Working Paper Series 003

By Professor Sudin Haron 2004

Creating Dynamic Leaders

Towards Developing A Successful Islamic Financial System: A Lesson From Malaysia
Abstract Introduction History and Development Government Intervention Service Providers Intervention 2 2 3 6 8

Malaysia is among those Muslim countries that are fully committed to developing not only an Islamic banking, but also a complete Islamic financial system. It is the objective of the Malaysian government to develop Islamic banking parallel to the conventional system. Over the years the Malaysian system has managed to portray itself as a feasible alternative to conventional banking. The journey towards this has not been an easy one. Nevertheless, the contributions of many parties especially by the Central Bank, industry players, educators, and customers managed to steer this system towards more efficient and effective system. To date, Malaysian system is studied and followed by other Muslim countries. There are, however, few issues still need to be addressed by responsible parties. The elimination of issues such as legality and usage of selected Shariah principles; public acceptance and financing direction will certainly make this system more viable in replacing the conventional system.

Educational Institutions Intervention 12 Issues and Challenges Concluding Remarks 13 19

The Islamic banking system in Malaysia is considered to be a more progressive and robust as opposed to similar banking system in other Muslim countries. This is evident when Indonesia and Brunei adopted the Malaysian model during the initial stage of developing an Islamic banking system in their respective countries. Interestingly, although Paki-

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Creating Dynamic Leaders

the move towards establishing an Islamic bank in Malaysia was initiated by private parties. i. and the lawfulness of the Islamic principles in use as well as their applicability are amongst those that have received great attention. it was the Malaysian assistance that was sought after by the Pakistani government when it proposed its intention of introducing the Islamic window concept. and section seven presents the concluding remarks. History and Development As with other Muslim countries. The Malaysian Islamic banking system history began with the establishment of the first Islamic bank in Malaysia. Through the dedicated commitment from these two agencies. Since then. four and five elaborate the interventions and contributions by various parties in developing this system. section six discuss the issues and challenges. This paper is organized into seven sections: the history and development of Islamic banking system in Malaysia is highlighted in section two. on July 30. the participants requested the government to promulgate special law which would allow the setting up of a new bank based on Islamic prin¬ciples. The objective of this paper is to discuss the history and development of Islamic banking system in Malaysia and interventions taken by various parties in order to make this system a success. It requires the formulation of a sound plan and well coordinated efforts from various parties. the last 20 years have witness continuous effort form them to promote Islamic banking products and services as an alternative to the conventional system to both retail and corporate customers. development of human capital through training and education.5 percent of Malaysian banking asset and by the year 2010 this figure is expected to grow to the 20 percent level. due attentions have been given in promoting and developing an Islamic financial market. Bank Islam Malaysia Berhad (BIMB). Issues related to public awareness and acceptance. which is responsible for the regulatory aspects and has continuously introduced measures for the development of Islamic banking system in Malaysia. This Congress passed a resolution. The task of developing a successful Islamic financial system is indeed not an easy one. certain issues have arisen and remained unresolved. Islamic banking system currently holds 10.e. Currently BNM has its own Islamic Banking Department. The first for¬mal request was made during the Burmiputera (indigenous people) Economic Congress in 1980.stan was among the only two countries which had fully Islamized her economy. Given its roles in the intermediation process and payments system. several policies and guidelines for the industry player have been successfully introduced. The rapid progress of Islamic banking over the last two decades would not have been possible without the continuous efforts from the industry players in building up a successful and vibrant industry As for the industry players. the government. and an Islamic stock market to complement the role of the system. Although the Malaysian Islamic banking system has achieved enormous success in building itself as a vibrant complement to the conventional system. the Islamic banking system will continue to be at the core of the Islamic financial system. which required the government to allow the Pilgrimage Board to establish an Islamic bank. the Islamic banking system has transformed to become a vibrant and dynamic system. 1981 appointed a National Steering Committee on Islamic Banking. in 1983. Islamic windows. In another seminar which was held in 1981 at the National University of Malaysia. From a humble be- ginning. In line with these requests. section three. Page 3 Creating Dynamic Leaders . The successful development of an efficient and progressive Islamic banking system should be credited to the Malaysian government and its agencies especially the Ministry of Finance and Bank Negara Malaysia (BNM). Understanding the need to develop a more comprehensive Islamic banking system.

i. 1983. Under this scheme often known as ‘Islamic windows’. In the process of increasing the number of players in the system. family and general takaful (insurance) business. 1982 (BIMB. On the contrary. BIMB is not only promoting Islamic banking products through its own operations but is actively involved in introducing Islamic financial prod¬ucts and services through its own subsidiaries.e. The supervision and administration of the proposed act are to be the responsibility of the Central Bank of Malaysia. which involved the three largest commercial banks in Malaysia. The proposed bank is to be incorporated as a company under the auspices of the Companies Act. 3. which are government bonds issued in accordance to Islamic principles. the government introduced the Govern¬ment Investment Act in 1983 to enable the government to issue Gov¬ernment Investment Certificates. and (iii) an Is¬lamic inter bank market (Bank Negara Malaysia. 2. to create an Islamic banking system parallel to the conventional system. does not have any intention of Islami¬zing the country’s financial system. a total of 21 Islamic banking products were Page 4 Creating Dynamic Leaders . 1983 and commenced operations on July 1. The Central bank believes that this objective can be accomplished through: (i) large number of players. Simultaneously.Towards Developing A Successful Islamic Financial System: A Lesson From Malaysia This committee studied both the operations of the Faisal Islamic Bank of Egypt and the Faisal Islamic Bank of Su¬dan (Connors. BNM is also actively involved in formulat¬ing and establishing banking products whose operations do not violate Shariah principles. The present government however. 1984): 1. 1993 with 10 more financial institutions joining the scheme. 1988). 1993. This Act provides the Central Bank of Malaysia with powers to supervise and regulate Islamic banks in Malaysia. The first Islamic bank. The second phase commenced on August 21. paved the way for the estab¬lishment of Islamic banking in Malaysia. 1994). (ii) broad variety of instruments. rather than allowing a new Islamic bank to operate. At present. The pilot phase of this scheme was launched on March 4. 1983 and came into effect on April 7. The Islamic bank is to establish its own Shariah Board whose function is to ensure that the operations of Islamic bank are in accordance to Shariah. Since the Banking Act of 1973 is not applicable for the operations of an Islamic bank. The government should establish an Islamic bank whose operations are in accordance to the principles of Shariah. trust funds. and stockbroking. The Islamic Banking Act. 1983. all commercial banks. The establishment of BIMB marked the beginning of a commitment by the Malaysian government to introduce Islamic banking in Malaysia. By the beginning of 1993. BIMB has subsidiaries dealing with leasing businesses. 1965. the BNM introduced a scheme known as ‘Skim Perbankan Tanpa Faedah’ (SPI) or the ‘Interest Free Banking Scheme’. Below are among the recommendations made by the committee in its report which was presented to the Prime Minister of Malaysia on July 5. it is the long-¬term objective of Bank Negara Malaysia (BNM). a total number of 21 financial institutions had obtained BNM’s ap¬proval to participate in the scheme. At the end of December 1993. 4. Bank Islam Malaysia Berhad (BIMB) was incorporated on March 1. The bank now has a network of 89 branches. merchant banks and finance companies are given the opportunity to introduce Islamic banking products and services alongside their conventional banking services. the Central Bank of Malaysia. a new Islamic banking act must be introduced to license and supervise the Islamic bank. which was gazetted on March 10. of the same year. nominee services.

