This document discusses the development of Islamic banking laws in Malaysia over time. It begins with the establishment of the first Islamic bank, Bank Islam Malaysia Berhad (BIMB) in 1983 under the Islamic Bank Act. This helped launch the Islamic banking industry in Malaysia. The banking system has grown to include Islamic windows within conventional banks and new foreign Islamic banks. The laws and regulations governing Islamic banking have also evolved, with the goal of establishing Malaysia as a leading international Islamic financial center.
Fundamental of Islamic Banking - Principles of Islamic BankingMahyuddin Khalid
This document provides an overview of Islamic banking and finance principles. It discusses permissible and prohibited activities for Islamic investment and financing. Key concepts covered include profit and loss sharing, trade-based financing vs interest-based loans, and the prohibition of riba (interest), gharar (uncertainty) and maisir (gambling). It also outlines the payment of zakat and some major Islamic legal maxims.
Fundamental of Islamic Banking - Overview of Financial SystemMahyuddin Khalid
This document provides an overview of Islamic banking and finance. It begins with defining key concepts in financial systems such as money, credit, and finance. It then describes the structure of Malaysia's financial system and the roles of banks as financial intermediaries. The document outlines the goals and objectives of Islamic banking, and highlights key differences from conventional banking such as the prohibition of riba and emphasis on risk sharing. Some advantages of Islamic banking discussed are justice and fairness, liquidity, and no fixed obligations. The document concludes with challenges facing Islamic banking such as misconceptions, the need for skilled talents, and rising costs for small Islamic banks.
Development of the Malaysian Islamic Financial SystemMahyuddin Khalid
This document discusses the development of the Malaysian Islamic financial system. It covers:
1) The historical development of Islamic banking in Malaysia, from the establishment of Lembaga Tabung Haji in 1963 to the passing of the Islamic Banking Act in 1983 which allowed the creation of Bank Islam Malaysia, the country's first Islamic bank.
2) The three phases of development - the first phase focused on establishing the necessary legal and regulatory framework; the second phase expanded the system to include more Islamic financial institutions; the third phase further developed Islamic capital markets.
3) Key milestones and regulations that helped grow the system, such as the Government Investment Act which allowed Shariah-compliant short-term
The document discusses the concept of Bai Bithaman Ajil (BBA), which is an Islamic financing technique that allows for the deferred payment of goods purchased. BBA involves the immediate delivery of an asset to the buyer while payment is postponed to a future date or paid through installments. The document examines the principles, evidence, objectives, mechanics, and pricing considerations of BBA transactions.
Shariah Concepts Relevant to InvestmentNajihah Fauzi
Investment is a tool in wealth accumulation process. Islam governs all aspects of life,major and mnor, personal and social, spiritual and materialistic and relates this wordly life to the Hereafter
Jurisdiction of the Court Over Islamic Banking DisputesMahyuddin Khalid
This document discusses the jurisdiction of courts over Islamic banking disputes in countries with dual legal systems. Civil courts currently hold jurisdiction over banking cases, including Islamic banking, as they pertain to contracts and commerce. Shariah courts have limited jurisdiction over personal and family law for Muslims. The document argues that disputes involving Islamic banking principles would be better resolved in alternative dispute resolution like arbitration, as civil courts lack Islamic law expertise and Shariah courts have insufficient power. It recommends reforms to arbitration procedures to properly apply Shariah principles to Islamic banking dispute resolution.
Akad qord merupakan pinjaman tanpa bunga dimana nasabah hanya perlu mengembalikan jumlah pokok pinjaman. Akad ini diperbolehkan dalam Islam berdasarkan Al-Quran dan hadis. Qord diterapkan di lembaga keuangan syariah untuk memberikan pinjaman kepada nasabah seperti talangan haji, kartu kredit, dan pinjaman untuk usaha kecil.
Fundamental of Islamic Banking - Principles of Islamic BankingMahyuddin Khalid
This document provides an overview of Islamic banking and finance principles. It discusses permissible and prohibited activities for Islamic investment and financing. Key concepts covered include profit and loss sharing, trade-based financing vs interest-based loans, and the prohibition of riba (interest), gharar (uncertainty) and maisir (gambling). It also outlines the payment of zakat and some major Islamic legal maxims.
Fundamental of Islamic Banking - Overview of Financial SystemMahyuddin Khalid
This document provides an overview of Islamic banking and finance. It begins with defining key concepts in financial systems such as money, credit, and finance. It then describes the structure of Malaysia's financial system and the roles of banks as financial intermediaries. The document outlines the goals and objectives of Islamic banking, and highlights key differences from conventional banking such as the prohibition of riba and emphasis on risk sharing. Some advantages of Islamic banking discussed are justice and fairness, liquidity, and no fixed obligations. The document concludes with challenges facing Islamic banking such as misconceptions, the need for skilled talents, and rising costs for small Islamic banks.
Development of the Malaysian Islamic Financial SystemMahyuddin Khalid
This document discusses the development of the Malaysian Islamic financial system. It covers:
1) The historical development of Islamic banking in Malaysia, from the establishment of Lembaga Tabung Haji in 1963 to the passing of the Islamic Banking Act in 1983 which allowed the creation of Bank Islam Malaysia, the country's first Islamic bank.
2) The three phases of development - the first phase focused on establishing the necessary legal and regulatory framework; the second phase expanded the system to include more Islamic financial institutions; the third phase further developed Islamic capital markets.
3) Key milestones and regulations that helped grow the system, such as the Government Investment Act which allowed Shariah-compliant short-term
The document discusses the concept of Bai Bithaman Ajil (BBA), which is an Islamic financing technique that allows for the deferred payment of goods purchased. BBA involves the immediate delivery of an asset to the buyer while payment is postponed to a future date or paid through installments. The document examines the principles, evidence, objectives, mechanics, and pricing considerations of BBA transactions.
Shariah Concepts Relevant to InvestmentNajihah Fauzi
Investment is a tool in wealth accumulation process. Islam governs all aspects of life,major and mnor, personal and social, spiritual and materialistic and relates this wordly life to the Hereafter
Jurisdiction of the Court Over Islamic Banking DisputesMahyuddin Khalid
This document discusses the jurisdiction of courts over Islamic banking disputes in countries with dual legal systems. Civil courts currently hold jurisdiction over banking cases, including Islamic banking, as they pertain to contracts and commerce. Shariah courts have limited jurisdiction over personal and family law for Muslims. The document argues that disputes involving Islamic banking principles would be better resolved in alternative dispute resolution like arbitration, as civil courts lack Islamic law expertise and Shariah courts have insufficient power. It recommends reforms to arbitration procedures to properly apply Shariah principles to Islamic banking dispute resolution.
Akad qord merupakan pinjaman tanpa bunga dimana nasabah hanya perlu mengembalikan jumlah pokok pinjaman. Akad ini diperbolehkan dalam Islam berdasarkan Al-Quran dan hadis. Qord diterapkan di lembaga keuangan syariah untuk memberikan pinjaman kepada nasabah seperti talangan haji, kartu kredit, dan pinjaman untuk usaha kecil.
Included topics:
- Betrothal
- Marriage
- Dissolution
- Ancillary claims
- Parent and children
- Adoption
- Legitimacy
- Inheritance
Not included:
- Introduction to the Administration of Islamic law in Malaysia
- Polygamous marriage
This document discusses the legal framework for Islamic banking and finance in Malaysia. It outlines key laws such as the Banking and Financial Institution Act 1989 and the Central Bank of Malaysia Act 2009 that provide the regulations for Islamic banking business and recognize Malaysia's dual financial system of conventional and Islamic finance. The document also describes the establishment of the Shariah Advisory Council and its important role in ensuring Islamic banking and financial operations comply with Shariah principles.
This document discusses freedom of speech and expression under Malaysian law. It begins by outlining the relevant constitutional provisions protecting freedom of speech, then discusses limitations on this right that are permitted by law, such as restrictions relating to security, public order, morality and contempt of court. Several laws that place restrictions on speech are examined in detail, including the Printing Presses and Publications Act 1984 and the Sedition Act 1948. Key cases interpreting and applying these laws are also summarized. The document concludes by restating the definition of "seditious tendency" under the Sedition Act.
This document discusses various legal and regulatory issues related to takaful (Islamic insurance). It covers topics like takaful dispute resolution, regulations in countries like Malaysia, the lack of legislation in most countries, guidelines from Bank Negara Malaysia, different takaful management models (mudharabah, wakalah, hybrid), the role of waqf, contractual clauses, nomination clauses and Islamic succession laws, the qard facility, and challenges with the proprietorship structure of most takaful operators. It emphasizes the need for standardized dispute resolution mechanisms and a unified regulatory framework for the growing global takaful industry.
ISLAMIC ACCOUNTING PRACTICES - THE IMPORTANCE OFISLAMIC CAPITAL MARKET IN MA...Nur Adillah Arifah Nazri
Capital markets are an important component of the financial system for raising funds for long-term investment. They provide opportunities for diversification of risk through cross-sectional risk sharing. The long-term investments are facilitated through a series of short-term contracts in the form of tradable securities enabling the investors an opportunity to exit or enter through trade. Thus they provide an element of liquidity to the otherwise illiquid assets. The secondary market also provides pricing and valuation of assets on a continued basis thus eliminating arbitrage and inefficiencies
This document defines and discusses bay' al-dayn (sale of debt), including:
1) Its definition in Islamic law and evidence from hadith.
2) The different types of debts and pillars required for a valid bay' al-dayn contract.
3) Scholars' opinions on the permissibility of selling debt to the debtor or third parties.
4) Modern applications of bay' al-dayn in Islamic finance instruments.
1) This document discusses the Islamic finance contracts of Salam and Istisna'a, which are forward sales agreements. Salam involves payment in advance for goods to be delivered later, while Istisna'a is an agreement with a manufacturer to produce specified goods.
