Malaysia’s pioneering role in the development of Islamic banking and finance has gained worldwide recognition.
The public’s demand to have an Islamic commercial bank offering Islamic banking products and services continued until a commercial Islamic bank was set up in 1983, licensed as Bank Islam Malaysia Bhd (BIMB) under the Islamic Banking Act (IBA) 1983.
To allow BIMB to stabilise its standing in the banking environment, Bank Negara Malaysia (BNM) granted it a 10-year exclusivity to operate as the sole Islamic bank in the country.
In the same year, Government Investment Certificates were issued under the Government Funding Act 1983 to support liquidity management in BIMB’s operation.
A year later, the first Islamic insurance company was established under the name Syarikat Takaful Malaysia Bhd and regulated by the Takaful Act 1984.
In 1990, another historic development was that Malaysia became the first country to issue sukuk (Islamic bonds) with a modest issue size of RM125 million by Shell MDS Sdn Bhd.
As the 10-year exclusivity granted to BIMB expired in 1993, BNM offered the first three licences in an interest-free scheme, namely Skim Perbankan Tanpa Faedah (SPTF) to Maybank, UMBC and Bank Bumiputra Malaysia Bhd.
This scheme allowed the conventional banks to open Islamic banking windows, and the number of banks participating in SPTF grew tremendously.
When the number of players increased, liquidity management became the main hurdle.
To solve this issue, the Islamic Interbank Money Market was launched in 1994 by the Malay-sian government, the first of its kind in the world.
The main problems that faced the SPTF banking scheme were fund management and regulatory issues, since the conventional banks were governed under the Banking and Financial Institutions Act 1989 while full fledged Islamic banks were under the IBA 1983.
Consequently, starting from 2005, Bank Negara called upon the conventional banks to open Islamic windows as their Islamic subsidiaries, licensed under the IBA 1983.
Since then, almost all local banks set up their own Islamic subsidiaries except for a few international banks such as Citibank and United Overseas Bank.
In the same year, the central bank also issued licences to international Islamic banking institutions to compete with local Islamic financial institutions (IFIs).
The first bank having such a licence was Kuwait Finance House followed by Al-Rajhi Bank.
To create a holistic ecosystem for Islamic banking and finance in the country, the regulator also set up a few entities to cater for research and human capital development.
These include the International Centre for Education in Islamic Finance that was set up in 2005, the Islamic Banking and Finance Institute Malaysia in 2007, the International Shariah Research Academy and the Asian Institute of Finance in 2008.
Malaysia also hosted the Islamic Financial Services Board in 2002 to develop the Islamic finance agenda.
Another initiative was the introduction of Syariah Governance Framework in 2011 aimed at strengthening syariah supervision in the system in mainly four areas which are syariah advisory, syariah review, syariah audit, and syariah research.
This paved the way, in turn, for a more extensive revamp of Islamic banking institutions under the Islamic Financial Services Act (IFSA) 2013.
IFSA was designed to create a better governance structure and parallel playing field for both Islamic and conventional banking in the country.
In this journey, hiccups that arose along the growth path of Islamic banking and finance (IBF) were also addressed by remedial measures.
Indeed, even before the enactment of IFSA 2013, many amendments were made to existing laws and regulations to accommodate the needs of IBF operations in the country.
In 2017, Malaysia marked another milestone through the introduction of the strategic intermediation concept, namely Value-Based Intermediation (VBI).
According to BMM, statistics on the development of IBF in Malaysia showed unparalleled growth in the Islamic banking market share and its annual growth rate.
Islamic financial institutions are thus urged to explore new strategies to maintain growth and sustainability through active participation in the VBI agenda.
VBI requires the IFIs to develop innovative Islamic financial products and services that contribute to social well being, the environment and the economy since VBI focuses on the 3Ps, namely people, planet and profit.
Under this concept, the performance of IFIs as intermediaries in the financial system operation will be assessed not only from their financial performances but also non-financial aspects such as engagement and impact on the three areas just mentioned.
The Sadaqa House product that was launched by Bank Islam in January 2018 is a good example of this approach.
This concept actually reflects the higher goals (maqsad) of the Islamic economic system, which is social justice.
IAIS Malaysia played a key role in this initiative.
Malaysia has evidently succeeded in positioning itself a world leader in IBF, thanks to the active participation and support of the government and BNM.
Yet the journey is not over. Our next instalment looks at some of the IFIs products that have come under criticism.
The author is a research fellow at the International Institute of Advanced Islamic Studies (IAIS) Malaysia.
Published in: New Straits Times, Thursday 7 February 2019
Halal is an Arabic word connoting a state of permissibility for objects or actions according to Syariah principles.
