ISLAMIC FINANCIAL SYSTEM: THE MALAYSIAN EXPERIENCE AND THE WAY FORWARD DR. MOHAMAD AKRAM LALDIN Abstract Islamic financial services are considered as one of the fast growing industry in Banking and finance sector and has now gained wide acceptance as a form of financial intermediation. The purpose of this paper is to elaborate the experience of Malaysia in developing the Islamic Financial System by explaining the different developments that has taken place since its inception in 1963 until now. The focus was on the different stages of the development in the Banking System, Takaful (Islamic Insurance), Islamic capital market and Islamic Unit Trust in Malaysia. Finally, the paper shares the ten key focal areas in the development of the 10 Year Master Plan for Islamic Financial Services Industry laid down by the Central Bank Governor. The paper is concluded by discussing the challenges ahead and the way forward in ensuring the excellence future development of the industry. The methodology used in this paper is library research by gathering the relevant information related to the subject from various sources particularly presentations and conference papers and analyzing them accordingly. The paper found that Malaysia has a very encouraging history of Islamic Banking and has big potential to succeed in this area. However, there are some areas need to be improved as suggested in the paper. Finally, this paper is important for those who would like to obtain an in depth exposure about the development of Islamic Banking in Malaysia and to set up a benchmark with the development of this industry in their respective country. Key Words: Banking History, Islamic Banking, Malaysia, Pilgrimage fund, Islamic Capital Market, Takaful, Master plan Type of Paper: General review Introduction Islam is a comprehensive way of life, which strikes the balance between the spiritual and the material need of human being. One of the important aspects in human life is the need for a comprehensive system in order to govern their life and to ensure all the needs are
35
Embed
Islamic Financial System: The Malaysian Experience and the Way Forward
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
ISLAMIC FINANCIAL SYSTEM: THE MALAYSIAN EXPERIENCE AND THE
WAY FORWARD
DR. MOHAMAD AKRAM LALDIN
Abstract
Islamic financial services are considered as one of the fast growing industry in Banking and
finance sector and has now gained wide acceptance as a form of financial intermediation. The
purpose of this paper is to elaborate the experience of Malaysia in developing the Islamic
Financial System by explaining the different developments that has taken place since its inception
in 1963 until now. The focus was on the different stages of the development in the Banking
System, Takaful (Islamic Insurance), Islamic capital market and Islamic Unit Trust in Malaysia.
Finally, the paper shares the ten key focal areas in the development of the 10 Year Master Plan
for Islamic Financial Services Industry laid down by the Central Bank Governor. The paper is
concluded by discussing the challenges ahead and the way forward in ensuring the excellence
future development of the industry. The methodology used in this paper is library research by
gathering the relevant information related to the subject from various sources particularly
presentations and conference papers and analyzing them accordingly. The paper found that
Malaysia has a very encouraging history of Islamic Banking and has big potential to succeed in
this area. However, there are some areas need to be improved as suggested in the paper. Finally,
this paper is important for those who would like to obtain an in depth exposure about the
development of Islamic Banking in Malaysia and to set up a benchmark with the development of
this industry in their respective country.
Key Words: Banking History, Islamic Banking, Malaysia, Pilgrimage fund, Islamic
Capital Market, Takaful, Master plan
Type of Paper: General review
Introduction
Islam is a comprehensive way of life, which strikes the balance between the spiritual and
the material need of human being. One of the important aspects in human life is the need
for a comprehensive system in order to govern their life and to ensure all the needs are
2
catered adequately including the material needs such as the financial management. This
aspect of life is closely related to the fast growing industry in the world nowadays, which
is the Islamic financial services industry.
