Islamic Financial Intermediaries: Malaysia

Commercial banks: Commercial banks participating in the Islamic Banking Scheme or SPI (SPI commercial banks) form the largest group of financial institutions in the Islamic banking system. The number of SPI commercial banks as at end–June 1999 was 24, of which four are foreign-owned but locally incorporated banks. Total assets of the SPI commercial banks as at end–May 1999 was RM18.7 billion (US$4.9 billion), while deposits and financing totaled RM14.5 billion (US$3.8 billion) and RM5.3 billion (US$1.4 billion) respectively. Islamic banking facilities are available in 1,663 branches of the SPI commercial banks, including 7 full-fledged Islamic banking branches.

Finance Companies: the second largest group of banking institutions in the Islamic banking system are the finance companies. At present (May 1999), there are 18 finance companies participating in the SPI (SPI finance companies). Total value of assets of SPI finance companies (May 1999) was RM5.1 billion (US$1.3 billion) while deposits and financing each amounted to RM4.1 billion (US$1.1 billion) and RM2.3 billion (US$0.6 billion), respectively. Islamic banking facilities are available in 820 branches of the SPI finance companies, including 3 full-fledged Islamic banking branches.

Merchant Banks: Merchant banks as a group are relatively small in the Islamic banking system. Although there are only 5 SPI merchant banks, most of the Islamic banking activities are dominated by two large merchant banks, which represent 93% of the SPI merchant banks assets. As at end-May 1999, total assets of the SPI merchant banks amounted to RM733 million (US$192.9 million) while deposits and financing totaled RM238 million (US$62.6 million) and RM438 million (US$115.3 million), respectively.

Discount Houses: The discount houses are the new entrants in the Islamic banking system. They have been allowed to participate in the SPI in December 1998. All the seven discount houses are participating in SPI and they focus on short-term Islamic money market operations and underwriting/arranging of Islamic debt securities.

Source: Towards Islamic Banking: Experience and Challenges, Institute of Policy Studies. Republished with permission.