Next,the other suggestion is to create awareness of the Sukuk. The banks and financial organization in Malaysia needs to beef up their promotion effort despite Malaysia being one of the major Islamic financial market. A public awareness program is a way to educate the public, especially the masses whose small savings may add up to a lot if they are convinced by the usefulness of the instruments and made aware of the significant higher yields and higher risk of Sukuk securities. Usage of mass marketing may be the way forward as this way was a proven way when it was used to finance development during and post-World War in the 1940s. Efforts in this direction have to come from associations and individual Islamic financial institutions, especially the larger ones, funding public awareness campaigns. They also need to create awareness of the Sukuk compared to the conventional bond for the firms. It is because most of the organizations and firms did not aware about the beneficial of the Sukuk compared to the conventional bond.

 

 

The last suggestion for the issue is to create an intensive and comprehensive plan to encourage new firms to issue Sukuk based on their unique determinants. If there is a certain incentives given to the firms that continuously issue Sukuk, it would attract other firms to participate in the Sukuk market. Other than tax incentives, government can also apply the star rating system to the firms that issue sukuk. Firms can be classified as active participant and be given five stars, while in contrast passive firms can only be given one star. The five star firms can get better treatments from the Bank Negara Malaysia such as fast lane product approval, promotional advantage and others. As more data becomes available in the future, one could further investigate by incorporating different combination of Sukuk structure between exchange-based and partnership based Sukuk. It can shows the firms to study the other  firm‟s growth as one of the determinants.and the success story of other firms in issued Sukuk will influence the firm to issue Sukuk.

 

The first suggestion is BNM will increased cheques from 50 sen to RM1.00, starting 2 Jan 2021 to show higher processing costs. This is to ensure that total number of cheques being reduce and society will use e-payment rather than cheques. BNM had launched a 10-year e-payment plan in 2011, and so far, the total number of cheques declined 42 percent, from 205 million in 2011 to just 120 million this year. On the other hand, the transfer of electronic funds has increased from 66 million transactions in 2011 to about 329 million in 2017. At current rates of decline, BNM have achieved the target of reducing the use of cheques to 100 million in 2019, a year ahead of schedule. This shows that cash less society bring positive feedback from the society.

 

In addition, to ensure that the system of e-payment is upgraded and more efficient, BNM has upgraded payment technology being more advanced, scalable and low-cost, beneficial to traders directly and given their operating costs can be reduced through a 'Quick Response' (QR Code). QR Code is a machine-readable code consisting of an array of black and white squares, typically used for storing URLs or other information for reading by the camera on a smartphone. QR Code make the transaction more easy and fast. To encourage the use of QR code payments, BNM has issued a Mutual Operational Credit Transfer Framework (ICTF). ICTF will also increase customer protection and their confidence in using credit transfer services. For the first time in history, bank and non-bank customers will soon be able to transfer funds in the whole network, with reference to mobile phone numbers, identification numbers or QR codes. Considering that the smartphone penetration in Malaysia is expected to exceed 100% in 2018, BNM can see the thought process behind moving Malaysia towards cashless by championing QR. It’s perhaps the most user-friendly way to get even the senior generation of Malaysia on board with the system.

Furthermore, to overcome the disadvantage of cashless society which is there are additional charge of transaction, BNM governor Tan Sri Muhammad Ibrahim said that with effect from July 1, 2018, the Instant Transfer of 50 cents, will be abolished for transfers of up to RM5,000 per transaction by individuals and small and medium enterprises (SMEs). Banks are now also offering free Instant Interbank Fund Transfer (IBFT) in line with Malaysia's central bank policy. Bank Negara announced instant bank transfer fees would be waived effective July 1 to encourage the move towards a cashless society. A check of several banks showed most had followed the instructions, though with varying terms and conditions. CIMB Bank Bhd was one of the first, offering free online transfers through its online banking platform and mobile apps regardless of the transaction amount, as of April 25. Public Bank Bhd has also made Interbank GIRO (IBG) and IBFT free for conventional and Islamic accounts, as of June 13. RHB Bank Bhd allows for free IBFT, but still charges 10sen for IBG. Maybank also does not charge for IBFT as long as the amount is RM5,000 and under. This is to encourage Malaysian to use e-payment by eliminate the charge payment. 

