Theconcept by lanyuehua


									Main Shariah Principle of Islamic Banking
The original ruling for Islamic transaction is lawful except
when there are Haram elements (that were prescribed by

           Halal asset                Halal purpose

Islamic banking is asset based transaction, structured
according to Islamic contracts which eliminate……..

                  prohibited elements

            RIBA             GHARAR           MAISIR
           (Usury)         (Uncertainty)    (Gambling)
  Understanding Riba & Its Prohibition

          An increase, which in a loan transaction or in exchange of a
Means     ribawi commodity, accrues to the owner (lender) without giving an
          equivalent counter value or recompense in return to the other
          party. It covers interest both on commercial and consumer loans.


                     RIBA DUYUN
Kind                                                      Al-Jahiliyah
         • Arising from charge against debts (loans)

                                                          Due to excess
                      RIBA BUYU’

         • From exchanges involving ...6 Ribawi items
                                                          Due to deferment
Prohibition of Riba’ in Quran
   The receiver and giver of Riba’ declare of war to Allah and His

    Meaning: “O you who believe! Be afraid of Allah and give up what remains
    (due to you) from Riba’ (from now onward), if you are (really) believers.
    And if you do not do it, then take a notice of war from Allah and His
    Messenger but if you repent, you shall have your capital sums. Deal not
    unjustly (by asking more than your capital sums), and you shall not be
    dealt with unjustly (by receiving less than your capital sums). (Al-Baqarah

   Elimination of the Blessing of properties and life

    Meaning: Allah will destroy Riba’ and will give increase for Sadaqah (deeds
    of charity, alms). And Allah likes not the disbelievers, sinners. (Al-Baqarah

   Who consumes Riba is standing like a person beaten by Syaitan

    Meaning: Those who eat Riba will not stand (on the Day of Resurrection)
    except like the standing of a person beaten by Syaitan (Satan) leading him
    to insanity
Prohibition of Riba’ in Hadith
   Riba is one of the 7 major sins

    The prophet PBUH said:
    Meaning "Avoid the seven destructive sins these are syirk, black
    magic, murder, illegally taking of orphan property, dealing with riba,
    escape from war because of fear, accusing woman committing
    adultery without witness" (Reported by Al-Bukhari and Muslim)

   Those consuming Riba is under curse of Allah
    The prophet PBUH said:
    Meaning: “Allah cursed the receiver, the giver, the witness and the
    writer of riba and it is amongst the great sins.” (Hadith Muslim)

   Sin of Riba is comparable to committing adultery with own

    The prophet PBUH said:
    Meaning: "There are seventy types of riba, the least of which is as
    abhorrent as a man having intercourse with his own mother and worst
    of which is [violating] a Muslim's honor and sanctity. (ibn Majah,
    2/764; Al-Hakim, 2/37 Al-Hakim; authentic in accordance of provision
    set by Al-Bukhari and Muslim)
    Understanding Gharar (Uncertainty)

   Meaning of Gharar :

       Gharar is an element of deception either through ignorance of the
        goods, the price, or through faulty description of the goods, in which
        one or both parties stand to be deceived through ignorance of an
        essential element of exchange. As an example, gambling is a form of
        Ghaar because the gambler is ignorant of the result of the gamble.

Prohibition of Gharar and Maisir

   In the Quran: “ O you who believe ! Eat not up your property among
    yourselves unjustly ( bil batil ) i.e by falsehood and deception ) except
    it be a trade amongst you, by mutual consent” (An-Nisa : 29)

   Prohibition of gharar has been made conclusive in various hadith from
    the Prophet Muhammad S.A.W.

   Allah has declared the prohibition of gambling in the Quran which it is
    considered as a bad deed of evil.
History & Development of Islamic Banking

Year   Key Milestone
1983   Enactment of the Islamic Banking Act (IBA) 1983

       Bank Islam Malaysia Berhad (BIMB) was incorporated as Malaysia’s first
       Islamic bank
        BIMB was given a grace period of 10 years to operate without
       competition, to protect its growth and development
        Over the period of 1983 – 1993, BIMB achieved an average annual
       growth rate of 48%
       Enactment of the Government Investment Act (GIA) 1983
        Enables the issuance of government papers and bonds

        Government investment certificates (GIC) initially offered on the basis
       of qardh hasan but subsequently changed to bay’ al-’inah

