Main Shariah Principle of Islamic Banking

The original ruling for Islamic transaction is lawful except

when there are Haram elements (that were prescribed by
dalil)……….

Halal asset Halal purpose

Islamic banking is asset based transaction, structured

according to Islamic contracts which eliminate……..

prohibited elements

RIBA GHARAR MAISIR

(Usury) (Uncertainty) (Gambling)
 Understanding Riba & Its Prohibition

An increase, which in a loan transaction or in exchange of a

Means ribawi commodity, accrues to the owner (lender) without giving an
equivalent counter value or recompense in return to the other
party. It covers interest both on commercial and consumer loans.

Al-Qardh

RIBA DUYUN
Kind Al-Jahiliyah
• Arising from charge against debts (loans)

Al-Fadl
Due to excess
RIBA BUYU’

• From exchanges involving ...6 Ribawi items

Al-Nasiah
Due to deferment
Prohibition of Riba’ in Quran
 The receiver and giver of Riba’ declare of war to Allah and His
Messenger

Meaning: “O you who believe! Be afraid of Allah and give up what remains
(due to you) from Riba’ (from now onward), if you are (really) believers.
And if you do not do it, then take a notice of war from Allah and His
Messenger but if you repent, you shall have your capital sums. Deal not
unjustly (by asking more than your capital sums), and you shall not be
dealt with unjustly (by receiving less than your capital sums). (Al-Baqarah
278)

 Elimination of the Blessing of properties and life

Meaning: Allah will destroy Riba’ and will give increase for Sadaqah (deeds
of charity, alms). And Allah likes not the disbelievers, sinners. (Al-Baqarah
276)

 Who consumes Riba is standing like a person beaten by Syaitan

Meaning: Those who eat Riba will not stand (on the Day of Resurrection)
except like the standing of a person beaten by Syaitan (Satan) leading him
to insanity
Prohibition of Riba’ in Hadith
 Riba is one of the 7 major sins

The prophet PBUH said:

Meaning "Avoid the seven destructive sins these are syirk, black
magic, murder, illegally taking of orphan property, dealing with riba,
escape from war because of fear, accusing woman committing
adultery without witness" (Reported by Al-Bukhari and Muslim)

 Those consuming Riba is under curse of Allah

The prophet PBUH said:
Meaning: “Allah cursed the receiver, the giver, the witness and the
writer of riba and it is amongst the great sins.” (Hadith Muslim)

 Sin of Riba is comparable to committing adultery with own

parent

The prophet PBUH said:

Meaning: "There are seventy types of riba, the least of which is as
abhorrent as a man having intercourse with his own mother and worst
of which is [violating] a Muslim's honor and sanctity. (ibn Majah,
2/764; Al-Hakim, 2/37 Al-Hakim; authentic in accordance of provision
set by Al-Bukhari and Muslim)
 Understanding Gharar (Uncertainty)

 Meaning of Gharar :

 Gharar is an element of deception either through ignorance of the

goods, the price, or through faulty description of the goods, in which
one or both parties stand to be deceived through ignorance of an
essential element of exchange. As an example, gambling is a form of
Ghaar because the gambler is ignorant of the result of the gamble.

Gharar
Fahish
Gharar
Mutawassit
Gharar
Yasir
Prohibition of Gharar and Maisir

 In the Quran: “ O you who believe ! Eat not up your property among
yourselves unjustly ( bil batil ) i.e by falsehood and deception ) except
it be a trade amongst you, by mutual consent” (An-Nisa : 29)

 Prohibition of gharar has been made conclusive in various hadith from

the Prophet Muhammad S.A.W.

 Allah has declared the prohibition of gambling in the Quran which it is

considered as a bad deed of evil.
History & Development of Islamic Banking

Year Key Milestone

1983 Enactment of the Islamic Banking Act (IBA) 1983

Bank Islam Malaysia Berhad (BIMB) was incorporated as Malaysia’s first

Islamic bank
 BIMB was given a grace period of 10 years to operate without
competition, to protect its growth and development
 Over the period of 1983 – 1993, BIMB achieved an average annual
growth rate of 48%
Enactment of the Government Investment Act (GIA) 1983
 Enables the issuance of government papers and bonds

 Government investment certificates (GIC) initially offered on the basis

of qardh hasan but subsequently changed to bay’ al-’inah

1984 Setting up of takaful companies, to complement the operations of

Islamic banks
1992 BIMB was listed on KLSE
Year Key Milestone
1993 The Dual Banking System was implemented, allowing Islamic and
conventional banking to co-exist and run concurrently in the financial
system
 Islamic Banking Scheme (IBS) introduced, which allowed conventional
banks to offer Islamic banking windows and thus RHB Bank started
Islamic Banking window.
1999 Bank Muamalat Malaysia Berhad, Malaysia’s second full-fledged Islamic
bank, was incorporated
 Resulting from the merger between Bank Bumiputera Malaysia Berhad
(BBMB) and Bank of Commerce Berhad (BOCB)
KLSE Islamic Index was introduced
2000 Establishment of Association of Islamic Banking Institutions of Malaysia
(AIBIM)
 To harmonize and streamline Islamic banking practices