In a single economy, the equity market is an important element. This is because, this equity market is a contributor to the growth of economic activity and the real development of a nation. It is through a dynamic and efficient platform offering to companies to gain easy access to capital and to investors to acquire a company's ownership with promising future performance. The Islamic equity market is also an important element in the Islamic financial system. However, to develop a comprehensive Islamic equity market, a strong support infrastructure is needed. Muslim investors need to be aware of their investments whether they are Shariah-compliant or not. Hence the related issues here are how stocks can be determined to be obedient Sharī'ah; how much income is allowed from that; and how unreachable income is treated.

Companies offering their shares on the stock exchange can be divided into three main categories such as their business and operations:

1. a company with unacceptable business and operation from a Sharī'ah perspective;

2. a company with a business and authorized operation; and

3. Companies with mixed business and operations or companies engaged in authorized and unauthorized business and operations.

An Islamic investor cannot participate or invest in companies with business and non-compliance Sharī'ah companies. The Quran says:

Al-Ṣābūnī (1997) explains that misuse here includes every means of acquiring wealth not permitted by Sharī'ah, such as theft, dishonesty, usurpation, riba (ribā), gambling (qimār) and similar things. They are all forms of misuse of misuse.

The scholars of Sharī'ah, regulatory authorities and other Islamic financial players have admitted to having a criterion or methodology for Sharī'ah's filtering of shares. The criteria are to facilitate Islamic investors in identifying stocks that meet at least the requirements set out in those criteria. This is to limit the cooperation of Islamic investors in sinful acts, a basic requirement imposed by the following Qur'anic verses:

The first criteria seen is the general business activity of the company and the financial operations of the company offering the shares whether based on Sharī'ah or not. If the activity or financial resources of a major company is not in compliance with Sharī'ah then it is illegal for an Islamic investor to invest in the company. The Quran states:

a Muslim should not recognize any income derived from interests or other unacceptable activities. The Prophet (ﷺ) mentions:

This Ḥadīth has established a very important principle that wealth or income sources should be permitted. The use of wealth or income derived from sources that impermissible can cause people to fire in the hereafter.

But if the main company's activities and financial resources are based on Sharī'ah and there are secondary activities and financial  operations that are not based on Sharī'ah then Muslim investors can still decide to invest in the company if it does not exceed the 5-percent benchmark set. Islamic shareholders are prohibited from owning or retaliating any shares that are excluded from Sharī'ah-compliant lists.

Some scholars such as Sheikh Taqi Usmani suggest that it is a safe approach to clean capital gains from the sale of shares. It is based on an understanding that market prices may reflect an element of interest or unacceptable income (Usmani, 2002). On the contrary, ISRA-Bloomberg is of the view that it is not necessary to clear capital gains. It is said that the change in stock prices does not directly reflect the interests or other income generated from the non-compliance of a company Sharī'ah. This is because Muslims are absolutely prohibited from helping or contributing to unauthorized activities, as mentioned earlier in the verse Al-Qur'ānic:

Cleansing of stocks can be defined as:

Holding the shares of a company engaged deeply (beyond the threshold) in non-compliance activities Sharīah may be considered as "helping" companies in their prohibited activities. Therefore, the shares must be disposed of.

Firstly, government regulations. The advertising industry in Malaysia faces complex challenges, in particular the numerous government regulations. The regulations reflect the national aspirations of achieving a Malaysian identity  and culture, while conforming to the values of Islam, the national religion. These aspirations were set out by the Ministry of Information and specified in the Advertising Code for Television and Radio. The main purpose of the Advertising Code was designed to safeguard advertising and the consumer against the bad influence of foreign cultural values. In particular, it prohibits the adaptation or projection of foreign culture which is not acceptable to a cross section of the major communities of the Malaysian society either in the form of words, slogans, clothing, activity and behavior.

