I. History of Islamic Banking in Malaysia
Malaysia started Islamic banking in early 1980’s. Islamic Banking is especially true for Muslim world where currently Islamic banking strides at two separate fronts. At one side, efforts are also underway to convert the entire financial systems in accordance to Islamic laws (Shariah). At the other side, separate Islamic banks are allowed to operate in parallel to conventional interest based banks. Malaysia opted for the alternative gradual way of developing and implementing Islamic banking system.
1.1 Origin of Islamic Banking in Malaysia The roots of Islamic Banking in Malaysia should go back to 1963 when the government established Tabung Haji or Pilgrims Management and Fund Board. The organisatio was established to invest the savings of the local Muslims in interest free places, who want to carry out pilgrim (Haji). Tabung Haji utilizes Mudarabah (profit and loss sharing), Musharikah (joint venture) and Ijara (leasing) modes of financing for investment under the guidance of National Fatawah Committee of Malaysia.
The first call for separate Islamic bank was made in 1980, in a seminar held in the National University of Malaysia. The members who attend had passed a decision requesting the government to create a special law to setup an Islamic bank in the country. Thereafter, the government had set up a National Steering Committee in 1981 to study legal, religious and operational aspects of organized an Islamic bank. The committee established the blue print of a modern Islamic banking system in 1983, which later enabled the government to establish an Islamic bank and to issue non-interest bearing investment certificates.
1.2 Initiative Taken in Malaysia The establishment of Bank Islam Malaysia Berhad (BIMB) in July 1983 marked a milestone for the development of the Islamic financial system in Malaysia. BIMB carries out banking business similar to other commercial banks, but along the principles of Islamic laws (Shariah). The bank offers deposit-taking products such as current and savings deposit under the concept of Wadiah (guaranteed custody) and investment deposits under the concept of Mudarabah (profit-sharing). The bank grants finance facilities such as working capital financing under Murabaha (cost-plus financing), house financing under Bai' Bithaman Ajil (deferred payment sale), leasing under Ijara (leasing) and project financing under Musharikah (joint venture). BIMB has grown extremely since its commencement. It was listed on the Main Board of the Kuala Lumpur Stock Exchange on 17 January 1992. At the end of 2003, the bank has a network of 82 branches throughout the country and staff of 1,200 employees.
1.3 Development of Islamic banking in Malaysia The long-term objective of the Central Bank of Malaysia was to create an Islamic banking system operate corresponding to the conventional banking system. Central Bank introduced Interest Free Banking Scheme (now replaced with Islamic banking scheme (IBS) in March 1993. The scheme allowed conventional banking institutions to propose Islamic banking products and services using their existing infrastructure, including staff and branches. Since that, the numbers of IBS banking institutions have increased to 36 till the end of 2003, comprising 14 commercial banks (of which 4 are foreign banks), 10 finance companies, 5 merchant banks and 7 discount houses. In October 1996, the Central Bank issued a model financial statement for the IBS banks requiring them to disclose their Islamic banking operations (balance sheet and profit and loss account) as an additional item under the Notes to the Accounts. The Central Bank also setup a National Shariah Advisory Council on Islamic Banking and Takaful (NSAC) on 1 May 1997. The council considers as the highest Shariah authority on Islamic banking and Takaful businesses in Malaysia. On 1 October 1999, the Central Bank issued license for second Islamic bank, Bank Muamalat Malaysia Berhad. The country also introduced Islamic debt securities market has made its debut in 1990 with the issuance of RM 125 million Islamic bonds. Islamic Inter-bank Money Market (IIMM) on 4 January 1994 to link institutions and Islamic investment based instruments.
1.4 Present scenario of Present scenario of Islamic Banking System in Malaysia Today, Malaysia has a full-fledged Islamic financial system operating parallel to conventional financial system. In terms of products and services, there are more than 40 different Islamic financial products currently available in a country. Overall Islamic banking industry in Malaysia has continued to register strong expansion during 2003 to account for 9.7% of the total assets of the banking system (8.9% in 2002), 10.4% of total deposits (10.2% in 2002) and 10.3% of total financing (8.1% in 2002). The Central Bank is focusing on strengthening the institutional infrastructure, enhancing the regulatory framework, strengthening the Shariah and legal infrastructure as well as enhancing intellectual capital development and consumer education. In 2003, the Central Bank of Malaysia brought forward liberalization in Islamic banking to allow three full-fledged foreign Islamic banks to be set-up in Malaysia.

