Introduction & Updating the Global

Islamic Banking Operations

Prof. Dr. Mohd. Masum Billah

www.drmasumbillah.blogspot.com

Shangri-La- Hotel, Jakarta

BRIEFING ON ISLAMIC BANKING AND

FINANCE SYSTEM
1. Relationship Between Islam and Banking
2. Pre-requisite For SPI Implementation
3. Profit Sharing Operation
4. Deposit Products
5. Islamic Money Market Products
6. Electronic Banking
7. Product and Target Market

WHY SPI?
If you are a Muslim.
Al Quran 2:275:Allah permit trade,
forbid riba.
Al Quran 2:276:Allah deprives the gains
of all blessings through riba, whereas He
blesses charitable deeds with manifold
increase. And Allah bears no love for the
ungrateful sinner
Our duty to God
Man to man relationship in Islamic Banking

WHY SPI?
If you are a non-Muslim.
Profit rate
Floating rate of deposit
A partnership - profit sharing
financing project of universally accepted
values
SPI stresses on trade finance
RHB practises accrued profit
we finance infrastructure projects

RELATIONSHIP BETWEEN ISLAM AND BANKING

IS L A M
A Q ID A H

S Y A R IA H

AKHLAQ

F a ith & B e lie v e

P ra c tic e & A c tiv itie s

M o ra litie s & E th ie s

IB A D A T

M UAM ALAT

M a n T o G o d W o rsh ip

M a n T o M a n A c tiv itie s

P O L IT IC A L
A C T IV IT IE S

ECONOM Y
A C T IV IT IE S
B A N K IN G & F IN A N C IA L
A C T IV IT IE S

S O C IA L
A C T IV IT IE S

PRE- REQUISITE OF SPI IMPLEMENTATION

Separate working fund from conventional banking
IBS operations and accounting system separated
from conventional
Syariah Panel members to oversee SPI operations
and product development

Members of Syariah Panel:

Could Be 3-5 Qualified Members.

With Reasonable Command of Shariah
Knowledge.
With Just (Adl) Personality.

COMPARISION BETWEEN ISLAMIC AND

CONVENTIONAL BANKING
CONVENTIONAL

SPI

FUNDS FROM
INVESTOR/
ENTREPRENEUR

DIVIDEND
FOR
INVESTOR

SPI
FUND
PROFIT FROM
INVESTMENT

INTEREST
TO
CUSTOMER

CONVENT.
FUND

FUND FROM
CUSTOMER/
CAPITAL
INTEREST INCOME

FROM
CUSTOMER
PROFIT
FROM
FINANCING

INTEREST FROM
MONEY MARKET
OPERATION

PROFIT SHARING OPERATION

SOURCES
OF FUND

APPLICATION

INCOME

OF
FUND
DISTRIBUTABLE
INCOME
PROFIT
SHARING

ALLOWABLE
COST

PROFIT SHARING OPERATION

SOURCES
OF FUND

Wadiah Savings Account

Wadiah Students Savings Account
Wadiah Current Account
Mudharabah Current Account
Mudharabah Gen. Investment Acct.
Mudharabah Special Invest. Acct.
Interbank Investment
Working Capital

PROFIT SHARING OPERATION

APPLICATION
OF FUND

BBA Financing
BBA Refinancing
Study Financing
RHB Unit Trust
Financing
Trade Financing
Interbank Investment
Malaysia Government
Investment Certificate
Islamic Acceptance Bill
Islamic Debt Securities

PROFIT SHARING OPERATION

INCOME

Total Income =
Depositors Income +
Capital Income

PROFIT SHARING OPERATION

ALLOWABLE
COST

minus :
General Provision
Interbank
Investment Cost
Reserve Cost
Working Capital
Income
Deposit cost

PROFIT SHARING OPERATION

DISTRIBUTABLE
INCOME

Income to be
distributed to
customer and bank

PROFIT SHARING OPERATION

PROFIT
SHARING

Customer
(75%)

Bank
(25%)

TERMS OF ACCEPTANCE OF
DEPOSITS
GUARANTEED SAFEKEEPING
( WADIAH )

PROFIT SHARING
INVESTMENT
(MUDHARABAH )

TRADE ( MURABAHAH )

