INTRODUCTION

Bank Negara Malaysia, the nation's central bank, was established in 1959 by the Central Bank
of Malaya Ordinance of 1958. The CBA 1958 has been repealed by the Central Bank of Malaysia
Act 2009 which became effective on 25 November 2009. It is a statutory body wholly owned by
the Government of Malaysia with the paid-up capital progressively increased, currently at RM100
million. The Bank reports to the Minister of Finance, Malaysia and keeps the Minister informed of
matters pertaining to monetary and financial sector policies.

Since then the bank has been operating with a mission of maintaining both monetary and fiscal
stability for achieving sustainable economic growth.
As Malaysia's Central Bank, Bank Negara Malaysia promotes monetary stability and financial
stability conducive to the sustainable growth of the Malaysian economy.

Mission Statement

Bank Negara Malaysia, as the Central Bank, is committed to excellence in promoting monetary
and financial system stability and fostering a sound and progressive financial sector, to achieve
sustained economic growth for the benefit of the nation.

This will be achieved through:

• promoting a work culture which emphasizes the highest standards of professionalism and
integrity, prudence, teamwork and innovation;

• developing and maintaining a committed workforce which is highly competent and

proactive, sensitive to the changing needs of the industry;

• adopting a collaborative approach in everything we do;

• promoting the effective use of technology and good work practices to enhance
productivity, efficiency and quality;

• adopting policies and practices to enhance the competitiveness of local financial

institutions to face international competition; and

• having the necessary financial resources and financial instruments to effectively manage
monetary stability.
The State Bank of Pakistan (SBP) is the central bank of Pakistan. While its constitution, as
originally laid down in the State Bank of Pakistan Order 1948, remained basically unchanged until
January 1, 1974, when the bank was nationalized, the scope of its functions was considerably
enlarged. The State Bank of Pakistan Act 1956, with subsequent amendments, forms the basis of
its operations today. The headquarters are located in the financial capital of Pakistan, Karachi
with its second headquarters in the capital, Islamabad.

History

Before independence on 14 August 1947, during British colonial regime the Reserve Bank of
India was the central bank for both India and Pakistan. On 30 December 1948 the British
Government's commission distributed the Reserve Bank of India's reserves between Pakistan
and India -30 percent (750 M gold) for Pakistan and 70 percent for India.

The losses incurred in the transition to independence were taken from Pakistan's share (a total of
230 million). In May, 1948 Muhammad Ali Jinnah (Founder of Pakistan) took steps to establish
the State Bank of Pakistan immediately. These were implemented in June 1948, and the State
Bank of Pakistan commenced operation on July 1, 1948
 ISLAMIC BANKING

Any amount, big or small, over the principal, in a contract of loan or debt, is Riba, prohibited by
the Holy Quran, regardless of whether the loan is taken for the purpose of consumption or for
some production activity.”

It is worth mentioning that there is a striking difference between a ‘secular capitalist system’ and
an ‘Islamic capitalist system’. In a ‘secular capitalist system’ loans (or debts) are purely
commercial transactions which would yield a fixed income to the lenders. Islam, however, does
not recognize loans as ‘income-generating transactions. Loans are meant for only those lenders
who do not intend to earn a worldly return through them. They (lenders), instead, lend their
money either on humanitarian grounds to achieve a reward in Hereinafter, or merely to save their
money through a safer hand.”

Islam has prohibited Riba. It is interesting to note that the prohibition of Interest is not limited to
Islam only, but it is shared by Judaism and Christianity as well.

Shariah Advisory Council of Bank Negara of Malaysia

The Shariah Advisory Council of Bank Negara Malaysia (SAC) was established in May 1997 as
the highest Shariah authority in Islamic finance in Malaysia. The SAC has been given the
authority for the ascertainment of Islamic law for the purposes of Islamic banking business,
takaful business, Islamic financial business, Islamic development financial business, or any other
business, which is based on Shariah principles and is supervised and regulated by Bank Negara
Malaysia. As the reference body and advisor to Bank Negara Malaysia on Shariah matters, the
SAC is also responsible for validating all Islamic banking and takaful products to ensure their
compatibility with the Shariah principles. In addition, it advises Bank Negara Malaysia on any
Shariah issue relating to Islamic financial business or transactions of Bank Negara Malaysia as
well as other related entities.