II. Role of Bank Negara Malaysia, Islamic Financial Services Board (IFSB) and Securities Commission in Development of Islamic Banking in Malaysia.
2.1 Bank Negara Malaysia
Islamic banks are now well established in most of the countries. It showed that Islamic banking become more and more important all over the world. Bank Negara Malaysia Financial Stability & Payment System Report 2006 shows the comparison between Islamic banking and conventional bank which indicated that Islamic banking become more important nowadays (Ahmad Sanusi Husain, 2006). Subsequently, Bank Negara Malaysia was awarded for being the best central bank in promoting Islamic Finance (Islamic News, 2008). Thus, Bank Negara Malaysia plays an important role in developing of Islamic Banking.
Because it’s mixed ethnic and religious backgrounds in Malaysia, Bank Negara Malaysia has approved a system of parallel Islamic and conventional. Thus, both can share infrastructure and resources such as branches to ease the development of Islamic Banking. This can help to spread the virtues of Islamic Banking on a nation-wide basis, with as many players as possible and to be able to reach all Malaysians. This option was seen to be most effective and efficient mode of increasing number of institution providing Islamic banking services at the lowest cost and within shortest time frame. Malaysia is the first nation in adopting a dual banking system successfully, where a full-fledged Islamic system operates side by side with the conventional banking system within a single bank.
Moreover, Bank Negara Malaysia provides human capital development in Islamic Finance. It is essential for Bank Negara Malaysia to set up an Islamic Trading Centre such as INCEIF, IBFIM and ICLIF. As we know that, information and knowledge of Islamic banking is a must to increase the awareness of customers on Islamic banking so that allow prospective clients to observe the aspects of good governance, especially with respect to providing full and honest disclosures of their business dealings and also run their business in ethical manner. Besides that, skilled and knowledgeable staffs are necessary to assist clients in making the right choice of products as well as for the operation of the Islamic banking.
In addition, Bank Negara Malaysia has amended the Central Bank of Malaysia Act 1988 to enhance the role and function of its Shariah Advisory Council (SAC) for Islamic Banking. An independent SAC with high level of integrity will build public confidence and thus will boost the industry to a greater height. The Islamic financial institution must apply to Bank Negara Malaysia for a new product approval in accordance with guidelines on product approval issued by Bank Negara Malaysia. This entire financial product must compliance with Shariah rule.
Due to the changing environment which included increasingly diversified and sophisticated market demand, Bank Negara Malaysia encourages the Islamic banking institutions to diversify the range of Islamic product consisting debt structure as well as equity-based structure that encompass Musharakah and Mudharabah contracts to fulfill customers’ needs now and in the future. Other Islamic products such as Murabahah, Bai’bithaman ajil, Bai’al salam, Istisna and Ijarah are provided by Islamic Banking as well to attract.
At last but not least, Bank Negara Malaysia should assist Islamic banking in dealing with risk faced by them. Central bank can implement an enhanced risk management framework or risk transform element to reduce risk such as: liquidity risk, price risk, operational risk, market risk and exchange rate risk. For example, there is a diminishing Musharakah in real estate. While Musharakah is performing, Islamic bank will be exposed to particular real estate price proportionate to its share in Musharakah. If Musharakah fails, Islamic bank will be exposed to full amount of particular real estate price risk.
Demand for Islamic banking is increasing year by year. This is illustrated in Malaysia’s ninth plan (2005-2010) where the financial service sector is expected grow at an average rate of 7% with its share of GDP increasing to 15.8% by 2010 (Aseambankers, 2006). Thus, it is essential for Bank Negara Malaysia to play an important role to develop Islamic Banking in the future. However, it can attract more clients in order gain more profit.
2.2 Islamic Financial Service Board
Islamic Financial Service Board (IFSB) is an international organization that issues guiding principles and standards within the banking, insurance and capital market sectors in order to promote stability in the Islamic financial services industry (Investopedia 2010). The regulatory regime in Islamic finance has been further reinforced by rapid progress on the issuance of prudential and supervisory standards by the IFSB.
As we can see, rapidly growth of Islamic banking in the global financial world. There is various parts of the world are actively promoting Islamic banking and finance in their respective jurisdictions. It officially established on 3 November 2002, and started operations on 10 March 2003 in Kuala Lumpur, Malaysia.
