The starting point and motivation for Bruneian Islamic finance industry was a decree or Titah of His Majesty the Sultan and Yang Di-Pertuan on the 25th September 1990 in a meeting of the Islamic Council/’Majlis Ugama Islam of Brunei:
“If we are not able to do something, it does not mean that we just sit still and do nothing. If we are really unable because we do not have skilled labor or the expertise, and yet we are in dire need to meet the demands, say for example, of Fardhu Kifayah1, then what is wrong in following the international practice or traditions of nations by the mutual exchange of information or undergoing training or, if necessary, the hiring of experts on temporary employment with us to help us make our projects succeed the way we plan and desire?
For example, [in] the matter concerning the Islamic financial system, the most popular nowadays is the Islamic bank. It is no longer a dream or imagination, but we are informed that there are already more than fifty Islamic commercial banks in Islamic countries This is also one of the obligations of Fardhu Kifayah for each of the said Islamic countries, including our State of Brunei Darussalam….” (Pehin Tuan Imam Dato Paduka Seri Setia Ustaz Haji Awang Abdul Aziz bin juned, 2008, p. 169)
Islamic banking market in Brunei was then formally initiated in 1991 when Tabung Amanah Islam Brunei’ (TAIB), the country’s first Islamic trust fund was established to help Brunei’s local Muslims undertake their pilgrimage to Mecca.
In 1993, Island Development Bank was converted into the first full-fledged Islamic bank in Brunei under the name of the Islamic Bank of Brunei. Prior to this, the Island Development Bank was a conventional bank.
The next big thing in Bruneian Islamic finance industry is the formation of Bank Islam Brunei Darussalam in 2005. BIBD is Brunei’s largest bank and flagship Islamic financial institution. It was formed by the 2005 merger of two earlier local Islamic financial institutions, Islamic Bank of Brunei and Islamic Development Bank of Brunei. With majority government shareholding, it is also committed to Brunei Darussalam’s National Vision 2035 of attaining developed nation status. Its share holder include Brunei Ministry of Finance, Sultan Haji Hassanal Bolkiah Foundation, Fajr Capital Limited, and some 6,000 individual Bruneian investors
Traditionally, Islamic banking in Brunei offers products that are supported by classical Muamalat concepts such as al-Bai ’ Bithaman Ajil (home financing, overdrafts and facilities), Mudharabah deposits, Wadiah accounts, ar-Rahnu (pawnbroking), Ijarah Thumma al-Bai ’ (hire purchase) and Murabahah letters of credit.
In 2006, the Islamic finance industry leaps further with the issuance of Brunei’s first sovereign sukuk (Islamic bond) by the Ministry of Finance. In the same year, the 2006 Syariah Financial Supervisory Board Order was introduced to regulate and approve the offering of Islamic financial products and business services to the public.
Despite the formation of Islamic bank and the issuance of sukuk, legislative reform only begins with the introduction of the Islamic Banking Order (IBO) 2008 and Takaful Order 2008. Like its counterpart the Banking Order, 2006 for conventional banking, the IBO provides for the issuance of a general commercial Islamic banking licence and an Islamic merchant banking licence to cater for corporate advisory and corporate banking services. The capital requirements are reportedly attractive by international standards to serve as a catalyst to attract participation in the local market from foreign Islamic institutions.
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