Abstract
This study investigates factors that influence retail equity investors to patronize Islamic stockbroking in Malaysia and ranks their level of importance using Analytical Hierarchy Process. Data are collected using questionnaire via online and offline survey among clients, individuals who work in the stockbroking industry and stockbroking related industry such as fund managers, unit trust managers, and mutual funds. The results show that religiosity and product awareness significantly influence the patronizing behavior of Malaysian retail equity investors. On the other hand, economic motives, convenience, social influence, and attractiveness of stock investment ranked below religiosity and product awareness. In view of the findings, stockbroking industry players such as investment bank, stockbroking firm, or participating organization should take advantage of the religiosity and product awareness factors as a main focus to develop Islamic stockbroking service in Malaysia. Sales, marketing and business development strategies can be designed according to the said criteria.
TopIntroduction
A stockbroking service is an agency service which buys and sells shares on behalf of clients (principal) and is paid brokerage or commission for the service (Securities Commission, 2007). In other words, a stockbroking service provides a platform or an avenue for investors to trade securities listed in stock market. Besides the main broking service, Stockbroking Company also provides related or value-added services like placement of trust monies into investment instruments, collateralized trading, custodian services, research, underwriting, and e-broking.
Back in 1994, BIMB Securities Sdn Bhd, the first full-fledged Islamic Stockbroking in Malaysia was incorporated in order to provide stockbroking and related activities based on Shariah principles. In September 2007, Bursa Malaysia released its ‘Best Practices in Islamic Stockbroking Services Undertaken by Participating Organizations’ (Securities Commission, 2007) and as a result, from 2008 onwards, most of the top stockbroking companies in Malaysia have answered the call by the government to establish Islamic Stockbroking windows. Among the Participating Organizations who have established Islamic Stockbroking windows are AmInvestment Bank Berhad, Affin Investment Bank Berhad, CIMB Investment Bank Berhad, Maybank Investment Bank Berhad and Jupiter Securities Sendirian Berhad. In total, there are 15 licensed Participating Organizations offering Islamic Stockbroking (Shah, 2018).
Islamic scholars had confirmed that there are prohibited elements in Conventional Stockbroking such as trading and pledging of non-halal shares, riba (interest) in the forms of contra service charge and interest charge for late and default in payment, conventional ways of banking, borrowing and placement, mixing of halal and non-halal funds in transactions and records. Hence, Islamic Stockbroking service which can defined as wakalah (agency) service which buys and sells shares on behalf of muwakkil (client) and is paid brokerage or commission for the service based on Shariah Principles was introduced. The main Shariah principles applied in Islamic stockbroking service are wakalah (agency) which is applied on stock broking service and on arrangement and placement of client’s trust monies, Rahn (collateral) which is applied on collateralized trading, kafalah (guarantee) which is on remisier’s indemnity and bai’ which is incorporated on the purchase and sale of shares activity.
Islamic stockbroking services have some benefits over the conventional counterpart. First, the lower ta’widh (compensation) and gharamah (penalty) rate to be charged on default and late payment (Malaysian ICM, 2013). The ta’widh rate may range from 2% to 8% per annum based on the Islamic Interbank Money Market rate or any rate used by respective stockbroking companies while in conventional stockbroking, the rate may range from 8% to 12% per annum. Secondly, the absence of contra service charge. Contra trading exist when seller sells his shares before payment has been made for his purchase of the shares earlier within the settlement due date, currently on T+3, where T is the transaction days and 3 represents the number of trading days. The conventional stockbroking contra service charge may range from 8% – 12% per annum on the transaction value. Thirdly, the activities of Islamic stock broking service are free from non-Shariah compliant issues. All Shariah controls have been put in place, from the opening of the trading account, settlement and until the tail end.
Islamic capital market has expanded in many areas covering wide range of products and services, bigger number and diversity of stakeholders, infrastructures, geographical reach and human capital development. Malaysia’s Islamic capital market offers wide range of products and services such as Shariah-compliant securities, sukuk (Islamic bond), unit trusts, exchange traded fund, real estate investment fund, fund management and stock broking services. In view of the fast growth and extensive Malaysia’s Islamic capital market development, it is important to conduct researches which can support the efforts. Hence, this study is aimed at exploring one of the most important topics in the industry i.e. factors influencing investors to patronize Islamic capital market, specifically in Islamic stockbroking industry.
Key Terms in this Chapter
Wakalah: an agency contract, where one party appoints another to conduct a defined legal action on his behalf, for a specified fee or commission.
Kafalah: a contract made between the Bank and another party whereby the Bank agrees to discharge the liability of a third party in the case of default by the third party.
Islamic Stockbroking: a business in securities carried out by an Islamic participating organization on the stock market of Bursa Securities, whether on a fully ñedged basis or via an Islamic window service.
Sukuk: an Islamic financial certificate, similar to a bond in Western finance, that complies with Islamic religious law.
Ta’widh: all types of compensation or remuneration ('iwadh) charged or paid in relation to a commutative transaction or against damages inflicted on a contracting party due to a wrongdoing or negligence or carelessness by the counterparty.