MGT3663 BANKING AND OPERATION PRACTICES

KOLEJ PROFESIONAL MARA BANDAR MELAKA

DIPLOMA IN ISLAMIC BANKING AND FINANCE

BANKING OPERATIONS AND PRACTICES
(MGT3663)

Differentiate between conventional and Islamic banking product based
on various standards and guidelines in Malaysia.

Ahmad Dzulqharnaen bin Abdul Razak BMF20-07-012
Putri Nur Zarith Sufea binti Mohd Nor Sufian BMF20-07-059
Nur Syafiqah binti Zamhuri BMF20-07-060
Nur Dania binti Nor Isham BMF20-07-061
Nurul Ain binti Othman BMF20-07-062
Muhammad Imran Aulia bin Muhamad Favillah BMF20-07-072

LECTURER’S NAME : Puan Dalilah binti Ahmad
SUBMISSION DATE : 4 October 2021

TABLE OF CONTENT PAGES
CONTENT 4
Acknowledgment 5
Introduction of the assignment 6-7
Background of the Bank Rakyat and Maybank
Organizational Structure 8-15
Background of the credit card 16-17
Product features
Applications/procedure of the credit card 18
Findings on Standards and Operational Requirements 19-23
Contract/legal documents/modus operandi 24-28
Advantages and disadvantages of credit card 29-34
Recommendations 35-37
Conclusion 38-39
Reference
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ACKNOWLEDGEMENT
Everyone who has helped us in completing this assignment deserves our heartfelt
thanks, especially Madam Dalilah, who has offered us information and guidance throughout
the process of completing this report from beginning to end.
The members of the group, Ahmad Dzulqarnaen, Putri Nur Zarith Sufea, Nur Syafiqah,
Nur Dania, Nurul Ain, and Muhammad Imran Aulia, deserve to be thanked for their excellent
cooperation in completing this assignment. We want to express our gratitude to them all.
Everyone in the group put in a lot of effort and was dependable. We had a few issues at the
beginning of the project, but things got better as the project went on. We make every effort
to find the time convenient for all members to discuss the issues at hand. However, it won't
be accessible if our group members do not work together as a team.
Ahmad Dzulqarnaen bin Abdul Razak, Putri Nur Zarith Sufea Binti Mohd Nor Sufian,
Nur Syafiqah Binti Zamhuri, Nur Dania binti Nor Isham, Nurul Ain Binti Othman, and
Muhammad Imran Aulia bin Muhamad Favillah from DBF4D comprise this group of six
individuals. In addition, because we work well together, we are delighted to be a part of the
group. As part of our task, we researched the use of funds obtained through credit cards. As
a result, we distribute the workload equally amongst ourselves. Nonetheless, we made an
effort to contribute to these Banking Operations and Practices subjects, and we were able to
complete them on time and successfully.

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INTRODUCTION OF THE ASSIGNMENT

The assignment covered the applications of funds obtained through the product we chose, a
credit card. A credit card is a narrow rectangular piece of plastic or metal made by a bank or
financial service sector business that allows cardholders to make use of funds and use them
to pay for goods and services at vendors that accept cards.

Malaysia's credit card industry is rapidly expanding and unique in that it operates in a
dual banking system where conventional and Islamic banking systems coexist. Islamic banking
provides the same purpose as traditional banking, except that it adheres to Shariah guidelines
known as fiqh Al-Muamalat (Islamic rules on transactions). Therefore, Shariah principles must
be followed in Islamic banking and finance. Because consumers are already familiar with the
features of conventional credit cards, it is difficult for Islamic credit cards to fit into the
industry. A Conventional Credit Card, for example, has several features that entice customers
to use it, such as a rewards mechanism and credit limit flexibility. (NuWire, 2021)

Most people believe that using a credit card is the most convenient way to pay their
bills. Furthermore, a Credit Card product allows you to keep your current account while
benefiting from the benefits and terms of another card. When you use your credit card to
make a purchase, a balance is added to your account, which must be paid off each month.
Although failing to pay off a credit card on time may result in interest and late fees, credit
cards can also assist users in building a positive credit history. (Islamic Banking, 2015)

As part of our investigation, our team selected a credit card from Bank Rakyat and
Maybank. Islamic credit cards differ significantly from conventional credit cards in several
ways. Therefore, this assignment also investigated the history of the product (Credit Card),
including the contracts used, the application of the product, the mode of operation, the
procedure for applying for the product, the benefits and drawbacks of the product, and the
differences between an Islamic credit card and a conventional credit card, among other things.
This assignment will go over all the information in detail to ensure a thorough understanding.

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BACKGROUND OF THE MAYBANK AND BANK RAKYAT
MAYBANK BERHAD

Maybank was established in 1960 and has grown to become the largest company on
the Malaysian Stock Exchange in market capitalization (Bursa Malaysia). Forbes Global is
ranked first among Malaysian publicly traded companies and the top 500 companies globally.
Commercial banking, leasing and hire purchase, investment banking, Islamic banking,
insurance, offshore banking, factoring, trustee services, asset management, stockbroking,
nominee services, venture capital, and Internet banking are just a few of the goods and
services provided by the world's leading companies, according to the Maybank Group's ranking
of the world's leading businesses in 2000.

To humanize financial services in Asia, Maybank's mission is to ensure that people
have fair terms and prices when accessing financial services and always maintain a leadership
position in the community. Maybank's vision is to assist you in realizing your aspirations in
Asia.

