1.overview and Concept of Islamic Finance

Presented by:
Although Islamic financial markets,

Islamic finance industry has like their conventional counterparts,
become more important comprise money and capital
component in the financial
system. markets, the instrument and the
operating procedures are different.
An Islamic financial market operates

in an interest free environment and There are two primary sources of
works on a completely different set Shari’ah,
of principles. These principles are -the Holy Quran
derived from Shari’ah (Islamic law).
- Sunnah
Development Of Islamic Finance
• Pilgrims Fund Board
1969
• Islamic Banking & Government Investment Act
1983 • BIMB
• Syarikat Takaful Malaysia Berhad

1984
• BIMB listed on KLSE

1992
• Conventional banking institutions permitted to offer islamic banking
1993 products & services.
3
• Islamic Inter-bank Money Market,
1994 • Islamic Banking Research & Training Institute (IBFIM)
• BNM established National Syariah Advisory Council
1997 • Islamic Offshore Banking Service introduced in Labuan
• Bank Muamalat Malaysia Berhad

1999
• BIMB Venture Capital Berhad
• Financial sector Master Plan on Islamic Banking & Takaful issued by BNM
2001
• Islamic Financial Service Board
• Islamic Banking & Finance became an industry owned institution
• BNM issued the guidelines : Notes on sell on buy back & Guidelines on
2002 accepted Bills-I
• BNM introduced a standard list of generic names Islamic banking products

using indicators of I affixed at the end of the products or services 4
2003 • First variable rate Islamic Financing Product was introduced
• BNM issued a banking license to the 1st wholly owned subsidiary of a
conventional bank
2004
• Tax neutrality policy was announced
• First foreign Islamic Bank was established
2005 • First Islamic Treasury Bills were launched by Government
• Launch of Malaysia International Finance Centre(MIFC)

2006
• 100% foreign equity ownership of financial institution allowed

• Further tax incentive granted under MIFC (10 years ‘tax holiday’ is given to
2007 bank for foreign transactions
• International Islamic Liquidity Management, Malaysia 5
2011
Central Bank, Commercial
Bank(inclusive of Merchant
Banking Banks, Finance
Sector Companies),Money Market
and Foreign market
Industrial, Development,
Non-Bank
Agriculture, Savings Banks,
Financial
Insurance/Takaful, Pension
Institutions
Banking Funds(EPF)
&
Financial
Activities
Capital Stock Exchange, Unit Trust
Market and Property Trust Companies
Commodity Kuala Lumpur Commodity

Market Exchange
Syariah laws
ensure that there Setting higher
is no unfair standards for
Islamic finance refers to investments and
transaction should
a financial system that ensure greater
take place & all
compiles with Syariah participants are accountability
principles treated fairly in and risk
their business mitigation
.
dealings
7
Wealth creation is
Definition: It is prohibited.
concentrated in the
Any predetermined Why? hands of few people
payment over and There is element of which later might
above the actual injustice in the jeopardize social
amount of principal transaction. welfare & stability
• Exchange of Assets of the same class or kind in unequal quantities will also
led to Riba.
• Exchange of ribawi goods with different weight or quality is also considered
as Riba.
• Gold
• Silver
What is • Grain
Ribawi item? • Dates
• Salt
• Wheat.
in Conventional Banking Perspective
Refers to excess in repayment of a loan where the term requires the borrower to
repay to the lender more than the amount initially borrower
By Prohibiting Riba:
Eliminate exploitation and promotes justice in the market.
Islam permits TRADE and commerce but prohibited RIBA
What is Trade Activities?

An exchange of commodities or merchandise between two parties.
Maysir (gambling)
As gambling is
Transactions in seen as action
Islamic Banking that always
need to be free enriches one
from the party at the
element of expense of the
gambling/ maysir other known as a
zero sum game
Gambling was declared illegal in the Quran Surah Al-Maidah 10

Why?
ISLAMIC
Gharar might lead to
Definition FINANCE disputes caused by
Any ambiguous or SHOULD BE an unjustified term in
doubtful element FREE FROM the contract arising
in a contract GHARAR from
misrepresentation
and fraud
11
Production & Distribution of
Islamic Finance should not engaged in any activities relating to unlawful or

non halal goods and services
For an example : Non-slaughtered animals, tobacco related products and
pornography
The transactions are not only limited

to selling and buying activities but
Investment should only support also takes in all chains of production
practices or products that are not and distribution.
forbidden by Islam
12
Example: Marketing, packaging and
transporting
Summary
Riba (Interest/Usury) Gharar (Uncertainty)
• Any predetermined payment • Any ambiguous or doubtful
over and above the actual element in a contract.
amount of principal • Islamic Finance should be
• Prohibited because there is free from gharar because
element of injustice in the
transactions R G
Prohibitions
might lead to disputes caused
by an unjustified term in the
contract arising from
misrepresentation and fraud
in ISLAMIC
FINANCE
transactions
Maysir (gambling)
• Gambling is a game of chance
M U Production &
Distribution of Non-
Halal or Unlawful goods
• Gambling is seen as an
action that always enriches
& activities
one part at the espense of the • Activities relating to unlawful
other known as a zero-sum or non hal goods and services
game. like pork, pornography and
• All transactions in Islamic weapons among others are
Banking need to be free from prohibited.
the element of Maysir • Investments should only
• Therefore gambling is illegal supports practices or products
that are not forbidden by Islam

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What are the primary sources of Shari'ah?

What are some of the major developments in the Islamic finance industry in Malaysia?

Presented by:

Although Islamic financial markets,

An Islamic financial market operates

• Syarikat Takaful Malaysia Berhad

• BIMB listed on KLSE

• Bank Muamalat Malaysia Berhad

• BNM introduced a standard list of generic names Islamic banking products

• Launch of Malaysia International Finance Centre(MIFC)

• 100% foreign equity ownership of financial institution allowed

• International Islamic Liquidity Management, Malaysia 5

Commodity Kuala Lumpur Commodity

Islam permits TRADE and commerce but prohibited RIBA

What is Trade Activities?

Gambling was declared illegal in the Quran Surah Al-Maidah 10

Islamic Finance should not engaged in any activities relating to unlawful or

The transactions are not only limited

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