MOVING INTO THE ERA OF

ISLAMIC FINANCE
CONTENTS
The Current Landscape of Islamic Financial System in Malaysia
Comprehensive SME Financing Ecosystem

Accelerating Penetration of IF in SME Financing

Investment Account (IA) as A New Source for
Alternative Financing for SMEs

Reflecting on Malaysia’s Experience

New Framework Implementation Supported by Enabling
Infrastructures

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The Current Landscape of Islamic Financial System in Malaysia
Comprehensive SME Financing Ecosystem
ü Malaysia has a dual financial system that works in parallel, with both playing significant role in assisting SMEs
ü Financing to SMEs by our Islamic financial institutions (IFIs) through application of diverse spectrum of Shariah
contracts continues to trend upward, demonstrating its viability as alternative tools, supported by comprehensive
ecosystem

Diversified Players
ü IFIs &
DFIs ü CCRIS ü 16 Islamic banks
ü 11 Islamic windows
ü 3 International Islamic banks
ü Small Debt ü 6 development financial
Resolution Scheme institutions
(SDRC) Infrastructure
Financing ü National SME supported by
for SME
Resolution & Development Council
Financing &
Management
Development Governance
ü IFIs & DFIs SME • Central Banking Act
ü Islamic
Islamic Financing • Legal & Regulatory
ü Islamic Financial Services Act
SME FINANCING ü BNM Specials
2013
ü Guidebooks Outreach & ECOSYSTEM Funds
Financing & • Shariah Advisory Council
Awareness Guarantee ü Fund for Small & • Dispute Resolution
Programmes Conventional Schemes Medium Industries 2
• Law Harmonisation Committee
ü New Entrepreneurs
Avenues to Fund 2
Seek ü Micro Enterprise
ü Roadshows
Information & Fund
Redress
ü Green Technology
Financing Scheme
ü BNMLINK, … continuous efforts to improve
ü Financial Mediation
TELELINK &
MobileLINK Bureau
access to financing for SMEs

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Accelerating Penetration of IF in SME Financing
Investment Account (IA) as A New Source for Alternative Financing for SMEs
A Framework for New Offering
Possible matching of funds sourced from IA to diverse forms of alternative financing under Islamic Finance
Services Act (IFSA) 2013

Islamic Deposit Customers Investment Account (IA)

• Principal-guaranteed placement with flexible
withdrawal
• Risk-transfer mechanism
• Funds are pooled to create financing with
financial risk borne by Islamic banks
• Non-guaranteed risk-capital
• Risk-sharing mechanism
• Funds are channeled directly into specific
investment purposes with financial risk borne by
customers

Application of various Shariah Application of various Shariah

contracts to structure diverse range contracts to source investment fund
of financing for specific purpose
ü Debt-based financing
ü Equity-based financing
Islamic Banks ü Profit & loss sharing (Musharakah)
perform investment intermediation functions ü Profit sharing, loss bearing (Mudarabah)
ü Leasing & Factoring Due-diligence |Suitability Assessment
ü Trade financing ü Agency agreement (Wakalah)
Matching |Monitoring | Reporting

The Alternative
1 Various participation modes based on Shariah contracts used encourages
Financing for SMEs financing of productive activities
ü Enhance access to financing for targeted economic sectors from greenfield
and new growth areas to mature
The Mechanics 2 Provide competitive financing rate with efficient pricing
ü focus more on business risk, rather than on creditworthiness alone

3 Freedom of choice for customers to invest based on individual risk appetite

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Reflecting on Malaysia’s Experience
New Framework Implementation Supported by Enabling Infrastructures

ü Broaden & diversify range of products to cover

ü Provide clarity of laws ensures effective
the diverse needs of customers
enforceability of IF transactions
• Positioning of investment account as a
• IFSA 2013 provides legal certainty
unique value proposition and
in structuring assets & liabilities
competitive source of financing for SMEs
Legal
framework Products
ü Provide clarity on
regulatory framework in ü Leverage on
line with the Regulation Delivery innovative & quick
international standards time-to-market
framework system delivery channels or
(adoption of IFSB &
Basel core principles) platform
ENABLING
ü Define clear tax
INFRASTRUCTURES ü Nurture pool of
treatment on talent & experts in
transactions & Tax Talent specialised areas
documentation guided treatments to meet industry
by neutrality treatment needs
Market Liquidity
players
ü Strong players with niche ü Ensure efficient & proper
specialisation in focused functioning of financial
business areas intermediation within banking
system

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Investment Account Product Innovation Hidden

An Alternative Financing for Targeted SMEs

ü Leveraging on Investment Account framework and Islamic banks’ expertise, infrastructure & network, investors
can collaborate with Islamic banks to help finance targeted sectors
ü Investors may define investment mandate and eligibility criteria for the financing to be accommodative & at
competitive rate

The Mechanics
1 3
Strategic investor seeks to assist Islamic bank structures the
financing of targeted sectors financing contracts & leverage on
(e.g. halal food, oil & gas) its networks to extend the products

2 4
Strategic Investors places funds with Islamic Islamic bank, acting as fund Targeted
Islamic bank under manager, evaluates & matches
Investor Investment Account with
Bank SMEs
eligible SMEs to the funds to
clear investment mandate help them grow their businesses

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