Management of Banking and
Takaful Institutions
Lecturer:
MBA4013
Semester I, Session 2006/2007
Lecture 1: Introduction of the
Lecture Outlines
Malaysian Financial System
Islamic Financial System
Malaysian Islamic Financial System
History and Development of the (Malaysian)
Islamic Banking System
Malaysian Financial System
Players
Markets
Malaysian Financial System
Money & Forex Markets Capital Markets Derivatives Markets Offshore Markets
Islamic Financial System
The basic principles of Islamic financial system
(Zamir Iqbal, n.d.):
1.
Prohibition of
riba
2.Risk sharing
3.
Money as a “potential” capital
4.
Prohibition of speculative behavior
5.Sanctity of contracts
Islamic Financial System
Banking is the most developed part of the Islamic
financial system.
Banking systems to be fully compatible with Islamic
law. i.e. Iran, Pakistan & Sudan.
Islamic banking exists alongside conventional
banking. E.g. Malaysia, Gulf Countris
Islamic Financial System
Conventional-plus
Dual-financial system
Islamic Financial System
Issues and challenges:
Islamic banking by itself cannot take root in the absence
of the other necessary components of an Islamic financial system.
A uniform regulatory and legal framework is needed.
Establishing a single, sizable, and organized financial
center that functions in accordance with Islamic principles.
The pace of innovation is slow.
needs sound accounting procedures and standards.
There is lack of uniformity in the religious principles
Malaysian Islamic Financial System
Overview of Islamic Banking in Malaysia Islamic Banking Concepts
List of Financial Institutions Offering Islamic Banking Services Range of Islamic Banking Products and Services in Malaysia The National Syari'ah Advisory Council
Government Investment Issues Islamic Inter-bank Money Market Islamic Banking Statistics
TAKAFUL
Overview of Takaful in Malaysia Registered Takaful Operators
Go to:
Definition
Islamic Bank:
The Organisation of Islamic Conference (OIC): A financial institution whose statutes, rules and procedures expressly state its commitment to the principles of Islamic Shari’ah and to the banning of the receipt and payment of interest on any of its operations.
Islamic Banking Act / 1983 of Malaysia: A company which carries on Islamic banking business. Islamic banking means "banking business whose aims and operations don't involve any element which is not approved by the religion Islam.”
Definition
Islamic Windows:
Islamic windows are special facilities offered by conventional
banks to provide services to Muslims who wish to engage in
Islamic banking. (Zamir Iqbal)
In Malaysia: Islamic Banking Scheme (IBS) banks can be
defined as a conventional bank that participates in Islamic
banking operations. (Saiful Azhar Rosly)
History and Development
of the (Malaysian) Islamic
The Development of Malaysian
Islamic Banking
1983 Enactment of:
(1) Islamic Banking Act 1983
(2) Government Investment Act 1983 (now replaced with Government Investment Issues - GIIs)
July
1983 The establishment of Bank Islam Malaysia Berhad (BIMB) as the first Islamic bank in Malaysia
Jan
Dual Banking System
1990
BNM Governor outlined BNM’s vision to create a
comprehensive financial system side-by-side with
conventional financial system – was further refined
to reflect profound changes in the banking system
Dual Banking System
VISION STATEMENT IN 1990
To create a comprehensive Islamic financial
system side-by-side with the conventional
Dual Banking System
BNM decided to allow the existing banking institutions to offer Islamic banking services using their existing infrastructure and branches.
4 March
1993
BNM introduced a scheme known as "Skim Perbankan Tanpa Faedah“/ SPTF on a pilot basis involving 3 banks.
July
Dual Banking System
4 Jan 1994
To link the institutions and the instruments, the Islamic Interbank Money Market (IIMM) was introduced.
Oct
1996 BNM issued a model financial statement for the banking institutions participating in the SPI requiring the banks to disclose the Islamic banking operations (balance sheet and profit and loss account) as an additional item under the Notes to the Accounts.
Dual Banking System
1 Dec 1998
Thus, BNM replaced the SPTF with SPI/IBS (Skim Perbankan Islam/Islamic Banking Scheme).
1998 BNM also observed that the IB operations of the SPI was regarded as low hierarchy business, being manned by middle-level management, while the IBU was given limited functions to perform its duties and responsibilities effectively. The existing organisation structure, scope, and responsibilities of the IBU was reviewed and enhanced further by introducing a new framework as follows:
IBU was up-graded to an Islamic Banking Division (IBD):
Dual Banking System
2 Jan 1999
IBD is required to prepare a strategic plan.
IBD is expected to have a constructive relationship with other
departments/division and should be provided with the necessary support from the departments/divisions in ensuring smooth implementation of IB operations.
IBD should be proficient in applying accounting standards
(including IB accounting standards), legal and regulatory requirements, directives and guidelines issued by BNM or other relevant banking associations.
IBD as a division operates like “a bank within a bank”.
IBD shall be headed by a Muslim senior management officer…
Dual Banking System
1 Jan 2001
(CEO). Initially, the AGM is allowed to carry out banking duties and responsibilities other than Islamic banking during an interim period of 2 years (1999-2000).
Beginning 1 January 2001, the AGM shall perform his duties and responsibilities with regard to Islamic banking on full-time basis.
May
2003 Islamic Banking System: Total assets: RM73.4 billion; Deposits: RM55.2 billion;
Financing: RM41.3 billion.
Institutions offering IB: 2 Islamic banks, 13 commercial
banks, 9 finance companies, 4 merchant banks, and 7 discount houses.
Dual Banking System
2005
BNM approved the transformation of “Islamic windows”
institutional structure of seven domestic banking
groups into Islamic subsidiaries (IS)
August 2005
The first foreign Islamic bank commenced operations
in August 2005 while the other two foreign Islamic
banks would commence operations later in 2006.
Feb
2006
The IFSB issued two standards: CAS and Guiding
Principles
2006
The launch of INCEIF (International Centre for
Current Situation
c
i
i c
i 1. Full-fledged 2. Islamic windows 3. Full-fledged Islamic subsidiary
Flows of Funds (A Perspective)
Islamic Financial Institutions
Sources of Funds Uses of Funds
Topics for Discussions in the Tutorial
Classes
What are the impact of financial liberalization on
Malaysian Islamic banking system? (Group)
Find out: What are the current issues in the
Malaysian Islamic Financial System? (Group)
What are the sources of information for you to keep
Suggested Additional References
www.bnm.gov.my
BNM Annual Report 2005
