INTRODUCTION

Bank Negara Malaysia, the nation's central bank, was established in 1959 by the Central Bank of Malaya Ordinance of 1958. The CBA 1958 has been repealed by the Central Bank of Malaysia Act 2009 which became effective on 25 November 2009. It is a statutory body wholly owned by the Government of Malaysia with the paid-up capital progressively increased, currently at RM100 million. The Bank reports to the Minister of Finance, Malaysia and keeps the Minister informed of matters pertaining to monetary and financial sector policies. Since then the bank has been operating with a mission of maintaining both monetary and fiscal stability for achieving sustainable economic growth. As Malaysia's Central Bank, Bank Negara Malaysia promotes monetary stability and financial stability conducive to the sustainable growth of the Malaysian economy.

Mission Statement

Bank Negara Malaysia, as the Central Bank, is committed to excellence in promoting monetary and financial system stability and fostering a sound and progressive financial sector, to achieve sustained economic growth for the benefit of the nation. This will be achieved through: • • • • • • promoting a work culture which emphasizes the highest standards of professionalism and integrity, prudence, teamwork and innovation; developing and maintaining a committed workforce which is highly competent and proactive, sensitive to the changing needs of the industry; adopting a collaborative approach in everything we do; promoting the effective use of technology and good work practices to enhance productivity, efficiency and quality; adopting policies and practices to enhance the competitiveness of local financial institutions to face international competition; and having the necessary financial resources and financial instruments to effectively manage monetary stability.

The State Bank of Pakistan (SBP) is the central bank of Pakistan. History Before independence on 14 August 1947. On 30 December 1948 the British Government's commission distributed the Reserve Bank of India's reserves between Pakistan and India -30 percent (750 M gold) for Pakistan and 70 percent for India. Islamabad. forms the basis of its operations today. and the State Bank of Pakistan commenced operation on July 1. Karachi with its second headquarters in the capital. during British colonial regime the Reserve Bank of India was the central bank for both India and Pakistan. The headquarters are located in the financial capital of Pakistan. These were implemented in June 1948. remained basically unchanged until January 1. as originally laid down in the State Bank of Pakistan Order 1948. the scope of its functions was considerably enlarged. 1948 Muhammad Ali Jinnah (Founder of Pakistan) took steps to establish the State Bank of Pakistan immediately. The State Bank of Pakistan Act 1956. In May. 1948 . when the bank was nationalized. with subsequent amendments. 1974. The losses incurred in the transition to independence were taken from Pakistan's share (a total of 230 million). While its constitution.

the SAC is also responsible for validating all Islamic banking and takaful products to ensure their compatibility with the Shariah principles. regardless of whether the loan is taken for the purpose of consumption or for some production activity. it advises Bank Negara Malaysia on any Shariah issue relating to Islamic financial business or transactions of Bank Negara Malaysia as well as other related entities. prohibited by the Holy Quran. finance. lend their money either on humanitarian grounds to achieve a reward in Hereinafter. big or small. members of the SAC are qualified individuals and have vast experience in banking.” Islam has prohibited Riba. or any other business. instead. In a ‘secular capitalist system’ loans (or debts) are purely commercial transactions which would yield a fixed income to the lenders. does not recognize loans as ‘income-generating transactions. is Riba. In the recent Central Bank of Malaysia Act 2009. While the rulings of the SAC shall prevail over any contradictory ruling given by a Shariah body or committee constituted in Malaysia. law and application of Shariah. It is interesting to note that the prohibition of Interest is not limited to Islam only. however. Consisting of prominent Shariah scholars. The SAC has been given the authority for the ascertainment of Islamic law for the purposes of Islamic banking business. Shariah Advisory Council of Bank Negara of Malaysia The Shariah Advisory Council of Bank Negara Malaysia (SAC) was established in May 1997 as the highest Shariah authority in Islamic finance in Malaysia.ISLAMIC BANKING Any amount. or merely to save their money through a safer hand. In addition. which is based on Shariah principles and is supervised and regulated by Bank Negara Malaysia. Islamic financial business. Islam. economics. As the reference body and advisor to Bank Negara Malaysia on Shariah matters. particularly in the areas of Islamic economics and finance. and such rulings shall be binding. They (lenders). in a contract of loan or debt. . Loans are meant for only those lenders who do not intend to earn a worldly return through them. the role and functions of the SAC was further reinforced whereby the SAC was accorded the status of the sole authoritative body on Shariah matters pertaining to Islamic banking.” It is worth mentioning that there is a striking difference between a ‘secular capitalist system’ and an ‘Islamic capitalist system’. but it is shared by Judaism and Christianity as well. Islamic development financial business. over the principal. takaful business. the court and arbitrator are also required to refer to the rulings of the SAC for any proceedings relating to Islamic financial business. takaful and Islamic finance. jurists and market practitioners.

