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Commercial Banks have been established in a context different from Islamic context, with different founding principles and paradigm. For this reason, those banks have not been widely accepted by most Muslims. There was an urgent need for financial institutions to deliver banking solutions and services compliant with Shariah regulations. In meeting these needs, some Islamic financial institutions were established in the 1970s. Kuwait Finance House in Kuwait was one of the pioneers as it was established in 1977 due to a noble will of His Highness late Shaikh Jaber Al ahmad Al Jaber Al Subah. On 8 May 2005, Kuwait Finance House (Malaysia) Berhad (KFH Malaysia) was granted a license under the Islamic Banking Act (Malaysia) 1983 as the first foreign Islamic bank in Malaysia.
Shariah is based on principles and regulations to organize the life of individuals in two main aspects; their relationship with god and their relationship with other individuals. Fiqh (Jurisprudence) is considered as a part of whole named Shariah. Fiqh is divided into two main divisions:
- Ibadah, which means acts of worship, address issues such as prayers, fastings, Zakat, Hajj, Purity-related matters etc.
- Mu‘amalat, which means transactions, addresses issues such as financial transactions, personal issues, inheritance, sanctions etc.
In addition, there are five main Shariah provisions: Wajib (duty), Mustahab (desirable), Mubah (permissible), Makruh (disgraceful) and Haram (forbidden). Muslim jurists, based on the study of Quran texts and Sunnah, concluded that the main purpose of Shariah regulations and provisions is to protect religion, self, lineage, intellect and property. These are called the five Maqasid.
Shariah provisions are based on four sources, two of them are considered as primary, the Quran & Sunnah and the other two are considered as secondary, Consensus (Ijma ‘) and Analogy (Qiyas).
1- Holy Quran
Scholars identify Holy Quran as follows “It’s the words of Allah revealed to his prophet Mohammad (PBUH), which reading is an act of worship, begins with Surah Al-Fatihah and ends with Surah Al-Nas.
2- Prophetic Narrations (Sunnah)
Sunnah is every act, saying and tacit approval of the prophet Mohammad (PBUH). Sunnah is considered and primary source of legislation due to instructions of Holy Quran. Many Verses commanded Muslims to follow the Prophet (PBUH) guidance such as in Surah Al-Hashr, Verse 7: “So take what the Messenger assigns to you, and deny yourselves that which he withholds from you. And fear Allah, for Allah is strict in punishment.”
Sunnah is divided into three divisions:
- The Prophet's Sayings.
- The Prophet Acts.
- The Prophet acceptance of others' a sayings or acts.
3- Ijma‘ (Consensus)
The consent of Muslim Jurists on a specific issue in a specific time, such as Tarawih Prayer in a congregation (Jama‘ah). Although it is difficult to achieve Ijma‘, the modern jurisprudential academies are playing important role in this regard.
4- Qiyas (Analogy)
In modern issues, of non-equivalence in the past, Muslim scholars in such case, seek for a common similarity between the discussed matter and similar matter that its provision in Shariah is known. Shall such a case be found, then, the modern issue gets the same provision. Drugs is a clear example of Qiyas, since it shares the same mental effect with alcohol, and since alcohol drinking is strictly forbidden in Shariah, then drugs are also forbidden (Haram).
Islamic banking is defined as banking system which is in consonance with the value system of Islam and governed by the principles laid down by Shariah law. The underlying principles of Islamic banking are Shariah compliance, contractual rights and obligation accorded to the transacting parties and the fairness and transparency in these dealings and business activities.
The core value of Islamic banking is to promote economically productive activities, genuine trade and business transactions. Activities that involve interest (riba), gambling (maisir), excessive ambiguity (gharar) and illegal and unethical business activities are prohibited.
Islamic banks rely on innovative ways in the creation of Islamic banking products through various Shariah concepts such as Ijarah (leasing), Murabahah (sale), Mudharabah and Musyarakah (profit sharing partnership). By promoting the importance and the need for banking transactions to be based on high ethical standards and supported by genuine trade and economic activities, Islamic banking sets a higher standard for financial intermediaries.
As an Islamic Bank that purely offers Islamic products and offerings, KFH (Malaysia) ensures that its business operations are, at all times, comply with Shariah as well as Shariah regulatory requirements.
In ensuring Shariah compliance, a sound and robust end-to-end Shariah governance system and controls has been established in KFH Malaysia. This is reflected through the active roles played by the key organs of the bank which comprise of the governing board of directors, independent Shariah Committee, effective management team and strong internal Shariah functions.
The Shariah Committee advises the board on matters related to the Shariah and oversees the Shariah functions in the bank. These functions and controls are supported and operationalised by Shariah division along with divisions such as internal audit, compliance and risk management divisions. Shariah division provides Shariah advisory to the bank and reviews all materials prior to entering into any deal. Additionally, the division conducts Shariah reviews on important areas of the bank in ensuring that its activities, products and offerings are in compliance to the Shariah parameters, rulings and decisions made by the Shariah Committee.
In raising the awareness of our customers, KFH Malaysia has initiated a compilation of its Shariah resolutions together with other relevant information on the Shariah principles applied to our banking products and services. It intends to serve as a guide in understanding the underlying Shariah rules and principles governing the products and services as approved by our Shariah Committee. Each of it will be explained and described together with its structure being briefly illustrated.
