Islamic Banking In Malaysia Case Study

Islamic banking in Malaysia has been existent for the past 30 years. The first Islamic bank was established when the Islamic Banking Act 1983 was drawn. Bank Islam Malaysia Berhad (BIMB) was the first Islamic Bank in Malaysia that was given the green light to operate (Norashimah, 2014). The reason only one bank was given the approval to carry out its financial banking is to prevent competition that would hinder the progress of Islamic Banking in Malaysia (Islamicfinanceinfo.com.my, 2011). It started off with just one branch in Kuala Lumpur and as of now it has more than 120 branches throughout Malaysia. This bank provides alternative ways to most conventional banking products such as accepting deposits and transfer of funds via Islamic ways. The second Islamic bank in Malaysia is Bank Muamalat Malaysia Berhad (BMMB) which was formed on 1999 started its operations with 44 branches nationwide. Today, besides these two banks, all conventional banks with Islamic banking have now obtained full licenced Islamic bank status, thanks to the liberalisation of the

Conventional banks rely greatly on interest rates, thus, any fluctuations on the rates would surely affect the cash flow. Interest based loans are one of the major contributor to economic downfall. The moment the bank gets to know a business is under pressure and incurring losses, the banks would immediately call back their loans to prevent further losses on the banks (Yusri, 2005). On the other hand, Islamic banks are more stable in times of crisis because investment depositors will share the risk between them in terms of profit and loss sharing. This makes the bank to be less likely to crumble in times of crisis. Thus, investing in Islamic bank has the potential to be one of the safest options as the risk is shared by all investors