8-Brief Development on Islamic Banking in Malaysia (1983-2007)

Malaysia is the first country in the world to have a dual system of banking and finance. When BNM BAFIA was amended in 1993, most conventional banks in Malaysia set-up full-fledged Islamic subsidiary. BNM Financial Sector Master Plan (FSMP) and the MIFC initiatives help spur further the development of Islamic Banking. Development of Islamic banking in Malaysia from 1983-2007 can be traced as follows:# Year 1983 - Islamic Banking Act was gazetted with the formation of Bank Islam Malaysia Bhd. # 4 March 1993 - the Finance Minister allowed BBMB, UMBC and Maybank to open Islamic Banking window (known as SPTF - Skim Perbankan Tanpa Faedah) # June 1995 Formation of the Association of Islamic Banking Institute Malaysia (AIBIM) # 1997 Establishment of BNM Syariah Advisory Council # 1 Dec 1998 - the term Skim Perbankan Tanpa Faedah-SPTF was changed to Skim Perbankan Islam-SPI couple with the issuance of the new Islamic Banking framework (a bank within a bank concept) to take effect on 2nd January, 2001. # Oct 1999 - Bank Muamalat, as 2nd Islamic Bank in Malaysia was formed due to merger between BBMB and BOC to form Bumiputra-Commerce Bank. # 31 Dec 2001 - BNM compliance date where SPI players to achieve at least 8% of the banks total assets. # 25 March 2002 - BNM launched Financial Sector Master Plan (FSMP) # September 2002 - Islamic Banking & Finance Institute Malaysia (IBFIM) was established as the industry owned training and research centre and . # November 2002 - the Islamic Financial Services Board (IFSB) was established

(function like Basel) to ensure soundness and stability of the Islamic financial system as well as paving the way for its global integration. # 31 Dec 2002 - Total SPI assets recorded 8.9% (RM 68 billion) of total banking assets, while financing stood at 8.1% and deposit at 10.2% respectively. # 8 Jan 2003 - BNM introduced the generic names for Islamic Banking products where SPI players shall be allowed to use English term without the Arabic term but the product name shall be hyphenated with the letter i at end of each generic product name. # March 2004 - Application deadline for application of 3 full-fledged Islamic banking license by foreign parties # March 2004 Talk about existing bank need to establish an Islamic subsidiary (IS) by 3 January 2004. This IS will be licensed under Islamic Banking Act (IBA) # April 2004 - BNM talk about change in the governance of Shariah Consultant. # June 2004 - BNM announced they have issued Islamic full-fledged banking license to Kuwait Finance House (KFH), Al-Rajhi Investment Bank, Saudi Arabia and Qatar Investment Group. # July 2004 BNM announced Islamic banking license approved in principle to Bumiputra Commerce Group and RHB Capital. # March 2005 RHB launched RHB Islamic Bank # May 2005 Commence Tijari commenced business. # June 2005 BNM announced approval of two more Islamic subsidiaries to AmBank and Affin Bank. # June 2005 - New BNM GP8-i for Islamic Banks issued. # July 2005 HLB launched Hong Leong Islamic Bank. # July 2005 RHB Capital launched RHB Dow Jones Islamic Index

# Aug 2005 KFH commenced business. # Sept 2005 - Deposit Insurance (launched on 1st Sept 05) # Sept 2005 - Product Approval Repository System (PARS) introduced by Bank Negara. #Jan 2006 BNM issued 4 takaful licences #Feb 2006 Inaugral issuance of Sukuk Negara Malaysia Ijarah (SBNMI) #April 2006 Affin Islamic bank & EONCAP Islamic Bank commenced operations #Sept 2006 Establishement of International Currency Business Unit (ICBU) #Jan 2007 Asian Finance Bank (Islamic bank) commenced operations. For more news, visit http://aibim.com/content/category/8/64/129/ Development of Islamic Banking in global front # 1996 Citibank established Citi Islamic Investment Bank (CIIB) to handle Islamic finance deals. Others over the years also followed suits Standard Chartered Bank, ABM Emro, BNP Paribas, Deutsche Bank, JP Morgan Case, The America La Riba Bank etc. # February 1999 Dow Jones launched its Islamic Market Index. # November 1999 Financial Times launched the FTSE Global Islamic Index. # 2002 HSBC Islamic banking arm, Amanah Finance involved in Malaysia Global Sukuk worth US$600 Million. # July 2005 RHB Dow Jones Index launched. # November 2005 Lloyds Bank London introduced Islamic products at 22 branches.

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Islamic Banking in India: Stumbling at the Regulatory Block

Islamic banking has been on the rise in the Asia-Pacific region, accounting for 60% of the global Islamic banking market. However, despite its rise in the rest of the region, the penetration of Islamic banking in India has been low. This is especially surprising with India having approximately 154 million Muslims and being the second largest Muslim population of the world. As mentioned in the Celent report Rise of Islamic Banking in the Asia-Pacific Region, this is primarily due to a regulatory block which allows Islamic banking to operate only in the form of a NonBanking Financial Corporation. An amendment in the Banking Regulation Act of India, 1949 is required to allow the Islamic banking system to operate in banks in India. The primary reason for the regulation can be mainly attributed to the socio-religious nature of the Indian political scene. This is especially evident in the Raghuram Rajan Committee of Financial Sector Reforms report submitted to the Prime Minister of India last year. Although the report recommended principles based on Islamic banking, the term Islamic banking was deliberately replaced by interest-free banking. The committee recommended that measures be taken to permit the delivery of interest-free finance on a larger scale, including through the banking system. With this recommendation, the ball is in governments court and it is up to them to come up with appropriate measures to introduce these products in the Indian banking sector. However, a rebranding of the various Islamic banking products must be done to achieve widespread acceptance and serve its foremost purpose of financial inclusion. In addition to the regulations, some experts feel that the infrastructure for Islamic banking is not yet in place and steps must be taken in that regard. In fact, last week, Kerala State Industrial Development Corporation (KSIDC) announced setting up Indias first interest-free financial institution along Islamic banking principles in Kerala. It is beyond doubt that there exists a huge potential for Islamic banking in India. But, it will take strong policy decisions to tap the same.