Introduction and Concepts of

Banking and Islamic Banking

Presented by:
Ahmad Sanusi Husain
Director of Training and Professional Development

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Assalamu alaikum

Ahlan Wasahlan
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 PART 1
INTRODUCTION AND
CONCEPT OF
BANKING
(Conventional Banking)

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 The Origin of Bank
The word “bank” is
said to have it
roots in French
word banque
(chest) or Italian
word banca
(bench).

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 History of banking
Historically, then, a bank is associated
with a place for safekeeping of
valuables or money (refers to the
meaning of chest) or a platform where
exchange of valuable or money takes
place (refer to the meaning of bench).
The business of banking, as such, is
believed to have started out in the form
of safekeeping and exchange of money.

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 Bank as a Financial Institution
In today’s meaning, a bank is a financial
institution, i.e. an institution dealing in
financial services. But not all financial
institutions are banks. Financial institutions
include:
1.Banks
2.Finance companies
3.Merchant banks
4.Credit and leasing companies
5.Discount houses
6.Co-operative banks
7.Factoring companies
8.National Savings Bank etc.
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 Common Features of Financial
Institutions
The common feature amongst these
institutions is their role as a mobiliser of
funds from those with surplus of fund
(surplus unit) to those short of funds (deficit
unit). They are thus financial
intermediaries. These institutions received
funds as deposits from clients or as capital
from shareholders and lend these out as
loans or advances to persons or business who
need them. This is called intermediation
function.

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 Intermediation Function
in Conventional Banking
SURPLUS UNIT BANK DEFICIT UNIT

Deposit/ Loan /
Capital Advances

Interest/Dividend Interest

The role of a banking institution is to act as an intermediary

between the surplus unit of the economy and the deficit unit.

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 Definition of Banking Business

Banking and Financial Institutions Act, 1989

(BAFIA) defines banking business as:

1.the business of:

a. receiving deposits on current account,
deposit account, savings account or
other similar accounts.
b. paying or collecting cheques drawn by
or paid by customers; and
c. provision of finance, or

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 Definition of Banking Business

2. Such other businesses as the Central Bank

(meaning, Bank Negara Malaysia), with the
approval of the Minister (of Finance), may
prescribe.

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 Banking and Financial
Institution Act, 1989 (BAFIA)
• Came into force on 1 October 1989
• Repealed Finance Companies Act 1969
and Banking Act 1973
• BAFIA governs regulatory framework in
which banks and financial institutions in
Malaysia operate.
•BAFIA is intended to preserve the
soundness and stability of banking and
financial system in Malaysia.
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 Banking and Financial
Institution Act, 1989 (BAFIA)
• Provisions in BAFIA shall not apply to an
Islamic banks i.e. Bank Islam Malaysia Berhad
and Bank Muamalat Malaysia Berhad (this is
provided under section 124(6).
• However, it is noted that any licensed
institutions carrying on Islamic banking or
Islamic business shall not be deemed as an
Islamic bank, and hence be subjected to BAFIA.

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The Malaysian Banking System

• The banking system in Malaysia

comprises of Central Bank (Bank Negara
Malaysia), the commercial banks and
other institutions such as finance
companies, merchant banks, discount
houses, representatives of the foreign
banks and offshore banks in Labuan
IOFC.

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The Malaysian Banking System

• BNM is the apex of the monetary and banking

system in Malaysia.
•BNM has been entrusted with the regulation
and supervision of the banking system in
Malaysia.
•This will ensure that a sound and strong
financial system is maintained which is essential
to a steady and balanced economic and social
development in the country.

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 PART 2
INTRODUCTION AND CONCEPT OF

ISLAMIC BANKING

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GLOBAL DEVELOPMENT
OF ISLAMIC BANKING
AND FINANCE

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 GLOBAL ISLAMIC BANKING

•Total asset managed by Islamic banking

worldwide = USD200 billions (estimate)
•About 200 Islamic banks worldwide

Note: Average asset per Islamic bank=USD1bil.

