Chapter 4 - Islamic Financial Institutions in Malaysia.pptx

This slide is special for master students (MIBS & MIFB) in UUM. Also useful for readers who are interested in the topic of contemporary Islamic banking.

1. CHAPTER 4: Islamic Financial Institutions in Malaysia MAJOR DR. MOHD ADIB ABD MUIN, IFP, CQIF (WEALTH MANAGEMENT) Senior Lecturer Islamic Business school ( Ibs ), uum BWSB5053 Contemporary Islamic Banking - 2024

2. OUTLINE BWSB5053 Contemporary Islamic Banking 2 Commercial banks offering Islamic banking services. Islamic investment banks Development financial institutions

3. Introduction BWSB5053 Contemporary Islamic Banking 3 Islamic financial institutions in Malaysia play a significant role in the country's financial system, reflecting Malaysia's efforts to establish itself as a global hub for Islamic finance. These institutions operate in accordance with Islamic law (Shariah), which prohibits interest ( riba ), excessive uncertainty ( gharar ), and investment in businesses involved in prohibited (haram) activities such as alcohol, gambling, and pork production. Malaysia has established itself as a leader in Islamic finance through robust regulatory frameworks, innovative financial products, and active promotion of the sector. The country's commitment to the development of Islamic finance is evident in its continuous efforts to enhance regulatory standards, promote international collaborations, and provide a conducive environment for Shariah-compliant financial activities.

4. 4 BWSB5053 Contemporary Islamic Banking 1. COMMERCIAL BANKS OFFERING ISLAMIC BANKING SERVICES

5. Commercial banks offering Islamic banking services BWSB5053 Contemporary Islamic Banking 5 Several commercial banks in Malaysia offer Islamic banking services through dedicated Islamic banking windows or fully-fledged Islamic banking subsidiaries. These services are structured to comply with Shariah principles, providing a range of financial products that avoid interest ( riba ) and other prohibited elements.

6. Major Commercial Banks with Islamic Banking Services BWSB5053 Contemporary Islamic Banking 6 1. Maybank Islamic Berhad The Islamic banking arm of Malayan Banking Berhad (Maybank). Offers a comprehensive range of Shariah-compliant products and services including personal banking, business banking, investment products, and Takaful. One of the largest Islamic banks in Malaysia by assets. 2. CIMB Islamic Bank Berhad A subsidiary of CIMB Group Holdings Berhad . Provides a full suite of Shariah-compliant products including deposits, financing, wealth management, and Takaful. Strong presence in both retail and corporate Islamic banking sectors. 3. RHB Islamic Bank Berhad The Islamic banking subsidiary of RHB Bank Berhad . Offers a variety of Islamic banking products such as savings accounts, personal financing, home financing, and corporate banking solutions. Focuses on innovative Shariah-compliant financial solutions.

7. CONT… BWSB5053 Contemporary Islamic Banking 7 4. Public Islamic Bank Berhad A wholly-owned subsidiary of Public Bank Berhad . Provides comprehensive Islamic banking services including savings accounts, personal loans, property financing, and investment products. Known for its strong retail banking network. 5. Hong Leong Islamic Bank Berhad The Islamic banking division of Hong Leong Bank Berhad . Offers a wide range of Shariah-compliant products such as deposits, personal financing, home financing, and business banking services. Emphasizes digital banking solutions for Islamic banking customers. 6. Affin Islamic Bank Berhad The Islamic banking arm of Affin Bank Berhad . Provides various Islamic banking products including savings accounts, investment accounts, personal financing, and trade finance. Focuses on both retail and SME banking.

8. CONT… BWSB5053 Contemporary Islamic Banking 8 7. AmBank Islamic Berhad The Islamic banking subsidiary of AmBank Group. Offers a full range of Shariah-compliant products such as deposits, personal financing, home financing, and business banking services. Committed to providing innovative Islamic financial solutions. 8. Bank Muamalat Malaysia Berhad A standalone Islamic bank, co-owned by DRB-HICOM and Khazanah Nasional. Provides a comprehensive suite of Islamic banking products and services including consumer banking, corporate banking, and investment banking. Strong focus on community banking and financial inclusion. 9. Standard Chartered Saadiq Berhad The Islamic banking subsidiary of Standard Chartered Bank Malaysia. Offers Shariah-compliant products such as savings accounts, personal financing, home financing, and wealth management services. Leverages the global expertise of Standard Chartered in Islamic finance. 10. OCBC Al-Amin Bank Berhad The Islamic banking arm of OCBC Bank (Malaysia) Berhad . Provides a range of Shariah-compliant banking products including deposits, financing, and investment products. Focuses on delivering value-added Islamic financial solutions.

9. Commercial banks in Malaysia have effectively integrated Islamic banking services into their offerings, catering to a diverse customer base seeking Shariah-compliant financial solutions. These banks not only provide a broad range of products but also contribute to the growth and development of the Islamic finance industry in Malaysia.

