BOOSTING
SUSTAINABLE DEVELOPMENT OF
ISLAMIC BANKING
(A Comparative Overview Towards
Malaysia, Indonesia And Singapore From
Legal Perspective)
Agus Triyanta
Faculty of Law, Universitas Islam Indonesia
triyantaagus@yahoo.com & agustiyanta@uii.ac.id
Faculty of Law
1
Islamic Banking: a Global
Phenomenon
Tremendous development of the industry of
Islamic Banking (IB) & Finance.
 Islamic banking currently operates in more
than 75 countries, not only in Muslim
countries but spread over Europe, America
and the Far East.
 today Islamic finance is estimated to manage
funds for US$1.8 trillion in 2013 worldwide.
 This could be substantially higher.
aggregating the retail and wholesale sectors.

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Achievements
Three Biggest Home for Islamic
Finance:
 Saudi Arabia: with asset amounted US$
207 billion.
 Malaysia: with asset amounted US$ 106
billion.
 Uni Arab Emirate: with asset amounted
US$ 75 billion. (Enrst & Young-2013)
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Current Development
Indonesia
• The overall (Rp 179
trillion) and
accounted for 4.3 %
percent of the total
banking system
(October 2012)
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Current Development
Malaysia
• The overall (RM
434,6 billion,end
2011) and
accounted for 24,2
percent of the total
banking system (end
July 2012)
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Current Development
Singapore
• IBA injected with the capital
amounted $500 million
• Parkway Holdings, concluded
the largest Islamic financing
deal in Singapore that far
amounting to $750 million
($580 million)
• developing a $115 million
Islamic syndicated murabahah
facility
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Malaysia
The first bank: The Chartered Merchant
Bank of India, London and China in 1859
 After Independence (1957), Bank Negara
Malaysia (BNM) was established in1959
 Only by the end of 1970, domestic banks
reached equal position with the foreign
ones
 In 1983, first Islamic Bank, Bank Islam
Malaysia Berhad (BIMB) was incorporated,
in coincidence with the worsening trend of
the financial industry in Malaysia.

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Legal Framework of Islamic Banking in Malaysia
Regulation
Companies Act 1965
Central Bank Act (CBA) 1958
Islamic Banking Act (IBA) 1983
Banking and Financial Institutions
Act (BAFIA) 1989
Guidelines on Skim Perbankan
Tanpa Faedah (SPTF) 1993
Islamic Bank
Conventional Bank
 Incorporation
 Incorporation
 Establishment of the
 Establishment of the
Shariah
Advisory
Shariah
Advisory
Council (SAC)
Council (SAC)
 Licensing
 Supervision
 Management
 Establishment of the shariah
advisory board.
 Licensing
 Supervision
 Management
 Products of Islamic Banking
Business
 Requirements and Procedures
establishment of IBU (Islamic
Banking Unit)
 Duties and Responsibilities  Duties and Responsibilities of
of Shariah Committee
the
Shariah
Committee
members
Guidelines on the Governance of
Shariah Committee for the Islamic
Financial Institutions (BNM/GPS1)
2004
Shariah Governance Framework 2010 
Shariah Governance

Shariah Governance
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Indonesia
De
Javasche Bank established by Dutch
colonial in 1827.
Independence in 1945. In 1946, Bank Negara
Indonesia then was established as a central
bank of Indonesia. In 1949, de Javasche Bank
became central bank.
1992: First Islamic Bank; Bank Muamalat
Indonesia (BMI).
1998: Economic crisis gave impetus for the
rise of IB.
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Legal Framework of Islamic Banking in Indonesia
Regulation
Islamic Bank
Undang-Und
Act No. 21 of 
2008 on Shariah Banking






Act no. 23 of
Indonesia
1999 on Bank 
Act Number 7 of 1992 on Banking
as amended by Act Number 10 of
1998
No. 8/19/DPBS Circular Letter to
All Commercial Banks Conducting
Business Based on Shariah
Principles in Indonesia
Bank
Indonesia
Regulation
11/33/2009





