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Philosophy and Fundamentals of Sharī’ah for Islamic Finance
SHA0011

On 4 March 1993, Bank Negara Malaysia introduced
a scheme known as ‘Skim Perbankan Tanpa Faedah’
(SPTF) or Interest-free Banking Scheme. Later, it became
known as ‘Skim Perbankan Islam’ (SPI) or Islamic
Banking Scheme. In this new arrangement, conventional
banks were permitted to offer Islamic banking services
by providing the leverage on their existing infrastructure
and branches.

Banks participating in SPI were required to have firewalls
between their conventional and Islamic funds, to
establish Islamic banking units, to create an Islamic
banking fund and to appoint at least one Sharī’ah
consultant to advice on day-to-day operations of the
Islamic banking division. This effort was deemed as
the most effective and efficient approach to increase
the number of participation of local banking institutions
offering Islamic banking services at the lowest cost and
within the shortest time frame.

Islamic Inter-Bank Money Market (IIMM)

With the increased number of players offering Islamic
banking services, concern over its stability and
sustainability has become more inevitable. In particular
there was an urgency to establish an Islamic money
market which is integral to the functioning of the Islamic
banking system. This Islamic money market could
provide Islamic financial institutions with the facility
for funding and adjusting portfolios over the short-term
and serve as a channel for the transmission of monetary
policy for the Central Bank.

Consequently, Islamic Inter-bank Money Market
(IIMM) was introduced on 3 January 1994 as a short-term
intermediary to provide a ready source of short-term
investment outlets based on Sharī’ah principles.

Through various Islamic financial instruments introduced
and active interbank investment this would allow surplus
banks to channel funds to deficit banks, thereby
maintaining the funding and liquidity mechanism
necessary to promote stability in the system. More
importantly through the IIMM, the Islamic banks and
banks participating in the Islamic Banking Scheme
are able to match their funding requirements and
efficiently based on Sharī’ah requirements and principles.
Bank Negara Malaysia (BNM) also issued the Guidelines
on the IIMM on 18 December 1993 to facilitate proper
implementation of the IIMM.