Islamic Banking and Finance Malaysias Experience and Achievements 1202968523769137 2

8/8/2019 Islamic Banking and Finance Malaysias Experience and Achievements 1202968523769137 2

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SEKTOR KEWANGAN ISLAM DI MALAYSIA

ISLAMIC BANKING &FINANCE IN MALAYSIA

ISLAMIC BANKING AND FINANCE:ISLAMIC BANKING AND FINANCE:

MALAYSIA¶S EXPERIENCE ANDMALAYSIA¶S EXPERIENCE ANDACHIEVEMENTSACHIEVEMENTS

13 June 2006Victoria University of Wellington

Presented by:Bakarudin Ishak

Director

Islamic Banking and Takaful Department

Bank Negara Malaysia






MALAYSIA AT A GLANCE

Population ± 26.1 m

Muslim ± 15.4 m (59%)

Strong GDP growth

1st quarter 2006 5.3% Low inflation





In response to the needs of Muslim community

Acts as a catalyst to fill the gap to mobilise funds for productive

purposes, in particular for Muslim communities

Significant untapped business potential

Proven to be a viable financial intermediation channel in supporting

economic growth

Fulfilled the demands of not only the Muslims but non-Muslim

population as well

WHY ISLAMIC BANKING IS IMPORTANT?





Comprehensive Islamic financial system covering all financial sectors

± operating in parallel with conventional financial system

Diversities of players

± Twelve full-fledged Islamic banking institutions

± 2 domestic Islamic banks

± 3 full-fledged foreign owned Islamic banks ± 7 Islamic banking subsidiaries

± 9 takaful operators

Sound and robust Islamic financial institutions governed by

international best practices

Rapid growth with wide range of product and services

± Retail, corporate & investment banking

Internationally integrated with international Islamic financial system

MALAYSIAN ISLAMIC FINANCIAL SYSTEM





STAGES OF DEVELOPMENT

Gr l r ti

..achieved significant milestones in building comprehensive and integrated Islamic financialsystem with diversity of players«.

Milestones

1969 1983 1993 2003

Pilgrimage Fund Board

Bank IslamMalaysia Bhd.

Bank MuamalatMalaysia Bhd.

Foreign Islamicbanks

Full-fledgedIslamic banks

Conventional banks offer Islamic window

TakafulOperators

Syarikat TakafulMalaysia Bhd.

Takaful Nasional, Mayban Takaful, TakafulIklhas, Commerce Takaful

Islamic subsidiary

Islamic money markets





Dedicated Islamic Banking Division

Dedicated minimum capital as Islamic Banking Fund

Separate clearing account with the Central Bank

Separate cheque clearing system

Separate submission of statistical reports in Financial Inst.