Looking at the history of Islamic financial institutions, it started with a number of interest
free saving and loan societies which are reported to have been established in the Indian
subcontinent during 1940s. But efforts to arrange finance for business enterprises seem to
have started later. Among the pioneering experience in this sector is the establishment of
Pilgrimage Fund Board in Malaysia. Money being saved for meeting the cost of the
pilgrimage to Makkah is profitably invested by this organization, which is still in
operation at present. In the private corporate sector, the early efforts begins with the
establishment of the Dubai Islamic Bank in 1975 under a special law allowing it to
engage in business enterprise while accepting deposits into checking accounts. Ten years
later, twenty seven more similar banks were established in the Gulf countries, Egypt,
Sudan, etc. Around the same time, over 50 conventional banks, some of them located at
money centers like London were offering Islamic financial products. This was followed
by some of the major conventional banks establishing Islamic branches dealing
exclusively in Islamic products. Citi-Islamic in Bahrain and Grindlays in Karachi were
followed by the National Commercial Bank in Saudi Arabia establishing over 50 Islamic
branches by 1990s. By the year 2000, there were 200 Islamic financial institutions with
over US $8 billion in capital, over US $100 billion in deposits, managing assets worth
more than $160 billion. About 40% of these activities and concentrated are in the Persian
Gulf and the Middle East, another 40% in South and South-East Asia, the remaining
equally divided between Africa and Europe and the Americas. Two thirds of these
institutions are very small, with assets less than US $100.1 At present, more than two
hundred and fifty Islamic financial institutions are operating world-wide and Islamic
banking is estimated to be managing funds up to the value of US$ 400 billion. The annual
growth of Islamic financial institutions has been estimated 15% worldwide over the past
10 years and is expected to accelerate in the foreseeable future.2
Encouraged by the above tremendous developments, this paper aims at highlighting the
different development that has taken place in the Islamic financial services institutions in
3
Malaysia. In addition, the paper intends to highlight the ten key strategies adopted by the
Malaysian Government in devising the ten years master plan for Islamic Financial
services industry.
Indeed, the development of the Islamic financial system in Malaysia started with the
establishment of Pilgrimage Fund (Tabung Haji) in 1963 as the first Islamic savings
institution. After a few years of break, the first full-fledged Islamic bank was established
in 1983 with the name Bank Islam Malaysia (Islamic Bank of Malaysia). As for the non
banking financial service institution, it begins with the establishment of the first Takaful
or Islamic insurance company under the Takaful Act in 1984. These developments were
subsequently expanded with the introduction of Islamic windows by conventional
banking institutions which began in 1993 where Islamic products and services could be
offered by the conventional banking institutions. In the same year, Islamic money market
has developed and considered was seen and this segment is one of the fastest growing
segments in Islamic financial instrument. In order to internationalize the Islamic Banking
industry and making Malaysia as Islamic financial hub, the Malaysian government has
started opening it market to international players in this field. It started by allowing
international banks which operates Islamic product to open their branches in Malaysia.
At present there are three international players which are Al-Rajhi Banking and
Investment Corporation, Kuwait Finance House and RUSD Bank-led consortium which
includes Qatar Islamic Bank and Global Investment House. The most recent
development is the Islamic subsidiaries which saw the interest of some conventional
banks to operate full fledge Islamic bank. At present, there are three Banks which are
operating as subsidiaries.
In order for the Islamic financial sector to be competitive and to ensure the vision of
making Malaysia as global financial hub, it is important to have adequate advance
planning in this area. Therefore, during the Seminar on the Ten-Year Master Plan for the
Islamic financial services industry organized by the Islamic Development Bank (IDB)
and the Islamic Financial Services Board (IFSB), the Malaysian Government has initiated
the drafting of the ten years master plan for the Islamic financial services industry. Two
4
important areas of focus namely, building institutional capacity and the development
of the supporting financial infrastructure has been identified as the strategic element
in the development of a progressive Islamic financial services. Ten key areas of the above
strategies have been identified in order to be success in the focus areas mentioned above.
The ten areas and the way forward will be discussed at the end of this paper.
Early Development (The Establishment of Pilgrims Fund Cooperation)
The early effort in developing the Islamic financial sector services in Malaysia begins
with the birth of the Pilgrims Fund Corporation or better known as „Tabung Haji” which
was established in November 1962 and commenced operation on September 30, 1963. Its
existence was also strongly attributed to a working paper presented by the Royal
Professor Ungku Aziz titled, “Plan to Improve the Economy of Prospective Pilgrims” in
1959. The idea was mooted out of the necessity to develop a mechanism to encourage the
Muslims to save for their pilgrimage as the Malaysian Muslims in the past had resorted to
various traditional means of saving and keeping their money for the sacred journey.
