1. 3. TAKAFUL
1.1. Syariah Model of Life Insurance does not mean to insure one's life, but it is a financial transaction undertaking to protect widows, orphans and other dependents of the deceased against future unespected financial risk
1.2. Resolutions of Scholars
1.2.1. a) National Fatwa Committee of Malaysia, 1972 b) Resolution of Fiqh Academy (Majmak Fiqh) OIC, 1985
1.2.2. Extract of the Minutes of The National Fatwa Committee For Islamic Affairs Malaysia - 15 June 1972 "Life insurance transacted by present-day life insurance companies is a transaction containing the elements of al-Gharar, al-Maisir and al-Riba and as a consequence its contract is void therefore HARAM
1.3. Historical Development of Takaful In Malaysia
1.3.1. 1983
1.3.1.1. The development of takaful industry in Mlaysia was inspired through the establishment of Bank Islam Malaysia Berhad (BIMB) in 1983
1.3.2. 1984
1.3.2.1. - The Takaful Act was drafted - Syarikat Takaful Malaysia Berhad (Takaful Malaysia) was established as the pioneer takaful operator in Malaysia
1.3.3. 1985
1.3.3.1. Takaful Malaysia offering Family Takaful & General Takaful Business
1.3.4. 1996
1.3.4.1. July-Takaful Malaysia was listed on the Main Board of Bursa Malaysia
1.3.5. 1997
1.3.5.1. May-BNM established NSAC on Islamic Banking and Takaful
1.4. Types
1.4.1. i) Family Takaful Business - Health/Medical takaful - Takaful plans for education - Individual family takaful plans
1.4.1.1. ii) General Takaful Business - Fire Takaful Scheme - Motor Takaful Scheme - Accident Takaful Scheme - Marine Takaful Scheme
2. 4. ISLAMIC MONEY MARKET
2.1. Essential an integral component of the financial system
2.1.1. A financial market for transactions of financial assets between buyers and sellers, between borrowers and lenders
2.1.1.1. As a wholesale market for short term funds (overnight to 12 months)
2.1.1.1.1. 3 important criteria for a proper functioning money market are i) Marketable instruments ii) Market players iii) Infrastructure for settlement of payments
2.2. Money Market Participants
2.2.1. Non-Banking -->The Money Market<-- Banking Institutions
2.3. Functions of Money Market
2.3.1. 1. Liquidity Management - To source daily funding or short-term investment - Enable FIs to maintain optimal liquidity
2.3.1.1. 2. Avenue for Secondary Trading of Money Market Instruments - Cater the needs of investors/money market participants to buy or sell money market instruments for investment returns
2.3.1.1.1. 3. Monetary Policies - Channel for Central Bank to conduct monetary policies under open-market operations - Open-market operations: Purchases and sales of government securities by Central - Bank in the open market Purchase of securities: Increase reserves of IFIs - Sale of securities: Decrease reserves of IFIs
2.4. Comparison Between Islamic and Conventional Money Markets
2.4.1. Interbank Market - Islamic - Utilizes Syariah compliant contracts such as Mudharabah, Murabahah and Wakalah - Conventional - Issues debt contract for placement of funds
2.4.1.1. Issuance Process - Islamic - Must be Syariah compliant and approved by both the Council and Syariah Committee - Conventional - Must be approved by the respective FIs regulator
2.4.1.1.1. Types of Structure - Islamic - Structured based on assets, equity, and debt-based - Conventional - Structured based on debt only
2.5. Components of Islamic Money Market
2.5.1. 1. Islamic Interbank Market
2.5.1.1. 2. Trading of Islamic Money Market Instruments
3. 5. ISLAMIC CAPITAL MARKET
3.1. Malaysia is among the few countries which not only runs a dual banking system, but also a dual capital market system
3.1.1. Dual capital markets exist when both Islamic Capital and the Conventional Capital Market operates parallel
3.1.1.1. Refers to the capital market where activities carried out are not contradicted to the Syariah, eliminating the prohibited elements of riba, maisisr and gharar
4. 1. HISTORICAL BACKGROUND OF ISLAMIC FINANCE
4.1. Pre-1950s
4.1.1. 1. The establishment of interest-free loans in 1890s in India by a minority community of Muslims in Southern India.
4.1.1.1. 2. A formal opposition to the Institutions of Interest can be found as early as 1903 when the payment of interest of post office saving funds was declared contrary to Islamic values and therefore illegal by Syariah scholars in Egypt.
4.1.1.1.1. 3. Establishment of 'Anjuman Imdad-e-Bahmi Qardh Bila Sud which mean the Interest Free Credit Society in 1923 in Hyderabad, India.
4.2. 1970s
4.2.1. 1. Establishment of Nasir Social Bank (DIB) in Egypt 1971 and being the 1st state that sponsor interest-free institutions.
