These slides aim to provide an overview on the Islamic Banking, with an extensive coverage on the products and services offered along with the profit computation method. We have tried to address the common questions are asked about Islamic Banking, What is Islamic Banking? How is it different from Conventional Banking? How Islamic Product works? Challenges Faced by Banks etc.

1. © 2015 RM Applications Sdn. Bhd. (The information contained herein is subject to change without notice)
Islamic Banking Overview
Banking on Faith Based Products
By Lokesh Gupta
Head, Business & Technology Consulting
By
RM Applications Sdn. Bhd.
No.69-1 Medan Setia 1
Bukit Damansara
50490 Kuala Lumpur
Tel: +603-20932677
Fax: +603-20932607
Website : www.rma.com.my
Email : lokesh@rma.com.my

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Points to Share
1-. Islamic Banking Overview
2-. Comparison
3-. Key Islamic Product Structure
4-. Evolution of Islamic Banking
5-. Closing Thoughts

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Points to Share
1-. Islamic Banking Overview
2-. Comparison
3-. Key Islamic Product Structure
4-. Evolution of Islamic Banking
5-. Closing Thoughts

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What is Islamic Banking ?

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What is Islamic Banking?
Isamic Banking is based on the principles of
‘Trade and Commerce’

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Islamic Banking Principles
Riba Free
Isamic
Banking

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Points to Share
1-. Islamic Banking Overview
2-. Comparison
3-. Key Islamic Product Structure
4-. Evolution of Islamic Banking
5-. Closing Thoughts

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Islamic & Conventional Banking Comparison
Based on Man made Principles
Functions &
Operations
It promotes equity participation
& trading
Risk Ownership
One of the service-oriented
functions to be a Zakat
Collection Centre
Zakat (Religious
Tax)
No provision to charge any
extra money
Penalty
More importance to the public
interest to ensure growth with
equity.
Social Welfare
Greater emphasis on viability of
the project related to economic
development
Economic
Development
Based on Shariah Based
Principles
Pre-determined returns are
assured
One of the service-oriented
functions to be a Zakat
Collection Centre
Charge additional money
(Penalty + Compound Interest)
More often, Bank’s own interest
becomes more prominent
Greater emphasis on client’s
credit worthiness
Conventional BankFunctions Islamic Bank

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Islamic & Conventional Banking Comparison
Varies due to compounding
interest element
Fixed Repayment
Buyer / Seller or Lessor /
Lessee or Investor /
Entrepreneur
Relationship
Muslims & Non-MuslimsCustomers’
Shariah Supervisory Board +
Bank Negara Malaysia
Corporate
Governance
Selling Price is fixed
Debtor / Creditor
Not permissible for Muslims
due to interest element involved
Bank Negara Malaysia
Conventional BankFunctions Islamic Bank

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Points to Share
1-. Islamic Banking Overview
2-. Comparison
3-. Key Islamic Product Structure
4-. Evolution of Islamic Banking
5-. Closing Thoughts

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Saving A/C – Wadiah (Trustee / Safekeeping)

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Fixed Deposit – Mudharabah (Profit Sharing)

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House Financing – Bai Bithaman Ajil (Deferred Payment Sale)

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Murabaha – Mark Up Financing

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Hire Purchase – Ijarah (Rental)

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Project Financing – Musharakah (Equity Participation)

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Points to Share
1-. Islamic Banking Overview
2-. Comparison
3-. Key Islamic Product Structure
4-. Evolution of Islamic Banking
5-. Closing Thoughts

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Evolution of Islamic Finance in Malaysia
Phase I - 1983
− Wadiah Saving
− Wadiah Current
− Mudharabah Investment
− BBA Financing
Phase 2 - 1993
− Islamic Interbank Money Mkt
− Murabahah Working Capital
− Trade Financing
− Asset Securitization
(Mudharabah)
Phase 3 - 1998
− Istisna Financing
− Bai Innah Financing
− Rahnu
− Bai al Dayn
− Ijarah / AITAB
− Islamic Bonds / PDS
− Qardh Hassan
Current Stage
− Musharakah
− Diminishing Musharakah
− Bai Salam
− Mudharabah Financing
− Commodity Murabaha
− Istijrar

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Source : www.ifsb.orgy / Islamic Financial Service Industry Stability Report 2013
Key Statistics

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Points to Share
1-. Islamic Banking Overview
2-. Comparison
3-. Key Islamic Product Structure
4-. Evolution of Islamic Banking
5-. Closing Thoughts

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Islamic Banking Challenges

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Critical Success Factors
 Stress on Ethical Marketing
 Create Awareness via branding and promotion
 Offer convenience and easy access to information and banking online via e-
channels for SME & Corporate via Cash Management, EIPP etc.
 Introduce Sophisticated Islamic products & services such as Wealth
Management, Halal Supply Chain Financing etc
 Returns from Islamic instruments vs. conventional products
 Standardization of Terms / Contracts
 Transformation of traditional client service model for Islamic banks
 Key drivers will be Innovation NOT Migration, infrastructure and regulatory
improvement.
 Islamic Financing product with stress on economic development e.g.
Microfinance

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Thank You
lokesh@rma.com.my

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