ASSIGNMENT MGT3663

KOLEJ PROFESIONAL MARA BANDAR MELAKA

BANKING OPERATION AND PRACTICES
MGT3663

SESSION 1/2021

GROUP ASSIGNMENT (30%)

COMPARISON ON BANKING OPERATIONS
BETWEEN ISLAMIC BANK AND CONVENTIONAL BANK

PREPARED BY: ID NUMBER
BMF19-06-053
NO NAME
1 NUR FARAHIN BINTI MUSTAHIDIN BMF19-06-007
2 MUHAMMAD AMIRUL BIN SAMAT BMF19-06-046
3 MUHAMMAD AMIR FAHIM BIN ROZAIMI BMF19-06-062
4 MUHAMMAD ADIB BIN ZULHATA

PREPARED FOR:
MRS. NOOR AISYAH BINTI OTHMAN

SUBMISSION DATE: 26 APRIL 2021

TABLE OF CONTENTS

CONTENTS PAGES
Acknowledgement 1
Introduction of the assignment 2
Sources of Funds: Mudharabah Investment
Uses of Funds: Ar-Rahnu 3-13
References 14-20
Appendices 21-22
23-26

ACKNOWLEDGEMENT
The success and outcome of this Banking Operation and Practices group assignment
required a lot of guidance and assistance from many people and we are extremely fortunate
to have got this all along the completion for our assignment work. Whatever we have done
is only due to such guidance and assistance and we would not forget to thank them. We also
respect and sincerely thank our lecturer Mrs. Noor Aisyah binti Othman for giving we an
opportunity to do this assignment work and providing us all support and guidance which help
us complete the assignment on time.
We are grateful because we managed to complete this assignment within the time given
by Mrs. Noor Aisyah binti Othman. This assignment cannot be completed without the effort
and co-operation from our group members, Nur Farahin binti Mustahidin, Muhammad Amirul
bin Samat, Muhammad Amir Fahim bin Rozaimi and Muhammad Adib bin Zulhata. Finally, we
would like to express our gratitude to our friends for the support and willingness to spend
some time with us.

1

INTRODUCTION OF THE ASSIGNMENT

We have learned about sources of funds in Chapter 3 and how deposit and investment
funds are used to provide funding to customers in today's Islamic banking operations. Deposit
funds are for saving or safekeeping and guarantee redemption of the deposited amount,
whereas investment funds are to be invested with no guarantee of benefit or return of
principal. Next, in Chapter 4 we learned about the various uses of funds, which are divided
into two categories: retail financing and corporate financing. The provision of consumer credit
at the point of purchase/checkout is known as retail finance. Rather than leaving the customer
to seek outside financing or use a credit card, a retailer integrates a credit management
system into the customer journey. Corporate finance is the branch of finance concerned with
how corporations handle funding sources, capital structuring, and investment decisions. This
assignment required us to do a research on the differences of Fixed Deposit and Term
Deposit-i between Conventional Bank and Islamic Bank. Also, the differences of Ar-Rahn
Personal Financing between Conventional Financial Institution and Islamic Bank.

A Fixed Deposit account (FD) is a banking product that allows you to save money for a set
period of time and earn a higher rate of interest than a traditional savings account. FD is also
known as term deposit or time deposit in many western countries. The Term Deposit-i is based
on the Tawarruq concept with Murabahah (cost-plus) and Dual Wakalah (dual agencies
consisting of Wakalah and Wakalah Bil Ujrah) application for account opening and automatic
renewal. The Dual Wakalah contracts are effective from the date of account opening until the
depositor/customer requests or the Bank terminates the account.

Ar Rahnu, also spelled Ar Rahn, is an Islamic pawnbroker that specialises in short-term
collateralized loans. Ar Rahnu's development in Malaysia provides borrowers with an
alternative pawnbroking service that adheres to Shari'ah principles. Ar Rahnu is based on
Islamic concepts like Qardhul Hasan, Ar Rahnu and Al Wadi’ah and Al Ujrah.

For this assignment, we chose Term Deposit-I Account from Bank Rakyat as an Islamic
bank and AmBank (M) Berhad Fixed Deposit from AmBank as a conventional bank. Meanwhile,
Bank Rakyat's Pawn Broking-i Ar Rahn and Institution of Pawnzon's Pawn Broking.

