Developments Trends Islamic Banking And Finance In Malaysia Finance Essay

The past decennary has seen the fast turning tendency in the Islamic finance sector wherein the construct was accepted from both Muslims and non Muslims worldwide. In Malaysia, the same has emerged as one of the of import elements for the overall Malaysian fiscal system, and the amalgamate Islamic finance industry has immense impact towards the growing and development of the county ‘s economic system ( Dusuki and Abdullah, 2007 ) . Ahmad ( 2008 ) indicated that Malaysia ‘s Islamic fiscal hub has been created based on a comprehensive and progressive Islamic fiscal system, which is developed throughout the past three decennaries.

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In order to supply the background survey of the Islamic banking and finance sector in Malaysia, this chapter begins by discoursing the history of Islamic banking and finance in Malaysia. Thereafter, the treatment on the growing of Islamic banking and finance from the position of the authorities initiatives. This is so followed by the treatment on the public presentation of Malayan Islamic Bankss. Finally, the chapter discusses on the hereafter of Islamic banking and finance in Malaysia.

Islamic Banking and Finance in Malaysia

The fast altering international Islamic fiscal environment has allowed Malaysia ‘s Islamic finance to go progressively incorporate to the international fiscal system ( Ahmad, 2008 ) . Harmonizing to Aziz ( 2010 ) , there are two factors lending to the dynamic growing in the Islamic finance sector in Malaysia: foremost, the velocity of invention in Islamic finance which provided assorted scope of fiscal solutions to parties such as families, concern and authorities based on the attractive pricing and advanced construction and secondly, the flexibleness of its inherency characteristics in constructing the foundation for fiscal stableness in the Islamic fiscal system.

There are several factors back uping the viability, sustainability and fight of Islamic finance. Islamic finance system is similar to the conventional system in footings of its operations except all minutess are based on the regulations and rules of Islam ( Dusuki and Abdullah, 2007 ) . Meanwhile, the construct of net income sharing based on Shari’ah for the investing ventures allows the spread of hazard which is more just mode. Aziz ( 2007 ) pointed out that greater variegation of hazards could lend towards advancing international fiscal stableness. In add-on, the substructure of fiscal system in Malaysia has besides supported the growing of Islamic finance from the available scope of Islamic fiscal instruments and the well developed Islamic money market ( Venardos, 2010 ) . Aziz ( 2010 ) besides highlighted that factors such as regulative and supervisory government, legal and Shari’ah model every bit good as payment and colony systems has contributed to the sustainability of Malaysia Islamic fiscal stableness.

The impact of the development has affected all sections of the Islamic fiscal system in Malaysia that includes the Islamic banking and takaful industry, and the Islamic money and capital markets. In conformity to this, Malaysia ‘s Islamic fiscal system consist of extremely diversified participants including Muslim Bankss, investing Bankss, takaful companies, development fiscal establishments, salvaging establishments, fund direction companies, stock agents and unit trusts. The said participants offer assorted scopes of merchandises and services in the market of which the gait of merchandise invention for Islamic fiscal merchandises have grown enormously throughout the old ages and have become more competitory based on merchandise construction and pricing ( Ahmad, 2008 ) . Hence, the Malayan experience demonstrates the fast growth and hardiness of the Malayan Islamic fiscal system.

Furthermore, Aziz ( 2006 ) highlighted that the creative activity of the Islamic Financial Services Board ( IFSB ) has assisted in regulating the operations of Islamic fiscal establishments. She besides added that despite the harmonization of criterions, IFSB besides contributed towards the steady development of Islamic finance across different legal power. For illustration, Malaysia implemented the prudential criterions issued by IFSB which take in history the alone characteristics of Islamic finance that would lend towards guaranting the soundness and stableness of the sector.

5.2.1 History of Islamic Finance and Banking in Malaysia

Muslim banking industry in Malaysia has seen a progressive upward tendency since mid 1980s. The rapid advancement at an norm of 19 % per annum in footings of assets in the industry is due to the important enlargement and increased development in the Islamic banking and finance environment which is seen of import for the changing demands of a new economic system ( Majid and Sufian, 2007 ) .

