Laws And Regulations In Islamic Banking Finance Essay

Laws And Regulations In Islamic Banking Finance Essay

It is an act to supply licensing and ordinance of Islamic banking in Malaysia. The Act inter alia has commissariats on the fiscal demands and responsibilities of an Islamic Bank, ownership, control and direction of Islamic Bankss, limitations on its concern, powers of supervising and control over Islamic bank.

5.1 Legal Framework

The primary difference between Islamic Bankss and the commercial Bankss is the turning away of riba in Islamic Bankss. The activity of the Islamic Bankss is based on the dealing that allowed in Islam. The activity of the Islamic bank must follow the Shariah rules. There includes mudarabah, ijara, bai bi-thamin and murabahah.

5.1.1 Principles of Islamic Finance

Business dealing are based on Shariah

Absence of involvement ( riba ) -based dealing

Prohibition of Gharar and chancing

Money is non a trade good

Supported by underlying economic minutess

Multi-faceted functions of Islamic Bankss

Conventionalized balance sheet of Islamic Bankss

5.1.2 Aims:

-to promote, Foster and develop the application of Islamic rules, jurisprudence and tradition to the dealing of fiscal, banking and related concern personal businesss.

5.1.3 Main rules of Islamic bank:

prohibition of involvement in all signifiers of minutess

set abouting concern under the legitimate net incomes

giving zakat

All Islamic Bankss and Islamic Banking Scheme ( IBS Bankss ) set up the Shariah Committees to steer them on Shariah rules and to do certain they function in a mode that in line with Shariah.

5.1.4 The importance of Shariah administration

Place great accent on strong corporate administration values and construction, transparence, revelation of information and rigorous attachment to Shariah rules.

Ensure effectual inadvertence, duty and answerability of the board of managers, direction and Shariah commission.

Serves as a usher towards guaranting an operating environment that is compliant with Shariah rules at all times.

Provides the foundation for the practise of Islamic finance through the observation of the dogmas, conditions and rules propagated by Islam.

conveying assurance to the general populace and the fiscal markets on the credibleness of Islamic finance operations.

In Malaysia, the Bank has established the necessary mechanism for the Islamic fiscal system to run in a mode consistent with Shariah muamalah rules, with a clearly defined institutional agreement within Islamic fiscal establishments regulated by the Bank. A two-tiered Shariah administration construction has been established, consisting an vertex Shariah advisory organic structure at the Bank and a supervisory Shariah commission formed at the several Islamic fiscal establishments.

5.1.5 Shariah Advisory Council

-Central Bank Malaysia act 2009 has granted the authorization to the Central Bank of Malaysia for the constitution of the Shariah Advisory Council as the highest and exclusive authorization to be referred by the civil tribunals in covering with Islamic banking and finance instances in Malaysia.

-The highest Shariah organic structure set up at Bank Negara Malaysia to rede the bank on the banking concern in order to guarantee that they function in a mode that is approved by the faith of Islam.

5.1.6 Aims of Shariah Advisory Council

To circulate Shariah declarations issued by the Shariah Advisory Council.

To ease Islamic fiscal Institution in developing fiscal merchandises.

To advance harmonisation of Shariah reading in Islamic Finance industry.

5.1.7 Participated Institution

The Shariah shall be applicable to all Islamic fiscal establishment regulated and supervised by Bank Negara Malaysia. The Islamic fiscal establishments are:

An Islamic bank licensed under the Islamic Banking Act 1983

A fiscal establishment licensed under the Banking and Financial Institution Act 1989 ( BAFIA 1989 ) which is participate s in Islamic Banking Scheme

A development fiscal establishment prescribed under the Development Financial Institution Act 2002 ( DFIA ) which carries on Islamic Banking Scheme

A takaful operator registered under the Takaful Act 1984

5.1.8 Functions of Shariah Advisory Council

The Shariah Advisory Council on Islamic Finance shall be established by the Central Bank of Malaysia by virtuousness of subdivision 51 and the Council shall be the authorization for the ascertainment of Islamic jurisprudence for the intents of Islamic fiscal concern. The Council is given authorization to find its ain processs in transporting out their responsibilities under the Act.