There were also those who sold their livestock and other properties in order to earn
sufficient fund for their pilgrimage. Such practices caused negative financial and social
implications on them and their families during and after their pilgrimage. In addition, it is
also damaging the rural economic structure and threatening the national economic
growth. Apart from the above reason, there was also need for an institution which can
guarantee the savings of Muslims are free from elements of usury and its activities are
done according to Shariah requirement.
The objectives of the establishment of Tabung Haji under Act 8 of Pilgrimage
Management and Fund Board 1969 are:
To enable Muslims to save gradually to support their expenditure during
pilgrimage and for other beneficial purposes
To enable Muslims to have active and effective participations in investment
activities permissible in Islam through their savings and
5
To protect, safeguard interests and ensures welfare of pilgrims during pilgrimage
by providing various facilities and services
The main activity of Tabung Haji include depository which provides saving services to
Muslims, investment activities of accumulated funds and monitoring of investment
functions and pilgrimage which includes Haj services in the homeland and at the Holy
Land. As for savings activities, the following chart illustrates the number of depositors
and the credit and debit activities from the year 1999 to 2003:
3,708,283
307,237
4,023,942
326,941
4,328,942
338,188
4,534,318
219,948
4,718,888
185,5530
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
5,000,000
1999 2000 2001 2002 2003
Accumulated
New
Number of Depositors
3,439
2,749
4,594
3,502
5,432
4,722
4,108
4,749 4,787
4,183
0
1,000
2,000
3,000
4,000
5,000
6,000
1999 2000 2001 2002 2003
Debit
Credit
Credit and Debit Activities
The above statistics indicates the encouraging increase of the number of depositors from
year to year and the reasonable amount of deposit maintained yearly.
RM
Mil
lio
n
Year
Year
RM
Mil
lio
n
6
With regard to the net asset value, net profit, bonuses and zakah paid, as of the end of
financial year 2003, the figures stands as follows:
Net asset value RM 11,635 million
Net profit RM 404 million
Bonus to the depositors RM 411 Million
Zakah RM 14.5 million.
The following charts illustrate the flow of the profit, asset value, bonus paid and zakah
paid from the year 1999 to 2003:3
459
338 336368
414
0
50
100
150
200
250
300
350
400
450
500
1999 2000 2001 2002 2003
Profit After Zakah
8,416
9,846
10,892 10,619
11,635
0
2,000
4,000
6,000
8,000
10,000
12,000
1999 2000 2001 2002 2003
Year
RM
Mil
lio
n
Year
RM
Mil
lio
n
7
Net Assets
543
455
322346
411
0
100
200
300
400
500
600
1999 2000 2001 2002 2003
1999 2000 2001 2002 2003
Bonus
Percentage
(%)
8.0 5.5 3.25 3.5 4.0
Bonuses for Depositors
19.320.2
13.515 14.5
0
5
10
15
20
25
1419 1420 1421 1422 1423
Zakah
In term of investment, one of the interesting aspects of Tabung Haji is that it has
diversified its investment activities in various Shariah compliance investment
instruments such as Bonds, Corporate Notes, Government Investment Certificates,
Mudharabah Bank Account and Bill of Acceptance. In addition, Tabung Haji's
investment in subsidiaries is part of its strategy to participate directly in potential and
viable sectors. Emphasis is given to the plantation, construction, real estate development,
and services sectors. The four subsidiaries fully owned by Tabung Haji are:
Year
RM
Mil
lio
n
Year Hijri
RM
Mil
lio
n
8
TH Plantations Sdn. Bhd. (plantation sector)
TH Technologies Sdn. Bhd. (construction sector)
TH Properties Sdn. Bhd. (real estate development sector)
TH Travel & Services Sdn. Bhd. (hajj, umrah, and tour services sector)
The investment and earnings of Tabung Haji is illustrated in the following chart:
INCOME RM
Million Percentage (%)
Profit from Shares Trading 131.32 18.94
Cash Investment and Mudharabah Profits 139.32 20.10
Shares Dividends 201.06 29.00
Rentals income 39.85 5.75
Subsidiaries Companies Profits 118.49 17.09
Profit from Asset Selling 38.57 5.56
Others 26.64 3.56
Total 639.25 100 %
INVESTMENT RM