Malaysia ‘s experience in Islamic finance officially begins in 1963 with the constitution of Tabung Haji or Pilgrims Management and Fund Board by the authorities. The formation of the establishment is based on the desire of Malayan Muslims to put in involvement free topographic points for the intent of nest eggs financess for executing pilgrim ( Hajj ) . Tabung Haji utilises mudharabah ( net income and loss sharing ) , musharakah ( joint venture ) and ijara ( renting ) as it modes of funding for investing.

Harmonizing to Ahmad ( 1997 ) , the chief ends of Tabung Haji at that point of clip were:

a topographic point for Muslims to salvage for their disbursals to execute their pilgrim’s journey ( Hajj ) of for other disbursals good to them ;

to enable Muslims to take part in investing, industry, commercialism and plantations every bit good as in existent estate harmonizing to Islamic rules ; and

to supply the protection, control and public assistance of Muslims during pilgrim through assorted installations and services of Tabung Haji.

Since Tabung Haji is a non-bank fiscal establishment, its function has been instead limited therefore the demand for a banking establishment based on Shari’ah rules is required. With the success of Tabung Haji, Malaysia established a full pledged Islamic bank known as Bank Islam Malaysia Berhad ( BIMB ) in 1983. Thereafter, Malaysia has easy moved towards the constitution of Islamic fiscal system side by side with the conventional system to take an efficient running double banking system. Harmonizing to Mokhtar et Al. ( 2006 ) , Malaysia was the first county to implement double banking system, which implies conventional and Islamic banking system running within the same fiscal system. It should be noted that subsequently many states showed their involvement in following the double banking system.

A well planned systematic procedure based on three stages was introduced by the authorities of Malaysia for the execution of the Islamic fiscal system. The first stage was considered as the familiarization period that stretches from 1983 to 1992. This is the period when BIMB was established together with the debut of the Islamic banking operations based on rules. During the same period besides, the Islamic Banking Act ( IBA ) was officially enacted to regulate the operations of Islamic Bankss in Malaysia. Based on the IBA definition, Islamic bank is a company that carries out Islamic banking concern based on the sanctioned dealing by the faith of Islam ( Ahmad, 1997 ) . In guaranting the behavior of Muslim Bankss is based on Shari’ah, the IBA requires the Bankss to hold its ain Shari’ah Advisory Council which comprises of experts. In add-on to the IBA, Central Bank of Malaysia has the power to oversee and modulate the Islamic Bankss operation in order to guarantee all minutess follow the Shari’ah rules.

The 2nd stage from 1993 to 2003 was the period of making a contributing competitory environment among the Bankss every bit good as supplying clip to the Bankss in capturing a larger market portion. During this period, consciousness was created among the populace particularly the Muslims by foregrounding the benefits of the Islamic banking system. At this point of clip, conventional Bankss were allowed to offer Islamic banking system services through the puting up of ‘Islamic Windowss ‘ as referred to in the ‘Islamic Banking System ( IBS ) ‘ in 1993.

The authorities has decided to let conventional Bankss to run utilizing Islamic merchandises and services based on the consideration that this is the most effectual and efficient manner to increase the figure of participants in the said industry at the lowest cost and shortest clip frame ( Mokhtar et al. , 2006 ) . As a consequence, it creates a competitory environment within the industry that allows an improved public presentation and efficiency in the Islamic banking industry ( Kaleem, 2000 ) . Despite leting conventional Bankss to offer Islamic bank merchandises and services, Malaysia has established another full pledged Islamic bank in 1999 which is known as Bank Muamalat Malaysia Berhad.

The concluding stage get downing from 2004 was the period of fiscal liberalization wherein the Central Bank opens the chance for foreign Muslim Bankss to run in Malaysia by publishing them licence ( Kuo, 2010 ) . At the beginning of 2004, three foreign Bankss were given the full pledged Islamic bank licence viz. , Kuwait Finance House, Al-Rajhi Banking and Investment Cooperation and the pool led by the Qatar Islamic Bank. Thus, the internationalization of Malayan Islamic banking continues in line with the increasing domestic presence and capacity.

