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Managing Risk in the Financial System

Managing Risk in the Financial System

Edited by John Raymond LaBrosse, Rodrigo Olivares-Caminal and Dalvinder Singh

Managing Risk in the Financial System makes important and timely contributions to our knowledge and understanding of banking law, financial institution restructuring and related considerations, through the production of an innovative, international and interdisciplinary set of contributions which link together the law and policy issues surrounding systemic risk and crisis management.

Chapter 24: Islamic Deposit Insurance System: The Malaysian Model

Khairuddin Hj Arshad

Subjects: economics and finance, financial economics and regulation, money and banking, law - academic, finance and banking law


Khairuddin Hj Arshad 24.1. THE NEED FOR ISLAMIC DEPOSIT INSURANCE Since the last three decades, Islamic finance has been experiencing tremendous growth and today, it has transformed into a vibrant intermediation mechanism. According to a McKinsey’s 2007–08 report, Islamic assets have reached USD 750 billion and with growth rates of 15 per cent to 20 per cent per annum, the assets are expected to hit USD 1.6 trillion by 2012. The number of Islamic financial institutions globally has reached 625 in over 75 countries. Amidst the recent more challenging environment, the continued expansion of global Islamic finance demonstrates its viability and resilience and this has drawn significant interest from global regulators and players. The role and relevance of Islamic finance in contributing to global financial stability and in support of overall global economic growth is discussed in this chapter. Against this backdrop, there is a need to support the continuous growth of Islamic finance and further strengthen its viability and resilience. Among the key initiatives is the establishment of Islamic deposit insurance, which is a mechanism to protect Islamic deposits and maintain public confidence in the safety of their Islamic deposits in the Islamic banking institutions. Additionally, some countries are looking at deposit insurance as a catalyst to sustain and attract Islamic funds in their countries, thus helping them to spur the growth of Islamic finance and their economy. 24.2. MALAYSIA’S ISLAMIC FINANCIAL SYSTEM Malaysia’s Islamic finance started with the establishment of the Pilgrimage Fund Board in 1963 and...

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