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 HISTORICAL DEVELOPMENT OF ISLAMIC BANKING

1963
•Mit Ghamir Local Savings Bank, Egypt
- Founded by Ahmed Al Najar
- Considered as a major milestone in the development of Islamic
banking worldwide.
- Received overwhelming support from customers
- Due to political changes, the bank was taken over by National
Bank Egypt and then subsequently by Nasser Social Bank
(government-owned Islamic bank)

•Lembaga Tabung Haji (Pilgrimage Fund Board), Malaysia

- Mobilises deposits from Muslims for Investment and savings to
perform Haj (plilgrimage).
- Afterward Muslim in Malaysia increasingly demanded Islamic
banking services.
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 HISTORICAL DEVELOPMENT OF ISLAMIC BANKING

1975
•Islamic Development Bank, Jeddah, KSA (est. 20 October 1975)

•Dubai Islamic Bank (the first Commercial Islamic Bank)

1983
•Bank Islam Malaysia Berhad
- the first Islamic Bank in Malaysia
- started operation on 1 July 1983

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 HISTORICAL DEVELOPMENT OF ISLAMIC BANKING

1984

• Commencing March 21, 1984, no bank was allowed to provide

interest-based deposit or credit facilities in Islamic Republic of Iran.
From March 1985, all banking transactions were strictly based on
Shariah.

• By September 1984, the entire banking system in Sudan was

supposed to operate in accordance to Islamic principles

•1985

• From 1985, the entire banking system min Pakistan was supposed
to operate in accordance to Islamic principle.
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 HISTORICAL DEVELOPMENT OF ISLAMIC BANKING

1993
•Interest-free banking scheme was introduced at conventional banks
in Malaysia.

•Establishment of Islamic Bank of Brunei

1994
•Malaysia introduced the first Islamic Inter-banks Money Market
(IIMM)

1995
•Accounting and Auditing Organisation For Islamic Financial Institutions
(AAOFII) was established in Bahrain

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 HISTORICAL DEVELOPMENT OF ISLAMIC BANKING

1996
• Citicorp opened Citi Islamic Investment Bank in Bahrain (July 1996)

1997
• National Syariah Supervisory Council was established by the
Central Bank of Malaysia (Bank Negara Malaysia)

1997
• establishment of Malaysian Accounting Standard Board
-Issues Islamic Accounting Standard for Islamic Financial Institutions
(MASB i-1)

1998
• Interest-free Banking Scheme was upgraded to Islamic Banking
Scheme with the setting up of Islamic Banking Division ( headed by
senior level management) replacing Islamic Banking Unit. Sanusi2002
 HISTORICAL DEVELOPMENT OF ISLAMIC BANKING

1999
Establishment of the second Islamic bank in Malaysia, Bank
Muamalat Malaysia Berhad.

2000
• Establishment of the second Islamic bank in Brunei, Islamic
Development of Brunei

2002
• Establishment of International Islamic Financial Market (IIFM)
– based in Bahrain
• Establishment of Islamic Financial Services Board (IFSB) to issue
standards on Islamic banking products and services
– based in Kuala Lumpur

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ISLAMIC BANKING SYSTEM
IN MALAYSIA

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Institutional Building – The First Phase
 Establishment of Pilgrimage Fund Board in 1963
 Systematic mobilization of funds from the
Muslim community to assist them to perform
the pilgrimage as well as to encourage
participation in investment opportunities and
economic activities

 Members in 2001 : 4.4 mil.

 Deposit in 2001 : USD2.6 bil.
 Asset in 2001 : USD3.0 bil.

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Establishment of the first Islamic bank in 1983
 Bank Islam Malaysia Berhad was given a grace
period of 10 years to operate without competition –
 to protect its growth and development

 to create as many products as possible

 Enactment of new Islamic Banking Act 1983 and

new Government Investment Act 1983
 Listed on KLSE in 1992
 BIMB achieved an average annual growth of 48%
over the (1983-1993) period…
 83 branch network to-date (incl. in Labuan IOFC)

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 Institutional Building – The Second Phase:
Increase Islamic Banks or Embark on Dual
Banking…