10. LIST OF MALAYSIAN BANKS BY TOTAL ASSEST 10 BWSB5053 Contemporary Islamic Banking

11. THE 4 TYPES OF BANKS IN MALAYSIA Commercial BANKS, Islamic BANKS, investment banks and development financial institutions

12. Commercial BANKS Affin bank alliance bank ambank Cimb bank Hong Leong Bank Maybank Public Bank RHB Bank

13. List of foreign banks (commercial)

14. List of Digital banks in Malaysia Islamic Digital Bank AEON Bank (M) Berhad - A consortium led by AEON Credit Service (M) Berhad and AEON Financial Service Co., Ltd. Conventional Digital Bank GX Bank Berhad - A consortium led by GXS Bank Pte. Ltd. and Kuok Brothers Sdn . Bhd ; Boost Bank Berhad - A consortium led by Boost Holdings Sdn . Bhd. and RHB Bank Berhad

15. 18 Islamic banks (local and foreign)

16. INVESTMENT BANKS

17. Development financial institutions (government-owned banks)

18. 18 BWSB5053 Contemporary Islamic Banking 2. ISLAMIC INVESTMENT BANKS

19. Islamic investment bank in Malaysia Islamic investment banks in Malaysia play a crucial role in the financial system by providing Shariah-compliant investment products and services. Their activities contribute significantly to the development of the Islamic finance industry in the country. 19 BWSB5053 Contemporary Islamic Banking

20. Roles and Functions of Islamic Investment Bank 20 BWSB5053 Contemporary Islamic Banking 1. Structuring and Issuing Sukuk (Islamic Bonds) Islamic investment banks in Malaysia are pivotal in the structuring, issuance, and management of sukuk. These instruments provide an alternative to conventional bonds, adhering to Shariah principles by avoiding interest and investing in permissible activities. Sukuk issuance has positioned Malaysia as a leading global hub for Islamic capital markets. 2. Corporate Finance and Advisory Services These banks offer Shariah-compliant corporate finance services, including mergers and acquisitions (M&A), capital raising, and corporate restructuring. They provide advisory services to ensure that corporate actions and financial strategies comply with Islamic law. 3. Asset and Wealth Management Islamic investment banks manage portfolios of Shariah-compliant investments, including mutual funds, private equity, and real estate. They offer wealth management services that align with Islamic principles, catering to high-net-worth individuals and institutional investors. 4. Equity Capital Markets These banks facilitate the issuance, trading, and underwriting of Shariah-compliant equity instruments. They support the development of Islamic equity markets, providing opportunities for investors to participate in halal investments.

21. CONT… 21 BWSB5053 Contemporary Islamic Banking 5. Islamic Structured Products Islamic investment banks develop complex financial instruments that comply with Shariah law, tailored to meet the specific needs of clients. These products include structured investment vehicles, Islamic derivatives, and customized investment solutions. 6. Investment Advisory and Research They provide investment advisory services, helping clients make informed decisions based on Shariah-compliant investment principles. Islamic investment banks also conduct and publish research on Islamic finance, market trends, and economic outlooks. 7. Facilitating Foreign Investment These banks play a role in attracting foreign investments to Malaysia’s Islamic financial market. They offer international investors access to a range of Shariah-compliant investment opportunities, promoting Malaysia as a global Islamic finance center. 8. Promoting Financial Inclusion Islamic investment banks contribute to financial inclusion by offering products and services that cater to the underserved Muslim population. They develop microfinance and other inclusive financial products that adhere to Islamic principles.

22. 22 BWSB5053 Contemporary Islamic Banking 3. DEVELOPMENT FINANCIAL INSTITUTIONS

23. DEVELOPMENT FINANCIAL INSTITUTIONS Development financial institutions (DFIs) in Malaysia play a critical role in supporting the country's socio-economic development by providing financing to sectors and projects that contribute to national growth. These institutions focus on sectors that are often underserved by commercial banks, such as agriculture, small and medium-sized enterprises (SMEs), infrastructure, and affordable housing. 23 BWSB5053 Contemporary Islamic Banking

24. DEVELOPMENT FINANCIAL INSTITUTIONS IN MALAYSIA 24 BWSB5053 Contemporary Islamic Banking 1. Bank Pembangunan Malaysia Berhad (BPMB) Focus: Infrastructure, maritime, oil and gas, technology, and capital-intensive industries. Role: Provides medium to long-term financing to support the development of strategic sectors, including infrastructure projects that contribute to national growth. 2. Small Medium Enterprise Development Bank Malaysia Berhad (SME Bank) Focus: Small and medium-sized enterprises (SMEs). Role: Offers various financing solutions to SMEs, including working capital loans, asset acquisition financing, and project financing. SME Bank also provides advisory services to help businesses grow. 3. Bank Simpanan Nasional (BSN) Focus: Savings, retail banking, and financial inclusion. Role: Promotes savings and financial inclusion, especially among low-income groups and rural populations. BSN provides personal loans, microfinancing, and home financing. 4. Agrobank Focus: Agriculture and agro -based industries. Role: Provides financing to the agriculture sector, supporting farmers, agro -entrepreneurs, and agribusinesses. Agrobank offers products such as agricultural loans, microfinancing, and insurance.

