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 A group or network of institution that provide
financial service
 The banking system, comprising commercial banks,
investment banks, and Islamic banks, is the primary
mobilize of funds and the main source of financing to
support economic activities in Malaysia.
 The banking is the largest component of the financial
system accounting for about 67% of the total asset of
financial system.

• Bank Negara Malaysia (BNM) established on 26 January

1959, under the Central Bank of Malaya Ordinance 1958.
Objectives of BNM
• To issue currency and keep reserves to safeguard the value
of the currency;
• To act as a banker and financial adviser to the Government;
• To promote monetary stability and a sound financial
structure; and
• To influence the credit situation to the advantage of
Malaysia. The introduction of the Banking and Financial
Institutions Act 1989 (BAFIA) on 1 October 1989 extended
BNM’s powers for the supervision and regulation of
financial institutions and deposit-taking institutions who
are also engaged in the provision of finance and credit.

Compilation for print
the notes and forge the
Under Malaysia coins
currency (ringgit) act To issue the exchanged
Bnm starts to issue the
1978 Malaysia dollar of notes and coins
currency by itself
and cent are changed to
on12th June 1967 Liable for safety and
“Ringgit” and “Sen”
respectively destroy the note plat
and coin diecast .
 Commercial banks were brought under BNM supervision
through Banking Act, 1973, but this was subsequently
replaced by the BAFIA in 1989.
• Definition of Commercial Banks - Under BAFIA 1989, a
“bank” is defined as a person which carries on banking
business. “banking business” in turn defined as: The
business of: i. Receiving deposits on current account,
deposit account, saving account or other similar account.
ii. Paying and collecting cheque drawn by or paid in by
customers iii. Provision of finance; or
• Such other business as the Central Bank, with the
approval from the Minister of Finance, may prescribe
 The provision of finance under BAFIA includes:
(a) The lending of money
(b) Leasing business
(c) Factoring business
(d) The purchases of bills of exchange,
promissory notes, certificates of deposits,
debentures or other negotiable instruments and
(e) The acceptance of any liability, obligation or
duty of any person.
The main functions of commercials banks are to
 Retail banking services such as the acceptance of
deposit, granting of loans and advances, and financial
 Trade financing facilities such as letters of credit
discounting of trade bills, shipping guarantees, trust
receipts and Banker’s Acceptances
 Treasury services
 Cross border payment services
 Custody services such as safe deposits and share
• Commercial banks are also authorized to deal in
foreign exchange and are the only financial
institutions allowed to provide current account
1. Deposit-taking: investment banks will continue to be allowed to
mobilize deposits. However, the minimum deposit threshold will be
raised from minimum deposit threshold will be raised from the
present RM200,000 to RM500,000 (excluding repurchase
agreements where the minimum transaction amount is RM50,000)
 Investment banks will be also be interbank players. In the longer
term, investment banks should tap the capital market to meet their
funding needs, as practiced by the international investment banks.
2. Lending: In principle, lending activities should be confined to
those that are necessary for investment banks to complement their
fee-based activities and to offer comprehensive investment banking
packages to their clients.
3. Fee based activities:
 a. Corporate finance & Advisory
 b. Investment & Portfolio services
 c. Corporate banking
 d. Money market & treasury
 An Islamic is a financial institution that operates
with the objective to implement the economic and
financial principles of Islam in the banking
arena. Islamic banking has been defined in a
number of ways.
 • According to the Islamic Banking Act 1983,
Malaysia, an Islamic bank is “… a company
which carries on Islamic banking business.
Islamic banking business means banking
business whose aims and operations do not
involve any element which is not approved by the
religion of Islam…” - Islamic Banking Act, 1983
• The primary objective of establishing Islamic banks is to
spread economic prosperity within the framework of Islam by
promoting and fostering Islamic principles in the business
sector. Key objectives are listed below:
I. Offer Financial Services: Islamic banking statutes and laws
strictly in line with Syariah principles for financial
transactions, where riba and gharar, are all identified as
unIslamic. The trust is towards financing on risk-sharing and
strict focus on halal activities. The focus is on offering