Million Percentage (%)
Equity Investment 3,696.18 32.36
Public Listed Companies 877.73 7.68
Subsidiaries Companies 410.05 3.59
Financing of Subsidiaries Companies 1,284.96 11.25
Equity Investment 1,671.08 14.63
Mudharabah Investment 1,644.19 14.39
Investment in Immovable Assets 1,839.30 16.10
Total 11,423.49 100 %
Finally, Tabung Haji is considered as one of the popular investment institutions for
Malaysian Muslim as it offers very competitive bonus to the depositors. This very
foundation of the Islamic financial services in Malaysia indicates that this country has
is Islamic insurance or widely known as Takaful.The concept of Takaful (Islamic
insurance) was first introduced in Malaysia in 1985 when the first Takaful operator was
established to fulfil the need of the general public to be protected based on the Islamic
principles. The legal basis for the establishment of Takaful operators was the Takaful Act
which came into effect in 1984. Takaful in Malaysia follows the concept in Shariah
whereby a group of participants mutually agree among themselves to guarantee each
other against defined loss or damage that may inflict upon any of them by contributing as
tabarru’ or donation in the Takaful funds. Tabarru‟ is the agreement by a participant to
relinquish as donation, a certain proportion of the Takaful contribution that he agrees or
undertakes to pay, thus enabling him to fulfil his obligation of mutual help and joint
guarantee should any of his fellow participants suffer a defined loss. The concept of
tabarru‟ eliminates the element of uncertainty in the Takaful contract. The sharing of
profit or surplus that may emerge from the operations of Takaful is made only after the
obligation of assisting the fellow participants has been fulfilled. Thus, the operation of
Takaful may be envisaged as a profit sharing business venture between the Takaful
operator and the individual members of a group of participants.
Types of Business
The Takaful businesses carried out by the Malaysian Takaful operators are broadly
divided into family Takaful business (Islamic "life" insurance) and general Takaful
business (Islamic general insurance).
Family Takaful Business
In general, a family Takaful plan is a combination of long-term investment and mutual
financial assistance scheme. The objectives of this plan are: -
to save regularly over a fixed period of time;
to earn investment returns in accordance with Islamic principles; and
to obtain coverage in the event of death prior to maturity from a mutual aid
scheme.
24
Each contribution paid by the participant is divided and credited into two separate
accounts, namely the participants' special account (PSA) and the participants'
account (PA). A certain proportion of the contribution is credited into the PSA on the
basis of tabarru'. The amount depends on the age of the participant and the cover period.
The balance goes into the PA which is meant for savings and investments only.
Examples of covers available under family Takaful business are as follows: -
Individual family Takaful plans;
Takaful mortgage plans;
Takaful plans for education;
Group Takaful plans; and
Health/Medical Takaful.
General Takaful Business
The general Takaful scheme is purely for mutual financial help on a short-term basis,
usually 12 months to compensate its participants for any material loss, damage or
destruction that any of them might suffer arising from a misfortune that might inflict
upon his properties or belongings. The contribution that a participant pays into the
general Takaful fund is wholly on the basis of tabarru'. If at the end of the period of
Takaful, there is a net surplus in the general Takaful fund, the same shall be shared
between the participant and the operator in accordance with the principle of al-
Mudharabah, provided that the participant has not incurred any claim and/or not received
any benefits under the general Takaful certificate.
The various types of general Takaful scheme provided by the Takaful operators include: -
Fire Takaful Scheme;
Motor Takaful Scheme;
Accident/Miscellaneous Takaful Scheme;
Marine Takaful Scheme; and
Engineering Takaful Scheme.