2) The key aspects of Salam contracts discussed include the requirements for specifying price, commodity, delivery date/location. Istisna'a similarly requires specifying the manufactured item. Parallel Salam and securitization of Salam contracts are also mentioned.
3) The objectives, features, and risks of Salam and Istisna'a contracts are analyzed, and their differences from Murabaha contracts are highlighted
ISLAMIC BANKING INSTRUMENTS IN APLLYING OF LETTER OF CREDIT (LC) Huzaimah Jaimin
This document discusses Islamic letters of credit (ILCs) and how they are applied using different Shariah contracts. It provides an overview of key Islamic trade finance products like Murabahah, Musharakah, and Wakalah that can be used as the basis for ILCs. It then examines the modus operandi and processes for Murabahah, Musharakah and Wakalah ILCs. The advantages of each model are also highlighted. The document aims to explain how ILCs can be structured in compliance with Islamic principles like the prohibition of Riba.
Introduction to Usul Fiqh : Sadd dharai & Masalih MursalahNaimAlmashoori
This document discusses the Islamic legal principle of sadd al-dhara'i (blocking the means). It begins by defining sadd al-dhara'i as blocking means that could lead to a prohibited end. It then classifies the types of means into four categories based on the likelihood they will lead to harm. The document also discusses the meaning and classifications of maslahah mursalah (unrestricted public interest), and conditions for maslahah mursalah to be valid basis for law, including being genuine, general, and not in conflict with Islamic texts. The basis for maslahah mursalah includes Quranic verses emphasizing ease of religion and lifting of hardships.
Bay al-dayn refers to the sale of debt in Islamic finance. It involves the sale and purchase of a quality debt, either to the debtor or a third party. There are differing views among Islamic scholars on whether debt can be sold to a third party. Proponents argue it can be allowed subject to certain conditions to avoid risks like gharar. Critics argue the sale of debt to non-debtors is prohibited due to issues like selling something one does not possess.
Islamic law of inheritance (faraid) in malaysiaan nur
The document discusses Islamic inheritance law (faraid) in Malaysia. It provides definitions of faraid, which refers to the section of Islamic law that deals with distributing a deceased person's estate according to the Quran and hadith. Faraid establishes fixed shares for legal heirs. The document outlines how faraid reformed old inheritance systems by giving rights to female heirs and establishing fixed portions. It also discusses how faraid is applied in Malaysia according to sharia law, with states issuing enactments on faraid administration.
This document discusses different types of contracts according to Islamic law. It defines unilateral contracts as promises made by one party for acceptance by another, and bilateral contracts as requiring offer and acceptance by two parties. Quasi contracts are obligations similar to contracts but do not originate from agreement.
Contracts are also classified based on legal consequences. Valid contracts meet all legal requirements. Invalid contracts are lawful but have unlawful attributes. Void contracts are unlawful in substance and attributes. Binding contracts are sound without defects. Enforceable contracts cannot be delayed. Withheld contracts are lawful but made by someone without ownership of the subject.
This document discusses the Islamic financing contract of Istisna. It begins by defining Istisna as an agreement for the sale of goods to be manufactured or constructed at a future date, with an agreed upon price.
It outlines the key parties and conditions of an Istisna contract, including specifying the subject matter to be manufactured, stating the price and delivery terms. It also discusses penalties for late delivery and payment terms.
The document compares Istisna to other Islamic contracts such as Salam and Ijarah, highlighting the differences. It then explores some potential applications of Istisna contracts in Islamic banking such as financing construction projects.
In closing, it argues that I
The document discusses Islamic views on market structures and pricing. It states that price-taking (competitiveness) is desirable from an Islamic perspective. While some supervision is necessary, price fixing by the government is generally unlawful as it violates voluntary exchange. Monopolies are also viewed cautiously, as they can harm competition, though scholars differ on specific goods. Overall, competitive markets that protect voluntary exchange are viewed as most aligned with Islamic principles.
This document discusses the legal issues and challenges facing the takaful (Islamic insurance) industry in Malaysia. It provides background on the history and development of takaful in Malaysia, which began in the 1980s to provide Shariah-compliant alternatives to conventional insurance. The document outlines some of the main challenges facing the industry, including its regulatory framework, shortage of Shariah-compliant assets, and issues around the application of Islamic law versus civil law in judicial proceedings involving takaful cases. It notes that takaful cases are typically heard in civil courts rather than Shariah courts in Malaysia.
This document provides an overview of Islamic banking in Malaysia. It begins by defining Islamic banking according to the Organization of Islamic Conference as banking activities based on Islamic law (Shariah) that follow the principles of fiqh muamalat. The document then outlines the objectives of Islamic banking and explains the need for Islamic banking in Malaysia's financial system. It provides details on the implementation of Islamic banking in Malaysia, including the establishment of the first Islamic bank in 1983. The document also compares Islamic banking to conventional banking and summarizes the various Islamic financial instruments available in Malaysia.
What is the difference between murabaha and conventional loanhamzedalha
Murabaha is a financing agreement used by Islamic banks where the bank purchases an asset for the client and sells it to them at a higher price to generate a profit. This differs from a conventional loan which charges interest.
The key differences are:
- Murabaha is a sale contract where the original cost and profit margin to the bank are disclosed upfront. A conventional loan is an interest-based lending agreement.
- In Murabaha, the bank takes ownership of the asset before selling it to the client for a profit. In a conventional loan, money is lent to the client directly.
- Islamic law prohibits charging or paying interest but allows trade for a profit, which is what Murabaha constitutes
This document discusses takaful intermediaries, nominees, and beneficiaries according to Islamic principles. It explains that takaful agents and brokers play an important role in promoting takaful, with agents working directly for the operator and brokers representing participants. Nominees are trustees responsible for distributing policy benefits according to inheritance laws. Beneficiaries must have an insurable interest in the policy and be nominated by the policyholder. Upon their death, benefits are distributed according to inheritance rules.
The document discusses the history and development of Islamic banking and finance in Malaysia. It outlines key laws governing Islamic banking in Malaysia, including the Islamic Bank Act of 1983 which regulates the licensing and operations of Islamic banks. The Act established requirements for capital reserves, assets, audits, and governance. It also imposed restrictions on activities like lending limits and dividend payments.
Framework of islamic financial system 2003amerkomeng
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.
Included topics:
- Betrothal
- Marriage
- Dissolution
- Ancillary claims
- Parent and children
- Adoption
- Legitimacy
- Inheritance
Not included:
- Introduction to the Administration of Islamic law in Malaysia
- Polygamous marriage
This document discusses the legal framework for Islamic banking and finance in Malaysia. It outlines key laws such as the Banking and Financial Institution Act 1989 and the Central Bank of Malaysia Act 2009 that provide the regulations for Islamic banking business and recognize Malaysia's dual financial system of conventional and Islamic finance. The document also describes the establishment of the Shariah Advisory Council and its important role in ensuring Islamic banking and financial operations comply with Shariah principles.
This document discusses freedom of speech and expression under Malaysian law. It begins by outlining the relevant constitutional provisions protecting freedom of speech, then discusses limitations on this right that are permitted by law, such as restrictions relating to security, public order, morality and contempt of court. Several laws that place restrictions on speech are examined in detail, including the Printing Presses and Publications Act 1984 and the Sedition Act 1948. Key cases interpreting and applying these laws are also summarized. The document concludes by restating the definition of "seditious tendency" under the Sedition Act.
This document discusses various legal and regulatory issues related to takaful (Islamic insurance). It covers topics like takaful dispute resolution, regulations in countries like Malaysia, the lack of legislation in most countries, guidelines from Bank Negara Malaysia, different takaful management models (mudharabah, wakalah, hybrid), the role of waqf, contractual clauses, nomination clauses and Islamic succession laws, the qard facility, and challenges with the proprietorship structure of most takaful operators. It emphasizes the need for standardized dispute resolution mechanisms and a unified regulatory framework for the growing global takaful industry.
ISLAMIC ACCOUNTING PRACTICES - THE IMPORTANCE OFISLAMIC CAPITAL MARKET IN MA...Nur Adillah Arifah Nazri
Capital markets are an important component of the financial system for raising funds for long-term investment. They provide opportunities for diversification of risk through cross-sectional risk sharing. The long-term investments are facilitated through a series of short-term contracts in the form of tradable securities enabling the investors an opportunity to exit or enter through trade. Thus they provide an element of liquidity to the otherwise illiquid assets. The secondary market also provides pricing and valuation of assets on a continued basis thus eliminating arbitrage and inefficiencies
This document defines and discusses bay' al-dayn (sale of debt), including:
1) Its definition in Islamic law and evidence from hadith.
2) The different types of debts and pillars required for a valid bay' al-dayn contract.
3) Scholars' opinions on the permissibility of selling debt to the debtor or third parties.
4) Modern applications of bay' al-dayn in Islamic finance instruments.
1) This document discusses the Islamic finance contracts of Salam and Istisna'a, which are forward sales agreements. Salam involves payment in advance for goods to be delivered later, while Istisna'a is an agreement with a manufacturer to produce specified goods.
2) The key aspects of Salam contracts discussed include the requirements for specifying price, commodity, delivery date/location. Istisna'a similarly requires specifying the manufactured item. Parallel Salam and securitization of Salam contracts are also mentioned.
3) The objectives, features, and risks of Salam and Istisna'a contracts are analyzed, and their differences from Murabaha contracts are highlighted
ISLAMIC BANKING INSTRUMENTS IN APLLYING OF LETTER OF CREDIT (LC) Huzaimah Jaimin
This document discusses Islamic letters of credit (ILCs) and how they are applied using different Shariah contracts. It provides an overview of key Islamic trade finance products like Murabahah, Musharakah, and Wakalah that can be used as the basis for ILCs. It then examines the modus operandi and processes for Murabahah, Musharakah and Wakalah ILCs. The advantages of each model are also highlighted. The document aims to explain how ILCs can be structured in compliance with Islamic principles like the prohibition of Riba.