The maps of the Shariah Advisory Council are listed under subdivision 52. Its maps are:

( a ) To determine the Islamic jurisprudence on any fiscal affair and publish a governing upon mention made to it in conformity with Part VII of the Act.

( B ) To rede the Bank on any Shariah issue related to Islamic fiscal concern, the concern activities or minutess of the Bank ;

( degree Celsius ) To supply advice to any Islamic fiscal establishment or any other individual as may be provided under any written jurisprudence in force in Malaysia ;

( vitamin D ) Other maps as may be determined by the Bank.

The members of the SACl of Central Bank in Malaysia for 2008/2010 term are:

1. Dr. Mohd Daud Bakar ( Chairman )

2. Dato ‘ Dr. Abdul Halim Ismail ( Deputy Chairman )

3. Y. A.A.Tun Abdul Hamid Haji Mohama

4. Y. Bhg. Tan Sri Datuk Sheikh Ghazali Hj. Abdul Rahman

5. S.S. Dato ‘ Haji Hassan Haji Ahmad

6. Y. Bhg. Datuk Haji Md. Hashim Haji Yahaya

7. Y. Bhg. Dato ‘ Wan Mohamad Dato ‘ Sheikh Abdul Aziz

8. Assoc. Prof. Dr. Engku Rabiah Adawiah Engku Ali

9. Dr. Mohamad Akram Laldin

10. Dr. Muhammad Syafii Antonio

( Beginning: Official web site of Malaysia International Islamic Finance Centre at )

5.1.9 two types of sedimentations that provided by the Muslim Banks:

salvaging history or current history

investing history

The current history is operated in the same manner as the conventional banking system, but the economy and investing history are operated in a different manner. They are operated every bit same as the other commercial bank. There are no involvements payable to the clients that holding current history and sedimentation histories. In add-on, The Islamic banking concern provided by the bank must follow the Shariah rules. The methods are Mudarabah, Musyahrakah, Baibithamin Ajil, Murabahab, Al-Ijarah and Al-Wadiah.


Mudarabah is a net income sharing agreement between two parties ( an investor and the enterpriser ) . The investor will provide the fund to the enterpriser for his concern venture. The investor will acquire back the return based on a net income sharing ratio that has been agreed before. The rule of Mudarabah can be runing in 2 ways: I ) between a bank and the capital supplier two ) between a bank and the enterpriser. The losingss that incurred shall be borne by the capital supplier. In takaful industry, mudarabah contract is used as one of the operational theoretical account every bit good as being applied for puting the takaful financess.


Musyarakah refers to a partnership or joint concern venture to do net income. It is an understanding between two or more spouses, whereby each spouse will supply financess to the concern venture. Net incomes made are shared by the spouses based on an agreed ratio. However, losingss that incurred will be shared based on the ratio of financess that invested by the spouses.

Baibithmin Ajil

Baibithmin Ajil refers to the sale of goods on a deferred payment footing at a monetary value, which includes a net income by both parties-an investor and enterpriser. It is under the funding installation.


Murabahah are refers to the sale of the goods at a monetary value which includes a net income border that are agreed by both parties ( an investor and enterpriser ) .In Murabahah, the existent cost of the plus must be clearly stated at the clip of the sale understanding.


Ijarah means rental, rent or rewards. This rule normally used in financing consumer goods. For case, the motor vehicles, works, office mechanization for a fixed period and monetary value. It is separate to two contracts involved Ijarah contract ( renting or leasing ) and Bai contract ( purchase ) .


Wadiah means detention or guardianship. In Wadiah agreement, a bank is act as a keeper and legal guardian of the will lodge your financess or assets in a bank for safekeeping. The bank will vouch the safety of the full sum of the financess or assets.