SPI DEPOSIT PRODUCTS

Wadiah Savings Account
Wadiah Student Savings Account
Wadiah Current Account
Mudharabah General Investment Account
Mudharabah Current Account
Mudharabah Special Investment Account
Unit Link Mudharabah

CONCEPT OF WADIAH
Al Wadiah is a contract (akad) between the owner of
the asset and the custodian to safeguard the asset
on behalf of the customer.
Types of Wadiah:
Wadiah Yad Amanah - Trustee Custody
Wadiah Yad Dhamanah - Guaranteed Custody

THE CHANGING STATUS OF WADIAH

CUSTOMER GIVES
CONSENT TO THE BANK
TO USE THE GOODS
Wadiah Yad
Amanah

Wadiah Yad
Dhamanah

RATIONALE ON CHANGING OF STATUS

TO WADIAH YAD DHAMANAH
The custodian is the trustee and guarantor of the
asset/goods
The asset/goods can be used for business purposes
The asset/goods can be mixed with other
asset/goods.
The Bank has to honour the claim on the
asset/goods made by the customer in anytime

WADIAH SAVINGS ACCOUNT

A Wadiah Savings Account is a contract between
the customer and the bank to deposit funds
under guaranteed custody. The customer
allows the bank to use the fund in accordance to
the Syariah.
Payment of Hibah is at the discretion of the
Bank.

WADIAH STUDENTS SAVINGS ACCOUNT

A Wadiah Student Savings Account is similar to
Wadiah Savings Account.. This account is for
children aged between 12-18 years old.
Benefits of Wadiah Student Savings Account
are as follows:RM 1 initial deposit
Hibah is credited monthly into account
No witholding tax on hibah earned

WADIAH STUDENT SAVINGS

ACCOUNT
Multi tier hibah rate i.e..
Deposit up to RM 10,000 will enjoy
prevailing WSA rate
Exceeding RM 10,000 will enjoy 0.5%plus
prevailing WSA rate

EXAMPLE OF HIBAH CALCULATION

Daily Balance Amount
Date in March
(RM)
Accumulated (RM)
1st -10th
1,000
10,000
11st -15th

750.22

3,751.1

16th -27th

1,150.47

13,805.64

28th 31st

1,266.53

5,066.12

Total
Daily Average Balance

32,622.86
=

RM 32,622.86/31

RM 1,502.35

THE CALCULATION OF HIBAH

Hibah

= Daily Average Balance x r % x n/365

which,
r%

hibah rate , e.g 3.5%

number of days in that particular month

e.g. 31 days in March

Example : RM1052.35 x 3.5% x 31/365 = RM 3.13

WADIAH CURRENT ACCOUNT

A Wadiah Current Account is a contract between
the customer and the bank to deposit funds under
guaranteed custody. Minimum deposit is RM 500.
Benefits of Wadiah Current Account are as
follows:Hibah is paid to eligible customers - currently
only government Wadiah Current Account subject
to minimum balance of RM25,000-00
Interbranch deposit/withdrawal services at more
than 200 branches.

CONCEPT OF MUDHARABAH
The Bank accepts deposits for investment under the
Islamic principle of Mudharabah which is a contract
between two parties i.e. the owner of capital & the
entrepreneur.
The profit derived from the business will be shared
based on the agreed profit sharing ratio between the
customer and the Bank.

CHARACTERISTICS OF MUDHARABAH
Profit will be shared based on the agreed profit sharing
ratio between the depositor and the entrepreneur.(e.g
75:25)
Depositor will not be allowed to involve in business
transaction
75%

depositor
100%

profit

Business transaction
loss

25%

entrepreneur
0%

MUDHARABAH DEPOSIT
PRODUCTS
Mudharabah Current Account
Mudharabah General Investment Account
Mudharabah Special Investment Account
Unit Link Mudharabah

MUDHARABAH CURRENT ACCOUNT

Mudharabah Current Account is based on the
contract of profit sharing between the customer
and bank. The profits earned from investment will
be shared between the customer and the bank based
on pre-determined profit-sharing ratio (PSR).
Initial deposit amount is RM 2,000.
Benefits: Dividend paid monthly based on daily balance
which exceeds RM2,000 based on PSR
Cheque books for withdrawals and payments