In the other hand, Advertising Code also promotes cultural sensitivity in advertisements. It prohibits advertisements that contain statements or suggestions which may offend the religious, racial, political or sentimental susceptibilities of any section of the community. Party political broadcast that targets a specific racial group or incites one group to rise against another is strictly prohibited. Such prohibition stemmed from the 1969 racial riots. This prohibition is deemed to be vital in achieving racial and national harmony in a multiracial country such as Malaysia.

In Malaysia, culture and religion goes hand in hand. Most of the cultural values were actually by various religious practices. For instance, the Advertising Code for Television and Radio was heavily influenced by the government’s effort to promote Islamic values throughout the country. This includes the imposition of stricter regulations on the mass media content based on Islamic principles and values. For example, the women in Malaysian advertising must be portrayed as having good behavior acceptable to local culture and society. Moreover, female models must adhere to the Advertising Code’s decent code which stipulates that a female model must be covered until the neckline, the length of the skirt worn should be below the knees, the arms may be exposed up to the edge of the shoulder but armpits cannot be exposed. This ruling has restricted the advertising of female and male underwear on mass media. In addition, because of religious and cultural sensitivity, the sale of female contraceptives and female hygiene products were strictly limited on the mass media.

Lastly, Islam forms the largest single religious group in Malaysia, practiced by around 60% of the population. Islam prohibits gambling and alcohol consumption. 

 

Further, it is recommended that the establishment of the Shariah Advisory Council on foreign currency transaction platform through the internet should be sought. This transaction is increasingly popular among Muslims. In addition, it is also suggested that the establishment of a platform run by Islamic brokers and in cooperation with the state bank, in order for foreign currency exchange activities to be based on Islamic muamalat transaction so that the law can be implemented according to the maqasid syariah.

 

For suggestion of second issue is the comparison between forex in conventional institution and forex in Islamic institution. As explained, although the final implication and economic effect for both parties in the Islamic institution and the conventional institution seems to be similar, however what is more important is that the substance of the structure must be in line with the principles of Shariah contract and the objectives of Shariah (maqasid al-Shariah).  

 

Therefore Shariah parameters in structuring and executing forex are very important to ensure market pratitioners truly fulfil and adhere to the requirement outlined by Shariah. Two broad categories of Shariah parameters on Islamic FX are suggested, namely the guidelines on combining various contracts in one single transaction and the other is on guidelines of how to demarcate Islamic swap purposes either to hedge or to speculate.  

 

Through the analysis of the issues discussed, several suggestions have been made regarding the solutions that fit the issues highlighted.

3.1 The Exposure to the Reputational Risk.

Exposure to reputational risk especially from the Shariah aspect becomes an issue if the Takaful Operator Company (SPT) does not conduct the best control. So it is potentially and vulnerable to dealing with failure of operations and closure of the company. In view of the perspective of the Takaful industry, the Takaful industry is not only vulnerable to underwriting risk, liquidity risk, and reputation risk but also exposed to the unique risk of Shariah risk. Shariah risk management is an on-going process as long as SPT operations run. Therefore, in order to avoid exposure to reputational risk, SPT has to establish full compliance with Shariah from product formulation to technical aspects of SPT operations. In other words, each aspect of the SPT operation must be ensured in compliance with all the requirements of the Shariah, as specified by the SPT Shariah Committee (JKS SPT) and the Bank Negara Malaysia Shariah Advisory Council (MPS BNM). Shariah non-compliance will cause huge losses not only to the participants, but also negatively impact the shareholders, the SPT itself and the Islamic financial industry as a whole. Secondly, the huge potential in the Takaful market requires efficiency in Takaful operations, including the risk management process in SPT operations. This is because according to Skipper and Kwon, risk management is a mechanism or process for managing any possible risks including in the industry.

3.2 Lack of Consumer Awareness.

The second issue is lack of consumer awareness in choosing Takaful. This may be due to several factors that are less obvious in terms of Takaful products or less product packages compared to conventional ones. Consequently, the suitability of products and reasonable advice to consumers is the proposed solution to address this problem.