1984   Setting up of takaful companies, to complement the operations of
       Islamic banks
1992   BIMB was listed on KLSE
Year   Key Milestone
1993   The Dual Banking System was implemented, allowing Islamic and
       conventional banking to co-exist and run concurrently in the financial
        Islamic Banking Scheme (IBS) introduced, which allowed conventional
       banks to offer Islamic banking windows and thus RHB Bank started
       Islamic Banking window.
1999   Bank Muamalat Malaysia Berhad, Malaysia’s second full-fledged Islamic
       bank, was incorporated
        Resulting from the merger between Bank Bumiputera Malaysia Berhad
       (BBMB) and Bank of Commerce Berhad (BOCB)
       KLSE Islamic Index was introduced
2000   Establishment of Association of Islamic Banking Institutions of Malaysia
        To harmonize and streamline Islamic banking practices

        As platform to voice issues with the authorities

       Establishment of Islamic Banking and Finance Institute Malaysia (IBFIM)
        Industry owned training institute
Year   Key Milestone

2002   Introduction of standard generic names for Islamic banking products,
       e.g. savings account-i, current account-i, home financing-i, hire
       purchase-i, cash line facility-i, share-financing-i, working capital
       financing-i, letter of credit-i

       Introduction of Islamic banking logo
        To increase visibility, provide branding of Islamic financial products
       and reflect commitment of the development of Islamic banking and

       Malaysia issued first global sovereign sukuk al-ijarah bond

2005   AFFIN ISLAMIC Bank Berhad was incorporated on 13/9/2005
       And was officially launched on 6/6/2006.
  Governing Law

             Central Bank of Malaysia Act 1958

Banking and Financial                Islamic Banking Act 1983
Institutions Act 1989
Difference between....
Windows & full fledged Islamic Bank

SPI / Islamic banking windows (under BAFIA)
    Refers to conventional banks that offer Islamic banking products and
   services using their existing infrastructure, including staff and

Full-fledged Islamic bank (under IBA)
    Refers to a bank dedicated to the offering of Islamic banking products
   and services in Malaysia, a number of these banks are set up as a
   subsidiary to conventional banks Operations and management are
   clearly separated between the subsidiary Islamic bank and the parent
   conventional bank

    Given that Malaysia advocates dual banking (Islamic and
   conventional), in effect there are three general categories of banking

    • Conventional banking
    • Full-fledged Islamic banks
    • Islamic banking windows under the Islamic banking scheme (IBS)
Full fledged Islamic Banks at 2006

   Bank Islam Malaysia          Kuwait Finance House
   Bank Muamalat Malaysia
                                 Asian Finance Bank
                                 Al-Rajhi Banking &
   Hong Leong Islamic Bank       Investment Corp

   Affin Islamic Bank

   EONCAP Islamic Bank

   CIMB Islamic

   AmIslamic Bank
The National Shariah Advisory Council

The National Shariah Advisory Council on Islamic Banking and Takaful
(NSAC) was established on 1 May 1997. The primary objectives of the SAC
are as follows:-

    To act as the sole authoritative body to advise BNM on Islamic
     banking and takaful operations;
    To co-ordinate Shariah issues with respect to Islamic banking
     and finance (including takaful);
    To analyse and evaluate Shariah aspects of                new
     products/schemes submitted by the banking institutions and
     takaful companies.

                              Note: Effective 1st January 2004, NSAC would be known as SAC
The National Shariah Advisory Council (con….)

  Amended from Central Bank of Malaysia Act 1958
  SAC operates as an independent body
  SAC will be referred to by the court or arbitrator in disputes
  involving Shariah issues in Islamic banking, finance and takaful   cases
  Applicable to all Islamic financial institutions regulated and
  supervised by Bank Negara Malaysia
  Shall be complied with by 1 April 2005

          Every Islamic financial institution required to establish a
     Shariah Committee. In the case of a commercial bank regulated
     under BAFIA, it may established one Shariah Committee for the
     banking group.


     The appointment and reappointment shall obtain prior written
………..approval of Bank Negara Malaysia

     Valid for a renewable term of two years

     A member of a Shariah Committee shall be an individual


               i.     Islamic jurisprudence (Usul al-Fiqh); or

               ii.    Islamic transaction/commercial law (Fiqh al-Mu’amalat) or

               iii.   Expertise or experience with above areas

     Consist a minimum of three members

     An Islamic financial institution is required to have a minimum of one
……….officer as the secretariat to the Shariah Committee

To advise the Board on Shariah matters in its business operation
To endorse Shariah Compliance Manuals
To endorse and validate relevant documentations
To assist related parties on Shariah matters for advice upon request
To advice on matters to be referred to the SAC
To provide written Shariah opinion
To assist the SAC on reference for advice
              Shariah Filtering

                                                      JPIT, BNM

Shariah Filters

                                                Board of Directors of the

                         Shariah Committee of    Bank’s Credit & Risk
                               the Bank          Management Comm

   Division              Shariah Compliance
                          (Internal Shariah)

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