5.1.10 Islamic Principles


Islamic Principle






Investing sedimentation



Net income and loss sharing

Undertaking funding


Baibithamin Ajil

Deffered payment sale

House funding




Financing installations




Renting and vehicle funding



Guaranteed detention

Deposit taking- process

5.1.11 Islamic Banking Principle

Al-Wadiah Yad Dhamanah ( nest eggs with warrant )

Al-Mudharabah ( profit-sharing )

Al-Musyarakah ( joint venture )

Al-Murabahah ( cost plus )

Bai ‘ Bithaman Ajil ( deferred payment sale )

Bai ‘ al-Dayn ( debt trading )

Al-Ijarah Thumma al-Bai ‘ ( renting and later purchase )

Al-Ijarah ( renting )

Al-Qardhul Hassan ( benevolent loan )

Bai ‘ as-Salam ( future bringing )

Bai ‘ Al-Istijrar ( provide contract )

Al-Kafalah ( warrant )

Ar-Rahnu ( collateralised adoption )

Al-Wakalah ( put uping another individual to move )

Al-Hiwalah ( remittal )

As-Sarf ( foreign exchange )

Al-Ujr ( fee )

Al-Hibah ( gift )

5.2 Regulative Roles of Islamic banking

-The function of Islamic bank are turn toing systematic concern and safeguarding client ‘s involvement. The riddance of the involvement is based on values of justness, efficiency, stableness and growing.

5.2.1 im of the regulative and legal model

-The purpose of establishing the regulative and legal model in Islamic fiscal system is to continue fiscal stableness and public assurance.

5.2.2 Legal and ordinance model

Nature of Islamic banking concern

Edification of Shariah conformity mechanism

Documentation, revenue enhancement and accounting issues

Nature of Islamic banking concern

Scope of Islamic banking influenced by application of different underlying contracts:

Specificities of Islamic fiscal dealing

Different nature of hazard

Shariah conformity mechanism

Continuous conformity

Installing assurance and managing perceptual experience

Documentation, revenue enhancement and accounting issues

Documentation issues- reflect contractual duties

Tax deductions -Shariah demand

Accounting -AAOIFI and IFSB standardized patterns

5.3 Duties of Islamic banking

Ethical investing

Social duty

Poverty relief

5.3.1 Ethical investing

Recent twelvemonth, there are an increasing figure of investors who seek to aline their investings with their rules through ethical and responsible investing. Ethical investing can be the consequence of positive showing by choosing an investing based on good patterns in a peculiar field, such as in human right or the protection of the environment.For case, some investing universe consequence from combination of both positive and negative showing.

5.3.2 Ethical motives in Islam

Islam requires Muslims to take their lives based on the Islamic legal codification of “ Shariah ” rules that are expected to follow to the extent possible given their fortunes. The Shariah is the Islamic jurisprudence of the human behavior which regulates all affairs of the lives of Muslims. Islam places the highest accent on the ethical values in all facets of their life. In short, moralss governs all facets of life of Muslims. The concern dealingss in the chiefly moralss based arising from spiritual belief, trust and religion.

5.3.3 Social duty

It is legal for a concern to accomplish net incomes, but this end should be pursued harmonizing to “ Shariah ” rules. Islam stresses on the construct of societal duty. All Muslims are considered to take attention of each others. In Islamic position, they are concern on societal duty and justness on concern patterns. In Islamic rules, they are avoid the “ haram ” activities include conventional bank salvaging and investing sedimentations, the purchase of involvement giving bonds, and the acquisition of portions in companies.

5.3.4 Poverty relief

Islam has made the province every bit good as the community duty to cut down poorness from the society. Harmonizing to the Islamic positions, Islamic bank must take attention of the society who is less fortunate in order to keep equilibrium and societal justness. Every Islamic bank has to set up a zakat fund. They collect the revenue enhancement from investors and depositors. Then, the zakat fund will administer to the hapless classs. The intent of the zakat is to supply a standard life of good life to the less fortune people. Muslim Bankss are contributes a big attempt to cut down the poorness in a state.

