Can Islamic Financial Literacy Minimize Bankruptcy Among the Muslims? An Exploratory Study in Malaysia

Abstract

Studies showed that Malaysians possess low financial literacy. Consequently, bankruptcy cases among young adults in Malaysia are rising. The government and its relevant institutions, that is, credit counseling and debt management agency, provide different training and awareness programs to minimize the bankruptcy rates. Muslims are among the majority that declared bankruptcy; hence, Islamic financial literacy (IFL) may have a considerable role to minimize bankruptcy cases by changing the attitudes and behaviors of debtors. Furthermore, studying IFL is pertinent to Malaysia because it is a Muslim-majority country with the leading Islamic banking market in the world. Therefore, this study aims to construct the theory of IFL from the sources of the Shariah and examines whether it is suitable to implement IFL in different financial awareness programs in Malaysia. The study concludes that IFL provides a comprehensive guideline for borrowers, lenders, financial institutions, and society to reduce bankruptcy. Furthermore, findings from the field study confirmed that IFL could be used in Malaysia to raise awareness among the related parties. This is a qualitative study that employed an inductive and deductive approach to review the sources of the Shariah to come out with Shariah rulings. Furthermore, this study conducted semi-structured interviews with the officials of related government bodies and agencies. It is expected that the outcome would have a direct implication on the policymakers and loaning institutions in Malaysia.