Islamic banking is the conduct of banking according to Shariah or Islamic
law. Statistically Islamic banking has had phenomenal growth, according to
the Asian Banker Research Group, the world's 100 largest Islamic banks have
set an annual asset growth rate of 26.7% and the global Islamic finance
industry is experiencing an average growth of 15-20% annually. Recently the
Prime Minister of Malaysia commented that Malaysia has been maintaining its
leadership in Islamic banking and finance for over three decades. As an
International leader in Islamic banking, it would be interesting to explore
the development of Islamic banking in Malaysia. This will be the objective
of this paper. This paper will focus on the historical development of
Islamic banking in Malaysia, from the creation of the Haj Pilgrim's Fund
Board in the 1960s to the current Islamic banking scene of 17 local Islamic
banks and five International Islamic banks in operation. This paper will
also explore the unique regulatory and governance framework of Islamic
banking in Malaysia, by touching on the Islamic banking Act 1983, the
Central Bank of Malaysia Act 2009, the Banking and Financial Institutions
Act 1989 and the Shariah Governance Framework introduced in 2011 by the
Central Bank of Malaysia. This paper will also briefly introduce how Islamic
banking works.