5.3.5 ZAKAT

Zakat is the Islamic spiritual revenue enhancement. It is one of the five basic demands of Islam. All grownup Muslims of sound head and organic structure with a set of income and assets are expected to pay zakat. Zakat is due annually on certain types of belongings and is distributed to eight classs of persons specified by the Qu’ran. There are orphans, the hapless, travellers, mendicants, debitors, slaves and the attempts to propagate Islam. Zakat is sometimes referred to as sadaqah or sadaqat ( plural ) . In general, the sharing of wealth is called zakat, whereas the sadaqat could intend the sharing of wealth and sharing of felicity among God ‘s creative activity such as stating sort words and taking attention of animate beings or environment. Zakat is at different rates. For gold and Ag, which is include all liquid assets, the rate is 2.5 % . In recent old ages, Pakistan, Sudan and Saudi Arabia have enacted statute law to implement the zakat.

5.4 Policies

During 2004, the policy push centred on heightening the institutional substructure, regulative and prudential model, Shariah and legal substructure, every bit good as consumer consciousness and protection.

5.4.1 Anti-Money Laundering Policy

Under all fortunes the Bank will carry on its concern in conformity with the following general rules in order to protect the Bank from money laundering & A ; terrorist funding activities:


Comply with applicable anti-money laundering & A ; terrorist funding Torahs and ordinances as established by Bank Negara Malaysia ;

Keep a system of internal control and set up process to guarantee ongoing AML/CFT conformity and prompt actions ;

Appointment of Designated Compliance Officers ( DCOs ) , who are responsible to implement AML/CFT processs and steps ;

Develop conformity plan to guarantee consciousness on AML/CFT processs and demands and monitoring of AML/CFT steps ;

Establish client due diligence for all clients including implement Know Your Customer ( KYC ) Policy and enhanced due diligence for clients and minutess showing higher hazard ;

Establish and maintain appropriate processs to supervise client histories and activities for grounds of leery minutess that may be declarative of money laundering activities ;

Retain designation and transactional certification as defined in the statute law ;

Report to relevant authorization in a timely and comprehensive mode on all identified leery activities where there are sensible evidences to surmise that a money laundering offense has been or is being committed ;

Cooperate to the full with jurisprudence enforcement and regulative governments on AML/CFT issues.

5.5 Registration

The application must be submitted and signed by the applier and addressed to

Islamic Banking and Takaful Department, Bank Negara Malaysia, 6th Floor, Block A, Jalan Dato ‘ Onn, 50480 Kuala Lumpur, Malaysia.

The legal footing for the constitution of Islamic Bankss was the Islamic Banking Act ( IBA ) which was established on 7 April 1983.The IBA provides BNM with powers to oversee and modulate Islamic bank.

Islamic banking system requires three of import elements to measure up as a strong system

A big figure of planetary participants

A wide assortment of instruments

A comprehensive fiscal substructure.

5.5.1 Application for Islamic Banking licence

Section 1: Detailss of applier

Section 2: Background information

Section 3: Fiscal strength and soundness

Section 4: Plans for Malayan operations

Section 5: Regulatory system in place state

Section 6: Support Documents

5.6 Securities

Covering in securities

Covering in unsecured bonds, stocks or bonds of Federal Government, any province Government or statutory organic structure and corporate unsecured bonds or other instruments which are non listed for merchandising stock exchange.

Arranging the sale or purchase of securities through the holders of a Capital Market services License who carries on the concern of covering in securities.

Underwrite the securities and arrangement

Private arrangement of primary issues of securities on behalf of clients

Arranging or offering for sale or purchase as agent for any individual

Act as agent for any issuing house in relation to the issue or listing of any securities

Lending or adoption of securities on ain history for clients

5.7 Power of lawyer

Power of lawyer ( POA ) is an mandate to move on person else ‘s behalf in a legal or concern dealing. The individual authorising the other to move is the granter, and the one authorized to move is the agent.

5.7.1 Wakalah

It is a contract whereby a individual ( chief ) asks another party to move on his behalf for a specific undertaking. The individual who take this undertaking is an agent who will be paid a fee enemy his services.


A client ask bank to pay some one under certain footings. The bank is the agent that transporting out the fiscal dealing.The client will paid a fee to the bank for his services.

5.7.2 Conditionss of Wakalah

The principal should hold the power and competency to cover and have the belongings. If the principal is non competent to execute a certain action, he can non depute the making of that action to another individual. For illustration, an insane or a minor can non name agents to move on their behalf.