25
Takaful Operators in Malaysia
At present there are four main players in the market and recently the Central Bank of
Malaysia announces that they are providing four more Takaful licenses. The four
registered Takaful operators are:
1. Mayban Takaful Berhad
2. Syarikat Takaful Malaysia Berhad
3. Takaful Ikhlas Sdn Berhad
4. Takaful Nasional Sdn Berhad
Takaful Key Statistics17
Generally the Takaful industry is showing an encouraging development with an average
of 28% growth per annum. Below are the statistics from the year 2000 to 2005 on the
business:
As at end September September
2000 2001 2002 2003 2004 2004 2005
Number
No. of Registered Takaful
Operators 2 2 3 4 4 4 4
No. of Offices
Branch
Takaful Desk
124
41
83
125
42
83
127
42
85
132
43
89
134
134
-
129
129
-
134
134
-
No. of Agents
Family Takaful
General Takaful
4,567
3,873
694
6,528
5,391
1,137
9,191
7,227
1,964
11,433
9,893
1,540
11,370
11,842
2,528
11,857
9,893
1,964
11,370
11,842
2,528
No. of Employees 1,178 1,553 1,716 2,161 2,376 2,161 2,376
%
Market Share
Asset
Contribution
3.7
3.8
5.0
4.1
5.3
5.3
5.6
5.4
5.6
5.1
5.6
3.8
5.9
4.5
Market Penetration 2.5 3.2 3.8 4.5 5.1 5.0 5.5
26
Ten Years Master Plan for Financial Sector
The Government of Malaysia has announced its ten year master plan for financial sector
which comprises of three stages of plan. The objective of the first phase which extended
from 2001 to 2004 was to strengthen the operational and institutional infrastructure
whereas phase two which stretches from 2005 to 2007 will focus on stimulating
competition. The final stage that extends from 2008 to 2010 will mainly geared towards
progressive liberalization and effective infrastructure. As far as the Islamic financial
sector is concern, it is important to have a master plan for the reason mentioned by the
Governor of Malaysian Central Bank:
“Islamic finance is now taking on a new dimension to meet the changing requirements of
consumers and businesses; to participate in a more liberalized and globalize environment
and to become increasingly more internationally integrated. The financial system is also
operating in an era of change. Indeed, the national and international financial landscape is
being shaped by powerful forces of change, creating an environment of increased
uncertainty. However, with clarity of vision on the ultimate goals that the financial
system aims to achieve, we can, by our actions and initiatives taken today, help realize
our vision of the future”18
.
Thus, the master plan will help in providing a common vision, and template for countries
in developing the Islamic financial services industry. In addition, it will also serve as a
key reference document to guide countries in charting an orderly development of the
Islamic financial system. A master plan that has a meaningful role in a nation's future
economic and social development requires well-defined strategies that focus on two main
areas, building institutional capacity and the development of the supporting financial
infrastructure. There are ten key focal areas of the strategies that have been identified as
follows:
27
1. Identifying the nature of Islamic banking system that is appropriate for the
country - whether to ultimately adopt a dual banking system where Islamic banks
and conventional banks offering Islamic banking products operate in parallel with
the conventional banking system, or alternatively to adopt a single banking
system that fully accords the Shariah injunctions where all the banks are Islamic.
2. Ensuring that the Islamic banks are well-capitalized and resilient. For Islamic
banks that are already in existence, clear criteria need to be specified on the
minimum capital size that would enable them to be significant players in the
market, be able to gain from economies of scale, have a diversified earnings base
and stronger market presence. Such minimum size can either be achieved through
organic growth or merger with a partner bank which would bring about the
desired outcome in a shorter period of time. Incentives can be provided to induce
the banks to consolidate while guidelines on minimum capital size can be
imposed to ensure that the banks either merge or undergo a recapitalization
exercise. In the case of countries that are just embarking on the introduction of
Islamic banks, this could be achieved by the issue of new Islamic banking
licenses.
