Presented by:
Although Islamic financial markets,
Islamic finance industry has
become more important
component in the financial
system.
An Islamic financial market operates
in an interest free environment and
works on a completely different set
of principles. These principles are
derived from Shari’ah (Islamic law).
like their conventional counterparts,
comprise money and capital
markets, the instrument and the
operating procedures are different.
There are two primary sources of
Shari’ah,
-the Holy Quran
- 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)
 Development Of Islamic Finance
• 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
 Development Of Islamic Finance
• 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

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