MUDHARABAH CURRENT ACCOUNT

Free Takaful personal accident protection
insurance up to RM100,000
25 % discount on commission for travelers
cheques purchased at bank
Electronic banking services such as ATM,
Phonebanking & RHB OnLine
Automatic transfer of funds from Wadiah Savings
Account/Wadiah Current Account to Mudharabah
Current Account
Gift (Nokia Handphone up to 31 December)

MUDHARABAH GENERAL
INVESTMENT ACCOUNT (MGIA)
The Bank accepts deposits for investment under
the Islamic principle of Mudharabah which is a
contract between two parties i.e. the owner of
capital & the entrepreneur.
The owner of the fund places money for a
stipulated period of time for the purpose of
participating in the sharing of profits made from
the Banks investment of their funds.

MUDHARABAH GENERAL
INVESTMENT ACCOUNT (MGIA)
Features of MGIA
Tenure ranges from 1,3,6,9,12,15, 24, 36, 48
and 60 months
Minimum amount for 1 month investment is
RM 5,000
Minimum amount for 3 months and above
investment is RM 500
Profit sharing
70% customer : 30% bank (1 month)
75% customer : 25% bank (3 mths & above)
Dividends are accrued on daily basis

MUDHARABAH GENERAL
INVESTMENT ACCOUNT (MGIA)
Withdrawal before maturity
Less than 1 mth - no dividend
1 mth to 3 mth - 1 mth prevailing MGIA rate
calculated on number of days completed
3 mth and above - 75% of total dividend accrued

DIVIDEND COMPUTATION FOR MGIA

Adopts a daily computation of dividend

method rather than based on the average rate
upon maturity of each tenor.

MGIA VS FIXED DEPOSIT

12

RATE (%)

10
8
6
4
2
0

MGIA 1m

FD 1mth

MGIA VS FIXED DEPOSIT

12

RATE (%)

10
8
6
4
2
0

MGIA 3m

FD 3mths

MGIA VS FIXED DEPOSIT

12

RATE (%)

10
8
6
4
2
0

MGIA 6m

FD 6 mths

UNIT LINK MUDHARABAH

Unit-Link Mudharabah is the first Islamic investment
plan that combines the benefits of Mudharabah General
Investment Account (MGIA) with Mudharabah Fund,
which is an Islamic Unit Trust Fund. Under this product,
customer can place funds in MGIA and at the same time
purchase Mudharabah Unit Trust for the same amount.
Eligibility
Individual of 18 years old and above.
Maximum two joint account holders, one of whom
must be at least 18 years of age.

OTHER SERVICES AVAILABLE

UNDER SPI
ATM Services
Autocredit Services
Phonebanking Services
Online
CAMS

ISLAMIC MONEY MARKET PRODUCTS

Full range of Islamic Money Market products

including : Mudharabah Special Investment Account (MSIA)
Islamic Accepted Bills (IAB)
Islamic Debt Securities (short/long term)
Islamic Negotiable Instrument (INI)
Government Investment Certificate (GIC)
Bond Mudharabah Cagamas

MUDHARABAH SPECIAL INVESTMENT

ACCOUNT
Unlike the Mudharabah GIA, the ratio of profit
sharing for Mudharabah SIA is negotiable
between the customer and the bank.
Minimum amount is RM 500,000
Tenure 28 to 92 days (month to month)
Yield = 4.00% (after profit sharing)
PSR is negotiable based on R i.e 12 months
gross profit rate
No profit is paid if withdrawals are made before
maturity

MUDHARABAH SPECIAL
INVESTMENT ACCOUNT
We accept investment rollovers
Rollovers can be arranged upon maturity based
on a new profit sharing ratio negotiated between
customer and bank.

