Malaysia’s Parallel Dual Financial System Conventional banks Islamic banks Conventional banks window Conventional Islamic Banking banks Subsidiaries Insurance Companies Takaful OperatorsConventional financial system Islamic financial system source : BNM
Some Differences CONVENTIONAL ISLAMICInterest-based Interest-freePrimarily debt financing Primarily equity financing & sales transactions Debt financing is interest- Financing must be “ASSET- based and DOES NOT require BACKED” assetsDerivatives are PERMITTED Derivatives are NOT permitted
Facts and Figures Increasing Increasing Increasing source : BNM
Facts and Figures Latest Update ( Dec 2008 )Islamic Banking Institutions : RM MillionTotal 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% source : BNM
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 )
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 Sharia standards for Islamic financial institutions and the industry.
Some Tips for Malaysian SMEs Type of Contracts Islamic Finance Conventional 1. DEPOSITSCurrent Accounts (CA) *Dividend Paid No DividendAMGIA / Fixed Deposit Early Withdrawal Early Withdrawal (FD) (Pro-rate Dividend) (NO Pro-rate Dividend) 2.FINANCING Late payment *Compensation for Late Late Payment Charges Payment (CLP) (LPC) Joint Venture Available N/A Letters of Credit *Flat Rate LPC / Credit Cards Administration Fee
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