Conceptual Framework Romzie Rosman, Isah Ya’u and Anwar Hasan Abdullah Othman IIUM Institute of Islamic Banking and Finance, Malaysia Keywords: Islamic Banks, Investmment Account Holders, Investment, Profit Sharing, Islamic Finance. Abstract: The concept of sharing profit earned by Islamic banks with their investors is one of the distinguishing features that set Islamic banks apart from their conventional counterparts. The contract of mudarabah is used by Islamic banks to mobilise funds with the objective to share profit with the investors. Any financial losses incurred by the banks in the course of their financing or investment is to be borne entirely by the depositors, except in cases of negligence and breach of contract. Based on literature that investigated the factors effecting the adoption of Islamic banking and finance products, the factors differ based on countries. It is found that GCC countries showed that religious factor in terms of compliance with the provisions of Shariah by the Islamic banks is the most important factor that influences the selection of Islamic banking products in the GCC countries. However, in the MENA region, it could be observed that religious belief and compliance with Shariah by Islamic banks were not the major factors that influence customer’s choice of Islamic banks unlike in the GCC countries. Not only that, it is also found that the factors that influence the choice of Islamic banks amongst customers in Asia were not consistent. Whereas some studies show religious inclination as the most important factor in choosing Islamic banks by customers especially in some studies in Malaysia, other studies show that high profit and low-cost service as the most important selection criteria. Hence, the proposed conceptual framework that integrated both the Theory of Reasoned Action (TRA) and Theory of Planned Behaviour (TPB) together with the unique elements of religiosity and risk tolerance are expected to predict the behaviour of profit sharing investment account holders. 1 INTRODUCTION The Islamic financial services industry continues to record impressive growth as at the end of the 2018 financial year as reported by various reports that track developments in the industry. According to the Thomson Reuters’ Islamic Finance Development Report (Reuters, 2018) Islamic finance is currently present in 56 countries with Iran, Saudi Arabia and Malaysia rated as the largest markets dominating for 65% of the total market Share in 2017, while Cyprus, Nigeria and Australia recorded the fastest growth in Islamic finance assets in 2018. The Islamic finance industry assets grew by a compound annual growth rate (CAGR) of 6% to US$2.44 trillion in 2017 from 2012 with the banking sub- sector contributing US$1.72 trillion or about 70% of the total asset of the industry. The Islamic banking assets was estimated to have expanded at a CAGR of 8.8% between 4Q 2013 and 2Q 2017 (IFSB, 2018). Financing recorded a CAGR of 8.8% between 4Q 2013 and 2Q 2017 and annual growth rates of 6.8% in 2Q 2017 while deposits on the other hand recorded a CAGR of 9.4% with an annual growth rate of 9.2% (IFSB, 2018). From the statistics, the Islamic banking industry tends to attract deposit at a rate faster than the rate at which the banks are willing to extend financing to their clients. The nature of Islamic finance and conventional finance are different. In spite of that the notable difference between Islamic banks and conventional bank is that Islamic banks are Shariah compliant while conventional banks applied charging and received interest which is riba and hence not compliant to Shariah. Furthermore, conventional finance is almost void of risk sharing. On the resource mobilization side, fund owners provide their financial resources on the basis of the classical loan contract. Accordingly, banks taking deposits would guarantee both principal and interest on their customers’ deposits (Ali Al-Jarhi & Ali Al, 2017). This is not the case with Islamic banks as observed by (Ramli, 2014) a major distinctive feature between Islamic banks and conventional banks is profit-and- Rosman, R., Ya’u, I. and Othman, A. Do Bank Customers Prefer Profit Sharing Investment Accounts? A Proposed Conceptual Framework. DOI: 10.5220/0010115701150126 In Proceedings of the 7th ASEAN Universities International Conference on Islamic Finance (7th AICIF 2019) - Revival of Islamic Social Finance to Strengthen Economic Development Towards a Global Industrial Revolution, pages 115-126 ISBN: 978-989-758-473-2 Copyright c  2020 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved 115