TMR: BNM SAC given 90-day deadline to revert

By Habhajan Singh

Bank Negara Malaysia (BNM) has given itself a 90-day deadline to revert to the courts or arbitrators when asked to provide Shariah advice on Islamic financial matters.



This is mentioned in the recently published manual for courts and arbitrators on how to refer to the Shariah Advisory Council in Islamic Finance (SAC) of the central bank which is available on the BNM website.



In the document dated Feb 10, the SAC takes note its task was only to ascertain the Islamic law relating to issues raised by the courts or the arbitrators.



“The SAC does not have the jurisdiction to make findings of fact or to apply a law on the facts and make a decision, whether on a certain issue or for the case at hand because those matters are within the jurisdiction of the court or arbitrator,” it says.



This is in line with the Central Bank ofMalaysia Act 2009. Section 51 (1) of the act states the central bank ‘may establish a Shariah Advisory Council on Islamic Finance which shall be the authority for the ascertainment of Islamic law for the purposes of Islamic financial business’.



One of the functions of the SAC is, as per Section 52 (1), to ’ascertain the Islamic law on any financial matter and issue a ruling upon reference made to it’.



The recent manual lays out the processes for referral from the courts of law or abitration as provided under Section 56 of the same act.



Section 56 (1) states: ‘Wherein any proceedings relating to Islamic financial business before any court or arbitrator any question arises concerning a Shariah matter, the court or the arbitrator, as the case may be, shall — (a) take into consideration any published rulings of the Shariah Advisory Council; or (b) refer such question to the Shariah Advisory Council for its ruling’.



The manual says when referring a Shariah matter to the SAC, the court or the arbitrator is first required to refer to its published decisions.

They can also contact the SAC secretariat on their initial enquries or to get further information on the earlier decisions.



The manual also provides guidance as to the kind of matters that can be referred to the SAC.



It states, in point No 5, that only Shariah-related matters arising in a court proceeding related to Islamic finance business should be referred to the SAC.



In the next point, the document deals with what constitutes Shariah, falling back to a definition decided at the SAC meeting on Oct 19, 2011. It states: “Questions on Islamic law for matters related to Islamic finance that involves subjects that have or have yet to be ruled on by the SAC. Those questions include, but are not limited to, Islamic finance business aspects like business structure, products or services, implementation or operations, terms and conditions or documentation.”



The above is a translation of the original document which is in Malay, with the English version yet to be published.



On the effects of the Shariah rulings, Section 57 of the same act above states that SAC rulings made in reference of the courts or the arbitrators ‘shall be binding on the Islamic financial institutions’.

[THE MALAYSIAN RESERVE, 31 March 2014]

BNM: Setting the right framework for Malaysia’s future economy

The state of the economy affects both the conventional and the Islamic financial institutions. Here's are views of a senior Malaysian central banker on the state of the economy. It's taken from THE MALAYSIAN RESERVE, a daily business/finance newspaper. 

By Tanu Pandey

At a time when the advanced economies are back on the path of recovery after the financial crisis, the period ahead will be one of transition for the economy, and consequently for macroeconomic policy.

This changing environment carries with it some risks. Bank Negara Malaysia (BNM) has been monitoring developments in the domestic economy and financial system to ensure that risks are dealt with preemptively.

“The advantage of addressing them (risks) early is that they never evolve to become vulnerabilities, especially when circumstances turn adverse,” said BNM deputy governor Dr Sukhdave Singh in a recent discussion on the country’s economy organised by Persatuan Ekonomi Malaysia on the day after the central bank released its annual report.

Here are excerpts from Sukhdave’s comments on the issues.

Dealing with a Financial Crisis

We do not know if there is going to be a crisis in the future, and if there is one, where it would happen. But as an open economy, any crisis that affects the major economies will eventually reach our shores. There isn’t much we can do about that. But we can make our economy as resilient as possible in facing such an external shock.

That includes addressing any vulnerabilities that may be present in our economy. That is why we have acted preemptively to address the issue of household indebtedness. That is why we ensure that our financial system is sound and able to withstand shocks. It is why the government is undertaking the fiscal reforms.

High Household Debt Levels

We expect that the ratio of household debt to gross domestic product will continue increasing because of demographic factors, urbanisation and other factors. We have undertaken measures to ensure that the banks are being prudent in the extension of loans to the household sector.