 As platform to voice issues with the authorities

Establishment of Islamic Banking and Finance Institute Malaysia (IBFIM)

 Industry owned training institute
Year Key Milestone

2002 Introduction of standard generic names for Islamic banking products,

e.g. savings account-i, current account-i, home financing-i, hire
purchase-i, cash line facility-i, share-financing-i, working capital
financing-i, letter of credit-i

Introduction of Islamic banking logo

 To increase visibility, provide branding of Islamic financial products
and reflect commitment of the development of Islamic banking and
finance

Malaysia issued first global sovereign sukuk al-ijarah bond

2005 AFFIN ISLAMIC Bank Berhad was incorporated on 13/9/2005

And was officially launched on 6/6/2006.
 Governing Law

Central Bank of Malaysia Act 1958

Banking and Financial Islamic Banking Act 1983

Institutions Act 1989
Difference between....
Windows & full fledged Islamic Bank

SPI / Islamic banking windows (under BAFIA)

Refers to conventional banks that offer Islamic banking products and
services using their existing infrastructure, including staff and
branches.

Full-fledged Islamic bank (under IBA)

Refers to a bank dedicated to the offering of Islamic banking products
and services in Malaysia, a number of these banks are set up as a
subsidiary to conventional banks Operations and management are
clearly separated between the subsidiary Islamic bank and the parent
conventional bank

Given that Malaysia advocates dual banking (Islamic and

conventional), in effect there are three general categories of banking

• Conventional banking
• Full-fledged Islamic banks
• Islamic banking windows under the Islamic banking scheme (IBS)
Full fledged Islamic Banks at 2006

 Bank Islam Malaysia  Kuwait Finance House

(Malaysia)
 Bank Muamalat Malaysia
 Asian Finance Bank
 RHB ISLAMIC Bank
 Al-Rajhi Banking &
 Hong Leong Islamic Bank Investment Corp

 Affin Islamic Bank

 EONCAP Islamic Bank

 CIMB Islamic

 AmIslamic Bank
The National Shariah Advisory Council

The National Shariah Advisory Council on Islamic Banking and Takaful

(NSAC) was established on 1 May 1997. The primary objectives of the SAC
are as follows:-

To act as the sole authoritative body to advise BNM on Islamic

banking and takaful operations;
To co-ordinate Shariah issues with respect to Islamic banking
and finance (including takaful);
To analyse and evaluate Shariah aspects of new
products/schemes submitted by the banking institutions and
takaful companies.

Note: Effective 1st January 2004, NSAC would be known as SAC

The National Shariah Advisory Council (con….)

Amended from Central Bank of Malaysia Act 1958

SAC operates as an independent body
SAC will be referred to by the court or arbitrator in disputes
involving Shariah issues in Islamic banking, finance and takaful cases
Applicable to all Islamic financial institutions regulated and
supervised by Bank Negara Malaysia
Shall be complied with by 1 April 2005
 ESTABLISHMENT OF SHARIAH COMMITTEE

Every Islamic financial institution required to establish a

Shariah Committee. In the case of a commercial bank regulated
under BAFIA, it may established one Shariah Committee for the
banking group.

MEMBERSHIP OF SHARIAH COMMITTEE

The appointment and reappointment shall obtain prior written

………..approval of Bank Negara Malaysia

Valid for a renewable term of two years

MEMBERSHIP OF SHARIAH COMMITTEE contd…

A member of a Shariah Committee shall be an individual

Qualification:

i. Islamic jurisprudence (Usul al-Fiqh); or

ii. Islamic transaction/commercial law (Fiqh al-Mu’amalat) or

iii. Expertise or experience with above areas

Consist a minimum of three members

An Islamic financial institution is required to have a minimum of one

……….officer as the secretariat to the Shariah Committee
 DUTIES & RESPONSIBILITIES
OF SHARIAH COMMITTEE

To advise the Board on Shariah matters in its business operation

To endorse Shariah Compliance Manuals
To endorse and validate relevant documentations
To assist related parties on Shariah matters for advice upon request
To advice on matters to be referred to the SAC
To provide written Shariah opinion
To assist the SAC on reference for advice
 Shariah Filtering
SAC,BNM

JPIT, BNM

Shariah Filters

Board of Directors of the

Bank

Shariah Committee of Bank’s Credit & Risk

the Bank Management Comm

Division Shariah Compliance

(Internal Shariah)