The agent should besides be a competent individual.

The thing or act should be known. This is to avoid uncertainness or gharar.

That the action is a lawful action.

5.7.3 The Types of Al-Wakalah

An agent ‘s authorization is derived and defined by the peculiar type of bureau he undertakes. Wakalah can be divided into the four types.

Particular Wakalah or Special Agency

-Particular wakalah is made merely for a certain known dealing. For illustration, purchasing or selling certain known house or a auto. The agent is bound to sell or purchase that peculiar house or auto.

General Wakalah

-It is a general deputation of power. For e.g. if the principal says: bargain for me a house which you think is proper or suited. In this instance the agent owns all the power which the principal has.

Restricted Agency

-Restricted Agency means that the agent has to move within certain conditions. For e.g. purchase the house at such a monetary value, or until such a clip or based on episodes. The agent has to purely detect these conditions. If the conditions are non met the dealing is non adhering on the principal.

Absolute bureau

-Where there are no status is put for the dealing. For illustration if the principal assigns an agent to purchase a house and he does non stipulate the monetary value, the method of payment or other conditions. However, an agent is still bound to move within the prevailing patterns and imposts. Imam Abu Hanifah argues that an agent is non bound by the imposts. Customss, he says, differs from topographic point to topographic point. However, harmonizing to his two adherents and the bulk, the agent is bound by the custom common among the people. If he acts contrary to the usage, so the dealing depends on the blessing of the principal.

Conventional Banking

5.1 Law and ordinance

5.1.1 Banking and Financial Institution Act 1989 ( BAFIA )

5.1.2 Objective of BAFIA

-to provide new Torahs for the licensing and ordinance

-to provide for an incorporate supervising of the Malaysian fiscal system

-to provide the Central Bank with the power to look into and prosecute

5.1.3 BAFIA 1989

BAFIA was established on 1st October 1989. The BAFIA repealed the Banking Act 1973 and Finance Companies Act 1969and modernises the jurisprudence related to banking and other establishments.

Section 123: BAFIA shall non impact from the proviso of the Exchange Control Act

Section 124: BAFIA shall non use to an Islamic Bank

5.1.4 Three groups of establishment under BAFIA

Licensed establishment

-commercial Bankss, finance companies, merchant Bankss, price reduction houses and money agents.

B. Scheduled establishment

-credit and charge card companies constructing societies factoring and renting companies and development finance establishment ( DFI ) .

c. Non-scheduled establishment

-institution engaged in the proviso of finance except those named above.

5.1.5 Aims of bank ordinance:


-to cut down the degree of hazard bank creditors are exposed to For illustration, it helps to protect the depositors

Systemic hazard decrease

-to cut down the hazard of break ensuing from inauspicious trading conditions for Bankss doing multiple or major bank failures

Avoid abuse of Bankss

-to cut down the hazard of Bankss being used for condemnable intents, e.g. washing the returns of offense

To protect banking confidentiality

Recognition allotment

– To direct recognition to favored sectors.

5.1.6 Licensing

A licensed finance company is permitted to transport out the concern of:

having sedimentations on sedimentation history, savings history or other similar history ; and

( I ) the loaning of money ;

( two ) leasing ;

( three ) never-never, including that which is capable to the Hire-Purchase Act, 1967

other concern as the Central Bank may order

5.1.7 Financial Requirement

Every accredited establishment is requires keeping:

General modesty

Statutory modesty

Liquidity ratio

Capital adequateness ratio

Any sum of assets

5.1.8 Legal Framework in Deposit history

Although limitations placed on entree depend upon the footings and conditions of the history and the supplier, the history holder retains rights to hold their refund. The client may or may non be able to pay the financess in the history by check, cyberspace banking, EFTPOS or other channels depending on those provided by the bank and offered or activated in regard of the history.

The banking footings “ sedimentation ” and “ backdown ” tend to befog the economic substance and legal kernel of minutess in a sedimentation history. From a legal and fiscal accounting point of view, the term “ sedimentation ” is used by the banking industry in fiscal statements to depict the liability owed by the bank to its depositor, and non the financess ( whether hard currency or cheques ) themselves, which are shown an plus of the bank.