For example, following the issuance of our responsible lending guidelines, the overall quality of bank lending has increased. Therefore, while the level of household indebtedness may continue to grow, the overall quality of the borrowers is improving due to the more rigorous vetting process for the new borrowers. Our supervision teams are also ensuring that the financial institutions have the appropriate standards of credit assessment and that they have adequate buffers.

Subsidy Rationalisation and its Impact on Prices

We have incorporated some assumptions on price adjustments in our inflation forecast, but frankly, we do not have any advance information of when and by how much the government will reduce subsidies.

These subsidies have grown very large and removing them too rapidly will have a significant negative effect on the economy and economic welfare. Therefore, these subsidies will have to be removed gradually.

From a macroeconomic perspective, the objective is to minimise the potential negative impact on economic growth and inflation. Unfortunately, there will be spillovers to the economy from the reduction in subsidies i n the form of higher prices for goods and services.

For example, higher fuel prices will have to work themselves through the economy. However, this should not be taken by some quarters as an opportunity to indulge in profiteering by increasing prices unreasonably using the pretext of the subsidy reductions. Such behaviour can best be countered through enforcement under legislations such as the Price Control and Anti-Profiteering Act 2011 and the Competition Act 2010.

The government is also undertaking mitigating measures to protect the welfare of the lower income groups, as for example through the fiscal transfers and the exclusion of many essential goods from the Goods and Services Tax that would be introduced in 2015.

The Need to Maintain Foreign Reserves

The ringgit is not a reserve currency and we do not conduct our international transactions in the ringgit. Our international payments and receipts are done using the major foreign currencies. As an open economy that has significant financial and trade flows with the rest of the world, we therefore need to hold adequate foreign exchange reserves to ensure that we are able to meet our international obligations and also to safeguard our economy against shocks such as those created by volatile financial flows.

A component of our reserves is solid in the sense that it is built from past current account surpluses. But there is also a volatile component which relates mainly to short-term capital flows. For long-term resilience, we need to ensure that we have adequate solid reserves to meet our real and financial obligations to the rest of the world over a period of time.

With the growing presence of non-resident funds in our financial markets, having adequate reserves is important to ensure that if there is a sudden outflow of these funds, it would not lead to sharp and disruptive changes in the exchange rate.

Therefore, the foreign exchange reserves meet the needs of the economy and also act as an insurance policy for the country. We are comfortable with the current level of these reserves.

Monetary Policy Action to Arrest Inflation

At this stage, it is cost related factors that are driving the increase in the inflation rate. There are no signs that secondary price increases are occurring and we do not yet see signs that the inflation is becoming more persistent. Therefore, at this stage we do not see a role for monetary policy.

However, we are being vigilant with our surveillance. We do not want inflation to become high before acting. Given that monetary policy has a 12 to 18 months lag before changes in it have the desired impact on macroeconomic variables, we would need to act preemptively if we see that the inflationary pressures are becoming more persistent.

[THE MALAYSIAN RESERVE, 24 March 2014]

AIBIM: Transition of Islamic deposit under IFSA 2013

KUALA LUMPUR, March 20 (Bernama) -- The Association of Islamic Banking Institutions Malaysia (AIBIM) wish to inform that the Islamic Financial Institutions (IFIs) will embark on an exercise to reclassify the Islamic deposits as defined under Islamic Financial Services Act 2013 (IFSA 2013).

The IFSA 2013 has introduced two major classifications of products for the acceptance of money from customers by the Islamic banking institutions, namely Islamic deposits and investment accounts.

Islamic banking institutions will reclassify the Islamic deposits into Islamic deposits and investment accounts.

IFIs will also provide alternative products with considerations that the new products will meet the customers' needs. The IFIs will ensure that the transition process is seamless and will not be inconvenient to the customers. This exercise will be carried out progressively until 30 June 2015.

IFIs will be engaging their customers to provide information and clarification on the transition exercise. Customers may call the IFIs call centres and front line staff to address any queries.
 
About AIBIM

The Association of Islamic Banking Institutions Malaysia (AIBIM) or Persatuan Institusi Perbankan Islam Malaysia was established in 1996 as the Association of Interest Free Banking Institutions Malaysia, with objectives of promoting the establishment of a sound Islamic banking systems and practices and also aims at promoting and representing the interests of its 26 member banks and to render where possible such advice or assistance as may be deemed necessary and expedient to members.