In the recent Central Bank of Malaysia Act 2009, the role and functions of the SAC was further
reinforced whereby the SAC was accorded the status of the sole authoritative body on Shariah
matters pertaining to Islamic banking, takaful and Islamic finance. While the rulings of the SAC
shall prevail over any contradictory ruling given by a Shariah body or committee constituted in
Malaysia, the court and arbitrator are also required to refer to the rulings of the SAC for any
proceedings relating to Islamic financial business, and such rulings shall be binding.

Consisting of prominent Shariah scholars, jurists and market practitioners, members of the SAC
are qualified individuals and have vast experience in banking, finance, economics, law and
application of Shariah, particularly in the areas of Islamic economics and finance.
ISLAMIC BANKING DEPARTMENT STATE BANK PAKISTAN
Islamic Banking Department was established on 15th September, 2003 and has been entrusted
with the task of promoting & developing the Shariah Compliant Islamic Banking as a parallel and
compatible banking system in the country. Islamic Banking is one of the emerging fields in global
financial market, having tremendous potential and growing at a very fast pace all around the
world. Al-Hamdulillah, the progress of Islamic Banking in Pakistan has also been commendable
during the last Five years. Currently there are six licensed full fledged Islamic Banks and twelve
conventional banks with standalone Islamic Banking Branches with the total branch network of
over 336 branches operating in more than 50 cities of all the four provinces and Azad Kashmir in
the country as of 17.07.2008 and applications for few more players are under consideration.
Islamic Banking is a high priority area for State Bank of Pakistan. Steps are being taken to make
Islamic banking industry in Pakistan robust enough to offer a viable alternative to conventional
banking, should the market decide that Pakistan should have an exclusively Islamic banking
system in the country.
State Bank of Pakistan wants to develop a progressive and sound Islamic banking system that is
in line and compatible with the global financial sector, providing innovative Shariah compliant
products and services so as to achieve equitable economic growth.

Departmental Objectives:

a) Drive and Implement the Strategic Plan for Islamic banking industry

b) Strengthen the existing regulatory framework for Islamic Banking Industry

c) Strengthen and broaden the scope and functioning of SBP Shariah Board through inclusion of
more members and engaging of consultants of international repute

d) Arrangement of IFSB events, particularly Council and Technical Committee meetings,

alongwith the side events in Pakistan in November, 08

e) Leverage from/support the efforts of IFSB, IDB/IRTI, AAOIFI, IIFM and other international
institutions for promotion of Islamic banking in Pakistan

f) Coordination with BPRD regarding licensing of full fledged Islamic Banks (IBs) and their
branches and Islamic Banking Branches of conventional banks (IBBs) and formation of Islamic
banking subsidiaries

g) Coordination with BID for Shariah compliance inspection of IBIs and proper compliance of the
observations/recommendations of inspection report (regarding Shariah Compliance)

h) Utilizing SBP-SECP Joint Forum for the promotion of Islamic financial industry

i) Support industry players in development of Shariah-compliant liquidity management

instruments

j) Utilizing the Shariah Advisor Forum for conflict resolution and for discussion on AAOIFI Shariah
Standards for their adoption in Pakistan

k) Conduct awareness programme within and outside SBP to eliminate the misconceptions and to
develop the confidence of the public about Islamic banking

l) Publication of Islamic Banking Bulletin (IBB) and Islamic Banking System review (IBSR) and
facilitate different departments in preparing various SBP publications

m) Human resource capacity building in the Islamic banking industry through coordination with
educational institut
Roles and Functions OF BANK NEGARA MALAYSIA

Among the major role of the Bank is the prudent conduct of monetary policy, which has seen
generally low and stable inflation for decades and thereby, preserving the purchasing power of
the ringgit. The Bank is also responsible for bringing about financial system stability and
fostering a sound and progressive financial sector. There is now in place a well diversified,
comprehensive and resilient financial sector, that is able to meet the increasingly sophisticated
needs of consumers and businesses, and which has become a growth driver in the economy.

The Bank also plays a significant developmental role, including development of financial system
infrastructure with major emphasis placed on building the nation's efficient and secured payment
systems as well as the necessary institutions (including Securities Commission, KLSE, now
known as Bursa Malaysia and Credit Guarantee Corporation) which are important towards
building a comprehensive, robust and resilient financial system.