BNM also issued five new licenses for domestic banks to create Islamic subsidiaries. First. financial disclosure must be carried out via the New Financial Disclosure or GP8. An important milestone taken by BNM in positioning Malaysia as an international Islamic financial hub was to bring forward the liberalisation of its Islamic banking sector to 2004. The Council is empowered with the sole authority and reference on all Shariah matters pertaining to Islamic banking and takaful. BNM recognizes the need to harmonize the interpretation of Shariah in Islamic finance among the Shariah scholars. the government granted a license for a second Islamic bank. which commenced operation on 16th March 2005 and followed by Commerce Tijari Bank Berhad. known as RHB Islamic Bank. This market consists of three elements namely. BNM introduced the Shariah governance framework as one of the initiatives to strengthen the role and involvement of the Shariah scholars in the development of Islamic banking and finance. i. Although Islamic banks and the SPI banks appoint their own Shariah advisers to advise them on their day-to-day operations. conventional banks are now allowed to set up fully-fledged branches (known as ‘green branches’) that deal exclusively with Islamic products.successfully developed by the Central Bank. Bank Muamalat Malaysia Berhad. these banks are still required to refer to BNM on policy-related Shariah issues. and Global Investment House. (ii) Islamic inter bank in¬vestments. In 1996. instead of providing products through the ‘Islamic counter’ concept. The disclosure. three years ahead of the World Trade Organisation’s deadline. Second. Hence. Page 5 Creating Dynamic Leaders . no restriction on female and non-Muslim solicitors to act as signatories in all financial documents. As the number of Muslims who want to realign more to Islamic practices in their economic activities increase and the successful setting-up of the first Islamic Bank. the National Shariah Advisory Council was established in 1997 with the objectives of advising BNM on matters relating specifically to Islamic banking. which requires banking institutions participating in the system to disclose their Islamic banking operations as part of their principal financial statements. Since its inception. which started operation on 15th April 2005 and Hong Leong Islamic Bank Berhad on 19th July 2005. as part of the Notes to the Accounts entails the balance sheet and the Profit and Loss of the Islamic banking operations during the financial year. and (iii) Islamic inter bank cheque clearing system.e. In the area of Shariah. these paved the way for the establishment of a second Islamic bank. In April 2005. by granting three new Islamic bank licenses to foreign institutions. banks are allowed to impose penalty charges on unpaid debts. These three Islamic financial institutions are from the Middle East. RUSD Investment Bank Inc. The underlying philosophy for this establishment is to further strengthen the institutional structure of the Islamic banking operations. this Council has agreed on several resolutions. and second and third party charge is accepted as security. coordinating Shariah issues and analyzing the Shariah compliance of new products or schemes submitted by banking institutions. (i) interbank trading in financial instruments. These products represent the common products and services available at conventional banks except that they are Shariah compliant. In October 1999.. Al-Rajhi Banking & Investment Corporation and a consortium of Islamic financial institutions represented by Qatar Islamic Bank. several new measures were introduced by BNM. As the Islamic banking industry progresses into a more advanced stage of development. In January 1994 the Islamic inter bank market was introduced in the Ma¬laysian financial system. namely Kuwait Finance House. The RHB Bank is the first local bank to have a full fledge Islamic bank subsidiary.

the then economic adviser to the Prime Minister to chair the steering committee to study the viability of introducing Islamic banking in Malaysia in 1981 was the clear indicator that government is really serious in establishing Islamic banking system in the country. Below are some of the recent and major measures undertaken following the recommendations by this department to further enhance the development of Islamic banking system in Malaysia. which allowed Islamic bank to start its operation. The rationale to confine Islamic banking within the structure of a single Islamic bank was to allow the Islamic bank to operate in a smooth manner without undue competition. acknowledging the fact that the Islamic bank would face liquidity problem at its early stage of business. the Government Investment Act 1983 empowers the government to issue certificates on Islamic basis. These measures. Thirdly. While Islamic Banking Act 1983 provides BNM with powers to supervise and regulate Islamic banks. Introduced a standard list of generic names of Page 6 Creating Dynamic Leaders . normally. the appointment of the late Raja Mohar Raja Badiozaman. this Department was upgraded as one of the key departments in BNM. the government granted a ten-year monopolistic status to BIMB. They are: 1. This is a collaborative approach with the industry players with the purpose of developing risk-sharing mode of financing and Islamic floating rate mechanisms for managing fluctuating market risks (2002). This role was given to its Islamic Banking Department. This significant step has made Malaysia the first country in the world to issue government bonds on an Islamic basis. are in the form of policies and procedures to be followed by the players and some are structural changes pertaining to legal and accounting systems. Fourthly. For example. realizing the fact that a new system will certainly face various challenges and uncertainties. Secondly. A standard framework for the computation of the rate of return for Islamic banking institutions (2001). 2.Towards Developing A Successful Islamic Financial System: A Lesson From Malaysia Government Intervention Positive intervention on a continuous basis from the government is the key element for the successful story of the Malaysian Islamic banking system. the Government Investment Act 1983 was simultaneously enacted with the Islamic Banking Act 1983. As the certificates are regarded as liquid assets. BNM has also established a special unit in the Bank to carry out strategic planning as well as regulating and developing the Islamic banking system. 1994). it took less than a year for the government to introduce a new legislation. 4. A requirement to observe the minimum risk weighted capital adequacy ratio framework for the Islamic banking portfolios of conventional banking institutions participating in the Islamic Banking Scheme (2001). The Guidance Note on Sell and Buy Back Agreement to facilitate a structured trading of sell and buy back agreement with best practices (2002). 3. It was the hope of the government that within this grace period BIMB would be able to position itself as a strong and viable financial institution. Furthermore. the Islamic banks could invest in the certificates to comply with the prescribed liquidity requirements as well as to park their temporary idle funds. it would be that much easier for the authority to develop and test out new instruments on a careful and prudent basis (Bank Negara Malaysia. 5. with only one Islamic bank operating. The establishment of Consultative Committee on Product and Market Development. which was first established within the cluster of the Banking and Regulation Department. As of October 2001. which may hinder the progress of Islamic banking.

