Trajectory of Islamic banking in Malaysia: from evolution to transformation

The development of Islamic finance can be traced back to the establishment of the first Islamic bank in Malaysia in 1983. This paper explores the pertinent phases in the development of Islamic banking in Malaysia including its future path in the coming decades. References will be made to the initiatives of the public and private sectors in contributing to the development of Islamic banking industry. Coupled with the background of an open economy, opportunities for cross fertilisation have enabled the restructuring of the Islamic banking industry to meet the challenges of global competition.With intensifying globalisation and the fast pace of reengineering of banking services, the role of the government in influencing change and transformation of Islamic banking is expected to be focussed more on facilitating than directing, which is indicative of the continuous learning and evolutionary approach of the Malaysian political economy. However, the future is not necessarily an extension of the past. In the light of this scenario, it is therefore incumbent upon the industry and its players to consider their role in the unchartered terrain of the future environment. The significance of Islamic banking and finance as a catalyst to Islamic economic growth needs to be reviewed in terms of its alignment to the objective of the Shariah in promoting citizenship, participation and social justice