Islamic Banking in Malaysia: An Overview

Islamic banking is a form of banking that complies with the principles of Shariah, or Islamic law. Islamic banking prohibits interest (riba), gambling (maysir), uncertainty (gharar), and unethical activities that harm society or the environment. Instead, Islamic banking promotes risk-sharing, social justice, and ethical investments.

History and Development of Islamic Banking in Malaysia

Islamic banking in Malaysia has a long history. The first Islamic financial institution in Malaysia was established in 1963 to help Muslims save for their Hajj expenses. In 1983, the first full-fledged Islamic bank in Malaysia was established, which offers a range of Islamic banking products and services. Contact us for more.

The government established the Islamic Banking Scheme (IBS) in 1993, which allowed conventional banks to offer Islamic banking products and services through dedicated windows or branches. Today, there are 16 licensed Islamic banks and 11 licensed commercial banks offering IBS in Malaysia. Various legal frameworks and initiatives have been introduced to regulate and promote Islamic finance in Malaysia.

Features and Benefits of Islamic Banking in Malaysia

Getting an Islamic Saving Account

An Islamic saving account is a deposit account that pays profit to the depositor based on the principle of mudarabah, or profit-sharing. The depositor acts as the capital provider (rabbul mal) while the bank acts as the entrepreneur (mudarib). The profit is distributed according to a pre-agreed ratio between the depositor and the bank. The depositor also bears any loss incurred by the bank unless it is due to negligence or misconduct by the bank. Discover more here.

The Essence of Takaful

Takaful is a kind of insurance that follows Islamic rules. People who join takaful pay money into a fund that helps each other when something bad happens. The fund is run by a company that follows Islamic rules and shares the profits with the people. Takaful is different from regular insurance because it is based on helping and caring for each other, not on making money. Takaful is good for people who want to protect themselves and do good things with their money.

How Islamic Investment Works

Islamic investment is a form of investment that adheres to Shariah principles and seeks to generate halal returns for investors. Islamic investment can be done through various instruments, such as Shariah-compliant equities, Islamic bonds (sukuk), mudarabah deposits, Shariah-compliant unit trusts, Shariah-compliant exchange-traded funds (ETFs), Shariah-compliant real estate investment trusts (REITs), gold, global stocks and ETFs, property, cryptocurrency, equity crowdfunding (ECF), and P2P financing12. Islamic investment offers investors the opportunity to diversify their portfolio, access different markets and sectors, and participate in the social and economic development of the Muslim community.

Islamic Personal Financing

Islamic personal financing is a form of financing that provides customers with funds for personal or consumption purposes, such as education, medical, home renovation, or debt consolidation. Islamic personal financing is based on various Shariah contracts, such as bai’ al-inah, bai’ bithaman ajil, musharakah mutanaqisah, ijarah, and tawarruq. Islamic personal financing offers customers competitive profit rates, flexible repayment terms, and no penalty for early settlement.

The Nature of E-zakat

E-zakat is a form of online payment system that allows Muslims to fulfill their zakat obligations conveniently and securely. Zakat is one of the five pillars of Islam and refers to the obligatory alms-giving that Muslims must pay annually based on their wealth and income. E-zakat enables Muslims to calculate their zakat amount, choose their preferred zakat collection agency or institution, and make their zakat payment via various channels, such as internet banking, mobile banking, ATM, or debit card. E-zakat also provides Muslims with receipts and certificates for their zakat payment.

Shariah-Compliant Unit Trust

Shariah-compliant unit trust is a form of collective investment scheme that pools funds from investors and invests them in a portfolio of Shariah-compliant assets, such as equities, sukuk, or money market instruments. Shariah-compliant unit trust is managed by a professional fund manager who follows the guidelines and advice of a Shariah committee or advisor. Shariah-compliant unit trust offers investors the benefits of diversification, professional management, liquidity, affordability, and potential capital appreciation and income distribution.

Islamic banking in Malaysia is a well-developed and dynamic sector that caters to the needs and preferences of Muslims and non-Muslims alike. Islamic banking in Malaysia offers a range of products and services that are in line with Shariah principles and values. Islamic banking in Malaysia also contributes to the economic growth, social welfare, and financial inclusion of the country. Islamic banking in Malaysia is expected to continue to grow and innovate in the future as more customers seek ethical and sustainable financial solutions.