TMR: IBs given till mid-2015 to fully segregate deposits

By Habhajan Singh

Islamic banks (IBs) have until mid-2015 to fully segregate their deposits into either Islamic deposits or investment accounts as introduced under the Islamic Financial Services Act 2013 (IFSA).

The move will see what could likely be the largest product migration by the 16 IBs to comply with the new set of legislation passed last year.

In the past, IBs operating under the now-repealed Islamic Banking Act 1983 (IBA) had deemed all monies accepted from customers — whether it was classified as deposit or investment products — as Islamic deposits.

As such, those monies were protected under the deposit insurance system administered by Perbadanan Insurans Deposit Malaysia (PIDM), an independent statutory body established in 2005, similar to deposits in the conventional banking system.

The differentiation into Islamic deposits and investment accounts will allow the IBs to develop a wider range of products for both classifications to meet the diverse needs of customers, according to a Bank Negara Malaysia (BNM) statement released on March 19, along with the release of the central bank’s 2013 annual report.

“Consequently, customers will be able to better appreciate the product offerings by the Islamic banking institutions and make an informed decision in respect of the choices of Islamic banking products.”

The two major product classifications — Islamic deposits and investment accounts — will, in future, behave differently.

In the past, investment products by IBs using the Shariah contract of mudarabah came with a guarantee on the capital. In other words, customers did not risk losing their capital when they opted for such products.

In future, once the proper investment products are introduced, capital will no longer be guaranteed. Hence, customers must be willing to take the risk that they may lose their capital.

During the transition period till June 30, 2015, the central bank said all lslamic deposits (accepted under IBA) would continue to be protected by PIDM.

The IFSA came into effect on June 30, 2013, along with the Financial Services Act 2013 (FSA).

To give effect to the clear distinction under the IFSA between “Islamic deposits” and “investment accounts”, BNM said it has published proposals on strengthened oversight and risk management arrangements for the management of investment accounts to uphold compliance with Shariah and provide adequate protection for investors commensurate with the investment risks borne by them.

In 2013, BNM issued Shariah and operational standards for one Shariah contract while concept papers on 11 other Shariah standards and two operational standards have been published for industry feedback.

As at end-2013, BNM reported that the Islamic banking sector, including development financial institutions, recorded a growth in assets of 16.5%, to account for 25.7% of total assets in the overall banking system.

The “sustained momentum” of sukuk issuances maintained Malaysia’s leading position in the global sukuk market with total sukuk issuance close to US$82.4 billion (RM272.51 billion) in 2013 (or 68.8% of global sukuk issuances), which includes issuances made by foreign corporations, the central bank said in its statement for its Financial Stability and Payment Systems Report.

[THE MALAYSIAN RESERVE, 24 March 2014]

BNM: Transition Policy under Islamic Financial Services Act 2013

Bank Negara Malaysia statement on the latest changes to Malaysia's Islamic banking landscape:

The Islamic Financial Services Act 2013 (IFSA) has introduced two major classifications of products for the acceptance of money from customers by the Islamic banking institutions, namely:

• Islamic deposits; and
• investment accounts.

The differentiation will allow the Islamic banking institutions to develop a wider range of products for both classifications to meet the diverse needs of the customers. Consequently, customers will be able to better appreciate the product offerings by the Islamic banking institutions and make an informed decision in respect of the choices of Islamic banking products.

Two year transition period

Under the repealed Islamic Banking Act 1983 (IBA), all monies accepted from customers are classified as Islamic deposits, which comprise both deposit and investment products.

In this regard, Islamic banking institutions are required to reclassify their Islamic deposits under the IBA into Islamic deposits and investment accounts under the IFSA. In ensuring a seamless and effective process of reclassification, a two-year transition period until 30 June 2015 has been accorded to the Islamic banking institutions.

The Islamic banking institutions will engage with their customers in providing information and clarification on the differences between the Islamic deposit and investment account products as well as the options available to them to either retain their placements in Islamic deposit or migrate to investment accounts. The Islamic banking institutions will allow sufficient time for the customers to inform them of their decision.

During the transition period, all lslamic deposits (accepted under IBA) will continue to be protected by Perbadanan Insurans Deposit Malaysia. The Islamic banking institutions will also ensure that the customers’ rights are protected.

Islamic banking institutions will be making available hotlines, call centres and the front line staff of their headquarters and branches to attend to further queries by their customers.