banking transactions adhering to Syariah principles and
avoiding conventional interest-based banking transactions.
II. Facilitate Stability in Money Value: Islam recognises
money as a means of exchange and not as a commodity, where
there should be a price for its use. Hence, riba-free system
leads to stability in the value of money to enable the medium
of exchange to be reliable unit of account.
 III. Economic Development: Islamic banking fosters
economic development through utilities like Musharakah,
Mudhabarabah, etc., with a unique profit and loss-sharing
principle. This establishes a direct and close relationship
between the bank’s return on investment and the
successful operations of the business by the entrepreneurs,
which in turn leads to the economic development of the
 IV. Optimum Resources Allocation: Islamic banking
optimises allocation of scarce resources through investment
of financial resources into projects that are considered to be
the most profitable, religion permissible and are beneficial
to the economy.
 V. Equitable Distribution of Resources: Islamic
banking ensures equitable distribution of income and
resources among the participating parties – the bank, the
depositors and the entrepreneurs – with its profit-sharing
approach which is one of a kind
 VI. Optimist Approach: Profit-sharing principle
encourages banks to go for projects with long-term gains
instead of short-term gains. This leads the banks to
conduct proper studies before getting into projects,
which safeguards both the banks and investors interests
in total. High returns distributed to shareholders
maximise the social benefits and bring prosperity to the
Provide financing facilities such as:
 Project financing under the principles of Mudharabah
and Musyarakah.
 Lease financing under the principles of Al-Ijarah and Al-
 Hire purchase financing under the principles of Al Bai
Bithaman Ajil.
 Trade financing (including bill financing and letter of
credit) under principles of Murabahah and Wakalah.
 Guarantee under the principles of Al-Kafalah.
 Benebolent loans under the principles of Qard Hassan.
 Insurance under the principles of Takaful
• Labuan IBFC is Malaysia’s very own integrated financial
centre, providing a wide range of corporate, trust and
company secretarial services.
 It was made a Federal Territory directly under the
administration of the Federal Government of Malaysia in
1984. The development of Labuan as an international
financial centre only began in October 1990.
 The statutory body responsible for the development of
Labuan IBFC is the Labuan Offshore Financial Services
Authority (LQFSA).
 Beginning January 2008, Labuan IOFC has been repositioned
as Asia’s most connected, convenient and cost-efficient
International Business and Financial Centre, with a specific
focus on business incorporations.
 Is basically a small territory or jurisdiction that imposes low or no taxes
on income, profit, dividend and interest earned carried out by offshore
multinational corporation in or from those jurisdictions. Does not have
any exchange control or limitation or transboundary movement of funds
into and out of the jurisdiction by the offshore company. - No stamp
death, inheritance or estate duties. - No value added tax - Maintains a
high degree of secrecy through or beneficial ownership and
management of the business, financial or other affairs of the company
other than in compliance with the law.
 The roles and objectives of IOFC
 In summary, the objectives of establishing Labuan IBFC are as follows:
To enhance the attractiveness of Malaysia as an investment centre. To
supplement the onshore financial system centre in Kuala Lumpur by
tapping the growing demand for tailored financial and related services.
To strengthen the contribution of broad financial sector to the progress
of diversified economic growth. To form part of the broad national
strategy to spread out and diversify the growth opportunities of the
nation, focusing attention on the further development of East Malaysia
in terms of industrial and services (including tourism) development.
 • An International Currency Business Unit (ICBU) of a
licensed institution, namely Islamic bank, commercial bank
investment bank, is permitted to conduct a wide range of
Islamic banking business under Section 124 of the Banking
and Financial Institution Act 1989 (BAFIA) in
international currencies other than Malaysian ringgit
 • The following entities are eligible to apply for approval to
establish an ICBU:
 (i) An Islamic bank which is licensed under the IBA
 (ii) A bank licensed under the BAFIA (referred to in these
Guidelines as “commercial bank”) and
 (iii) A merchant bank licensed under the BAFIA and holds
relevant licenses under the securities laws2 to carry on
investment banking business (referred to in these
Guidelines as “investment bank”).