Currently there are six licensed full fledged Islamic Banks and twelve conventional banks with standalone Islamic Banking Branches with the total branch network of over 336 branches operating in more than 50 cities of all the four provinces and Azad Kashmir in the country as of 17. the progress of Islamic Banking in Pakistan has also been commendable during the last Five years. AAOIFI. alongwith the side events in Pakistan in November. 2003 and has been entrusted with the task of promoting & developing the Shariah Compliant Islamic Banking as a parallel and compatible banking system in the country. 08 e) Leverage from/support the efforts of IFSB. having tremendous potential and growing at a very fast pace all around the world. Al-Hamdulillah.ISLAMIC BANKING DEPARTMENT STATE BANK PAKISTAN Islamic Banking Department was established on 15th September. Islamic Banking is a high priority area for State Bank of Pakistan. IDB/IRTI. should the market decide that Pakistan should have an exclusively Islamic banking system in the country.2008 and applications for few more players are under consideration. providing innovative Shariah compliant products and services so as to achieve equitable economic growth.07. particularly Council and Technical Committee meetings. State Bank of Pakistan wants to develop a progressive and sound Islamic banking system that is in line and compatible with the global financial sector. Islamic Banking is one of the emerging fields in global financial market. IIFM and other international institutions for promotion of Islamic banking in Pakistan f) Coordination with BPRD regarding licensing of full fledged Islamic Banks (IBs) and their branches and Islamic Banking Branches of conventional banks (IBBs) and formation of Islamic banking subsidiaries g) Coordination with BID for Shariah compliance inspection of IBIs and proper compliance of the observations/recommendations of inspection report (regarding Shariah Compliance) h) Utilizing SBP-SECP Joint Forum for the promotion of Islamic financial industry i) Support industry players in development of Shariah-compliant liquidity management . Steps are being taken to make Islamic banking industry in Pakistan robust enough to offer a viable alternative to conventional banking. Departmental Objectives: a) b) Drive and Implement the existing the Strategic Plan for for Islamic Islamic banking Banking industry Industry Strengthen regulatory framework c) Strengthen and broaden the scope and functioning of SBP Shariah Board through inclusion of more members and engaging of consultants of international repute d) Arrangement of IFSB events.

instruments j) Utilizing the Shariah Advisor Forum for conflict resolution and for discussion on AAOIFI Shariah Standards for their adoption in Pakistan k) Conduct awareness programme within and outside SBP to eliminate the misconceptions and to develop the confidence of the public about Islamic banking l) Publication of Islamic Banking Bulletin (IBB) and Islamic Banking System review (IBSR) and facilitate different departments in preparing various SBP publications m) Human resource capacity building in the Islamic banking industry through coordination with educational institut .

