Presentation by Amirul HM & Penny Siew at the Asia-Europe Institute - University of Malaya for "Financial & Accounting Ratios for SMEs" subject, IMSME Programme. 2009.

1. Islamic Finance
( In Malaysia )
Amirul Haji Mohamad
QGC 080001
Halalfinancing.blogspot.com
Penny Siew Bee Chew
QGC080005

2. Outline
1. Development
2. Facts and Figures
3. Type of Contracts
4. Examples of Accounts
( Balance Sheet & Income Statement )
5. Some Tips for Malaysian SMEs
6. Conclusion

3. Development -1
Milestones
1969 1983 1993 2003
Pilgrimage Fund Board
Full-fledged Bank Islam Bank Muamalat Foreign Islamic
Islamic banks Malaysia Bhd. Malaysia Bhd. banks
Conventional banks offer Islamic window
Islamic subsidiary
Islamic Stock Broking
Takaful Syarikat Takaful Takaful Nasional, Mayban Takaful, Takaful
Operators Malaysia Bhd. Iklhas, Commerce Takaful
source : BNM

4. Development -2
In General
• LEGAL:
Islamic Banking Act 1983
Malaysia Government Investment Act 1983
Takaful Act 1984
BNM Guide Line
Securities Commission Act 1993
• EDUCATION :
UIA –Islamic University
INCEIF – Islamic Finance University
• GOVERNMENT :Taxation Incentives
• INSURANCES: Takaful ( Islamic Insurances )

5. GUIDELINES :
Some Examples

6. Malaysia’s Parallel
Dual Financial System
Conventional banks Islamic banks
Conventional
banks window
Conventional Islamic Banking
banks Subsidiaries
Insurance Companies Takaful Operators
Conventional financial system Islamic financial system source : BNM

7. Some Differences
CONVENTIONAL ISLAMIC
Interest-based Interest-free
Primarily debt financing Primarily equity financing &
sales transactions
Debt financing is interest-  Financing must be “ASSET-
based and DOES NOT require BACKED”
assets
Derivatives are PERMITTED Derivatives are NOT permitted

8. Facts and Figures
Increasing
Increasing
Increasing
source : BNM

9. Facts and Figures
Latest Update
( Dec 2008 )
Islamic Banking Institutions : RM Million
Total Assets 192,810.40 ( End of Dec 08 ) 13%
Total Financing 104,647.60 ( End of Dec 08 ) 14%
Total Deposits 154,880.90 ( End of Dec 08 ) 14.25%
source : BNM

10. Facts and Figures

11. Facts and Figures

12. Facts and Figures

13. Facts and Figures

14. Some Information
(Islamic Capital Market )

15. Basis For Usury
/Interest Prohibition
• ISLAM
– Quran ( Al-Baqarah,verse 275)
• CHRISTIANITY
- Old Testament
- Roman Catholic
-Pope Clement Clement V (1311)

16. Islamic Banking
Concepts
• Al-Murabahah (cost plus sales) • Al-Mudharabah (Trustee profit-sharing)
• Al-Wadiah Yad Dhamanah (savings • Al-Musyarakah (Joint venture profit
with guarantee) sharing)
• Bai’ al-Dayn (debt trading) Al-Qardhul
• Bai’ Bithaman Ajil (Deferred payment
Hassan (benevolent loan)
sale)
• Bai’ as-Salam (future delivery)
• Al-Ijarah Thumma al-Bai’
• Bai’ Al-Istijrar (supply contract)
• Al-Kafalah (guarantee) (Leasing and subsequently purchase)
• Ar-Rahnu (collateralised borrowing) • Al-Ijarah (Leasing)
• Al-Wakalah (nominating another
person to act)
• Al-Hiwalah (remittance)
• As-Sarf (foreign exchange)
• Al-Ujr (fee)
• Al-Hibah (gift)

17. Type of Contracts
1. Deposits
• Al-Wadiah ( Guarantee Custody )
• Al-Mudharabah ( Trustee Profit Sharing )
• QARDHUL – Hassan ( Benevolent loan/
Deposit )

18. Type of Contracts
2. Financing
• BBA ( Deferred Installment Sales)
• AITAB ( Hire Purchases )
• Mudharabah ( Trustee Profit Sharing )
• Musyarakah ( Joint Venture Profit Sharing )
• Ijarah ( Leasing )
• Sukuk ( Syndication / “Bond”)
• Murabaha (Cost Plus Sales )

19. Islamic ACCOUNTING STANDARDS
Regulatory Body:
(AAOIFI)
Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)
 Registered 1991
( Agreement signed by Islamic Financial Institutions in 1990 at Algeria )
 Based in Bahrain
 An Islamic international autonomous non-profit corporate body that prepares:
accounting, auditing, governance, ethics and Shari'a standards for Islamic financial
institutions and the industry.

20. Regulatory Body:
(AAOIFI)

21. AAOIFI

22. Case Study:
Evolution of Accounting
Standards
*EON Bank Berhad*

23. Balance Sheet & Income Statement
2005 & 2007

24. Balance Sheet
2007

25. Balance Sheet
2005
Consolidated Note of FS
*FS = Financial Statement

26. Income Statement
2007
Consolidated Note of FS
*FS = Financial Statement

27. Income Statement
2005
Consolidated Note of FS
*FS = Financial Statement

28. Income Statement
2005 ( Cont’ )

29. Some Tips
for Malaysian SMEs
Type of Contracts Islamic Finance Conventional
1. DEPOSITS
Current Accounts (CA) *Dividend Paid No Dividend
AMGIA / Fixed Deposit Early Withdrawal Early Withdrawal
(FD) (Pro-rate Dividend) (NO Pro-rate Dividend)
2.FINANCING
Late payment *Compensation for Late Late Payment Charges
Payment (CLP) (LPC)
Joint Venture Available N/A
Letters of Credit *Flat Rate LPC
/ Credit Cards Administration Fee

30. Conclusions
• Profit Sharing Concept ensure Win-Win
Situation
• Sales Transactions ensure price stability
• Asset –Backed Financing ensure less
speculation.
• Islamic Finance is NOT ONLY for Muslim /
Muslim Countries but is for EVERYBODY

31. Thank YOU

32. Development -1
Islamic Banking/Islamic Finance, Islamic Bond and Money
Market
(Pilgrimsage Fund Board)
source : BNM , Conference on Islamic
Banking , Central Bank of UAE , Abu Dhabi