2. CONTENT
2
INTRODUCTION
LICENSING OF ISLAMIC BANKS
ISLAMIC BANKING BUSINESS
SHARIAH ADVISORY BOARD
INTERNATIONAL ISLAMIC BANKS
GOVERNANCE
CONCLUSION
3. LICENSING OF ISLAMIC BANKS
3
Islamic banks’ are licensed and regulated by
BNM under a separate legal framework - the
Islamic Banking Act (IBA) of 1983.
This is due to the differences in their
operational aspects whereby Islamic banks
have to comply with Shariah principles.
Several requirements had to be fulfilled
before IB licence granted by the BNM.
4. LICENSING OF ISLAMIC BANKS
4
Section 3(1) : Islamic banking business shall not be
conducted except by a company that possesses a written
licence from the Minister of Finance .
The act specifies only a company can engage in Islamic
banking business.
Statutory body or a cooperative society cannot be granted a
licence.
Issues: Bank Rakyat could not be granted Islamic banks
license because of its status as a cooperative bank.
Section 3(5) :BNM or the Minister shall not recommend the
grant of a licence, unless he is satisfied:
The aims and operations of the banking business will not
involve any element which is not approved by Islam
Provision for the establishment of Shariah advisory body in the
article of association of the bank to advise the bank
5. ISLAMIC BANKING BUSINESS
5
Section 2 provides the following definition:
“Islamic bank” means any company which
carries on Islamic banking business and holds a
valid licence
“Islamic banking business” means banking
business whose aim and operations do not
involve any element which is not approved by
the Religion of Islam.
“International Islamic bank” means any company
or an office of any foreign institution which
carries on international Islamic banking business
and holds a valid licence under section 30B
6. ISLAMIC BANKING BUSINESS
6
It is clear that IBA does not state clearly the
concepts and principles behind the operations of
the bank’s business in order to fulfil its aim.
The absence of definition of “banking business”
in the IBA thus makes the need to look into the
common law for its meaning.
Therefore, the definition of Islamic banking
business is to commence banking business
using the model of the conventional banking
business and then to Islamise its operations by
removing elements which are prohibited and not
approved by the Shariah principles.
7. ISLAMIC BANKING BUSINESS
7
Prof Ahmad Ibrahim asserted:
“Where the normal banking practices do not clash with
Islamic principles, the Islamic banks have adopted the
current banking practices and procedures.
Where any clash arise the Islamic banks have devised
their own practices and procedure to accomplish their
banking activities.”
However, the general definition may have some
positive aspects such as:
To give much flexibility and scope as possible to enable
IB to grow, expand their operations and evolve into viable
competitors to conventional banking.
Would also allow the adoption and application of different
Islamic commercial laws from the various madhabs, thus
making it broader and the resulting proposition of the law
more widely acceptable.
8. ISLAMIC BANKING BUSINESS
8
The banking business provided by the Islamic
bank in general similar to the business provided
by other commercial banks.
IBA does not stipulate clearly the concepts of its
business, a so that IB can engage in such trade
and commerce as long as it does not contravene
Islamic principles.
This is due to the fact that principles of Islamic
banking which prohibit any involvement with
interest.
Instead, an Islamic bank should derive its income
from profit through trade or business.
9. SHARIAH ADVISORY BODY (SAB)
9
Islamic bank under the IBA 1983 must set up the
Shariah Advisory Body (SAB) to advise the bank on
the operations of its banking business in order to
ensure that the business does not contravene the
principles of Shariah.
The provision for the establishment of SAB clearly
stated in Section 3(5) of the IBA.
However, the IBA do not mention how the SAB will
perform its role and duties.
Section 13A (1) : Islamic bank may seek the advice
of the SAC on Shariah matters relating to its banking
business and the Islamic bank shall comply with the
advice of the SAC.
In this section, “SAC” means the Shariah Advisory
Council established under subsection 16B(1) of the
CBA 1958.
10. SHARIAH ADVISORY BODY (SAB)
10
For the banks and financial institutions licensed
under the BAFIA which carry Islamic banking
business, there is no requirement to establish
their own SAB.
Section 124(3) of the BAFIA requires any
licensed institution carrying on Islamic banking
and financial businesses to seek the advice of
the SAC of the BNM.
It is not mandatory for the conventional banks
and financial institutions that offer Islamic
banking products and facilities to have an
internal SAC to advise the banks.
11. INTERNATIONAL ISLAMIC BANKS
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Section 30A (1) : No person shall carry on
international Islamic banking unless it is:
Islamic bank; or
company or a foreign institution and holds a
valid licence to carry on such business.
Section 30A (2) : Any person who
contravenes the provisions commits an
offence and be liable to a fine not exceeding
RM20K or to imprisonment not exceeding
three years or to both
12. GOVERNANCE
12
Section 31 : The Central Bank shall investigate,
under conditions of secrecy, the books, accounts
and transactions of each Islamic bank and of any
branch, agency or office outside Malaysia
opened by an Islamic bank.
Section 55 : Islamic bank is incorporated under
the Companies Act 1965 subject to the
provisions of that Act and IBA.
Where there is any conflict or inconsistency
between the provisions of Companies Act and
the provisions of IBA the provisions of IBA shall
prevail.
IBA prevail over Companies Act.