-A depositor opening a checking history at a bank in the United States with $ 100 in currency, which becomes an plus of the bank. On the bank ‘s books, the bank debits its currency and coin on manus history for the $ 100 in hard currency, and credits a liability history for an equal sum. In the audited fiscal statements of the bank, on the balance sheet, the $ 100 in currency would be shown as an plus of the bank on the left side of the balance sheet, and the sedimentation history would be shown as a liability owed by the bank to its client, on the right side of the balance sheet. The bank ‘s fiscal statement reflects the economic substance of the dealing — which is the bank, has really borrowed $ 100 from its depositor and has contractually obliged itself to refund the client harmonizing to the footings of the demand sedimentation history understanding. To countervail this sedimentation liability, the bank now owns the existent, physical financess deposited, and shows those financess as an plus of the bank.

Typically, an history supplier will non keep the full amount in modesty, but will loan the money at involvement to other clients, in a procedure known as fractional-reserve banking. It is this procedure which allows suppliers to pay out involvement on sedimentations.

By reassigning the ownership of sedimentations from one party to another, they can replace physical hard currency as a method of payment. In fact, deposits history for most of the money supply in usage today. For illustration, if a bank in the United States makes a loan to a client by lodging the loan returns in the client ‘s checking history, the bank typically records this event by debiting an plus history on the bank ‘s books and credits the sedimentation liability or look intoing history of the client on the bank ‘s books. From an economic point of view, the bank has basically created economic money. The client ‘s look intoing history balance has no dollar measures in it, as a demand sedimentation history is merely a liability owed by the bank to its client. In this manner, commercial Bankss are allowed to increase the money supply.

5.2 Regulative functions

Malaysia ‘s banking and insurance sector

-under the legal power of Central Bank /Bank Negara Malaysia

Capital market

-regulate by the Securities Commision Malaysia ( SC )

Offshore finance industry

-Labuan Financial Services Authority ( Labuan FSA )

Trading activities in Malaya

-regulate and operate by Bursa Malaysia

5.2.1 Labuan ( International Offshore Financial Centre )

Labuan was declared as an International Offshore Financial Centre ( IOFC ) in October 1990 to complement the activities of the domestic fiscal market in Kuala Lumpur, strengthen the part of fiscal services to Gross National Products of Malaysia every bit good as develop the island and countries within its locality. Specifically designed statute law and ordinances, chiefly based on experiences of other IOFCs around the universe, provide the model for concern in the IOFC ( International Offshore Financial Centre ) .

5.2.2 Securities Commision Malaysia ( SC )

Securities Commision Malaysia was established on 1 March 1993 under the Securities Commission Act 1993, the Securities Commision Malaysia ( SC ) is a self-funding statutory organic structure with fact-finding and enforcement powers. It reports to the Minister of Finance and its histories are tabled in Parliament yearly.

Its regulative maps are listed below:

Oversing exchanges, glade houses and cardinal depositaries

Registering authorization for prospectuses of corporations other than unlisted recreational nines

Approving authorization for corporate bond issues

Regulating all affairs associating to securities and hereafters contracts

Regulating the take-over and amalgamations of companies

Regulating all affairs associating to unit trust strategies

Licensing and oversing all accredited individuals ;

Encouraging self-regulation

Guaranting proper behavior of market establishments and accredited individuals.

5.3 Duties

Corporate Administration

5.3.1 Aim:

-The aim of corporate administration is to advance the acceptance of effectual and high criterions of corporate administration patterns by Accredited Institution and Bank Holding Company.

5.3.2 Important of Corporate Governance

To guarantee that the Accredited Institution are managed safely in order to maximise Shareholder ‘s wealth and protect the involvements of all stakeholders. Effective corporate administration patterns will heighten corporate answerability.

Used to direct and pull off the concern and personal businesss in order to heighten concern prosperity and corporate answerability.

5.3.3 The major duties of Accredited Institution:

Review and O.K. schemes, concern programs and important policies and proctor direction ‘s public presentation

-An establishment should clearly province its aims, which takes into history the establishment ‘s hazard appetency and its hazard direction capablenesss, and invent a concern scheme and programs for achieve them.