IFSB playing an important role in expanding Islamic finance globally, it had provided leadership as guide Malaysia towards the growth in Islamic financial services industry. The objective of the IFSB is to promote the awareness of the problems that could affect the Islamic financial services industry, develop standards and recommend its implementation, enhance and coordinate initiatives to develop instruments and procedures for efficient operation and risk management in Islamic financial services industry. IFSB has been mandated by its members to provide guidance on effective supervision and regulation to ensure the soundness and stability of the global Islamic financial services industry by using the guiding principles as to strengthen the structure and processes in these areas. IFSB relates to the general approach to a Shariah Governance System, whereby various ex-ante and ex-post processes considered as essential parts of good governance practices in other internationally recognized governance standards, such as the precise terms of reference for Shari`ah boards, appropriate alignment of incentives, proper record-keeping, adoption of a professional code of ethics are adapted in order to strengthen the Shariah Governance System. Principle 1.1 which state that the Shariah governance structure adopted by the Institutions (other than Insurance Institutions) offering only Islamic Financial Services ( IIFS) should be commensurate and proportionate with the size, complexity and nature of its business (Bank Negara Malaysia 2009).
In the area of competence, suggests various measures to ensure reasonable expertise and skill-sets in Shariah boards and to evaluate their performance and professional development. Principle 2.1 state that IIFS shall ensure that any person mandated with overseeing the Shariah Governance System fulfils acceptable fit and proper criteria (Bank Negara Malaysia 2009).
It aims at safeguarding the independence of Shariah boards, particularly from the management of IIFS, by highlighting various issues arising from potential conflicts of interest and recommending how they should be managed. Principle 3.1 states the Shariah board should play a strong and independent oversight role, with adequate capability to exercise objective judgment on Shariah-related matters (Bank Negara Malaysia 2009). No individual or group of individuals shall be allowed to dominate the Shariah board’s decision-making.
Other than that, it also emphasises the importance of observing and preserving confidentiality by the organs of Shariah governance. Principle 4.1 says that Shariah board members should ensure that internal information obtained in the course of their duties is kept confidential (Bank Negara Malaysia 2009).
Moreover, it focuses on improving consistency in terms of the professionalism of members of the Shariah board, which would be crucial in enhancing their credibility and confirming their integrity through a set of best practices. Principle 5.1 states IIFS should fully understand the legal and regulatory framework for issuance of Shariah pronouncements/resolutions in the jurisdiction where it operates (Bank Negara Malaysia 2009). It should ensure that its Shariah board strictly observes the said framework and, wherever possible, promotes convergence of the Shariah governance standards.
However, in the recent years there has been an increasing trend towards the formation of Shariah advisory firms which offer services such as Shariah audit or review, although they cannot be considered as an alternative to a proper full-panel Shariah board. During the recent financial crisis, IFSB plays a role in its balanced development and stability. Professor Refaat Abdel Karim (2009) notes that an increased demand for Islamic financing after global financial crisis. However, Islamic financing need to develop a legal infrastructure and liquidity infrastructure. In the future prospect, IFSB play an important role in shaping a future sustainable global financial system and will rise in international stature. For Malaysia, an important agenda going forward is for the country to become a global centre for the origination, distribution and trading of Islamic financial instruments. Malaysia aims to be an investment gateway to the Asian region, specializing in Islamic fund and wealth management, and also as a takaful and re-takaful centre. With greater development, Malaysia's Islamic financial system will deepen its existing linkages to other international Islamic financial markets, facilitating investments and trade relations between East Asia and the Middle East, west Asia and North Africa.
2.3 Securities Commission
Securities Commission Malaysia (SC) is a statutory body that investigates, have enforcement powers and reports to the Minister of Finance (MOF), Malaysia. It was officially established on 1 March 1993, which used to encourage the developments of the securities and futures markets in Malaysia. In addition, the SC regulates the capital market pursuant to the Securities Commission Act 1993, Securities Industry Act 1983, and Securities Industry (Central Depositories) Act 1991.
Securities Commission is a general term used for a government department or agency which has the responsibility for financial regulation of securities products within a particular country. Its powers and responsibilities vary greatly from country to country, but generally cover the setting of rules as well as enforcing them for financial intermediaries and stock exchanges.
The Securities Commission, unlike most other capital market regulators, has both a regulatory as well as a development role. The initiatives taken by Securities Commission in developing the Islamic capital market in Malaysia are as below: (a) The Commission’s early initiative towards establishing infrastructure support is reflected in the setting up of a dedicated Islamic Capital Market Department (ICMD) within its Market Policy and Development Division. The mandate of ICMD is to carry out research and development activities including formulating and facilitating a long-term plan to further strengthens the ICM in Malaysia. (b) The Securities Commission published Capital Market Master Plan in 2001. This is a comprehensive plan for charting the strategic positioning and future direction of the Malaysian capital market for the next 10 years. One of the main objectives of this plan is to establish Malaysia as an international Islamic capital market centre.
