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^{Barely 48 hours latter, after BNM announced recently it now allows a 100% foreign ownership on Islamic bank, a 3rd foreign owned Islamic bank – Asia Financial Banks (AFB)has been set-up overnight. For many, it seems that Islamic Bank is suddenly very happening now.}

^{As a matter of fact, after years of efforts, Malaysia now emerges as a leading Islamic banking center, a growing banking niche that has not been fulfilled by Hong Kong and Singapore – a long established banking center in Asia.}

^{According to BBC news, every 4 Islamic accounts opened in Malaysia, 1 of them is by non-Muslim. In 2005, when HSBC began offering mortgages formulated to meet Islamic banking practices, it was surprised that more than half of its customers were non-Muslim. Al Rajhi, the first foreign Islamic bank in Malaysia, now boasts some 8,000 Malaysian accounts.}

^{To be sure, home financing (mortgage) based on Islamic principle has been around in Malaysia for quite sometime, and now almost all personal loans are also conform to shariah principles. In short, since the setting up of Bank Islam Malaysia in 1983, Islamic banking isn’t just for Muslims anymore, in fact, is fast becoming a mainstream banking service in Malaysia.}

^{What is Islamic Banking - Can’t make fast money from money
Islamic banking has the same purpose and product offering as conventional banking except that it operates in accordance with the rules of Shariah, known as Fiqh al-Muamalat (Islamic rules on transactions)}

^{In general, Islam prohibits paying and receiving interest (riba). Simply puts it, you can’t make fast money from money. On the other hand, the role of money (capital) is recognized and therefore when the money (capital) is used in economic activity, sharing of the profit/loss is permitted. Charging a higher price for deferred payments in trade is also allows. All money must be invested in industries Muslims consider ethical.}

^{But I want my interest
As Arab-based Al Rajhi bank recently found out, to attract depositors in Malaysia, it needs to pay interest. But since the interest is prohibited under the shariah rule, it gets around it by introducing a profit sharing principle. As a matter of fact, the return on savings accounts in Malaysia’s Islamic banks comes from a profit-sharing contract with the bank. That, however, could cause big fluctuations if the bank posts a loss or higher-than-expected profits. Mitigating the risk for account-holders, the Malaysian banks use a special profit reserve that allows them to keep these payouts relatively steady and similar to conventional interest rates. Today, Malaysia has the most developed interest-free financial system in the word.}

^{Conventional vs Islamic consumer banking product
Before zoom into comparing the offering by two different banking system, lets get the basic right:}

^{The typical consumer products offered by Islamic banks are saving account, fixed deposit, personal and housing loan. Below is a simple comparison between conventional and Islamic consumer banking products.}

^{Wadiah = Saving account with ‘token/appreciation’
Refers to deposits, which have been deposited with another person, who is not the owner, for safekeeping. As wadiah is a trust, the depository becomes the guarantor and, therefore guarantees repayment of the whole amount of the deposits, or any part thereof, outstanding in the account of depositors, when demanded. The depositors are not entitled to any share of the profits but the depository may provide returns to the depositors as a token of appreciation.}

^{Mudharabah = Saving account or Fixed deposit account with ‘profit sharing’}

^{Refers to an agreement made between a capital provider (depositor) and another party(Bank/ entrepreneur), to enable the bank/entrepreneur to carry out business projects, based on a profit sharing basis, of a pre-agreed ratio. In the case of losses, the losses are borne by the provider of the funds.}

^{Bai Bathaman Ajil = Mortgage loan in arranged as ‘deferred payment’
Refers to the sale of goods (house) on a deferred payment basis (installment) at a price, which includes a profit margin agreed to by both parties. As the final price is fixed, additional monthly payment toward the loan will not resulted in total loan, unlike conventional loan.}

^{Bai Al-Inah = Personal loan where the bank sell the loan & buy back immediately with a discount
The financier sells an asset to the customer on a deferred payment and then the financier immediately repurchases the asset for cash at a discount.}