Introduction to Usul Fiqh : Sadd dharai & Masalih MursalahNaimAlmashoori
This document discusses the Islamic legal principle of sadd al-dhara'i (blocking the means). It begins by defining sadd al-dhara'i as blocking means that could lead to a prohibited end. It then classifies the types of means into four categories based on the likelihood they will lead to harm. The document also discusses the meaning and classifications of maslahah mursalah (unrestricted public interest), and conditions for maslahah mursalah to be valid basis for law, including being genuine, general, and not in conflict with Islamic texts. The basis for maslahah mursalah includes Quranic verses emphasizing ease of religion and lifting of hardships.
Bay al-dayn refers to the sale of debt in Islamic finance. It involves the sale and purchase of a quality debt, either to the debtor or a third party. There are differing views among Islamic scholars on whether debt can be sold to a third party. Proponents argue it can be allowed subject to certain conditions to avoid risks like gharar. Critics argue the sale of debt to non-debtors is prohibited due to issues like selling something one does not possess.
Islamic law of inheritance (faraid) in malaysiaan nur
The document discusses Islamic inheritance law (faraid) in Malaysia. It provides definitions of faraid, which refers to the section of Islamic law that deals with distributing a deceased person's estate according to the Quran and hadith. Faraid establishes fixed shares for legal heirs. The document outlines how faraid reformed old inheritance systems by giving rights to female heirs and establishing fixed portions. It also discusses how faraid is applied in Malaysia according to sharia law, with states issuing enactments on faraid administration.
This document discusses different types of contracts according to Islamic law. It defines unilateral contracts as promises made by one party for acceptance by another, and bilateral contracts as requiring offer and acceptance by two parties. Quasi contracts are obligations similar to contracts but do not originate from agreement.
Contracts are also classified based on legal consequences. Valid contracts meet all legal requirements. Invalid contracts are lawful but have unlawful attributes. Void contracts are unlawful in substance and attributes. Binding contracts are sound without defects. Enforceable contracts cannot be delayed. Withheld contracts are lawful but made by someone without ownership of the subject.
This document discusses the Islamic financing contract of Istisna. It begins by defining Istisna as an agreement for the sale of goods to be manufactured or constructed at a future date, with an agreed upon price.
It outlines the key parties and conditions of an Istisna contract, including specifying the subject matter to be manufactured, stating the price and delivery terms. It also discusses penalties for late delivery and payment terms.
The document compares Istisna to other Islamic contracts such as Salam and Ijarah, highlighting the differences. It then explores some potential applications of Istisna contracts in Islamic banking such as financing construction projects.
In closing, it argues that I
The document discusses Islamic views on market structures and pricing. It states that price-taking (competitiveness) is desirable from an Islamic perspective. While some supervision is necessary, price fixing by the government is generally unlawful as it violates voluntary exchange. Monopolies are also viewed cautiously, as they can harm competition, though scholars differ on specific goods. Overall, competitive markets that protect voluntary exchange are viewed as most aligned with Islamic principles.
This document discusses the legal issues and challenges facing the takaful (Islamic insurance) industry in Malaysia. It provides background on the history and development of takaful in Malaysia, which began in the 1980s to provide Shariah-compliant alternatives to conventional insurance. The document outlines some of the main challenges facing the industry, including its regulatory framework, shortage of Shariah-compliant assets, and issues around the application of Islamic law versus civil law in judicial proceedings involving takaful cases. It notes that takaful cases are typically heard in civil courts rather than Shariah courts in Malaysia.
This document provides an overview of Islamic banking in Malaysia. It begins by defining Islamic banking according to the Organization of Islamic Conference as banking activities based on Islamic law (Shariah) that follow the principles of fiqh muamalat. The document then outlines the objectives of Islamic banking and explains the need for Islamic banking in Malaysia's financial system. It provides details on the implementation of Islamic banking in Malaysia, including the establishment of the first Islamic bank in 1983. The document also compares Islamic banking to conventional banking and summarizes the various Islamic financial instruments available in Malaysia.
What is the difference between murabaha and conventional loanhamzedalha
Murabaha is a financing agreement used by Islamic banks where the bank purchases an asset for the client and sells it to them at a higher price to generate a profit. This differs from a conventional loan which charges interest.
The key differences are:
- Murabaha is a sale contract where the original cost and profit margin to the bank are disclosed upfront. A conventional loan is an interest-based lending agreement.
- In Murabaha, the bank takes ownership of the asset before selling it to the client for a profit. In a conventional loan, money is lent to the client directly.
- Islamic law prohibits charging or paying interest but allows trade for a profit, which is what Murabaha constitutes
This document discusses takaful intermediaries, nominees, and beneficiaries according to Islamic principles. It explains that takaful agents and brokers play an important role in promoting takaful, with agents working directly for the operator and brokers representing participants. Nominees are trustees responsible for distributing policy benefits according to inheritance laws. Beneficiaries must have an insurable interest in the policy and be nominated by the policyholder. Upon their death, benefits are distributed according to inheritance rules.
The document discusses the history and development of Islamic banking and finance in Malaysia. It outlines key laws governing Islamic banking in Malaysia, including the Islamic Bank Act of 1983 which regulates the licensing and operations of Islamic banks. The Act established requirements for capital reserves, assets, audits, and governance. It also imposed restrictions on activities like lending limits and dividend payments.
Framework of islamic financial system 2003amerkomeng
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.
This document discusses the challenges and opportunities of Islamic banking and financial institutions in Malaysia. It provides background on the history and principles of Islamic banking, which prohibits interest and gambling. Common Islamic banking products like murabahah, mudarabah, and takaful are described. The document finds that while Malaysia has a large Muslim population and was the first country to establish a dual banking system, Islamic institutions still face challenges from the more established conventional system in areas of regulations, supervision, and information systems. Overall opportunities for growth remain if Islamic banks improve their offerings to appeal to both Muslim and non-Muslim customers.
1) Pakistan was one of the first countries to implement Islamic banking in the 1960s and 1970s, with the founder of Pakistan calling for an Islamic banking system when establishing the State Bank of Pakistan in 1948.
2) Egypt started the first modern Islamic bank, called Mit Ghamr Savings Bank, in 1963 based on profit-sharing principles without interest. It succeeded in attracting many depositors and financing local projects until being shut down for political reasons in 1967.
3) Malaysia established Tabung Haji in 1962 as the first Islamic bank in Asia to help Muslims save for the hajj pilgrimage, and it remains an important Islamic financial institution today.
The development of Islamic finance began during the pre-Islamic period in the Middle East as traders followed customary commercial practices. With the rise of Islam, these practices were evaluated and reformed to align with Islamic principles. During the Prophet Muhammad's time, many financial operations and concepts emerged that were documented in the Quran and hadith. Malaysia was an early adopter of Islamic finance in the 1960s with the establishment of organizations to help Muslims save for the hajj pilgrimage. Over subsequent decades, Malaysia established the first full-fledged Islamic bank and takaful provider and has continued developing its Islamic financial system with dedicated regulation, oversight bodies, and requirements for end-to-end Sharia compliance. Malaysia
This document provides an overview of Islamic banking principles and practices. It discusses the history of Islamic banking dating back to early Islamic eras, and the modern experiment beginning in Egypt in 1963. The key principles of Islamic banking are outlined, including a prohibition on riba (usury) and a focus on profit/loss sharing and participatory arrangements. Various Islamic finance contract types are described such as murabahah, ijara, musharakah, and mudarabah. The role of Sharia advisory councils in ensuring compliance with Islamic principles is also mentioned.
The banking system in Malaysia consists primarily of commercial banks and is regulated by Bank Negara Malaysia (BNM), the central bank. BNM is responsible for monetary policy and the supervision of financial institutions. Commercial banks accept deposits and offer loans. Investment/merchant banks specialize in areas like corporate finance and advisory services. Islamic banks provide sharia-compliant banking services. Labuan International Business and Financial Centre (IBFC) and International Currency Business Units (ICBU) allow qualified entities to conduct financial activities in foreign currencies. Non-bank financial institutions include provident and pension funds, insurance companies, pawnshops and development finance institutions that support strategic sectors.
11.islamic banking a study of the relevant operating modes in current financi...Alexander Decker
This document summarizes the history and operating modes of Islamic banking. It discusses:
1) Islamic banking emerged in the 1960s/70s as an alternative to interest-based banking guided by Islamic principles. Currently there are over 300 Islamic banks worldwide.
2) The main operating modes of Islamic banking include profit and loss sharing (mudarabah), equity partnerships (musharakah), and fixed-return contracts like murabaha (cost-plus sale).
3) Murabaha contract allows banks to purchase goods for clients and sell them at a markup, functioning as a financing mechanism while avoiding interest. It has become widely used in practice.
Islamic banking a study of the relevant operating modes in current financial ...Alexander Decker
This document summarizes the history and operating modes of Islamic banking. It discusses:
1) Islamic banking emerged in the 1960s/70s as an alternative to interest-based banking guided by Islamic principles. Currently there are over 300 Islamic banks worldwide.
2) The main operating modes of Islamic banking include profit and loss sharing (mudarabah), equity partnerships (musharakah), and fixed-return contracts like murabaha (cost-plus sale).
3) Murabaha contract allows banks to purchase goods for clients and sell them at a markup, functioning as a financing mechanism while avoiding interest. It has become widely used in practice.