As a custodian of public funds, Maybank has a responsibility to maintain the integrity
and credibility of the institution. Based on this understanding, the organization establishes a
clear code of ethics and behaviour for its employees. When it comes to bringing out their
responsibilities, the regulation establishes sound principles that will guide all Maybank
employees in their decisions. In addition, it is responsible for establishing guidelines for proper
banking practices. (Maybank, 2019)

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BANK RAKYAT

The Cooperative Order 1948, which established Bank Rakyat on 28 September 1954,
was the impetus for its establishment (the Cooperative Societies Act 1993). Bank Rakyat was
designated as a full-fledged Islamic cooperative bank in 2002, a milestone in the organization's
history. On 6 January 1973, the bank's name was changed to Bank Kerjasama Rakyat Malaysia
Berhad, also known as Bank Rakyat. As a result of this significant decision, Bank Rakyat
became the third Bank in Malaysia to provide a full range of Islamic banking products to its
customers. The bank will strive to become Malaysia's No. 1 Progressive Islamic Cooperative
Bank to achieve its vision. Its mission will be to improve the economic well-being of its
members, customers, and the entire country.

Bank Rakyat sponsored a thought-leadership event on 14 January 2020, which was
dubbed the Bank Rakyat Integrity Forum 2020, to further its efforts in promoting integrity and
good governance in the country. The forum represents a watershed moment in the bank's
history. It embarks on a new chapter in which Governance and Sustainability are the
cornerstones of the Bank Rakyat brand, established in 1997. A representative from Malaysia's
seventh Prime Minister, Tun Dr. Mahathir Mohamad, was also in attendance at the forum. In
addition, to assist the community during the COVID-19 pandemic, Bank Rakyat has granted
its customers a six-month repayment moratorium on their accounts.

They are constantly diversifying and innovating their product line and their customer
service and facility facilities. Among the products and services available to meet the diverse
needs of today's customers are consumer banking, business lending, savings and investment
products, and financial planning solutions. Production and distribution channels that are both
efficient and cost-effective are constantly being developed and improved. In addition, they
project a warm and welcoming corporate image to strengthen our position as Your preferred
financial institution. They have received numerous awards in Malaysia and worldwide for their
contributions to the industry and exceptional cooperative organizations. Their commitment as
an agency of the Ministry of Entrepreneur Development and Cooperatives (MEDAC) to assist
in the Ministry's goal of consolidating the cooperative sector as a cornerstone of the nation's
economic growth through all our efforts and initiatives. (BankRakyat, 2017)

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ORGANIZATIONAL STRUCTURE
The main distinction between Islamic and conventional banking can be found in the
bank's organizational structure. This is the stockholders' vision of what the company should
be, and this is the goal of establishing a conventional bank: to collect deposits and make
loans. The functions of collecting deposits and making loans are distinct. The arrangement is
handled by a Treasury function that strives to maintain a healthy balance between the returns
to shareholders' funds. The processes in an Islamic bank and those in a conventional bank
are distinct because of the framework they have been established. Control and research are
becoming increasingly important to ensure that Islamic products and services comply with
Shariah requirements. There are numerous additional layers to adhere to, as well as numerous
additional details to consider. (Jamaldeen, 2021)

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MAYBANK ORGANIZATIONAL STRUCTURE
BOARD OF DIRECTOR

GROUP MANAGEMENT

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AUDIT COMMITTEE
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BANK RAKYAT ORGANIZATIONAL STRUCTURE
BOARD OF DIRECTOR

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GROUP MANAGEMENT
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SYARIAH COMMITTEE
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BOARD OF DIRECTORS
The board of directors oversees the bank's operations, and they are also in charge of ensuring
that the bank's affairs are conducted following good corporate governance. As the bank's
governing body, the board of directors is elected by its stockholders and is responsible for
establishing policies and procedures. The board also selects the bank's chief executive officer
and is responsible for several high-level business decisions (CEO). The following list of
responsibilities applies to the boards of directors of both Maybank and Bank Rakyat.

CHIEF EXECUTIVE OFFICER (CEO)
As the chief executive officer of Maybank BHD, he is a critical executive who reports directly
to the board of directors. The CEO's responsibility is to mobilize the bank's funds and work to
make money for the organization. To compete effectively in the industry, the CEO must also
ensure that the bank meets or exceeds industry standards in terms of customer service. In
addition, the CEO of Bank Rakyat must have extensive experience in the sharia-compliant
financial services industry. As a result, many Islamic banks look for CEOs who have experience
working in both conventional and Islamic banks. This is because the CEO must communicate
with stakeholders from both types of banks.

GROUP MANAGEMENT
As part of its overall strategy, a management team works with the CEO to determine its
operations and oversee their execution. The management team may meet weekly, monthly,
or quarterly, depending on the type of organization and team structure in place. It is typically
organized around the direct reports of the top-ranking executive. The group management
team is comprised of individuals such as the Deputy Chief Executive Officer, the Chief Risk
Officer, the Group Chief Human Capital Officer, the Chief Information Technology Officer, and
others. Individuals from Maybank BHD and Bank Rakyat are included in this list of financial
institutions.

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AUDIT COMMITTEE
Upon incorporation, each commercial bank establishes an audit committee responsible for
providing direct oversight to the board of directors of the bank's financial reporting,
disclosures, and risks. A commercial bank's audit committee is generally responsible for the
following tasks: To make sure that the bank's operations comply with industry standards,
demonstrate compliance with internal control policies, demonstrate that the business's day-
to-day operations are following those policies. In addition, internal bank audits are performed
to ensure that banking operations are carried out by specified internal control processes and
follow the laws and regulations of the organization that is conducting the audit.