Allow conventional banking institutions to

offer Islamic products and services
Why Dual Banking…
 Instant increase in number of players
 Fastest way to disseminate Islamic banking on
nationwide basis
 Optimize existing banking infrastructure, resources and
network
 Facilitate achievement of econ. of scale, synergies and
critical mass Sanusi2002
 Regulatory framework for dual banking
 Amendments made in 1993 to existing Banking and
Financial Institutions Act 1989 (BAFIA) to enable
conventional banks to operate Islamic banking window
 Section 32 of BAFIA amended to read:
“All licensed banks….may engage in the sale of property at
a price which includes the profit margin so long as such
trade is not conducted on the basis of interest”
 Section 124 of BAFIA amended to read:
“….nothing in this Act or the IBA 1983 shall prohibit any
licensed institution from carrying on Islamic banking
business...in addition to its existing licensed business,
provided that the licensed inst. shall consult the Central
Bank before it carries on Islamic banking business”
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Shariah (Islamic law) Advisory Framework
 Requirement to have Shariah Advisory Councils at
Islamic Banks
 Requirement to have Shariah consultants at IBS
Banks
 Establishment of National Shariah Advisory Council
(NSAC) in 1997 under BNM to oversee uniformity in
terms of Shariah opinions and instill discipline among
banks and takaful operators
 NSAC is Shariah body of highest stature for Islamic
banking and takaful
 Comprises academicians and Shariah experts on
Islamic banking and finance
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 Growth of Islamic Banking in Malaysia
 1993-2001, average annual growth of 52%
in terms of assets
 At 31 Dec 2001, share of
 Islamic assets : 8.2% (RM59 b)
 Islamic deposit : 9.5% (RM47 b)
 Islamic financing : 6.5% (RM28 b)
… of entire domestic banking system

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 Islamic banking players and products

 At 31 Dec 2001, 37 Islamic banking inst. (IBI) - two

Islamic banks and 35 Islamic Banking Scheme banks
 Over 2,100 IBIs’ branches throughout Malaysia
 Comprehensive and comparable product range -
retail & corporate products ranging from investment
a/c & home financing to project financing & long-
term bonds

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Islamic Interbank Money Market (IIMM)

 Platform to provide ready source of short-term

funding and investment outlets
 Channel for transmission of monetary policy
 Comprises Mudharabah inter-bank investment
(MII), trading of Islamic instruments and Islamic
cheque clearing system
 For year 2001, volume of IIMM was RM277 billion
(USD 73 billion)

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The growth of Islamic banking and finance
has created spillover effects on other related
sectors in the financial system…
 3 development financial institutions (DFIs) and the
National Savings Bank offer Islamic banking products
 A cooperative bank i.e Bank Rakyat has converted its
activities into full-fledged Islamic operations
 The national mortgage corporation, Cagamas Berhad,
purchases and securitizes Islamic house financing
 Credit Guarantee Corp. provides guarantee for Islamic
financing
 Rating agencies rate Islamic capital market products
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 ...as part of the spillover effects -
Takaful or Islamic insurance
 3 takaful companies with composite license (family
and general)
 39 domestic branches throughout Malaysia
 Both offer general takaful from motor insurance to
high-end marine and aviation coverage
 Takaful life provides coverage similar to life insurance
(medical and health, education, annuity and pension
products)
 One offshore retakaful institution, Asean Retakaful
International (L) Ltd, established in Labuan IOFC
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 Growth of takaful business* in Malaysia
 1986-2001, average annual growth of 61% in terms
of assets
 At 31 Dec 2001, share of takaful assets = 4.9%
(RM3.0 b or USD790 m) of total assets of industry
 At 31 Dec 2001, share of takaful contributions = 8.6%
(RM1.5 bil of USD0.4 bil) of total insurance industry

* figures are for family and general business

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CHARTING OUR WAY FORWARD
FOR THE NEXT 10 YEARS

2001 - 2010

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 Charting our way forward
 Financial Sector Master Plan (FSMP) launched on 1 March 2001, charts
the 10-year course for Islamic banking and takaful for Malaysia
 FSMP contains a chapter on Islamic banking and takaful