4.2.1.1. 2. 1st Islamic Commercial Bank which is Dubai Islamic Bank of UAE-1975
4.2.1.1.1. 3. Islamic Development Bank (IDB) was established in 1975 with the objective of promoting economic development in Muslim countries as well as offering development finance according to the rules of Syariah Islamic Law.
4.3. 1980s
4.3.1. 1. Establishment of the 'Islamic Research and Training Institute (IRTI)' by IDB in 1981
4.3.1.1. 2. Islamization of economies in Islam Republics of Iran, Pakistan, Sudan where the banking systems are converted to interest-free banking systems
4.3.1.1.1. 3. Countries like Bahrain and Malaysia promote Islamic banking parallel to the line conventional banking system
4.4. 1990s
4.4.1. 1. A self-regulatory agency, Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) is established that responsible for accounting and Syariah standards.
4.4.1.1. 2. Islamic insurance which is Takaful is introduced.
4.4.1.1.1. 3. Islamic Equity Funds are established
4.5. 2000s -Recent
4.5.1. 1. Islamic Financial Services Board (IFSB) was established to deal with the regulatory and supervisory and corporate government issues of the Islamic regulatory issues relating to Islamic financial services industry.
4.5.1.1. 2. Sukuk which is Islamic Bond are launched
4.5.1.1.1. 3. Several institutions are established to create and support a robust financial system. Example, International Islamic Financial Market (IIFM).
4.6. Development of Islamic Banks
4.6.1. 1975 - Dubai Islamic Bank
4.6.1.1. 1977 - Faisal Islamic Bank of Sudan
4.6.1.1.1. 1978 - Faisal Islamic Egyptian Bank and Islamic Bank of Jordan
4.7. Development of Islamic Banking and Finance in Malaysia
4.7.1. 1969 - Establishment of Pilgrims' Fund Board (Lembaga Tabung Haji)
4.7.1.1. 19080 - Bumiputera Economic Congress proposed the setting up of an Islamic Bank
4.7.1.1.1. 1981 - National Steering Committee undertook a study and made recommendations on all aspects of the setting up and operations of an Islamic Bank.
4.8. Islamic Banking Windows or Full-fledged Islamic Bank?
4.8.1. Islamic Banking Windows - conventional banks that offer Islamic Banking products and services using their existing infrastructure including staff and branches.
4.8.1.1. Full-fledged Islamic Bank - A bank dedicated to only offering Islamic Banking products or services
4.8.1.1.1. Malaysia advocates dual banking in effect there are 3 categories of banking - Conventional Banking -Full-fledged Islamic Bank (stand alone and subsidiary) - Conventional banks operating Islamic Banking windows under the Islamic Banking Scheme (IBS)
4.9. The Financial System
4.9.1. collection of markets, institutions, laws, regulations and techniques that operate to enable the transfer of money from the surplus side or savers, to deficit side or borrowers.
4.9.2. Functions of Financial System
4.9.2.1. 1. Savings function Offer deposit products which are savings account, current account, fixed deposit account
4.9.2.1.1. 2. Wealth function Offer investment products which are shares, real estate, unit trust, bond
4.9.3. The Financial System in Malaysia can be divided into three parts
4.9.3.1. 1. The Banking System
4.9.3.1.1. 2. Non-Bank Financial System
4.9.4. The Islamic Financial System can be divided into three parts
4.9.4.1. 1. The Banking System
4.9.4.1.1. 2. Takaful
4.9.5. Dual Financial System
4.9.5.1. Constitutes of Malaysian Financial System - Conventional Banking - Insurance - Money Market - Capital Market
4.9.5.1.1. Malaysian Financial System - Islamic Banking - Takaful - Islamic Money Market - Islamic Capital Market
4.9.6. Legal Governance
4.9.6.1. Conventional Financial Legal Framework - Financial Services Act 2013 - Repealed Laws i) Banking and Financial Institutions Act 1989 (Act372) ii) Insurance Act 1996 (Act 553) iii) Payment Systems Act 2003 (Act 627)
4.9.6.1.1. Islamic Financial Legal Framework - Islamic Financial Services Act 2013 - Repealed Laws i) Islamic Banking Act 1983 ii) Takaful Act 1984
4.9.7. Structure of Financial System
4.9.7.1. Financial Institutions - Banking System - Non-Bank Financial Intermediaries
4.9.7.1.1. Financial Market - Money and Foreign Exchange Market - Capital Market - Derivatives Market - Offshore Market
5. 2. ISLAMIC BANKING SYSTEM
5.1. BNM AND BNM'S NSAC
5.1.1. BNM
5.1.1.1. Roles and Functions of BNM i) to issue currency and keep reserves safeguarding the value of the currency ii) to act as a banker and financial adviser to the Government iii) to promote the reliable, efficient and smooth operation of national payment and settlement systems iv) to promote stability and a sound financial structure v) to influence the credit situation to the advantage of the country.