THE SYARIAH COMMITTEE (SC)
Among the most significant differences between Islamic Banking and traditional banking is
the presence of a Shariah Committee. The Shariah Committee (SC) ensures that Islamic
banking and Takaful organizations adhere to Shariah principles in their day-to-day operations
and commercial activities. A tangle of regulations surrounds the concept of Islamic Banking.
Its Shariah Advisory Council reviews any new features before they are implemented, and the
Shariah Committee inspects existing features after they have been implemented. The Shariah
Committee is independent of the bank and reports directly to the Board of Directors. The
Shariah Committee must ensure that all requirements of justice, customer protection, Shariah
compliance, interpretation of customary civil practices, and practicality of execution are
considered when making their decisions. To put it another way, decisions must be transparent,
defendable, and free of any doubt about their legality before they are made. (Law Insider,
2019)

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BACKGROUND OF THE CREDIT CARD

Many people believe that credit cards only provide conventional products because they
charge a high-interest rate if customers do not pay their bills on time. On the other hand,
Islamic banks create Islamic credit cards to provide satisfactory services to their Muslim
customers. An Islamic credit card would also include a filtering system to ensure that it is only
used for halal transactions. Simply put, an Islamic credit card cannot be used to buy alcohol,
gamble, or engage in other Islamically forbidden activities or purchases. This section will go
over the history of the Bank Rakyat Credit Card and the Maybank Credit Card. (Loanstreet,
2021)

Maybank Credit Card is filled with financing limits granted by the bank to their
customers. Customers will be subject to profit charges if the financing limits are used but not
fully settled before the due date. In addition, Maybank provides a wide range of exclusive
Mastercard services.

As a result, we decided to compare the Maybank Mastercard Classic to the Bank Rakyat
Classic Credit Card-i. Mastercard Global Service offers the following services with this card:

• Medical assistance.
• Trip preparation information.
• Travel assistance (emergency cash advances, card/ticket
replacement, and assistance with lost luggage).
• Legal representation in the case of an emergency.
You can apply if you are a Malaysian with a minimum annual income of RM30,000, an
expatriate with a minimum annual income of RM60,000, a principal cardholder between the
ages of 21 and 65, or a supplementary cardholder between the ages of 18 and 65.

When used correctly, Maybank Masterclass Classic can be valuable tools for earning
rewards, traveling, dealing with crises or unexpected spending, and improving credit. A
Maybank Masterclass Classic reward does precisely what it says on the tin: it reimburses the
cardholder for purchases. The rewards vary according to the issuer and card type. Some of
the available benefits include cashback, discounts on gas station purchases, and even travel
miles. Gaining rewards is one of the main advantages of Maybank Masterclass Classic users,
as cardholders can redeem them for goods they would have purchased anyway, as well as
the occasional treat. (Maybank, 2021)

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The Bank Rakyat Credit Card functions are the same as those of other credit cards, such as
the Maybank Credit Card. It does, however, make an offer based on Shariah's compliance. In
addition, Bank Rakyat offers the Islamic Credit Card-i in a variety of configurations.

Based on the Shariah concept of Murabaha, we chose the Bank
Rakyat Credit Card-i Classic (by adopting the Tawarruq practice).
Based on customer Wa'd, the bank will purchase commodities from
commodity suppliers. Then, using Murabahah contracts, sell
commodities to customers at a deferred selling price (commodity
cost with profit). Then, as a customer agent, sell it to third-party buyers in cash. These third-
party buyers' cash profits will be deposited into the Qard account, allowing customers to
purchase goods and services. (RinggitPlus, 2021)

The Bank Rakyat Classic Credit Card-i also comes with free group Family Takaful
insurance coverage. The coverage includes guaranteed repayment of outstanding debts
incurred because of Credit Card-i use. Customers must have a monthly income of at least
RM2,000. They also have an annual profit rate as low as 13.5 percent. There are no annual
fees or compounding interest to worry about. Unlike many other credit cards on the market,
Bank Rakyat offers simple credit cards that correspond to the values of your faith. The Bank
Rakyat Credit Card-i Classic is designed for people who want a simple credit card that won't
cost them a fortune in interest. The Bank Rakyat Classic Credit Card-i has a low-interest rate.
The credit limit is the maximum amount of purchases made with this Bank Rakyat credit card.
(Bank Rakyat, 2021)

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PRODUCT FEATURES

CREDIT CARD MAYBANK

According to Maybank's product features, every transaction made with a Maybank
Credit Card results in the customer receiving TreatPoints. Customers will receive one
TreatsPoint for every RM1 spent in Malaysia, two TreatsPoints for every RM1 spent in an
outbound transaction, and two TreatsPoints for all expenses incurred during the month of
their birthday (up to a maximum of two TreatsPoints per transaction). The TreatsPoints
program's terms and conditions are available. When customers charge their Maybank
Mastercard Classic tickets in total, Maybank will also provide travel insurance coverage up to
RM700,000 for their convenience. Customers will receive an insurance certificate, which will
then be used to provide benefits to all customers as and when they are required. More
exclusive Mastercard Moments benefits are coming your way.

ISLAMIC CREDIT CARD (BANK RAKYAT)

Bank Rakyat's product features include the absence of a compounding element and
the absence of a markup rate on all international transactions, which means that there are no
additional fees on currency exchange for international transactions. Next, takaful insurance is
provided at no additional cost to the group of employees. In addition, the coverage provides
for the guaranteed payment of understanding finances incurred due to the use of a Credit
Card-i device. There are no conditions attached to the waiver of the annual fee, also one of
the product features. In charitable contributions, one thousand five hundred thousand ringgits
(RM1,500) are provided. The credit card-I tiered pricing structure has a low-profit margin
because of the low-profit margin. Rakyat is a system of rewards. The cardholder receives one
point for every RM10 spent on purchases with the card. A cash equivalent of RM0.10 per ten
points earned would be given to the winner after the point conversion. Finally, Shariah
Murabaha is a concept in Islamic law that refers to punishing those who violate the law (by
adopting the Tawarruq practice).

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APPLICATIONS/PROCEDURE OF THE CREDIT CARD
CONVENTIONAL CREDIT CARD (MAYBANK)
Who is eligible to apply?
• Malaysians and expatriates earning a minimum of RM60,000 per year are eligible.
• Primary cardholders are those between the ages of 21 and 65 years.
• Supplementary cardholders are between the ages of 18 and 65 years.

