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LAW738LAW738Islamic Banking andIslamic Banking and

Securities LawSecurities Law

An overview on the Developmemt

and Structure of the IslamicFinancial System

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OutlinesOutlines

Overview of the Financial System

Overview of Malaysian Financial

System

Overview of Islamic Financial

system

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IntroductionIntroduction

Malaysia has a modern and

comprehensive financial systemthat continues to evolve in response

to the changing domestic and

international conditions.

Financial reforms, including thestructural changes that proceed

after the Asian financial crisis, have

evolved a more diversified, broader

and deeper financial system,

supporting Malaysias economic

growth through a more efficient

intermediation process.

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What Is Financial SystemWhat Is Financial System

Financial System is a mechanism ora framework in which economics

exchange can be done. In modern

society, financial system plays an

important role in influencing thelevel economic activities and

exchange. It can be simple or

complex, free or heavily regulated,

efficient or inefficient and is one ofthe important components of the

global economy; it provides

essential services to public

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Role of the Financial System

1.To develop a steady and balancedeconomic and social development

2. To create the basic infrastructure

for the domestic banks to

complement the already strongforeign banking presence in the

economy.

3. To provide a financial stability

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THE BANKING INSTITUTIONS

National Shariah Advisory Council forIslamic Banking and Takaful

CENTRAL BANK OF

MALAYSIA

Islamic

Banks

Commercial

BanksFinance

Companies

Merchant

Banks

Discount

Houses

NON-BANK FINANCIAL INTERMEDIARIES

Takaful

Companies

Development

Finance

Institutions

Savings

Institutions

Housing

Credit

Institutions

Pilgrimage

Fund

Board

u

u n n n m

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THE FINANCIAL MARKETS

Labuan Offshore

Financial Services

Authority

Central

Bank of

Malaysia

Securities

Commission

Capital Markets

Equity MarketBond Market

-Public Debt

Securities

-Private Debt

SecuritiesIslamic -Private

Debt

SecuritiesIslamic

Government

Securities

Money &Foreign

Exchange

-Islamic

money

market

Derivatives

MarketsCommodity

Futures

KLSE CI Futures

KLIBOR Futures

OffshoreMarket:

Labuan

International

OffshoreFinancial

Centre

KualaLumpur

Stock

Exchange

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Malaysian Financial System

MFS is divided into 2 :

1)Financial Institutions

2)Financial Markets

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Financial InstitutionsFinancial Institutions

Financial institution is a business

firm whose principle claims orassets are stocks, bonds and loans

instead of real assets such as

buildings, equipments and raw

materials. They also provide loans

to customers or purchase

investment services, provision of a

mechanism for making payments,transferring funds and storing

financial information(Rose, Kolari(1995)

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Financial MarketFinancial Market

Institutions and procedures thatfacilitate transactions in all type ofsecurities (i.e. financial assets)

To allocate financial resources withinthe economy

Provide Sources of Funds to DeficitUnitsConsist ofPrimary market andSecondary marketFirms (includes Banks) receive money

from it , while investors (i.e. Firms orIndividual) made investment(i.e. shares,bonds, marketable securities, government

securities)

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Evolution of Islamic Finance

1960s- substantial demand for

Shariah compliant banking, resultingin the establishment of the Mit

GhamrLocal Saving Bank in Egypt in

1963.

1970s- Interest free or Islamicbanking was given a strong business

foundation with the establishment of

Islamic Development Bank (IDB) in

1975.

1980s- the beginning of trend of rapid

growth and expansion for the

emerging Islamic financial services

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Evolution of Islamic Finance (cont)

1990s- market had gained enough

momentum to attract the attention ofpolicymakers and of institutions

interested in introducing innovative

products.

Late 1990s and early 2000s- Islamicfinance began to catch attention at

international

Mid 2000s- competition increased and

both Islamic and conventional

financial institutions began to position

themselves aggressively to capture

market share.

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PROGRESSIVE FINANCIAL INSTITUTION

DEVELOPMENT

Issuance of new

Islamic bank

licenses to foreign

IFIs (04)

Liberation of IB &Takaful industry to

allow 49% foreign

interest (05)

SPTF /SPI(93)

IslamicInterbankmoney market

(94) AIBIM* (95) ARIL (97) BMMB (99) IFSB (02) MTA (02) FSMP (01)

LTH (69) BIMB (83) STMB (84)

1993-20021993-20021983-19921983-1992

2003-20102003-2010

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PROGRESSIVE FINANCIAL INSTITUTION DEVELOPMENT

3 new takaful operatorscommence operation

Launched MIFC initiative Announce tax incentivesfor MIFC ( 07 budget )

Guidelines issued onestablishment of new

IIB, 2 retakaful licences

approved by BNM (06)

1993-20021993-20021983-19921983-1992

2003-20102003-2010

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EFFECTIVE & CONDUCIVE LEGAL & SHARIAH FRAMEWORK

Dedicated HC (03)

Tax neutrality policy (03)amendment to

- Income Tax Act 67- RPGT Act 76

- Stamp Act 49

Enactment of MalaysianDeposit InsuranceCorporation Act 05

First InternationalShariah Scholars Dialogue

IBA 83 TA 84 AmendmentCentral

Bank Act of

Msia 57to

establish SAC

at BNM

1993-20021993-20021983-19921983-1992

2003-20102003-2010

Shariah

Advisory

Council

at BNM(97)

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EFFECTIVE & CONDUCIVE LEGAL & SHARIAH FRAMEWORK

Issuance of Shariah

governance framework Establishment of RM200 milShariah endowment fund (05)

First Regional ShariahScholars forum/dialogue (06) Issuance of 2 standards byIFSB : Capital Adequacy Std

and Guiding Principles of Risk

Management for Islamic bank(06) Introduction Central Bank ofMalaysia Act 2009

1993-20021993-20021983-19921983-1992

2003-20102003-2010

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MALAYSIA AS INTERNATIONAL FINANCIAL CENTRE

To strengthen Malaysias position as anInternational financial centreand to

realize its target to become Islamic

financial hub in this region..it launched

MIFC on 14 Aug 06

What is MIFC?-Diversified range of financial institutions

operating from anywhere in Malaysia

offering Islamic financial products& services in any currency to resident &

non-resident

MALAYSIA AS INTERNATIONAL FINANCIAL CENTRE

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Under MIFC, Malaysia aims to be :

Centre for origination, distribution as well astrading of Islamic treasury and capital market

instruments

Centre for Islamic fund and wealthmanagement services

Centre for international currency Islamicfinancial services ( including deposit &financing )

Centre for Takaful & Retakaful Centre for Islamic finance education, training ,consultancy & research

MALAYSIA AS INTERNATIONAL FINANCIAL CENTRE

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ISLAMIC FINANCIAL HUB : Msias strengths

Strong foundation in Islamic finance pioneer inglobal Islamic banking & finance

Strong economic growth & international trade Savvy workforce fluent in English Relatively low cost of living Significant attention & resources directed

towards human capital development

Strong support by the government Strong international connection/communication

currently holds the chair of OIC & IFSB

u

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uFinance

Recent Growth in the West Gains by the Legal &

Accounting Professions

Multidisciplinary Criteria Dispute Settlement and Conflict

Resolution

Coexistence with WesternFinance or Absorption by

Western Financial Institutions