It should be noted that during the initial phase of Islamic banking in Malaysia, most of the conventional Bankss took advantage of the ‘Islamic Windowss ‘ chance in enabling the Bankss to offer Islamic fiscal services. However, due to the positive growing of the Islamic banking sector every bit good as the support from the authorities in promoting foreign Muslim Bankss to come in the Malayan market, conventional Bankss and most of the foreign Islamic Bankss has established its ain full fledged Muslim Bankss. Table 5.1 provides the list of the current Islamic Bankss runing in Malaysia.

Table 5.1: Muslim Banks in Malaya



Origin Date


Affin Islamic Bank Berhad


1 April 2006

Full fledged

Alliance Islamic Bank Berhad


1 April 2008

Full fledged

AmIslamic Bank Berhad


1 May 2006

Full fledged

Bank Islam Malaysia Berhad


1 July 1983

Full fledged

Bank Muamalat Malaysia Berhad


1 October 1999

Full fledged

CIMB Islamic Bank Berhad


1 June 2003

Full fledged

EONCAP Islamic Bank Berhad


1 April 2006

Full fledged

Hong Leong Islamic Bank Berhad


28 March 2005

Full fledged

Maybank Islamic Berhad


1 January 2008

Full fledged

Public Islamic Bank Berhad


1 November 2008

Full fledged

RHB Islamic Bank Berhad


1 March 2005

Full fledged

Al-Rajhi Banking & A ; Investment Corporation ( Malaysia ) Berhad


1 October 2006

Full fledged

Asiatic Finance Bank Berhad


28 November 2005

Full fledged

HSBC Amanah Malaysia Berhad


1 August 2008

Islamic Window

Kuwait Finance House ( Malaysia ) Berhad


1 August 2005

Full fledged

OCBC Al-Amin Bank Berhad


1 December 2008

Islamic Window

Standard Chartered Saadiq Berhad


12 November 2008

Islamic Window

Beginning: Bank Negara Malaysia ‘s web site

Interest Free Banking Scheme

Malaysia adopted a gradual procedure towards the development of the Islamic banking and fiscal system. The success of BIMB signifies and supports the demand for the constitution of an Islamic fiscal system in the state. The development of the Islamic banking in Malaysia Begins in 1993 with the launch of the involvement free banking strategy. For the launch of the involvement free banking strategy, Ahmad ( 1997 ) indicated that the Central Bank of Malaysia has considered three options which are as follows:

get downing new Islamic Bankss based on BIMB operation theoretical account that allows the Bankss to offer Islamic banking services entirely ;

get downing Islamic subdivisions of bing Bankss and fiscal establishments ; and

leting commercial Bankss and fiscal establishments to offer Islamic banking merchandises throughout its bing subdivisions and web.

Due to clip salvaging and cost effectual factors, the 3rd option was chosen because developing new Islamic Bankss from start is considered expensive in footings of resources and clip. Similarly, the estimated cost for the opening a new subdivision of an constituted bank was RM500,000 and furthermore will necessitate extra clip for the administrative processs and enlisting of new staff to run the subdivisions ( Ahmad, 1997 ) . Hence, Malaysia adopted the attack of holding both conventional and Islamic banking construct instead than replacing the bing banking system.

The strategy was ab initio adopted by BIMB and due to the success of the strategy, the same was farther introduced to other Bankss through several stages. The first stage includes the three largest Bankss in Malaysia i.e. United Malayan Banking Cooperation, Bank Bumiputera Malaysia and Malayan Banking Berhad which was authorised to carry on involvement free banking activities. The following stage includes another six more Bankss which gives a sum of nine Bankss take parting in the strategy at the terminal of 1993. The participant for the strategy further grew up to 21 Bankss at the terminal of 1994. The 3rd stage of the strategy includes all commercial Bankss. Furthermore, with the success of the involvement free banking system, it has besides encouraged the non-bank Islamic fiscal mediators such as takaful companies and development of fiscal establishment to offer Islamic fiscal merchandises and services under the Islamic banking strategy.

