Legal Framework of Islamic Banking

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  • 09/04/13 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
  • Legal Framework of Islamic Banking

    1. 1. GROUP 5 : MARIAH MOHAMED FAUZI NOR HAMIEZAH AZIEZ ANIS AMIZA MAZLAN SITI FATIMAH `ATIQAH SAAD PREPARED FOR : ASSOC.PROF WAN ASMA’ WAN ABU BAKAR
    2. 2. CONTENTS 09/04/13 2 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    3. 3. Flow oF presentation 09/04/13 3 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    4. 4. ISLAMIC BANKING ACT 1983 (IBA) DEFINITION OF ISLAMIC BANK Section 2 of IBA : ‘Islamic Bank’ means any company which carries on Islamic banking business and holds a valid license and all the offices and branches in Malaysia of such a bank shall be deemed to be one bank. Islamic banking business means ‘ banking business whose aims and operations do not involve any element which is not approved by the religion of Islam’.
    5. 5. Ambiguities in IBA 1983 Therefore, SAB is needed in Islamic bank to safeguard and ensure Shariah compliance is strictly observed and seek the advice of SAC of BNM to monitor Islamic banking operation.  NO definition of banking business in IBA.  NO definition of term “Religion of Islam”  NO definition of banking business in IBA.  NO definition of term “Religion of Islam” 09/04/13 5 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    6. 6. SHARIAH ADVISORY BODY (SAB) • A statutory requirement for Islamic bank under IBA 1983 must set up the SAB. • Purpose :  To ensure business does not contravene the principle of shariah  Need to instil confidence in the Muslim public 09/04/13 6 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    7. 7. Cont.. • Provision (Sec 3 (5)- IBA 1983) 09/04/13 7 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING - The aim andoperation of banking business willnot involve anyelement whichis not approvedby religion of Islam 2) - provision for establishment SAB to advice the bank on the operation of its banking business in order to ensure that they do not involve any element that not approved by religion of Islam
    8. 8. RELIGIOUS SUPERVISORY CONCIL (RSC) Articles of association of BIMB and BMMB: •Whose member would be may up of muslim religious scholar in the country, shall be established to advice the company on the operation of its banking business 09/04/13 8 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING Member of RSC: - Must comprise shariah scholars - minimum 3, maximum 7 - Accepted by minister not exceed 2 year - each member shall be remunerated for their service and the remuneration determine by the bank
    9. 9. QUIZ Question: The general definition of Islamic banking business may have some positive aspect. What do you think of it?
    10. 10. ANSWER A general definition have very wide definition: i.It gives as much flexibility and scope as possible to Islamic banks to enable them to growth, ii.expand their operation and evolve into viable competitors to conventional banking. iii.It would also allowed the adoption and application of different Islamic commercial laws from a various mazhab thus making it broader and the resulting proposition of the law more widely acceptable. 09/04/13 10 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    11. 11. BANKING AND FINANCIAL INSTITUTION ACT 1989 (BAFIA) • BAFIA- conventional banking and finance institutions • BNM realize it was crucial to have a large number of players (sufficient number of different type institution) • BNM allow the existing conventional financial to offer islamic banking services. • Interest free banking scheme was launched 09/04/13 11 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    12. 12. DEFINITION OF BAFIA 1989 • SEC 2 “banking business”  Receiving deposit on current account, deposit account, saving account and other similar account  Paying or collecting cheque, drawn by or paid in by customer  Provision of finance  such other business 09/04/13 12 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    13. 13. Objective ; • Provide new law for licensing and regulation of institution carrying on banking, finance company, merchant bank, discount house and money broking business • For regulation of institution carrying on certain other fin businesses • Matters incidental : - provide integrated supervision of malaysian fin. System - Provide CBM with power to speedily investigate 09/04/13 13 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    14. 14. ScOPe OF tHe baFia act (Sec124) 09/04/13 14 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    15. 15. Licensing  A licensed finance company is permitted to carry out the business of: – Receiving deposit – Lending of money, leasing, hire purchase act 1967 – Other business 09/04/13 15 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    16. 16. QUIZ Question: State 3 different between IBA 1983 and BAFIA 1989