KLSE. that is able to meet the increasingly sophisticated needs of consumers and businesses. which has led to improved access to financial services for all economic sectors and segments of society. robust and resilient financial system. including development of financial system infrastructure with major emphasis placed on building the nation's efficient and secured payment systems as well as the necessary institutions (including Securities Commission. It also formulates and implements policies and strategies towards building and positioning Malaysia as a premier integrated Islamic Financial Centre and enhance the financial capability of consumers. comprehensive and resilient financial sector. The Bank is also responsible for bringing about financial system stability and fostering a sound and progressive financial sector. which has seen generally low and stable inflation for decades and thereby. playing an active role in advising on macroeconomic policies and managing the public debt. now known as Bursa Malaysia and Credit Guarantee Corporation) which are important towards building a comprehensive. . Other important roles of the Bank are being a banker and adviser to the Government. thereby supporting balanced economic growth. robust and sound financial institutions and financial infrastructure. and which has become a growth driver in the economy. Investment and operations Manage domestic liquidity and exchange rates to ensure that monetary policy targets are achieved as well as managing external reserves to safeguard its value and optimize its returns. There is now in place a well diversified. It also has the responsibility of providing advice and assistance to the Government in the area of debt and fund management and contributing to domestic financial market development. Regulation Promote financial sector stability through the progressive development of sustainable. The roles of the Bank are supported by 37 departments/units in the Bank covering seven functional areas as follows: Economics & Monetary Policy Primarily provides good technical and research support on growth-related issues to enhance formulation of monetary and credit policies in promoting monetary stability and ensuring the availability of adequate credit to finance economic growth. preserving the purchasing power of the ringgit. The Bank actively promotes financial inclusion.Roles and Functions OF BANK NEGARA MALAYSIA Among the major role of the Bank is the prudent conduct of monetary policy. It is also the sole authority in issuing currency as well as managing the country's international reserves. thus enabling a competitive local financial industry to be resilient against the changing future environment as well as leads initiatives to enhance access to financing. The Bank also plays a significant developmental role.

Organizational development Spearhead the Bank's strategic management. secure and efficient clearing. organizational-performance management and programme management functions to drive its performance-improvement processes and strengthening the capacity building of the Bank. where customer management and case management is put under one roof. It also leads and drives human resources initiatives and other strategic activities to ensure that the overall Human Capital Management framework is implemented effectively.Payment systems Develop policies and strategies to promote reliable. and financial education road shows to reach out to members of the public. the Integrated Contact Centre (ICC) was formed. the accessibility of the Bank to the public is equally important. products and services. the opportunities and the associated risks and costs as a result of participation in the financial system. including those in the rural areas. Given today's sophisticated financial markets. inclusion of targeted school children in the Bank's outreach programme to enhance their financial education. namely. seeking greater transparency and disclosure. has always been a top priority for the Bank. settlement and payment systems in the country. the Bank improves their understanding of financial matters as well as gain valuable insights on real issues facing the consumers in the financial sector which serve as inputs for policy decisions. bankinginfo and insuranceinfo initiatives. the Bank's efforts has been directed towards the following areas: Educate the public As the financial system becomes more developed. Through interaction with the public. including the public. enhance and implement an effective surveillance framework to ensure safety and soundness of financial institutions and to enforce sound practices in them. responsibilities. Supervision Develop. Bank's accessibility to the public With the various initiatives in place. the Bank has initiated its Consumer Education Programme nationwide to reach out to the masses. The ICC comprises the following: . This comprises. Communications The communications function has assumed increasing importance in response to the heightened demands of the various stakeholders. In creating a one-stop centre for public interface. the Bank has taken measures to raise the level of financial literacy among consumers. Greater engagement with the public As part of the Bank's emphasis on efficient work culture. To promote the public better understanding of their rights. effective and efficient delivery of services to stakeholders.

the Bank was also instrumental in the setting up of the Financial Mediation Bureau (FMB). facilitates resolution of the public. a face-to-face customer service. letters and electronic mails. facsimiles. with branches located across Malaysia to help consumers manage their debts and become more selfreliant in their financial affairs and thereby preserve the resiliency of the household sector in the economic growth process. claims and complaints arising from services provided by financial institutions. to facilitate rapid and effective responses on financial matters for the public. including SMEs. Financial advice and counseling The Bank has also established the Agensi Kaunseling Dan Pengurusan Kredit (AKPK). Kota Kinabalu and Kuching.i. which among others. telephone calls. BNM MINILINK was established at BNM branches in Johor Bahru. Apart from that. iii. To expand the outreach to cater for outstation customers. complaints against institutions under the purview of the Bank. an independent body providing consumers with objective and timely solutions to disputes. and Complaint Management and Advisory. Kuala Terengganu. ii. Pakistan 1948 Pakistan Pakistani rupee PKR . Pulau Pinang. BNMLINK. State Bank of Pakistan State ‫بینک دولت پاکستان‬ Bank of Pakistan State Headquarters Established Central bank of Currency ISO 4217 Code Bank of Pakistan Karachi. BNM TELELINK which complements the services of BNMLINK by attending to enquiries made via SMS.