25. CONT.. 25 BWSB5053 Contemporary Islamic Banking 5. Export-Import Bank of Malaysia Berhad (EXIM Bank) Focus: Export-oriented businesses and international trade. Role: Provides financing and insurance to Malaysian exporters and investors venturing abroad. EXIM Bank supports international trade through export credit refinancing, trade finance, and investment insurance. 6. Lembaga Tabung Haji (TH) Focus: Hajj savings and pilgrimage management. Role: Manages savings schemes for Muslims planning to perform the Hajj pilgrimage. TH also invests in various sectors to generate returns for its depositors. 7. Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN) Focus: Higher education financing. Role: Provides education loans to Malaysian students pursuing tertiary education. PTPTN also manages the National Education Savings Scheme (SSPN). 8. Majlis Amanah Rakyat (MARA) Focus: Bumiputera economic development. Role: Supports the socio-economic development of Bumiputera (indigenous Malaysians) through education, entrepreneurship, and business financing programs. MARA provides loans, grants, and training programs.

26. Strategic Importance in Malaysia’s Financial Sector 26 BWSB5053 Contemporary Islamic Banking 1. Economic Growth and Development By providing Shariah-compliant financing and investment solutions, Islamic investment banks support the growth of various sectors, including infrastructure, real estate, and SMEs. They help mobilize funds for large-scale projects that contribute to national development. 2. Enhancing Malaysia’s Global Position The robust activities of Islamic investment banks have cemented Malaysia’s position as a leading hub for Islamic finance globally. Malaysia is recognized for its innovative Islamic financial products and its comprehensive regulatory framework. 3. Regulatory and Industry Leadership Islamic investment banks in Malaysia work closely with regulatory bodies like Bank Negara Malaysia (BNM) and the Securities Commission Malaysia (SC) to ensure compliance with Shariah and financial regulations. They also contribute to the development of industry standards and best practices in Islamic finance. 4. Education and Awareness These banks play a role in educating the public and stakeholders about Islamic finance principles and products. They organize seminars, workshops, and training programs to enhance understanding and awareness of Islamic investment banking.

27. Roles and Functions of Development Financial Institutions (DFI) 27 BWSB5053 Contemporary Islamic Banking 1. Financing Economic Development DFIs provide medium to long-term financing to sectors that are crucial for economic development but are often underserved by commercial banks. They support infrastructure projects, agricultural development, SME growth, and export activities, contributing to overall economic stability and growth. 2. Promoting Financial Inclusion DFIs offer financial services to underserved and marginalized communities, including rural populations, low-income groups, and small businesses. They help bridge the gap in financial access, promoting inclusive economic growth. 3. Supporting Strategic Sectors DFIs focus on strategic sectors identified by the government as critical for national development, such as agriculture, infrastructure, technology, and education. They provide targeted financing and support to ensure the development and sustainability of these sectors.

28. CONT.. 28 BWSB5053 Contemporary Islamic Banking 4. Capacity Building and Advisory Services DFIs offer advisory services, capacity building, and technical assistance to their clients to enhance their capabilities and ensure the success of funded projects. They conduct training programs, workshops, and seminars to support the growth and development of businesses and entrepreneurs. 5. Risk Mitigation and Support By providing financing to high-risk sectors and projects, DFIs help mitigate risks and support initiatives that have significant socio-economic benefits but may not be attractive to commercial banks due to higher perceived risks. They play a catalytic role in stimulating private sector investment by sharing risks. 6. Enhancing Export Competitiveness DFIs like EXIM Bank support export-oriented businesses by providing trade finance, export credit, and insurance services. They help Malaysian businesses expand their international presence and enhance their competitiveness in global markets.

29. CONCLUSION BWSB5053 Contemporary Islamic Banking 29 Islamic investment banks in Malaysia are essential to the growth and sustainability of the Islamic finance industry. They offer a wide array of Shariah-compliant financial services, contribute to economic development, and enhance Malaysia’s position as a global leader in Islamic finance. Their activities not only provide viable alternatives to conventional banking but also promote ethical and inclusive financial practices in line with Islamic principles. Development financial institutions in Malaysia are pivotal in promoting economic development, financial inclusion, and the growth of strategic sectors. By providing targeted financing, advisory services, and capacity building, DFIs contribute significantly to the country's socio-economic progress. Their role in supporting underserved sectors and communities ensures balanced and inclusive development, aligning with Malaysia's national development goals.

30. REFERENCES https://wise.com/my/blog/best-banks-malaysia 30 BWSB5053 Contemporary Islamic Banking

31. Dr. mohd adib abd muin [email protected] | [phone]