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DOCUMENT

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Abstract
The future of Islamic banking and finance in 1 Malaysia looks

Unoriginal text: 8 words

109109.mobi/

[ a vast or the vast ]

Wordiness

[ control

Unoriginal text: 8 words

prezi.com/dygz9khtd8m9/the-purpose-of-this-research-is-t

extremely bright. The system sets highlighting on overall economic

and social awareness. These make it much more saluted among the
social and economic global agenda as well as the global financial
crisis presented new opportunities for Islamic finance because of the
crisis which caused vast 2 crash on the globe. However, the scenario
for the progress of Islamic finance and banking look brilliant. Despite
of the fact that the following matters should be considered seriously in
order to preserve its growth smoothly: the lack of ample law, which
control 4 their activities, win investor confidence in Islamic finance and
make their products Sharia-compliant; issue of relative risk weightings
and regulatory capital and the Islamic Financial Services Board
(IFSB) supervision; piecemeal financial and legal architecture;
weaknesses in financial transparency and reporting; a lack of human
capital; and the overarching problem of a lack of Sharia
convergence. 3 Financial and economic agenda predicts that Islamic
banking system currently is taking shape not only in Malaysia but also

controls ]

in both non-Muslim and Muslim countries and most likely will continue
to grow immensely both in newly introduced countries and potential
countries and also already have it established.
Keywords: growth, Islamic banking, established, global financial crisis

Progress and Development of Islamic Banking in Malaysia

Objective
The purpose of this research is to identify 5 the progress and
development of Islamic banking in Malaysia. It also explains how
Islamic finance managed to survive in Malaysia and the reasons
behind it. Furthermore, it also compares profit margin gain by Islamic
banking and conventional. Then there are some data presents on
Islamic banks' application of mudharabah, musyarakah, murabahah
and other products. The results of other studies that support the

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argument are also reported 6. The paper concludes with

recommendations to the financial industry for more extensive
development in this sector.

Passive voice

Unoriginal text: 8 words

www.tippecanoe.in.gov/DocumentCenter/Home/View/2447

[ to first look

[ finance, ]

10

[ In terms of

11

[ the current or a current ]

12

[ 1970s

13

Passive voice

14

[ vigorously

Introduction
Writing on the progress of Islamic banking and finance in Malaysia
might be a fitting choice to give some understandings to those who
are eager to enhance their information in this field. It is important to
first look 8 at the 7 growth of Islamic banking and finance in the world
agenda that could shed light on the main issue, on how Malaysia
become one of the pioneers in this interest free banking and finance
system. Islamic banking and finance, 9 is progressively becoming a
widespread field of interest for economists and finance institutions for
more than four decades, which has made a significant forte in the

first to look ]

international financial markets. In terms of 10 current 11 banking

system, the Islamic banking and finance started in the 20th century in
the mid-forties to provide sources to build up an interest free banking
with the core of profit sharing. This type of banking system is a new

Regarding ]

model in economic agenda of the world to share both loss and profit
carrying the traditional system of Mudharabah to the modern Islamic
banking and finance.
Then, the new banking system enticed so much attention that could
pave a way to meet the desires of Muslims in all part of the world. The
first practical idea of Islamic banking was launched 1963 when Myt
Gamt Savings Bank project offered interest free banking in Egypt.
Nevertheless, the institutional founding of it began in 1970s 12 as well
as a practical implementation of modern thought in Islamic Economic
was considered 13 at the same time. President Sadat established
Nassar Social Bank as an interest-free financial institute in 1971. In
international level, with the vigorously 14 encouragement of Muslim
intelligent people, many conferences began to be organized.
The International Economic Conference in London in 1977, the First
International Conference on Islamic Economics in Mecca in 1976, the
Conference of the Finance Ministers of the Islamic Countries in
Karachi in 1970, were organized respectively. As an institution, the
idea of founding Islamic Development Bank (IDB) was born with the
purpose of funding projects for the associate countries. The First

the 1970s ]

vigorous ]

