Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Islamic Deposit Insurance: The Malaysian Experience Presentation for Seminar on Islamic Deposit Insurance 18 August 2008, Kuala Lumpur © Copyright 2005 All Rights Reserved Main components of financial safety net Robust & sound banking system Financial stability Depositors’ protection Financial safety net Prudential regulation & supervision Lender of last resort Intervention & resolution mechanism Deposit insurance system Need to maintain financial stability for sustainable economic growth 2 © Copyright 2008 All Rights Reserved Malaysian banking system In Malaysia, Islamic banking operates in parallel with conventional banking … Depositors Target same customer pool Islamic banking Implicit guarantee Government Conventional banking Implicit guarantee already in place before introduction of deposit insurance system … 3 © Copyright 2008 All Rights Reserved The need for Islamic deposit insurance 4 To ensure the competitiveness of the Islamic banking system vis-a-vis conventional banking To comply with Shariah principles To instil public confidence To promote financial stability © Copyright 2008 All Rights Reserved What is Islamic deposit insurance? A system that provides protection to depositors against loss of insured Islamic deposits placed with Islamic member institutions* in the unlikely event that an Islamic member institution is unable to meet its financial obligations. It operates in accordance with Shariah principles. Guiding principle Equal treatment between Islamic and conventional deposits * Islamic banks and Islamic banking windows 5 © Copyright 2008 All Rights Reserved The operation Operates in parallel with conventional system and both are adminstered by MDIC ... ISLAMIC DEPOSIT INSURANCE CONVENTIONAL DEPOSIT INSURANCE Sources Annual premiums Annual premiums Fund IDIF CDIF Investment Investment Expenditures Expenditures Islamic MI’s failure resolution Conventional MI’s failure resolution Utilisation 6 © Copyright 2008 All Rights Reserved Salient features of IDI (1) Mechanism 1 Conventional deposits Depositors Islamic deposits Islamic member institutions Conventional member institutions 7 Provide protection in event of member institution’s failure 3 Payment of annual premiums 2 © Copyright 2008 All Rights Reserved Salient features of IDI (2) Coverage Islamic deposits covered separately from conventional deposits RM60,000 per depositor per member institution Separate coverage for Islamic banking window 8 Separate coverage for trust accounts, joint accounts, sole proprietorship and partnership Various contracts – mudharabah, wadiah, qard and murabahah © Copyright 2008 All Rights Reserved Mudharabah deposits Money placed by depositor (investor) in bank (entrepreneur) for bank to invest and profit from such investment is shared 1 Bank receives depositor’s money to invest on profit sharing basis Depositor (investor) Bank (entrepreneur) 3 Bank will repay to depositor the principal plus profit upon maturity 2 Investment Relationship : Investor - entrepreneur 9 Principal : Not guaranteed (may be reduced by loss) Return : Profit from investment is shared based on preagreed ratio but loss is borne by depositor. In case of negligence, loss is borne by bank © Copyright 2008 All Rights Reserved Coverage for mudharabah deposits As prudential measure with overall objective of promoting integrity & stability of banking system Bulk of deposits are mudharabah Avoid systemic risk Coverage only in the event of bank failure Under normal course of banking business, depositors are exposed to the risk of losing their capital – consistent with concept of mudharabah Coverage by 3rd party guarantee not by bank itself MDIC provides 3rd party coverage (consistent with Shariah principles) 10 © Copyright 2008 All Rights Reserved Salient features of IDI (3) Premium assessment 11 Separate calculation of total insured deposits Separate Differential Premium System Separate supervisory assessment for Islamic and conventional banking institutions (including Islamic banking window) © Copyright 2008 All Rights Reserved Salient features of IDI (4) Management of funds Separate Islamic and Conventional Deposit Insurance Fund (IDIF & CDIF) IDIF contributed by premiums collected from Islamic banking institutions i.e. Islamic banks and Islamic banking windows Investment Shariah compliant papers issued or guranteed by Government or BNM only Expenditures Apportionment of cost Non-Shariah compliant expenditures charged solely to CDIF 12 © Copyright 2008 All Rights Reserved Salient features of IDI (5) Payout 13 Use IDIF only for Islamic member institutions’ failures – no transfer of funds between IDIF and CDIF Deficit IDIF – can raise funds from market or Government based on Shariah principles Under claim & recovery, priority of payments is given to wadiah and qard before payments to mudharabah depositors © Copyright 2008 All Rights Reserved Issues and Challenges (1) Absence of guiding principles for Islamic deposit insurance 14 Operation and establishment of the system Differential Premium System Different risk indicators for Islamic member institutions Lack of data - no separate submission of some information for Islamic banking window © Copyright 2008 All Rights Reserved Issues and Challenges (2) 15 Liquidation of assets in event of failure Cross border liquidation - globalisation Priority of payments of new contracts applied to deposits (e.g. commodity murabahah) Actual liquidation process (e.g. liquidation of assets funded by specific investment accounts) Limited avenue for investment on Islamic financial instruments © Copyright 2008 All Rights Reserved Thank you ... 16 © Copyright 2008 All Rights Reserved