Islamic Insurance: A Modern Approach to Islamic Banking

By Aly Khorshid | Go to book overview

5

THE DEVELOPMENT OF ISLAMIC BANKING AND INSURANCE IN MALAYSIA

A case study

Introduction

Malaysia is a relatively small country of Southeast Asia, whose population is mainly Muslim. Natural resources such as crude oil and gas are the main sources of income, and the economy is dependent on private and foreign investment. With the Takaful Act, 1984, the government of Malaysia is considered to be one of the first to adopt Islamic banking and insurance systems parallel to their conventional counterparts.


The development of Islamic banking in Malaysia

Since the 1970s, Islamic banking has emerged as a new reality on the international financial scene. Its philosophy and principles are, however, not new, having been outlined in the Quran and the Sunna of the Prophet Mohammed. The emergence of Islamic banking is often related to a revival of Islam and a desire of Muslims to live all aspects of their lives in accordance with the teachings of Islam.

In Malaysia, separate Islamic legal provisions and banking regulations exist side by side with those for the conventional banking system. The legal basis for the introduction of banking products along Islamic principles was the Islamic Banking Act, 1983, which came into effect on 7 April 1987. The Act provides the Central Bank with powers to supervise and regulate Islamic banks, similar to the cases of other licensed banks. The Government Investment Act, 1983 was also enacted at the same time to empower the government to issue Government Investment Certificates, (GICs) which are government bonds issued on an Islamic basis. As the Certificates are regarded as liquid assets, Islamic banks could invest in them to comply with the prescribed liquidity requirements as well as to park their temporary idle funds. Malaysia was the first country in the world to issue government bonds of an Islamic character.

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Islamic Insurance: A Modern Approach to Islamic Banking
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Tables ix
  • Introduction xi
  • Acknowledgements xiv
  • 1 - The Meaning of Insurance in Islam 1
  • 2 - Riba (Usury) and Gharar (Risk) 31
  • 3 - Pre-Modern and Modern Jurists' Standing on Insurance 44
  • 4 - The Development of Mutual Insurance in the West 97
  • 5 - The Development of Islamic Banking and Insurance in Malaysia 113
  • 6 - The Development of Islamic Banking and Insurance in Saudi Arabia 132
  • 7 - Basic Principles for an Insurance Scheme Acceptable to the Islamic Faith 155
  • 8 - Conclusions 166
  • Appendix 1 173
  • Appendix 2 180
  • Appendix 3 183
  • Appendix 4 206
  • Notes 208
  • Bibliography 216
  • Index 223
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