“The overall objective is to create

an efficient, progressive and comprehensive
Islamic financial system that
contributes significantly to the
effectiveness and efficiency of
the Malaysian financial sector
while meeting the economic needs of
the nation….”
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 Charting our way forward
 Malaysia as a regional Islamic financial centre
 Kuala Lumpur as regional resource centre

 Labuan IOFC as platform for foreign currency bond

issue and regional HQ for FIs offering Islamic finance

20%
15%
11%
8%

2001 2004 2007 2010

 Penetration rate of 20% vis-à-vis ...
 banking industry market by 2010 in terms of assets,
financing and deposit

insurance industry’s market share (assets,
contribution) Sanusi2002
 Charting our way forward
Comprehensive and
complete range of
Islamic financial
products and services

Sufficient number Comprehensive

of strong and
highly capitalised and conducive
IBIs and takaful 2010 Syariah and
regulatory
operators
framework

Sufficient number of well-

trained, high calibre
individuals and management
teams with the required
expertise

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 International
financial
landscape
of
Islamic banking
and
finance

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 Islamic banking and finance has vast potential
on the regional front…

KUWAIT
TURKEY
SYRIA
JORDAN IRAQ IRAN SOUTH
PAKISTAN CHINA KOREA
EGYPT
SAUDI UAE TAIWAN
ARABIA OMAN INDIA
H KONG
SUDAN THAILAND
YEMEN THE PHILIPPINES
BRUNEI
LABUAN
MALAYSIA

Growing SINGAPORE
demands
INDONESIA
from Muslim
population Growing interest in Islamic banking and
> 200 mil finance in Brunei, Indonesia, Thailand and
in the Region Singapore
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 ISLAMIC BANKS IN THE REGION
Malaysia i) Bank Islam Malaysia Berhad (1983)
ii) Bank Muamalat Malaysia Berhad (1999)

Brunei
i) Islamic Bank of Brunei (1993)
ii) Islamic Development Bank of Brunei (2000)

Indonesia
i) Bank Muamalat Indonesia (1992)
iii) Bank Syariah Mandiri
Philippines
i) Alif Bank (2002) taken over
Al-Amanah Bank (1974)
Thailand
Introduced IBS in 2002
 International Islamic Financial Market –
serves to spur the growth of Islamic banking and finance
into the global financial system

A system linking
money markets Liquidity
worldwide

Universal Match assets

IIFM and liabilities
products

Streamline Improve
Shariah cooperative
opinions framework Sanusi2002
International Islamic Financial Market (IIFM)
 Labuan Offshore Financial Services Authority
(LOFSA), which governs Malaysia’s IOFC, together
with Bahrain, Brunei, Indonesia, Sudan and Islamic
Development Bank (Saudi Arabia) have created
IIFM
 Articles of Agreement on IIFM Board establishment
signed on 13 November 2001 in Paris by members
(membership to be extended to other countries )
 Creation of IIFM Board to establish, develop and
regulate IIFM based on Shariah principles
 Establishment of Market and Product Development
Committee and Shariah Supervisory Committee

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 International Islamic Financial Market

KUWAIT
JAPAN Labuan –
TURKEY
SYRIA Hub of East Asia
JORDAN IRAQ IRAN SOUTH
PAKISTAN CHINA KOREA Labuan
EGYPT
SAUDI UAE TAIWAN
ARABIA OMAN INDIA
H KONG
SUDAN THAILAND
YEMEN
BRUNEI
LABUAN
MALAYSIA THE PHILIPPINES

SINGAPORE
Bahrain
INDONESIA

Bahrain – Hub
of Middle East
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 Islamic Financial Services Board –
serves to enhance the global prudential framework for
Islamic banking and finance
International Develop and
standard setting issue prudential
body for IFIs standards

Regulate IFIs to be Focus on areas

at par with IFSB unique to Islamic
international best banking and
practices finance

Streamline and
standardize regulatory and
supervisory framework for
IFIs
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 Islamic Financial Services Board (IFSB)

 Structure to comprise the General Assembly,

Council, Technical Committee and Secretariat
 Malaysia as the host country for the Secretariat
 Membership to be extended to countries that
recognize Islamic banking by legislation or
regulation
 Established Preparatory Committees to formulate
the framework of IFSB
 IFSB is expected to be launched in November 2002

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SHARIAH BASIS

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 What is Islamic Banking?
Islamic banking is a term that reflects banking business,
which is not contradictory to Islamic law principles.
Islamic banking is based on certain theoretical concepts
and features before they are translated into practical
operations. The most obvious feature of Islamic banking is
that it denounces the practice of riba (usury or interest).