Documents that are required
In addition to your application form, please include the following documents:

Holder of the primary card

If you are a salaried employee, you must do the following:
• A photocopy of your NRIC (both sides) or your passport
• Salary slips for the most recent three months
• Savings account activity and current account statements from the previous six months

If you are self-employed, you should consider the following:
• A photocopy of your NRIC (both sides) or your passport
• Income Tax Return (Form B or the most recent EA form).
• Business Registration Certificate/Trade License/Form 9, Form 24, Form 49, and other
supporting documentation
• The most recent six months' worth of the company and personal bank statements

If you are an expatriate, you should:
• Employment contract in Malaysia for the specified period, confirmed by letter from the
employer.

In addition to the primary cardholder, there is a secondary cardholder.
• A photocopy of your NRIC (both sides) or your passport

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PROCEDURE FOR CONVENTIONAL CREDIT CARD THROUGH MAYBANK (ONLINE)

PROCEDURE FOR CONVENTIONAL CREDIT CARD THROUGH MAYBANK (OFFLINE)
Documents required when applying are,

• Copy of identity card (front to back) or Passport.
• The latest copy of boring BE along with the tax receipt.
• Copy of latest three months salary slip.
• Copy of latest six months bank statement.
For the self-employed,
• Copy of business registration.
• Copy of latest six months bank statement.
* For non -Malaysian citizens, please enclose a letter from the employer stating
the duration of the employment contract in Malaysia.
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ISLAMIC CREDIT CARD (BANK RAKYAT)

• Principal: 21 years old and above
• Supplementary: 18 years old and above
• Minimum Annual Income: RM24,000 and above

PROCEDURE FOR ISLAMIC CREDIT CARD THROUGH BANK RAKYAT (ONLINE)

• Visit the RAKYAT Bank Credit Card

website: https://www2.irakyat.com.my/personal/eapplication/e_credit_card_

public.do (iRakyat, 2014)

• Enter the WORD that appears, press Confirm.

• Read TERMS AND CONDITIONS. Tick on the space provided, press Next.

• The APPLICATION FORM will be displayed.

• You are required to make a CHOICE of available Credit Cards, and each one

contains its conditions.

• Then fill in all the required INFORMATION in the application form.

• After filling in everything, press next

• Then you need to follow the further instructions.

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PROCEDURE FOR ISLAMIC CREDIT CARD THROUGH BANK RAKYAT (OFFLINE)
Credit Card-i Classic

Documents required are as follows:
In addition, a copy of the applicant's identification card (front and back) / passport (for
principal / supplementary applicants) is required.

Those who work for the government:
• A copy of the most recent payslip

Employees in the private sector:
• A copy of your most recent payslip
• EA Form / EPF Statement (if applicable) (latest six months transactions)

Salary per month with a commission-based base:
• A copy of your most recent payslip
• EA Form / EPF Statement (if applicable) (latest six months transactions)
• A copy of the most recent commission statement (6 months record)

There is no base pay, and all compensation is based on commission:
• A copy of the most recent commission statement (12 months record)

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Self-Employed (also known as independent contractors):
• A copy of the company's registration AND
• A copy of your bank's most recent six-month statement AND
• A copy of the most recent Form B AND
• A copy of the receipt for tax payment

Expatriate (also spelled expatriate):
In addition, a copy of the Bank Rakyat Savings Account-i is required.

• A copy of the employer's confirmation letter of the contract.
Pensioner:

• A photocopy of your pension statement (latest 12 months transactions) AND
• A copy of the last three months' bank statement (showing the crediting of pension

amount into the account)

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FINDINGS ON STANDARDS AND OPERATIONAL REQUIREMENTS

MAYBANK

STANDARD

According to the company, because of their credit card processing and issuing
operations, Maybank was awarded the ISO 9001:2000 certification by SIRIM QAS
International Sdn Bhd in 2003. In addition, customer interaction and satisfaction evaluation
have been delegated to the company as part of the overall project to upgrade and develop
the company's system. There are, therefore, standards and operational requirements that
they must adhere to, which are listed below:

ISO (International Organization for Standardization) is a worldwide non-governmental
organization that improves standards to guarantee the safety, quality, and efficiency of
services, products, and systems. ISO is an acronym that stands for International Organization
for Standardization. (ISO, 2000)

Experts from all around the world have agreed on ISO standards. Standards cover a
wide range of activities, whether it is the manufacture of a product, the management of a
process, the delivery of a service, or the supply of materials. (ISO, 2013)

Manufacturers, sellers, buyers, customers, trade associations, users, and regulators all
contribute to the development of standards by distilling the collective wisdom of those with
subject matter expertise and a thorough understanding of the needs of the organizations they
represent. As an illustration:

1. Working to improve efficiency and reduce product failures is the goal of quality
management standards.

2. Reduce environmental impacts, reduce waste, and make your business more
sustainable by following environmental management standards.

3. Workplace health and safety regulations are intended to help reduce accidents in the
workplace.

4. Energy management standards are intended to aid in the reduction of energy
consumption.

5. Food safety regulations are in place to help keep food from becoming contaminated.
6. IT security standards are in place to assist in keeping sensitive information safe.

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OPERATIONAL REQUIREMENTS
An association that needs to determine its ability to consistently provide a product that
meets customer and applicable regulatory requirements must comply with the requirements
specified in ISO 9001:2000.
The standard aims to increase customer satisfaction through the practical application
of the system, which includes processes for continuous improvement of the system and
assurance of conformity to customer and applicable regulatory requirements.
In this International Standard, all the requirements are generic, and they are intended
to apply to all corporations, regardless of their type, size, or product offering. Because of the
nature of an organization and its product, if any requirement(s) of this International Standard
cannot be applied, the organization and product may be considered for exclusion from the
Standard. Without exclusions that are limited to the requirements of clause seven and do not
impair the organization's ability or accountability to provide a product that meets the needs
of the customer and applicable regulatory authorities, it is not acceptable to assert conformity
with this International Standard.