3. For countries that have a dual banking system, where conventional banks are
allowed to offer Islamic banking products, there must be adequate firewalls to
ensure absolute separation of banking operations to avoid co-mingling
between the Islamic and conventional funds. This is to ensure the integrity of
Islamic banking operations and the sanctity of Islamic funds. The firewalls would
need to include separate capital funds, cheque clearing systems, clearing accounts
with the Central Bank, settlement accounts and reporting systems.
4. Stakeholders of Islamic institutions playing their role effectively and
efficiently to generate improvements in the entity. This includes strong
leadership in the management team that has a firm commitment toward
performance and capacity enhancements. In addition, investments in the requisite
28
talent and skills are essential to spearhead the development of Islamic financial
products.
5. Ensuring adequate and comprehensive legal infrastructure. Enactment of an
Islamic banking law is an important part of this process. For conventional banks
offering Islamic banking products, amendments to the existing banking legislation
may be necessary to allow such banks to undertake trade-related activities and
other multi-faceted functions. The investment policy of the Government may need
to be reviewed to provide for the issue of Islamic investment instruments to
facilitate the liquidity operations of such banking institutions. In addition, a legal
fraternity that is competent in both Shariah and civil laws is very important
including the tax legislation that accord neutrality in treatment between Islamic
and conventional banking products.
6. Development of a comprehensive Shariah framework is a fundamental part of
the process. Each institution offering Islamic products will need to establish a
Shariah advisory committee to ensure that all Islamic transactions, products and
operations are Shariah-compliant. Shariah decisions need to be made transparent
to promote greater understanding and the acceptance of such decisions.
7. A robust and effective regulatory and supervisory framework particularly in
the areas such as capital adequacy and the liquidity framework taking into account
the unique risk characteristics of the Islamic banking models that accord the
Shariah requirements. In addition, sound corporate governance, transparency,
accountability, disclosure, market discipline, risk management and consumer
protection are common issues that need to be addressed.
8. Research and development to incorporate core Islamic values into banking
products and business models. Research and development and leveraging on the
advances in information and communication technology are critical in ensuring
performance and a more equitable distribution of profits and wealth among all
29
stakeholders. In addition, it can be utilized to enhance product development and
risk management.
9. Development of financial market infrastructure in order to ensure the
sustainability of Islamic banking. This can materialize through the introduction of
Islamic interbank and foreign exchange markets as it is essential for the efficient
functioning of the Islamic banking system. They facilitate the liquidity operations
of Islamic banks and promote financial stability. In addition, they serve as an
important transmission channel for the implementation of monetary policy as well
as the central bank's role as lender of last resort. In addition, the creation of a
well-developed Islamic capital market is essential as it provides the users of
capital with an alternative and cost-efficient source of longer-term financing, and
accords investors with a wider range of financial instruments to suit their different
risk profiles. Apart from the above, an efficient and robust payment system for
the clearing and settlement of payments shall be emphasis. Other financial
infrastructure that provides support to the development of the Islamic banking
sector includes the mortgage corporation to undertake the securitization of house
financing, a credit guarantee corporation to provide guarantee schemes to the
SME industry, and a rating agency to rate the Islamic financial instruments and a
deposit insurance scheme to provide the necessary safety net for depositors should
also be developed. In addition, the auditing, tax and legal firms must have the
right talents to provide their services to the Islamic financial institutions. These
ancillary institutions must have the ability to provide their services that are in
accordance with the Shariah principles.
