SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
ISLAMIC BANKING AND FINANCE: ISLAMIC BANKING AND FINANCE: MALAYSIA’S EXPERIENCE AND MALAYSIA’S EXPERIENCE AND
ACHIEVEMENTSACHIEVEMENTS
13 June 2006
Victoria University of Wellington
Presented by:Bakarudin IshakDirectorIslamic Banking and Takaful DepartmentBank Negara Malaysia
ISLAMIC BANKING &FINANCE IN MALAYSIA
SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
MALAYSIA AT A GLANCE
• Population – 26.1 m• Muslim – 15.4 m (59%)
• Strong GDP growth• 1st quarter 2006 5.3%
• Low inflation
SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
• In response to the needs of Muslim community
• Acts as a catalyst to fill the gap to mobilise funds for productive purposes, in particular for Muslim communities
• Significant untapped business potential
• Proven to be a viable financial intermediation channel in supporting economic growth
• Fulfilled the demands of not only the Muslims but non-Muslim population as well
WHY ISLAMIC BANKING IS IMPORTANT?
SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
• Comprehensive Islamic financial system covering all financial sectors–operating in parallel with conventional financial system
• Diversities of players–Twelve full-fledged Islamic banking institutions
– 2 domestic Islamic banks– 3 full-fledged foreign owned Islamic banks– 7 Islamic banking subsidiaries
– 9 takaful operators
• Sound and robust Islamic financial institutions governed by international best practices
• Rapid growth with wide range of product and services –Retail, corporate & investment banking
• Internationally integrated with international Islamic financial system
MALAYSIAN ISLAMIC FINANCIAL SYSTEM
SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
STAGES OF DEVELOPMENT
Gradual and pragmatic
..achieved significant milestones in building comprehensive and integrated Islamic financial system with diversity of players….
Milestones
1969 1983 1993 2003
Pilgrimage Fund BoardPilgrimage Fund Board
Bank Islam Malaysia Bhd.
Bank Muamalat Malaysia Bhd.
Foreign Islamic banks
Full-fledged Islamic banks
Conventional banks offer Islamic window
Takaful Operators
Syarikat Takaful Malaysia Bhd.
Takaful Nasional, Mayban Takaful, Takaful Iklhas, Commerce Takaful
Islamic subsidiary
Islamic money markets
SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
Institutional & Regulatory development
Product and marketdevelopment
Legal and Shariahframework
Enhancement of knowledge and
expertise
DEVELOPMENTAL FOCUS
SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
ENABLING INFRASTRUCTURE
Legal Islamic Banking Act, 1983 Takaful Act, 1984 Government Investment Act, 1983 Legal Redress Framework
Shariah Two Shariah governing committees
• National Shariah Advisory Council at Bank Negara Malaysia
• Shariah committee at Islamic financial institution
Regulatory Adopted international standards
SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
ROLE OF BANK NEGARA MALAYSIA
BNM
Conventional financial system
Islamic banks
Takaful operators
Non-banking institutions
Money market Capital market
Customer
Islamic financial system
Conventional banks
Insurance companies
Non-banking institutions
Money market Capital market
Malaysia Deposit Insurance Corporation
Dispute resolution
Judicial system
KL Regional Arbitration Centre
Financial Mediation Bureau
Supervisory objective
• Financial stability
• Consumer protection
- Separate clearing and settlement system
- Liquidity management
Specific monetary policy instruments
Islamic Banking Act 1983
Takaful Act
BAFIA 1989Insurance Act 1996
SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
COMPREHENSIVE ISLAMIC FINANCIAL SYSTEM
Legal, Shariah & Reg
Institutional development
Product & market
Knowledge and education
• Comprehensive legislation• Dispute resolution
o Dedicated high courto Arbitration centreo Financial Mediation
Bureau• Tax neutrality policy• Shariah Advisory Council
and its governance• International best practices
- IFSB
• Comprehensive product range in banking, takaful & financial markets
• Global sukuk - sovereign & multilateral institutions
• Consumer Education & Awareness Programmes
• Complete training infrastructureo INCEIF, IBFIM & ICLIF
• International conferences
• Domestic & foreign Islamic banks, Islamic banking windows
• Islamic capital market players
• Fund for Shariah Scholarso Promote Shariah dialogues o Scholarshipo Research grant
• Offshore players• Liberalised equity policy for Islamic
subsidiaries and takaful
SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
VISION TO BECOME ISLAMIC FINANCIAL HUB
Sustaining Malaysia’s competitive edge as leading IFC following:-
progressive development achievements of domestic mkt integration & liberalisation
Moving forward, hub envisioned in Financial Sector Master Plan
Growing interest from Middle East investors now seen
Opportunity to improve trade & investment ties, and linkages between Malaysia & other parts of the world
SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