11.islamic banking a study of the relevant operating modes in current financi...Alexander Decker
This document summarizes the history and development of Islamic banking. It discusses how Islamic banking emerged in the 1970s as an alternative to interest-based banking that is compliant with Sharia law. The document outlines the objectives of Islamic banking such as facilitating trade and investment in a manner that shares profits and losses. It also discusses the early scholars who proposed the concept of Islamic banking and the first Islamic banks that were established in the 1970s and 1980s in several Muslim-majority countries and regions. International organizations like the Islamic Development Bank and conferences have further advanced the study and practice of Islamic banking globally.
Details about the Islamic banking system in Pakistan and give an overview of Islamic banking in any Islamic country. It gives some help for the fresh students to learn about Islamic banking.
Islamic banking is gaining popularity globally as an interest-free alternative to conventional banking that complies with Sharia (Islamic law). Some key financing models used in Islamic banking include Mudarabah (profit-loss sharing), Murabahah (cost-plus sale), and Ijarah (leasing). While Islamic banks operate similarly to conventional banks in mobilizing deposits and allocating funds, they prohibit interest and invest funds using Sharia-compliant contracts. The emergence of Islamic banking has provided an innovative financial system, though it faces challenges in developing new products to better compete with conventional banks.
The document provides an overview of the history and development of banking in Malaysia across several chapters:
- Chapter 1 discusses the introduction and history of banking in Malaysia from the 1800s to present, including key milestones like the establishment of major banks and the introduction of technologies like ATMs.
- It also covers the roles, responsibilities, and economic importance of banks in facilitating transactions and capital formation.
- The structure of Malaysia's financial system is explained, comprising banking institutions, non-bank financial intermediaries, and various financial markets.
- The definitions and types of banks are defined, including conventional, Islamic, and investment banks.
- The role and functions of the Central Bank of Malaysia (Bank
The document discusses the future prospects of Islamic financial institutions in Malaysia. It provides an overview of Islamic finance principles and products, the role and functions of Islamic financial institutions in Malaysia, and the opportunities and challenges they may face. Specifically, it notes that Malaysia has played a leading role in developing the global Islamic finance industry and regulating domestic Islamic banking. The future prospects for growth appear positive due to government support and liberalization measures, though institutions will need to continue innovating and competing with conventional options.
What is Riba ? The meaning of riba ?
Why Riba is harram?
Introduction of Islamic Banking:
Timeline review of establishment of Islamic finance system
History of Islamic banking in pakistan
Zia Ul Haq interest free islamic banking
How can we avoid riba?
conclusion
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The Development Of Islamic Banking Laws In Malaysia: An Overview
1. JurnalUndang-Undang
Development OfIslamic Banking Laws In Malaysia:
An Overview
RUZIAN MARKOM
NORlLAWATI ISMAIL
ABSTRACT
lJalllVSI~U is well regarded by the international community as one ofthe leading Islamic
centers. This was evidenced by the launching ofan initiative by the Malaysian
.-linVp.rllrInf.:nt J.,710WIl as the Malaysian International Islamic Financial Centre (MIFC) on 14
2006. Behind this successfol achievement, the emergence of Islamic banking in
MI1./nv...in stemmed fi-om the establishment of the first full-fledged Islamic bank offering
products and services in 1983 known as Bank Islam Malaysia Berhad (BIMB)
the Islamic Bank Act 1983. This article examined the development of Islamic
andfinancial laws in Malaysia. Firstly, the background ofIslamic banh.ing and
'lfBtrnaJ'Ice is addressed. Secondly, the development of the industry is described from its
days until its recent achievement to become an Islamic financial hub. The next
dwells upon the issues relating to the current legislative jurisdiction and Shariah
rJerVISlon on the matters. Finally, while the study illustrates that the finance industry is
progressively, further efforts and reformation are needed for the country to
_S'USl,cun as 'Malaysia International Islamic Financial Centre'.
J(~l7W,(Jrl'!iI: Islamic banking and financial laws; Islamic product; Syariah supervision;
"~urrent legislativejusrisdiction; Islamic Financial Centre.
ABSTRAK
,", Malaysia telall dikenal pasti oleh komuniti antarabangsa sebagai salah sebuah Pusat
Kewangan Islam dunia. Pengiktirafan tnt jelas terbukti dengan pelancaran Malaysia
sebagai Pusat Kewallgan Islam Antarabangsa Malaysia (MIFC) pada 14 Ogos 2006. Di
sebalik kejayaan ini, sistem perbankan Islam di Malaysia bermula daripembentukan bank
Islam yang pertama menawarkan produk dan perkhidmatan Islam pada tahun 1983 yang
dikenali sebagai Bank Islam Malaysia Berhad (BIMB) di bawah Akta Bank Islam 1983.
Justeru, artikel illi mengkaji perkembangan undang-undang berkaitan perbankan dan
kewangan Islam di Malaysia. Latar belakallg sistem kewangall Islam di Malaysia telall
dibillcangkan dengan mendalam di bahagian pertama artikel illi. Seterusnya,
perkembangan industri ini telah dihuraikan bermula dari awal penubuhall institusi
kewangan hingga ia menjadi hub kewallgan Islam. Dalam bahagian seterusnya, isu
berkaitan bidang kuasa legislatiftransaksi kewangan Islam dianalisis selainperanan serta
pemantauan Badan Penasihat Syariah Kebangsaan dalam memastikan pematuhan
industri kepada Syariah. Akhirnya, tidakdapat dinafikan bahawa industri kewangan Islam
sedang berkembang maju tetapi ia perlu kepada usaha serta reformasi undang-undang
yang lebih kukuh dalam mellgekalkan Malaysia sebagai 'Pusat Kewangan Islam
Antarabangsa '.
Katakultci: undang-undang perbankan dan kewangan; produk Islam; pemantauan
Syariah; bidangkuasa legislative; Pusat Kewangan Islam.
2. •
192
INTRODUCTION
The development of Islamic banking in the late 19th and early 20th century was the
of the Islamisation process initiated by the Islamic reformist movement.] The aim
reform is to revive the glory of Islam and demand the comprehensive application
Shariah in all aspects of life; politics, socials and economics. This has resulted in
existence of reformation wave among the Islamic community to establish an Islamic
banking system.2
BACKGROUND OF ISLAMIC BANKING AND FINANCIAL INSTITUTIONS IN
MALAYSIA
The Islamic banking and finance are relatively new compared to conventional. The earliest
Islamic financial institution was traced in the form of savings institution based on proflt
sharing; Mit Ghamar Local Savings Bank, in the Nile Delta Egypt. It was established in
1963 providing basic banking services to the community such as deposit account, loan
account, equity participation, direct investment and social services.3 The oil boom in the
1970s has triggered a rapid growth of Islamic financial institutions particularly in the
Middle East countries. Hence, in 1975, the first Islamic bank known as Dubai Islamic Bank
was established in the United Arab Emirates as well as the Islamic Development Bank
(IDB) in the Saudi Arabia. In the West, the first attempt to establish Islamic banking was in
Luxembourg in 1978.4
In Malaysia, the idea of the establishment of Islamic banking and finance took
place in stages. The history has shown that the first institution applying the Islamic
transaction concept was the Lembaga Tabung Haji (LTH) or formerly known as
Perbadanan Wang Simpanan Bakal-Bakal Haji (pilgrims Management and Fund Board).
This board was established in 1969 with the objective to encourage Muslims to do their
savings on installment basis for the purpose oftheir pilgrimage fund. Its operation is based
on the investment concept and profit is to be gained in accordance with Shariah.5 However,
this board cannot be considered as a bank but more towards collecting deposits in assisting
Muslim community to perform pilgrimage as well as participate in investment and
economic activities.
1 Among the reformists who have Islamised the world are Jamaluddin aI-Afghani (839). Muhammad Abduh
(1849-1905), Rashid Rida ( 865-1935), Muhamad Iqbal (1875-1938), Hassan al-Bana (1906-1949), Sayid Qutb
(1906-1966) and Abu A'ia al-Maududi (1903-1979).
2 M. Fazilah Abdul Samad (Ed.), The Malaysian Financial System An Overview, Universiti Malaya, Kuala
Lumpur: p. 6.
3 Lee Met Pheng & Delta Ivan Jeron, 2007, Islamic Banking and Finance Law, Petaling Jaya: Pearson Longman,
p.4.
4 Mohamad Akram Laldin, 2007, Islamic Banking History and Current Global Trends (Presentation during
Islamic Banking and Finance Course (Advanced), ILKAP).
5 Joni Tamkin Borhan, 2005, Pelaksanaan Prinsip-Prinsip Syariah Dalam Amalan Perbankan Islam di Malaysia,
in Abdullah Alwi Hj. Hassan (Ed.), Teori dan Aplikasi Konlemporari Sistem Ekonomi Islam di Malaysia, Kuala
Lumpur: Utusan Publication, p. 44 .
1
I
J
3. 193.Undang Developement OfIslamic Banking Laws In Malaysia: An Overview
Later, the Muslim community in Malaysia has voiced out their intention for an
effect IDs),amIC bank and financial institution that is free from riba transaction. Therefore, on 30
of the 1981, the Government has appointed a National Steering Committee ofIslamic Bank
lon of ,establish an Islamic bank. A year later, the Committee has proposed a basic framework
in the licensing and supervising of Islamic banking system in Malaysia';6 Finally, the
lalnie ,N~['VPlmml"'nt has passed the Islamic Bank Act 1983 (IBA) which came into force on 7 April
. This was followed by an official establishment of the first Islamic bank, the Bank
Malaysia Berhad (BIMB) on July 1983.