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BANK RAKYAT (ISLAMIC CREDIT CARD)

STANDARD

Credit Card-i (Islamic Credit Card) by Bank Rakyat must adhere to the standards and
requirements set by the Central Bank of Malaysia (BNM) for Islamic Financial Institutions (IFI)
in Malaysia, as they must be operated following Shariah law. The following are the Shariah
and operational requirements:

SHARIAH REQUIREMENTS (SAC)

The Shariah contract-based regulatory policy aims to ensure Shariah compliance from
start to finish, enhancing the integrity and long-term viability of the IFI. Bank Rakyat must
follow the Shariah requirements stipulated by the Central Bank of Malaysia (BNM) for the
Islamic credit card product, which are as indicated. Whatever features it offers are subject to
regulatory review by BNM's Shariah Advisory Council and more stringent inspection by the
Shariah Committee, independent of the bank, and reports directly to the Board of Directors.

The Cardmember has applied for Bank Rakyat Credit Card-i Financing in the amount
specified, subject to Bank Rakyat's approval of the financing under the approved Syariah
concept of Tawarruq. Each tawarruq sale and purchase contract is legally binding and cannot
be revoked unilaterally by either party. The familiar underlying character of each sale and
purchase contract in a tawarruq is the transfer of ownership of the item from the seller to the
purchaser for consideration. (Accounting and Auditing Organization, 2015)

Furthermore, the eligible asset used as the subject must be recognized as valuable by
Shariah, known, and owned by the seller. However, certain items, such as gold, silver, and
currencies, assets that are being built or are in the process of being built, and assets with a
debt component are not permitted to be traded in tawarruq.

The asset is owned in the form of qabd haqiqi (physical ownership) or qabd hukmi
(legal ownership) (law ownership). Ownership of the asset shall be valid upon further
takhliyah, which involves the seller releasing the asset to the purchaser via any Shariah-
compliant instrument, including urf tijari (everyday business practice), for tamkin (the
purchaser having access to the asset) to occur and the purchaser considering the ownership
risk. In each tawarruq transaction, the purchaser has the right to take ownership of the asset.

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It must also not include any limitations or criteria that prevent the buyer from taking
possession of the asset or imposing any requirement to sell the underlying asset.

The price used in the tawarruq for each contract formed must be specified and agreed
upon by both parties present at each sale and purchase contract. In addition, if the tawarruq's
sale and purchase contract is based on a Murabaha structure, the pricing criteria in the
Murabaha transaction, including cost and profit disclosure, must be met.

Each tawarruq sale and purchase contract must meet all Shariah-compliant
requirements for a legal sale and purchase contract. All tawarruq sale and buy transactions
must be carried out through the execution of a separate contract. Each sale and purchase
transaction in the tawarruq must be accompanied by sufficient paperwork or documentation.
Before agreeing on sale and purchase, the seller shall not pay any of the delayed selling price,
including profit.

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OPERATIONAL REQUIREMENTS

The Central Bank of Malaysia (BNM) issued this policy paper on 28 December 2018 to
reinforce the Corporate Governance and Corporate Governance Guidelines for Development
Financial Institutions. Although general administration and monitoring concepts can be used,
specific criteria can control various risks due to the tawarruq's unique character. Therefore,
Bank Rakyat must be fully aware of its risk profile and the availability of employees with the
necessary expertise and skill set.

Bank Rakyat should develop an integrated management system supported by good
rules and regulations and qualified personnel to ensure that the tawarruq complies with
Shariah continuously. Furthermore, to protect stakeholders' interests, the IFI should conduct
a tawarruq transparently and consistently following Shariah; and provide appropriate
information and transparency to aid stakeholders' intuitive understanding of a tawarruq.

As an Islamic Financial Institution (IFI), Bank Rakyat must ensure that the overall
structure of the tawarruq complies with Shariah. The company must also ensure and
understand that the Shariah Advisory Council (SAC) of the bank's view is to overcome Shariah-
related concerns as specified in the bank's Shariah Governance Framework for Islamic
Financial Institutions and the Introduction of New Products. In addition, the tawarruq's goal
must be explicitly defined by both the IFI and the customer, such as deposit-taking, financing
provision, or derivatives.

Because tawarruq can occur at any time during a process, Bank Rakyat must implement
a comprehensive and solid risk management system, reporting, and control framework to
address risks consistent with its risk appetite. Thus, include the following:

1. Identify and analyse risks associated with acquiring and possessing an asset for the
tawarruq structure before signing the contract.

2. The implementation of suitable asset pricing methods and the establishment of
procedures, when relevant, to guarantee quotes are acquired in a fair and unbiased
way.

3. The IFI must assure the appointment or election of the asset trader or asset exchange.
Heavily researched and risk-assessed, the arrangement does not jeopardize the IFI's
ability to oversee and manage its operations while adhering to Shariah.

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CONTRACT/LEGAL DOCUMENTS/MODUS OPERANDI
CONTRACT

Conventional banks approach the facility of overstating from the account of the
customer on interest. One of its forms is the use of credit cards, in which the bank sets the
overdraft limit for customers. Instead, Maybank BHD generates its profits from interest-based
finance and charges fees.

The Annual Fee for the Credit Card and any relevant taxes will be paid by the consumer
(including, in the case of a principal Credit Card, all Supplementary Credit Cards issued). The
bank will determine the Annual Fee and may change it from time to time. The Annual Fee will
be charged to the customer by the monthly statement; any payment received from the
customer will be applied in the order of balances with the highest interest rate to those with
the lowest interest rate.

Any outstanding purchase transactions and Cash Withdrawal transactions that are not
paid by the due date will incur Finance Charges. Finance charges will be applied to buy
transactions from when the transaction is posted until full payment is received. Finance
Charges will also be imposed at a rate determined regularly by Maybank. If the bank does not
receive the Minimum Payment by the Due Date, Maybank will incur a late payment fee of 1%
of the unpaid outstanding amount or RM10, whichever is greater, up to a maximum of
RM100.00. Finance Charges are computed according to Annexure 1's instructions.