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Conference of Finance Ministers of Islamic Countries in 1973 issued

its declaration of intent and formally the IDB was launched 15 on 20
October 1975 equal to 15th Shawal, 1395AH. After the establishment
of the IDB, the first private Islamic commercial bank was set up in
Dubai in 1975. Most of the Islamic banks were established 16 in Arab

15

Passive voice

16

Passive voice

17

[ Definitely, Islamic

competing 21 with interest based banks. Islamic banking and finance

18

[ system , ]

has 22 a stable growth rate over years. For instance, from 7.4 % in

19

Passive voice

1987, it increased continuously by 14.9 % in 1989. The popularity 23

20

[ the ability or an ability ]

increased with the increased failure rate of the traditional banks.

21

[ of competing

Lately 24 it continued growing 10-15 % in 2005 and abruptly increased

22

[ has

by 20 % in 2008. It is estimated 25 that the growth rate would be 24 %

23

[ popularity is or popularity was ]

Herewith, it's increasing at a rate of 15-25 % per year with prediction 26

24

[ Lately

of continuous growth. On the other hand, since 2000, the annual rate,

25

Passive voice

26

[ a prediction or the prediction ]

27

[ assets , ]

28

[ an abhorrence or the abhorrence ]

realms, Sudan, Egypt, Saudi Arabia, Bahrain, the United Arab

Emirates, Jordan, Qatar and Kuwait from 1975 to 1983. Within these
years, Islamic banking spread more widely and rapidly throughout
non-Muslim and Muslim countries. Definitely, Islamic 17 banks have
more than 300 institutes all over the world in more than seventy
countries. Therefore, many multinational banks began to bargain the
new banking system 18 and the impact of Islamic banking methods for

Islamic ]

financial intermediation had to be accepted 19 by the International

Monetary Fund (IMF). Islamic banks now have ability 20 of

to compete ]

have ]

by 2013.
Lately, ]

funds and the assets managed by these institutions with the growth of
30% have extended to $660 billion by the end of 2007. The potential
market of the $4 trillion known as the largest sharia compliant
assets, 27 are located in Saudi Arabia, Malaysia, Iran, Bahrain, and
Kuwait.
Literature Review
I. The source of Islamic banking and finance
Primarily the fundamental structure of Islamic finance lays in its
avoiding of conventional financial implements such as interest that is
abhorrence 28 to the values of the Qur'an and the sunnah 29 of the
Prophet Muhammad (pbuh) as well as the understandings of these
sources of revelation by his Companions. The system mostly
implemented a risk sharing module in an equitable conduct or a profit-

[ sunnah

Sunnah ]

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29

[ sunnah

30

This with plural noun

31

[ need

the state policy to give a positive impact for 34 the development of the

32

[ used in

used for ]

nation with the policy of Mahathir administration. In backing of this

33

[ time of

time in ]

34

[ impact for

35

[ Briefly

36

[ Integrity , ]

sharing concept in its investment ventures.

Sunnah ]

According to Kamel (2000), a variety of structure of Islamic finance has

been implemented in Muslim economic life for 14 centuries. However,
it has emerged in the last few decades as one of the most significant
and effective modern implementations of the Islamic legal system.
This new banking system cravings 30 to apply the Islamic law (sharia)
to a sector of modern trade. Shareholders or financier who are
responsive to Sharia principles need 31 some observation on this kind
of venture. The Islamic law of transaction (muamalat) appear to forbid
the interest based dealings and banking. The reasons why Western
customers and academics were absorbed in contributing and studying

needs ]

respectively in Islamic banking is because the system discards the

interest based banking system. In addition to that, the global finance
divisions trended to Islamic Finance which deals with the important
values of Islamic law in transactions were established and
successfully used in 32 the very first time of 33 the Islamic history.
II. The roots of Islamic banking in Malaysia
Hasan (2007) mentions that the value of Islam was integrated within

policy in 1981, Islamic Consultative Body (ICB) was declared

emphasizing that every effort for the development of the nation and
the country must have conformity with the principles of Islam. Along

impact on ]

with this conformity, the government proclaimed the policy of

Assimilation of Islamic Values (Penerapan Nilai-Nilai Islam) as its
official policy in Malaysia's administration.
Briefly 35 these values are abbreviated with the following terms:
Thankfulness, Responsibility, Sincerity, Trustworthiness, Cooperation,
Moderation, Diligence, Discipline, Dedication, Cleanliness, Integrity 36
and Punctuality. Hence, the government raised establishing Islamic
principles in its all institutions. International Islamic University
Malaysia (IIUM) was established on 20 May 1983 because education

