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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