2

SOURCES OF FUNDS: MUDHARABAH INVESTMENT
Bank Rakyat (Islamic Bank)
Shariah Concept Applicable:

Bank Rakyat has stopped the operation of Qiradh Investment Account and replaced it with
a Term Deposit-i Account that uses a Dual Wakalah Tawarruq Concept.
Modus Operandi:

STEP 1
• When Bank receives Customer request, Bank buys Commodity from Commodity
Broker.
• Bank pays Purchase Price
• Ownership transfers to Bank upon purchase
3

STEP 2
• Bank sells Commodity to Customer at Cost + Profit (Murabahah)
• Ownership transfers to Customer
• Debit is created (deferred sale)

STEP 3
• Customer options not to take delivery of Commodity
• Instruct Agent to dispose Commodity for immediate settlement

STEP 4
• Bank as Customer’s Agent, sells Commodity to Broker

STEP 5
• Broker settles the purchase immediately
• Commodity transfers to Broker

STEP 6
• Bank, as Agent, remit the Commodity sale proceeds to the Customer

STEP 7
• Customer makes deferred settlement to settle the debt from the Murabahah

4

BANK RAKYAT DIFFERENCES AMBANK GROUP
(ISLAMIC BANK) (CONVENTIONAL BANK)
Term Deposit-i Account PRODUCT AmBank (M) Berhad Fixed Deposit
• A type of arrangement in BACKGROUND
which a customer's deposits • A conventional fixed deposit is a
are kept at a bank for a set long-term savings option.
period until maturity.
• These funds will be invested in • This Fixed Deposit is insured by
shariah-compliant activities Perbadanan Insurans Deposit
after being deposited into a Malaysia in accordance with the
variety of investment pools. most recent Guidelines.
• Shariah Concept Applicable:
Dual Wakalah Tawarruq
Concept
a) Customer (principal)
b) Bank (agent)

5

BANK RAKYAT DIFFERENCES AMBANK GROUP
(ISLAMIC BANK) PRODUCT (CONVENTIONAL BANK)
Term Deposit-i Account FEATURES AmBank (M) Berhad Fixed Deposit

• Minimum deposit • Minimum initial placement
amount: RM5,000 for a one-
RM5,000.00 for 1 month month contract

• Minimum deposit RM500.00 • RM500 for all tenures of two
for 2 to 60 months months or more

• RM 50,000.00 for placement • Tenure: 1, 2, 3, 4, 5, 6, 7, 8,
9, 10, 11, 12, 15, 18, 21, 24,
at HQ 36, 48 or 60 months.

• Deposit of more than

RM5,000.00, profit can be

paid monthly (minimum 6

months)

• Profit Rate is determined at
the opening of an account

Example:

Term (Month) / Deposit Account-i

Product Code Individual

3 1.85

6 2.00

12 2.20

• Calculation of Profit: • Calculation of Interest:
Principal (RM) x Profit Rate (%) x Principal (RM) x Interest Rate (%) x
Tenure/365 days Tenure/365 or 366 (Leap Year)

6

Illustration: Illustration: RM100,000.00
Principal (RM) x Profit Rate (%) x Placement
Tenure/365 days Amount 2.95% p.a.
= RM5000.00 x 2.20% x 365/365 Interest Rate 3 months
= RM110.00 Tenure 91
No. of Days 01/04/2021
Placement Date 30/06/2021
Maturity Date RM735.48
Interest Earn RM100,735.48
Total Return
(Principle +
Interest Earn)

Profit paid: Interest payment:
- When the Term Deposit-i - At maturity for tenures of 12 months

Account matures or less.
- Profits will be paid monthly for a - Every six months for tenures of more

minimum deposit of RM5,000 than 12 months
and a minimum term of six (6)
months, if the
depositor/customer requests it

• Type of accounts: and
a) Personal Accounts
b) Joint Accounts
c) Trust Accounts
d) Association, Cooperative

Corporate Accounts

7

BANK RAKYAT DIFFERENCES AMBANK GROUP
(ISLAMIC BANK) ELIGIBILITY (CONVENTIONAL BANK)
Term Deposit-i Account AmBank (M) Berhad Fixed Deposit

• Individuals; individual, • All Malaysian citizens, permanent
residents, and non-residents are
joint or trust eligible (subject to the country of
origin).
• Associations, Club,
• Individuals 18 years of age and
Charities that are older (for single or joint account).

established and registered • In-Trust Account
1. Can be opened in the name of
in Malaysia the Parent/ Guardian for
individuals under the age of
• Private and Government 18 ("Minor").
2. The accounts can only have
corporate company one beneficiary (Minor), and
there can be more than one
• Government Agencies trustee (Parent/Guardian).