The Quran states that: “Eat of what is on earth, lawful and good” (2:168). This verse implies that humanity is expected to eat, use and act in accordance with what is not only permissible but also good, pure or wholesome. The verse expresses the godly commandment using two important words, namely “halal” and “toyyib”.
It is common in the halal market for people to use the terms halal and halalan-toyyiban interchangeably due to a perception that whatever is halal, is also halalan-toyyiban. But actually, the two terms carry two different meanings. The former implies compliance with fundamental Syariah parameters, while the latter goes beyond those fundamentals to invoke enhanced features that make something good, pure and wholesome.
For example, junk food that comply with halal certification requirements are certified as halal. Such certification tells the world that these products do not contain items prohibited by the Syariah while simultaneously complying with the specified legal provisions prescribed by the law of the land. But, although, they are certified as such, eating junk food is unhealthy and could lead to many health issues. Thus, halal certified junk food are halal, but not toyyib.
In Malaysia, the concept of halalan-toyyiban has gained only limited exposure, be they from the perspective of public understanding or in terms of practical application within the halal market itself. From the regulatory perspective, for instance, the laws and regulations related to this concept seems very limited in comparison to those governing the halal concept.
The Manual Procedure for Malaysia Halal Certification 2014, issued by the Department of Islamic Development, Malaysia (Jakim), and 13 other standards on halal issued by the Department of Standards, Malaysia (DOSM), are all focused on halal alone. This might be due to the fact that Malaysia’s current halal certification scheme does not include halalan-toyyiban.
However, there are three areas that require compliance with halalan-toyyiban standards: transportation of goods/ cargo chain activities (MS 2400-(1:2010); warehousing and other related activities (MS 2400-(2: 2010); and, retailing (MS 2400-(3).
The three sets of standards specified in the respective parenthesis are the requirements on halalan-toyyiban assurance pipelines, issued in 2010.
These three sets of standards define halal as “things or action which are permitted or lawful in Islam. It conveys basic meaning and defines the standards of acceptability in accordance to Syariah requirements”. Halalan-toyyiban, on the other hand, is defined as “assurance and guarantee that both aspects of halalan and toyyiban are integrated into holistic and balanced requirements that fulfil the condition, situation and application needs”.
Based on these two definitions, it may be concluded that halal represents the fulfilment of the Syariah requirements leading to the permissibility of an object or action while halalan-toyyiban covers a more holistic approach. Therefore, a clearer demarcation between the two concepts is required within the halal industry.
The halalan-toyyiban concept is seen as a more comprehensive method that seeks to achieve international standards compliance, making it universally acceptable. Hence, more efforts need to be invested by the relevant parties to promote the integration of halal and toyyiban in Malaysia’s halal certification scheme. Although there has been an effort to apply this concept by issuing the three standards on halalan-toyyiban, the current application of this concept is still limited to these three areas.
Since Malaysia aspires to become the global halal hub, it is timely to extend the application of halalan-toyyiban to other areas in the halal industry. Introducing another scheme of halal certification, such as “halalan-toyyiban certification”, would be a good start. It would encourage the halal market players to produce products or services that are not only halal certified but also contain wholesome elements.
For instance, nutritious products that contain halal ingredients and at the same time do not contain any substance that could endanger human health and life, may be certified as “halalan-toyyiban” by the certifying authority upon fulfilment of all requirements set under the relevant halalan-toyyiban standards.
The writer is Research Fellow, International Institute of Advanced Islamic Studies (IAIS) Malaysia
Published in: New Straits Times, Saturday 14 April 2018
Charity is indeed a universal value that is highly encouraged by all religions, subject to rules or customs. Its impact on socio-economic conditions of society is undeniable. In Malaysia, the laws governing charities are piecemeal. There are charities governed by the Federal Government, some are exclusively in the hands of the states and some are regulated by both the federal and state governments. This jurisdictional demarcation is stipulated in Article 74 of the Federal Constitution and its Ninth Schedule......................Download the full article in pdf attachment (below)
The concept of ‘taawun’ (cooperation) is not new in Islam. It is highly encouraged among Muslims as part of their religious duties towards the Creator and His creatures. In Surah Al-Maidah, Verse 2, Allah commanded the Muslims to cooperate with each other in good deeds and abstain themselves from any cooperation or collaboration in sinful acts. He commands: “And cooperate in righteousness and piety, but do not cooperate in sin and aggression”. This means that Islam promotes cooperation and collaboration towards actualising any good cause for the benefit of any person or a particular group of people or even for the animal or the world as a whole.....................Download the full article in pdf attachment (below)