Malaysia’s Islamic Banking Act, Section Two defined Islamic banking

as banking business whose aims and operations do not involve any
element which is not approved by the Religion of Islam.

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IS L A M , S H A R IA H , M U A M A L A H , B A N K IN G A N D F IN A N C E

IS L A M

A Q ID A H S H A R IA H AKHLAQ
( F a it h & B e lie f ) ( P r a c t ic e s & A c t iv it ie s ( M o r a lit ie s & E t h ic s )

IB A D A H M UAM ALAH
( M a n - t o G o d W o r s h ip ( M a n - t o M a n A c t iv it ie s

P O L IT IC A L E C O N O M IC S O C IA L
A C T IV IT IE S A C T IV IT IE S A C T IV IT IE S

B A N K IN G A N D
F IN A N C IA L
A C T IV IT IE S

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 Al-Qur'an

 Al-Sunnah (the traditions of prophet

Muhammad (peace be upon him)
 Al-Ijma' (consensus of opinion among jurists
of Islamic law)
 Al-Qiyas (reasoning by analogy)

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 The Meaning of Riba
Riba is an Arabic word which literally means ‘increase’,
‘growth’, ‘to rise’ and ‘to become lofty’

From Shariah (Islamic law) point of view, however, riba

technically refers to the ‘premium’ that must be paid by the
borrower to the lender along with the principle amount as a
condition for the loan or for an extension on its maturity

(M. Umer Chapra, 1992)

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.....That is because they say: “Trade is like
usury,” but Allah has permitted trade and
forbidden usury

Al-BAQARAH:275
 AL-BAQARAH : 275
ORANG-ORANG YANG MEMAKAN (MENGAMBIL) RIBA ITU TIDAK
DAPAT BERDIRI BETUL MELAINKAN SEPERTI BERDIRINYA ORANG
YANG DIRASUK SYAITAN DENGAN TERHOYONG-HAYANG KERANA
SENTUHAN (SYAITAN) ITU. YANG DEMIKIAN IALAH DISEBABKAN
“PADAHAL ALLAH TELAH
MEREKA MENGATAKAN “BAHAWA SESUNGGUHNYA BERJUAL BELI
ITU SAMA SAHAJA SEPERTI RIBA”. PADAHAL ALLAH TELAH

MENGHALALKAN BERJUAL
MENGHALALKAN BERJUAL BELI (BERNIAGA) DAN
MENGHARAMKAN RIBA. OLEH ITU SESIAPA YANG TELAH SAMPAI
KEPADANYA PERINGATAN (LARANGAN) DARI TUHANNYA LALU IA
BELI (BERNIAGA) DAN
BERHENTI (DARI MENGAMBIL RIBA), MAKA APA YANG TELAH
DIAMBILNYA DAHULU (SEBELUM PENGHARAMAN ITU) ADALAH
MENGHARAMKAN RIBA”
MENJADI HAKNYA DAN PERKARANYA TERSERAHLAN KEPADA
ALLAH. DAN SESIAPA YANG MENGULANGI LAGI (PERBUATAN
MENGAMBIL RIBA ITU) MAKA MEREKA ITULAH AHLI NERAKA,
MEREKA KEKAL DIDALAMNYA.

