Islamic Banking
Banking that follows Islamic law as laid down in the Shariah is called Islamic Banking.
Characteristics of Islamic Banking
* It follows Shariah or Islamic Law, particularly the Fiqh Muamalat, the rules on transactions. The rules and practices of Fiqh Muamalat came from the Quran and the Sunnah, and other secondary sources of Islamic law such as opinions collectively agreed among Shariah scholars (ijma’), analogy (qiyas) and personal reasoning (ijtihad).
* Islamic Banking avoids Riba (or Interest), Gharar (or excessive uncertainity) and Haram (activities that do not conform to the Shariah).
* Islamic Banking is not exclusive to Muslims. It is open to people of all faiths.
Islamic Banking in Malaysia
Islamic Banking took off in Malaysia with the enactment of the Islamic Banking Act, 1983. The subsequent liberalisation of the Islamic Banking system has seen a tremendous growth not only in the number of financial institutions involved in Islamic Banking, but also in product innovation that has turned Malaysia one of the most developed Islamic Banking markets in the world.
Today, Malaysia has 19 Islamic Banks (including two International Islamic Banks) managing assets worth USD65.6 billion and accounting for nearly 23% of the banking ecosystem. Almost all the conventional banks in Malaysia also have Islamic Banking operations.
Other highlights of Malaysia’s Islamic Banking system
* Malaysia was the first country in the world to have a dual banking system, an Islamic Banking system operating in tandem with a conventional banking system.
* Malaysia is a pioneer in setting up an Islamic interbank system.
* First country in the world to issue sovereign Sukuk or Islamic Bonds in 2002. Today, Malaysia accounts for more than 60% of the global issuance of Sukuks.
* The Islamic Financial Services Board, an organization that issues and promotes prudential standards for the global Islamic Financial industry is headquartered in Kuala Lumpur.
* Malaysia was the first country in the world to set up a Shariah Advisory in the form of the the Shariah Advisory Council to ensure a country-level approach to regulating the Islamic Financial industry and Islamic products.
Islamic Products
Malaysia is recognized as one of the global pioneers in innovatively adopting various Shariah prinicples like Wadiah, Hibah, Halal and Haram, Bai Bithamin Aji, Mudharabah, Murabahah, Wakalah, Musyarakah etc, to creation of Banking and Islamic Financial products.
These products include Islamic versions of Savings Accounts, Home Finance, Fixed Deposits, Securities, Bonds, Unit Trusts, REITs, Insurance, Leasing, Brokerage, sophisticated products for high-end customers and an Islamic Index comprising halal stocks.
Loans & Finance Blog 