Islamic Banking in Malaysia^†

Abstract

Islamic banking is the conduct of banking according to Shariah or Islamic law. Statistically Islamic banking has had phenomenal growth, according to the Asian Banker Research Group, the world's 100 largest Islamic banks have set an annual asset growth rate of 26.7% and the global Islamic finance industry is experiencing an average growth of 15-20% annually1. Recently the Prime Minister of Malaysia commented that Malaysia has been maintaining its leadership in Islamic banking and finance for over three decades2. As an International leader in Islamic banking, it would be interesting to explore the development of Islamic banking in Malaysia. This will be the objective of this paper. This paper will focus on the historical development of Islamic banking in Malaysia, from the creation of the Haj Pilgrim's Fund Board in the 1960s to the current Islamic banking scene of 17 local Islamic banks and five International Islamic banks in operation. This paper will also explore the unique regulatory and governance framework of Islamic banking in Malaysia, by touching on the Islamic banking Act 1983, the Central Bank of Malaysia Act 2009, the Banking and Financial Institutions Act 1989 and the Shariah Governance Framework introduced in 2011 by the Central Bank of Malaysia. This paper will also briefly introduce how Islamic banking works.

Factors Influencing the Preference of Customers Towards Islamic Banking: Evidence from Malaysia

“…Islamic banking is a banking system playing a significant contribution to the socioeconomic with the objective fulfilling of Islamic law under the Maqasid Shari'ah (Alharbi, 2015;Dusuki, 2008;Kunhibava, 2012)microfinance requires innovative approaches beyond the traditional financial intermediary role. Among others, building human capacity through social intermediation and designing group-based lending programmes are proven to be among the effective tools to reduce transaction costs and lower exposure to numerous financial risks in relation to providing credit to the rural poor.…”

“…Consequently, the Islamic finance market share will increases tremendously in the future whereby it is proven by the emergence of over 500 Islamic finance institutions throughout 75 countries (Karim et al, 2008). Asian banker research Group further reported that 100 greatest Islamic banks had an annual growth at 27.7% and the Islamic finance industry had increased annually at 15-20% (Kunhibava, 2012). Hence, Islamic banking has attracted beyond the religious-geographic dimension that it has been flourished in both Muslim and non-Muslim dominated countries.…”

“…In the Southeast Asian region, Malaysia is a precursor of the emergence of Islamic finance institution which the concept and idea of Islamic banking was implemented earlier in 1963 by pooling funds of future pilgrims of Haj which was lately known as Tabung Haji. This institution was operated based on Shari'ah compliance in offering free-interest investment opportunities to Malaysian Muslim depositors (Kunhibava, 2012). This movement was followed by the inception of formal Islamic bank institution, known as Bank Islam Malaysia, established in 1983.…”

“…The tremendous growth of Islamic banking and finance in Malaysia has appeared as a significant sector of economic development in the last decade. The Central Bank of Malaysia reported that Islamic banking assets has achieved extraordinary values, whereby it was accounted around USD65.6 billion in 2011 with an annual average growth rate of 18-20% (Kunhibava, 2012). Moreover, Islamic Financial Services Board further emphasized that the market shares of Islamic banking industry in Malaysia has become the leading market globally in which the assets reached around 24.9% of the total banking assets in Malaysia (IFSB, 2018).…”

Exploring Compliance of AAOIFI Shariah Standard on Ijarah Financing: Analysis on the Practices of Islamic Banks in Malaysia

“…In the same era, the Association of Islamic Banking Institutions Malaysia (AIBIM) and the National Shariah Advisory Council were established followed by the inception of the Islamic Interbank Money Market that accelerated the momentum of growth of the Islamic banking industry in the country. This resulted in the formation of Bank Muamlat as the second Islamic bank due to the merger between Bank of Commerce and BBMB (Kunhibava 2012;Nor et al 2016). Currently, there are sixteen (16) fully-fledged Islamic banks operating in Malaysia as tabulated on the website 5 of the Shariah Advisory Council of Malaysia.…”