Islamic Finance ( In Malaysia )

Amirul Haji Mohamad QGC 080001Halalfinancing.blogspot.com

Penny Siew Bee Chew QGC080005

Outline

1. Development2. Facts and Figures3. Type of Contracts4. Examples of Accounts

( Balance Sheet & Income Statement )5. Some Tips for Malaysian SMEs6. Conclusion

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 Stock Broking

Development -1

source : BNM

Development -2 In General

• LEGAL: Islamic Banking Act 1983

Malaysia Government Investment Act 1983 Takaful Act 1984BNM Guide LineSecurities Commission Act 1993

• EDUCATION :UIA –Islamic UniversityINCEIF – Islamic Finance University

• GOVERNMENT :Taxation Incentives

• INSURANCES: Takaful ( Islamic Insurances )

GUIDELINES : Some Examples

Malaysia’s Parallel Dual Financial System

Conventional banks Islamic banks

Conventional financial system Islamic financial system

Conventionalbanks window

Conventionalbanks

Islamic Banking Subsidiaries

Insurance Companies Takaful Operators

source : BNM

Some Differences

CONVENTIONALInterest-based

Primarily debt financing

Debt financing is interest-based and DOES NOT require assets

Derivatives are PERMITTED

ISLAMICInterest-free

Primarily equity financing & sales transactions

Financing must be “ASSET-BACKED”

Derivatives are NOT permitted

Facts and Figures

Increasing

Increasing

Increasing

source : BNM

Islamic Banking Institutions : RM Million

Total Assets 192,810.40 ( End of Dec 08 ) 13%

Total Financing 104,647.60 ( End of Dec 08 ) 14%

Total Deposits 154,880.90 ( End of Dec 08 ) 14.25%

Facts and FiguresLatest Update( Dec 2008 )

source : BNM

Facts and Figures

Facts and Figures

Facts and Figures

Facts and Figures

Some Information (Islamic Capital Market )

Basis For Usury/Interest Prohibition

• ISLAM– Quran ( Al-Baqarah,verse 275)

• CHRISTIANITY- Old Testament- Roman Catholic-Pope Clement Clement V (1311)

Islamic Banking Concepts

• Al-Mudharabah (Trustee profit-sharing)• Al-Musyarakah (Joint venture profit

sharing)• Bai’ Bithaman Ajil (Deferred payment

sale)• Al-Ijarah Thumma al-Bai’

(Leasing and subsequently purchase)• Al-Ijarah (Leasing)

• Al-Murabahah (cost plus sales)• Al-Wadiah Yad Dhamanah (savings

with guarantee)• Bai’ al-Dayn (debt trading) Al-Qardhul

Hassan (benevolent loan)• Bai’ as-Salam (future delivery)• Bai’ Al-Istijrar (supply contract)• Al-Kafalah (guarantee)• Ar-Rahnu (collateralised borrowing)• Al-Wakalah (nominating another

person to act)• Al-Hiwalah (remittance)• As-Sarf (foreign exchange)• Al-Ujr (fee)• Al-Hibah (gift)

Type of Contracts 1. Deposits

• Al-Wadiah ( Guarantee Custody )• Al-Mudharabah ( Trustee Profit Sharing )• QARDHUL – Hassan ( Benevolent loan/

Deposit )

Type of Contracts 2. Financing

• BBA ( Deferred Installment Sales)• AITAB ( Hire Purchases )• Mudharabah ( Trustee Profit Sharing )• Musyarakah ( Joint Venture Profit Sharing )• Ijarah ( Leasing )• Sukuk ( Syndication / “Bond”)• Murabaha (Cost Plus Sales )

Islamic ACCOUNTING STANDARDS Regulatory Body:

(AAOIFI)

Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)

Registered 1991 ( Agreement signed by Islamic Financial Institutions in 1990 at Algeria ) Based in Bahrain

An Islamic international autonomous non-profit corporate body that prepares:accounting, auditing, governance, ethics and Shari'a standards for Islamic financial institutions and the industry.

Regulatory Body:(AAOIFI)

AAOIFI

Case Study:Evolution of Accounting

Standards *EON Bank Berhad*

Balance Sheet & Income Statement2005 & 2007

Balance Sheet 2007

Balance Sheet 2005

Consolidated Note of FS

*FS = Financial Statement

Income Statement 2007

Consolidated Note of FS

*FS = Financial Statement

Income Statement 2005

Consolidated Note of FS

*FS = Financial Statement

Income Statement 2005 ( Cont’ )

Some Tips for Malaysian SMEs

Type of Contracts Islamic Finance Conventional

1. DEPOSITS

Current Accounts (CA) *Dividend Paid No Dividend

AMGIA / Fixed Deposit (FD)

Early Withdrawal (Pro-rate Dividend)

Early Withdrawal (NO Pro-rate Dividend)

2.FINANCING

Late payment *Compensation for Late Payment (CLP)

Late Payment Charges (LPC)

Joint Venture Available N/A

Letters of Credit / Credit Cards

*Flat Rate Administration Fee

LPC

* Tiered Rates/Charges

Conclusions

• Profit Sharing Concept ensure Win-Win Situation

• Sales Transactions ensure price stability• Asset –Backed Financing ensure less

speculation.• Islamic Finance is NOT ONLY for Muslim /

Muslim Countries but is for EVERYBODY

Thank YOU

Development -1

source : BNM , Conference on Islamic Banking , Central Bank of UAE , Abu Dhabi

(Pilgrimsage Fund Board)

Islamic Banking/Islamic Finance, Islamic Bond and Money Market