The Bank actively promotes financial inclusion, which has led to improved access to financial
services for all economic sectors and segments of society, thereby supporting balanced
economic growth.

Other important roles of the Bank are being a banker and adviser to the Government, playing an
active role in advising on macroeconomic policies and managing the public debt. It is also the
sole authority in issuing currency as well as managing the country's international reserves.

The roles of the Bank are supported by 37 departments/units in the Bank covering seven
functional areas as follows:

Economics & Monetary Policy

Primarily provides good technical and research support on growth-related issues to enhance
formulation of monetary and credit policies in promoting monetary stability and ensuring the
availability of adequate credit to finance economic growth.

Investment and operations

Manage domestic liquidity and exchange rates to ensure that monetary policy targets are
achieved as well as managing external reserves to safeguard its value and optimize its returns. It
also has the responsibility of providing advice and assistance to the Government in the area of
debt and fund management and contributing to domestic financial market development.

Regulation

Promote financial sector stability through the progressive development of sustainable, robust and
sound financial institutions and financial infrastructure, thus enabling a competitive local financial
industry to be resilient against the changing future environment as well as leads initiatives to
enhance access to financing. It also formulates and implements policies and strategies towards
building and positioning Malaysia as a premier integrated Islamic Financial Centre and enhance
the financial capability of consumers.
Payment systems

Develop policies and strategies to promote reliable, secure and efficient clearing, settlement and
payment systems in the country.

Supervision

Develop, enhance and implement an effective surveillance framework to ensure safety and
soundness of financial institutions and to enforce sound practices in them.

Organizational development

Spearhead the Bank's strategic management, organizational-performance management and

programme management functions to drive its performance-improvement processes and
strengthening the capacity building of the Bank. It also leads and drives human resources
initiatives and other strategic activities to ensure that the overall Human Capital Management
framework is implemented effectively.

Communications

The communications function has assumed increasing importance in response to the heightened
demands of the various stakeholders, seeking greater transparency and disclosure.

Greater engagement with the public

As part of the Bank's emphasis on efficient work culture, effective and efficient delivery of
services to stakeholders, including the public, has always been a top priority for the Bank. To
promote the public better understanding of their rights, responsibilities, the opportunities and the
associated risks and costs as a result of participation in the financial system, the Bank's efforts
has been directed towards the following areas:

Educate the public

As the financial system becomes more developed, the Bank has taken measures to raise the
level of financial literacy among consumers. Given today's sophisticated financial markets,
products and services, the Bank has initiated its Consumer Education Programme nationwide to
reach out to the masses. This comprises, namely, bankinginfo and insuranceinfo initiatives;
inclusion of targeted school children in the Bank's outreach programme to enhance their financial
education; and financial education road shows to reach out to members of the public, including
those in the rural areas.

Bank's accessibility to the public

With the various initiatives in place, the accessibility of the Bank to the public is equally important.
Through interaction with the public, the Bank improves their understanding of financial matters as
well as gain valuable insights on real issues facing the consumers in the financial sector which
serve as inputs for policy decisions. In creating a one-stop centre for public interface, the
Integrated Contact Centre (ICC) was formed, where customer management and case
management is put under one roof. The ICC comprises the following:
 i. BNMLINK, a face-to-face customer service, to facilitate rapid and effective responses on
financial matters for the public. To expand the outreach to cater for outstation customers,
BNM MINILINK was established at BNM branches in Johor Bahru, Pulau Pinang, Kuala
Terengganu, Kota Kinabalu and Kuching.

ii. BNM TELELINK which complements the services of BNMLINK by attending to enquiries
made via SMS, telephone calls, facsimiles, letters and electronic mails; and

iii. Complaint Management and Advisory, which among others, facilitates resolution of the
public, including SMEs, complaints against institutions under the purview of the Bank.

Financial advice and counseling

The Bank has also established the Agensi Kaunseling Dan Pengurusan Kredit (AKPK), with
branches located across Malaysia to help consumers manage their debts and become more self-
reliant in their financial affairs and thereby preserve the resiliency of the household sector in the
economic growth process. Apart from that, the Bank was also instrumental in the setting up of the
Financial Mediation Bureau (FMB), an independent body providing consumers with objective and
timely solutions to disputes, claims and complaints arising from services provided by financial
institutions.

