A TWO-YEAR transition period until June 30 next year has been accorded to Islamic banking institutions to facilitate reclassification into Islamic deposits and investment accounts under the Islamic Financial Services Act (IFSA) 2013.
This will allow them to engage with their customers to provide information and clarification on the differences between the two as well as the options available to either retain their placements in Islamic deposit or migrate to investment accounts.
The differentiation would allow Islamic banking institutions to develop a wider range of products for both classifications to meet the diverse needs of customers, it added.
It would also allow them to better appreciate the product offerings by Islamic banks and make informed decisions.
During the transition period, all Islamic deposits would continue to be protected by Perbadanan Insurans Deposit Malaysia. Islamic banking institutions would also ensure that customer rights are protected.
According to the Financial Stability and Payment Systems Report, the IFSA provides the legal foundation for a comprehensive regulatory framework for the Islamic finance industry in Malaysia.
An important focus under this framework, it added, was the development of syariah and operational standards for key syariah contracts. The standards outline the underlying syariah principles and provide guidance on sound practices and effective governance for each contract.
These standards are intended to promote transparency and consistency of syariah contract application to enhance certainty and strengthen syariah compliance by Islamic financial institutions, as well as to serve as a key reference to catalyse greater mutual respect of syariah opinions across jurisdictions.
Ultimately, these standards are envisioned to promote the offering of a broad range of Islamic finance products that can cater to more diverse customer needs and preferences.
In the last few decades, the focus of Islamic banks has been the provision of financing services to individuals and corporations, mostly for the purchase of assets and working capital.
Nevertheless, there is now increasing attention on other forms of syariah contracts, including equity-based or risk-sharing contracts such as musharakah(partnership), and exchange-based contracts such as ijarah (lease).
These primary syariah contracts can distinguish Islamic products from the products of conventional banks and underpin additional funding options that can be offered by Islamic banks.
Source: The Star