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Hadith Diriwayatkan oleh Imam
Al-Bukhari
Sabda Rasulullah S.A.W.
“Allah melaknat (mengutuk) orang
yang makan riba dan mengambil
serta memberinya dan penulisnya
dan saksinya”

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ISLAMIC BANKING CONCEPTS,
PRODUCTS AND SERVICES

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 SIMPLIFIED MODEL OF ISLAMIC BANK

DEFICIT UNIT:
SURPLUS UNIT
-Financing
-Deposit
•Consumer Fin.
•Saving Acc.
•Corporate Fin.
•Current Acc.
•Trade Fin.
•Investment Acc.
•Other Fin.
•Other deposits

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 Some Islamic Banking Concepts
A. DEPOSITS

1. WADIAH (Safe custody)

a) Wadiah Yad Amanah (Trustee safe custody)
b) Wadiah Yad Dhamanah (Guaranteed safe custody)
-applied in Savings & Current Accounts

2. MUDHARABAH (Trustee profit sharing)

-applied in Mudharabah Investment Account &
Savings Account
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 WADIAH DEPOSITS
1. Depositor deposits a certain amount of money
with the bank for the purpose of safe keeping and
convenience. Under Wadiah contract, Bank acts a
custodian of customer’s money and does not
promise any return on the deposit. The principal
amount is guaranteed by the bank.

2. Bank utilises the money in

various forms of investment
or financing

3.PROFIT
4. RETURN to depositor
is based on bank’s DISCRETION
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 MUDHARABAH
DEPOSITS
1. Depositor invests a certain amount of
money e.g. RM100,000 for a specific
period e.g. 1 year. Both parties agree
on profit sharing ratio (e.g. 70:30) i.e.
70% of gross profit to be distributed
to depositor and 30% to bank.

2. Bank utilises the money in

various forms of investment
or financing

3.PROFIT

LOSS
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 FULFILMENT OF FINANCIAL NEED

OWN CAPITAL OTHERS’ CAPITAL

Profit Sharing Contracts/ Deferred Payment Contracts/

Equity Financing Debt Financing
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 Some Islamic Banking Concepts
B. FINANCING
1. BAI BITHAMAN AJIL (Deferred Payment Sale)
-applied in Landed Property Financing, Vehicle
Financing, Consumer Goods Financing, Refinancing etc.
2. MURABAHAH (Deferred Lump Sum Sale)
-applied in Murabahah Working Capital Financing
3. IJARAH (Leasing)
-applied in Vehicle Leasing, Equipment Leasing etc.
4. MUDHARABAH (Trustee Profit Sharing)
-applied in project financing
5. MUSYARAKAH (Joint-venture profit sharing)
-applied in project financing Sanusi2002
DEFINITION:

Bai Bithaman Ajil means deferred payment sale i.e. the

sale of goods on deferred payment basis at a price which
includes a profit margin agreed by both parties i.e. seller
and buyer.

Similar concepts:
1. Murabahah
2. Bai Muajjal
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 HOUSE FINANCING
(Summarized Steps)

(2)
bank purchased the
house at RM90,000.00.

(3)
bank sells the house to
customer at RM180,669.60

(4)
(1)
customer charges the house to the bank.
customer identifies a
Amount secured under charge =
house to be
RM180,669.60
purchased (sign Sale &
Purchase agreement)

(5)
customer pays RM180,669.60 by 240 equal
monthly instalment of RM752.79
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 VEHICLE FINANCING

(3)
Bank sells the car to
customer at RM75,000.00

(4)
customer pays the
selling price by 60
monthly instalment of
RM1,250.00 (1)
(2)
customer
bank purchased
identifies the car
the car at
to be
RM60,000.00.
purchased
(submit quotation
to the bank)

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 (3)
Bank leases the computer with
monthly rental of RM235.00 for 36
months

(4)
Customer pays monthly rental

(1)
(2) Customer identifies
Bank purchases the Computer to be leased
computer at RM7,000 (submit quotation to
bank)

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 Equity Financing-
based on the contract of profit sharing

Mudharabah Financing Musyarakah Financing

(Trustee profit sharing) (Joint venture profit sharing)

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MUDHARABAH is a profit sharing venture between
an owner of capital (e.g. bank) and an entrepreneur
who provides the enterprise or expertise.

