Introduction & Updating the Global Islamic Banking Operations Prof. Dr. Mohd. Ma’sum Billah ...

Introduction & Updating the Global Islamic Banking Operations

Prof. Dr. Mohd. Ma’sum Billahwww.drmasumbillah.blogspot.com

Shangri-La- Hotel, Jakarta

1. Relationship Between Islam and Banking2. Pre-requisite For SPI Implementation3. Profit Sharing Operation 4. Deposit Products5. Islamic Money Market Products6. Electronic Banking7. Product and Target Market

BRIEFING ON ISLAMIC BANKING AND FINANCE SYSTEM

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 System.

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

A Q ID A HF aith & B elieve

IB A D A TM an To G od W orship

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

B A N K IN G & FIN A N C IA LA C T IV IT IE S

E C O N O M YA C T IV IT IE S

S O C IA LA C T IV IT IE S

M U A M A L A TM an To M an Activities

S Y A R IA HP ractice & Activities

A K H L A QM oralities & E thies

IS LA M

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 Shari’ah

Knowledge. With Just (‘Adl) Personality.

COMPARISION BETWEEN ISLAMIC AND CONVENTIONAL BANKING

CONVENT. FUND

DIVIDENDFOR

INVESTOR

INTERESTTO

CUSTOMERFUNDS FROM INVESTOR/

ENTREPRENEUR

SPI CONVENTIONAL

INTEREST INCOME FROM

CUSTOMER

FUND FROMCUSTOMER/

CAPITAL

INTEREST FROM MONEY MARKET

OPERATION

PROFITFROM

FINANCING

SPI FUND

PROFIT FROM INVESTMENT

SOURCES OF FUND

APPLICATION

OF FUND

DISTRIBUTABLE

INCOME

PROFIT SHARING

INCOME

ALLOWABLECOST

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


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


Total Income = Depositors’ Income +

Capital Income

INCOME


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

ALLOWABLE COST


Income to be distributed to customer and bank

DISTRIBUTABLE

INCOME


Customer (75%)

Bank(25%)

PROFIT SHARING

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

Wadiah Yad Amanah

Wadiah Yad Dhamanah

CUSTOMER GIVES CONSENT TO THE BANK

TO USE THE GOODS

RATIONALE ON CHANGING OF STATUS TO WADIAH YAD DHAMANAHThe 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 accountNo witholding tax on hibah earned

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

WADIAH STUDENT SAVINGS ACCOUNT

EXAMPLE OF HIBAH CALCULATION

Date in MarchDaily Balance(RM)

AmountAccumulated (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 32,622.86

Daily Average Balance = 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%

n = 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 ACCOUNTA 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 RM25,000-00Interbranch deposit/withdrawal services at morethan 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

depositor entrepreneurBusiness transaction

100% 0%

75% 25%

loss

profit

MUDHARABAH DEPOSIT PRODUCTS

Mudharabah Current Account

Mudharabah General Investment Account

Mudharabah Special Investment Account

Unit Link Mudharabah

MUDHARABAH CURRENT ACCOUNTMudharabah 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 Bank’s investment of their funds.


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


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

0

2

4

6

8

10

12

RA

TE

(%

)

MGIA 1m FD 1mth


0

2

4

6

8

10

12

RA

TE

(%

)

MGIA 3m FD 3mths


0

2

4

6

8

10

12

RA

TE

(%

)

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 whommust 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 negotiablebetween the customer and the bank. Minimum amount is RM 500,000Tenure 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 rolloversRollovers can be arranged upon maturity based

on a new profit sharing ratio negotiated between customer and bank.

ISLAMIC ACCEPTED BILLS(IAB) Similar to BA’s 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 daysMaximum tenure is not more than 200 days Yield of 2.50% to 3.00%

ISLAMIC DEBT SECURITIES (IDS)

Short Term IDSIssued by corporate under the principles of Murabahahor Suk' Al-Ijarah.

Short term notes @ Murabahah known as MUNIF Short term notes @ Suk' Al-Ijarah known as SARUFMinimum tenure of 1 month up to maximum of 1 year Minimum amount is 500,000Yield 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 yearsMinimum amount RM 1 mil Yield of 5.25% to 6.50% (indicative)Earn income semi annually or issued at a discountThe 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 1 m 3.30% Bank General and 12 m 4.05% RiskInvestment 12 months After profit Account sharing

Mudharabah 28-92days Very 2.80% average BankSpecial Good Monthly revision RiskInvestment After profitAccount sharing

BUDGET FOR DEPOSIT 30/6/2000

TYPES 30/6/99 GROWTH 30/6/2000 MIXED('000) ('000) % ('000) %

WADIAH SAVINGS 92,000 58,000 63.0% 150,000 8.1% ACCOUNT

WADIAH CURRENT 278,700 41,300 14.8% 320,000* 17.3% ACCOUNT

MUDHARABAH 12,600 87,400 693.7% 100,000 5.4% CURRENT ACCOUNT MUDHARABAH GIA 794,000 406,000 51.1% 1,200,000 64.9%

MUDHARABAH SIA 12,000 68,000 566.7% 80,000 4.3%

TOTAL 1,189,300 660,700 55.6% 1,850,000 100%

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

PRODUCTS & TARGET MARKET

PRODUCT TYPES TARGET MARKET

PRIMARY SECONDARY

MUDHARABAH EXECUTIVES, PAYROLL ADULTS, CURRENT ACCOUNT A/Cs, PROFESSIONALS GOVERNMENT

HIGH NET- WORTH SERVANTS &INDIVIDUALS, NON-PROFIT EMPLOYEESORGANIZATIONS e.g. Mosques, Schools,

Associations

WADIAH CURRENT STATE/FEDERAL BUSINESS & ACCOUNT GOVERNMENT COMPANIES

STATUTORY BODIES .e.g. LPN, EPF, Tabung Haji



PRIMARY SECONDARY

WADIAH SAVINGS ADULTS, WORKERS & NON- EMPLOYEES, ACCOUNT EXECUTIVES

WADIAH STUDENT STUDENTS BELOW 18 SAVINGS ACCOUNT YEARS AGE

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

UNIT LINK INDIVIDUAL SAVERS ANDMUDHARABAH INVESTORS



PRIMARY SECONDARY

MUDHARABAH SIA HIGH NETWORTH INDIVIDUALS,

CORPORATIONS, GOVERNMENTSTATUTORY BODIES

MONEY MARKET GOVERNMENT/STATUTORYINSTRUMENTS BODIES, CORPORATIONS, (REPO, IAB, ISLAMIC COOPERATIVES AND UNIT PAPERS) TRUST

QUESTIONS

AND

ANSWERS

THANK YOU

Introduction & Updating the Global Islamic Banking Operations Prof. Dr. Mohd. Ma’sum Billah ...

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