6. lands and other administrative matters (2003). Malaysian Bar Council.Islamic banking products and services. 7. stamp duties. The Islamic banks are allowed to determine a reasonable ceiling profit rate and to include in their financing agreements. competitive and dynamic financial system with best practices. The Guidelines on Directorship in the Islamic Banks or GP1-i which spell out the duties and responsibilities of the board. 9. The issuance of new Islamic banking licenses under the Islamic Banking Act 1983 to three leading foreign Islamic financial institutions from the Middle East (2004). T h e n e w f r a m e w o r k o f c a l c u l a t i n g t h e distributable profits and the derivation of rates of return to depositors in Islamic banks (2003). Of significance is the indicator “i” affixed at the end of generic name (2002). a directive (Practice Direction No. directorship in other corporations and composition of the board of directors as well as the requirement for the Islamic banks to establish an Audit Committee and other board committees consisting of Nominating Committee. The objective of this Plan is to develop a more resilient. The amendment to the Central Bank of Malaysia Act 1958 which position the Shariah Advisory Council of BNM as the sole authority on Shariah matters pertaining to Islamic banking and finance that falls under the purview of BNM (2003). 16. Page 7 Creating Dynamic Leaders . This is reflected in the formulation of the Financial Sector Masterplan in 2001. the mechanism and benchmark used in deriving the effective profit rate. The establishment of a dedicated High Court to adjudicate all muamalat cases in the Commercial Division of High Court Kuala Lumpur. industry players and legal practitioners. and their letter of offer. and has a core of strong and forward looking domestic financial institutions that are more technology driven and ready to face the challenges of liberalization and globalization. As the banking industry entered the turn of the millennium. 15. The main task of this Committee is to review the existing laws pertaining to taxes. 14. that supports and contributes positively to the growth of the economy through the economic cycle. The Guidelines on Financial Reporting for Licensed Institutions or BNM/GP8 (2004). 1 of 2003) was issued by the Chief Judge Malaya to all legal practitioners in the country to register Islamic banking and finance cases at both the High Courts and the lower courts using a special code number (2003). 10. The formation of the Law Review Committee comprising representatives from the Attorney General’s Chambers. Ministry of Finance. the government reaffirmed its longterm commitment in developing Islamic banking in Malaysia. 13. The Guidelines on the Governance of Shariah Committee for the Islamic Financial Institutions in which the functions and duties of this committee are rationalized and streamlined. 8. appointment and reappointment of directors and chief executives. Remuneration Committee and Risk Management Committee (2004). In this regard. 11. The Guidelines on the Specimen Reports and Financial Statements for Licensed Islamic Banks or GP8-I (2003). 12. The transformation of the current ‘Islamic window’ structure into ‘Islamic subsidiary’ and approval has been given to five domestic banking groups to establish their own subsidiary (2004).

or for the account of third parties. Su p p o r t e d by a s u f f i c i e n t n u m b e r of well trained. Since Muslims are prohibited from giving affairs including the investment of funds for the purpose of compensation for the financial consequences of defined risks or losses. high caliber individuals and management teams. Due the riba factor. whether in the form of interest or in any other form. the removal of interest has generally been the first step for the Islamisation of the economy. The United Arab Emirates: or taking interest (or riba in Islamic banking literature). the Plan proposed the following criteria to be achieved by the Islamic banking system in Malaysia: 1. 3. Constitute 20% of the banking and insurance market share with an effective contribution to the financial sector of the Malaysian economy. Ep i t o m i s e M a l ay s i a as a r e g i o n a l I slamic financial center. Represented by a number of strong and highly capitalized Islamic banking institutions and takaful operators offering a comprehensive and complete range of Islamic financial products and services. 1977) Faysal Islamic Bank of Bahrain (FIBB). the Plan outlined a detailed long-term strategy to promote Islamic banking industry as a niche area where Malaysia will be competitively placed as an international leader in this industry. foster and develop the application of Islamic principles. on a non-usurious basis. Bahrain: “To promote.Towards Developing A Successful Islamic Financial System: A Lesson From Malaysia Importantly. the busi“The main objective of an Islamic bank is to prohibit the Muslims from dealing with interest or usury which has been strictly prohibited by Allah and to protect them from one of the biggest sins. One of the most important issues that were widely discussed during that period was the transformation of the economy from a capitalist basis to an Islamic foundation.” (undated DIB information leaflet) Dubai Islamic Bank (DIB). enterprises and concerns which shall themselves be engaged in business activities as are acceptable and consistent with Islamic principles. banking and related business Islamic banks in present time were created in junction with the Islamic resurgence. 1987). and to promote investment in companies. To carry out direct investments or purchase or finance projects or activities owned by others. Memo and Articles of Association. 2. Kuwait: “To conduct all banking operations and services for its own account. laws and traditions and in no event engaged in the alcoholic beverage trade. laws and traditions to the transaction of financial. most pioneering Islamic banks have incorporated the elimination of riba within their corporate objectives. Some of the examples are as follows: Service Providers Intervention Page 8 Creating Dynamic Leaders . It is perhaps only natural that the formation and operation of Islamic banks were given the most attention (Khan and Mirakhor. without practising usury. By 2010. and 6. 5. Kuwait Finance House (KFH).” (KFH. Supported by a dedicated institution (Shariah commercial court) in the judiciary system that addresses legal issues related to Islamic banking and takaful. 4. Underpinned by a comprehensive and conducive Shariah and regulatory framework. which took place within many Islamic communities especially at the end of 1960s and in the early 1970s.