SIN The main objective of the bank is to operate as a merchant Shariah compliance
;,bank and to provide facilities that conform to Shariah principles. As the ultimate fmancial
•"regulatory body ofthe country, the Central Bank ofMalaysia (CBM) was provided with the
;!iest ,', power under the IBA to supervise and regulate the Islamic bank, similar with other licensed
rofit ,;banks in the country. After more than 20 years in operation, BIMB has proved to be a
din ,~viable banking institution where it has successfully expanded its activities rapidly
loan throughout the country and introducing new products in the financial market.
the The Islamic banking and fmancial system in Malaysia had undergone a well
the "coordinated and systematic process of implementation. The process can be divided into
auk three phases. The first phase is considered as the period of familiarization (1983-1992).
1nk 'This was the period ofIBA officially enacted and BIMB operated. The second phase, from
sin 1993-2003, was aimed at creating the ambience of competition among banks. It tried to
'capture larger market share and public awareness on the system. Hence, conventional
!()k banks were allowed to offer Islamic banking services by setting up Islamic windows in
lie 1993. The third phase that commenced from 2004 was the period offinancialliberalisation.
as During this period, the CBM paved the way for new foreign Islamic banks to operate in
:1). Malaysia by means of issuing licenses to them. Simultaneously, the conventional banks
lir were also allowed to establish their subsidiaries operating a full-fledged Islamic Qanking
system.7
:r,
Ig THE DEVELOPMENT OF ISLAMIC BANKING AND FINANCIAL SYSTEM IN
d MALAYSIA
A. THE ESTABLISHMENT OF BANK ISLAM MALAYSIA BERHAD (BIMB)
BIMB was incorporated in 1983 and claimed as the Malaysia'S first Islamic bank andthe
first regulated under the IBA. According to the Memorandum of Association and the
Articles ofAssociation of the BIMB, the operations and the transactions run by the BIMB
shall be in line with the Shariah principles. The BIMB was prohibited from engaging any
6 Zamri bin Hassan, 2002, Islamic Banking: Its Legallmpedements and Reformation With Special Reference to
Malaysia, Law Majalla, Vol. I, p. 97.
7 Hamim S. Ahmad Mokhtar, Naziruddin Abdullah & Syed M. Alhabshi,2008, Efficiency and Competition of
Islamic Banking in Malaysia, United Kingdom: Emerald Grouping Publishing Limited, Vol. 24 No. J, p. 3J.
4. 194
business activities which are totally against the Shariah law. One of the most I'rnpCIIDni.
keys in the business operations of the BIMB is the Interest-Free Banking Scheme
nl
to
or Skim Perbankan Tanpa Faedah (SPTF). S}
When the first Islamic bank began its operation, the bank could not among other 3.
things, purchase or trade in Malaysian Government Securities (MGSs), Malaysian
Treasury Bills (MTBs) or other interest-bearing instruments. However, there was a serious b,
need for the Islamic bank to hold such liquid papers to meet the statutory requirements as '
well as to park its idle funds.8 To satisfy both requirements, the Malaysian Parliament
passed the Government Investment Act 1983 [Act 275] (GIA) or currently known as c
Government Funding Act 1983 [Act 275] to enable the government of Malaysia to issue
Government Investment Certificates (GIC) which are government securities comprise of
government bonds and papers issued based on Shariah principles. As the GIC are regarded
as liquid assets, the Islamic bank could invest in the GIC to meet the prescribed liquidity
requirements as well as to invent their surplus funds.9 The GIC initially offered on the basis
of qardhul hasan but subsequently was changed to bay' al- 'inah. In this regard, Malaysia
was the first country in the world to issue government bonds of an Islamic character.IO
(
i
1
Besides the Islamic banking business, the BIMB has moved a step further by ~
introducing a takaful scheme to complement the operations of the Islamic banking. In 1
1984, the BIMB has set up a takaful company known as Syarikat Takaful Malaysia Sdn. t
Bhd. which run takaful (Islamic insurance) businesses comprising of family takaful
(Islamic life insurance) and general takaful (general Islamic insurance). Another takaful
company established by the BIMB was a nominee company known as AI-Wakalah
Nominees (Tempatan) Sdn. Bhd.
The BIMB was given a grace period of 10 years to operate without competition.
Being the sole Islamic financial institution in Malaysia, the BIMB managed to protect its
growth and development whereby it has achieved an average annual growth rate of 48%
over the period of 1983-1993. The BIMB has progressed tremendously as it was listed on
the main board ofKuala Lumpur Stock Exchange on 17 January 1992.11
The regulator of the Malaysian banking and financial business is the Central bank
of Malaysia (CBM). As been mentioned earlier, the operations of the Islamic banking of
the BIMB are regulated and supervised by this body. Looking into the viability of the
Islamic banking business and the increasing demands of the community for Islamic
products and financial assistance, the CBM has adopted the approach to spread the virtue
ofIslamic banking by disseminating Islamic banking on nation wide basis.12 This initiative
is in line with the objective of the CBM to create an Islamic banking system operating on
r . a parallel basis with the conventional banking system. However, a single Islamic bank does
;,
, f'·'
i
8 Aly Khorshid, islamic Insurance, A Modern Approach To Islamic Banking, New York: RoutledgeCurzon,
Taylors&Francis Group, p,l25.
9 Ibid,
10 Ibid, p, 113,
11 Zainal Amin Ayub, Mohammad Azam Hussain, Nurretina Ahmad Shariff& Dr Hassan Ali, 2007, Harmonizing
Civil Litigation With Syariah Litigation in Islamic Banking: Malaysian Experience, Current Law Journal, Vol, 2,
p.x,
12 Ibid.
5. 195iang-Undang [)evelol,ernlent Of Islamic Banking Laws In Malaysia: An Overview
important a system. Recognizing the above, the CBM adopted a step-by-step approach
me (IFBS) the above objective. Hence, it requires 3 vital elements to qualify as a viable
as follows:
lOng other large number of players (there must be an adequate number of different types of
lJalaysian Il~LILUI,l')J..I" participating in the system. This is required to provide depth ofthe system);
;a serious variety of instruments (a large variety and range of different types of financial
IH"U"""'~~ must be available to meet the various needs of financial institutions and~ments as
andarliament
Islamic inter-bank market (there must be an efficient and effective inter-bank money
JIOwn as
to link the players (institutions) and the instruments).13
I to issue
hprise of
OF ISLAMIC WINDOWS IN CONVENTIONAL
regarded
liquidity
he basis
to the increasing growing demand by the Muslim as well as non-Muslim population
1alaysia the country to the Shariah compliance financial products, conventional banks are
er.lO IUllj:re:asl'lngly becoming interested in entering the market of Islamic financial products.
ther by it is the policy of the regulator to establish a large number of players in the
ling. In E'~HU'J..I'" banking and financial system. This has triggered the implementation of a dual
ia Sdn. aM~""''''o system which allowed the Islamic and the conventional banking to co-exist and
takaful concurrently in the financial system. Thus, in 1993, commercial banks, merchant banks
finance companies operating the conventional banking system were allowed to offerrakaful
at"J""U'''' banking products and services under the Skim Perbankan Tanpa Faedah (SPTF) orakalah
,Iiiter'est Free Banking Scheme (lFBS), known as "Islamic windows".I4 ,
An Islamic window is simply a window within a conventional bank via which
,tition.
'~Cllst{)mler can conduct business utilizing only Shariah compatible instruments.15
ect its this, there were more than 40 Islamic financial products and services that may
f48% offered by banks using various Islamic concepts such as Mudharabah, Musyarakah,
ed on 'Murabahah, Bay' Bithaman Ajil, Ijarah, Qardhul Hasan, Istisna' and Ijarah Thumma
ai-Bay'. This option was seen as the most efficient mode of increasing the nl,lmber of
bank institutions offering Islamic banking services at the lowest cost and within the shortest time
frame. 16
19 of
One of the most important principles behind the Islamic banking and financialf the
system is the desire to maintain the moral purity of all transactions. The funds intended for
amic
Shariah-compatible investments should therefore not be mixed with those of non-Islamic
irtue
investments. This has required the bank opening an Islamic window to establish the
ltive appropriate firewalls to avoid the co-mingling ofIslamic and conventional funds. In other
~ on words, the banks wishing to offer Islamic products must guarantee that the funds devoted
loes to conventional activities will not be mixed with and be segregated from those destined for
Islamic activities. In operational tenns, this requires that banks to establish different capital
funds, accounts and reporting systems for each type of activity. In this sense then, when a
zon, conventional bank opens an Islamic window, it is in fact establishing a separate entity from
the rest ofthe bank.17
'ing
13 Alya Khorshid, op.cit., p.123.
. 2,
14 Zainal Amin Ayub, Mohammad Azam Hussain, Nurretina Ahmad Shariff & Dr Hassan Ali, op. cit. p. x.
15 Juan Sole, 2007, Introducing Islamic Banks into Conventional Banking Systems, Washington: International
Monetary Fund, IMF Working Paper No. 07/175, p. 8.
16 Zainal Amin Ayub, Mohammad Azam Hussain, Nurretina Ahmad Shariff & Dr Hassan Ali, op. cit. , p. x.
17 Juan Sole, op. cit. p. 5&8.
6. 196
On January 3, 1994, the CBM has introduced an Islamic Inter-Bank Money
(IlMM). The IIMM was put in place as a short-term intermediary to provide a ready OPt
of short term investment outlets based on Shariah principles. Through the IIMM, a r
Islamic banks and banks participating in the Interest Free Banking Scheme (IFBS) Isb
be able to match the funding requirements effectively and efficiently. The SCOpe bal
activities of the IIMM included the purchase and sale of Islamic financial . COl
among market participants (including the Bank), inter bank investment activities thr",,_tW
the Mudaraba Inter bank Investment (MIl) Scheme and a cheque clearing and ''''iLLlCl.Uem$l lsI
system through an Islamic Inter bank Cheque Clearing System (IICCS). The mveStmellls'l ref
through the IIMM would ensure that that all the elements involved in the funding of thi
Islamic banks and conventional banks offering Islamic products are in compliance with lsi
Shariah principles. This is due to the fact that those banks investing in the IIMM must· leI
comply with certain requirements set by the CBM so as to be recognized as the Islamic es
financial institutions.
