The Islamic financial system in Malaysia has witnessed a tremendous growth in demand, acceptance and development since its introduction in 1963. It began with the establishment of the Malaysian Pilgrims Fund Board and the country’s first Islamic bank, Bank Islam Malaysia Berhad, which began operations on 1 July 1983. Since then, BIMB has become the core component of Malaysia’s Islamic financial system. With its initial objective confined to the development of a viable and modern alternative to meet financial needs, the Malaysian model is now one of the most advanced Islamic banking systems in the world.
Objectives
The ultimate goal of the Malaysian Islamic financial model is to operate in parallel with Malaysia's conventional financial system. To achieve this, the Islamic financial system presents itself as a viable alternative to the more established, conventional system. A specific legal framework and financial instruments are pre-requisites to the Islamic financial system. Initially, an Islamic Banking Act was enacted to cater for this system. As the system developed and new components within it were introduced, legal rules such as the Takaful Acts and rules governing the Islamic Interbank Money Market were issued. Because of the pressing need to kick start the expansion of the Islamic Banking system, the Central Bank later allowed the conventional banking institutions to offer Islamic banking services using their infrastructure. The option was seen as the most effective and efficient mode of increasing the number of institutions offering Islamic banking services quickly and inexpensively. Following this, on 4 March 1993, BNM introduced "Skim Perbankan Tanpa Faedah", or SPTF, which became the “Skim Perbankan Islam - SPI” in 1998. In October 1996, BNM issued a model financial statement for the banking institutions participating in the SPI, requiring them to disclose the Islamic banking operations as an additional item under the Notes to the Accounts. In harmonizing difference in opinion, the NationalShariah Advisory Council, the highest deciding authority on Shariah issues pertaining to Islamic Financial System, was set up in 1997.
To prepare the domestic system for future challenges, BNM formulated the Financial Sector Master Plan, a comprehensive ten year strategy to evolve a competitive, dynamic and resilient financial system that could withstand challenges caused by globalisation and liberation of the financial markets. The Islamic banking sector is recognized as one of the major potential growth sectors addressed in the FSMP. The Malaysian experience of Islamic Banking has had a tremendous impact on neighbouring countries and others across the globe. Islamic banking services in Malaysia have aided both Muslim and non-Muslim customers, and helped the country's economic development and national building process.
