Law738 Development of Ifs

LAW738 Islamic Banking and Securities Law An overview on the Developmemt and Structure of the Islamic Islamic Financial System

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Overview of the Financial System Overview of Malaysian Financial System Overview of Islamic Financial system

Introduction 

Malaysia has a modern and comprehensive comprehensive financial fi nancial system that continues to evolve in response to the changing domestic and international conditions.

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Financial reforms, including the structural changes that proceed after the Asian financial crisis, have evolved a more diversified, broader  and deeper financial system, supporting Malaysia’s economic growth through a more efficient intermediation process.

What Is Financial System 

Financial System is a mechanism or  a framework in which economics exchange can be done. In modern society, financial system plays an important role in influencing the level economic activities and exchange. It can be simple or  complex, free or heavily regulated, efficient or inefficient and is one of  the important components of the global economy; it provides essential services to public

Role of the Financial System 1.To develop a steady and balanced economic and social development 2. To create the basic infrastructure i nfrastructure for the domestic banks to complement the already strong foreign banking presence in the economy. 3. To provide a financial stability

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THE BANKING INSTITUTIONS CENTRAL BANK OF MALAYSIA

National Shari’ah Advisory Council for  Islamic Banking and Takaful

Islamic Banks

Commercial Banks

Finance Companies

Merchant Banks

Discount Houses

NON-BANK FINANCIAL INTERMEDIARIES

Takaful Companies

Development Finance Institutions

Housing Credit Institutions

Savings Institutions

Pilgrimage Fund Board

THE FINANCIAL MARKETS Labuan Offshore Financial Services Authority

Capital Markets Equity Market Bond Market -Public Debt Securities -Private Debt Securities Islamic -Private Debt SecuritiesIslamic SecuritiesIslamic Government Securities

Central Bank of  Malaysia

Money & Foreign Exchange -Islamic money market

Securities Commission

Derivatives Markets Commodity Futures KLSE CI Futures KLIBOR Futures

Kuala Lumpur  Stock Exchange Offshore Market: Labuan International Offshore Financial Centre

Malaysian Financial System 

MFS is divided into 2 : 1)Financial Institutions 2)Financial Markets

Financial Institutions Financial institution is a business firm whose principle claims or  assets are stocks, bonds and loans instead of real assets such as buildings, equipments and raw materials. They also provide loans to customers or purchase investment services, provision of a mechanism for making payments, transferring funds and storing financial information (Rose, Kolari (1995)

Financial Market 

that facilitate transactions in all type of 

 To

allocate the economy

 Provide

 Consist

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within to

of 

and

receive money from it , while (i.e. Firms or  Individual) made investment (i.e. shares, bonds, marketable securities, government securities)

Evolution of Islamic Finance 

1960s- substantial demand for  Shariah compliant banking, resulting in the establishment of the Mit GhamrLocal Saving Bank in Egypt in 1963.

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1970s- Interest free or Islamic banking was given a strong business foundation with the establishment of  Islamic Development Bank (IDB) in 1975.

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1980s- the beginning of trend of rapid growth and expansion for the emerging Islamic financial services

Evolution of Islamic Finance (cont’) 

1990s- market had gained enough momentum to attract the attention of  policymakers and of institutions interested in introducing innovative products.

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Late 1990s and early 2000s- Islamic finance began to catch attention at international

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Mid 2000s- competition increased and both Islamic and conventional financial institutions began to position themselves aggressively to capture market share.

PROGRESSIVE FINANCIAL INSTITUTION DEVELOPMENT 2003-2010 2003-2010 1993-2002 1993-2002 1983-1992 1983-1992 • Issuance of new

LTH (’69) BIMB (’83) STMB (’84)

SPTF /SPI (’93) Islamic Interbank money market (’94) AIBIM* (’95) ARIL (’97) BMMB (’99) IFSB (’02) MTA (’02) FSMP (’01)

Islamic bank licenses to foreign IFIs (’04) Liberation of IB & Takaful industry to allow 49% foreign interest (’05)

PROGRESSIVE FINANCIAL INSTITUTION DEVELOPMENT 2003-2010 2003-2010 1983-1992 1983-1992

1993-2002 1993-2002 3 new takaful operators commence operation Launched MIFC initiative Announce tax incentives for MIFC ( 07 budget ) Guidelines issued on establishment establishment of new IIB, 2 retakaful licences approved by BNM (’06)

EFFECTIVE & CONDUCIVE LEGAL & SHARIAH FRAMEWORK 2003-2010 2003-2010 1983-1992 1983-1992

IBA ’83 TA ’84 Amendment Central Bank Act of  M’sia ’57…to establish SAC at BNM

1993-2002 1993-2002 • Dedicated HC (’03)

Shariah Advisory Council at BNM (’97)

Tax neutrality policy (’03) …amendment to - Income Tax Act 67 - RPGT Act 76 - Stamp Act 49 Enactment of Malaysian Deposit Insurance Corporation Act 05 First International Shariah Scholars Dialogue

EFFECTIVE & CONDUCIVE LEGAL & SHARIAH FRAMEWORK 2003-2010 2003-2010 1983-1992 1983-1992

1993-2002 1993-2002 • Issuance of Shariah

governance framework Establishment Establishment of RM200 mil Shariah endowment fund (’05) First Regional Shariah Scholars forum/dialogue forum/dialogue (’06) Issuance of 2 standards by IFSB : Capital Adequacy Std and Guiding Principles of Risk Management Management for Islamic bank (’06) Introduction Central Bank of  Malaysia Act 2009

MALAYSIA AS INTERNATIONAL FINANCIAL CENTRE To strengthen Malaysia’s position as an International financial centre……and to realize its target to become Islamic financial hub in this region…..it launched MIFC on 14 Aug 06

What is MIFC…? -Diversified range of financial institutions operating from anywhere in Malaysia offering Islamic financial products & services in any currency to resident & non-resident

MALAYSIA AS INTERNATIONAL FINANCIAL CENTRE Under MIFC, Malaysia aims to be : Centre for origination, distribution as well as trading of Islamic treasury and capital market instruments Centre for Islamic fund and wealth management management services Centre for international currency Islamic financial services ( including deposit & financing ) Centre for Takaful & Retakaful Centre for Islamic finance education, training , consultancy & research

ISLAMIC FINANCIAL HUB : M’sia’s strengths Strong foundation in Islamic finance – pioneer in global Islamic banking & finance Strong economic growth & international trade Savvy workforce fluent in English Relatively low cost of living Significant attention & resources directed towards human capital development Strong support by the government Strong international connection/comm connection/communication unication …currently holds the chair of OIC & IFSB

u Finance • Recent Growth in the West • Gains by the Legal & Accounting Professions • Multidisciplinary Criteria • Dispute Settlement and Conflict Resolution • Coexistence with Western Finance or Absorption by Western Financial Institutions