5.1.1.2. COMMERCIAL BANKS
5.1.1.2.1. 1. Affin Bank Berhad 2. Alliance Bank Malaysia 3. Arab-Malaysian Bank Berhad
5.1.1.3. FINANCE COMPANIES
5.1.1.3.1. 1. Affin-ACF Finance Berhad 2. Alliance finance Berhad 3. Arab-Malaysian Finance Berhad 4. EON Finance Berhad
5.1.1.4. MERCHANT BANKS
5.1.1.4.1. 1. Affin Merchant Bank Berhad 2. Alliance Merchant Bank Berhad 3. Arab-Malaysian Merchant Bank Berhad
5.1.1.5. DISCOUNT HOUSES
5.1.1.5.1. 1. Abrar Discounts Berhad 2. Affin Discount Berhad 3. Amanah Short Deposits Berhad
5.1.2. BNM's National Syariah Advisory Council
5.1.2.1. To advise them and to ensure that the operations and activities of the bank comply with Syariah's principles.
5.1.2.1.1. the establishment is virtue of section 16B of the Central Bank of Malaysia Act 1958 (CBA)
5.1.2.2. Establishment of BNM NSAC
5.1.2.2.1. 1. The establishment of Syariah Advisory Council at the countries' level (accorded as the final authority in determining the Islamicity of products and also Syariah's Board at the bank's level.
5.1.2.3. Legal Aspects
5.1.2.3.1. BNM's NSAC will be referred to by the court or arbitrator in disputes involving Syariah issues in Islamic Banking and Finance and Takaful
5.1.2.4. Syariah Committees of IFIs/ Banks
5.1.2.4.1. BNM issued the "Guidelines of the Governance of Syariah Committees for Islamic Financial Institutions (BNM/ GPS1)" which provide:-
5.1.2.4.2. Restrictions Imposed
5.1.2.4.3. Duties and Responsibilities of Syariah Committee
5.2. ISLAMIC BANK
5.2.1. Section 2 of Islamic Banking Act interprets Islamic Bank as "Any company which carries on Islamic Banking business and holds a valid license and all the offices and branches in Malaysia of such a bank shall be deemed to one bank"
5.2.2. ISLAMIC BANKING BUSINESS
5.2.2.1. Section 2 of Islamic Banking Act interprets Islamic Banking Business as "Banking business whose aims and operations do not involve any element which is not approved by the Religion of Islam"
5.2.3. FINANCIAL INSTITUTIONS OFFERING ISLAMIC BANKING SERVICES
5.2.3.1. Financial Institutions
5.2.3.1.1. i) Islamic Banks ii) Commercial Banks iii) Finance Companies iv) Merchant Banks v) Discount Houses
5.2.4. ISLAMIC BANKS IN MALAYSIA (LOCAL)
5.2.4.1. 1. Al Rajhi Bank and Investment Corporation (Malaysia) Berhad 2. Alliance Islamic Bank Berhad 3. AmIslamic Bank Berhad 4. Asian Finance Bank Berhad 5. bank Islam Malaysia Berhad
5.2.5. ISLAMIC BANKS IN MALAYSIA (INTERNATIONAL)
5.2.5.1. 1. Alkhair International Islamic Bank Bhd 2. Deutsche Bank Aktiengesellschaft 3. PT. Bank Syariah Muamalat Indonesia, Tbk
6. 6. SC & SC'S NSAC
6.1. Securities Commission (SC)
6.1.1. Established on 1/3/1993 under the Securirties Commission Act 1993
6.1.1.1. A statutory body entrusted with the responsibility of regulating and systematically developing the Malaysia's capital markets
6.1.1.1.1. Has direct responsibility in supervising and monitoring the activities of market institutions and regulating all persons licensed under the Capital Markets and Services Act 2007
6.1.2. Regulatory Functions
6.1.2.1. 1. Supervising exchanges, clearing houses and central depositories
6.1.2.1.1. 2. Registering authority for prospectuses of corporations other than unlisted recreational clubs
6.1.3. Role of SC
6.1.3.1. 1. Promote Malaysian Capital Market
6.1.3.1.1. 2. Streamline the Regulations
6.1.4. SC and ICM
6.1.4.1. 1994, SC has established a special unit, namely the Islamic Capital Market Development (ICMD) and a study group, the Islamic Instrument Study Group (IISG)
6.1.4.1.1. Main role ICMD: to conceptualise and propose initiatives for the development of the ICM
6.1.4.2. 1996, SC has established the Syariah Advisory Council (SAC) which endorsed by Minister of Finance
6.1.4.2.1. SAC is given a mandate to ensure that the implementation of ICM complied with Syariah principles