-The board should O.K. these aims, schemes and concern programs, and ensures that public presentation against programs is on a regular basis reviewed and monitored.

-They besides set up cardinal public presentation indexs ( KPIs ) to specify, mensurate the public presentation and advancement towards accomplishing organizational ends.

Set corporate values and duty that are communicated through the administration

-The board should set up a civilization of high ethical criterions and unity, professional behavior and O.K. corporate values for itself.

-The high criterion of ethical will profit the Accredited Institution. This is because it will heighten the License Institution ‘s creditability and trustiness in its day-to- twenty-four hours and long term operations.

Ensure competent direction

-The board should do certain that there is a managed and effectual procedure to choose the officers that are qualified, professional and competent to the personal businesss of the Accredited Institution.

Ensure that the operation are conducted providentially and within the Torahs and ordinances

-The board should guarantee that the internal control systems of the Accredited Institution are effectual and the operations are decently controlled.

-They besides should utilize the external and internal hearers to reexamine the adequateness of the internal controls.

Ensure that the Accredited Institution established comprehensive hazard direction policies, procedures and substructure.

-The board should hold a sound apprehension of the Accredited Institution ‘s concern operating environment and the related hazards. It is of import for Accredited Institution to place step, proctor and command the assorted types of hazards.

– They should O.K. and reexamine the hazard direction capablenesss of the Accredited Institution.

-They besides should guarantee the direction information system is dependable and equal in order to cover the activities of Accredited Institution.

Set up an effectual internal audit section which staffed with qualified internal forces

-To heighten the independency of the internal hearers to accomplish their audit aims and guarantee that the internal hearers have full entree to all records.

Establish process to avoid self-seeking patterns and struggle of involvement

-The board should set up policies and processs regulating related party minutess and struggle of involvement state of affairss.

-They should guarantee that the senior direction implements policies that prohibit activities and relationships that diminish the quality of corporate administration.

-They besides should O.K. a set of ethical corporate values in the signifier of codification that behavior by the Accredited Institution.

Ensure that the Accredited Institution has a good influence on the economic

-The board has a go oning duty to the community to guarantee that the Accredited Institution ‘s activities are conductive towards advancing the economic.

5.4 Policies Requirement

Statutory Reserve Requirement ( SRR ) is a pecuniary policy instrument available to Bank Negara Malaysia for the intents of liquidness direction. Commercial Bankss, merchant Bankss, investing Bankss and Muslim Bankss are required to keep balances in their Statutory Reserve Account ( SRA ) . The SRR is used to retreat or shoot liquidness when the surplus or deficiency of liquidness in the banking system is perceived by the Bank to be big and long-run in nature.

5.4.1 Punishments

Any banking establishment which fails to follow with the minimal SRR demand shall be apt to pay a punishment. The punishment payable is determined as the amount of the scaled punishment sum and the pecuniary benefit. The calculation of the maximal punishment is as follows:

**Maximum penalty=1/10 x1/100xshortfall x figure of days**

5.4.2 Adjustment of SRR rate

SRR Rate

Effective Date


1 %

1 March 2009

0.8 % – 1.2 %

2 %

1 February 2009

1.6 % – 2.4 %

3.5 %

1 December 2008

2.8 % -4.2 %

4 %

16 September 1998

3.2 % -4.8 %

6 %

1 September 1998

4.8 % -7.2 %

8 %

1 July 1998

6.4 % -9.6 %

10 %

16 February 1998

9.5 % -10.5 %

13.5 %

1 June 1996

13 % -14 %

12.5 %

1 February 1996

12 % -13 %

11.5 %

1 July 1994

11 % -12 %

10.5 %

16 May 1994

10 % -11 %

9.5 %

3 January 1994

9 % -10 %

8.5 %

2 May 1992

8 % -9 %

7.5 %

16 August 1991

7 % -8 %

6.5 %

16 January 1990

6 % -7 %

5.5 %

16 October 1989

5 % -6 %

4.5 %

2 May 1989

4 % -5 %

3.5 %

1 January 1989

3 % – 4 %

5.5 Registration

Application for Commercial bank licence

The application should be submitted and signed by the Chief Executive Officer or a individual of high authorization in the applicant fiscal establishments. The application should be directed to Financial Sector Development Department, Bank Negara Malaysia, 10th Floor, Block A, Jalan Dato’Onn, 50480 Kuala Lumpur, Malaysia.