8

BANK RAKYAT DIFFERENCES AMBANK GROUP
(ISLAMIC BANK) PRIVILEGES (CONVENTIONAL BANK)
Term Deposit-i Account AmBank (M) Berhad Fixed Deposit

- Deposit certificates With effect from Tuesday, January 1, 2019,
may be used as no interest will be paid on any Fixed
collateral for other Deposits withdrawn before maturity for the
Syariah-compliant following reasons:
financing.

- Low risk fixed term
investment

• Premature Withdrawal • Early/Premature Withdrawal
- Premature withdrawal
is allowed only in full. Illustration: 24 months
However, no profit will Tenure 3.00% p.a.
be paid to Interest Rate
depositor/customer
Amount of RM40,000
Placement 2 January 2021
Date of RM40,000
Placement
Amount
Withdrawn

9

• Takaful coverage Interest Scenario 1: Scenario 2:
- Free Takaful coverage Options : Withdrawal Withdrawal
to individual Premature without 6- with 6-
depositor/customer Withdrawal monthly monthly
with minimum deposit interest interest being
of RM10,000 and Date of payout payout
minimum tenure of 12 premature 2/4/2021 2/8/2021
months per Term of withdrawal
Deposit-i Certificate. Completed 3 months 7 months
- Applicable to the months
depositor/customers Interest RM40,000.00 x RM40,000.00 x
aged 18 to 65 only. earned (212/365) x
(91/365) x 3.00%
• Partial Withdrawal Interest = RM696.99
- Not allowed payable 3.00%
Interest RM0.00
paid = RM299.18
Principal
amount to RM0.00
be received
upon RM0.00 RM696.99
premature
withdrawal RM40,000.00 - RM40,000.00 -
RM0.00 RM696.99
=RM40,000.00 =
RM39,303.01

• Partial Withdrawal
The following conditions apply to partial
withdrawals of the Fixed Deposit:

- Withdrawals must be in multiples of
RM1,000.00 as a minimum.

- The remaining balance must not be less
than the minimum placement required
for the respective products/tenures, and

10

• Auto Renewal it must be held until the maturity date,
Upon request with a with the remaining balance earning
maximum tenure of 7 years interest at the original agreed rate until
from account opening date. the maturity date.
- No interest shall be paid for placement
amount which is partially withdrawn
- The placement is for a period of 12
months or less.
- Any amount payable to the
Accountholder on partial withdrawal
shall be determined by the Bank and
shall be complete, definitive, and
binding on the Accountholder.
- Fixed Deposits with terms of more than
12 months, Conventional Fixed
Deposits, Am50Plus, and AmQuantum
Investments do not allow partial
withdrawals.

• Auto Renewal
The Bank will automatically renew all
placements that are not withdrawn by
the maturity date at the current Board
Rate if they are not withdrawn by the
maturity date.

11

BANK RAKYAT DIFFERENCES AMBANK GROUP
(ISLAMIC BANK) FEES AND (CONVENTIONAL BANK)
CHARGES
Term Deposit-i Account AmBank (M) Berhad Fixed Deposit

Type of Fee Fee Amount

Replacement of RM 10.00 (stamp - Ad-hoc statement request:
RM5.00 per request
loss certificate duty)
- Any taxes (where applicable) are
not included in the quoted fees
and charges and must be paid by
the consumer separately. The
Bank reserves the right to adjust
the amount payable if any taxes
are levied on the fees and
charges quoted.

12

BANK RAKYAT DIFFERENCES AMBANK GROUP
(ISLAMIC BANK) (CONVENTIONAL BANK)

Term Deposit-i Account MAXIMUM AmBank (M) Berhad Fixed Deposit
- No maximum amount of deposit DEPOSIT - Any capital will be issued up to a
- Placement at HQ is subject to limit of RM250,000, according to
the most recent edition of the
liquidity position of Bank Guidelines

Term Deposit-i Account TENURE OF AmBank (M) Berhad Fixed Deposit
- 1 to 60 months DEPOSIT - A variety of flexible deposit terms
- For tenure other than ranging from 1 month to 60
above, subject to the months
Bank’s approval
- Placement at HQ:
Overnight up to 10 years

13

USES OF FUNDS: RAHN PERSONAL FINANCING

Bank Rakyat (Islamic Bank)

Shariah Concept Applicable:

The product provided by Bank Rakyat is Pawn Broking-i which uses the concept of
Murabahah (by adopting Tawarruq practices) and the concept of Rahn. It is a personal
financing product introduced by Bank Rakyat where customers can apply short term loan to
the bank by placing an item usually a jewelry as a collateral to the debt. By applying
Murabahah with Tawarruq practices in this product differentiate with the conventional pawn
broking.

