Lee Pei Kiat - 828902

Alumni Talk Summary – 16th July 2022

Islamic banking is a form of modern banking based on Shariah principal (Islamic legal

concepts). In conventional banking, interest rate is one of main components to determine the

price, however interest rate is prohibited but trade is allowed in Islamic banking. The avoidance

of prohibitions includes (1) Riba, (2) Gharar, (3) Gambling, (4) Producing and Selling Goods

that are of No Value and (5) Producing and Selling Non-halal Goods. The concepts that are in

accordance with Shariah are Musharakah, Ijarah, Mudharabah, Wakalah and Murabahah.

Managing liquidity is a very important element or functions for bank survival as it is concerned

to both conventional and Islamic banking. Liquidity management ensures sufficient funds to

meet its commitments and the assets are fully funded. Besides, it can withstand withdrawal

pressure from depositors. Interbank Commodity Murabahah (ICM) is a good product for

liquidity management because of its features. ICM, an initiative by Bank Negara Malaysia

(BNM) through the means of a cash deposit adhered from the internationally accepted contract to

east management of liquidity in the Islamic banking industry. The participants of the ICM

activities comprise of the institutions that join the Islamic interbank money market through the

Fully Automated System for Issuing/Tendering (FAST) as a part of the Islamic interbank Money

market auctioned in the ICM under BNM. The Shariah non-compliance event in Tawarrug due to

human factor is a key determinant factor of operational risk exposure. This is particularly true

since people are the ones who operate the business, execute the contract, and implement the

policy. The factors on declining the usage of ICM are the higher brokerage cost, additional cost

compared to conventional banks, lengthy time taken and master agreement too lengthy and

complicated. Dr. MZ Ahmad had proposed a few solutions to tackle the issues on the declining

usage of ICM. The proposed solutions such as BNM mopping up liquidity using ICM instead of
Lee Pei Kiat - 828902
Qard, standardize of ICM agreement by AIBIM. Besides, the Shariah non-compliance event due

to human factor can be done through STP (straight through processing) and solve the issue with

lengthy time needed. Lastly, the higher brokerage cost and additional cost compared to

conventional banks can be resolved by allowing new additional commodity players in the

market.