In guaranting the smooth patterned advance of the involvement free banking strategy, fiscal establishments were required to put up an involvement free Islamic Banking Unit ( IBU ) in its caput office for the monitoring and supervising of the IBS. Ahmad ( 1997 ) summarised some of the IBU maps which are as follows:

Attending to all facets affecting the operation of the involvement free banking strategy including policy and processs ;

Guaranting the smooth operation of the strategy by interceding with other sections in the fiscal establishments ;

Guaranting that the available financess used funding and investing activities are based on the Islamic rules ;

Organizing all the needed entries to be forwarded to Central Bank from clip to clip ;

Making certain that all directives and guidelines by Central Bank are purely complied as per the strategy ;

Supplying developing to staff sing Islamic banking for the effectual execution of the strategy ; and

Supplying uninterrupted research and development in Islamic banking towards the sweetening of Islamic fiscal system.

The Central Bank has besides required the fiscal establishments which are involved in the involvement free banking strategy to set up and keep a on the job fund known as Interest free Banking Fund ( IBF ) . The chief intent of IBF is to ease the disbursals for the operation of the involvement free banking strategy.

In 1996, a theoretical account fiscal statement for the involvement free banking system was issued by the Central Bank bespeaking all Bankss to unwrap its Islamic banking operations ( the balance sheet and net income and loss history ) as an extra point in the Notes to Accounts. The undermentioned twelvemonth, a National Shari’ah Advisory Board on Islamic Banking and Takaful was apparatus which its chief aims are as follows ( Vernados, 2005 ) :

moving as the exclusive important organic structure to advice Central Bank on Islamic banking and takaful operations ;

organizing all Shari’ah issues sing Islamic banking and finance ( including takaful ) ; and

analyzing and measuring the Shari’ah facet of new merchandises /schemes submitted by the banking establishments and takaful companies.

Regulation and Supervision

The development of any fiscal system relies on a strong legal and regulative model. In the current challenging environment which is heightened by hazards, it has prompted the demand for frequent reappraisals of bing prudential regulations and supervisory attacks between the regulators. The same is to guarantee the edifice of a strong regulative and supervisory model which as a consequence will take towards the fiscal stableness in all countries of the fiscal services sector. The discovery in the Islamic fiscal service industry is seen from the function taken by IFSB in developing prudential, regulative and supervisory criterions every bit good as nucleus rules based on the Shari’ah regulations ( Aziz, 2004 ) .

Aziz ( 2004 ) pointed out the three chief aims for the regulative doctrines for the Islamic banking sector in Malaysia are as follow:

Explicating a model based on the alone features of Islamic banking concern. However, to guarantee that it does non set the Islamic fiscal establishments at a comparative disadvantage compared to the conventional Bankss which overall will hold an impact towards the fight and growing potency in the fiscal system ;

Measuring the multi-faceted function performed by the Islamic banking establishments ; and

Developing a degree playing attack which is related to the double fiscal system.

In Malaysia, the passage of the IBA has required Islamic Bankss to corroborate patterns based on prudent banking ( Thani and Hussain, 2010 ) . In add-on, based on the IBA demand, Islamic Bankss are required to hold its ain Shari’ah Advisory Board inclusive of qualified Shari’ah experts to guarantee that its operations conform to the Shari’ah. Meanwhile, the Central Bank overall has the power in oversing and modulating Muslim Bankss as in the instance with conventional Bankss. With the positive growing of Islamic Bankss in Malaysia, the Central Bank has set-up its ain Shari’ah Advisory Board in order to help in the supervising the industry patterns and criterions. The result of the execution of the Shari’ah commission refering to the fiscal affairs has proved to be successful in modulating Islamic banking concern based on Shari’ah conformity ( Vernados, 2005 ) .