Therefore. 1985) Page 9 Creating Dynamic Leaders . Empirical studies have shown that Muslims tend to behave as rational economic man. undated Memo and Articles of Association) Jordan Islamic Bank. In particular these objects shall include: a) Expanding the extent of dealings with the banking sector by offering non-usurious banking services with special emphasis on introducing services designed to revive various forms of collective social responsibility on a basis of mutual benefit. The Islamic principles. belief in the Day of Judgement. Islamic concept of riches. Banking on the needs of Muslims for Shariah compliant products and services offered by financial institutions. without effective marketing strategy Islamic bank will not be able to convince customers to switch from conventional to Islamic system. (2) speed of transactions. The bank’s efforts to provide these banking facilities and services are undertaken within the framework of its viability and capability to continuously grow and expand. particularly those which are not likely to benefit from usurious banking facilities. 1978) As evident form the various objectives listed above. Since interest is viewed as illegal for Muslims in accordance with Shariah principles. Jordan: “The Bank aims at meeting the economic and social needs in the field of banking services.e. The belief that the Muslims are rational customers could be one of the reasons of why BIMB chose the following objective during its early years of establishment: “To provide banking facilities and services in accordance with Islamic principles. ensured of their continuous existence. it is clear that the main purpose of establishing Islamic banks is to fulfill the banking needs of Muslims. Most Muslims do not behave in conformity to the be- lief of many Muslim jurists and scholars. financing and investment operations on a non-usurious basis. this conviction does not always hold. survival should not be an issue for Islamic banks especially if they are established within the Muslim countries. (3) friendliness of bank personnel. In most cases. The problem of survival will not occur if the whole economic system is converted into an Islamic economic system (countries that already has a full economic system are Pakistan.” (BIMB. rules and practices to all Muslims as well as the population of this country. however. Unfortunately. Iran and Sudan). Several possible reasons can be put forward as to why Muslims do not conform to the governing principles of Muslim economic behavior i. (4) confidentiality of bank. and (5) knowledgeable about the needs of customers. c) Providing the necessary financing to meet the requirements of the various sectors. (Jordan Islamic Bank for Finance and Investment Law. and Islamic concept of success. b)Developing means to attract funds and savings. many proponents agree that Islamic banks are thus. and channeling them into participation in nonusurious banking investment. Islamic banks have to co-exist with the conventional banks.” (FIBB. the top five factors Malaysian Muslims consider as important when selecting their banks are. For example. the gambling industry or the pork meat industry. It is worth to note that modern conventional banks have been in existence for more than 850 years and Muslims have been long imbued with the capitalist and conventional system. Therefore. (1) fast and efficient services. in reality.ness of borrowing and lending money at interest. rules and practices are essentially those belonging to the body of Islamic principles on commercial transactions (ahkam almuamalah al-Islamiah) that relate to banking and finance. the norm rules of selecting bank apply to Muslims.

” Contrary to the objectives of Islamic banks at other Muslim countries. we can safely conclude that the operation of BIMB is similar to any ordinary commercial bank. BIMB was the first institution that provides takaful business (Islamic insurance) through its subsidiary.8 million. As the pioneer Islamic bank in Malaysia. To constantly strive to protect its shareholders’ interest. 6. To develop a motivated workforce inculcated with appropriate work ethics fully committed to the Bank and efficient and courteous services to the customers. To be always conscious of its responsibilities and duties as an Islamic corporate citizen. Page 10 Creating Dynamic Leaders . The first Islamic bond was designed and managed by BIMB i.640 million. BIMB has been able to portray itself as the leader in the country’s Islamic banking system.7 million at the end of 1983 to RM369. By having a forward-looking management. 2. using the similar principle. the above objective are now being replaced with more dynamic and concise as follows: 1. The following BIMB’s mission supports this statement: “To seek to operate as a commercial bank functioning on the basis of Islamic principles. respectively. Total assets doubled from RM170.e.Towards Developing A Successful Islamic Financial System: A Lesson From Malaysia Recognizing and leveraging on the increasing appeal of the Islamic banking products and services from both Muslims and non-Muslims customers. 1. BIMB also involved in issuing RM 2. with viability and capability to sustain itself and grow in the process. To a t t a i n v i a b i l i t y a n d s u f f i c i e n t l e v e l o f profitability to sustain growth. the Bank now has a network of more that 50 branches. both Muslim and non-Muslim customers. As at the end of June 2004. with sharp increases of deposits from RM91. 5.958 million. Similarly. providing banking facilities and services to Muslims and the whole population of this country.9 million. Syarikat Takaful Malaysia Berhad. BIMB recorded strong growth a year after its inception. BIMB accomplishment is attributed to the bank’s top management who has transformed BIMB into a dynamic bank that it is today. started with its first branch in Kuala Lumpur in 1983.8 million at the end of 1984. BIMB not only has contributed to the successful story of Islamic banking within the Malaysian context but has also build its reputation at the international arena. Besides becoming the first Islamic bank in Malaysia. The first Islamic credit card was also introduced by BIMB. Others are currently adopting the structure of this bond in structuring other new issues. Some of the successful stories are as follows: ample. BIRT Training and Research Institute. To d e v e l o p a n d f o s t e r a c o m p e t e n t a n d innovative management imbibed with high standard of integrity and Islamic banking professionalism. and of loans from RM40.7 million to RM249. 4.269 million and RM7. BIMB was the first bank that has its own institution.0 million to RM274. except that it is guided by the Shariah principles. the focus of BIMB is providing Islamic banking facilities to all Malaysian populations. total assets of BIMB was RM12. In view of the above objective. bai bithaman ajil bonds for RM125 million issued by Shell MDS Sdn Bhd in 1990. 2. 3. providing training and consultancy works to public 3. based on viability.2 billion bonds for the Malaysian Government for financing the construction of Kuala Lumpur International Airport. For ex4. To provide its customers with Islamic banking facilities and services of the highest possible quality. whereas total deposits and total loans were RM11.

