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Islamic Finance ( In Malaysia )
Amirul Haji Mohamad QGC 080001Halalfinancing.blogspot.com
Penny Siew Bee Chew QGC080005
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Outline
1. Development2. Facts and Figures3. Type of Contracts4. Examples of Accounts
( Balance Sheet & Income Statement )5. Some Tips for Malaysian SMEs6. Conclusion
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Milestones
1969 1983 1993 2003
Pilgrimage Fund Board
Bank Islam Malaysia Bhd.
Bank Muamalat Malaysia Bhd.
Foreign Islamic banks
Full-fledged Islamic banks
Conventional banks offer Islamic window
Takaful Operators
Syarikat Takaful Malaysia Bhd.
Takaful Nasional, Mayban Takaful, Takaful Iklhas, Commerce Takaful
Islamic subsidiary
Islamic Stock Broking
Development -1
source : BNM
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Development -2 In General
• LEGAL: Islamic Banking Act 1983
Malaysia Government Investment Act 1983 Takaful Act 1984BNM Guide LineSecurities Commission Act 1993
• EDUCATION :UIA –Islamic UniversityINCEIF – Islamic Finance University
• GOVERNMENT :Taxation Incentives
• INSURANCES: Takaful ( Islamic Insurances )
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GUIDELINES : Some Examples
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Malaysia’s Parallel Dual Financial System
Conventional banks Islamic banks
Conventional financial system Islamic financial system
Conventionalbanks window
Conventionalbanks
Islamic Banking Subsidiaries
Insurance Companies Takaful Operators
source : BNM
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Some Differences
CONVENTIONALInterest-based
Primarily debt financing
Debt financing is interest-based and DOES NOT require assets
Derivatives are PERMITTED
ISLAMICInterest-free
Primarily equity financing & sales transactions
Financing must be “ASSET-BACKED”
Derivatives are NOT permitted
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Facts and Figures
Increasing
Increasing
Increasing
source : BNM
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Islamic Banking Institutions : RM Million
Total Assets 192,810.40 ( End of Dec 08 ) 13%
Total Financing 104,647.60 ( End of Dec 08 ) 14%
Total Deposits 154,880.90 ( End of Dec 08 ) 14.25%
Facts and FiguresLatest Update( Dec 2008 )
source : BNM
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Facts and Figures
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Facts and Figures
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Facts and Figures
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Facts and Figures
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Some Information (Islamic Capital Market )
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Basis For Usury/Interest Prohibition
• ISLAM– Quran ( Al-Baqarah,verse 275)
• CHRISTIANITY- Old Testament- Roman Catholic-Pope Clement Clement V (1311)
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Islamic Banking Concepts
• Al-Mudharabah (Trustee profit-sharing)• Al-Musyarakah (Joint venture profit
sharing)• Bai’ Bithaman Ajil (Deferred payment
sale)• Al-Ijarah Thumma al-Bai’
(Leasing and subsequently purchase)• Al-Ijarah (Leasing)
• Al-Murabahah (cost plus sales)• Al-Wadiah Yad Dhamanah (savings
with guarantee)• Bai’ al-Dayn (debt trading) Al-Qardhul
Hassan (benevolent loan)• Bai’ as-Salam (future delivery)• Bai’ Al-Istijrar (supply contract)• Al-Kafalah (guarantee)• Ar-Rahnu (collateralised borrowing)• Al-Wakalah (nominating another
person to act)• Al-Hiwalah (remittance)• As-Sarf (foreign exchange)• Al-Ujr (fee)• Al-Hibah (gift)
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Type of Contracts 1. Deposits
• Al-Wadiah ( Guarantee Custody )• Al-Mudharabah ( Trustee Profit Sharing )• QARDHUL – Hassan ( Benevolent loan/
Deposit )
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Type of Contracts 2. Financing
• BBA ( Deferred Installment Sales)• AITAB ( Hire Purchases )• Mudharabah ( Trustee Profit Sharing )• Musyarakah ( Joint Venture Profit Sharing )• Ijarah ( Leasing )• Sukuk ( Syndication / “Bond”)• Murabaha (Cost Plus Sales )
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Islamic ACCOUNTING STANDARDS Regulatory Body:
(AAOIFI)
Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)
Registered 1991 ( Agreement signed by Islamic Financial Institutions in 1990 at Algeria ) Based in Bahrain
An Islamic international autonomous non-profit corporate body that prepares:accounting, auditing, governance, ethics and Shari'a standards for Islamic financial institutions and the industry.
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Regulatory Body:(AAOIFI)
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AAOIFI
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Case Study:Evolution of Accounting
Standards *EON Bank Berhad*
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Balance Sheet & Income Statement2005 & 2007
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Balance Sheet 2007
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Balance Sheet 2005
Consolidated Note of FS
*FS = Financial Statement
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Income Statement 2007
Consolidated Note of FS
*FS = Financial Statement
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Income Statement 2005
Consolidated Note of FS
*FS = Financial Statement
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Income Statement 2005 ( Cont’ )
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Some Tips for Malaysian SMEs
Type of Contracts Islamic Finance Conventional
1. DEPOSITS
Current Accounts (CA) *Dividend Paid No Dividend
AMGIA / Fixed Deposit (FD)
Early Withdrawal (Pro-rate Dividend)
Early Withdrawal (NO Pro-rate Dividend)
2.FINANCING
Late payment *Compensation for Late Payment (CLP)
Late Payment Charges (LPC)
Joint Venture Available N/A
Letters of Credit / Credit Cards
*Flat Rate Administration Fee
LPC
* Tiered Rates/Charges
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Conclusions
• Profit Sharing Concept ensure Win-Win Situation
• Sales Transactions ensure price stability• Asset –Backed Financing ensure less
speculation.• Islamic Finance is NOT ONLY for Muslim /
Muslim Countries but is for EVERYBODY
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Thank YOU
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Development -1
source : BNM , Conference on Islamic Banking , Central Bank of UAE , Abu Dhabi
(Pilgrimsage Fund Board)
Islamic Banking/Islamic Finance, Islamic Bond and Money Market