Harmonizing to Vernados ( 2005 ) , the guidelines sing Islamic banking issued by the Central Bank can be regarded as a legal demand because under the Bank Negara Ordinance it specifically mentioned that the Central Bank is vested with the power in modulating the market. He added that one illustration of the guidelines set by the Central Bank is bespeaking all conventional Bankss involved in the Islamic banking concern and Islamic finance concern to keep a different current histories and uncluttering histories with the Central Bank to guarantee that minutess on these histories are conducted based on Shari’ah jurisprudence.

In 2009, farther regulative attempts were taken with the aim of beef uping the Shari’ah administration, to promote sound concern patterns and to develop operational efficiencies in Islamic fiscal establishments ( Bank Negara Malaysia, 2009 ) . With mention to this, the Rate of Return Framework for Islamic banking establishments was revised in order to guarantee that the operational efficiency of Islamic banking establishments are improved in footings of the direction of net income sharing investing histories. This is to guarantee that depositors will have a just and just part from the investing net incomes and to diminish information dissymmetries between Islamic banking concerns ( Bank Negara Malaysia, 2009 ) .

Bank Islam Malaysia Berhad

The twelvemonth 1983 marked a milepost in the Malaysian banking system with the constitution of Bank Islam Malaysia Berhad ( BIMB ) which provides an option to the bing conventional system. Bing the first Islamic bank in Malaysia at that point of clip, BIMB enjoyed a monopoly place in the domestic market of the Islamic banking ( Ahmad, 1997 ) . As BIMB ‘s operation is based on Islamic rules, it has managed to carry through the demand of the Muslim population. Harmonizing to Ariff ( 1988 ) , BIMB financess in investing have gone through all major sectors of the economic system which 90 % of the bank ‘s financess have been directed at Muslims.

The major stockholder of BIMB was the authorities of Malaysia with the keeping of 30 % . Due to the earlier success of Tabung Haji, it has supported the constitution of BIMB by lending the initial capital of RM80 million ( 12.5 % of the entire capital ) ( Ariff, 1988 ) . Since beginning, BIMB has managed to perforate the fiscal market successfully which is reflected from the gradual additions in its entire assets, loans and sedimentations over the old ages. At the terminal of 1984 ( the first twelvemonth of operation ) , BIMB ‘s entire assets, loans and sedimentations are RM326 million, RM162 million and RM241 million severally ( Haron, et al. , 1994 ) . As for the twelvemonth 2009, the bank ‘s entire assets, loans and sedimentations were RM24,789 billion, RM10,711 billion and RM25,212 billion severally ( Bank Islam Malaysia Berhad, 2009 ) . One of the conducive factors towards the success of BIMB is the ability of the bank in supplying competitory rates of returns to depositors compared to the rates provided by the conventional Bankss ( Ariff, 1988 ) . In add-on, he added that the of import map of BIMB is the mobilization of nest eggs and to back up this, the bank provides assorted types of sedimentations account which are as follows:

Current history is based on the rules of al-wadiah that allows the bank in utilizing the deposited money without holding to portion the net income with the depositors and in return provides a free current history services to the depositors.

Salvaging history is besides based on the al-wadiah rules but the bank has the discretion to return certain part of the generated net incomes to the depositors from clip to clip.

Investing history are provided based on the mudharabah principles that enables the bank to utilize the sedimentations with net incomes generated to be shared with the depositors based on understanding while losingss, if any to be entirely borne by the depositors. Two types of investing history available are:

General Investment history is based on Mudharabah rules which allows depositors in puting their financess at a specific period every bit short as one month to the longest of five old ages to be invested in the mode deemed fit by the bank. The distribution of net income is based on 70:30 ratio i.e. 70 % to the depositors while staying 30 % to the Bankss.

Particular Investment history is sedimentations received from authorities and the corporate clients. Net income sharing ratios are negotiable.