10. Consumer education and awareness about Islamic banking is critical to its
success and future development. A consumer education program needs to be
developed to enhance public awareness of the features of Islamic banking
products and services.19
30
These are the key areas of challenges that need to be translated into action for the Islamic
Finance sector to grow. Apart from what has been outlined, specific countries might have
their own focal area in order to advance in this industry. The appropriate Islamic banking
system for a country would be largely based on the national agenda of the respective
countries, the objectives that the system hopes to achieve and the available resources.20
Key Challenges and Way Forward
A vibrant and excellence Islamic Financial industry is the dream of everyone who is
seriously involve in this industry. This can be achieve only if all those who participated in
the industry work collectively and seriously in order to ensure a success. There are key
challenges that need to be thought and in the humble opinion of the writer these areas can
be summarized as follows:
1. Ensuring greater Shariah compliant and convergence. This can be achieve
through dialogue and greater interaction between the Shariah scholars. It is also
important for the Shariah scholars to adapt specific standards in deciding upon
specific issues pertaining to the industry. It is suggested that a global Shariah
Advisory Council be established specifically to address issues related to Shariah
matters and this body shall be recognized by the Islamic financial institutions
globally. One of the important role of the body shall be finding the ways for a
greater convergence in Shariah views and opinion related to banking and finance.
The Malaysian Government has recently announced the allocation of RM200
million endowment fund to meet the financing requirements of the Shariah
Scholars' Dialogue research activities and the provision of scholarships. It is
hoped that this will contribute towards greater understanding in the process of
harmonizing the international implementation of Shariah in Islamic finance.
Apart from the dialogue, a comprehensive Shariah legal framework is also very
important taking into consideration the different requirements of each respective
country.
31
2. Ensuring compliance with internationally acceptable standards. In order for
the industry to be viable and valued it is important to ensure the industry comply
with internationally accepted standards. An important initiative in this area is the
establishment of the Islamic Financial Services Board (IFSB) in 2002. It was
established to promulgate the international regulatory and supervisory standards
for Islamic financial institutions worldwide aimed at achieving harmonization of
Islamic banking practices, fostering best practices and securing soundness and
stability in Islamic finance. In addition, the accounting and Auditing Organization
for Islamic Financial Institutions (AAOIFI) has introduced several Shariah and
accounting standard which can be adopted by Islamic Financial institutions.
3. Ensuring availability of human capital. It is also important to emphasis on
human talent management to create a sufficient pool of competent bankers and
Shariah experts essential to spearhead innovation in Islamic financial products
and services. To meet the increasing manpower requirements, institutions of
higher learning and the Islamic banking and finance institutes have to initiate new
programmes and trainings on Islamic finance.
4. Ensuring greater international cooperation and coordination. In order for the
industry to be competitive, it is important to focus on internationalizing the
industry. This can be achieve by collation, sharing, exchange and dissemination of
information between different institutions internationally. One of the pioneer
initiatives in this area was the setting up of the International Islamic Financial
Market or IIFM in 2002. The IIFM provides the environment to link all the
financial centers around the world that participate in Islamic finance, thereby
encouraging active participation by both Islamic and non-Islamic financial
institutions in the secondary market for Islamic financial instruments. As the
volume increases, it would strengthen the inter-linkages and integration amongst
the Islamic financial centers.
32
5. Introduction of universally acceptable products and services. This is the
challenge that has to be a taken by the bankers as well as the Shariah scholars to
provide universally acceptable products and services. This will assist in boosting
inter banking transactions and fostering greater cooperation between Islamic
financial institutions globally.
Finally, it has to be noted that the rapid progress of Islamic banking over the last two
decades would not have been possible without the pioneering efforts of the Islamic
financial institutions and all those who have put tremendous effort in building up a
successful and vibrant industry. Despite that, the opportunity and prospect for a greater
future success lies in the hand of all. Allah says in the Qur‟an: “…Verily! Allah will not
change the good condition of a people as long as they do not change their state of
goodness themselves…” (Al-Ra‟d: 11)
List of References:
1. Lecture by Dr. Mohammad Nejatullah Siddiqi, Recent History Of Islamic
Banking And Finance, (Anderson Graduate School of Management, University
of California, Los Angeles, 7 November 2001
2. Tabung Haji Annual Report 2003
3. Ismail, Abdul Halim. Bank Islam Malaysia Berhad: Structure and Functions
(Paper presented at the Seminar on Current Trends and Development of the
Banking Industry in Malaysia, 6-7 June 1983)
4. Islamic Banking Act 1983
5. Overview of Islamic Banking in Malaysia, Central Bank of Malaysia
6. Governor's Speech at the Seminar on 10-Year Master Plan for Islamic Financial
Services Industry: "Building a Progressive Islamic Banking Sector: Charting the
33
Way Forward". Governor Tan Sri Dato' Sri Dr. Zeti Akhtar Aziz , Putrajaya,
Malaysia, 22 June 2005.
