KUALA LUMPUR: The Global University of Islamic Finance (Inceif) here has dismissed as baseless the allegation by the Consumers Association of Penang (CAP) that Islamic personal loans offered by banks are a “rip-off”.
The consumer body should have done in-depth studies before making such claims, said Inceif teaching fellow Abdul Rashid Kadir.
On December 16, CAP said its studies showed that banks made profits of up to 42 per cent a year from such loans, with interest rates of two per cent a month, or 24 per cent a year.
“This allegation is totally unfounded. Bank Negara Malaysia would not have permitted this kind of calculation on the profit rate,” Abdul Rashid said.
He said there are several payment methods in Islamic banking, from the “yearly rest”, the costliest, to the “daily rest”, the cheapest.
The yearly rest is a system where extra payments or overpayments made to reduce the amount borrowed on a mortgage is credited to the account only once, while the daily rest allows clients to make pre-payments with interest calculated on the balance, at the end of each day.
There is also a flat rate system to calculate the profit rate, but as used in Malaysia, it does not overly burden borrowers as it follows the moderately costly monthly rest system with the rates generally lower than the current market rates, he said.
“As an example, if the modera-tely costly rate in the market is se-ven or eight per cent, the repayment rate charged (in the monthly rest system) is between three and five per cent.
“This proves that Islamic banking personal loans are not as costly as alleged. Bernama