Members of the public can also contact the Association of Islamic Banks in Malaysia (AIBIM) at   03-20268002/ 8003 and Bank Negara Malaysia at BNMLINK at 1-300-88-5465.

Bank Negara Malaysia

19 March 2014

TMR: New rulings on Islamic banking raise concern

 

By Habhajan Singh

Islamic banks and takaful operators in Malaysia are now in the middle of its largest product migration to comply with a new set of legislation passed last year, with some quarters fearing there may be a flight of capital to the conventional banking side.

There is concern on the ground that some customers may return to conventional banking products if they are not comfortable with the new products to be released by the Islamic banks to comply with the requirements of the Islamic Financial Services Act (IFSA) 2013 [pdf version here].

A key focus for Islamic bankers at the moment is Bank Negara Malaysia’s (BNM) “restrictive” proposed guidelines for Shariah contracts used to structure savings, the mainstay of banks as they pool savings from customers and mobilise them for other productive purposes.

The specific concern, according to Islamic bankers who spoke to The Malaysian Reserve, is the ability for the banks to pay hibah, or gift, to holders of savings accounts structured under the Shariah principle of wadiah (custodian).

“The industry is still exploring the various options. Some changes to the proposed guidelines are required.

We will have to wait and see how this pans out. Until then, there is no real solution for the savings products,” said HSBC Amanah Malaysia Bhd CEO Rafe Haneef (picture).

Without the ability to pay hibah, the savings accounts may no longer be attractive to customers, unlike the savings accounts on the conventional side which promises them a certain amount of return.

CIMB Islamic Bank Bhd CEO Badlisyah Abdul Ghani said Shariah allows for the giving of gifts at the full discretion of the bank including under wadiah.

“Gifts are made by all Islamic banks in charity works, for staff welfares, for customer loyalty and for many other things. Wadiah with deposit customers is just one of many areas that we provide gifts or hibah.

“We are working with the regulator on the new exposure draft on wadiah and hibah to ensure that, for wadiah deposit products, they still function as they do now,” he said.

“Wadiah has been there for many years and has proven to be the best structure for an Islamic savings product. There will be enhancements to it, but I don’t think the hibah framework will be disallowed.”

Wadiah contract is a mechanism that enables a person to entrust his asset to another person for the purpose of safe keeping, according to the BNM ShariahResolution in Islamic Finance (2nd edition, 2010).

As a reward and token of appreciation for the utilisation of the deposit, the Islamic banking institution, at its discretion, may give hibah to the customer, it added. However, that may see some changes under a new draft exposure and its related guidelines now under review.

The central bank may provide some clarity on the issue when it releases the BNM Annual Report for 2013, scheduled for Wednesday.

On the fears of capital flight to the conventional side, industry sources acknowledge that there was a possibility, but do not expect it to be an issue of major concern. “If replacement of products is in place, then there should be no concern (for capital flight),” said Badlisyah.

It is understood that the central bank is also keeping an eye on the possibility of the capital flight, either among Islamic banks itself, or between the Islamic banking and the conventional banking systems, as Islamic banks start introducing their new products.

“At the moment, there is nothing significant,” said an industry source.

Under the leadership of BNM governor Tan Sri Dr Zeti Akhtar Aziz, the central bank has pushed forward for some major changes in the regulatory landscape of the nation’s financial system.

Aside from IFSA, the other major legislation is the introduction of the Financial Services Act 2013. Earlier, Parliament had also passed the Central Bank of Malaysia Act 2009, which had instituted some significant regulatory changes to the Islamic finance landscape in the country.

Shariah experts in the field of Islamic finance attest to the major changes that are happening, especially with the advent of the IFSA.

“It’s a big shift from what it was to what it’s going to be,” said Dr Mohamad Akram Laldin, the ED of International Shariah Research Academy for Islamic Finance, which was set up by BNM six years ago. He said investment products, for example, are going to behave differently from how it was in the past.

“Take mudarabah products. In the past, such investment products come with a guarantee on the capital. In future, under IFSA, that will no longer be the case. Capital will no longer be guaranteed. Investors must be willing to take the risk that they may lose their capital,” he said.

[THE MALAYSIAN RESERVE, 17 March 2014]

OTHMAN: Evolution of Islamic term deposit in Malaysia

The company I work for started getting involved in providing IT system for Islamic banking and finance in Malaysia in 1994. When it comes to system requirements, the Mudharabah general investment account (Islamic term deposit) or fondly known as GIA, demands significant work.