Statistical System on monthly basis

Additional disclosure of Islamic banking portfolio in financial

statements

CONVENTIONAL BANKS WITH ISLAMIC WINDOW

«. total segregation of funds to meet Shariah requirement



SEKTOR KEWANGAN ISLAM DI MALAYSIAISLAMIC BANKING &FINANCE IN MALAYSIA

Institutional & Regulatory

development

Product and market

development

Legal and Shariah

framework

Enhancement of knowledge and

expertise

DEVELOPMENTAL FOCUS




ENABLING INFRASTRUCTURE

Legal Islamic Banking Act, 1983

Takaful Act, 1984

Government Investment Act, 1983

Legal Redress Framework

Shariah Two Shariah governing committees

National Shariah Advisory Council at

Bank Negara Malaysia

Shariah committee at Islamic financial

institution

Regulatory

Adopted international standards




ROLE OF BANK NEGARA MALAYSIA

BNM

Conventional financial system

Islamic banks

Takaful operators

Non-bankinginstitutions

Money market Capital market

Customer

Islamic financial system

Conventional banks

Insurance companies

Non-bankinginstitutions

Money market Capital market

Malaysia DepositInsuranceCorporation

Dispute resolution

Judicial

system

KL Regional

ArbitrationCentre

Financial

Mediation

Bureau

Supervisory

objective

Financial

stability

Consumer

protection

- Separate clearingand settlement

system

- Liquiditymanagement

Specificmonetarypolicy

instruments

Islamic Banking Act 1983

Takaful Act

BAFIA 1989

Insurance Act 1996




COMPREHENSIVE ISLAMIC FINANCIAL SYSTEM

Legal, Shariah & Reg

Institutional development

Product & market

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- IFSB

Comprehensive product

range in banking, takaful& financial markets

Global sukuk - sovereign

& multilateral institutions

Consumer Education &

Awareness Programmes

Complete training infrastructure

o INCEIF, IBFIM & ICLIF

International conferences

Domestic & foreign Islamic banks,

Islamic banking windows

Islamic capital market players

Fund for Shariah Scholars

o Promote Shariah dialogues

o Scholarship

o Research grant

Offshore players

Liberalised equity policy for Islamic

subsidiaries and takaful




VISION TO BECOME ISLAMIC FINANCIAL HUB

Sustaining Malaysia¶s competitiveedge as leading IFC following:-

progressive development

achievements of domestic mkt

integration & liberalisation

Moving forward, hub envisioned in

Financial Sector Master Plan Growing interest from Middle East

investors now seen

Opportunity to improve trade &

investment ties, and linkages

between Malaysia & other parts of

the world




LEADING INITIATIVES IN ISLAMIC FINANCE

2005

Islamic

Financial

Services Board

Islamic

Financial

Services Board

Malaysia global

sukuk

Malaysia global

sukuk

2002

2003

2004

Islamicsecurities/

Sukuks by

multilateral

dev¶t banks

Islamicsecurities/

Sukuks by

multilateral

dev¶t banks

Malaysia-IDB

MoU

Malaysia-IDB

MoU

Shariah scholarsdialogue

Shariah scholarsdialogue

Financial

liberalisation

Financial

liberalisation

Financial

Market Islamic

Index

Financial

Market Islamic

Index

Foreign Islamic FIs,

49% foreign equity

in Islamic banks and

takaful companies

Forex liberalisation

Promotion of

trade, investment,

takaful, financial

market & ICT

InternationalIslamic standard-

setting body

Attract

international

investors

First global

sovereign sukuk

Greater Shariahharmonisation

Financial

Sector Master

Plan

Financial

Sector Master

Plan

Malaysia asinternational hub/

Labuan¶s niche in

Islamic finance

« for global integration




Meeting the education needs of all levels of Islamic finance

practitioners

Level of knowledge:Elementary

Focus:Short training coursesto meet industry¶sneeds

IBFIM INCEIF ICLIF

Level of knowledge:Intermediate &advanced

Focus:Internationalprofessionalcertification and post-graduate programs

Focus:Leadership programs

Institutions

of higher

learning

Other

training

providers

Human Capital Development in Islamic Finance




Part 1

(Building Knowledge)

Part 2

(Building Skills)

Part 3

(Actual Work)

Islamic Economics andFinance

Theory & Ethics

Islamic Financial Institutions

and Markets

Islamic Finance Regulations

and Governance

Applied Shariah in Financial

Transactions

Deposits Mobilization and

Financing Management

Wealth Planning and

Management

ASSOCIATE MEMBER

Common Modules Structuring Financing Requirements

Issuing & Managing Islamic Securities

Shariah Audits and Compliance

Customer Relationship Management

Issues in Islamic Financial Institutions &

Markets

Specialized (Banking) Modules

Deposit & Financing Practices of Islamicbanks

Managing Islamic Banks

Treasury and Risk Management for

Islamic Banks

Legal aspects of Deposits & Financing

Specialized (Takaful) Modules

Managing Takaful Institutions

Risk Management in Takaful Operational Aspects of Takaful

Actuarial Concepts & Practices

PROFICIENT MEMBER

Articleship

PRACTISING MEMBER

Pedagogical approach:

Self-study (on-site and online learning), exams, case studies, simulation

Hands-on activities &

role play

CIFP PROGRAMME MODULES




³« Islamic banking and finance will emerge as a

force to be reckoned with in shaping the future

development of global finance «´




Presently«

Rapid growth of Islamic banking in the global financial world

Various parts of the world are actively promoting Islamic

banking and finance in their respective jurisdictions

Emergence of global conventional players venturing into

Islamic financial activities

INTERNATIONAL DEVELOPMENT IN ISLAMIC FINANCE




COMPREHENSIVE ISLAMIC FINANCIAL SYSTEM





Conventional banksIslamic banks

Conventional financial system Islamic financial system

Conventional

banks window

MALAYSIA¶S PARALLEL DUAL FINANCIAL SYSTEM

Conventional

banks

Islamic BankingSubsidiaries

InsuranceCompanies

TakafulOperators





GROWTH OF ISLAMIC BANKING AND FINANCE Market share of Islamic banking sector (as at March 2006)

