Fundamental of Islamic Banking - Framework of Islamic Financial System

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Fundamental of Islamic Banking - Framework of Islamic Financial System and Historical Development of Islamic Banking and Finance in Malaysia

Transcript of Fundamental of Islamic Banking - Framework of Islamic Financial System


2. CONTENT HISTORICAL DEVELOPMENT OF ISLAMIC FINANCIAL SYSTEM DEVELOPMENT OF ISLAMIC BANKING DEVELOPMENT OF TAKAFUL DEVELOPMENT OF ISLAMIC CAPITAL MARKET ISLAMIC MONEY MARKET SHARIAH ADVISORY COUNCIL (SAC) LABUAN AS ISLAMIC IOFC INTERNATIONAL ISLAMIC FINANCIAL MARKET ISLAMIC FINANCIAL SERVICE BOARD LICENSING OF FOREIGN ISLAMIC BANKS AND ISLAMIC BANKS SUBSIDIARIES FINANCIAL SECTOR MASTER PLAN 2 3. Mit Ghamr, Egypt1963 Pilgrims Fund Board (Lembaga Tabung Haji), Malaysia1969 Oil boom1970 Islamic Development Bank, Saudi Arabia Dubai Islamic Bank, UAE1975 Fatwa issued by the Fiqh Council of Muslim World League in favor of Islamic insurance (takaful)1977 Luxembourg Islamic Bank (1st attempt in the West )1978 Sudanese Islamic Insurance Company is established as the worlds 1st Takaful company by Faisal Islamic Bank of Sudan1979 Malaysia passes comprehensive legislation on Islamic finance (Islamic Banking Act)1983 OIC Islamic Fiqh Academy legitimizes Sukuk which paves the way to the development of Islamic debt securities1988 World 1st sukuk issued in Malaysia (Based on BBA) by Shell MDS worth USD 30 million1990 AAOIFI , Bahrain1991 IFSB, Malaysia2002 International Islamic Liquidity Management (IILM), Malaysia2011 HISTORICAL LANDMARKS IN ISLAMIC FINANCE DEVELOPMENT 3 4. Gradual and pragmatic ..achieved significant milestones in building comprehensive and integrated Islamic financial system with diversity of players. Milestones 1969 1983 1993 2003 Pilgrimage Fund Board Bank Islam Malaysia Bhd. Bank Muamalat Malaysia Bhd. Foreign Islamic banks Full-fledged Islamic banks Conventional banks offer Islamic window Takaful Operators Syarikat Takaful Malaysia Bhd. Takaful Nasional, Mayban Takaful, Takaful Iklhas, Commerce Takaful Islamic subsidiary Islamic Money Markets STAGES OF DEVELOPMENT 4 5. 1ST PHASE : 1963-1992 1963 Establishment of the Pilgrims Fund Board It is saving mechanism - Malaysian Muslim set aside regular funds to cover them performing annual pilgrimage 1969 Pilgrims Fund Board combined with Pilgrims Management Fund Board/ Lembaga Urusan dan Tabung Haji (LUTH) 1980 Several parties were calling for establishment of Islamic bank due to resurgence that happened in the Middle East Eg: Malaysian government had being offered by Bumiputra Economic Congress to set up Islamic Bank in this country 1981 Set up National Steering Committee (NSC), chaired by Raja Mohar Badiozaman NSC undertake study and make recommendations to government on all aspects relating Islamic Bank in Malaysia, including legal, religious and operational aspects. LUTH take over the secretarial functions 1983 July : NSC submitted their report to government The first Islamic bank was established in Malaysia- Bank Islam Malaysia Berhad (BIMB) under Islamic Banking Act 1983 5 6. 2ND PHASE : 1993-2000 1993 March: Interest-Free banking Scheme (IFSB)/ Skim Perbankan Tanpa Faedah (SPTF) was launched on a pilot basis involving Malayan Banking Bhd. , Bank Bumiputra Malaysia Berhad and United Malayan Banking Corporation Bhd. July: Commercial banks, merchant banks and finance companies begun to offer Islamic banking products and services under the Islamic Banking Scheme (IBS banks). May 1997 BNM establish Shariah Advisory Council (SAC) which consist of academicians and Shariah experts in Islamic Banking and Takaful Role: Harmonize different opinion in Shariah Advise BNM Analyze Shariah aspects of new products submitted by banking institutions and takaful companies December 1998 The IFSB/SPTF was replaced with Islamic Banking Scheme (IBS)/ Sistem Perbankan Islam October 1999 Establishment 2nd Islamic Bank, Bank Muamalat Malaysia Berhad ( merger between Bank Bumiputera Malaysia Bhd. + Bank Commerce (M) Berhad 6 7. 3RD PHASE : 2001-2010 2001 March: BNM had launched Financial Sector Master Plan (FSMP) incorporated a comprehensive 10 year master plan for Islamic banking and Takaful Declaration of Labuan as International Offshore Financial Centre (IOFC) to promote Malaysia as International financial system 2002 Establishment of Islamic Financial Services Board (IFSB) in Kuala Lumpur 2004 Financial liberation of Islamic Banking sector with the issuance of three new Islamic license under IB Act 1983, from Middle East to Islamic financial institution Today Implementing dual banking system Become the first nation have full- fledge Islamic system operating side-by-side with conventional system 7 8. TAKAFUL Arabic word ) ) guaranteeing each other / joint guarantee. It is an Islamic insurance concept which is grounded in Islamic muamalat, observing the rules and regulations of Islamic law. Basic concept Social solidarity Cooperation Mutual indemnification of losses