Malaysia was one of the pioneering countries to have introduced Islamic banking and is highly committed in not only developing an Islamic banking system but also a complete Islamic financial system. The Islamic banking system in Malaysia started in 1983 when the first Islamic bank, Bank Islam Malaysia Berhad (BIMB) commenced its operations. It was the objective of the Malaysian government to develop the Islamic banking system parallel to the conventional system. Instead of establishing many new Islamic banks, the government introduced a concept of ‘Islamic window’, which allows the existing conventional banks to introduce Islamic banking products to customers. The Central Bank of Malaysia or Bank Negara Malaysia (BNM) encourages local banks to convert their Islamic banking department into subsidiaries and allows foreign Islamic banks to establish their subsidiaries in Malaysia.
An important milestone taken by BNM in positioning Malaysia as an international Islamic financial hub was by granting three new Islamic bank licenses to foreign parties. These three Islamic financial institutions are from the Middle East, namely the Kuwait Finance House, Al-Rajhi Banking & Investment Corporation. BNM also issued five new licences for domestic banks to create Islamic subsidiaries. The RHB Bank is the first local bank to have a full fledge Islamic bank subsidiary.
Islamic banking products have been well accepted by Malaysians. This is reflected by the increasing amounts of total deposits and total loans that are based on Islamic principles placed by Muslim and non-Muslim customers. In the case of BIMB for example, at the end of June 1984 (the first year of operation), the total deposits and total loans were RM241 million and RM162 million respectively. At the end of 1994 (the 10th year of its operations), total deposits increased RM2,548 million whilst total loans increased to RM977 million. The corresponding figures for the financial year... [continues]
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