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Islamic Finance in MALAYSIA - INTRODUCTION & DEVELOPMENT, 2009

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Presentation by Amirul HM & Penny Siew at the Asia-Europe Institute - University of Malaya for "Financial & Accounting Ratios for SMEs" subject, IMSME Programme. 2009.

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Islamic Finance in MALAYSIA - INTRODUCTION & DEVELOPMENT, 2009

  1. 1. Islamic Finance ( In Malaysia ) Amirul Haji Mohamad QGC 080001 Halalfinancing.blogspot.com Penny Siew Bee Chew QGC080005
  2. 2. Outline 1. Development 2. Facts and Figures 3. Type of Contracts 4. Examples of Accounts ( Balance Sheet & Income Statement ) 5. Some Tips for Malaysian SMEs 6. Conclusion
  3. 3. Development -1 Milestones 1969 1983 1993 2003 Pilgrimage Fund Board Full-fledged Bank Islam Bank Muamalat Foreign Islamic Islamic banks Malaysia Bhd. Malaysia Bhd. banks Conventional banks offer Islamic window Islamic subsidiary Islamic Stock Broking Takaful Syarikat Takaful Takaful Nasional, Mayban Takaful, Takaful Operators Malaysia Bhd. Iklhas, Commerce Takaful source : BNM
  4. 4. Development -2 In General • LEGAL: Islamic Banking Act 1983 Malaysia Government Investment Act 1983 Takaful Act 1984 BNM Guide Line Securities Commission Act 1993 • EDUCATION : UIA –Islamic University INCEIF – Islamic Finance University • GOVERNMENT :Taxation Incentives • INSURANCES: Takaful ( Islamic Insurances )
  5. 5. GUIDELINES : Some Examples
  6. 6. Malaysia’s Parallel Dual Financial System Conventional banks Islamic banks Conventional banks window Conventional Islamic Banking banks Subsidiaries Insurance Companies Takaful Operators Conventional financial system Islamic financial system source : BNM
  7. 7. Some Differences CONVENTIONAL ISLAMIC Interest-based Interest-free Primarily debt financing Primarily equity financing & sales transactions Debt financing is interest-  Financing must be “ASSET- based and DOES NOT require BACKED” assets Derivatives are PERMITTED Derivatives are NOT permitted
  8. 8. Facts and Figures Increasing Increasing Increasing source : BNM
  9. 9. Facts and Figures Latest Update ( Dec 2008 ) 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% source : BNM
  10. 10. Facts and Figures
  11. 11. Facts and Figures
  12. 12. Facts and Figures
  13. 13. Facts and Figures
  14. 14. Some Information (Islamic Capital Market )
  15. 15. Basis For Usury /Interest Prohibition • ISLAM – Quran ( Al-Baqarah,verse 275) • CHRISTIANITY - Old Testament - Roman Catholic -Pope Clement Clement V (1311)
  16. 16. Islamic Banking Concepts • Al-Murabahah (cost plus sales) • Al-Mudharabah (Trustee profit-sharing) • Al-Wadiah Yad Dhamanah (savings • Al-Musyarakah (Joint venture profit with guarantee) sharing) • Bai’ al-Dayn (debt trading) Al-Qardhul • Bai’ Bithaman Ajil (Deferred payment Hassan (benevolent loan) sale) • Bai’ as-Salam (future delivery) • Al-Ijarah Thumma al-Bai’ • Bai’ Al-Istijrar (supply contract) • Al-Kafalah (guarantee) (Leasing and subsequently purchase) • Ar-Rahnu (collateralised borrowing) • Al-Ijarah (Leasing) • Al-Wakalah (nominating another person to act) • Al-Hiwalah (remittance) • As-Sarf (foreign exchange) • Al-Ujr (fee) • Al-Hibah (gift)
  17. 17. Type of Contracts 1. Deposits • Al-Wadiah ( Guarantee Custody ) • Al-Mudharabah ( Trustee Profit Sharing ) • QARDHUL – Hassan ( Benevolent loan/ Deposit )
  18. 18. 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 )
  19. 19. 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.
  20. 20. Regulatory Body: (AAOIFI)
  21. 21. AAOIFI
  22. 22. Case Study: Evolution of Accounting Standards *EON Bank Berhad*
  23. 23. Balance Sheet & Income Statement 2005 & 2007
  24. 24. Balance Sheet 2007
  25. 25. Balance Sheet 2005 Consolidated Note of FS *FS = Financial Statement
  26. 26. Income Statement 2007 Consolidated Note of FS *FS = Financial Statement
  27. 27. Income Statement 2005 Consolidated Note of FS *FS = Financial Statement
  28. 28. Income Statement 2005 ( Cont’ )
  29. 29. Some Tips for Malaysian SMEs Type of Contracts Islamic Finance Conventional 1. DEPOSITS Current Accounts (CA) *Dividend Paid No Dividend AMGIA / 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
  30. 30. 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
  31. 31. Thank YOU
  32. 32. Development -1 Islamic Banking/Islamic Finance, Islamic Bond and Money Market (Pilgrimsage Fund Board) source : BNM , Conference on Islamic Banking , Central Bank of UAE , Abu Dhabi

Editor's Notes

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  • -Bee ChewStandard Chartered was the first foreign bank in Malaysia to offer an Islamic banking window, back in 1993.HSBC is the first foreign bank in Malaysia to get an Islamic subsidiary licence.
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