7. Nik Roslin. Pasaran Modal Islam – Sektor Pemantap Industri Kewangan Islam,
Presentation at Muzakarah Pasaran Modal Islam, Kuala Lumpur, September 2005
8. The Islamic Bond Market in Malaysia published by Rating Agency Malaysia
Berhad (Brochure)
9. Development in the Malaysian Capital Market, Securities Commission Malaysia
(Brochure)
10. Development in the Malaysian Islamic Capital Market, Securities Commission
Malaysia (Brochure)
11. Breadth & Depth, Complementing the Islamic Capital Market by Federation of
Malaysian Unit Trust Managers (Brochure)
12. Developing the Islamic Capital Market – Malaysia‟s Experience and the Way
Forward by Nik Ramlah Mahmod at Shariah Scholars Dialogue, Kuala Lumpur,
June 2005
13. Mohd Razif Abd. Kadir, Islamic Financial System: Malaysia‟s Experience and the
Way Forward, presentation at Shariah Scholars Dialogue, Kuala Lumpur, June
2005
14. Islamic Banking Practice from the Practitioner‟s Perspective, Bank Islam
Malaysia Berhad, Kuala Lumpur, 1994
15. Takaful (Islamic Insurance) Concept & Operational System from the
Practitioner‟s Perspective, BIMB Institute of Research and Training Sdn. Bhd.
Kuala Lumpur, 1996
34
Endnotes:
1 Excerpt from the lecture by Dr. Mohammad Nejatullah Siddiqi, Recent History Of Islamic Banking And
Finance, (Anderson Graduate School of Management, University of California, Los Angeles, 7 November 2001) 2 Source obtained from the presentation in Kuala Lumpur Islamic Finance Forum 2005, Kuala Lumpur, December 2005. 3 Tabung Haji Annual Report 2003 obtained from: http://www.tabunghaji.gov.my/th/bi/bi-latarbelakang_th.asp?lthmenu=0 4 Ismail, Abdul Halim. Bank Islam Malaysia Berhad: Structure and Functions (Paper presented at the Seminar on Current Trends and Development of the Banking Industry in Malaysia, 6-7 June 1983)
35
5 Islamic Banking Act 1983 6 Islamic Banking Act 1983 7 Overview of Islamic Banking in Malaysia, Central Bank of Malaysia write-ups. 8 Mohd Razif Abdul Kadir. Presentation on Islamic Financial System: Malaysia’s Experience and the Way Forward during Shariah Scholar Dialogue, Kuala Lumpur, June 2005. 9 Overview of Islamic Banking in Malaysia, Central Bank of Malaysia write-ups. 10 As at October 2005 11 Source: Bank Negara Malaysia (Central Bank of Malaysia) 12 Source: Bank Negara Malaysia (Central Bank of Malaysia) 13 Source: Bank Negara Malaysia (Central Bank of Malaysia) 14 The Islamic Capital Market published by Bursa Malaysia 15 The Malaysia Islamic Capital Market issued by Securities Commission of Malaysia 16 ibid 17 Source: Bank Negara Malaysia (Central Bank of Malaysia) 18 Governor's Speech at the Seminar on 10-Year Master Plan for Islamic Financial Services Industry: "Building a Progressive Islamic Banking Sector: Charting the Way Forward". Governor Tan Sri Dato' Sri Dr. Zeti Akhtar Aziz , Putrajaya, Malaysia, 22 June 2005. 19 Excerpts from the Governor's Speech at the Seminar on 10-Year Master Plan for Islamic Financial Services Industry: "Building a Progressive Islamic Banking Sector: Charting the Way Forward". Governor Tan Sri Dato' Sri Dr. Zeti Akhtar Aziz , Putrajaya, Malaysia, 22 June 2005. 20 Ibid