ISLAMIC ACCEPTED BILLS(IAB)

Similar to BAs formulated on Islamic principles
Bills of exchange created based on deferred lump
sum payment or Murabahah principle
Customers can invest in IAB at prevailing market
rate or via Forward order *(REPO)
Minimum amount is RM 30,000
Tenure of 21 days to 200 days
Maximum tenure is not more than 200 days
Yield of 2.50% to 3.00%

ISLAMIC DEBT SECURITIES (IDS)

Short Term IDS
Issued by corporate under the principles of Murabahah
or Suk' Al-Ijarah.
Short term notes @ Murabahah known as MUNIF
Short term notes @ Suk' Al-Ijarah known as SARUF
Minimum tenure of 1 month up to maximum of 1 year
Minimum amount is 500,000
Yield of 3.10% to 3.80% (indicative)
Depend on availability of papers in the secondary
market

Long term IDS

Known as Islamic Corporate Bonds.
Issued via tender or offered by an Arranger
Issued under the principles of Bai Bithaman Ajil
(cost plus profit margin) or Mudharabah (profit
sharing) or Al Ijarah (leasing)
Tenure > 3 years
Minimum amount RM 1 mil
Yield of 5.25% to 6.50% (indicative)
Earn income semi annually or issued at a discount
The bonds are rated by Rating Agency of Malaysia
(RAM) and Malaysia Rating Corporation (MARC)

INDICATIVE RATES OF RETURN

Instruments Tenure Liquidity Rates (16/10/99) Risk
---------------------------------------------------------------------------------Mudharabah 1,3,6,9 Average
General
and
Investment
12 months
Account

1 m 3.30%
12 m 4.05%
After profit
sharing

Bank
Risk

Mudharabah 28-92days Very

Special
Good
Investment
Account

2.80% average Bank

Monthly revision Risk
After profit
sharing

BUDGET FOR DEPOSIT 30/6/2000

TYPES

30/6/99
('000)

GROWTH
('000) %

30/6/2000
('000)

WADIAH SAVINGS
ACCOUNT

92,000

58,000

63.0% 150,000

WADIAH CURRENT
ACCOUNT

278,700

41,300

14.8%

MUDHARABAH
12,600
CURRENT ACCOUNT

87,400

693.7% 100,000

MUDHARABAH GIA

794,000

406,000 51.1%

MUDHARABAH SIA

12,000

68,000

TOTAL

1,189,300

660,700 55.6%

320,000*

1,200,000

566.7% 80,000

* of which RM 250 mil. is from Government A/C.

1,850,000

MIXED
%
8.1%
17.3%
5.4%
64.9%
4.3%
100%

PRODUCTS & TARGET MARKET

PRODUCT TYPES

TARGET MARKET
PRIMARY

SECONDARY

MUDHARABAH
EXECUTIVES, PAYROLL
CURRENT ACCOUNT A/Cs, PROFESSIONALS
HIGH NET- WORTH
INDIVIDUALS, NON-PROFIT
ORGANIZATIONS
e.g. Mosques, Schools,
Associations

ADULTS,
GOVERNMENT
SERVANTS &
EMPLOYEES

WADIAH CURRENT
ACCOUNT

BUSINESS &
COMPANIES

STATE/FEDERAL
GOVERNMENT
STATUTORY BODIES
.e.g. LPN, EPF, Tabung Haji

PRODUCTS & TARGET MARKET

PRODUCT TYPES

TARGET MARKET
PRIMARY

SECONDARY

WADIAH SAVINGS
ACCOUNT

ADULTS, WORKERS & NONEXECUTIVES

EMPLOYEES,

WADIAH STUDENT
SAVINGS ACCOUNT

STUDENTS BELOW 18
YEARS AGE

MUDHARABAH GIA

GOVERNMENT/STATUTORY, EMPLOYEES,
BODIES, UNIT TRUST AND
PROFESSIONALS
CORPORATIONS
& COMPANIES

UNIT LINK
MUDHARABAH

INDIVIDUAL SAVERS AND

INVESTORS

PRODUCTS & TARGET MARKET

PRODUCT TYPES

TARGET MARKET
PRIMARY

MUDHARABAH SIA

HIGH NETWORTH
INDIVIDUALS,
CORPORATIONS,
GOVERNMENT
STATUTORY BODIES

MONEY MARKET
INSTRUMENTS
(REPO, IAB, ISLAMIC
PAPERS)

GOVERNMENT/STATUTORY
BODIES, CORPORATIONS,
COOPERATIVES AND UNIT
TRUST

SECONDARY

QUESTIONS
AND
ANSWERS

THANK YOU