19 - Capital Fund

The Islamic Banking Act 1983 Part II Section 14 stipulate that The Central Bank may require an Islamic bank to maintain capital funds, unimpaired by losses or otherwise, in such proportion to such assets of its branches and offices both in Malaysia and outside Malaysia or only of its branches and offices in Malaysia as may be prescribed from time to time by the Central Bank by notice in writing.

The Capital Funds are raised and managed as follows:

1. A full-fledged Islamic Bank

#  The new full fledged Islamic Bank will be capitalised by cash injection, private placement or investments by the shareholders. If the Writer is not mistaken, BNM reserves the right to reject the shareholders' composition prior issuance of the new banking license;

#  Minimum paid-up capital imposed by BNM is USD100 million for International Islamic Banks. For mega Islamic Banks, BNM imposed a minimum paid-up capital of USD1 billion.

#  Excess working funds can be invested in BNM Islamic deposit instruments, sukuks, Islamic Interbank Money Market (IIMM) etc.

2. Full-Fledged Islamic Subsidiary (parent company is a conventional bank)

 #  Shareholders’ funds is raised by transferring all existing assets under the window operations to the new subsidiary;

#  Minimum shareholders' funds is RM50 million (..based on past requirement. The Writer is not sure whether this requirement has since changed).

#  Like (1), excess  working funds can be invested in BNM Islamic deposit instruments, sukuks, Islamic Interbank  Money Market etc.

3. Window Operations

#  Once the capital fund is placed in the window operations, that amount shall remained in the Islamic books permanently until the shareholders decide to convert the window operation to a full-fledged subsidiary or run down the business (stop offering Islamic banking) or dispose off the asset to another Islamic Bank;

Except for a full-fledged Islamic Bank, a window operation or an Islamic subsidiary normally operates using shared IT infrastructure. However the Islamic banks are required to segregate the Islamic accounting transactions from its conventional books (including balance sheet) . Separate account codes will be assigned to ensure separate reports are produced by the system. From Writer’s own experience, Banks sharing similar IT infrastructure normally faced a lot of problem when it comes to system's enhancement. Common problems that may be faced by the banks are:

#1. Unable to response quickly on any enhancement requirements since whatever enhancement to be done will have direct impact on their current conventional program. Thus, whenever changes are made, users acceptance tests (UAT) need to be done for the whole system. Test plans should be prepared on a "end-to-end basis" i.e. sample transactions from account opening up to full settlement with various possible transaction occurrences such as return cheques, wrong posting etc.  UAT on random basis should be avoided.  Best solution is to look for Islamic banking software with separate the “trunk road” between the Islamic and conventional so enhancement can be done separately. This means, a duplicate system is maintained, dedicated for conventional and Islamic but both are linked through the centralize Customer Information (CIF) module.

#2. Under shared IT infrastructure, many instances conventional terminologies are used in automated standard letter of offers, reminders, screen display etc which can confuse users, particularly staff handling the system. The word "interest" normally appears in the system rather than profits thus, whenever enquiries made by Islamic customers, quite common the word "interest" is used by the staff to explain to Customer. The Writer opine that the Shariah Department should also be involed in ensuring the system, particularly the terminologies used are also Shariah compliant.



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