Islamic Finance
The Journal of Applied Business Research – January/February 2009
Volume 25, Number 1
The Evolution Of Islamic Finance In Southeast Asia: The Case Of Malaysia
(1)
Rika Nakagawa, Institute of Developing Economies, Japan
ABSTRACT The purpose of this paper is threefold: to explain why the Islamic financial system was introduced in Malaysia; to outline how the Malaysian government has promoted this system; and to analyze the development of the Islamic financial system with a specific focus on the banking sector. In Malaysia, the first Islamic bank, Bank Islam Malaysia Bhd., was established in 1983. One turning point of the Islamic financial system in the country was the Financial Sector Master Plan presented by the central bank in 2001. The government, in accordance with the plan, has taken a strong initiative in the development of an Islamic financial system. As a result, the country has succeeded in promoting a comprehensive Islamic financial system, banking and insurance sectors and capital markets. In the banking sector, this paper reveals that the profit-sharing system does not seem to be popular in this country although the reward system is central to Islamic Finance. In order for further development of the Islamic financial sector, the reasons why the percentage of contracts under the profit-sharing system is small need to be analyzed. Keywords: Islamic Finance in Malaysia, Financial Sector Master Plan, New Economic Policy, Bank Islam Malaysia Bhd., Islamic Banking Scheme
INTRODUCTION
I
n the globalized economy, large amounts of capital are moving rapidly around the world. It is often pointed out that international capital flows have changed since September 11, 2001. The income of oil producing countries has increased due to a sharp increase in the price of oil; wealthy people in these countries are starting to consider how better to manage their money. Islamic financial products have become one of the sources for investments. Islamic
Volume 25, Number 1
The Evolution Of Islamic Finance In Southeast Asia: The Case Of Malaysia
(1)
Rika Nakagawa, Institute of Developing Economies, Japan
ABSTRACT The purpose of this paper is threefold: to explain why the Islamic financial system was introduced in Malaysia; to outline how the Malaysian government has promoted this system; and to analyze the development of the Islamic financial system with a specific focus on the banking sector. In Malaysia, the first Islamic bank, Bank Islam Malaysia Bhd., was established in 1983. One turning point of the Islamic financial system in the country was the Financial Sector Master Plan presented by the central bank in 2001. The government, in accordance with the plan, has taken a strong initiative in the development of an Islamic financial system. As a result, the country has succeeded in promoting a comprehensive Islamic financial system, banking and insurance sectors and capital markets. In the banking sector, this paper reveals that the profit-sharing system does not seem to be popular in this country although the reward system is central to Islamic Finance. In order for further development of the Islamic financial sector, the reasons why the percentage of contracts under the profit-sharing system is small need to be analyzed. Keywords: Islamic Finance in Malaysia, Financial Sector Master Plan, New Economic Policy, Bank Islam Malaysia Bhd., Islamic Banking Scheme
INTRODUCTION
I
n the globalized economy, large amounts of capital are moving rapidly around the world. It is often pointed out that international capital flows have changed since September 11, 2001. The income of oil producing countries has increased due to a sharp increase in the price of oil; wealthy people in these countries are starting to consider how better to manage their money. Islamic financial products have become one of the sources for investments. Islamic