± Assets : 11.6% or RM113.5 b

± Deposits : 11.6% or RM85.0 b

± Financing : 15.7% or RM67.5 b

Growing at 19% p.a. since 2000

Market share of takaful sector (as at March 2006)

± Assets : 5.9% or RM6.2 b

± Market : 5.9%

penetration

Performance of Islamic financial markets (as at March 2006)

± Active money market activities :

o monthly trading & investment turnover of RM21billion

± Wide range capital market investment avenue:

o Islamic PDS 40% of outstanding PDS

o Over 80% Shariah approved counters on Bursa

o Over 70 Islamic unit trusts

o Issuance of first Islamic residential mortgagebacked securities of RM2.05 billion based onmusyarakah concept by Cagamas MBS Berhad

o RM400 million BNM Ijarah Sukuk issued in February2006

0

20

40

60

80

100

120

R M b

i l l i o n

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Mar

05

Takaful Insurance

5.9%

Assets of Takaful funds (as at Mar 2006)

Islamic Banking Assets







CHARACTERISTICS OF ISLAMIC BANKING

Islamic financial transactions based on Shariahprinciples: Contract (aqad ) No elements of usury (riba) No elements of uncertainty ( gharar ) and gambling(maisir)

Multi-faceted roles based on nature of financialtransactions engagement:

ISLAMIC FINANCIAL CONTR ACTS Savings and Current Accounts Investment Account Asset Creation





DEPOSITORS/ INVESTORS BANK

PROFIT

FINANCING AND

INVESTMENT

ACTIVITIES

LOSS

30%

70%

100%

INVESTMENT ACCOUNTSINVESTMENT ACCOUNTS

INVEST FUNDS

(MUDHARABAH)

Pre-agreed Profit-

Sharing Ratio





Ijarah

Istisna

Bai¶ al salam

Musyarakah

Mudharabah

Bai¶ bithaman ajil

Murabahah

EXAMPLES OF ISLAMIC CONTRACTS

Lease

Commission to manufacture (progressive payment)

(price is paid in advance, goods delivered in the future)

Islamic forward sale

Partnership financing

Profit Sharing contract

Deferred payment sale

Cost ±plus or mark-up




Sources of funds

Non-mudharabah

deposits

Mudharabah

deposits

SHF

Application of funds

General

pool

Specific account I

Specific account II

Profit

Distribution of profit

Depositors

Bank

Depositors

or


ISLAMIC BANKING OPERATIONS




Fixed assets

Other assets

Inventories

Equity investment in capital ventures

Equity investment in joint ventures

Investment in real estate

Investment in leased assets

Investment in securities

Sales receivables

Cash & cash equivalents

ASSETS

Owners¶ Equity

Investment risk reserve

Profit equalization reserve

Profit sharing investment accounts

Equity of Profit Sharing Investment

Accounts (PSIA)

Other liabilities

Current accounts

LIABILITIES

STYLIZED BALANCE SHEET OF AN IIFS




TAKAFULTAKAFUL

(e.g. Family, General)(e.g. Family, General)

TABARRU¶TABARRU¶

(Donation)(Donation)

PROFIT SHARING ONPROFIT SHARING ON

SURPLUSSURPLUS

A contract among participants to

reciprocally help each other against

defined loss

Commercial profit sharing contract

between participants and takaful operator

Agreement to relinquish certain portion of

contribution as donation to fulfil obligation

of mutual help and joint guarantee

Concepts Based on««.Takaful




Surplus/

(Deficit)

Participants¶ Risk

Account (PRA)Participants¶

Account (PA)

Investment Profit

Takaful

Operators

Less

Less

Operating

Expenses

Retakaful

Reserves

Claims

Participants

Contributions

100%

-x%

Surplus on Maturity

x%x%


Takaful Model

Wakalah feesx%

x%

100% -x%

2 Models: Mudharabah or Wakalah

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Islamic Banking and Finance Malaysias Experience and Achievements 1202968523769137 2

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