As far as the legislative framework is concerned, the existing IBA only governs Rl
the establishment of an Islamic bank. This is to say that the registration and the la
administration of the Islamic bank shall be made thoroughly in accordance with the G
provisions of the IBA. However, nothing in this Act that concerns on the establishment of st
Islamic windows in the conventional banks. Undoubtedly, the establishment of the F:
conventional bank is governed by the Banking and Financial Institutions Act 1989
(BAFIA). Therefore, section 124 of the BAFIA has been amended in 1996 to cater the B
operations ofIslamic banking and financial business in the conventional banks. B
Finally, in December 1998, the term IFBS used for Islamic windows was replaced K
pby Islamic Banking Scheme (IBS) or Skim Perbankan Islam. In that year, all banking
institutions that have Islamic windows were also required to upgrade the Islamic banking F
(unit to Islamic banking division so as to further expand the Islamic banking industry.IS
I
jC. THE ESTABLISHMENT OF THE SECOND MALAYSIAN ISLAMIC BANK,
BANK MUAMALAT MALAYSIA BERHAD (BMMB)
In 1999, the second full-fledged Islamic bank governed under the IBA known as Bank
Muamalat Malaysia Berhad (BMMB) was set up. The establishment of the BMMB was the
result of merger arrangements between Bank Bumiputera Malaysia Berhad (BBMB) and
Bank of Commerce Malaysia Berhad (BOCB). The arrangement was made in such a way
that the Islamic banking operations of these two banks were transferred to this newly
established bank. With the merger, BIMB stands to lose its monopoly status as the only
full·fledged Islamic bank.
D. THE EMERGENCE OF FOREIGN FULL-FLEDGED ISLAMIC BANKS AND
THE ESTABLISHMENT OF ISLAMIC BANKING SUBSIDIARIES
In the year 2004, the government has implemented a financial liberalisation policy
whereby the CBM has allowed for new foreign Islamic banks to operate in Malaysia.
Similar to other Islamic banks, these banks were also licensed under the IBA.
18 Refer to Langkah-Iangkah Pengukuhan Perbankan, Guideline issued on 12 November 1998. However, The
Guideline was superseded by Guidelines on Skim Perbankan Islam issued by Central Bank of Malaysia.
7. 197
Market
y source
411, the
:) would
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ruments
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11ement
stments
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;ovems
nd the
ith the
oentof
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ter the
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ANI(,
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lewly
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olicy
ysia.
; The
bve:lopt:ment OfIslamic Banking Laws In Malaysia; An Overview
The strategy behind this was to create more competition and to tap new growth
as well as raise the performance ofthe Islamic banking industry as a whole. As
of the introduction of this liberalisation policy, three new foreign full-fledged
banks from the Middle-East have joined the Malaysian banking market. The three
were Kuwait Finance House, AI-Rajhi Banking & Investment Corporation and a
J"n~.cnTTllIHl led by Qatar Islamic Bank and Asian Finance Bank Berhad.
Later, all the Islamic windows were encouraged to set up as Islamic subsidiaries.
subsidiaries are for all purposes treated as' full-fledged Islamic 'banks. In this
these subsidiaries are governed and shall be licensed under the IBA, similar with
Islamic banks counterpart, i.e. the BIMB, the BMMB and the newly established
foreign banks, even though their parent companies are governed under different
.."",,,,u.,,v•• i.e. the BAFIA. This is due to the fact that the new Islamic subsidiaries
Cl5IlUll;>l1"" are considered as separate legal entities from their parent companies.
. The first bank that launched Islamic subsidiary was RHB Group, which opened
RIm Islamic Bank Berhad in year 2005. The second was Commerce Group when it
i:unched the Commerce Tijari Bank Berhad and the third banking group was Hong Leong
lli,oup, which established the Hong Leong Islamic Bank. Subsequently, a number of
mlbsidiaries were established by their respective banking group. Below is the list of
Financial Institutions offering full-fledged Islamic banking services as at March 2009 ;
Bank Islam Malaysia Berhad
Bank Muamalat Malaysia Berhad
Kuwait Finance House (Malaysia) Berhad
AI-Rajhi Banking and Investment Corporation (Malaysia) Berhad
RHB Islamic Bank Berhad
CIMB Islamic Bank Berhad
Hong Leong Islamic Bank Berhad
Affm Islamic Bank Berhad
Alliance Islamic Bank Berhad
AmIslamic Bank Berhad
Asian Finance Bank Berhad
EONCAP Islamic Bank Berhad
HSBC Amanah Malaysia Berhad
Maybank Islamic Berhad
OCBC AI-Amin Bank Berhad
Public Islamic Bank Berhad
Standard Chartered Saadiq Berhad
THE LEGAL FRAMEWORK OF ISLAMIC BANKING AND FINANCIAL
SYSTEM IN MALAYSIA
In practice, Malaysia has dual [manciaI system; namely the conventional and the Islamic
financing. Since Islamic banking and financial system appeared later than the conventional
part, the Shariah legal framework complements the existing one. The Shariah legal
framework operated in two ways, some ofthe laws were newly enacted and the others were
modifications ofthe current laws.
8. 198 The
A. THE LEGISLATIVE JURISDICTION OF THE ISLAMIC
TRANSACTION IN MALAYSIA ma
po'
Malaysia has a dual system of courts, the civil court and the Shariah court system. wi1
jurisdiction of the civil court is laid down in the Federal List of the Ninth Schedule sut
Federal Constitution which includes inter alia Item 7 under the heading of Finance of
includes banking, money lending, pawnbrokers, control of credit, bills of ex(;nan!!e hi~
cheques, promissory notes and other similar instruments. SUI
On the other hand, the jurisdiction ofthe Shariah courts is stated under Item I of lsI
the State List of the Ninth Schedule of the Federal Constitution which includes personal Fe
laws comprises of succession, testate and intestate, family law matters, gifts, wakafs and
the determination ofIslamic law and Malay custom. On top ofthat, the Shariah courts shall re
have jurisdiction only over persons professing the religion of Islam in respect ofany ofthe M
matters set out in Item I. ju
As far as the matter ofjurisdiction is concerned, cases relating to Islamic banking b~
are at present dealt with in civil courts and there have been a number ofdecisions involving in
Islamic banking. There are several reasons why the Islamic banking matter falls under the
jurisdiction ofthe civil court. ju
It was clear that matters such as banking (including Islamic banking), insurance al
(including takaful), and companies are in the Federal List. Hence, the power to enact laws C
to govern these matters is within the jurisdiction of the Parliament. The results were the tt
passing of the IBA, section 124 of the BAFIA, section 16B of the CBMA and the Takaful c'
Act 1984. s:
However, constitutional issue then arises when Islamic financial products include r
instruments which are purely in the jurisdiction of the State List. For instance, Islamic I
banking products with which include the principles of hibah (gifts) and wakaft a
(endowments) as part of their supporting documents. Both hibah (gifts) and wakafs (
(endowments) are clearly under the jurisdiction of the State under Item 1 of State List of
the Ninth Schedule of the Federal Constitution. The submission of the whole Islamic
banking business matters, including the one which is clearly stipulated to be under the State
matter, is clearly against Article 121 (lA) ofthe Federal Constitution. The issue then arises
on which Court has the jurisdiction to hear this kind of Islamic financial transaction?
To answer this question, Item 4(k) of Federal List of the Ninth Schedule can be
invoked. Item 4(k) states that the Parliament shall have power to enact laws for
ascertainment of Islamic law and other personal laws for purposes of federal law. For the
Parliament to have power to enact laws would mean the power of the civil courts to
adjudicate the matter. The power to ascertain Islamic law given to the Parliament is
reflected in section 16B ofthe CBMA on the establishment ofthe SAC ofthe CBMAas the
authority for the ascertainment of Islamic law for the purpose of Islamic banking business
etc. For this matter, Item 4(k) would be the most appropriate to be invoked in answering
question on the jurisdiction of the courts and the power to enact laws pertaining to Islamic
banking business.
9. 199ndang-Undang Developement OfIslamic Banking Laws In Malaysia: An Overview
[NANClAL This is due to the fact that it is undeniable that the powers of the State on any
relating to Shariah since Item I ofState List is so wide so much so that it covers the
ofthe determination ofany matters ofIslamic law. Even though banking matters are
,ystem. The the purview of the Federal, the determination of Islamic matter issues as the
edule ofthe in the Islamic banking cannot be dispensed with. Hence, recognizing the power
lance which State in Islamic banking matters as well as the jurisdiction of the Shariah courts is
, exchange, inclined. However, this is difficult to implement considering ~ome other factors
as the dual nature of Islamic banking ( combination of conventiona1 mechanism and
!r Item I of principles of muamalat). Thus, the best practice is by invoking Item 4(k) of the
es personal List.
wakafs and The jurisdiction of the Shariah courts only confine to persons professing the
;ourts shall of Islam. However, in Islamic banking activities, the parties involved range from
'any ofthe Muslims, non-Muslims, companies, partnerships and statutory bodies.19 Hence, giving
~ jurisdiction on that matter to the Shariah courts would be impossible. Even the Islamic
ic banking J; banks cannot be considered as persons professing the religion of Islam since they are not
,involving !~ individuals, what more conventional banks.20~~
under the ~: The above discussion revealed that Islamic banking matters are within the
,t jurisdiction ofthe civil courts. Therefore, in 2003, the Muamalat Bench was set up, located
insurance i at High Court Commercial Division 4.21The Muamalat Bench was presided by the High
mact laws ;1, Court Judge. The setting up ofthe Muamalat Bench would entail the gradual integration of
were the Hthe two systems of law into one, evolving in the process a system of court structure and
e TakafuI i court procedure that would have incorporated and integrated elements from both the
systems and one that would apply to both systems. In the course of time, this would give
ts include rise to a court system and court procedure capable ofhandling all types ofcases both under
" Islamic Islamic law, other than those that come within the jurisdiction ofthe Shariah courts, as well
I wakafs as common law that would be unique in this country and which could serve as a model for
I wakafs other countries to follow.22
e List of Further to facilitate the litigation process at this court, it has been proposed that
, Islamic written substantive laws governing Islamic business, banking and finance (i.e. Islamic
the State commercial law or Muamalat) in the form ofa comprehensive Islamic Commercial Codes
en arises needs to be introduced to lend support to existing regulatory laws governing this area.23
m?