Despite the above, undertaking funding is besides provided by BIMB based on the construct of murabaha, Bai bitamin ajil, ijara and qard Al hassan. Letterss of recognition and letters of warrants are besides issued by BIMB based on rules of wakalah, musharakah and murabaha every bit good as carry oning other banking maps that are discharged against a fee ( Ahmad, 1997 ) .

BIMB has contributed towards the economic development peculiarly from the Muslim community and the county in general. Its chief part is through the economy services and thenceforth moved to the investings services. Earlier, many Muslims in Malaysia preferred to non put their money in the conventional Bankss due to the involvement payments. This was observed in the rural countries wherein ample salvaging part has been kept out of the system due to miss of halal mercantile establishments ( Ariff, 1988 ) . Therefore, the creative activity of Islamic Bankss helps to get the better of fiscal exclusion in Malaysia.

Government Initiatives towards the growing of Islamic Finance and Banking in Malaysia

As Malaysia is looking towards accomplishing acknowledgment for the capital or hub for international Islamic finance, several stairss were taken by the authorities which includes farther liberalization in the sector by making more competition, tapping new growing chances and raising the efficiency of Muslim Bankss as a whole ( Majid and Sufian, 2007 ) . This is supported by the issue of the full fledged Islamic bank licence by the authorities to foreign Bankss from the Middle East. Furthermore, in guaranting the stableness of the sector, Central Bank focussed on to reenforce the institutional substructure by heightening and beef uping the regulative model i.e. Shari’ah and legal substructure every bit good as rational capital development and consumer instruction ( Aziz, 2008 ) .

Despite heightening the state ‘s Islamic fiscal substructure, authorities has taken go oning attempts in developing the capablenesss in Islamic finance and beef uping the planetary pool of endowment and expertness in Islamic finance as it links towards merchandise invention and related to the procedure of market development. In stead of this, the Malayan authorities established the International Centre for Education in Islamic Finance ( INCEIF ) in 2006 to offer professional enfranchisement plans in Islamic finance in order to run into the human capital demands of the planetary Islamic fiscal service industry. It was reported that the current registration of 1,423 pupils from 64 states for assorted programmes has allowed INCEIF to place itself to be the international Centre of instruction excellence in Islamic finance ( Bank Negara Malaysia, 2009 ) . Aziz ( 2007 ) indicated that the Central Bank set up an RM500 million gift fund to back up the INCEIF based on the aim in doing Malaysia the taking Centre for Islamic finance instruction and developing human capital for the planetary Islamic finance industry.

Later portion of 2006 showed another positive stairss towards the growing of Islamic finance industry by the constitution of Malaysia International Islamic Financial Centre ( MIFC ) , which aims to advance Malaysia as a major hub for international Islamic finance. The MIFC enterprise involves the corporate support from the state ‘s fiscal and market regulators every bit good as the engagement of the industry stand foring banking, takaful and capital market in Malaysia. Under the MIFC enterprise, Malaysia has encouraged fiscal establishments in utilizing Malaysia as a platform in respects to their Islamic finance activities, leveraging on the comprehensive system and contributing environment for Islam finance concern available in Malaysia. For illustration, MIFC ‘s publicity activities include encouraging foreign engagement from established fiscal Centres in Europe, Asia and Middle East to take part in the Malayan Islamic fiscal system. The debut of the long-run trade name known as ‘Shaping Islamic Finance Together ‘ was created to place Malaysia as an rational Centre for Islamic fiscal activities ( Bank Negara Malaysia, 2009 ) .

A scope of inducements provided under the MIFC enterprises includes supplying new licence for carry oning foreign currency concerns, attractive revenue enhancement inducements and easing in-migration policies. With the said inducements, fiscal establishments will profit in footings on cost nest eggs, shorter larning curve and accessing new market in shorter clip.