The objective is to match owner of capital with no

opportunity or expertise to carry out business with
an entrepreneur who has the opportunity and skills
but no capital to carry out business. The owner of
capital may be termed as “surplus unit” and the
entrepreneur as “deficit unit”. This is a method
within an Islamic economy to avoid idle capital and
the wastage of unutilised business expertise.

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MUDHARABAH FINANCING
Agree on Profit Sharing Ratio: e.g. 40:60
(40% to bank, 60% to customer based on gross profit)

Bank provides capital to customer e.g.

RM3 million.

2.PROJECT

3.PROFIT

LOSS
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MUSHARAKAH is a partnership agreement between
two or more individuals or bodies, each contributing
capital, and profit or loss is shared between the
partners according to the agreed ratios.

Musharakah is better known as Syarikat which is

described as a grouping of capital by shareholders to
finance a particular project and the profit from the
project is divided according to agreed ratio. If the
project incurs losses then the losses are borne by the
shareholders according to their percentage of share.

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 Musharakah Financing
Agree on Profit Sharing Ratio: e.g. 50:50
(40% to bank, 60% to customer based on gross profit)

RM5m RM5m
CAPITAL

PROJECT

PROFIT

LOSS
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 SOME ISLAMIC BANKING CONCEPTS
C. OTHER CONCEPTS

1. QARDHUL HASAN (Benevolent Loan)

2. KAFALAH (Guarantee)
-applied in Letter of Guarantee

3. AL-RAHN (Charge / Pawning)

-applied in Charge for Financing and Islamic Pawning

4. BAI AL-DAYN (Debt Trading)

-applied in securitisation of debt

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LEGAL ASPECTS

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 ISLAMIC BANKING ACT, 1983 (IBA)
-Passed by the Parliament in 1983
-Regarding Licensing and Regulation of Islamic
Banking Business.
Section 2 defines “Islamic banking business” as
banking business whose aims and operations do
not involve any element which is not approved by
the religion of Islam.
governs Islamic banks only

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BANK AND FINANCIAL INSTITUTIONS ACT, 1989
(BAFIA)
Section 124 was amended in 1996 to allow a
licensed institution to carry on Islamic banking
business and Islamic financial business
(after consultation with BNM) in addition to its
licensed business.

Governs banks and financial institutions offering

Islamic banking scheme (Skim Perbankan Islam)
as a window or “bank within a bank”

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 The Finance Act 1986 (Act A328) provides for the
amendment of RPGT Act whereby in case of
disposal of an asset by a person to an Islamic
bank under a scheme where that person is
financed by such bank in accordance with the
Shariah, the disposal price shall be deemed to be
equal to the acquisition price. Therefore no RPGT
will be imposed for such financing.

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 The Stamp Act 1949 (as amended by Act A 723 of
1989) by Section 14A provides in relation to
financing under the principle of Shariah as follows:

“Where it is shown that a principle or primary

security secures the repayment of moneys
provided under a scheme of financing made
according to Shariah, duty chargeable thereon
shall be calculated on the principal amount
provided by the financier or financing body”.

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SOME FAQs

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 FAQ

Is Islamic
banking for
Muslim only?

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 THE FACT:
Islamic banking is open to both
Muslims and non-Muslims.

In fact at Bank Islam Malaysia

Berhad, for Trade Finance
facilities, there are more non-
Muslim customers than Muslim.

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 FAQ

In case of legal
action, which
court should
we go? Shariah Court
or
Civil Court

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 THE FACT:
Currently banking and finance matters
are not within the jurisdiction of Shariah
Court and the court can only hear cases
involving Muslims only. Therefore,
presently, cases regarding Islamic
banking will be referred to the Civil Court.
However, modification to the modes of
claim has been allowed in previous cases.
Note:
There are proposals to set up Shariah Commercial
Court.
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 FAQ

In Islamic
contract
(aqad), is it
compulsory to
shake hands?

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 THE FACT:
Shaking hands is not a necessary condition
in a buy and sell contract (aqad).

Aqad can be done in 3 ways:

1.Written

2.Verbal

3.Signals/sign language (for certain

transactions)

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Q UESTIONS

&
A NSWERS

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sanusi@ibfim.com
asanusih@hotmail.com

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