Experts’ views on hiyal in Malaysian Islamic banks: the case of tawarruq-based deposit products

Purpose – There are two purposes to this study: first, to identify the status of h_ iyal (legal devices) in theoffering of deposit products based on the tawarruq contract in the Malaysian Islamic banking industry andsecond, to identify the reasons for the widespread offering of tawarruq-based deposit products by MalaysianIslamic banks (IBs).Design/methodology/approach – The study uses the qualitative method that involved interviews withMalaysian Shar�ı‘ah experts and Islamic banking operations experts.Findings – The findings show that Malaysian IBs resolved to use the tawarruq munaz_z_am contractin deposit products due to several constraints in the existing banking system and in view of customerpreferences.Research limitations/implications – This study solely focuses on tawarruq-based deposit products due toits extensive application in the Malaysian Islamic banking industry.Practical implications – The implication of the study is that more stringent procedures are required in theoffering of tawarruq-based deposit products as they are extensively utilised and have sparked controversyamong Shar�ı‘ah scholars. Moreover, to retain Malaysia’s Islamic banking reputation and trustworthiness, newand less controversial contracts must be developed.Originality/value – This paper discusses the extensive usage of h_ iyal-based contracts such as tawarruqin Islamic banking institutions’ deposit products, with justifications from Malaysian Islamic bankingexperts. The widespread use of the tawarruq munaz_z_am contract in deposit-based product offerings isbased on a reasonable view considering the constraints that Malaysian Islamic banking is currentlyfacing, with strict operation procedures by Bank Negara Malaysia to ensure real operations and to avoidfictitious elements. This paper reveals the use of tawarruq munaz_z_am in deposit products which allowsthe Islamic banking industry to operate effectively under Malaysia’s dominant conventional bankingsystem.