Deposit Withdrawal Behavior of Islamic Banking Customers in Brunei Darussalam

Introduction

Brunei Darussalam is one of the smallest country in the world with total area of 5765-sq KM. The country is directly facing the South China Sea and the rest are bounded by Malaysia. The latest census mentions that the population of Brunei is around 450,000 persons with more than half of the population is Malay and Muslim. The official religion is Islam with His Majesty the Sultan and Yang Di-Pertuan as the head of the Islamic faith in the country. Hence, Islam plays a central role in the life of every Muslim in Brunei Darussalam.

The influence of Islam can also be sensed in the financial sectors of the country. Brunei Darussalam is among the earliest country in the world adopting Islamic banking system after Malaysia, Pakistan, Sudan and Iran. Currently, Bank Islam Brunei Darussalam (BIBD) is the only Islamic commercial bank in Brunei Darussalam that serves all segments within the retail banking market (Abduh, 2018). The bank was started in 1981 as the Island Development Bank and then converted to a full-fledged Islamic bank in January 1993 and changed its name to Islamic Bank of Brunei (IBB). There was a big merger in the history of Brunei financial system in 2005 between IBB and the Islamic Development Bank of Brunei which leads to the inception of BIBD.

Brunei is running the Islamic and conventional banking system in parallel. Despite its small population and area, there are currently four local banks and five foreign banks provide services here (Table 1). However, only three banks provide Islamic contracts for their saving and financing schemes. Those banks are local and namely BIBD, Perbadanan Tabung Amanah Islam Brunei (TAIB), and recently established Bank Usahawan. Other banks are operated under conventional banking schemes.

Interestingly, despite Islam as the official religion of the country and the religion of majority of the Bruneian, the two biggest local banks, Baiduri as a conventional bank and BIBD as an Islamic bank, are having a strong competition among them and shared almost equal number of customers. According to the findings from Abduh (2016), one of the reasons is because the understanding about riba among the Bruneian is still low. Furthermore, this is also because both Islamic and conventional banks operating in Brunei are offering similar products and following almost similar regulations set by the monetary authority of Brunei Darussalam.