~ can be
'lWS for 19 Mohamed Ismail bin Mohamed Shariff, 2005, The Legislative Jurisdiction of the Federal Parliament in
Matters Involvillg Islamic Law, Malayan Law Journal, Vol. 3, p. cv.
For the
20 Refer to the case of Dato'NikMahmud Bill Daud v. Bank Islam Malaysia Berhad [1996]4 MLJ 295;[1998] 3
:mrts to MLJ 393.
ment is 21 Practice Note No. 1/2003 enforced on 1st ofMarch 2003. All muamalat banking cases will be registered under
<as the the Code 22A. The insertion ofthe alphabet "A" will differentiate the Islamic and conventional cases under Code
22 which was used in writ ofsummon cases.
usiness
22 Mohamed Ismail Mohamed Shariff, 1998, Development of Islamic Banking Law in Malaysia, Malayan Law
:wering Journal, Vol. 1, p. cxlv in Dr Nik Norzrul Thani, Mohamdc Ridza Mohamed Abdullah & Megat Hizaini Hassan,
Islamic 2003, Law and Practice ofIslamic Banking and Finance, Petaling Jaya: Sweet & Maxwell Asia, p. 94.
23 Zainal Azam Abd Rahman, Islamic Business and Banking Laws in Malaysia, IKIM 2003 in Dr Nile Norzrul
Thani, Mohamde Ridza Mohamed Abdullah & Megat Hizaini Hassan, op. cit., p. 94.
10. 200
B. SHARIAH SUPERVISION OF ISLAMIC BANKING IN MALAYSIA
On the first inception of Islamic banking in Malaysia by the passing of IBA in 1983,
Act, by virtue of section 3(5)(b) provides that Islamic bank's Articles should provide
the establishment ofa Shariah Advisory Body. The provision states that the CBM shall not
recommend the grant ofa license and the Minister shall not grant a license unless the CBM
or the Minister, as the case may be, is satisfied that there is, in the articles ofassociation of
the bank concerned, provision for the establishment ofa Shariah Advisory body, as may be
approved by the Central Bank, to advise the bank on the operations ofits banking business .
in order to ensure that they do not involve any element which is not approved by the
Religion ofIslam.
In 1996, section 124 of the BAFIA was incorporated and the provision inter alia,
provides that the any institution carrying on Islamic banking activities shall refer the
matters to a Shariah advisory body to ensure that they do not contravene the Shariah
principles. Following this, the CBM has established a Shariah Advisory Council (SAC)
and the appointment were made on 2 August 1996. However, the appointment of this
Council was administrative in nature and no amendment made to the CBMA as yet.
Even though SAC of the CBM was established, every Islamic banks and
conventional banks licensed under the Section 124 ofBAFIA carrying on Islamic banking
activities are required to have their own Shariah Committee to advise on the Islamic
banking and financial activities. These Shariah Committees issued their rulings
respectively without referring to each other even there are possibilities involving the same
issues. This has resulted in various rulings on the same issues.
It is therefore, the CBM through their Cabinet Paper in 1997 has proposed that the
recognition and the formulation ofthe SAC shall be incorporated through the amendment
to the existing CBMA so that the SAC of the CBM shall be the sole supervisory body of
the Shariah banking and finance industry.
Subsequently in 2003, section 16B of the CBMA on the establishment of the
Shariah Advisory Council was inserted. By virtue ofsubsection 16B(1), a SAC ofthe CBM
is established and shall be the authority for the ascertainment of Islamic law for the
purposes ofIslamic banking business, takaful business, Islamic financial business, Islamic
development financial business, or any other business which is based on Shariah principles
and is supervised and regulated by the CBM. Since all the Islamic banking activities in
Malaysia are supervised and regulated by the CBM, the SAC of the CBM shall be the
ultimate body in supervising the Islamic banking business of all the financial institutions
carrying on such business. As far as the members of the SAC are concerned, they are to be
appointed from among persons who have knowledge or experience or both in the Shariah
and also banking, finance, law or any other related discipline. The appointment shall be
made by the Minister on the recommendation of the CBM. At present, there were 19
members of the Shariah Advisory Council of Bank Negara Malaysia chaired by YAA
Datuk Sheikh Ghazali bin Haji Abdul Rahman.24
24 Bank Negara Malaysia, 2007, Shariah Resolutions in Islamic Finance, Kuala Lumpur: Bank Negara Malaysia.
11. 1dang-Undang Developement OfIslamic Banking Laws In Malaysia: An Overview 201
YSIA However, it is to be noted that notwithstanding the introduction of section 16B
the principal Act, the existing SAC which was appointed on 2 August 1996 is deemed
n 1983, the have been validly appointed and shall continue to perform the functions for which it was
provide for hoomte~ until a SAC is appointed in accordance with subsections 16B(2) and (3) of the
M shall not
stheCBM This amendment has resulted to consequential amendments to the IBA and
;)ciation of 124 of the BAFIA in 2003. As such, section 13A of the IBA was inserted which
~s maybe that an Islamic bank may :;:eek the advice of the SAC perta~ing to Islamic
gbusiness and financial business. Whereas section 124(7)(a) of the BAFIA was amended to
ed by the effect that SAC for the purpose of this Act means the SAC established under section
) of the CBMA.
inter alia, Even the establishment of the single SAC for Islamic banking industry was
refer the '&flI'eC()gI]llZe:d by the law, the Islamic banks and conventional banks operating Islamic
Shariah banking business are still required to have their own Shariah body. This is pursuant to the
il (SAC) CBM's guidelines issued i.e. "Guidelines on the Governance ofShariah Committee for the
t of this Islamic Financial Institutions" which provides that a Shariah Committee is to be
:t. established by each and every Islamic banks, Islamic windows and takaful operators. With
:lies and regard to relationship between the SAC and these committees, all these committees playa
banking complementary role to the SAC ofthe CBM.25
. Islamic Besides, the appointment and the reappointment ofa Shariah Committee member
rulings shall obtain prior written approval of the CBM. In approving the appointment and the
le same reappointment, the CBM may impose necessary conditions it deems fit in addition to the
requirements in these Guidelines. The failure to comply with any of such conditions shall
hat the nullify the approvaL
ldment In conformity with section 16B (6) ofthe CBM, an Islamic financial institution is
odyof not allowed to appoint any member ofthe SAC to serve in its Shariah Committee. This is
to avoid conflict of interest and for reasons of confidentiality within the industry. An
of the Islamic financial institution shall not appoint any member of a Shariah Committee in
CBM another Islamic financial institution of the same industry. .
lr the Nevertheless, the SAC of the CBM has accorded with the sole Shariah authority
lamic in Islamic banking and finance. As the sole authority, the SAC will be referred by other
:iples Islamic financial institutions and its ruling pursuant to such reference shall be binding upon
es in them. TIle functions and role of the SAC is clearly stated under section 16B of the CBMA.
; the Other than the Islamic financial institutions, the SAC also been referred by the
tions arbitrator and the courts in disputes involving Shariah issues in Islamic banking and
obe finance. In dle case of arbitrator, the SAC's resolution shall be binding on the arbitrator
riah (obligatory). However, in the case of the court, the SAC's resolution shall be taken into
1be consideration on the court (advisory). This is clearly stated under subsection 16B(9) ofthe
. 19 CBMA.
'AA
25 Mohamad Akram Laldin, 2008, Shariah Supervision ofIslamic Banking From Regulatory Perspective With
Special Refellce to Malaysia (Slide Presentation).
ISia.
12. 202 Jumal Undang-Undang
The non-binding effect of the rulings of the SAC on the courts has resulted the
refusal of the High Court judges to follow the rulings issued hence departing from what
have been agreed upon by the SAC scholars. The recent judgment ofthe High Court in the
case ofArab-Malaysian Finance Berhad v. Taman Ihsan Jaya Sdn. Bhd. & 2 Drs [2008]
and 12 other cases has caught the attention of local Islamic finance players in Malaysia. In
this case, the judge has declared that the Bay' Bithaman Ajil contracts as null and void.
Even though the SAC of the CBM has allowed the application of such form of sale, the
Court in this case summarily dismissed the need to refer to the SAC and said that there is
neither necessity nor reason to refer to these concepts to the SAC for any ruling, which in
any case, while they are to be taken into consideration, are not binding upon the Court.26
The judge ruled that since the IBA requires that any Islamic banking activities shall not
involve any element ofnot approved by the religion ofIslam, it necessarily means that they
contain any element not approved by any recognized Mazhab. This interpretation tends to
demonstrate the Court's lack ofappreciation ofthe matters related to ijtihad and the role of
Mazhab. This is because when Islamic jurists rule upon Shariah matter, they are not bound
to interpret based on any particular Mazhab.27 In this case, the bay'al- 'inah transaction in
the BBA contract was recognized by the SAC on the ground that it is allowed by the
minority of Shafi'i scholars but not the majority of the scholars.28 The majority of the
scholars described this form ofsale as back door to riba, hence disallowing it. However, in
fiqh al-muamalat, as mentioned earlier, the principles to be adopted are not necessarily
based on the opinion of majority of the Mazhab. Even though the SAC has ruled that it is
allowed, the court still refuse to refer it to the competent body recognized by the law in
deciding the matter on the ground it is not bound by the rulings ofthe SAC.
