Before the advent of Islamic banks, financial market had been monopoly by conventional banks. However, in recent years Malaysian Islamic banks have to operate in an increasingly competitive environment. Alongside the conventional banking system, the Islamic banking system has steadily evolved to become a major player on the Malaysian financial landscape. The establishment of Bank Islam Malaysia Berhad (BIMB) in 1983 really marks the beginning of a new era in Islamic banking in Malaysia. The Islamic banking system received a further boost when a scheme where conventional banks can open windows for Islamic banking products that called Interest-free banking system. (Mariani Abdul Majid, 2003).
However, the world has known several financial crises over the course of history, particularly in the 20th century, since the Great Depression of 1930s followed by the oil price boom in the 70s. Apart from these major crises, smaller breakdowns occurred in economy, which is normal, considering the cyclical nature of the economic system in economic production, inflation rate, the level of GDP, trade, and other factors. Yet it does not occur in each cycle, or downturn, that so many factors coexist in one time that shakes the global economic system as much as it happened in the latest crisis starting in 2007-2008. (Renata JankaT...
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From the development of Islamic banks in Malaysia, it is imperative for Islamic banks to play their role effectively and efficiently to contribute to the overall stability of the financial system, and the growth and development of the economy as well as less effective during global financial crisis. The issues that arise are whether the Islamic banks are able to survive in the Malaysian economy, and the performance and stability of Islamic banks in Malaysia during financial crisis question remains. Although consideration is given in the volatile financial environment, would Islamic banks in Malaysia be able to withstand financial crisis.
These raise the need to undertake this research to examine this performance and stability issues. There are many reasons why Islamic banks can survive during the financial crisis in terms of performance and stability.
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