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Suppose the replacement is required due to loss or theft. In that case, unauthorized
disclosure of credit card information to a third party, or your request to change the Credit
Card number, Maybank BHD may replace the Credit Card at your request for a fee of Ringgit
Malaysia Fifty (RM 50) per replacement Credit Card under a Credit Card Account. In addition,
a fixed fee of 5% will be imposed on all cash withdrawals.

Service charges for services rendered and costs and expenses paid in connection with
or originating from those services are also included. For example, if a customer's cheque is
returned after being dishonoured for payment, a service charge of RM10.00 will be applied.
Furthermore, the following charges apply to the manufacture, photocopying, or printing of
copies of Sales Drafts or other documents at the customer's request:

• Original Sales Drafts: RM15.00 per copy
• Photocopy of Sales Drafts: RM5.00 per copy
• Credit Card Statement Request: Ringgit Malaysia Five (RM5.00) per copy per month

and Ringgit Malaysia Ten (RM10.00) per copy per month. Except for damage, non-
received and missing, the fixed fee of RM5 per statement copy applies for requests
above three months from the current statement date.

The difference between conventional and Islamic banking is that no money is loaned
to the client as the bank will "buy" the commodity for clients and sell it back to them at a
marked-up price. Under conventional banking, a customer is charged with interest once the
facility avails, however under Murabaha, only profit is due when the commodity is delivered
to the customer. Islamic banks do not provide financing unless it is in the form of Murabaha.
Our chosen product is Credit Card-i Classic from Bank Rakyat, implying Shariah Murabaha
(adopting tawarruq practice). It is a method of sale with a markup price whereby the customer
makes payment over an agreed period. In the context of Shariah, there are permissible and
non-permissible aspects to how Muslims conduct their activities, including economic
participation, which must be free of prohibited elements such as Riba', Gharar, and Maisir.
Islamic finance entails the provision of financial products and services to customers by Islamic
banks. Gharar is overcharging, while riba is interest. There are no compound charges as
soaking is also prohibited under Sharia law.

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Furthermore, in case of default, customers are charged with further charges for the
extra period under conventional systems; however, additional charging is not allowed under
Murabaha. Other than that, under the conventional system, customers can gain the
opportunity of rescheduling by registering into a new agreement to pay interest for an
extended period which is not the case under Murabaha.

Islamic Banking can claim only the original receivable amount agreed in the initial
contract. Another practical problem under Murabaha is how to deal with intentional defaulters.
Different options lie with Islamic Banking, including block listing the debtor for any further
financing facility, to stipulate in the contract that all instalments will be due at once in case of
default. To specify, a penalty shall be imposed. Still, the same shall not form the income of
Islamic Banking; instead, it will go to charity, such as non-Government organizations.

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LEGAL DOCUMENT

MAYBANK CREDIT CARD

The following are the legal documents that Maybank has requested: Include the
following documents with your application form. A copy of the NRIC or passport (both sides),
including that of the supplementary applicant, the most recent income tax return (J Form), a
wage slip for the previous two months, and activity or current account statements for the
previous three months of a savings account was also required. If you are self-employed, you
must prepare the Business Registration Copies and the Bank Statement for your employment's
most recent three months. If you are an expatriate, you will require an employer letter
confirming the duration of your employment contract in Malaysia. In addition, a copy of your
NRIC (both sides) or passport, including a copy of the supplementary applicant's NRIC, a
credit or charge card copy (both sides), and a copy of the most recent card declaration, are
required for existing cardholders.

BANK RAKYAT ISLAMIC CREDIT CARD

The following is a list of the legal documents required by Bank Rakyat to issue Islamic
Credit Cards: For all applicants, a copy of their identification card or passport (whether they
are the primary or supplementary applicant) from the front and back must be provided. A
copy of the last payment must be prepared in advance for government employees. For private-
sector employees, the most recent payslip and an EA form or a declaration of the EPF had to
be prepared (latest six months transactions). For self-employed individuals, a copy of their
business registration, a copy of their most recent six-month bank statement, a copy of the
most recent form B, and a copy of their tax receipt are all required documents to be submitted.
The documentation that is required. For the Monthly Commission Base salary, a copy of the
most recent pay stub, EA Form, or EPF statement (within the last six months of transactions)
or a copy of the committee's most recent statement will be needed (6 months record). Only
a copy of the most recent committee declaration is required in the Commission Base for those
who do not receive basic pay (12 months record). The Bank Rakyat Savings Account-I and
the Employer Letter are both required. An expatriate must provide a copy of the contract
confirmation as proof of their employment. An original pension return (with the last 12 months'
worth of transactions) and an original three-month bank statement are required for pensioners
(showing the crediting of pension amount into the account). (Bank Rakyat, 2020)

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MODUS OPERANDI
The modus operandi of Maybank (Conventional Bank) for its credit card are as below:

1. The cardholder purchases and swipes a credit card at a merchant or seller that uses
POS (Point of Sale) Terminals to pay.

2. The merchant will submit the transaction to the acquirer through the credit card
network. The acquirer is the bank that manages payments that use credit cards on
behalf of the merchant. Merchants receive POS devices from the acquirers.

3. The acquirer submits the credit card details to the credit card network like Visa or
Mastercard.

4. The credit card network requests a payment ticket to the Issuer (Maybank). Maybank
will then check the credits in the cardholder's account.

5. After the account is authorized, Maybank will send the authorized code to the acquirer.
6. The acquirer will approve the transaction and credit the merchant for the transaction.
7. The acquirer is paid by the Issuer (Maybank).
8. The Issuer will issue a monthly statement of the payments made by the credit card.
9. The cardholder pays the amount due to the Issuer (Maybank).

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The modus operandi of Bank Rakyat (Islamic Bank) for its credit card are as below:

1. The bank will buy commodities that are valued at the credit limit. For example, the
credit limit is RM30,000.

2. The bank will then offer the commodity to the customer (card applicant or cardholder)
at the price credit limit added with the profit rate. (RM30,000+RM5,000).

