Islamic banking first began in Malaysia in 1983 with the establishment of the first Islamic bank. Since then, Islamic banking has grown significantly. By 2002, total Islamic banking assets made up 8.9% of total banking assets in Malaysia. Many conventional banks also began offering Islamic banking products and services. Regulations and oversight from Bank Negara Malaysia have helped develop and expand the Islamic banking sector to become a key part of Malaysia's dual banking system.

1. ISB 300 GROUP: 1 MUHAMMAD SAFWAN BIN SUHAIMI 2008291476 ANTAH BIN ABD BASIK 2007410374 PREPARED FOR: PUAN ALIZAH ALI

2. Islamic Banking, Takaful, Islamic Capital Market (ICM) and Islamic and Islamic Interbank Money Market(IIMM) Historical Development of Islamic Banking Structure of Islamic Bank

3. Islamic Banking What is Islamic banking? Islamic banking is banking based on Islamic law (Shariah). It follows the Shariah, called fiqh muamalat (Islamic rules on transactions). The rules and practices of fiqh muamalat came from the Quran and the Sunnah, and other secondary sources of Islamic law such as opinions collectively agreed among Shariah scholars (ijma’), analogy (qiyas) and personal reasoning (ijtihad).

4. Islamic Banking Definition Also known as participiant banking Islamic banking refers to a system of banking or banking activity that is consistent with the principles of Islamic law ( Sharia ) and its practical application through the development ofIslamic economics. Sharia prohibits the payment or acceptance of interest fees for loans of money ( Riba, usury), for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles (Haraam, forbidden).

5. Islamic banking in Malaysia • The first Islamic bank was established in Malaysia in 1983. • In 1993, commercial banks, merchant banks and finance companies begun to offer Islamic banking products and services under the Islamic Banking Scheme (IBS banks). • The IBS banks have to separate the funds and activities of the Islamic banking transactions from the nonIslamic banking business (conventional banking). • You can identify an Islamic bank or an IBS bank from the logo

6. List of Financial Institutions Offering Islamic Banking Services Islamic Banks 1.Bank Islam Malaysia Berhad 2.Bank Muamalat Malaysia Berhad Commercial Banks 1.Affin Bank Berhad 2.Alliance Bank Malaysia Berhad 3.Arab-Malaysian Bank Berhad 4.Bank Utama (Malaysia) Berhad 5.Citibank Berhad 6.EON Bank Berhad 7.Hong Leong Bank Berhad 8.HSBC Bank Malaysia Berhad 9.Malayan Banking Berhad 10.OCBC Bank (Malaysia) Berhad 11.Public Bank Berhad 12.RHB Bank Berhad 13.Southern Bank Berhad 14.Standard Chartered Bank Malaysia Berhad

7. Takaful (Insurance) Takaful is an Islamic insurance concept which is grounded in Islamic muamalat (Islamic banking), observing the rules and regulations of Islamic law. This concept has been practised in various forms for over 1400 years. Muslim jurists acknowledge that the basis of shared responsibility in the system of aquila as practised between Muslims of Mecca and Medina laid the foundation of mutual insurance.

8. Takaful (Insurance) Takaful Malaysia Syarikat Takaful Malaysia Berhad was incorporated on 29 November 1984, has an authorised capital of RM 500 million and a paid up capital of RM 55 million. It has been converted into a public quoted company with the listing of its shares on the Main Board of the Kuala Lumpur Stock Exchange since 31 July 1996. As a subsidiary company of BIMB Holdings Berhad, 65.5% of its equity is held by the BIMB. Other major shareholders are the State Islamic Religious Councils/Baitulmals of Terengganu, Pahang, Negeri Sembilan and Amanah Saham Bank Islam (ASBI). The company objectives is to provide takaful services (Islamic Insurance) at the highest standard of efficiency and professionalism to all Muslims and the population in Malaysia.

9. Islamic Capital Market (ICM) The Islamic Capital Market (ICM) refers to the market where the activities are carried out in ways that do not conflict with the conscience of Muslims and the religion of Islam. In other words, the ICM represents an assertion of religious law in the capital market transactions where the market should be free from the involvement of prohibited activities by Islam as well as free from the elements such as usury (riba), gambling (maisir) and ambiguity (gharar).

10. Islamic Capital Market (ICM) The ICM today is one of the components in the overall capital market in Malaysia. It plays similar important role as other capital market components in generating the economic growth of the country. The ICM has functioned as a parallel market to the conventional capital market for capital seekers and providers, and has played a complementary role to the Islamic banking system in broadening and deepening the Islamic financial markets in Malaysia.

11. Islamic Interbank Money Market (IIMM) The Islamic money market is integral to the functioning of the Islamic banking system, firstly, in providing the Islamic financial institutions with the facility for funding and adjusting portfolios over the short-term, and secondly, serving as a channel for the transmission of monetary policy. Financial instruments and interbank investment would allow surplus banks to channel funds to deficit banks, thereby maintaining the funding and liquidity mechanism necessary to promote stability in the system.