Thani and Hussain ( 2010 ) highlighted among the success of MIFC are as follows:

Since 2006, the mean one-year growing for the Islamic banking assets is between 18 % -20 % and soon accounting for 15.4 % of entire banking assets in Malaysia ;

The strong growing in assets and net parts from the takaful and re-takaful industry with mean one-year growing rate of 19 % in 2009 ;

The securities listed on Bursa Malaysia based on Shari’ah ailment are over 85 % which represents about 60 % of the entire market capitalization ;

Shari’ah compliant unit trust financess showed a enormous growing of 84 % from the old twelvemonth, 2006 with gross revenues amounting to RM2.96 billion in 2007 ; and

Malaya was the first county in the universe to supply professional enfranchisement in Islamic finance via the Certified Islamic Finance Professional programme.

As a consequence from the attractive MIFC ‘s inducements, it has allowed Malaysia to derive greater planetary acknowledgment towards the attempt in modeling the Islamic fiscal industry. This is supported from the several awards obtained by MIFC such as ‘Best International Islamic Finance Centre for the twelvemonth 2008, 2009 and 2010 ‘ at the Annual London Sukuk Summit Awards of Excellence and ‘Islamic Finance Hub of the twelvemonth 2009 ‘ by The Asset Magazine ( ‘Official Website of the Malaysia International Islamic Financial Centre ‘ ) .

Regardless the precedence in human capital development, Malaysia has emphasized catalyzing common acknowledgment of Shari’ah readings. The twelvemonth 2008 marked another milepost with the constitution of the International Shari’ah Research Academy ( ISRA ) . The chief aim of ISRA is to carry on research on the modern-day Islamic finance based on Shari’ah and to supply an active platform for international battle among Shari’ah bookmans which focuses on invention ( Venardos, 2010 ) . In add-on, the Central Bank initiated the development of the Shari’ah parametric quantities which aim to advance a more consistent application for the Islamic fiscal contracts deducing from the underlying cardinal Shari’ah contracts. The first Shari’ah Parameter on murabahah was issued in 2009 which enables the Islamic fiscal establishments in utilizing it as a mention for the development of murabahah merchandises and services ( Bank Negara Malaysia, 2009 ) . Presently, the Central Bank is finalizing the Shari’ah Parameter for the undermentioned contracts such as ijarah, mudharabah musharakah and wadiah. Attempts were besides made with the proposed constitution of Majma ‘ Kewangan Islam Nusantara ( MAKIN ) which is an association of Shari’ah bookmans that promotes shared acknowledgment with respects to the Shari’ah criterions and rules in the ASEAN part ( Bank Negara Malaysia, 2009 ) .

In fact, the Association of Islamic Banking Institutions Malaysia has introduced four standardized understandings based on wakalah and murabahah for interbank and corporate arrangements which highlights the chief rules of the minutess which assist in extinguishing uncertainnesss and easing bilateral dialogues with the participants in the sector ( Bank Negara Malaysia, 2009 ) . As cited in the study, it was mentioned that in response to these understandings, several Islamic fiscal establishments from Brunei, Indonesia and the United Kingdom have shown involvement by holding to follow the paperss for minutess.

In advancing the common development of Islamic finance and concern linkages globally, the Central Bank under the MIFC ‘s docket has signed two Memorandum of Understanding ( MoU ) with the United Kingdom Trade and Investment ( UKTI ) and Hong Kong Monetary Investment Authority ( HKMA ) in 2009. Both the MoUs aims are to advance common cooperation in the country of Islamic Finance, chiefly towards the development of endowment and expertness every bit good as to advance and beef up concern linkages and substructure support ( Bank Negara Malaysia, 2009 ) .

The study has indicated some of the high spots of the MOUs which are as follows:

In July 2009, Malaysia – United Kingdom Islamic Finance forum was held with the purpose to construct concern interaction in the Islamic finance country every bit good as to promote two manner investings between the United Kingdom ( UK ) and Malaysia ;

In beef uping the relationship between Malaysia and the UK, an understanding was executed between INCEIF and Reading University, the Islamic Banking and Finance Centre ( IBFC ) , Cardiff University Business School and the Islamic Banking and Finance Institute Malaysia Sdn Bhd. , which aims in developing endowment and expertness in Islamic finance. With this agreement, it has provided a partnership model in footings of interchanging resources and the development of preparation programmes both in Malaysia and UK.