The Association now shoulders this task. every Islamic bank conducted their own public awareness program on Islamic banking system. 9. To work in conjunction with any legal body or any association or committee or commission appointed or to be appointed for the consideration. In the case of Bank Muamalat Malaysia Berhad (BMMB). Seeing the importance of having the spirit of togetherness. As depicted in this report. To promote education and training in Islamic banking so as to upgrade Islamic banking expertise in Malaysia. In most cases. To t a k e n o t e o f e v e n t s . Although there are other Islamic financial institutions operating in Malaysia. To promote the establishment of sound Islamic banking system and practice in Malaysia in cooperation and consultation with BNM and other regulatory bodies in Malaysia. BIMB has produced many quality staff and many of these staffs now work as key personnel with other Islamic financial institutions in Malaysia. 6. BMMB’s strategy in competing for a share of the Islamic customer base is to increase its consumer and retail financing to a 60 percent level in the year 2005 as well as to increase fee-based income through investment banking division. and 10. To r e n d e r w h e r e p o s s i b l e s u c h a d v i c e o r assistance as may be deemed necessary and expedient to members. To organize and manage arrangements and maters of common interest. 8. 2. Prior to forming this Association. 3. 7. follower. they contribute in their own ways in promoting their Islamic products and services. s t a t e m e n t s a n d expression of opinions affecting members. framing. known as the Association of Islamic Banking Institutions Malaysia (AIBIM). Due to the liberalization process. To work in co-operation with other similar association elsewhere in the world. 4. these conventional banks are seen to be as either a follower or nicher. Public Bank Berhad and Southern Bank. To circulate information likely to be of interest to members. This institution was later being upgraded to institution of higher learning and providing certificate and diploma in Islamic banking and finance to students. concern or benefit to members or any group of members and to collect and manage funds for the same. 5. to advise them thereon and to represent their interests by expression of views thereon on their behalf as may deemed necessary and expedient. Among the objectives of this Association are as follows: 1. To p r o m o t e a n d r e present the interests of members by all means and methods consistent with the laws of Malaysia in or connected with Malaysia. the ownership of this institute was transfer to a few banks in the country and renamed as Islamic Banking and Finance Institute Malaysia or Malaysia and other countries. One of the common activities Page 11 Creating Dynamic Leaders . 5. In the case of other Islamic banking providers such as Maybank. or nicher. for example. these institutions fall within the categories of a challenger. amendment or alteration of any law relating to Islamic banking. To make provision subject to the approval of the authorities for the conduct of foreign exchange and other Islamic banking business. it is evident from its 2003 annual report that the bank aspires to become a challenger to BIMB. Islamic banking providers decided to come together and form an association.

It is also important for this industry to continually promote human capital development and expertise to create a larger pool of experts and high caliber professionals. be undertaken by both Islamic financial institutions and institutions of higher learning. In view of the overwhelming response. This relationship. resilience and competitiveness of the industry. the first expo was held from 26th to 28th September 2003. (1) ‘Islamic Banking and Takaful Week’. Islamic financial institutions need to form strategic alliance with institutions of higher learning with the purpose of enhancing knowledge on Islamic banking and takaful. Alor Setar. it is often the case for a representative from the Islamic financial institutions to be invited to become a Despite the achievements that have been achieved so far. outlined two important measures need to Although efforts have been made to bridge the gap between the requirement of the industry and the development of human capital by the higher institutions. This expo attracted more than 38. ‘Islamic Banking and Takaful Expo’ is a program conducted at various capital states in Malaysia. based member of an academic committee established by these higher institutions before any Islamic banking and finance program is offered in the institutions. four takaful companies.000 visitors and was participated by two Islamic banks. representatives from BIMB and BMMB were invited to sit in the academic board for the program of the Bachelor of Islamic Banking and Finance of the Faculty of Finance and Banking at the Universiti Utara Malaysia. Kuala Lumpur. For example. strategic alliance between Islamic financial institutions and institutions of higher learning has long been established. In an environment of rapid change. As a matter of fact. the activities taken are sometimes. (2) Islamic Banking and Takaful Expo’. there remains the need for Islamic bank to strive to enhance their capacity and capability. BIMB has always been accommodative to the request of institutions of higher learning for their student internship program. it is suggested in the Plan that Islamic banking subjects be incorporated into the school curriculum as well as in institutions of higher learning. Four such exhibitions have been successfully organized at Shah Alam. Educational Institutions Intervention Page 12 Creating Dynamic Leaders . Firstly.Towards Developing A Successful Islamic Financial System: A Lesson From Malaysia undertaken by this Association in educating public is by organizing two important events. Seeing the importance of educating public on a continuous basis. AIBIM has planned more exhibitions for the year 2005. For instance. This requires the readiness to invest in talent and skills to spearhead the development of the Islamic banking industry. is mostly in the form of a one-time affair and is generally on an informal basis. activities such as seminar. forum and talks were also organized and broadcast in through electronic media. While ‘Islamic Banking and Takaful Week’ is an annual event and usually held in Kuala Lumpur. a key factor that will influence the future prospects of Islamic banking industry will be investment in its human resources. BNM. the second expo was held from 8-10 October 2004 at Putra World Trade Center. however. Realizing that developing the required pool of qualified and skilled human resources is vital to drive the industry to greater heights. This undertaking needs to be the joint responsibility of industry practitioners and academia to mutually elevate the performance of the industry. and five other companies. Secondly. and. For example. Besides exhibition on the various Islamic banking products and services currently on offered in the market. four automobiles companies. Johor Bahru and Ipoh during the first half of 2005. through the Financial Sector Masterplan. four foreign banks. ten housing developers. 10 local commercial banks. Investing in the development of human capital will be the differentiating factor that will contribute to the effectiveness. Similarly.

Similarly. are mostly at the diploma level. The following Table 1 highlights some of the programs related to Islamic banking and finance presently being offered by institutions of higher learning in Malaysia. Unfortunately. For example. tomers. there exist an apparent mismatch between the supply and demand of human capital for the Islamic banking industry. Islamic banking and finance programs are also available at private institutes of higher learning. In light is this. Islamic banks operate in an environment where customers make rational economic decisions. In light of further globalization and liberalization of the financial system. Islamic banks will have a continued existence. As a result. There is a possibility that the industry players have no or limited knowledge about the academic programs related to Islamic banking and finance that are currently being offered at the local higher institutions. Issues and Challenges Islamic banks will not face any treats and challenges if Muslims are fully aware that interest is not permissible in Islam. the Diploma of Islamic Banking and Finance is offered at the Darulridzuan Islamic College of Perak. BNM has outlined three important factors that will change the future landscape of banking industry in Malaysia. however.solely on the initiatives of higher institutions only. if all Muslims are bound by the Muslims’ economic-behavior doctrine. These programs. The last decade have also seen the Islamic financial landscape being significantly redefined and shaped by powerful forces of change. Islamic bank should not use religion as its major strength in attracting cus- Table 1 List of Programs Related to Islamic Banking and Finance at Higher Institutions in Malaysia Inst Phd Master Bachelor Besides the above programs. namely increased competition as a result of globalization Page 13 Creating Dynamic Leaders . Sultan Zainal Abidin Islamic College of Terengganu and International University College of Selangor. instead the bank must be managed effectively and efficiently.

