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WBS3043 Islamic Banking Management


02/06/09 1
WBS3043 Islamic Banking Management

1. Discount Houses
• Discount houses began operations in
since 1963. Generally, the discount
houses specialize in short term
money market operations and
mobilize deposits from the financial
institutions and corporations in the
form of money at call, overnight
money and short term deposits.
WBS3043 Islamic Banking Management

• The funds mobilized are invested
in Treasury bills, Government
Securities, Negotiable certificates
of deposit, Floating Rate
Negotiable Certificates of Deposit,
as well as to provide an active
secondary market for these
WBS3043 Islamic Banking Management

The Financial Market mainly comprises
• Avenue for the channeling of short
term funds with maturities typically
not exceeding 12 month.
• It provides a ready source of funds for
market participants facing temporary
shortfalls in funding, while at the
same time, providing short term
investment outlets for those with
temporary surplus funds.
WBS3043 Islamic Banking Management

Operations in the money market comprise 2
broad categories :
The placement of deposits
The purchase and sale of short
term securities (bankers
acceptances (BA), negotiable
instruments of deposit (NID),
treasury bills (T bill),
WBS3043 Islamic Banking Management


• The market for the trading of foreign
currencies against the other foreign
currencies. It can be undertaken in the spot
market, forward and swap market.
WBS3043 Islamic Banking Management


 The market for raising long term funds
and comprise the equity and bond
 Equity market : provides the avenue for
corporations to raise funds by issuing
stocks, while secondary market trading in
stocks is conducted through stockbrokers
WBS3043 Islamic Banking Management

5.Bond market through which both private
and public sectors can raise funds by issuing private
debt securities (PDS) and Government Securities.
Secondary market trading in unlisted bonds is done
through the over-the-counter (OTC) market.
6. Unoriginal MARKET is for trading instruments
that provide contingent claims on underlying assets
and whose values depend on price of original assets or
securities. Main use of unoriginal is to hedge against
instability in the price of the underlying assets.
Examples of unoriginal are forwards, futures, options
and swaps.
WBS3043 Islamic Banking Management

It is a new addition to the financial
landscape It provides a wide range of
offshore products including banking,
insurance, trust business, fund
management, investment holding, Islamic
financing and company management
WBS3043 Islamic Banking Management

The Securities Commission is a statutory body assign
with the responsibility of regulating and systematically
developing country’s capital markets.
It has direct responsibility in supervising & monitoring
activities of market institutions & regulating all persons
licensed under the Securities Industry Act and Futures
Industry Act.
•To act as a single regulatory body to promote the
development of capital markets;
•To take responsibility for streamlining the regulations
of the securities market, and for speeding up the
processing and approval of corporate transactions.
WBS3043 Islamic Banking Management

Among the main regulations and guidelines
issued by the authorities to govern the financial
system in Malaysia are:-
1. Banking and Company Ordinance
2. Insurance Act
3. Anti-Money Laundering
WBS3043 Islamic Banking Management

Banking & Company Ordinance divided
into parts and covers a wide spectrum
of subject matters related to the
banking industry.
The Act provides a framework that
enables to supervise and regulate three
broad groups of financial institutions:

WBS3043 Islamic Banking Management

Scheduled institutions comprising
non-bank sources of credit and finance, which
include issuers of charge/credit cards and
travelers’ cheque, operations of cash
dispensing machines, development finance
institutions, building societies and housing
credit institutions, factoring companies,
leasing companies, representative offices of
foreign banks or foreign institutions which
carry out the business or activities similar to
the scheduled institutions.
WBS3043 Islamic Banking Management

•Licensed institutions comprising the
commercial banks, merchant banks, finance
companies, discount houses, money brokers and
foreign exchange brokers;
• Non-scheduled institutions comprising all
other statutory bodies and institutions involved
in the provision of finance and credit.
The Act also provides the regulatory power to
regulate the following:
•Control of establishment or acquisition of
subsidiaries or opening of offices in by a local or
foreign licensed institutions•
WBS3043 Islamic Banking Management

 Maintenance of reserve fund, capital,
net working funds, liquid assets by
the financial institutions
 •Appointment of auditors, submission
of financial statement, exhibition of
financial statements, submission of
WBS3043 Islamic Banking Management

Insurance Act 1996
Under Insurance Act retains a substantial degree of
regulatory control over management, control of
licensees and the critical aspects of their operations.
Areas subject to approval under Insurance Act are:
•Appointment of directors and chief executive officers;
•Acquisition or disposal of substantial interests in
shares of a licensee;
•Establishment of offices and subsidiaries;
•Appointment of auditors and actuaries; and
•Outsourcing of core insurance activities.
WBS3043 Islamic Banking Management

The Insurance Act effectively has
minimum capital requirement as follows:-
•The minimum paid-up capital prescribed for a
licensed local insurer underwriting direct
insurance business, or surplus of assets over
liabilities in the case of a licensed foreign insurer.
•The absolute minimum margin of solvency
(before taking into account insurance fund
liabilities) for each class of insurance business of
direct and local professional reinsures is set
WBS3043 Islamic Banking Management

Anti-Money Laundering Act 2001
The Anti-Money Laundering Act provides
comprehensive new laws for the
prevention, detection and prosecution of
money laundering, the forfeiture of
property derived from, or involvement in
money laundering and the requirements
for record keeping and reporting of
suspicious transactions for reporting
WBS3043 Islamic Banking Management

AMLA addresses the following broad issues:-
 •Money laundering offences

 •Financial Intelligence Unit

 •Reporting obligations

 •Powers of investigation, search and
 •Powers of freezing, seizure and forfeiture
of property