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Islamic banking initially evolved as a form of financial intermediation for the Islamic community to conduct business in accordance with Islamic tenets. Today, Islamic banking has gained wide acceptance among non-Islamic communities and has become an integral component of the global financial system. The essential feature of Islamic banking is that it is interest-free.
Islamic banking made its debut in Malaysia in 1983 with the establishment of the first Islamic bank, Bank Islam Malaysia Berhad. The second dedicated Islamic bank, Bank Muamalat Malaysia Berhad was established in 1999. Malaysia now has a comprehensive Islamic financial system that includes Islamic banking, takaful, the Islamic capital market and the Islamic money market. In addition, since 1993, financial institutions in the country were allowed to offer Islamic banking products and services under the Islamic Banking Scheme. However, these institutions must maintain separate funds for Islamic banking transactions and those for conventional banking.
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All banks that provide Islamic banking products and services must display the Islamic banking logo and are governed by the Islamic Banking Act 1983. This act was modeled after the then Banking Act 1973 but with modifications so that Islamic banks conform to Islamic principles.
Bank Negara is increasing its efforts to ensure the nation achieves its goal of becoming the regional Islamic financial centre by 2010. In line with this, Bank Negara will issue up to three new Islamic banking licences to qualified foreign players. This will bring forward the liberalization of the Islamic banking industry to 2004 with respect to issuance of new licences, three years earlier than envisaged.
Bank Negara sedang meningkatkan usahanya untuk memastikan negara mencapai golnya untuk menjadi pusat kewangan Islam serantau menjelang tahun 2010. Selaras dengan ini, Bank Negara akan mengeluarkan sehingga tiga lesen perbankan Islam baru kepada pemain-pemain asing yang berkelayakan. Ini akan membawa ke hadapan liberalisasi industri perbankan Islam ke tahun 2004 berhubung dengan pengeluaran lesen baru, tiga tahun lebih awal daripada yang dijangkakan.
Islamic banking is the conduct of banking based on Syariah principles (Islamic rules on transactions) and does not allow the paying and receiving of interest while promoting profit sharing. It has exactly the same purpose as conventional banking except that it operates under the rules of Syariah, the law of Islam that covers every aspect of life, based on the holy Quran.
Islamic banks and financial institutions that offer Islamic banking products are required to establish a Syariah advisory committee to advise them on the rules of the Syariah and to ensure that they operate in accordance with the Syariah principles.
Wadiah (Safekeeping)
In Wadiah, a bank is deemed as a keeper and trustee of funds. You deposit your funds in the bank and the bank guarantees refund of the whole amount or any part of the amount when you demand it. The bank may also reward you with ‘hibah’ (gift) in appreciation for allowing the bank to use your deposited funds. Under conventional banking, Wadiah is applicable to your savings or current account while hibah would be the interest earned on these accounts.
Mudharabah (Profit Sharing)
Mudharabah is an agreement between you and the bank where the bank allows you to mobilize its funds for your business activities. If there is any profit resulting from the venture, it is shared with the bank while any losses are borne by you. Under conventional banking, Mudharabah is applicable to your savings, current or investment accounts as well as deposit instruments, share and unit trust financing.
Musyarakah (Joint Venture)
Musyarakah is a joint venture agreement between you and the bank where profits and losses are both shared in accordance with the terms of the agreement. Under conventional banking, it is applicable to share or unit trust financing and letters of credit.
Murabahah (Cost Plus)
Murabahah is the selling of goods at an agreed price and at an agreed profit margin between the bank and you. Under conventional banking, it is applicable to a cash line facility, working capital financing, letters of credit and accepted bills.
Bai’ Bithaman Ajil (Deferred Payment Sale)
This is the selling of goods on a deferred payment basis at a price which includes a profit margin agreed to by the bank and you. Under conventional banking, Bai’ Bithaman Ajil is applicable to a negotiable debt certificate, home or property financing, share or unit trust financing, Umrah (Muslim pilgrimage to Mecca) and visitation financing.
Wakalah (Agency)
Wakalah is when you appoint your bank to undertake transactions on your behalf just as your bank acts for you when issuing letters of credit in trade financing.
Qardhul Hassan (Benvolent Loan)
Qardhul Hassan is when your bank extends you a loan based on goodwill and you are only required to repay the amount borrowed. However, you may at your discretion pay more to your bank as a token of appreciation.
Ijarah Thumma Al Bai’ (Hire Purchase)
There are two contracts under this hire purchase principle. The first is the Ijarah contract (leasing/renting) when you enter into an agreement with your bank to lease the car from the bank at an agreed rental and time frame. When the leasing period ends, the Bai’ (purchase) contract takes effect which enables you to purchase the car at an agreed price.
Bai’al-Inah (Sell and Buy Back Agreement)
This principle is applicable to credit cards and occurs when your bank sells you an asset on a deferred payment basis and then the asset is immediately repurchased by the bank for cash at a discount.
Hibah (Gift)
A token given voluntarily in return for a loan received or benefit obtained.
Ijr (Fee)
All other banking services are based on the Ijr principle which are fee-based services such as stockbroking, telegraphic transfers, travelers’ checks, ATM services and telebanking.
For savings, current and deposit accounts hibah (gift) is paid at the discretion of the banks should there be any profit from utilization of your deposited funds. Generally the approximate rate for savings and deposit accounts is 2.2% while for current accounts it is1%. For fixed deposit accounts it ranges from about 2.6% for one month to about 4.2% for 60 months.
Home financing rates would depend on whether yours is a new or completed house. For a new house the financing rate ranges from about 2.8% in the first year to about 7.75% after the fifth year. For a completed house the financing rate ranges from about 3.8% in the first year to about 7.75% after the fifth year.
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