In addition, Securities Commission has performs several roles:
Firstly, supervise exchanges, clearing houses and central depositories. There are interlink between the exchanges, clearing houses and central depositories.
As an example, John at United Kingdom, he wishes to make an investment in Malaysia. So, the exchange is where the UK dollars convert into our own currency, Ringgit Malaysia. John can trade through cheque and cash. If he trade by cheque, then the clearing houses need to make the funds available transfer from his account to the financial institution accounts. If he trade by cash, then the central depositories need transfer the funds into the financial institution accounts.
Secondly, register authority for the prospectus of corporations other than unlisted recreational clubs. The Commission needs to determine the Shariah-compliance status of listed companies on Bursa Malaysia. The list of Shariah-compliant securities by the SAC need to published twice a year to provide a guide to investors who wish to invest in investments which comply with Shariah principles but not the unlisted recreational clubs. Corporation need to register their prospectus for their new development on project. This is because investors those who were interested need know about the prospectus before they invest in the investments.
Third, approve authority for corporate bond issues. The issuance of private debt securities based on Shariah principles has begun to gain acceptance and popularity in the country’s capital market. Thus, this is important that Securities Commission to approve which corporate have the ability to issued bond, which project will have profitable toward investors and is it the project is legal. It also provides guidelines for both the debt securities and Islamic securities.
Forth, regulate all matters relating to securities and futures contracts. Securities Commission need to supervise the activities trade relates to the securities and future contracts.
Fifth, regulate the take-over and mergers of companies. If there is happen case of take-over or merger of companies, Securities Commission need to ensure that is it the companies is facing any financial difficulties, they may not longer to operate, etc. If the company really cannot operate anymore, then Securities Commission can approve the other company to take-over or merger companies. In exercise of the powers conferred by subsection 33A (2) of the Securities Commission Act 1993 [Act 498], the Minister, on the recommendation of the Commission, having regard to the matters under subsection 33A (5) of the Act.
Sixth, regulate all matters relating to unit trust schemes. Securities Commission need to concern about the matters, set the procedures to sell it and govern the buying and selling activities of unit trust. This is due to investors has began show interested in investing in Shariah-compliant securities and Islamic unit trust funds.
Seventh, licensing and supervising all licensed persons. All companies licensed to carry on the regulated activity of dealing in securities and which are Participating Organisations are required to have compliance officer (CO) as specified under Para 4.02 (17) of the Licensing Handbook. In addition, a company which is licensed to carry on the regulated activity of dealing in securities and is an investment bank or a universal broker is required to have a head of compliance (HoC). The HoC and CO must meet the minimum entry criteria including passing the relevant modules of the Securities Commission examinations before seeking registration with the SC. The Securities Commission also need to conduct any hearings in its deliberations on matters within its purview such as the licensing of intermediaries, disciplinary matters or appeals against decisions made by the KLSE. As stated in the Section 146[1] SCA, it refers that the SC have the right to review its own decision on an application by an aggrieved person which regarded to the Section 147.
Lastly, Securities Commission also acts as the intermediate to encourage company self-regulation and ensure proper conduct of market institutions and licensed persons.

III. The Malaysian Government initiative in promoting Malaysia as International Islamic Financial centre (MIFS) and Malaysian Islamic Capital Market (MICM)

3.1 International Islamic Financial Centre (MIFC)
In August 2006, the Malaysia International Islamic Financial Centre (MIFC) initiative was launched to promote Malaysia as a major hub for international Islamic finance.
The MIFC initiative incorporates a community network of financial and market regulatory bodies, Government ministries and agencies, financial institutions, human capital development institutions and professional services companies that are involving in the scope of Islamic finance.
The MIFC initiative aims to position Malaysia as the Islamic finance hub through the following focus areas: * Sukuk Origination * Islamic Fund and Wealth Management * International Islamic Banking * International Takaful * Human Capital Development
MIFC encapsulates Malaysia's more than 30 years of Islamic finance expertise and experience into a single initiative; upon which foreign financial institutions can leverage.