among members Principles Policyholders (Takaful partners) cooperate among themselves for their common good. (wakalah) Every policyholder pays his subscription to help those who need assistance (tabarru) Losses are divided and liabilities spread according to the community pooling system. (mudharabah) Uncertainty (gharar) is eliminated concerning subscription and compensation. It does not derive advantage at the cost of others. (no riba) 8 9. HISTORICAL DEVELOPMENT OF TAKAFUL IN MALAYSIA 1983 The development of takaful industry in Malaysia was inspired through the establishment of Bank Islam Malaysia Berhad (BIMB) in 1983 1984 The Takaful Act was drafted Syarikat Takaful Malaysia Berhad (Takaful Malaysia)was established as the pioneer takaful operator in Malaysia 1985 Takaful Malaysia offering Family Takaful & General Takaful Business 1996 July-Takaful Malaysia was listed on the Main Board of Bursa Malaysia 1997 May- BNM established NSAC on Islamic banking and Takaful 9 10. COMPARISON BETWEEN TAKAFUL AND INSURANCE TAKAFUL CRITERIA INSURANCE Prohibited all of this elements because its contradict with Shariah. Elements Of Gharar (uncertainty), Maisir(gambling ), And Riba Contains all these elements Objective is to ensure that the activities of company are carried out according to principles of Shariah. Shariah Supervision Dont have Shariah Supervision The account is known as general insurance account and life insurance account of fund. Accounts The account known as Tabarru which means donation, the other one is treated in line with the principle of Mudharabah. 10 11. COMPARISON BETWEEN TAKAFUL AND INSURANCE TAKAFUL CRITERIA INSURANCE Specifies from the outset how the profits from. Takaful investment are to be shared between the operator(mudharib) and the participants(sahib ul-mal). Bonus May offer bonus or profit in general terms only especially with profit policies, there is no exact specification with regard to the profit-sharing in contract. It may also decide to give or not to give bonus for any particular year depending on the result of the investment return. The funds shall be invested in any interest free from Shariah justified scheme. The entire procedure shall comply the guidelines of the Shariah investment return must not be driven by any unethical commercial activities. Investment The funds may also be invested in an interest-based scheme. They can also be invested in any scheme or project, which may not be supported by the Shariah discipline. 11 12. COMPARISON BETWEEN TAKAFUL AND INSURANCE TAKAFUL CRITERIA INSURANCE The entire operation aims at paying the way of brotherhood, solidarity and mutual cooperation. Nature The operation aims a commercial gain on the basis of the principles of business. Regulations affecting Takaful are based on the Divine sanction (Quran and Hadith) Regulations Insurance law is based on the human thoughts and cultures Participants own the Takaful fund and managed by the operator. Participants give up individual rights to gain collective rights over contribution and benefits Contract Insurance is a buy-sale contract in which policies are sold and the policy holders are the purchasers. 12 13. ISLAMIC CAPITAL MARKET Islamic capital market means where investment and financing activities and products are structured in accordance with Shariah principles. The Islamic Capital Market (ICM) refers to the market where activities are carried out in ways which doesnt conflict with the principles of Islam. The ICM represents an assertion of religious law in capital market transactions where the market is free from prohibited activities and elements such as riba, maysir and gharar 13 14. 14 ISLAMIC CAPITAL MARKET The SCs efforts to develop the ICM by setting up of the necessary infrastructure: Establishing an Islamic Capital Market Unit (ICMU) to carry out research and development of ICM instruments analyzing the existing securities from Shariah perspectives Establishing Islamic Instruments Study Group (IISG) to advise the SC on development ICM to study issues related to the operation of the ICM Establishing Shariah Advisory Council (SAC) of SC succeeded the role and function of IISG to ensure that the operation of the ICM conform to Shariah principles to advise the SC on all matters related to the development of the Islamic capital market as a reference center for issues related to Islamic capital market. 15. ISLAMIC CAPITAL MARKET YEAR CRITICAL MILESTONES 1990 SHELL MDS Sdn. Bhd. Issued the first Islamic bond. 1993 Launch of first Islamic Equity unit trust fund by Arab- Malaysian Unit Trust Bhd 1994 BIMB Securities Sdn. Bhd was established. 1995 SC established ICM Unit. 1996 The Shariah Advisory Council (SAC) was established. RHB launched the countrys first Islamic equity index, comprising shares of KLSE main board companies. 1997 The SC introduced an official list of Shariah approved securities traded on the KLSE. 1999 The KLSE launched the countrys second Islamic equity index, the KLSE Shariah index (KLSI) 15 16. ISLAMIC CAPITAL