1.overview And Concept Of Islamic Finance.pptx

Presented by:

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).

Although Islamic financial markets, 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 1969 1983 1984 1992

• Pilgrims Fund Board • Islamic Banking & Government Investment Act • BIMB • Syarikat Takaful Malaysia Berhad

• BIMB listed on KLSE

1993

• Conventional banking institutions permitted to offer islamic banking products & services.

1994

• Islamic Inter-bank Money Market, • Islamic Banking Research & Training Institute (IBFIM)

3

Development Of Islamic Finance 1997

1999

2001

• BNM established National Syariah Advisory Council • Islamic Offshore Banking Service introduced in Labuan

• Bank Muamalat Malaysia Berhad

• BIMB Venture Capital Berhad • Financial sector Master Plan on Islamic Banking & Takaful issued by BNM

2002

• Islamic Financial Service Board • Islamic Banking & Finance became an industry owned institution • BNM issued the guidelines : Notes on sell on buy back & Guidelines on accepted Bills-I

2003

• BNM introduced a standard list of generic names Islamic banking products using indicators of I affixed at the end of the products or services • First variable rate Islamic Financing Product was introduced

4

Development Of Islamic Finance 2004

2005

2006

2007

2011

• BNM issued a banking license to the 1st wholly owned subsidiary of a conventional bank • Tax neutrality policy was announced • First foreign Islamic Bank was established • First Islamic Treasury Bills were launched by Government

• Launch of Malaysia International Finance Centre(MIFC)

• 100% foreign equity ownership of financial institution allowed • Further tax incentive granted under MIFC (10 years ‘tax holiday’ is given to bank for foreign transactions

• International Islamic Liquidity Management, Malaysia

5

Banking Sector

Banking & Financial Activities

Non-Bank Financial Institutions

Central Bank, Commercial Bank(inclusive of Merchant Banks, Finance Companies),Money Market and Foreign market

Industrial, Development, Agriculture, Savings Banks, Insurance/Takaful, Pension Funds(EPF)

Capital Market

Stock Exchange, Unit Trust and Property Trust Companies

Commodity Market

Kuala Lumpur Commodity Exchange

Islamic finance refers to a financial system that compiles with Syariah principles

Syariah laws ensure that there is no unfair transaction should take place & all participants are treated fairly in their business dealings

Setting higher standards for investments and ensure greater accountability and risk mitigation .

7

Definition: Any predetermined payment over and above the actual amount of principal

It is prohibited. Why? There is element of injustice in the transaction.

Wealth creation is concentrated in the hands of few people which later might jeopardize social 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.

What is Ribawi item?

• Gold • Silver • Grain • 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) Transactions in Islamic Banking need to be free from the element of gambling/ maysir

As gambling is seen as action that always enriches one party at the expense of the other known as a zero sum game

Gambling was declared illegal in the Quran Surah Al-Maidah

10

Why?

Definition Any ambiguous or doubtful element in a contract

ISLAMIC FINANCE SHOULD BE FREE FROM GHARAR

Gharar might lead to disputes caused by an unjustified term in the contract arising 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

Investment should only support practices or products that are not forbidden by Islam

The transactions are not only limited to selling and buying activities but also takes in all chains of production and distribution. Example: Marketing, packaging and transporting

12

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)

R

G

Prohibitions in ISLAMIC FINANCE transactions

M

U

• Any ambiguous or doubtful element in a contract. • Islamic Finance should be free from gharar because might lead to disputes caused by an unjustified term in the contract arising from misrepresentation and fraud

Production & Distribution of NonHalal 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