Malaysia's Islamic finance industry differentiates itself as one of the proven platforms for conducting Islamic finance activities across the globe. The vibrancy and dynamism of Malaysia's Islamic financial system is reflected by its continuous product innovation, a large and diverse pool of Islamic finance talent, diversity of financial institutions from across the world, a wide range of innovative Islamic financial products, a comprehensive Islamic financial infrastructure as well as adoption of global regulatory, legal and Shariah best practices.
Malaysia has also the distinction of being the world's first country to have a full-ranged Islamic financial system operating in parallel to the conventional banking system. It has placed strong focus on human capital development in Islamic finance to ensure the availability of capable and adept talents.
By June 2010, Bank Negara Malaysia was informed that the Shariah Advisory Council (SAC) of Bank Negara Malaysia about application of Wa’d(Promise) in Froward Currency Transaction Islamic. Islamic financial institutions are allowed to enter into forward foreign currency transaction for hedging purposes based on unilateral wa`d (promise) that carries binding effect on the promisor. Nevertheless, no consideration (or fee) is allowed to be charged on the promisee in view that upfront cash payment for forward currency transaction would lead to a bilateral wa’d which is not allowed by Shariah. Besides that, The SAC resolved that the payment of takaful benefits from Participants’ Risk Fund (which pools participants’ tabarru’ (donation) contributions to meet claims by participants), can be made contingent upon specific events beyond those arising from a defined financial loss or a misfortune. This is allowed subject to the agreement by the contracting parties i.e. the participants.
Furthermore, Bank Negara Malaysia announced the release of Shariah Resolutions in Islamic Finance (Second Edition). This second edition of the SAC resolutions, which is a compilation of all Shariah resolutions made between 1997 and 2009, is a continuation of the earlier efforts of Bank Negara Malaysia to deepen the understanding on the Shariah interpretations and the juristic reasoning for the rulings. It aims to increase the level of transparency on juristic reasoning in Islamic finance and thus, an increased appreciation and acceptance of Shariah decisions. It would also allow for more efficient Shariah governance at institutional level, whilst catalyzing greater cross-border harmonization in the interpretation and application of Shariah.
For the future development of Islamic Banking and Finance of Malaysia, RAM Rating Services Berhad (“RAM Ratings”) sees the Malaysian Islamic capital market as being intelligently positioned within the evolving Islamic financial-services industry. The development and growth of this sector in Malaysia provide a useful case study on how government and regulatory policies can combine with the commercial and community interests of the private sector to create a robust and thriving market. To this end, RAM Ratings’ head of Islamic Ratings, Zakariya Othman, notes the positive results following the carefully planned and strategic approach adopted in Malaysia to develop a comprehensive Islamic financial system that co-exists with its conventional counterpart within the broader financial landscape.
Other than that, the consequences of the financial crisis present the Islamic financial industry with both an opportunity and a challenge. While Shariah-compliant institutions, by their very nature, did not get involved in structured investment vehicles and other instrument that turned into toxic assets, the industry did follow conventional banking in becoming overleveraged. Business models of many Islamic financial institutions will need to be rethought. They will need to develop a more widely-based franchise than in the past. It is very likely that there will be less scope in future for smaller niche players that provide only a limited range of services. Instead, Islamic financial institutions need to develop diversified sources of revenue, not only depending on placement and performance fees, but also on the steady stream of income generated by such tedious but indispensable activities as advisory services, asset management providing financial services to retail clients.
3.2 Malaysian Islamic Capital Market The Malaysian Islamic Capital Market (MICM) is the market that all the activities are performed in consistent with the conscience of Muslims and the religion of Islam in Malaysia. Which means that Islamic Capital Market (ICM) acts as an assertion of religious law in the capital market transactions where it required follow the Shariah, eliminate the transactions which are prohibited by Islam. Compliance with the Shariah principles include prohibition of payment and receipt of riba (interest), avoidance of activities with the elements of gharar (uncertainty), forbid of maisir (gambling) activities and avoidance of the production and sale of goods and services that are forbid in the Shariah. The consciousness and the demand for investing conform to the Shariah principles have increased, nowadays more of the Muslims are actively touch upon in the corporate and business activities, therefore it will create a prosperous Islamic capital market. However some of the principles and practices of conventional banking and finance are not conform to the Islamic law. Hence the Malaysian Government have promoted the MICM, in the Islamic Banking and Finance industry all the Islamic financial institutions have deal in business should compliance with the MICM.