    17. 17. Answer : Element IBA 1983 BAFIA 1989 Field of the act - For Islamic banking only - For conventional financial institutions to offer Islamic banking services. Operation of banking business -Not involve in any element which is not approved by religion of Islam - Not restricted to any business operation Appointment of SAC - Requirement to establish SAC for financial institution - No requirement to establish SAC for financial institution which carry Islamic banking business 09/04/13 17 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    18. 18. ceNtRaL OF baNKiNG act 2009 (cba) Development: Pre 2003 Cases – Attitude Of The Civil Courts  no any provision under CBMA regarding operation of IBF Pre 2009 : The Central Bank Of Malaysia Act 1958 (Act 509) Any proceeding relating to IBF, the court or arbitrator may refer to SAC for its ruling 09/04/13 18 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    19. 19. CBMA 2009 ( ACT 701) 09/04/13 19 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    20. 20. POST 2009 cases Issue arise: 09/04/13 20 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    21. 21. SHARIAH ADVISORY COUNCIL (SAC) • Definition (Sec 51) - SAC on Islamic finance • Authority of BNM to establish SAC and clarifies its jurisdiction and functions (Sec 52(1) 09/04/13 21 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    22. 22. Functions of SAC (BNM 2009) Sec 52 (1) • To ascertain Islamic law on any financial matter and issue a ruling upon reference make to it in accordance with the relevance part of the act • To advice bank on any syariah issue related to Islamic Financial business, the activities or transaction of the bank • To provide advice to any IFI or any other person as maybe provided under any written law09/04/13 22 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    23. 23. MEMBERS OF SAC • Qualified in the shariah • Knowledge or experience in shariah and in banking, finance, law • Appointment made by YDPA • Advice of MOF, after consultation with CB 09/04/13 23 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    24. 24. QUIZ Question: Determine the functions and duties of SAC
    25. 25. Answer: 1.Advice management of Islamic financial institution on Shariah matter in its business operations 2.To endorse and validate relevant documentation such as proposal form, contract agreement, brochures and etc 3.Advice and provide assistance to the related parties of the IFI such as legal council 4.Advice IFI to refer to SAC concerning matter which has not been resolved 5.To assist SAC by giving explanation and recommendation on any Shariah matter to ensure SAC decision are properly implemented by IFI 09/04/13 25 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    26. 26. BAnking OpERAtiOn OF iSlAMiC BAnkS 1. Customer’s deposit • Current account • Saving account • General investment account • Special investment account 09/04/13 26 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    27. 27. 2. Financing 09/04/13 27 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    28. 28. Issues In Islamic Banking
    29. 29. • Governor of central bank said that this legislation will help Bank Negara better regulate the industry • The legal regulatory and supervisory framework will need to be adjusted to accord greater clarity to the appropriate legal and regulatory treatment. • The new framework will streamline the legal requirement across the Islamic finance industry, where there is current lack of clarity that potentially hinders its growth ambitions. • (The star online, Dec 20, 2012 , : New Malaysian law for Islamic banking and takaful products ) 09/04/13 29 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    30. 30. • Tan Sri Zeti Akhtar Aziz, said new legal framework would not only streamline the legal requirement across sector built would ensure that the law was reflective of the nature and features of shariah contract. • The greater clarity on legal and prudential requirements under pinned by Shariah principles will enables participants of the Islamic financial system to align to their practices and expectation accordingly when undertaking Islamic financial business and transaction. ( The Star Online, Dec 6, 2012 : Legal Framework For Islamic Banking, Takaful Being Enacted ) 09/04/13 30 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    31. 31. • The Islamic Banking Act had paved the way for the nation to develop IBF industry • Malaysia has received much recognition from the global banking and finance. • Among the achievement has achieved in the last three decades in term of: 1. Growth in Islamic bank and financial institutions assets. 2. Increase market share of products and services in banking and financial system 3. Formulation of legal framework and various standards 4. Development of infrastructure and institutional capacity 5. Education and training facilities • On the International IBF front , Malaysia also dominate the global market for sukuk. ( The Star Online, March 12,2013 : Islamic Banking Shine ) 09/04/13 31 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    32. 32. CONCLUSION 09/04/13 32 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING
    33. 33. • THANK YOU 09/04/13 Chapter 3 : LEGAL FRAMEWORK OF ISLAMIC BANKING 33

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