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TOPIC :

COURSE : CURRENT ISSUES IN INT. BANKING & OFFSHORE BANKING

COURSE CODE : GT 30403

PREPARED FOR : MR SAMSULBAHRI MOHD NASIR

FUTURE PROSPECTS OF ISLAMIC

FINANCIAL INSTITUTIONS IN

MALAYSIA

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NAME MATRIX ID

ARAVINDRAN A/L KARUPANAN BG09110074

MUHAMAD AIZUDDIN BIN FAKRI BG09110025

MOHD FAIZAL BIN MUSTARI BG09110150

CHE MUHAMAD AFZAN BIN CHE ABDULLAH BG09110355

AMANDA JOANNE JEFFERY GILIMON BG09110367

ZURAINAH AHMAD BG09160506

GROUP MEMBERS

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AREA COVERED

BACKGROUND OF ISLAMIC FINANCIAL INSTITUTION IN MALAYSIA

PRINCIPLES OF ISLAMIC FINANCIAL INSTITUTION

PRODUCTS OF ISLAMIC FINANCE

PHILOSOPHY OF ISLAMIC FINANCIAL SYSTEM

ROLE OF ISLAMIC FINANCIAL INSTITUTION

PERCEPTION & ACCEPTANCE OF ISLAMIC FINANCIAL INSTITUTION

IMPACT & CONTRIBUTION OF ISLAMIC FINANCIAL INSTITUTION

FUTURE PROSPECTS OF MALAYSIAN ISLAMIC FINANCIAL SYSTEM

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INTRODUCTION

� Islamic Banks, Investment banks, Fund management companies, stock

brokers, Takaful companies, saving institutions & Unit trust

� Evolved into competitive component – driver of economic growth

� Role of Financial Intermediaries - ( Functions of Transmission of savings from

surplus household to deficit household)

� 2009, Prime Minister allowed new Islamic bank to have a foreign equity

interest – Proof :International Financial Hub

� Former Prime Minister – Islamic Banks have great potential compared to

conventional counterparts.

� PETRONAS – Example, greatly participated in Islamic Banking

� Islamic Finance has role in shaping the future global financial system

� Ongoing efforts will further enhance Islamic Financial Industry and Enhance

prospects of growth

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BACKGOUND OF ISLAMIC FINANCIAL INSTITUTION

BACKGROUND

� Listed on Main Board on KLSE

1992

� End 2003, 82 Branches, 1200

Employees

� Long Term – Create Islamic

Banking parallel to Conventional

System

� Introduced Interest Free Banking

Scheme -

� 1983 – Etablishment of Bank Islam

Malaysia Berhad

�Business – Similar to Commercial Banks

But along with Shariah Principles

�Offers Deposit taking(Wadiah) &

Investment Deposits(Mudarabah)

�Grants Working Capital Financing(

Murabaha),

Leasing (Ijara),

Project Financing (Musharikah)

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BASIC PRINCIPLES OF ISLAMIC FINANCIAL SYSTEM

PRINCIPLES

Prohibition of Interest (Riba)

• Any rate tied to principal or

maturity is prohibited

• Encourages earnings of profit

• Forbids charging of interest

because of profits

Risk Sharing

• Supplier of funds becomes

investors

•Financial Capital provide

shares risk

• This is in return for shares of

profits

Gharar

• Transaction free from risk,

speculation, uncertainty

• Parties cannot predetermine

profit

• protect weak against

exploitation

• options, futures & forwards

FOREX is un-Islamic - rates (int

differential)

Prohibition of Specualtive

Behaviour

• Discourages hoarding

• Prohibits :

� Gambling

�Uncertainties

�Risks

�Illegal activities, Toto,

magnum

Shariah Approved Activities

• Do not violate rules of

shariah

• then only investment is

allowed

• Gambling, casino, alcohol

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PRODUCTS OF ISLAMIC FINANCIAL

PRODUCTS

TAKAFUL

•Means joint guarantee

• Concept of mutual sharing of

losses

•Way to reduce financial risk

• Pay defined loss from defined

fund

MURABAHA

•Widely used for short – term

financing

• Investors supply goods

according to mutually agreed

contract

Equity Participation

• Analogous to joint venture

• Entrepreneur & investor

contribute to capital

• Used for financing fixed asset

Profit Sharing Agreement

(Mudaraba)

• Identical to investment

funds

• Terms of profit and risk are

customized

•Maturity ranges from short

to medium term

Leasing (Ijara)

•Popular Investment

• Accounts 10 percent

• designed for financing

vehicles

• Installment payment goes

towards final purchase

Sales Contract

• Used for conducting credit

sales

• delivery of product is

immediate

• Payment is delayed

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PHILOSOPHY OF ISLAMIC FINANCIAL SYSTEM

