Malaysian Islamic Financial Landscape

Before discussing the Islamic tools and instruments employed by Th, it may be useful to have a brief discussion on the actual and overall framework of Islamic banking and finance in Malaysia. This overview of Malaysian Islamic Financial Landscape and the approaches undertaken by Malaysian authorities will help to understand the opportunities and instruments available to Th for its various operations.

An Overview

The Islamic financial system in Malaysia may be broadly classified into: Islamic banking system, Non-bank Islamic financial intermediaries, and Islamic financial markets. System may also be characterized in three different forms as follows:

1. Full- fledged Islamic financial institutions;
2. Conventional financial institutions with Islamic windows; and
3. Conventional financial institutions with Islamic windows and full-fledged Islamic banking branches.

Islamic Banking System

The Islamic banking system comprises Bank Negara Malaysia (BNM) as the central bank vested with powers under the Islamic Banking Act 1983 and the Banking and Financial Institutions Act 1989 (BAFIA). BNM is entrusted to regulate and supervise Islamic banking operations in Malaysia; the Islamic banks; and the commercial banks, finance companies, merchant banks and discount houses participating in the Skim Perbankan Islam (SPI) that stands for Islamic banking schemes.

Islamic Banks: There are currently two Islamic banks operating in Malaysia, namely Bank Islam Malaysia Berhad (BIMB), established in 1983 under the Islamic Banking Act 1983 and Bank Muamalat Berhad (BMB) arising from a merger of Islamic banking divisions of two major conventional banks. The Act provides BNM with powers to supervise and regulate Islamic banks, similar to the case of other licensed banks. At present, BIMB operates a total of 80 branches with staff strength of 1,600 people. Tabung Haji holds almost 30% equity in Bank Islam Malaysia Berhad.

The second Islamic bank, Bank Muamalat Malaysia Berhad (BMMB), has been recently formed following the merger of bank Bumiputra Malaysia Berhad (BBMB) and Bank of Commerce Berhad (BOCB) in 1999 which saw the separation of Islamic and conventional banking into two different settings.

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