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Last Updated: Sep 25th, 2006 - 11:36:04 |
VIABLE, RESILIENT & SUSTAINABLE
Islamic Banking & Takaful Lives Up To Its Early Promise
Malaysia is in the proud position of being recognised world-wide as one of the pioneers in the development of an Islamic Financial System. In its short 30-year history, from a fledgling industry striving to fulfil the religious needs of the Muslims, Islamic banking and Takaful has grown into a multi-billion dollar global phenomenon registering consistent year-on-year growth.
On the domestic front, Islamic Banking and Takaful plays an important role in contributing to the growth and development of the Malaysian economy. In 2003, the assets mobilised by the Islamic banking sector, at RM82 billion, comprised 9.7% of the total banking industry, with nearly 70% of this generated by conventional banks with Islamic windows.
Major progress has also been made in the Islamic money markets and capital markets, as well as in the stock market where more than 80% of the counters on the Malaysia Securities Exchange are syariah-compliant.
2004 has seen the granting of three new Islamic banking licences in Malaysia which will further strengthen the domestic market as well as assure integration into the global Islamic banking scene.
IBT Expo 2004 - A World Class Event
The Islamic Banking & Takaful Expo, now in its second year, is the flagship event of the Islamic Finance industry in Malaysia. Organised by the Association of Islamic banking Institutions Malaysia (AIBIM) and IFFM Sdn Bhd, this event is already a well established event showcasing hundreds of exhibitors and attracting tens of thousands of visitors to Putra World Trade Centre, Kuala Lumpur. Banks and Financial Institutions, Takaful Operators, Property Developers, Units Trusts, Media, It & Multi-media and even Car dealerships, plus representatives from Egypt, UAE, Turkey, Pakistan and Sudan, as well as a good selection of Halal producers can be found at IBTW 2004, clearly demonstrating that the various sectors of the Halal industry have already begun a process of overlap and integration, adding strength to all players.
In short IBT Expo is the biggest annual event for the Malaysian Islamic banking fraternity. Endorsed by Bank Negara Malaysia, it brings together all Islamic Financial institutions and Takaful providers under one roof, offering business solutions and networking opportunities for the public.
Themed ‘Your Financial Partnership’, IBT Expo 2004 will further promote Islamic banking and Takaful to the general public, in line with the Malaysian Governments vision as outlined in the Financial Sector Masterplan, and will provide a one-stop-shop for information, awareness and understanding for Muslims and non-Muslims alike.
Officially Launched by Tan Sri Dr, Zeti Akhtar Aziz, the Governor of Bank Negara Malaysia, the Expo has additional content that sets it apart from other Trade shows. There is a full programme over the three days of talks and presentations covering a wide range of topics, from various banking topics and new products, Syariah compliance, and marketing and branding. Bearing in mind that even a banking Expo can be a family affair, the organisers thoughtfully included some family-oriented events such as Nasyid performances, a Treasure hunt and colouring competition.
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As the Official Journal of IBT Expo 2004, The Halal Journal went behind the scenes to talk to the organisers.
Association of Islamic Banking Institutions Malaysia (AIBIM) President Fazlur Rahman Ebrahim said that considering Islamic banks have been around for less than 30 years, it has made tremendous footing.
Statistics show that last year, total assets of Islamic banking operations rose by 20.8 per cent year-on-year to RM82.2 billion, representing about 9.7 per cent of total assets in the country's banking system. Similarly, Islamic loans and deposits accounted for 10.3 per cent and 10.4 per cent of the banking system's total loans and deposits, respectively in 2003.
“At the current growth rate, I believe Bank Negara's Financial Sector Master Plan target for Islamic banking to account for 20 per cent of total banking assets, loans and deposits by 2010 is highly achievable,” Fazlur said, adding that current assets was now 11 per cent.
Islamic banking is of course still a young industry, and like any thing of that age, it has had its teething problems. “The Islamic banking sector has to be united and act as one. It also needs financial and human resources as well as to outline its one objective to ensure the well-being and progress of the country, and in turn the well-being of the ummah.” Fazlur said.
“Without a doubt we need government assistance and encouragement. But Islamic banking has a good future in terms of market share. It is important for us to sustain the growth factor which is why we need assistance, not only from Bank Negara but also from the industry players,” Fazlur said.
AIBIM has 17 members under its wing with two full Islamic banks, which are Bank Islam and Bank Muamalat. Although the Islamic banks are the relative new kids on the block, it has an impressive number of customers. What makes it more interesting that there are also non-Muslim customers. In Bank Muamalat alone, of which Fazlur is the chief executive officer, non-Muslim customers make up 30 per cent. He said the appealing fixed-rate nature of Islamic banking products had generated interest among both Muslims and non-Muslims. In addition, the no-restriction policy adopted by Islamic banks or local conventional banks, which operates through their Islamic windows, has made Islamic products and services well accepted among non-Muslims.
“There is no reason why non-Muslims cannot opt for Islamic banking. It is true that we need to focus on some niche areas like micro financing and also customer service to ensure we keep our customers happy, therefore giving them no reason to revert back to conventional banking,” Fazlur said.
What is Islamic banking and why only now is it playing such a significant role in the banking sector? Fazlur explains that Islam is a religion which has traditionally kept believers from the teller's window. Their Islamic beliefs prevent them from dealings that involve usury or interest, or better known as riba.
“Yet Muslims need banking services as much as anyone and for many purposes: to finance new business ventures, to buy a house, to buy a car, to facilitate capital investment, to undertake trading activities, and to offer a safe place for savings. For Muslims are not averse to legitimate profit as Islam encourages people to use money in Islamically legitimate ventures, not just to keep their funds idle,” he said.
Islam encourages investments in order that the community may benefit. However, it is not willing to allow a loophole to exist for those who do not wish to invest and take risks but rather are content with hoarding money or depositing money in a bank in return for receiving an increase on these funds for no risk (other than the bank becoming insolvent).
Under Islam, either people invest with risk or suffer loss through devaluation by inflation by keeping their money idle. Islam encourages the notion of shared risks and shared returns and promotes it by closing the doors on interest-related profits to investors.
The objective is that high risk investments provide a stimulus to the economy and encourage entrepreneurs to maximise their efforts. Fazlur further adds that Islamic banking cannot be seen as a choice but is a must. “It is seen as a jihad where we provide for fellow Muslims, like a religious practice that is required of every Muslim.” Islamic banking services cater to the same needs as the conventional banks, the only difference is that they are syariah compliance, endorsed by syariah experts.
Muslims are encouraged to purchase and are discouraged from keeping money idle therefore hoarding money is regarded as being unacceptable. “In Islam, money represents purchasing power which is considered to be the only proper use of money. This purchasing power (money) cannot be used to make more purchasing power (money) without undergoing the intermediate step of it being used for the purchase of goods and services,” Fazlur explains.
Islamic banking is estimated to be managing funds of an impressive US$ 200 billion. Its clientele are not confined to Muslim countries but are spread over Europe, United States of America and the Far East.
Islamic banking continues to grow at a rapid pace because of its value-orientated ethos that enables it to draw finances from both Muslims and non-Muslims alike. Fazlur said Islamic bankers, keeping pace with sophisticated techniques and latest developments, have evolved investment instruments that are not only profitable but are also ethically motivated.
Today, with more than two hundred and fifty Islamic financial institutions are operating world-wide, it is clear that Islamic banking is not only here to stay, it is a financial force to be reckoned with.
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