Factors affecting an investor's purchasing intention on Islamic financial products

Abstract

Our study aims to establish the factors that affect an investor’s decision to invest in Islamic financial products in Singapore. Our study is based on Central Provident Fund (CPF) holders, assuming that they have the avenue to invest in financial products via their CPF accounts.

According to our findings, religion plays the largest role in investor’s decision as Islamic financial products have religious constraints against receiving interest. Our study shows investors with other religions are not willing to accept these constraints and hence, do not invest in Islamic financial products.

Besides religion, our research shows that the higher the level of an investor’s financial literacy, the more likely he will invest in Islamic financial products. With basic financial background, he is able to identify their objectives better than less educated investors. This allows him to make better informed decisions.

In the current full-blown economic crisis, investors are more risk averse and cautious in investment products selection. Therefore, investors with higher level of risk aversion have a greater influence on their investment decisions.

Lastly, investor’s time horizon does not affect his purchasing intention as it might be overpowered by other factors e.g. financial literacy. For instance, an investor with short time horizon might still invest in Islamic financial products if he understands clearly the result and implication of investing it.