The improvement in the quality of advice given to consumers continues to be the main focus of regulatory and supervisory practice. Research on quality of advice is also important in relation to Takaful provided to consumers. It encompasses the assessment of whether institutional controls are adequate to provide a response to incentives that encourage sales staff to promote a product over another product, or influence customers to understand the benefits of the product by explaining in a way that promises are clearly or easily understood by customers. Simple language use in Takaful certificates helps users understand their contractual rights and responsibilities and complement existing transparency and disclosure measures. Additionally, understanding the customers about Shariah-based concepts is essential so that consumers continue to subscribe to Takaful without any doubt. Additionally, diversifying Takaful product packages can provide customer satisfaction as a way to create awareness and attract consumers to choose Takaful rather than insurance.

 

Islam prohibit interest but does allow the sharing of benefit of productive loan by the supplier of funds if it is taken in the form of profit. The same verse of Holy Quran which prohibits interest approves profits (al- Baqarah: 275). Therefore, as conventional system accepts interest (riba) as a source of profit, the view on profit from Islamic perspective surely contradicting from the profit that is viewed and accepted in conventional system. 

As a way to be free from forbidden elements (riba, gharar, maysir) in banking system, muslims scholars took a long time to develop a banking system which is operated based on shariah principle. The unique feature of Islamic banking which is profit and loss sharing (PLS) concept is seen to be an ideal mode of financing in islamic finance. Profit and loss sharing (PLS) as the system does comply with the teaching of Islam and is a contractual agreement two or more transacting parties, in which they agree to enter risky economic activities, and share the risk. The returns, which be profit or losses, are shared between the parties. The instruments based on PLS such as MUsharaka (partnership in capital) and Mudaraba (partnership in capital and skill). Under this mode, the return of financier is not fixed as it depends on successfulness of the project and loss is to be shared between the parties.

With that, profit and Loss Sharing (PLS) instruments should be implement that will ensure the realization of socio-economic objectives envisaged by Islamic economics. An examination of the actual workings of Islamic banking in practice should therefore be studied with these distinctions in mind. It is time for the Islamic banks and financial institutions to resolve toward enhancing their equity share of financing on PLS basis. The dawn of an era of justice can, therefore, be visualized where the fruits of the Islamic banking system would be available to a large number of people leading to over-all social and economic prosperity.

 

 

Ø  STEPPING UP FOR DISTRIBUTIONAL EFFICIENCY

The Islamic banks have to promote their distributional efficiency from all dimensions together with profitability. Islamic banks have to increase their equity share of investment financing through PLS-modes. The Islamic banks, to do that, can be selective in choosing clients for financing under PLS modes.

Islamic banks should establish a direct functional relationship between the incomes of the bank and that of the depositors and between the income of the bank and that of the entrepreneurs. The relationship improves with the share of bank financing under PLS modes increasing. Islamic banks should immediately take measures to revert the trends of resource transfer from both low-income groups to high income groups and from rural to urban areas. This is extremely important from the viewpoint of their banking philosophy as well as for their tacit commitment for distributional equity. They should develop a monitoring mechanism by which the distributional impact of their banking operation could be traced out and necessary policy can be formulated to continuously improve the equity situation.

The Islamic banks should actively consider utilizing the rural potentials from both efficiency and equity grounds in the context of the present-day socio-economic conditions. Strong commitments and stepping up through experiment and implementation of innovative ideas are the appropriate ways to do that.

Ø  PROMOTION OF ALLOCATIVE EFFICIENCY

Islamic banks should not be solely profit oriented rather it must aim at promoting Islamic norms and values as well as protecting the needs of Islamic society as a whole without undermining its commercial viability. The Islamic banks can enhance their allocative productivity by fulfilling social welfare conditions in the accompanying way. Firstly, they should to distribute a sensible part of their investible funds to social need divisions, for example, agriculture (counting poultry and fishery), small and cottage businesses and fare driven enterprises, for example, pieces of clothing, shrimp cultivation, and so forth. Secondly, when the rate offers of portion of investible funds are resolved, profitability of the tasks ought to be the model for assigning loanable funds. The measure would be best fulfilled assuming an ever increasing number of projects were financed under PLS modes.