072.9 million and RM32.Towards Developing A Successful Islamic Financial System: A Lesson From Malaysia and liberalization.146 million) and investment deposit facilities (RM151 million). and a new generation of customers which are more discerning and have become more involved in their financial decisions. reliability and competitiveness. Although.313 Public support and acceptance towards the Islamic banking system is also high as reflected by the usage of Islamic banking products offered by the conventional financial institutions. these three types of deposits continue Therefore. savings deposit (RM1.9 million. the total deposits and total loans were RM241 million and RM162 million respectively. total Islamic deposits placed by customers at commercial banks increased to RM53. Customers are now demanding a boarder range of products and services at more competitive prices through more efficient and convenient channels. competition spurred by financial liberalization will intensified banking institutions are facing competition not only from each other but also from non-traditional competitors as well as from alternative sources of financing such as the capital market. certain issues remain unresolved. whereas RM8. This figure comprises of deposits in current account (RM166 million). The figure for current account was RM12. Since its introduction. Another challenge facing Islamic bank is the growing changing needs and expectations of consumers in tandem with increased in education level and growing wealth. i. At the end of 2004. As the financial landscape is undergoing transformation. at the end of June 1984 (its first year of operation). and the lawfulness of the Islamic principles in use as well as their applicability.548 million whilst total loans increased to RM977 million. and make full use of the latest technology available in the industry to gain competitive advanto receive full support from the public. Corporate customers have become more performance oriented and are demanding competitive financial product. At the end of 1994 (the 10th year of its operations). Islamic banking products have now gained wide acceptance in Malaysia. This is reflected by the increasing amounts of total deposits and total loans that are based on Islamic principles placed by Muslim and non-Muslim customers. new foreign players and the transformation of Islamic windows into Islamic subsidiaries present new challenges to the Islamic banking scene in Malaysia. Customers too are becoming increasingly discerning and have becomes more involved in their financial decisions. Amongst the most important issues are public awareness and acceptance.e.886. Since then. a total of RM1. The challenge of banking institutions is to effectively leverage on the opportunities offered by technology to innovate products and services aimed at attaining greater efficiency. the first year of which selected commercial banks were allowed to introduce Islamic deposit facilities.463 million deposits was collected from the customers. total deposits increased to RM2. rapid technological advancement which lead to greater efficiency and effectiveness.5 million.273. The corresponding figures for the financial year 2004 were RM11. Customers are now more sophisticated in their needs and expectations.640 respectively. the Malaysian Islamic banking system is been regarded as the front-runner among its counterparts in other countries. Public Acceptance tage. In 1994. Page 14 Creating Dynamic Leaders . provide more efficient and high quality services.269 million and RM7. technological advancements have allowed the developments of new and more efficient delivery and processing channels as well as more innovative products and services. In the case of BIMB for example. Furthermore. On the Islamic banking front. these challenges require Islamic banking providers to be more susceptible to the needs of customers.

Such issues include whether all economic units in Malaysia are really keen with the idea of the superiority of Islamic banking against the conventional banking. we can also see that in many instances. The growth for various types of deposit facilities in conventional and Islamic system of commercial banks is shown in Table 2. we cannot generally imply that that the Malaysian public are all receptive towards Islamic banking products. whether commercial banks in Malaysia are really committed to adhere to the directives of BNM in promoting Islamic banking products. This statistics implies that Islamic banking products have now become more popular among Malaysians. Answers Table 2: Annual growth of various deposits facilities at commercial banks (%). than the figures for conventional deposits. reflecting the effectiveness and competitiveness of Islamic finance as a form of financial intermediation.million for savings and investment accounts. the ability of the Islamic banking institutions to arrange and offer attractive and innovative products at competitive prices vis-à-vis conventional banking products has appealed to both Muslim and non-Muslim customers. Looking at individual figures. Thus. respectively. The comparative growth figures between Islamic and conventional deposits are good indicators for making few comments for further considerations. Although figures for total deposits of BIMB and Islamic deposit facilities of commercial banks had increased significantly over the last five years. 2000 2001 2002 2003 2004 Source: Bank Negara Malaysia Annual Report (various issues) Page 15 Creating Dynamic Leaders . the yearly growth figures for Islamic deposits were greater. the growth for various types of Islamic deposit facilities were greater than the growth of deposits of the conventional system. The above growth figures alone cannot answer several pertinent questions related to the development of Islamic banking in Malaysia. As indicated in Table 2. in most cases. and whether Islamic banking system has a bright future in Malaysia.

Furthermore. the results are far from satisfactory. The percentage of funds placed in various types of deposit facilities available at commercial banks in Malaysia is shown in Table 3 below. the major issue here seems to rest on those providing these services. On the contrary. when total funds deposited in an Islamic system remains not more than 15 percent of total deposits in commercial banks. Ahmad and Haron (2002) revealed that Islamic banks had not done enough in marketing their products to corporate sector. remedial actions are necessary in order to ensure this system share a greater deposit figure in the future. notwithstanding with the fact that there is a sign towards positive development of Islamic banking system in Malaysia. (1994). Page 16 Creating Dynamic Leaders . 2000 2001 2002 2003 2004 Source: Bank Negara Malaysia Annual Report (various issues) Looking at Table 3. Therefore. the authors also presented evidence. sive development of Islamic banking system but must impose penalty to those who are not serious in promoting this alternative system.Towards Developing A Successful Islamic Financial System: A Lesson From Malaysia to some of these issues can be found by looking at the percentage of the deposits placed by Malaysians in Islamic system against the deposits with the conventional system. In a study conducted by Haron et al. issues regarding public acceptance does not arise. the authors reported that almost 100 percent of Muslims and 75 percent of non-Muslims in their study were aware of the existence of Islamic banks. which suggests that the public believed that Islamic bank is not meant for Muslim customers only. Malaysia is a country whereby Muslims represent half of the country’s population and is governed by a coalition government that is led by UMNO (a Muslim-based party). In such instances. BNM being the governing body of the Malaysian banking system not only must introduce directives which can lead to the progres- expressed their desire to have a relationship with Islamic banks only if they have a complete understanding of this system. In another study on the perceptions of corporate customers toward Islamic banks in Malaysia. Although Islamic financial institutions claimed that their marketing programs are extensive in promoting Islamic banking products and services. Most of them Table 3: Funds deposited at various deposits facilities of commercial banks (%). it is inevitable to conclude that much work is still needed to make this system more attractive to the public. Therefore. In addition.

