Customers’ legal awareness and legal understanding on the contract of adhesion for Islamic home financing in Malaysia

What is it about?

Buying a home is one of the biggest financial decisions people make, and many turn to Islamic home financing to do so. However, the contracts used by Islamic banks are pre-prepared standard agreements (known as contracts of adhesion) that customers must accept as they are, without room for negotiation. This raises an important question: Do customers truly understand these contracts and their legal rights? This study explores how well customers in Malaysia understand and are aware of the legal terms in Islamic home financing contracts. Using a survey of 384 Islamic bank customers, the research found that while most customers believe they have a basic understanding of the contracts, their legal awareness remains low. This is concerning because customers may not fully grasp their rights and obligations, making them more vulnerable in financial agreements. The findings suggest that better education and clearer contract terms could help customers make more informed decisions. The study also highlights the need for greater standardization of legal documentation to improve transparency and fairness in Islamic home financing. These insights can help policymakers and banks create more customer-friendly financial practices that align with Islamic principles.

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