Islamic Financial System

Sancity of Contract

Money as Potential Capital

Shariahcompliant activities

Risk Sharing

Prohibition of Interest

Prohibition on speculative transaction

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ROLE OF ISLAMIC FINANCIAL INSTITUTION

ROLE

Mobilization of funds from

surplus economic units to

deficit units

Provide employment

opportunities, help small

business & agricultural

sectors

•Short-term & Risk limited

Investment – Involve in trade

related activities

Provide fee-based services

such as letter of

guarantee(kafala)

Sell funds thorough a variety

of financing products such as

equity based

Re channels the funds in

interest to the society &

economy

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Medium – term maturity

investment – IFI invest in

Ijara and Istina based assets

Long term investment -

Engage into venture capital

or private equity activities

Buy funds by offering a

variety of deposit products

such as Wadiah & Qard

PERCEPTION & ACCEPTANCE OF ISLAMIC FINANCIAL INSTITUTION

PERCEPTIONS

3 Major races – Malay,

Chinese, Indian

Chinese & Indian – staff

treated well, friendly

- Provision of profit sharing

Malay – Modern equipment

-Secured transaction

- Fulfill personal needs

- compliance with syariah

Chinese & Indian – Islamic

banks offers value added

services

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Other races – Islamic banks

offers latest technology

-No hidden costs

- reliability high(customer

satisfaction)

All 3 races are most active

sum up huge amount of

transaction

IMPACT & CONTRIBUTION OF ISLAMIC FINANCIAL INSTITUTION

IMPACT & CONTRIBUTION

Positive impact – Country

-Example :Banking industry &

other Financial institution as

well

WAQH

• Plays major role in

financing, infrastructure

development

• Created in order to support

school system

• Used to finance education

of poor people

• Increases the education of

the citizens

ZAKAT

• Benefit society especially

Muslims

• Funds distributed to 8 group

of needy people

• Recipients benefit from the

fund

• To increase standard of

living

• Play role in improving the

infrastructure

Improved Economy growth as

a whole – Stage by stage

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TABUNG HAJI

• For those interested to

travel to Holy Land

•Managed the savings from

the clients

• Follows the syariah principle

• Serves the peoples

objective & welfare

Many Islamic countries –

Practice & emphasize on IFI

PROSPECTS OF ISLAMIC FINANCIAL INSTITUTION

PROSPECTS

• Feasible & Competitive

component of Malaysia

Financial System

• Catalyst of economic growth

•Malaysia maintains its Per

capita GDP above US$ 3,000

since 1995.

•Malaysia was the first to

introduce a global corporate

Sukuk

Malaysia Islamic Financial

industry is Market-driven with

strong government support and

commitment

BNM launched 10 year

Master plan for Islamic

banking

Currently, certain professional

qualification papers are offered in

Islamic finance. Eg. Institute of

Islamic Banking and Finance.

• In 10 year plan, BNM expect

Islamic Banking to cover 20%

share by 2010

•Malaysia expected to became

International Islamic Financial

Hub

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Dr. Mahathir predicted

Islamic Financial institution

will connect all Muslim

countries

Malaysia has a remarkable

record of consistently high

growth in the past three

decades

Takaful aimed at creating

Efficient, Progressive and

Comprehensive system

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OPPORTUNITIES OF ISLAMIC FINANCIAL INSTITUTION

OPPORTUNITIES

Bursa Malaysia is now in prime

position to further innovate new

Islamic products to meet

market demand

SAUDI ARABIA

• Delegation from Malaysia

visited to promote Islamic

finance relations

• Study the opportunities

available in financial &

investment sectors

• Seeking to establish

relationship with key

investors

PAKISTAN

• IFI in Malaysia has been

invited to explore expansion

opportunities in Pakistan

• Construction, surgical, oil &

gas, Halal products, textiles

and rice

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TURKEY

• Recently, seminar was held

by BNM

• Strategies for collaboration,

cooperation and Smart

partnership

•Malaysia gateway for

Turkish investors to expand

their trade

• Key potential areas –

Turkish Financial Community

• To rasie funds such as

sukuk

CONCLUSION OF THE STUDY

• Malaysian culture is the one of the unique cosmopolitans as it is composed of Malays, Chinese and

Indians culture.

• This has been the main catalyst for Malaysia's political stability and growth.

• Islamic Finance has made significant impact on the development of Malaysian economy

•The growth is hugely depending on efforts by the goverment, banking sectors, and also trust of customers.

•Therefore, Islamic Financial institutions has played its role in ensuring Malaysia as International IslamicHub.

•The future prospects of the Islamic financial services industry will be the result of the combined efforts ofall the relevant entities in the financial sector

•These efforts need to be coordinated and concerted effort need to be taken to maximize the potential forthe industry

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