(2) trade principles.” (Ismail. 1987). i. Siddiqi. al. and pre-determined fixed rate of return. in which risks are shared between providers and users of funds. can be considered strongly Islamic. which says. 1985. The renunciation of the profit and loss sharing principles by Islamic banks management in their financing is clearly seen from the figure of the total funds channeled to these activities. it is worth to note that there are some proponents of Islamic banking who do believe that there is nothing wrong in using mark-up principles (also refereed to as the deferred contracts of exchange) in banking businesses because any transaction that based on trades are unlawful from Shariah’s point of view and also in line with the verse 275. 1983). Malaysia for example. only those principles.The Usage of Shariah Principles There are many Shariah principles available to be applied and implemented by Islamic banks in delivering their products and services. Historically. Since the early days of modern Islamic banking system. Qureshi. the corresponding figures for Jordan Islamic Bank and Qatar Islamic Bank were 3% and 4%. at the end of 2004 the total funds allocated for profit and loss sharing principles was 10% of its total financing. less risk involvement. 1983). It is believed that the usage of these facilities opens the back door for interest (Ahmed. i. Thus. Bank Islam Malaysia Berhad also prefers to use the feebased principles in its financing activities. After more than 15 years of its establishment. While these principles are widely used in the deposit taking activities. the usage in the financing activities has been relatively non-existence. strongly Islamic and weakly Islamic. 1983. Islamic banks prefer to use principles within the fee-based category because of its simplicity. Just as in the case of other Islamic banks. Similarly. and CII Reports. Weakly Islamic refers to conformity with Islamic norms in form but not in substance. as strongly Islamic and the remaining principles are recommended only in cases where risk-return sharing cannot be implemented (Mirakhor. for example. et. the figure increased to 2 percent and at the end of financial year 1999 the figure decreased back to 1percent. “God hath permitted trade and forbidden usury. at the end of 1988. New strategies must be implemented in order to increase the usage of profit and loss sharing activities. it is timely for both Islamic banks in Malaysia and in other countries not to overly dependent on fee-based financing activities. Similarly. 2002) The use of terminology in describing these principles could also lead to confusion. A principle is considered strongly Islamic if it conforms to the Islamic objectives in both form and substance. with its emphasis on creditworthiness of the client and maintenance of credit-debtor relationship. (3) fees or charges based principles. the principles within this category preserve the status quo associ- ated with traditional banking. 1983. In 1993. it is the consensus among Muslim scholars that these principles falls to two main clusters. and (5) ancillary principles. mudarabah and musharakah. Al Baqarah. (1) profit and loss sharing principles. respectively. scholars had put their recommendation to Islamic banks to use profit and loss sharing principles for both deposits taking and financing activities (see Ahmed et. These principles can be broadly classified into five categories. Although a number of principles have been adopted according to how Islamic banks wish to conduct their operations. In the case of Dubai Islamic Bank. only 1% of its total financing was in the form of mudaraba and musharaka.e. Al. is the only country where the Arabic words are used in describing all the Shariah principles gov- Page 17 Creating Dynamic Leaders . However. (4) free services principles. The basis for judgement as to the strength or weakness of a given principle is the extent to which this mode contributes towards the achievement of the objectives of the Islamic economy. Muslim scholars consider only two principles.e.

a certificate will be issued indicating the maturity date. this facility is provided only to those customers who can produce evidence that they are involved in either import (purchase) or export (sale) transactions. The usage of bai al-dayn and discounting has drawn strong criticisms from scholars especially from the Middle East countries. namely. Some of the principles which are widely published in the Islamic banking literature in Malaysia are alwadiah. Islamic bill (single or multiple) will be issued. retain the Arabic words for certain principles only. and Rosly and Sanusi 1999 for further elaboration). Homoud. bai aldayn and ‘dha’wa ta’ajjal’ are normally used in the issuance and trading of these documents. the introduction of Islamic bonds is to assist corporate bodies in tapping funds from the capital market (the detail operations of these transactions is beyond scope of this paper). The ‘Interest-free Accepted Bill’ or ‘Islamic Accepted Bill’ was first introduced in 1991 with Islamic bond gaining its footing in 1992. murabaha. The issuance of these bonds usually is based on trade transactions. bai al-inah. 1997. alijarah. al-hiwalah.w. using vernacular words for others. Prior to the process of creation and transactions of these financial securities. Page 18 Creating Dynamic Leaders . there are objections from scholars in other countries regarding the lawfulness of the Shariah principles used in its system (Al-Qaradawi. Other countries. Just like in conventional system. The issuer will pay the amount to the holder of the certificate erning its Islamic banking operations. Malaysian scholars strongly believe that this principle is allowable in Islam and Islamic bonds can be sold to a third party in cash and at a lower price (see Ishak. 1999). they said: “there are still debts due to us. bai al-dayn. (2) securitization. Upon presentation of evidence such as trade documents.Towards Developing A Successful Islamic Financial System: A Lesson From Malaysia and (4) trading of securities. al-istisna and al-qardhul hassan. and ijarah between the issuers and the investors. there are a few steps to be followed. al-ijarah thumma al-bai. the legality of this principle is said to be based on the following traditions (hadith) (see Ishak. However. al-wakalah.” Rasulullah s.w. In the case of bai al-dayn or debt trading. Therefore. which uses principles such as bai-bithaman ajil.a. however. 1997. (3) issuance of securities. al-musyarakah. The principle of bai-al-inah is used simultaneously when a deal is negotiated and completed. bai bithaman ajil. bills of exchange etc. al-ujr. ciple is widely used not only in the trading of Islamic bills but also in Islamic bonds. al-murabahah. In the case of Islamic bills for example. The principles of murabahah. One of the areas that have received heavy criticism is the issuance and trading of Islamic bills and bonds. The operations of Islamic Accepted Bill are similar to the banker’s acceptance of conventional banks and are used to facilitate international and domestic trades. 1997. al-mudharabah. The accepting/drawing bank would receive commission for these services. bai bithaman ajil. drawn on bank/purchaser which payment will be affected to them on maturity. (1) the existence of ownership. then replied: “give discount and asked for early payment. directed Bani Nadir to evacuate from Madinah. al-kafalah.a. ar-rahn. this prinThe Legality of the Principles Although Malaysia is considered as one of the Muslim countries that have successfully promoted Islamic banking at par with conventional system.” (Narrated by al-Baihaqi) In the case of dha’wa ta’ajjal or discounting. for further elaboration): . The certificate known as ‘shahdah al-dayn’ is considered as ‘al-mal’ or property to qualify as an object of sale. Narrated by Ibn Abbas when Rasulullah s. the holder will have the right to resell at the secondary market using the bai-al-dayn principle. al-wadiah yad dhamanah.