GIA’s conventional counterpart is the fixed deposit (FD). The most distinct feature of GIA when compared to its conventional counterpart is on profit processing.



Here are some key features of GIA profit processing during early days of Islamic banking in Malaysia which was operating undercash basis accounting:



1) Unlike conventional FD, where the amount of interest for the whole tenure of deposit with the bank would be fixed upfront, for the Mudharabah GIA, system had to support recalculation of profit, based on the latest announced rate for the product, on the maturity of GIA. (The process of calculating the latest announced rate is based on GP2-i, the Bank NegaraMalaysia (BNM) framework of rate of return). During the investment placement, only the indicative rate will be printed on the GIA certificate. Upon maturity of the GIA, the system had to recalculate the actual profit to be paid to customer.

2)  Interim rate concept had to be introduced for the Mudharabah GIA. Since the actual profit to be paid to customer would only be known on maturity of the GIA, interim profit processing is required to cater for a periodic profit payment depositors during the interim period.

For GIA greater than 12 months, interim profit will be paid on a six-monthly basis based on the latest six months GIA profit rate announced by the bank. The final profit payment will be the total actual profit (recalculated on maturity) minus total interim profit paid.



3) For premature GIA closure (withdrawal before maturity), profit will be paid based on the latest announced rate on the product closest to the number of completed months of the account.

For example, six months GIA that was prematurely withdrawn on the 4.5th month will be paid with the latest rate of four months GIA for the completed four months that the customer maintained the GIA account with the bank.



When Islamic banking and finance in Malaysia moved towards accrual accounting, additional requirement for GIA profit processing was introduced for the system to cater for “variable rate GIA”.

 Upon declaration of the latest rates of the GIA products on monthly basis, on the effective date of the new rates, the system had to accrue profit due to customers using the latest rate. This means, by the time the GIA matures, the system would have accrued the actual amount of profit due to GIA depositors. Therefore, upon maturity, the system would just have to credit the accrued profit to depositors’ accounts.



A few years later, another investment account product based on wakalah bi al-istithmar (investment agency) was introduced. The profit processing of Wakalah investment account was also different from conventional FD.

The following excerpt from BNM Shariah resolution highlights the differences:



1) If the Islamic financial institution has breached any terms of agreement or has negligently invested in an instrument which has no potential to generate profit at the minimum rate (for example 5% per annum), the Islamic financial institution will have to pay compensation as much as the principal sum of investment plus the actual profit (if any); and



2) If the Islamic financial institution invested in an instrument that is expected to generate profit at the rate of at least 5% per annum but failed to reach the targeted rate due to problems which are not attributable to the negligent conduct of the Islamic financial institution, such loss shall be borne fully by the customer.



The above conditions mean that upon GIA placement, depositors will be given an indicative rate of 5%. Upon maturity, if the actual rate declared by bank is lower than 5%, let’s say 3%, profit based on 3% will be paid to customer. The 2% loss will be borne by the depositor unless depositor could prove that the loss was due to the banks’ negligence in managing his or her investment.



However, Islamic banking in Malaysia still treats GIA as liability and it is covered under the Perbadanan Insuran Deposits Malaysia or the Malaysia Deposit Insurance Corp. This coverage will soon end when the new framework of investment account takes effect.



BNM has issued a concept paper on the Framework of Investment Account targeted to be effective on June 1, 2015. Among its objectives are “to facilitate the orderly development and operationalisation of investment that is consistent” with Islamic Financial Services Act 2013 (IFSA) and and “to promote compliance with standards on Shariah matters”. 

IFSA has redefined investment accounts where the return of customer deposit cannot be guaranteed.

During the transition period prior to the commencing of the new framework, Islamic Financial institutions are given options to implement alternative structures of Islamic term deposit products.



As an IT solution provider in the local market, we are now getting requirements to support Murabahah term deposit from almost all banks that we are supporting. Murabahah term deposit is based on the concept of Tawarruq or Commodity Murabahah.



My observation tells me that some Islamic banks in Malaysia are slowly phasing out Mudharabah GIA. It seems there is a trend that Mudharabah and Wakalah investment accounts will be slowly replaced by Murabahah term deposit.