3. As the commodity owner is now the customer, the bank will be appointed as the agent
by the customer to sell the commodity back in the market. The customer agrees with
the obligation to pay RM35,000 in deferred terms.

4. The bank, as the agent, will sell the commodity at RM30,000 to another broker at the
market.

5. The bank credits the amount into the credit cardholder's account. The cardholder can
use the money for spending purposes. Some fees like cash withdrawal fees, annual
fees, and service charges will also be debited into the account.

6. The customer will then make payment as deferred terms and the monthly minimum
required payment based on the agreement or full settlement. (IslamicCreditCard,
2021)

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ADVANTAGES AND DISADVANTAGES
Advantages of Maybank Credit Card.

According to what we all know, traditional banks are famous for their credit cards, and
the following are some of the advantages that they provide:

First and foremost, credit card rewards. One of the most noticeable advantages of
using a credit card is the opportunity to earn rewards points for your purchases on the card.
For example, for every RM1 spent in Malaysia or abroad with Maybank, you will earn 1
TreatsPoint towards your account.

Second, a protection plan. Using credit card payment protection, you can have your
minimum payments and fees on your card suspended in the event of certain life events. It is
possible to purchase Travel Accident Insurance from Maybank, which provides up to
RM300,000 if the entire ticket is charged to this credit card.

The third option is a balance transfer. Consumers who want to transfer their debt to a
credit card with a significantly lower promotional interest rate typically use credit card balance
transfers to accomplish their goal. In exchange for a one-time upfront fee of 3 percent of the
transferred amount, Maybank BHD will charge you a 0 percent annual interest rate on your
funds for 12 months.

Finally, the instalment plan. When buyers choose to use an instalment plan, they can
own the products they purchase after paying a portion of the purchase price as a deposit,
followed by the remainder of the purchase price in monthly instalments. In addition, a 0%
interest Instalment Payment Plan is available at all participating merchants when using a
Maybank Mastercard Classic.

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Advantages of Bank Rakyat Credit Card-i Classic.
Islamic credit cards have the same features as standard credit cards but adhere to

Shariah law. That means you can enjoy all the advantages of a traditional credit card. Aside
from that, Islamic credit cards provide additional benefits that conventional credit cards do
not. This will be explained in better detail below.

Compliant with Shariah law. An Islamic credit card guarantees Muslims that the
financial product is Shariah-compliant and adheres to Islamic teachings. The contrast between
conventional and Islamic banking is that no wealth is loaned to the customer because the
bank "purchases" the item and then resells it to them at a higher price. Islamic banking
accomplishes the same goal as conventional banking, except that it adheres to Shariah's
norms, known as fiqh Al-Muamalat (Islamic rules on transactions).

Coverage for Takaful. Most Islamic credit cards include cardholder takaful insurance.
Takaful is Islamic insurance in which members contribute money to a pooling system used in
a loss or harm. Takaful is an Islamic Muamalat-based Shariah-compliant insurance policy
(Islamic transactions). In Malaysia, the Islamic Financial Services 2013 Act also governs the
takaful industry. Takaful insurance is available to anyone, and you do not need to be a Muslim
to buy it. Some Malaysian Islamic banks will make takaful coverage a requirement for applying
for an Islamic credit card, while others will offer it as an option. That means that cardholders
will be protected in the event of an unforeseeable event such as death or total permanent
incapacity. In addition, the cardholder's family members will not be affected by the
outstanding card balance. The total coverage for outstanding balances settled by takaful
coverage will differ depending on the bank.

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DISADVANTAGES OF THE CREDIT CARD
Even though this product has numerous advantages, it also has some disadvantages.

The interest rates that are applied are frequently unreasonably high. These cards
entice users to spend more than they believe in their bank accounts, encouraging impulsive
spending, consumerism, and debt accumulation. When banks refuse to grant a conventional
loan or an overdraft, the card is frequently used as a short-term loan. The card is frequently
used to finance the debt of other credit cards, with the transactions not being backed by any
tangible assets in the transaction. Any product or service purchases, including those harmful
to humans, such as gambling or alcoholic beverages, can be made using the card.

On the other hand, Islamic credit cards have some advantages over conventional credit
cards that conventional cards do not have. According to Islamic principles, conventional credit
cards are associated with outstanding debts that people have gotten themselves into debt.
The high-interest rates on the debts are viewed as the cause of the debts' existence. (Hanif,
2011)

Islamic credit cards do not permit the use of the term "usury" (high interest). Instead,
incentives to clients who pay their bills on time, such as discounts, encourage timely payment.
There are no speculative financial products or investments in industries that are not compliant
with Shariah by the bank that issues the payment card. The Islamic card can only be used to
make transactions that are backed up by real-world assets. Purchases of items or services
that violate Islamic Shariah law are not permitted with the Halal credit card. Takaful insurance
is also available through the Islamic credit card, which is compatible with Islamic financing
(Islamic insurance). The card can also be used as a loyalty card by awarding extra points that
can be redeemed for various benefits and incentives.

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RECOMMENDATIONS

In my personal view, Islamic credit cards are way better than conventional credit
cards. The structure of an Islamic Bank is built around the Mudharabah structure. It fits
perfectly with how the bank is to be managed. It should be the backbone of any Islamic bank,
where the set-up is linked end to end, resulting in sharing of actual returns arising from a
Shariah-compliant financing/investment activity. Whether it is an Islamic Credit Card or not,
we must choose it wisely. Here are some of my recommendations for our credit card usage.

1) Choose Credit Card Wisely

Credit card offers abound, and you don't have to do anything to qualify. Indeed, if
you're over the age of 21, you can expect to receive credit card offers in the mail from time
to time. It's also simple to apply for credit cards online. Do your homework before selecting a
credit card. Look at the price that is being given. Determine whether the rate provided is an
introductory rate (for example, 0% APR for 12 months) or if the rate offered will remain similar
for the life of the card unless you default. Find a new card if the rate rises significantly after
six months. Pay attention to late fees and default interest rates. I checked to see if the credit
card you're thinking about has an annual fee. If that's the case, you should search elsewhere.
Also, look for the duration of the grace period, which is the time between when you make a
purchase and when the interest starts to accrue on it. Avoid any credit card that starts
collecting interest on your transactions right away.