5.5.1 The subdivision that the applicant demand to make full up:

Section 1: Detailss of applicant bank

Section 2: Background information of the bank

Section 3: Fiscal strength and soundness of bank

Section 4: Plans for Malayan operations

Section 5: Regulatory system in place state

Section 6: Support paperss

5.6 Securities

-The regulated merchandising model for Malayan Government Securities ( MGS ) is now extended to interbank participants and cosmopolitan agents. This attempt is to farther better secondary market liquidness and heighten the development of the domestic bond market.

The benefit:

Make a uninterrupted flow of activities in the bond market

Accelerate monetary value corrections in overvalued securities

Facilitate hedge of involvement rate hazards

Promote activity in the repo and securities adoption and loaning market

5.6.1 Market Participants

-All commercial Bankss, finance companies, merchant Bankss and price reduction house under banking and Finance Institution Act 1989 ( BAFIA ) .

Malayan Government Securities ( MGS ) – Conventional

MGS Benchmarks

Trading Outputs

Entire Volume

( RM million )

Daily alteration

( bits per second )



Coupon ( % )

Low ( % )

High ( % )

Close ( % )

































Government Investment Issues ( GII ) – Muslim

GII Benchmarks

Trading Outputs

Entire Volume

( RM million )

Daily alteration

( bits per second )



Low ( % )

High ( % )

Close ( % )




















Short-run Bills

Type of Bills

Up to 3-mth

abv. 3 to 6-mth

abv. 6 to 12-mth

For any questions, please contact:

Khabir Reeza / Bilal Mohd Parid /

Nurashiqin Asri from

Monetary Policy Implementation

subdivision at 03-2698 2116 / 03-2690 7462

Malaysia Treasury Bills




Malaysia Islamic Treasury Bills




Bank Negara Monetary Notes ( Conventional )




Bank Negara Monetary Notes ( Islamic )




Beginning: Bank Negara Malaysia and ETP, Bursa Malaysia Bonds Sdn Bhd ( as from 10 March 2008 )

The differences between conventional and Muslim Bankss

Conventional Banks

Muslim Banks

1. The maps and runing manners of conventional Bankss are based on to the full manmade rules.

1. The maps and runing manners of Muslim Bankss are based on the rules of Islamic Shariah.

2. The investor is assured of a preset rate of involvement.

2. In contrast, it promotes hazard sharing between supplier of capital ( investor ) and the user of financess ( enterpriser ) .

3. It aims at maximising net income without any limitation.

3. It besides aims at maximising net income but capable to Shariah limitations.

4. It does non cover with Zakat.

4. In the modern Islamic banking system, it has become one of the service-oriented maps of the Islamic Bankss to be a Zakat Collection Centre and they besides pay out their Zakat.

5. It can bear down extra money ( punishment and compounded involvement ) in instance of defaulters.

5. The Muslim Bankss have no proviso to bear down any excess money from the defaulters. Merely little sum of compensation and these returns is given to charity. Rebates are give for early colony at the Bank ‘s discretion.

6. For interest-based commercial Bankss, borrowing from the money market is comparatively easy.

6. For the Islamic Bankss, it must be based on a Shariah approved implicit in dealing.

7. The position of a conventional bank, in relation to its clients, is that of creditor and debitors.

7. The position of Islamic bank in relation to its clients is that of spouses, investors and bargainer, purchaser and marketer.

8. A conventional bank has to vouch all its sedimentations.

8. Islamic bank can merely vouch sedimentations for sedimentation history, which is based on the rule of al-wadiah. Therefore, the depositors are guaranteed refund of their financess, nevertheless if the history is based on the mudarabah construct, client have to portion in a loss position..