[Othman Abdullah is the Silverlake Group of Companies MD for Islamic banking, responsible for Silverlake Axis Integrated Islamic Banking Solution product development, marketing support and implementation services. This column appeared in THE MALAYSIAN RESERVE, 10 Feb 2014]

5th Islamic Financial Intelligence Summit in KL

Noor Islamic Bank CEO Hussain Al-Qemzi is slated to be one of the speakers at the one-day fifth annual Islamic Financial Intelligence Summit in Kuala Lumpur on Nov 19. He will speak on 'Cross Border Opportunities in Asia: The Role of the Regulator'.

Participate at the function will get a dig into The Banker magazine's Top 500 Islamic Financial Institutions Report, now running into its fourth year.

The session on 'Harnessing the potential of Islamic funds' will feature three panelists: Amundi Islamic Malaysia MD Mohamad Damshal Awang Damit, Aberdeen Islamic Asset Management MD Gerald Ambrose and Islamic Wealth & Asset Management private consultant John Sandwick.

The event is organised by The Banker Magazine and Financial Times, and hosted by Bank Negara Malaysia (BNM).

BNM sets end-June deadline for new Shariah framework

By Habhajan Singh & Farah Saad
Some Islamic banks and takaful operators may not meet the end-June deadline to comply with the requirements of the Shariah Governance Framework for the Islamic Financial Institutions, issued by Bank Negara Malaysia (BNM), which took effect on Jan 1.

It is understood that some Islamic financial institutions (IFIs) coming under the ambit of the framework issued in October 2010 are still behind the curve with the full implementation of the framework which includes establishing an "end-to-end Shariahcompliant control mechanism" for all aspects of their business operations to ensure that "all activities are Shariah-compliant".

"The central bank has paid a visit to some local IFIs to check on their preparedness for the framework," one industry source told The Malaysian Reserve.

BNM deputy director for Islamic banking and takaful department Rustam Mohd Idris told a forum discussing the framework in Kuala Lumpur on Monday that "our deadline is our deadline".

The document marks another key milestone in the development of Islamic finance in Malaysia and also another first for Malaysia in the global Islamic finance arena.

In the 50-page document, the central bank said it has developed the framework with "the primary objective of enhancing the role of the board, the Shariah Committee and the management in relation to Shariah matters, including enhancing the relevant key organs having the responsibility to execute the Shariah compliance and research functions aimed at the attainment of a Shariah-based operating environment".

The framework is applicable to all Islamic bank licensed under Islamic Banking Act 1983 (IBA), takaful and retakaful operators registered under the Takaful Act 1984 (TA), financial institutions licenced under the Banking and Financial Institutions Act 1989 (BAFIA) that participates in the Islamic banking scheme, and development financial institutions prescribed under the Development Financial Institutions Act 2002 (DFIA) that participates in the Islamic banking scheme.

"The new framework is more comprehensive and provide guidance on Shariah audit, Shariah review, Shariah risk management and Shariah research function," said Mohammad Faiz Azmi, who leads the PricewaterhouseCoopers Global Islamic Finance Team and is also the chairman of the Malaysian Accounting Standards Board.

Speaking at the forum on Monday, organised by ZI Shariah Advisory Sdn Bhd which is the Shariah arm of legal firm Zaid Ibrahim & Co, he said the framework also has "stricter requirements" in terms of qualification.

He said paper qualification was not mandatory in the old framework but the new framework requires that the majority of members in the Shariah Committee shall at least hold a bachelor's degree in Shariah from a recognised university.

The new framework replaces Guidelines on the Governance of Shariah Committee for IFIs issued in 2004.

At the same forum, International Shariah Research Academy for Islamic Finance (ISRA) senior researcher Prof Dr Ashraf Md Hashim pointed out that one of the special features of the new framework is the inclusion of a clause for succession planning for Shariah Committee members.

In section four of the framework, it states: "The IFI should develop a succession planning programme for the Shariah Committee members by identifying, hiring and nurturing new members with the view to entrusting them with greater responsibilities as and when appropriate."

The first objective of the new framework is to set out the expectations of BNM on IFIs' Shariah governance structures, processes and arrangements to ensure that all its operations and business activities are in accordance with Shariah.

It also intends to provide a "comprehensive guidance" to the board, Shariah Committee and management of IFIs in discharging its duties in matters relating to Shariah, and outlines the functions relating to Shariah review, Shariah audit, Shariah risk management and Shariah research istitutions are still behind the curve on full implementation of the framework which includes establishing an 'end-to-end Shariah-compliant control mechanism' for all aspects of their business operations.

(This story appeared in The Malaysian Reserve on 16 February 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)