MIA ISLAMIC FINANCE ROADSHOW - UNDERSTANDING ISLAMIC FINANCE AND APPLICATION OF MFRS

The Malaysian Institute of Accountants (MIA) is conducting an Islamic Finance Roadshow with application of Malaysian Financial Reporting Standards (MFRS).

The roadshow schedule:

10 May 2013, Johor Bahru
15 May 2013 Kota Kinabalu
16 May Kuching
4 June 2013 Penang
6 June 2013 Kuala Lumpur.

Training is open for public. For those who are interested, please click to the link below;
http://www.mia.org.my/paib/downloads/events/2013/04/10/Islamic%20Finance%20Roadshow.pdf

Regulatory bodies which govern the financial systems and institutions in Malaysia.

The Malaysian financial system and landscape have undergone a major transformation in this recent decade. The financial sector reforms, with the Asian financial crisis acted as catalyst, have evolved a complex financial system. The rapid growth in the volume of financial transaction and the interdependence to global economy has resulted in greater potential vulnerabilities and risks to the stability of the financial system. 

The issue of moral hazard and adverse selection issues in musharakah contracts and proposal for risk mitigation.

1.0       Introduction

Commonly, business ventures start off with a loan. For Muslims, loans cannot be made or accepted according to traditional banking methods because this invariably entails the payment and receipt of interest and therefore is not permissible. Islamic banking allows prospective clients to borrow money while still adhering to Shariah law through profit-and-loss sharing scheme of financing; mudarabah[1] and musharakah contracts. Musharakah (partnership) is the second basic Profit and Loss Sharing (PLS) concept in Islamic banking. 

The Islamic legal maxim “al-ghorm bil ghonm” that is, “no reward without risk” is an important principle in Islamic finance. Discuss why this is so?

The explicit Quranic verse (Al-Baqarah : 275) says that “Allah hath permitted trade and forbidden riba (usury)....”, to counter back the claims made by the Meccan pagans that the trade (al-bay) is like usury. For them, the excess return over the loans provided to debtors are exactly the profits gained from the trade. However, when one looks closely to the nature and function of riba, it is, in fact, an extremely oppressive business activity.

In an Islamic hire purchase scheme, suppose an Islamic bank is required to purchase a car before leasing it to the customer. Discuss how this could affect the bank’s profit and loss?

Accounting and Auditing Organisation For Islamic Financial Institutions (AAOIFI) was formed to undertake responsibility for issuing accounting standards that adhere to the requirements of Shariah. In Shariah, it recognises the application concept of ‘substance’ and the ‘form’ and does not particularly endorsed to the concept of ‘substance over form’. 

The supply of savings in an Islamic finance is free from the influence of external intervention such as the interest rate. If this is true, how this will motivate people to put their money in Islamic bank deposits?

The reason for the prohibition of riba (interest or usury) is because it is unjust to the borrower. However, in some case, it might also unjust to the lender and the lenders to the banks are the depositors. Banks collect the saving of all small savers and give loans to the entrepreneurs who required capital for business. 

Explain the process of deposit creation in an Islamic bank.

There is no difference between the deposit creation between conventional and Islamic banks because both banks mobilise deposits as their primary source of funds[1]. However, the process of financing services and credit facilities provided by the Islamic banks make it difference from its conventional counterpart. Islamic banks eliminate any interest (usury) elements when providing the financing services. The process of deposit creation can be viewed at 2 different level; micro and macro level.

Compare and contrast salient features of the cost of deposits in a mudarabah deposit and an interest-bearing fixed deposit.

Under conventional banking, the cost of deposits in an interest-bearing fixed deposit is fixed and guaranteed regardless of the actual outcome of investments done by the banks. In summary, whatever the rate for cost of deposit is indicated, the realised cost of deposit would be the same at the end of maturity period for fixed deposit. 

The Difference between Shariah Compliance and Shariah Based Products and Services

Shariah is defined as Islamic law or Law of Allah.  It shows one of many ways that humanity strives to harmonize and maintain internal and external belief systems in an holistic approach to life. Hence Shariah covers not only religious rituals, but also many aspects of day-to-day life, politics, economics, banking, business or contract law, and social issues.