the State Bank having a role in their appointment and removal. and provision of credit to priority sectors. during the financial sector reforms. etc. The state bank also regulates the volume and the direction of flow of credit to different uses and sectors. The amendments also increased the autonomy and accountability of the chief executives. the Boards of Directors of banks and DFIs. Boards of the Nationalised Commercial Banks (NCBs) and Development Finance Institutions (DFIs). The primary functions including issue of notes. management of foreign exchange. The non-traditional or promotional functions. 1962 and Banks Nationalization Act. 1974. which lead to a number of fundamental changes. It required the state bank to "regulate the monetary and credit system of Pakistan and to foster its growth in the best national interest with a view to securing monetary stability and fuller utilization of the country’s productive resources".Website www. During the 1980s. The State Bank of Pakistan also performs both the traditional and developmental functions to achieve macroeconomic goals. this autonomy was further strengthened when the government issued three Amendment Ordinances (which were approved by the Parliament in May 1997). The amendments to the Banks Nationalization Act brought the end of the Pakistan Banking Council (an institution established to look after the affairs of NCBs) and allowed the jobs of the council to be appointed to the Chief Executives. 2. These changes gave full and exclusive authority to the State Bank to regulate the banking sector. 1956.pk Under the State Bank of Pakistan Order 1948. and conduct of monetary policy. The State Bank also has been playing an active part in the process of islamisation of the banking system. the state bank makes use of both direct and indirect instruments of monetary management. 1997. Due to these changed the conduct of monetary management which brought about changes to the administrative controls and quantitative . A large section of the state bank's duties were widened when the State Bank of Pakistan Act 1956 was introduced. In February 1994. The secondary functions including the agency functions like management of public debt. institutionalization of savings and investment. provision of training facilities to bankers. Pakistan embarked upon a program of financial sector reforms. The traditional functions may be classified into two groups: 1. performed by the State Bank include development of financial framework. Regulation of liquidity The State Bank of Pakistan has also been entrusted with the responsibility to carry out monetary and credit policy in accordance with Government targets for growth and inflation with the recommendations of the Monetary and Fiscal Policies Co-ordination Board without trying to effect the macroeconomic policy objectives. lender of the last resort. the state bank of Pakistan was charged with the duty to "regulate the issue of bank notes and keeping of reserves with a view to securing monetary stability in Pakistan and generally to operate the currency and credit system of the country to its advantage".org. regulation and supervision of the financial system. banker to Government. the State Bank was given full autonomy.. Those included were the State Bank of Pakistan Act. and other functions like advising the government on policy matters and maintaining close relationships with international financial institutions.sbp. bankers’ bank. On January 21. to conduct an independent monetary policy and to set limit on government borrowings from the State Bank of Pakistan. Banking Companies Ordinance.

that would be achieved by observing the desired path of reserve money . These steps were taken to overcome the problems of fraudulent activities. Banking The State Bank of Pakistan looks into a lot of different ranges of banking to deal with the changes in economic climate and different purchasing and buying powers. • • • • • • • • • • • • • State Bank’s Shariah Board Approves Essentials and Model Agreements for Islamic Modes of Financing Procedure For Submitting Claims With Sbp In Respect of Unclaimed Deposits Surrendered By Banks/Dfis. Handbok of Corporate Governance Guidelines on Risk Management Guidelines on Commercial Paper Guidelines on Securitization SBP. State Bank of Pakistan has changed the format and designs of many bank notes which are currently in circulation in Pakistan.Scheme for Agricultural Financing . Here are some of the banking areas that the state bank looks into.restrictions to market based monetary management. Banking Sector Supervision in Pakistan Micro Finance Small Medium Enterprises (SMEs) Minimum Capital Requirements for Banks Remittance Facilities in Pakistan Opening of Foreign Currency Accounts with Banks in Pakistan under new scheme.the operating target. for intermediate target of M2. A reserve money management programme has been developed.

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