Licensing
Prudential Supervision
Management
Conversion of Conventio-nal into
Islamic bank
Sanction & Penalty
Various aspects not regulated in
other previous provisions.
Establishment of the Shariah
Supervisory Board
The Central Bank has to give
necessary support for Islamic
banking business
Licensing
Prudential Supervision
Management
Duties & Responsibilities of
Shariah
Supervisor
Board
members
and
Shariah
Supervisory Activities
Shariah board membership
Conventional Bank Offering Islamic
Banking Business
 Licensing
 Prudential Supervision
 Management
 Conversion of Conventio-nal into
Islamic bank
 Sanction & Penalty
 Various aspects not regulated in
other previous provisions.
 Establishment of the Shariah
Supervisory Board
 The Central Bank has to give
necessary support for Islamic
banking business
 Licensing
 Prudential Supervision
 Management
 Duties & Responsibilities of
Shariah
Supervisory
Board
members and Shariah Supervisory
Activities
 Shariah board membership
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Legal Framework of Islamic Banking in Singapore
Regulation
The Banking Act
MAS Notice 640
MAS Notice 613
MAS Notice 612
MAS Notice 626
MAS Notice 637
Regulation 23
Regulation 4A
Regulation 22
Regulation 23A
Regulation 23B
Regulation 23C
(with effect from 7 May 2009)
Regulation 23D
(with effect from 7 May 2009)
Islamic Bank and Conventional Bank Offering
Islamic Banking Business
 limit property-related exposures
 observe large exposure limits
 the need to maintain eligible assets
 maintain sufficient liquidity buffers
 keep ample provisions
 put in place strict anti-money laundering controls
 comply with minimum regulatory capital
requirements
 Prescribed Purchase and Sale Business
 Prescribed Deposit
 Prescribed Alternative Financing Business
 Prescribed inter-bank purchase and sale business
 Prescribed leasing business
 Prescribed joint purchase and periodic sale
business
 Prescribed purchase and sale business at spot
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price
Constitutional Basis
Aspect
Malaysia
Indonesia
Singapore
State Model
Islamic State
Muslim Country
Secular State
Islamic Position
Formal
Religion
No special
provision on
Islam
All religions are
equal
Constitutional
Basis
Federal
Constitution
(section 3.a)
Pancasila, point 1
The
Constitution
(chapter 15.1)
Muslim
Population
(estimation)
40 millions
210 millions
720 thousands
|
Faculty of Law
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Malaysia’s Legal Respose
Year
Legal Matters
Effect to Banking
1983
Ilsamic Bank Act passed
Establishment of Bank
Islam Malaysia
1993
Interest Free Bank
Scheme (SPTF)
Dramatical rise in Islamic
banking:9 commercial
banks, 6 finance
companies and 2
merchant banks.
1994
Interbank Money Market
2005
Amendment of Stamp
Act
2006
Real Property Gains Tax
Guidelines on the Shariah
Committee (GPS1) 2004
2010
Shariah Governance
Framework 2010
Leverage in Public
confidence
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Indonesia’s Legal Response
Year
Legal Matters
1991
Effect to Banking
Bank Muamalat Indonesia (BMI)
is ready to operate
1992
Amendment of Banking Act
BMI started operation
1998
Amendment of Banking Act
and issuance relevant
regulations: allowance of
shariah wiondow
Two conventional banks opened
shariah services.
2006
Amendment of Shariah Court
Act
Dispute settlement is fall under
shariah court
2008
Islamic Banking Act
Dispute sttlement in the courts
started
2009
Amendment of Tax Act; double
taxation abolished
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Singapore’s Legal Response
Year
Legal Matters
Effect to Banking
2001
Maybank offered Islamic
services
2005
Double taxation
abolished
HSBC introduced takaful
2006
Income Tax and Service
tax abolished
OCBC introduced
islamic service
2007
Islamic Bank of Asia was
established
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Analysis 1:
Both
countries experienced similar
economic intervention by colonials, but
with different impact in banking
development.
In both, the banking crisis has given
impetus for the rise of IB.
the emergence of Islamic bank in Malaysia
was in 1983, almost a decade earlier
compared to the establishment of Islamic
bank in Indonesia
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Analysis 2:
Today, IB
business in Malaysia, in terms of
asset, reaches 24.2% of the entire
banking asset nationally, in Indonesia it is
still 4.3%.
legal framework of Islamic banking in
Malaysia has been robust since the very
beginning, but Indonesia, is still suffering
from the lack of legal basis in some
aspects.
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Analisis 3:
The
performance, of the both is in the
very positive and promising trend, but
the support of the respective
government are different.
Lastly, apart from the speedy growth of
the Islamic banking business in both
countries, the issue with regards to the
Shariah Compliance is also taking place.
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Conclusions 1:



Legal adjustment could leverage the public
confidence of Islamic banking significantly
Differences in the legal adjustment has
clearly affected to the growth and
development of Islamic banking.
Malaysia, has shown its steady rapid
progress compared to their two
counterparts in the region.
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Conclusions 2:


Considering the late birth of Islamic
banking Singapore, it is clear that what
this state achieved is promising.
Whereas Indonesia, the development of
the asset achieved by Islamic banking
needs more leverage through
governmental initiatives, and more
importantly higher legal adjustment
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Recommendations
The rest legal matters need to be resolved:
 Malaysia: Dispute resolutions.
 Indonesia: Harmonisation between
Islamic contract within civil law (in case
for dispute)
 Singapore: Shariah governance aspects
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Thank You- Wassalamualaikum
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