Malaysia has been acknowledged as the pioneer in the Islamic finance. Nowadays, Islamic capital market is an important component in the whole capital market in Malaysia. The total value of capital market has grown from RM 200 billion in year 1990 to RM 1.3 trillion in year 2008 (Securities Commission Malaysia, 2009). It has responsible to help Malaysia in creating the economic growth as the similar function and service with other capital market factor. The Islamic capital market has similar role with the conventional capital market for the savers and borrowers and act a complementary function to the Islamic banking system in widely the Islamic financial markets in Malaysia.
Other than that, the speed of development in the Islamic financial market has assembled many international Islamic organisations structure to promote the market. The organisations consist of Islamic Financial Services Board (IFSB), the International Islamic Financial Market (IIFM) and Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIEI). Due to the financial becomes more comprehensive and sophisticate, the market must hold sufficient infrastructure to ensure the system has efficient and effective function and perform the work. The committee of the MICM had introduced to establish enough infrastructure support is reflected in the setting up of a dedicated Islamic Capital Market Unit (ICMU) within its Maker Policy and Development Division. The mandate of ICMU is to perform research and development activities which are formulating and facilitating a standing scheme to further intensify the MICM to provide long-term fund raising and investment as well as enhance depth and liquidity of Islamic financial system.
Shariah Advisory Council (SAC) was set up as Islamic Instrument Study Group in 1994 and upgraded to more formal body in 16 May 2006 to suggest some opinion about the Shariah issues to the Islamic capital market. This council is form by the people who are have the capability to give Shariah guidance and those people who have widely experience about the application of Shariah, especially within the Islamic economics and finance sectors. The SAC has dedicates prominent in the development of the MICM. It has make effort in promote development and supervise of new products and services which have compliance with the Shariah rules. Furthermore it provides greater transparent and improve high degree of confidence in the market as well as integrity through publicity of Shariah rulings. The SAC also organized correlation between the industry and other Shariah scholars in order to provide helpful opinion during making decision. Besides that the commission of SAC have involve at international conferences and communicate to boost consciousness and understanding of the MICM. At the present time, there have many kinds of capital market products are suitable for those Muslims who are only want invest and deal in the Islamic capital market. Those capital market products consist of the Commission’s Shariah Approved Securities, Islamic debt securities, Islamic unit trusts, Islamic and Shariah Indices, warrants (TSR), call warrant and Crude Palm Oil futures contract. In addition, MICM has contribute in recent development towards creating a more liberalised market, which include release 5 new licenses to foreign stockbrokers, 5 new licences to foreign fund managers, provision for full foreign ownership in futures broking industry and no limit for the foreign dealer representatives. Furthermore, is also permit Malaysian can freely invest in foreign exchange market. The future prospect of Islamic Banking and Finance with the MICM are that all the issuers, investors and policy makers need to realise the important of Islamic capital market and be attracted in this market. All the customers regardless Muslims and non-Muslims are accept into the Islamic market and increase trend of going public.

Reference
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[ 1 ]. 1 A form of partnership where one party provides the funds while the other provides expertise and management. The latter is referred to as the Mudarib. Any profits accrued are shared between the two parties in pre-agreed ratios, while loss is borne by the provider of the capital.
2Musharikah means a relationship established under a contract by the mutual consent of the parties for sharing of profits and losses in the joint businesses. It is an agreement under which the Islamic bank provides funds, which are mixed with the funds of the business enterprises and others. All providers of capital are entitled to participate in the management, but not necessarily required to do so. The profit is distributed among the partners in pre-agreed ratios, while the loss is borne by each partner strictly in proportion to respective capital contributed.
3A contract under which an Islamic bank finances equipment, building or other facilities for the client against an agreed rental together with a unilateral undertaking by the bank or the client that at the end of the lease period, the ownership in the asset would be transferred to the lessee. The undertaking or the promise does not become an integral part of the lease contract to make it conditional. The rental as well as the purchase price is fixed in such manner that the bank gets back its principal sum along with profit, which is usually determined in advance.
[ 4 ]. Literally it means a sale on mutually agreed profit. Technically, it is a contract of sale in which the seller declares his cost and profit. Islamic banks have adopted this as a mode of financing. As financing technique, it involves a request by the client to the bank to purchase a certain item for him. The bank does that for a definite profit over the cost, which is settled in advance.
[ 5 ]. Malaysia Toward an Islamic State, Malaysian Islamic Capital Market. http://islamic-world.net/islamic-state/malay_islamcapmarket.htm.
[ 6 ]. Malaysia Toward an Islamic State, Malaysian Islamic Capital Market. http://islamic-world.net/islamic-state/malay_islamcapmarket.htm.