2) Building A Good Credit Card History

Credit history is frequently required to obtain financing for a significant purchase such
as a mortgage or vehicle. Credit cards are an excellent tool to establish a credit history. Apply
for a low-limit card with a low interest rate and a grace period to establish a credit history.
You won't be tempted to overextend yourself if you set a low limit. Rather than accepting the
first offer in the mail, shop around to discover the best value. Make small purchases that you
know you'll be able to pay off before interest begins to accrue once you obtain your card. Pay
off your purchases and do it again the following month.

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3) Save Your Money on Your Interest
Consider moving a balance from one credit card to another with a reduced interest

rate if you have an active credit card with a balance that you can't pay off promptly. Read the
rules of the credit card agreement before transferring the debt. Make sure you understand
the balance transfer interest rate and how long it will last. To get the best benefit, look for a
low-interest rate that is fixed for the life of the balance. Check out the balance transfer charge
as well. Find a card with a transfer fee cap, which is frequently less expensive than a cost
based on a percentage of your balance. Hold a close eye on what happens if you don't make
a payment. Don't transfer your balance if the rate defaults to an outlandish level. If you qualify
for a high-limit card with a low-interest rate, you can save money on interest by using a credit
card. Credit card interest rates are sometimes lower than bank interest rates. If you need to
make a significant purchase, such as a vehicle, there is a method to save money by getting a
low-interest loan.
4) Purchase Protection

The Fair Credit Billing Act protects you when you use your credit card to buy anything
that turns out to be defective. If you bought a television with your credit card and it doesn't
work, for example, contact the retailer who sold it to you. You can call your creditor and
explain your situation if the retailer refuses to swap the product or provide a refund to your
card. You'll need proof that you contacted the merchant, so keep track of the dates, hours,
and names of anybody involved in the conversation. The fee will be withdrawn from your
statement if the creditor determines that the merchant is at fault. Some credit cards also
include warranties or extra insurance. For example, credit card insurance ends if you crash in
a leased automobile or have to postpone your travel plans due to illness and have already
purchased aircraft tickets.

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CONCLUSION
In conclusion, credit cards provide convenience to consumers, acting as both a
payment method and a flexible credit instrument. We may expect then that most consumers
would pay a modest net monetary cost to access this convenience. In our opinion, Islamic
credit cards are way better than conventional credit cards. The prohibitions of gharar and riba
are the most significant differences between Islamic and regular credit cards. Gharar is
excessive, but riba is an investment. In addition, filtration technology is included with an
Islamic credit card to guarantee that it is only used for halal transactions. For conventional
credit cards, the bank can use these funds for investment and other purposes regardless of
Shariah's prohibition, while Islamic credit cards the bank can use these funds for investment
and other purposes.
Moreover, it allows satisfaction of having the money securely deposited with a bank to
assure that it is not investing it in activities that contravene Shariah principles. Conventional
credit cards also have no specific underlying mode used in Saving Account. Islamic Saving
Account is an investment for profit account governed under the rules of Mudarabah to provide
a return on the investment. The overall conclusion is that Islamic banks are less effective,
have higher intermediation ratios and better asset quality, and are better profit from
conventional credit cards. The last two values have helped Islamic banks better during the
financial crisis.

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REFERENCES

References

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http://aaoifi.com/shariaa-standards/?lang=en

Bank Rakyat. (2020). TNC-KAD-KREDIT. Retrieved from Bankrakyat:
https://www.irakyat.com.my/wp-content/uploads/2019/11/TNC-KAD-KREDIT-2019-
ORI-.pdf

Bank Rakyat. (2021). Credit Card-i Classic. Retrieved from iRakyat:
https://www.irakyat.com.my/index.php/personal/cards-i/credit-card-i-classic

BankRakyat. (2017). PRODUCT DISCLOSURE SHEET. Retrieved from Bankrakyat:
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Hanif, M. (2011, 2 February). Differences and Similarities in Islamic and Conventional Banking.
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Islamic Banking. (2015, 11 July). The Difference Between Islamic Banking Financing and
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IslamicCreditCard. (2021, 5 January). ISLAMIC CREDIT CARD HALAL CREDIT CARD SHARIAH
COMPLIANT BANK CARD. Retrieved from Islamiccreditcard.com:
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ISO. (2000). ISO 9001:2000. Retrieved from ISO: https://www.iso.org/standard/21823.html

ISO. (2013). ISO STANDARDS ARE INTERNATIONALLY AGREED BY EXPERTS. Retrieved from
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Jamaldeen, F. (2021). Compare the Structures of Commercial and Islamic Banks. Retrieved

from dummies: https://www.dummies.com/personal-finance/islamic-

finance/compare-the-structures-of-commercial-and-islamic-banks/

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Law Insider. (2019). Shariah Committee definition Share Cite. Retrieved from Law Insider:
https://www.lawinsider.com/dictionary/shariah-committee

Loanstreet. (2021). Compare Bank Rakyat Credit Cards in Malaysia 2021. Retrieved from
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Maybank. (2019). MBB-Credit-Card_Agreement. Retrieved from Maybank2u:
https://www.maybank2u.com.my/iwov-
resources/pdf/personal/cards/credit_cards/MBB-Credit-Card_Agreement.pdf

Maybank. (2021). Maybank Credit Card. Retrieved from Maybank2u:
https://www.maybank2u.com.my/maybank2u/malaysia/en/personal/cards/credit_car
ds_listing.page

NuWire. (2021). Islamic Credit Cards: How They Work and What Makes a Card Islamic.
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RinggitPlus. (2021). Bank Rakyat Classic Credit Card-i. Retrieved from RinggitPlus:
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