Briefly, ]

was one of the priorities of the government. After the founding of IIUM,
Bank Islam Malaysia Berhad (BIMB) was established immediately
after the following two months. The BIMB predicted a concrete
milestone for the growth of the Islamic finance and banking system in
Malaysia. In due, Islamic banking and financial system were make

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known to Malaysian economic agenda. Furthermore, the Kulliyah of

Economics and Management Sciences (KENMS) was one of the first
established faculties in IIUM and in 37 16 July 1983 the department 38
of Economics was the first department within the KENMS.
Darwis (2008) has stated that a number of 39 university and research
institutes started to major in Islamic Banking and Finance. Lots of
seminars, research centres, conferences, and PhD 40 dissertations
attracted the attention to Islamic banking and finance in Malaysia's
universities and institutes. Along with these progresses 41, Malaysia
has announced dual banking system that of the Muslims request to
have financial 42 and banking system which is based 43 on the sharia
principles. These new establishments needed an authorized and
educational basis, thus 44 lessons on Islamic banking in higher
education system is impulsively introduced.
Subsequently, in historical perspective, the Islamic banking and its
growth involved a number of 45 phases whereby the first phase
launched between 1983 and 1993 while the second phases started in
1994. In support of this growths, a number of laws were introduced
namely Central Bank of Malaysia (Amendment) Act 2003, Banking
and Financial Institutions Act 1989, Islamic Banking Act 1983, and

37

[ and in

38

[ department

39

[ a number of

40

[ PhD

41

[ progresses

42

[ a financial or the financial ]

43

Passive voice

44

[ basis , thus

basis . Thus ]

45

[ a number of

some ]

46

Wordiness

47

Wordiness

48

[ united on

and on ]
Department ]

some ]

Ph.D. ]

progress ]

other related legal legislations, and Securities Commission and

Central Bank of Malaysia's directives and as well as to the court's
organization. 46
III. Factors fostered Malaysia as a leading country in Islamic banking
and finance
As the country of Malaysia set the nation to participate the ranks of the
urbanised countries with the viewpoint of Wawasan 2020 (vision
2020), they united on 48 the purpose of creating a systematic and
advanced society that is forward looking and innovative and one that
is not only a user of technology but also a contributor to the systematic
and high-tech civilization of the future. 47
Abdul Karim (2008) described the idea of founding Islamic University
as International Islamic University Malaysia (IIUM) in 1983 to
encourage the growth. The department 49 of Economics was the first
department within the faculty 50 and the Kulliyah of Economics and
Management Sciences (KENMS) was one of the first established
faculties in IIUM. The faculty began to offer a regularly more field of

united for ]

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Islamic economics program and training courses postgraduates and

undergraduates programs including MA and MBA programs in Islamic
finance and banking.

49

[ department

IV. The Sharia advisory council

50

[ faculty , ]

51

[ is

52

[ in order to

Moneylenders Act 1951, National Land Code 1965, the Stamp Act of

53

Unclear antecedent

1949, National Land Code 1950, Hire Purchase Act 1967 56 etc.

54

[ the introduction ]

These acts encouraged advantageous competition amongst the

55

[ 1993, Banking ]

56

[ 1967, ]

Islamic capital market (1993), Islamic Insurance (1994), Islamic inter-

57

[ in order to

bank money market (1994), Kuala Lumpur Stock Exchange (KLSE).