12. Islamic Interbank Money Market (IIMM) The Islamic Inter bank Money Market (IIMM) was introduced on January 3, 1994 as a short-term intermediary to provide a ready source of short-term investment outlets based on Syariah principle. Through the IIMM, the Islamic banks and banks participating in the Islamic Banking Scheme (IBS) would be able to match the funding requirements effectively and efficiently. Bank Negara Malaysia (BNM) issued the Guidelines on the IIMM on December 18, 1993 to facilitate proper implementation of the IIMM.

13. Islamic Interbank Money Market (IIMM) Types of Instruments in Islamic Interbank Money Market a) Mudarabah Interbank Investment (MII) b) Wadiah Acceptance c) Government Investment Issue (GII) d) Bank Negara Negotiable Notes (BNNN) e) Sell and Buy Back Agreement (SBBA) f) Cagamas Mudharabah Bonds (SMC) g) When Issue (WI) h) Islamic Accepted Bills (IAB) i) Islamic Negotiable Instruments (INI) j) Islamic Private Debt Securities k) Ar Rahnu Agreement-I (RA-i) l) Sukuk BNM Ijarah (SBNMI)

14. Development on Islamic Banking Malaysia is the first country in the world to have a dual system of banking and finance. When BNM BAFIA was amended in 1993, most conventional banks in Malaysia set-up full-fledged Islamic subsidiary. BNM Financial Sector Master Plan (FSMP) and the MIFC initiatives help spur further the development of Islamic Banking. Development of Islamic banking in Malaysia from 1983-2007 can be traced as follows:-

15. Development on Islamic Banking # Year 1983 - Islamic Banking Act was gazetted with the formation of Bank Islam Malaysia Bhd. # 4 March 1993 - the Finance Minister allowed BBMB, UMBC and Maybank to open Islamic Banking window (known as SPTF - Skim Perbankan Tanpa Faedah) # June 1995 – Formation of the Association of Islamic Banking Institute Malaysia (AIBIM) # 1997 – Establishment of BNM Syariah Advisory Council # 1 Dec 1998 - the term “Skim Perbankan Tanpa Faedah-SPTF” was changed to “Skim Perbankan Islam-SPI” couple with the issuance of the new Islamic Banking framework (a bank within a bank concept) to take effect on 2nd January, 2001. # Oct 1999 - Bank Muamalat, as 2nd Islamic Bank in Malaysia was formed due to merger between BBMB and BOC to form Bumiputra-Commerce Bank.

16. Development on Islamic Banking # 31 Dec 2001 - BNM compliance date where SPI players to achieve at least 8% of the bank’s total assets. # 25 March 2002 - BNM launched Financial Sector Master Plan (FSMP) # September 2002 - Islamic Banking & Finance Institute Malaysia (IBFIM) was established as the industry owned training and research centre and . # November 2002 - the Islamic Financial Services Board (IFSB) was established (function like Basel) to ensure soundness and stability of the Islamic financial system as well as paving the way for its global integration. # 31 Dec 2002 - Total SPI assets recorded 8.9% (RM 68 billion) of total banking assets, while financing stood at 8.1% and deposit at 10.2% respectively.

17. Development on Islamic Banking # 8 Jan 2003 - BNM introduced the generic names for Islamic Banking products where SPI players shall be allowed to use English term without the Arabic term but the product name shall be hyphenated with the letter “ i “ at end of each generic product name. # March 2004 - Application deadline for application of 3 full-fledged Islamic banking license by foreign parties # March 2004 – Talk about existing bank need to establish an Islamic subsidiary (IS) by 3 January 2004. This IS will be licensed under Islamic Banking Act (IBA) # April 2004 - BNM talk about change in the governance of Shariah Consultant. # June 2004 - BNM announced they have issued Islamic full-fledged banking license to Kuwait Finance House (KFH), Al-Rajhi Investment Bank, Saudi Arabia and Qatar Investment Group. # July 2004 – BNM announced Islamic banking license approved in principle to Bumiputra Commerce Group and RHB Capital.

18. Development on Islamic Banking # March 2005 – RHB launched RHB Islamic Bank # May 2005 – Commence Tijari commenced business. # June 2005 – BNM announced approval of two more Islamic subsidiaries to AmBank and Affin Bank. # June 2005 - New BNM GP8-i for Islamic Banks issued. # July 2005 – HLB launched Hong Leong Islamic Bank. # July 2005 – RHB Capital launched RHB Dow Jones Islamic Index # Aug 2005 – KFH commenced business. # Sept 2005 - Deposit Insurance (launched on 1st Sept 05’) # Sept 2005 - Product Approval Repository System (PARS) introduced by Bank Negara.

19. Development on Islamic Banking # Jan 2006 – BNM issued 4 takaful licences # Feb 2006 – Inaugral issuance of Sukuk Negara Malaysia Ijarah (SBNMI) #April 2006 – Affin Islamic bank & EONCAP Islamic Bank commenced operations # Sept 2006 – Establishement of International Currency Business Unit (ICBU) # Jan 2007 – Asian Finance Bank (Islamic bank) commenced operations.