State Bank of Pakistan

State Bank of Pakistan

‫بینک دولت پاکستان‬

State Bank of Pakistan

Headquarters Karachi, Pakistan
Established 1948
Central bank of Pakistan
Currency Pakistani rupee
ISO 4217 Code PKR
 Website www.sbp.org.pk

Under the State Bank of Pakistan Order 1948, the state bank of Pakistan was charged with the
duty to "regulate the issue of bank notes and keeping of reserves with a view to securing
monetary stability in Pakistan and generally to operate the currency and credit system of
the country to its advantage".

A large section of the state bank's duties were widened when the State Bank of Pakistan Act
1956 was introduced. It required the state bank to "regulate the monetary and credit system of
Pakistan and to foster its growth in the best national interest with a view to securing monetary
stability and fuller utilization of the country’s productive resources". In February 1994, the State
Bank was given full autonomy, during the financial sector reforms.

On January 21, 1997, this autonomy was further strengthened when the government issued three
Amendment Ordinances (which were approved by the Parliament in May 1997). Those included
were the State Bank of Pakistan Act, 1956, Banking Companies Ordinance, 1962 and Banks
Nationalization Act, 1974. These changes gave full and exclusive authority to the State Bank to
regulate the banking sector, to conduct an independent monetary policy and to set limit on
government borrowings from the State Bank of Pakistan. The amendments to the Banks
Nationalization Act brought the end of the Pakistan Banking Council (an institution established to
look after the affairs of NCBs) and allowed the jobs of the council to be appointed to the Chief
Executives, Boards of the Nationalised Commercial Banks (NCBs) and Development Finance
Institutions (DFIs), the State Bank having a role in their appointment and removal. The
amendments also increased the autonomy and accountability of the chief executives, the Boards
of Directors of banks and DFIs.

The State Bank of Pakistan also performs both the traditional and developmental functions to
achieve macroeconomic goals. The traditional functions may be classified into two groups:

1. The primary functions including issue of notes, regulation and supervision of the financial
system, bankers’ bank, lender of the last resort, banker to Government, and conduct of
monetary policy.
2. The secondary functions including the agency functions like management of public debt,
management of foreign exchange, etc., and other functions like advising the government
on policy matters and maintaining close relationships with international financial
institutions.

The non-traditional or promotional functions, performed by the State Bank include development of
financial framework, institutionalization of savings and investment, provision of training facilities to
bankers, and provision of credit to priority sectors. The State Bank also has been playing an
active part in the process of islamisation of the banking system.

Regulation of liquidity

The State Bank of Pakistan has also been entrusted with the responsibility to carry out monetary
and credit policy in accordance with Government targets for growth and inflation with the
recommendations of the Monetary and Fiscal Policies Co-ordination Board without trying to effect
the macroeconomic policy objectives.

The state bank also regulates the volume and the direction of flow of credit to different uses and
sectors, the state bank makes use of both direct and indirect instruments of monetary
management. During the 1980s, Pakistan embarked upon a program of financial sector reforms,
which lead to a number of fundamental changes. Due to these changed the conduct of monetary
management which brought about changes to the administrative controls and quantitative
restrictions to market based monetary management. A reserve money management programme
has been developed, for intermediate target of M2, that would be achieved by observing the
desired path of reserve money - the operating target.

State Bank of Pakistan has changed the format and designs of many bank notes which are
currently in circulation in Pakistan. These steps were taken to overcome the problems of
fraudulent activities.

Banking

The State Bank of Pakistan looks into a lot of different ranges of banking to deal with the changes
in economic climate and different purchasing and buying powers. Here are some of the banking
areas that the state bank looks into;

• State Bank’s Shariah Board Approves Essentials and Model Agreements for Islamic
Modes of Financing
• Procedure For Submitting Claims With Sbp In Respect of Unclaimed Deposits
Surrendered By Banks/Dfis.
• Banking Sector Supervision in Pakistan
• Micro Finance
• Small Medium Enterprises (SMEs)
• Minimum Capital Requirements for Banks
• Remittance Facilities in Pakistan
• Opening of Foreign Currency Accounts with Banks in Pakistan under new scheme.
• Handbok of Corporate Governance
• Guidelines on Risk Management
• Guidelines on Commercial Paper
• Guidelines on Securitization
• SBP.Scheme for Agricultural Financing