Malaysia: 30 Years of Islamic Banking Experience (1983-2012)

Abstract

Malaysia proved to be at the forefront of Islamic banking and finance by adopting a dual banking system where the conventional and Islamic banking systems co-exist. The Islamic banking has been in operation since 1983 and offers a variety of Islamic financial instruments. In such a multi-ethnic and multi-religious country, customers get the financial products and services they like.

In the early 1980’s, the government encouraged all Malaysians to be involved in the fast-track development process with a vision to make Malaysia a fully industrialized country by the year 2020. Actually, the development of Malaysia’s dual banking system is tied up with its social and economic policy and that is why it was fully supported by the country’s top leadership in addition to the Central Bank, the Parliament, and the public in general.

Islamic banks can motivate Muslims to increase savings and reduce hoarding. This kind of motivation was expected to enhance their participation in the development process contributing to savings mobilization and capital accumulation in order to improve their standard of living and bring them up to par with their countrymen of Chinese origin. Among the countries with a free market economic system, Malaysia has emerged as the first country to implement a dual banking and financial system. The Malaysian model has been recognized by many Islamic countries as the model to emulate.