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MME 4272

ISLAMIC BANKING AND
FINANCE
Dr. Mohd Radzi Haji Che Daud
Department of Manufacturing and
Materials Engineering

ISLAMIC BANKING AND FINANCE: Main Source : Bank Negara Malaysia 1 .

1 m Muslim – (65%) • Strong GDP growth • 1st quarter 2013 4.5% • Low inflation .MALAYSIA AT A GLANCE • Population • – 28.

in particular for Muslim communities • Significant untapped business potential • Proven to be a viable financial intermediation channel in supporting economic growth • Fulfilled the demands of not only the Muslims but non-Muslim population as well .WHY ISLAMIC BANKING IS IMPORTANT? • In response to the needs of Muslim community • Acts as a catalyst to fill the gap to mobilise funds for productive purposes.

corporate & investment banking • Internationally integrated with international Islamic financial system .MALAYSIAN ISLAMIC FINANCIAL SYSTEM • Comprehensive Islamic financial system covering all financial sectors –operating in parallel with conventional financial system • Diversities of players –Twelve full-fledged Islamic banking institutions – 2 domestic Islamic banks – 3 full-fledged foreign owned Islamic banks – 7 Islamic banking subsidiaries – 9 takaful operators • Sound and robust Islamic financial institutions governed by international best practices • Rapid growth with wide range of product and services –Retail.

Takaful Iklhas. Mayban Takaful. Bank Muamalat Malaysia Bhd. Foreign Islamic banks Conventional banks offer Islamic window Islamic subsidiary Islamic money markets Takaful Operators Syarikat Takaful Malaysia Bhd. Commerce Takaful .achieved significant milestones in building comprehensive and integrated Islamic financial system with diversity of players…. . Takaful Nasional.STAGES OF DEVELOPMENT Gradual and pragmatic Milestones 1969 1983 1993 2003 Pilgrimage Fund Board Pilgrimage Fund Board Full-fledged Islamic banks Bank Islam Malaysia Bhd..

DEVELOPMENTAL FOCUS Institutional & Regulatory development Enhancement of knowledge and expertise Product and market development Legal and Shariah framework .

1984  Government Investment Act. 1983  Legal Redress Framework Shariah  Two Shariah governing committees • National Shariah Advisory Council at Bank Negara Malaysia • Shariah committee at Islamic financial institution Regulatory  Adopted international standards .ENABLING INFRASTRUCTURE Legal  Islamic Banking Act. 1983  Takaful Act.

Separate clearing and settlement system Malaysia Deposit Insurance Corporation .ROLE OF BANK NEGARA MALAYSIA Islamic Banking Act 1983 Takaful Act Islamic financial system Islamic banks Takaful operators Money market Capital market Non-banking institutions Supervisory objective • Financial stability Customer BNM • Consumer protection .Liquidity management Dispute resolution  Specific monetary policy instruments Conventional banks Insurance companies Non-banking institutions Money market Conventional financial system  Judicial system  KL Regional Arbitration Centre  Financial Mediation Bureau Capital market BAFIA 1989 Insurance Act 1996 .

sovereign & multilateral institutions Knowledge and education • Comprehensive legislation • Dispute resolution o Dedicated high court o Arbitration centre o Financial Mediation Bureau • Tax neutrality policy • Shariah Advisory Council and its governance • International best practices . • Offshore players Islamic banking windows • Liberalised equity policy for Islamic • Islamic capital market players subsidiaries and takaful Legal. IBFIM & ICLIF o Research grant • International conferences . Shariah & Reg Product & market • Comprehensive product range in banking.IFSB • Consumer Education & • Fund for Shariah Scholars Awareness Programmes o Promote Shariah dialogues • Complete training infrastructure o Scholarship o INCEIF.COMPREHENSIVE ISLAMIC FINANCIAL SYSTEM Institutional development • Domestic & foreign Islamic banks. takaful & financial markets • Global sukuk .

hub envisioned in Financial Sector Master Plan Growing interest from Middle East investors now seen Opportunity to improve trade & investment ties. and linkages between Malaysia & other parts of the world .VISION TO BECOME ISLAMIC FINANCIAL HUB     Sustaining Malaysia’s competitive edge as leading IFC following: progressive development  achievements of domestic mkt  integration & liberalisation Moving forward.

takaful. 49% foreign equity in Islamic banks and takaful companies Attract international investors Forex liberalisation . financial market & ICT Greater Shariah harmonisation Financial Financial Sector SectorMaster Master Plan Plan 2002 Islamic Islamic Financial Financial Services ServicesBoard Board Malaysia Malaysiaglobal global sukuk sukuk 2003 Financial Financial liberalisation liberalisation Malaysia-IDB Malaysia-IDB MoU MoU 2004 Financial Financial Market MarketIslamic Islamic Index Index 2005 Islamic Islamic securities/ securities/ Sukuks Sukuksby by multilateral multilateral dev’t dev’tbanks banks Shariah Shariahscholars scholars dialogue dialogue … for global integration International Islamic standardsetting body Foreign Islamic FIs. investment.LEADING INITIATIVES IN ISLAMIC FINANCE Malaysia as international hub/ Labuan’s niche in Islamic finance First global sovereign sukuk Promotion of trade.

Human Capital Development in Islamic Finance IBFIM ICLIF INCEIF Level of knowledge: Elementary Focus: Short training courses to meet industry’s needs Institutions of higher learning Level of knowledge: Intermediate & advanced Focus: Leadership programs Focus: International professional certification and postgraduate programs Other training providers Meeting the education needs of all levels of Islamic finance practitioners .

“… Islamic banking and finance will emerge as a force to be reckoned with in shaping the future development of global finance …” .

CHARACTERISTICS OF ISLAMIC BANKING • Islamic financial transactions based on Shariah principles: • Contract (aqad) • No elements of usury (riba) • No elements of uncertainty (gharar) and gambling (maisir) • Multi-faceted roles based on nature of financial transactions engagement: ISLAMIC FINANCIAL CONTRACTS • Savings and Current Accounts • Investment Account • Asset Creation ISLAMIC BANKING & FINANCE IN MALAYSIA .

ISLAMIC BANKING OPERATIONS Sources of funds Application of funds Non-mudharabah deposits General pool Profit Depositors  Bank Mudharabah deposits SHF Distribution of profit Specific account I  Specific account II  Depositors or ISLAMIC BANKING & FINANCE IN MALAYSIA .

Petro wealth and access of liquidity. Human resource. Awareness of Islamic finance amongst the Muslims. Demand and supply.KEY DRIVERS OF ISLAMIC FINANCE GROWTH       Supportive policy direction and infrastructure. “New way of doing finance”. 23 .

asset management and derivatives. Human capital and education. Risk management and prudential standards. Competitiveness and synergy. 24 . Petrol wealth and diversification of assets and geography. retakaful.THE FUTURE OF ISLAMIC FINANCE       Western and Far East financial institutions embracing Islamic finance – the fourth wave. takaful. Global Islamic financial institutions in banking.

THANK YOU .