58

[ Muslims , ]

To promote Malaysia as the provincial financial centre for Islamic

59

[ interest

banking and finance, Central Bank of Malaysia (BNM) launched the

60

[ hajj

Department ]

The main roles of the Sharia Advisory Council is 51 to decide the best
judgement suits the public profit of the people connected to Islamic
finance as well as to control the judgements whether it is compatible
with the aims of the Islamic law. Moreover, the institutions are required
to create the Sharia Committee in order to 52 counsel them any matter
related to Islamic finance and banking. This leads 53 to introduction 54
of some Acts related to Islamic Finance and Banking such as Central

are ]

Bank of Malaysia Act 2003, Islamic Security Commission

1993,Banking 55 and Financial Institutions Act 1989, Islamic Banking
Scheme (1 September), and Islamic Banking Act 1983 (7 April).
Besides these, there are other related laws, which are highly

to ]

noteworthy in the implementation of Islamic banking, include

corporations. Therefore, traditional banks motivated to open Islamic

counter to propose Islamic banking products in a variety of packages
and models because of demands of the people in Islamic Scheme
Banks (ISB) that offer extra profit than normal conventional products.
V. The development of Islamic banking in Malaysia
Malaysia's interest in Islamic banking started with the founding of
Tabung Haji (Pilgrims Management and Fund Board) in order to 57
capitalise the savings of the native Muslims 58 who have interest 59 to
carry out hajj 60 (pilgrim). Legitimately, with the establishment of Bank
Islam Malaysia Berhad (BIMB) in July 1983, Islamic banking and
financial system were presented in Malaysia. Although it conveys
commercial banking system, the values of Islamic laws were applied.
Malaysia, 61 therefore established complete Islamic financial
institutions such as Islamic Banking (1983), Sharia Index (1999),
to ]

the interest ]
Hajj ]

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financial sector master plan which create 62 20% of the banking

market share in 2010. Now, Islamic finance in Malaysia is becoming
61

[ Malaysia, ]

62

[ create

63

Possibly confused preposition

According to the Islamic Financial services Board (IFSB) the recorded

64

Incorrect quantifier

annual growth is average of around 15% for the last three years, for

65

[ have

RM 80 million in the beginning to RM 1.73 billion as at 2009.

66

[ the country ]

The progress rate of Islamic Finance in Malaysia is extremely

67

[ the development or a development ]

amazing; therefore, it has the capacity to 72 preserve its guidance in

68

[ an industrial or the industrial ]

financial centres in the world. On the other hand, the Malaysian

69

[ get

government has 73 been reviewing and implementing its Interest Free

70

Passive voice

71

[ an intense or the intense ]

72

[ has the capacity to

73

Unoriginal text: 8 words

www.steelorbis.com/steel-news/latest-news/malaysia-imp

increasingly more integrated to 63 the global financial system all

together with the fast changing worldwide Islamic financial landscape.
According to Bank Negara Malaysia (2005), the quantity of 64 Islamic
bank branches have 65 improved from 126 to 766 in one year in
Malaysia. Malaysia has been kept its per capita GDP above USD
3,000 since 1995 thus considered as fast developing country 66 with
development 67 of GDP 5.3% in 2005. In conjunction with this,

creates ]

Malaysia somewhat shifted towards industrial 68 country which funded

80% of the total GDP. Islamic finance market constantly getting
improved which has get 69 hold of approximately $ 700 billion; not only
in Islamic countries but also it is improved 70 in other countries.
has ]

example, Bank Islam's development shows intense 71 increase from

global Islamic finance in spite of the current competition among

got ]

Banking Scheme and securities programs to meet market and

economic fluctuations. The fluctuations began since the early 1990's
that include Mudaraba Inter-Bank Investment (MI"), Islamic Inter-Bank
Cheque Clearing System (IICCS), the Malaysian International Islamic
Financial Centre (MIFC), and the Islamic Inter-Bank Money Market
(IIMM).
In a very short period of time 75, Malaysia 74 managed a remarkable
progress in developing Islamic institutions locally and globally. The

can ]

extraordinary developments in Islamic Financial system made

Malaysia as a top centre in the world with its 89 Islamic unit trust
funds, 85% of Bursa Malaysia's securities are Sharia approved
securities and 46% of the commercial bond markets are Islamic bonds
or sukuks together with 16 Islamic banks, 7 are Islamic subsidiaries of
banking groups, 3 foreign Islamic Financial Institutions, and several
Islamic windows of traditional banking institutions. 76