A first working degree meeting were held in December 2009 between the Central Bank of Malaysia and HKMA. The chief intent of the meeting is to discourse on the capacity edifice and human capital development in Islamic finance ;

Meanwhile, in order to guarantee the uninterrupted growing of the Islamic finance in Malaysia, the state is go oning to work in partnership with other regulative governments in guaranting the stableness in the IFSB, the Islamic Financial Stability Forum, the enterprises by the Islamic Development Bank and eventually the freshly formed International Islamic Liquidity Management Corporation ( IILM ) ( Aziz, 2010 ) . She besides added that with the increased engagement from parties worldwide, it will make a singular development of the planetary fiscal environment.

Performance of Islamic Banks in Malaysia

Since the debut in 1983, Islamic banking in Malaysia has been good accepted wherein it is supported by the sector ‘s positive growing public presentation. The said public presentation every bit good every bit functioning as an alternate banking for the clients, have so been the trademark for Islamic banking in other Muslim states.

The Islamic banking system continued to demo a steady growing public presentation in 2009 since its origin in 1983, with higher profitableness and positive tendencies in all indexs. The net income before revenue enhancement for the Islamic banking system amounted to RM2.6 billion posting a growing of 46 % . At the terminal of 2009, Islamic banking activity experienced rapid growing with 19.6 % of the entire banking assets compared to 17.4 % in 2008 ( Bank Negara Malaysia, 2009 ) . In stead of the said accomplishment, Malaysia ‘s official mark to accomplish 20 % banking market portion for the Islamic banking system by 2010 seems accomplishable. Figure 5.1 indicates the size and growing of assets, sedimentations and funding of Islamic banking in Malaysia. With respects to size, entire assets, sedimentations mobilised and funding of the Islamic banking system, it has registered a stable growing since 2001. The Islamic banking system accounted for RM303.3 billion of the entire assets of RM1,547.5 billion of the fiscal system at the terminal of 2009.

Beginning: Bank Negara Malaysia ‘s web site

As shown in Figure 5.1, there is a positive growing for both the sedimentations and funding activities in the Islamic banking system from the twelvemonth 2006 to 2009. In regard of the funding activities, it has accounted for RM133.5 billion as compared to RM104.6 billion in 2008 that overall indicate a growing of 28 % in 2009. Meanwhile, the banking sedimentations was RM188.8 billion in 2009 ( RM154.7 billion in 2008 ) and hence recorded a robust growing of 22 % in 2009. With the increased figure of participants in the Islamic banking sector, it will decidedly promote farther growing in the hereafter.

Traveling frontward and the hereafter of Islamic Banking and Finance in Malaysia

Due to turning planetary consciousness, Islamic finance has made a good foundation and is turning quickly in the international market. Harmonizing to Aziz ( 2010 ) , at the present minute, Islamic finance has presence in over 60 states with assets under direction of Islamic Bankss and conventional Bankss offering Islamic banking services transcending USD1,000 billion. Vernados ( 2010 ) indicated that the Islamic finance sector foresees as positive growing in the hereafter and there is inclination for the sector traveling towards the fiscal mainstream which is estimated to make USD4,000 billion in the following five old ages. With the big figure of participants and the constitution of new Islamic Bankss, it will decidedly promote farther growing by viing with the conventional banking. This is linked with old happening which indicated that Islamic Bankss have the capableness to prolong its viability and growing in the competitory fiscal environment ( Rosly and Bakar, 2003 ) . With the focal point in guaranting the fiscal system to stay sound and resilient, it will assist towards confronting the hereafter hazards and challenges whilst back uping the economic system growing of the state ( Bank Negara Malaysia, 2009 ) .

Based on aim of lending towards greater international fiscal and economic integrating, Malaysia will take uninterrupted stairss to beef up its international linkages in the planetary Islamic fiscal system through collaborative partnerships and cooperation with related parties.


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