C. ISLAMIC BANKING ACT 1983 (IBA)
In 1983, the government has passed an Act known as Islamic Banking Act 1983 (IBA) for
the purpose of allowing the establishment of an Islamic bank in Malaysia. The IBA
basically provides for the licensing and the regulations on the managemept and the
operations of Islamic banking business. Besides that, it also provides for the financial
requirements and duties of Islamic banks, ownership and control of Islamic banks,
restrictions on business and powers ofsupervision and control over Islamic banks.
Section 2 ofthe Act defines the term Islamic banking business as "business whose
aims and operations do not involve any element which is not approved by the religion of
Islam". On the other hand, Section 3 of the Act provides that in order for the Islamic
banking business to be transacted, the Islamic bank shall obtain license from the relevant
Minister in accordance with the procedures specified therein.
However, it is to be noted that the Act only governs the Islamic banks. In other
words, conventional banks operating Islamic banking business are not under the purview
of this Act. As to date the Islamic banks governed under the IBA are the two local
full-fledged Islamic banks, the foreign full-fledged Islamic banks and the Islamic
subsidiaries banks.
26 Rafe Haneef, 2008, Stormy Times Ahead For Islamic Banking, Malaysian Reserve, p. 30.
27 Ibid.
28 Bank Negara Malaysia, 2007, Shariah Resolutions in Islamic Finance, Kuala Lumpur: Bank Negara Malaysia,
p.25.
1
I
I
t
(
13. 203'Ig-Undang .Developement Oflslamic Banking Laws In Malaysia: An Overview
ulted the BANKING AND FINANCIAL INSTITUTIONS ACT 1989 (BAFIA)
om What
lrt in the to the CBM's policy in allowing the conventional banks to operate Islamic
~ [2008J business via Islamic windows, the Banking and Financial Institutions Act 1989
aysia. In was amended in 1996 in order to allow any conventional bank licensed under this
ld void. to carry on Islamic banking business or Islamic financial business pf0vided that prior
tale, the CJl.L~UJ.La.,·'V1J with the CBM for that purpose shall be made. . .
there is
The amendment has been made to section 124 of BAFIA whereby the whole
rhich in
was designed to facilitate the establishment of Islamic banking and financial~ourt.26
UU~Ul""'" in the conventional banks. Subsection 124(7)(b) of BAFIA specifically defineslall not
.",,,,,,UW'V banking business" as having the same meaning as assigned thereto under the IBA.lat they
shows that the nature ofthe Islamic banking business allowed in the Islamic banks are~nds to
same as allowed in the conventional banks.
role of
bound },;' In addition, the provision also provides that conventional bank shall seek the
tion in ~~dvice ofthe Syariah Advisory ~ouncil ~stablished un~er the ~BM Act 1958 from time ~o
oy the Home to ensure that the IslamIC bankmg or finanCIal busmess operated shall be m
of the icomPliance with Shariah principles.
ver, in
,sarily fE. DEVELOPMENT FINANCIAL INSTITUTIONS ACT 2002 (DFIA)
. It it is
!lW in ,JThere are some development financial institutions that are not governed by any ofthe Act,
i;the IBA or the BAFIA. For example, the Bank Kerjasama Rakyat Malaysia Berhad which
f is governed under the Bank Rakyat Act 1978 and the Co-Operative Societies Act 1993.
! However, it is learnt that the said institutions were also doing Islamic banking business.
. This is due to the fact that such bank is allowed to run its Islamic banking services by virtue
) for
of section 129(1) of the Development Financial Institutions Act 2002 which pf0vides thatIBA
- "Nothing in this Act or the Islamic Banking Act 1983 [Act 276] shall pf0hibit or restrictthe
any prescribed institution from carrying on Islamic banking business or Islamic financialIcial
business in addition to its existing business, provided that the prescribed institution shallnks,
obtain the prior written approval ofthe Bank before it carries on Islamic banking business
lose or any Islamic financial business.".
lof Other development financial institutions offering Islamic banking services other
nic than the Bank Kerjasama Rakyat Malaysia Sdn. Bhd. are Bank Perusahaan Kecil dan
ant Sederhana Malaysia Berhad (SME Bank), Export-Import Bank of Malaysia Berhad, Agro
Bank (formerly known as Bank Pertanian Malaysia) and Bank Simpanan Nasional
i:ter Berhad.29 As far as their Islamic banking services are concerned, section 129(1) of the
ew DFIA is also applicable to them.
~al
lic
29 www.hnm.gov.my.
a,
14. 204 Jumal Undang~Undang
F. CENTRAL BANK OF MALAYSIA ACT 1958 (CBMA)
to
In the year 2003, an amendment was made to the Central Bank of Malaysia Act 1958 Co
(CBMA) by inserting a new provision of section 16B which provides inter alia for the
ins
establishment, appointment! qualification and regulation of the Shariah Advisory Council
(SAC) of the CBMA that will advise the CBMA on Shariah matters in relation to the
Islamic financial industry. By virtue ofthis amendment, any financial institution operating
Islamic banking and financial business shall from time to time seek the advice of the SAC
M<in order to ensure that the operations of its business are in compliance with the Shariah
St;;principles. In addition, such institutions shall also comply with any directions of the SAC
relating to the Islamic banking and financial business. lib
Being the regulator in the industry, the CBMA shall have the power to cancel any est
license given to any financial institution from operating Islamic banking and financial brc
business for non-compliance with any mling of the SAC of the CBMA. The reference to Ex
the SAC ofthe CBMAcan be seen in the amendment ofsection 13Aofthe IBAand section the
124(4) of the BAFIA whereby both provisions clearly state that any Islamic bank or any we
licensed institution carrying on Islamic banking business or Islamic financial business may hu'
seek the advice of the SAC and shall comply with any direction made by the SAC.
The above mentioned list of legislations is meant for the management and the Ru
operation ofthe Islamic banking and financial business. However, it is to be noted that the Se:
application of the laws in Islamic banking and financial business is similar to that of
Fal
conventional banking. This would mean that the application of the National Land Code
Ur
1965, the Contracts Act 1950 and other laws are still relevant in Islamic banking and
43financial business as long as the provisions ofthe laws do not contravene the principles of
SeShariah.
In facilitating the execution of the transaction under Islamic principles, several
amendments to the existing laws were made for example the Stamp Act 1949 and the Real
Property Gains Tax Act 1976. With these amendments, the customers of Islamic banks
would enjoy the same benefits enjoyed by the customers of conventional banks. Nc
On the principles ofShariah itself, there are no specific laws that provide-what are LL
the principles that should be applicable in the Islamic banking transactions. In muamalat, Fa
, . the principles to be adopted are much depending on the circumstances and environment Uri
(maslahah). It is more flexible compared to ibadah whereby everything is fixed and cannot 43
be changed for example a Muslim must perform his prayers five times per day in what ever Se
circumstances (except for rukhsah). In addition, the principles to be accepted in the Islamic
transactions are not focusing on one Mazhab only.30 There is also no necessity as to the
consensus of opinion of the four Mazhab in order for certain principles to be adopted. The
best example is bay'al- 'inah. The Malaysian industry allows the application ofsuch form
of transaction on the basis that it is accepted by a minority of Shafie jurists even though
majority ofthe Muslim scholars are opposing such transaction.31 This is to say that as long
as there is no element ofriba. gharar, maisir or involving the producing and selling impure
goods, any form of transaction shall be allowed under Shariah.
30 Mohamad. Illiayas, 2009, Documentation For Consumer/ Commercial Financing (Presentation during
Comprehensive Workshop On Islamic Financing For Legal Practitioners, IBFIM).
31 Bank Negara Malaysia, 2007, Shariah Resolutions in Islamic Finance, Kuala Lumpur: Bank Negara Malaysia,
p.25, Securities Commission, (2006), Resolutions of the Securities Commission of Shariah Advisory Council
(Second Edition),Kuala Lumpur: Securities Commission, p. 20.
15. 205Idang-Undang
1 Act 1958
llia for the
ry Council
tion to the
.I operating
{the SAC
e Shariah
fthe SAC
ancelany
financial
erence to
d section
ik or any
less may
,
and the
that the
that of
ld Code
ing and
iples of
several
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The Developement OfIslamic Banking Laws In Malaysia: An Overview
Although there are no written laws on the principles of Shariah that are allowed
to be used in the industry, the application of such are supervised by a Shariah Advisory
Council to ensure that any Islamic banking activities operated by the Islamic financial
institutions are not contravening the principles of Shariah.
CONCLUSION
Malaysia's Islamic banking and finance industry has been in existence for over 30 years.
Starting from the establishment of the first Islamic bank in 1983 and thereafter, with the
liberalization of the Islamic financial system, more Islamic financial institutions have been
established. As to date, Malaysia has seventeen full-fledged Islamic banks providing a
broad spectrum of financial products and services based on Shariah principles.
Experiencing the several stages of developments have transformed Malaysia into one of
the most developed Islamic banking markets in the world. And most recent, Malaysia is
working on an initiative to promote the country as a leading international Islamic financial
hub known as the Malaysia International Islamic Financial Centre (MIFC).
Ruzian Markom
Senior Lecturer
Faculty of Law
Universiti Kebangsaan Malaysia
43600 UKM Bangi
Selangor
ruzian@ukm.my
Norilawati Ismail
LLM Student
Faculty ofLaw
Universiti Kebangsaan Malaysia
43600 UKM Bangi
Selangor