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Islamic Finance and Banking growths in Malaysia have taken place

all sectors including the takaful insurance, takaful industry, and in the

74

Unoriginal text: 8 words

www.skyscanner.net/news/malaysia-airlines-passenger-so

investment-linked products. For all of that, the researches took place

75

in commonly Islamic banking instruments such as musharakah

[ period of time

76

Wordiness

77

Wordiness

78

[ banking

79

Passive voice

Islamic money and capital markets, Sukuk, murabaha financing, and

period ]

(active-partnership), murabahah (passive partnership, profit-sharing),

ijarah (leasing), ba'i salam (payment in advance), jialah (reward,
performing a given task against a prescribed fee), qard (interest free
loan), rahn (pledge/security), wakalah (agent), dhaman/ kafalah
(guarantee), hawalah (assignment), urboun (depositing), istisna'
(manufacturing); Islamic banking in Muslim and non-Muslim countries
and its doctrines; human capital growth in the Islamic financial
services industry; Islamic mortgages; thinking critical account in
Islamic banking 78; Interest and Islamic ethics; banking financial crises;
ethical identity of Islamic banking; performance of sharia compliance
companies; Islamic banking and political economy and corporate
sukuk and bond markets. 77

VI. The international Islamic financial hub in Malaysia

The International Islamic financial hub that is surfacing in Malaysia
may be considered 79 in five important dimensions. First one is the
sukuk market, which is one of the fastest increasing markets in the
field, which becomes a progressively significant element of the Islamic
financial system in Malaysia. In 1990, a first sukuk was issued in
Malaysia.
Second 80 one is the Islamic wealth and fund management industry. It
is a great prospect that the Malaysian capital market deals an
extensive range of world class financial products of that more than 85
% in 81 the equity market are Sharia compliant which represent around
60 % of total market capitalization. There are other opportunities
which include in Sharia-compliant real estate investment trusts (REIT),
in unit trusts and in 82 the Islamic exchange traded fund (ETF).
Third 83 one is the International Islamic banking which permits for
84

the access of foreign Islamic financial institutions. Fourth 85 one is

retakaful and takaful business which involve eight takaful operators

and several joint ventures with overseas shareholding deals with

Banking ]

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international and domestic takaful business. The final one is

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80

[ Second

81

Possibly confused preposition

82

[ and in ]

overall economic and social awareness. These make it much more

83

[ Third

saluted among the social and economic global agenda as well as the

84

[ permits for ]

global financial crisis presented new opportunities for Islamic finance

85

[ Fourth

However, the scenario for the progress of Islamic finance and banking

86

Passive voice

look brilliant. Despite of the fact that the following matters should be

87

[ In order to

88

Passive voice

89

[ a vast or the vast ]

90

Wordiness

91

[ control

The second ]

thought 86 leadership and human capital. In order to 87 nurture Islamic

finance thought leadership and to produce a supply of talent for the
Islamic finance industry, many noteworthy human capital expansion
projects have been implemented.
Conclusion
It can be concluded 88 that the future of Islamic banking and finance in
Malaysia looks extremely bright. The system sets highlighting on
The third ]

The fourth ]

because of the crisis which caused vast 89 crash on the globe.

To ]

considered seriously in order to preserve its growth smoothly: the lack

of ample law, which control 91 their activities, win investor confidence
in Islamic finance and make their products Sharia-compliant; issue of
relative risk weightings and regulatory capital and the Islamic
Financial Services Board (IFSB) supervision; piecemeal financial and
legal architecture; weaknesses in financial transparency and
reporting; a lack of human capital; and the overarching problem of a
lack of Sharia convergence. 90 Financial and economic agenda
predicts that Islamic banking system currently is taking shape not only
in Malaysia but also in both non-Muslim and Muslim countries and
most likely will continue to grow immensely both in newly introduced
countries and potential countries and also already have it established.

controls ]