a. Tan Sri Nor Mohamed Yakcop. The used of this principle have also been heavily critised and opposed by several scholars. The government’s commitment is reflected in enactment of the Islamic Banking Act and Government Investment Act in 1983 when the first full-fledged Islamic bank was established. micro credit and zakat. the buyer will sale the good to the third party. Bangladesh and Pakistan. The bai al-inah or better known as sale and buy-back principle applies when the financier sells an asset to the customer on a deferred payment and then the financier immediately repurchases the asset for cash at a discount. the used of bai al-dayn was approved by the Syariah Advisory Council of Securities Commission on 21 August 1996. The well planned and a coordinated effort between the government and industry players is the most important ingredient to the successful story of the Islamic banking system in Malaysia. Interestingly. inherit properties.w. Similar to bai al-dayn. however. Usmani (1999). The Syariah Advisory Council of Securities Commission on 29 January 1997 approved the usage of this principle. then Rasulullah asked Abu Hadrad to pay the discounted debt. qard hassan instruments. we can expect to see the development of more innovative products and services from nonbanking Islamic financial institutions such as waqaf. It is envisioned that such devel- Page 19 Creating Dynamic Leaders . He argued that debt corresponds to money and any exchange involved must be at the same value. seeing that the Islamic banking system has entered its third wave. As pointed out by the Second Finance Minister of Malaysia. The consent to reduce the loan or debt comes from the lender or seller and it brings the element of ra’fah and takhfif or lifting the burden or debt from the borrower or buyer. In Malaysia. He also reiterated that the Islamic Fiqh Academy of Jeddah has unanimously approved the prohibition of bai al-dayn. various more programs. Since then. Rasulullah then said: give discount on the debt. the usage of this concept creates mutual goodwill for both parties and this is one of the pillars of Islamic muamalat. Brunei.“While Kaab was discussing with Abi Hadrad on how he would pay his debt to Kaab in a mosque. who was in his house. Kaab then replied: I have already given”. Concluding Remarks This paper highlights the development of Islamic banking system in Malaysia. the Malaysian banking system has become a model for countries such as Indonesia. In Bahrain. This system has transformed from a humble beginning in 1983. The Malaysian government has always been committed in developing the Islamic banking system as an alternative to the conventional system. incentives and guidelines have been implemented by the Central Bank in ensuring that the Islamic banking industry emerges as a viable and competitive component of the financial system that contributes towards enhancing wealth creation and the country’s economic development. an al- ternative principle called tawarruq is used in which instead of reselling the asset to the seller for cash. to hear their discussion. to a vibrant and dynamic system that is able to fulfill the banking needs of both Muslim and non-Muslim customers. Similarly. strongly believed that the principle of bai al-dayn is not permissible in Islam. instead of bai al-inah. however. the principle of bai al-inah is deemed unlawful by scholars in the Middle East.” (Narrated by al-Bukhari) Dha’wa ta’ajjal is different from riba because it has an element of ra’fah or compassion and assistance or support. Another unsettled issue is the legality of the bai al-inah principle used by Islamic banks in Malaysia particularly in personal financing. they did not realise that they had raised their voice that caused Rasulullah s.

accounting framework. It is hoped that increased awareness would drive the demand for a broader range of Islamic products and services. Islamic bank will face greater challenges in order to remain a viable financial institution in Malaysia. Croom Helm. we can look forward with confidence to a more efficient. exhibitions and public lectures in major cities throughout Malaysia. Over the last three years. Currently. London (UK). pp. These institutions also play a vital role in developing qualified and skilled human resources in the area of Islamic banking and finance. Experts from the industry should also be invited to conduct seminars and gives lectures to students and students should be exposed to the industry via attachment program during holidays. Page 20 Creating Dynamic Leaders . risk management. legal framework. Industry players alongside the government have also worked relentlessly in creating public awareness of and acceptance for the Islamic banking products and services to public. a few government universities have already started to offer Islamic banking and finance programmes at both the undergraduate and post-graduate levels. product development. Finally. To overcome these challenges is not a walk in the park. other new challenges faced by Islamic bank are merger and acquisition. However.’ in Directory of Islamic Financial Institutions.opments will further enhance Malaysia’s position as the world leader in promoting Islamic banking system. ‘A Framework of Islamic Banking. Hence. more and more Malaysians are seen to perceive Islamic bank as just an ordinary financial institution except that its operations are based on religious principles. with strong concerted effort from BNM and industry players. 3-13. For example. today. Therefore. Since Islamic banking and finance is a new subject to the higher institutions. Recognizing that public awareness about Islamic banking is critical to the success and future development of this industry. Beside the issues that are highlighted earlier. Universiti Utara Malaysia and Universiti Malaysia Sabah have already offered a specialized degree in Islamic banking and finance. The formation of the Association of Islamic Banking Institutions Malaysia is also reflective of the strong commitment by the Islamic financial institutions. Nonetheless. Muazzam (1988). I believe that strong cooperation between political and corporate leaders in Muslim countries will be able to remove all hurdles and barriers that may impede the further development of Islamic banking across the globe. Other parties that have been actively involved in promoting public awareness are higher institutions. This perception shift is owed much to the thinness in demarcation between the nature of product and the price of the product as well as the documentations of the products offered by Islamic and conventional banks. collaboration between industry and the universities is essential to ensure that the required pool of competent and skilled human capital in this industry is produced. progressive and comprehensive Islamic banking industry in Malaysia. most universities prefer to offer this subject as an area of concentration or just a single course to their students. comparable statistical information among Islamic banks. The availability of a trained and skilled workforce is essential for the rapid development of the Islamic banking industry. the Association’s foremost responsibility is to increase the level of consumer awareness on the unique characteristics of Islamic financial products and the product choices offered by Islamic financial service providers. Presley (ed). the Association has successfully conducted various consumer education programmes such as seminars. regulatory and supervision. John R. REFERENCES Ali.

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