LEADING INITIATIVES IN ISLAMIC FINANCE
2005
Islamic Financial
Services Board
Islamic Financial
Services Board
Malaysia global sukuk
Malaysia global sukuk
2002
2003
2004
Islamic securities/ Sukuks by multilateral dev’t banks
Islamic securities/ Sukuks by multilateral dev’t banks
Malaysia-IDB MoU
Malaysia-IDB MoU
Shariah scholars dialogue
Shariah scholars dialogue
Financial liberalisation
Financial liberalisation
Financial Market Islamic
Index
Financial Market Islamic
Index
Foreign Islamic FIs, 49% foreign equity in Islamic banks and takaful companies
Forex liberalisation
Promotion of trade, investment, takaful, financial market & ICT
International Islamic standard-setting body
Attract international investors
First global sovereign sukuk
Greater Shariah harmonisation
Financial Sector Master
Plan
Financial Sector Master
Plan
Malaysia as international hub/ Labuan’s niche in Islamic finance
… for global integration
SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
Meeting the education needs of all levels of Islamic finance practitioners
Level of knowledge:Elementary
Focus:Short training courses to meet industry’s needs
IBFIM INCEIF ICLIF
Level of knowledge:Intermediate & advanced
Focus:International professional certification and post-graduate programs
Focus:Leadership programs
Institutions of higher learning
Other training
providers
Human Capital Development in Islamic Finance
SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
Part 1
(Building Knowledge)
Part 2
(Building Skills)
Part 3
(Actual Work)
• Islamic Economics and Finance
• Theory & Ethics• Islamic Financial Institutions
and Markets• Islamic Finance Regulations
and Governance• Applied Shariah in Financial
Transactions• Deposits Mobilization and
Financing Management• Wealth Planning and
Management
ASSOCIATE MEMBER
Common Modules• Structuring Financing Requirements• Issuing & Managing Islamic Securities• Shariah Audits and Compliance• Customer Relationship Management• Issues in Islamic Financial Institutions &
Markets
Specialized (Banking) Modules• Deposit & Financing Practices of Islamic
banks• Managing Islamic Banks• Treasury and Risk Management for
Islamic Banks • Legal aspects of Deposits & Financing
Specialized (Takaful) Modules• Managing Takaful Institutions• Risk Management in Takaful• Operational Aspects of Takaful• Actuarial Concepts & Practices
PROFICIENT MEMBER
Articleship
PRACTISING MEMBER
Pedagogical approach:Self-study (on-site and online learning), exams, case studies, simulation
Hands-on activities &role play
CIFP PROGRAMME MODULES
SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
“… Islamic banking and finance will emerge as a force to be reckoned with in shaping the future development of global finance …”
SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
CHARACTERISTICS OF ISLAMIC BANKING
• Islamic financial transactions based on Shariah principles:• Contract (aqad)• No elements of usury (riba)• No elements of uncertainty (gharar) and gambling (maisir)
• Multi-faceted roles based on nature of financial transactions engagement:
ISLAMIC FINANCIAL CONTRACTS • Savings and Current Accounts• Investment Account• Asset Creation
ISLAMIC BANKING &FINANCE IN MALAYSIA
SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
Sources of funds
Non-mudharabahdeposits
Mudharabahdeposits
SHF
Application of funds
Generalpool
Specific account I
Specific account II
Profit
Distribution of profit
Depositors
Bank
Depositors
or
ISLAMIC BANKING &FINANCE IN MALAYSIA
ISLAMIC BANKING OPERATIONS
SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
Fixed assets
Other assets
Inventories
Equity investment in capital ventures
Equity investment in joint ventures
Investment in real estate
Investment in leased assets
Investment in securities
Sales receivables
Cash & cash equivalents
ASSETS
Owners’ Equity
Investment risk reserve
Profit equalization reserve
Profit sharing investment accounts
Equity of Profit Sharing Investment Accounts (PSIA)
Other liabilities
Current accounts
LIABILITIES
STYLIZED BALANCE SHEET OF AN IIFS
SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
TAKAFULTAKAFUL(e.g. Family, General)(e.g. Family, General)
TABARRU’TABARRU’(Donation)(Donation)
PROFIT SHARING ON PROFIT SHARING ON SURPLUS SURPLUS
A contract among participants to reciprocally help each other against defined loss
Commercial profit sharing contract between participants and takaful operator
Agreement to relinquish certain portion of contribution as donation to fulfil obligation of mutual help and joint guarantee
Concepts Based on…….Takaful
SEKTOR KEWANGAN ISLAM DI MALAYSIA ISLAMIC BANKING &FINANCE IN MALAYSIA
Surplus/ (Deficit)
Participants’ Risk Account (PRA)
Participants’ Account (PA)
Investment Profit
Takaful Operators
Less
Less
Operating Expenses
•Retakaful•Reserves•Claims
Participants
Contributions
100%-x%
Surplus on Maturity
x%x%
ISLAMIC BANKING &FINANCE IN MALAYSIA
Takaful Model
Wakalah feesx%
x%
100% -x%
2 Models: Mudharabah or Wakalah