HISTORY OF DEVELOPMENT ON ISLAMIC BANKING IN MALAYSIA (1983-2007) Malaysia is the first country in the world to have a dual system

of banking and finance. When BNM BAFIA was amended in 1993, most conventional banks in Malaysia set-up full-fledged Islamic subsidiary. BNM Financial Sector Master Plan (FSMP) and the MIFC initiatives help spur further the development of Islamic Banking. Development of Islamic banking in Malaysia from 1983-2007 can be traced as follows : Year 1983 Islamic Banking Act was gazette with the formation of Bank Islam Malaysia Bhd. 4 March 1993 the Finance Minister allowed BBMB, UMBC and Maybank to open Islamic Banking window (known as SPTF - Skim Perbankan Tanpa Faedah) June 1995 Formation of the Association of Islamic Banking Institute Malaysia (AIBIM) 1997 Establishment of BNM Syariah Advisory Council 1 Dec 1998 The term Skim Perbankan Tanpa Faedah-SPTF was changed to Skim Perbankan Islam-SPI couple with the issuance of the new Islamic Banking framework (a bank within a bank concept) to take effect on 2nd January, 2001. Oct 1999 Bank Muamalat, as 2nd Islamic Bank in Malaysia was formed due to merger between BBMB and BOC to form Bumiputra-Commerce Bank.

31 Dec 2001 BNM compliance date where SPI players to achieve at least 8% of the banks total assets.

25 March 2002 BNM launched Financial Sector Master Plan (FSMP)

September 2002 Islamic Banking & Finance Institute Malaysia (IBFIM) was established as the industry owned training and research centre and .

November 2002 The Islamic Financial Services Board (IFSB) was established (function like Basel) to ensure soundness and stability of the Islamic financial system as well as paving the way for its global integration.

31 Dec 2002 Total SPI assets recorded 8.9% (RM 68 billion) of total banking assets, while financing stood at 8.1% and deposit at 10.2% respectively.

8 Jan 2003 BNM introduced the generic names for Islamic Banking products where SPI players shall be allowed to use English term without the Arabic term but the product name shall be hyphenated with the letter I at end of each generic product name.

March 2004 Application deadline for application of 3 full-fledged Islamic banking licenses by foreign parties.

March 2004 Talk about existing bank need to establish an Islamic subsidiary (IS) by 3 January 2004. This IS will be licensed under Islamic Banking Act (IBA)

April 2004 BNM talk about change in the governance of Shariah Consultant.

June 2004 BNM announced they have issued Islamic full-fledged banking license to Kuwait Finance House (KFH), Al-Rajhi Investment Bank, Saudi Arabia and Qatar Investment Group.

July 2004 BNM announced Islamic banking license approved in principle to Bumiputra Commerce Group and RHB Capital.

March 2005 RHB launched RHB Islamic Bank.

May 2005 Commence Tijari commenced business.

June 2005 BNM announced approval of two more Islamic subsidiaries to AmBank and Affin Bank.

June 2005 New BNM GP8-i for Islamic Banks issued.

July 2005 HLB launched Hong Leong Islamic Bank.

July 2005 RHB Capital launched RHB Dow Jones Islamic Index.

Aug 2005 KFH commenced business.

Sept 2005 Deposit Insurance (launched on 1st Sept 05).

Sept 2005 Product Approval Repository System (PARS) introduced by Bank Negara.

Jan 2006 BNM issued 4 takaful licences.

Feb 2006 Inaugural issuance of Sukuk Negara Malaysia Ijarah (SBNMI).

April 2006 Affin Islamic bank & EONCAP Islamic Bank commenced operations.

Sept 2006 Establishment of International Currency Business Unit (ICBU).

Jan 2007 Asian Finance Bank (Islamic bank) commenced operations.

DEVELOPMENT OF ISLAMIC BANKING IN GLOBAL FRONT

1996 Citibank established Citi Islamic Investment Bank (CIIB) to handle Islamic finance deals. Others over the years also followed suits Standard Chartered Bank, ABM Emro, BNP Paribas, Deutsche Bank, JP Morgan Case, The America La Riba Bank etc.

February 1999 Dow Jones launched its Islamic Market Index.

November 1999 Financial Times launched the FTSE Global Islamic Index.

2002 HSBC Islamic banking arm, Amanah Finance involved in Malaysia Global Sukuk worth US$600 Million.

July 2005 RHB Dow Jones Index launched.

November 2005 Lloyds Bank London introduced Islamic products at 22 branches.

THE PRINCIPLE OF ISLAMIC BANKING As we know, the increasing number of Islamic banking in Malaysia is already in strong position to compete with conventional banking that already be the majority of banking of institution banking in Malaysia. Besides that, today people were more alert to the existence of Islamic banking and have learned the principle of Islamic banking practice. However, Islamic banking is able to attract the non-muslim religious to invest in Islamic banking institution. This is because, they realize that invest in Islamic institution is more safe than conventional institution. The principles adopted in the Islamic banking is :

Any predetermined payment over and above the actual amount of principal is prohibited The lender must share in the profits or losses arising out of the enterprise for which the money was lent

Making money from money is not law of Islamic acceptable Gharar (Uncertainty, Risk or Speculation) is also prohibited Investments should only support practices or products that are not forbidden

Malaysia already have organize the structure of Islamic banking and finance system. Further more, Malaysia also framework short terms and long term planning to further strengthen the Islamic banking institution in Malaysia.

ADVANTAGES OF ISLAMIC BANKING

Distribution of dividends based on profits all trading activities. Submission and distribution of fund according to Islamic lawful which is monitored by the syariah controller.

All trading activities is follow lawful and based on Al-Quran and Hadis. Determination of the average for all trading revenue ( the transabtions ) based on the total of profit.

Islamic banking does not have a doubt in terms of revenue source for all trading profits or investment that we do.

Covers 20 % of the market share of banking and insurance and to contribute effectively to the financial sector of the economy.

Strong capital and offer Islamic financial products and services a complete and comprehensive.

RESOUCES

1. Web master.

(2002). The principle of islamic banking.

Retrieved from

http://www.witnesspioneer.org/vil/articles/economics/principles_of_islamic_banking.htm.com 2. Association of islamic banking institutions malaysia. (2011). The development of

islamic banking. Retrieved from http://aibim.com/content/category.com 3. Zulkifli hasan. (2007). Perlaksanaan sistem perbankan islam di malaysia. Perlaksanaan sistem perbankan islam di Malaysia.