The applicable concept for Ar-Rahnu is complex as it consists of three concepts. The first
concept is the contract of Qard Hassan, a loan agreement where the lender will grant a
benevolent loan which is an interest free loan to the borrower who pawned the item to the
bank. The second concept is Wadiah Yad Dhamanah, this is the agreement between the lender
and the borrower when the items pawned are kept in custody by the lender in a safe place
and will be return to the borrower or the owner of the item when the date of the contracts
end. The borrower put trust to the lender to look after the item that are being pawned during
the contract. During the items are kept in custody, the owner of the corporeal property needs
to pay some fees to the keeper as a guarantee if the items have some defects during in the
custody and this agreement are call as Ujrah and it is the last concepts used in Ar-Rahn.

Under the Murabahah and Rahn concepts for Pawn Broking-i, customers borrow money
with profit rate to the bank in the same period the customers pawning personal property that
can be sold if they cannot make the repayment in a certain time.

14

Modus Operandi:

STEP 1
• Customers approach Bank Rakyat to have some quick cash by pledge some Gold to
apply Pawn Broking-i financing.

STEP 2
• Bank opted the contract with the customer(borrower) contract Wadiah Yad Dhamanah
as the custodian of the pledged property of the customer.

STEP 3
• Customer will be provided with some cash available (80% of the Marhun(gold) market
price) in the contract of Qard Al hassan, a loan without any interest charges. The
customer needs to pay full amount of the loan at the end of the contract.

STEP 4
• Bank as Custodian of the customer’s pledged property will collect Custodial fee from
its owner under the contract named Ujrah. At the end of the maturity date, the
customer(borrower) will pay the full amount of the loan with Custodial fee based on
spread value of gold and Profit rate. The pledged asset will be returned after the full
payment made.

15

BANK RAKYAT DIFFERENCES PAWNZON MALAYSIA
(ISLAMIC BANK) PRODUCT (CONVENTIONAL)
Pawn Broking-i
- Pawn Broking-i offers fast and Conventional Pawning
easy cash financing up to - A conventional financial institution
RM350,000 with low profit
charges based under the Syariah that offers personal loan with a
principle. property being pawned as a
- Applying these concepts. collateral.
• Murabahah (by adopting - Loan amounts up to 80% of the
Tawarruq concept) collateral item current price.
• Rahn - Payback payment with interest will
- Using Profit rate based on the be paid by the borrower.
Marhun’s value and pawn period. - If the borrower unable to make full
payback payment until the end of
the contract, the collateral item will
be sold.

Conventional Pawning Modus Operandi:

16

BANK RAKYAT DIFFERENCES PAWNZON MALAYSIA
(ISLAMIC BANK) (CONVENTIONAL)
Pawn Broking-i PRODUCT
FEATURES Conventional Pawning
- Financing Amount - Financing Amount

• Maximum margin of financing is • PAWNZON offers up to 80% market
up to 80% of the current value for Gold, Diamond, Silver and
market value of the jewellery Rolex watches. We also apply daily
(Marhun Value). interest instead of monthly; to lower the
total interest each time the customer
• Total daily/ accumulative settle parts of their loan.
financing limit is up to
RM350,000. - Financing Limit

• Total daily financing for hollow • N/A
jewellery is up to RM30,000.

- Financing Limit - Financing tenure

• New customer / existing • Each pawn ticket has a period of 6
customer – Up to 80% of months (renewable).
marhun’s value.
- Interest rate
- Financing tenure
• Interest Calculation: (For 30 days per
• Minimum 6 months (Up to 18 month)
months)
Total Pawn Interest Charged (RM)
- Profit rate Amount 1

• Profit Rate is calculated based 2 Days 3 Days 15 Days
on the marhun’s value and Day
pawn period.
RM100 0.10 0.10 0.20 1.00
• Profit Rate table are as follows:
RM1,000 0.70 1.30 2.00 10.00

RM10,000 6.70 13.30 20.00 100.00

• By using simple interest calculation with
the interest rate determined by the Asset
pawned value amount.

17

Marhun Value Profit Rate for • Simple interest,
(RM) every RM100 • I = P(principle) x r% (interest rate) x
Marhun Value
Per Month T (tenure)
(RM) • or,
• FV = P ( 1 + rt )
< 500 0.60 • FV = Final value (principal + interest)
• P = Principal (starting amount)
≥ 500 – 5,000 0.75 • r = Annual interest rate (as decimal)
• t = time period (in years)
≥ 5,000 – 10,000 0.80

> 10,000 0.85

• Calculation formula CPR
(Contractual Profit Rate) for
Pawn Broking: a = b x c/100 x
d
o CPR = a
o Marhun value = b
o Profit rate = c
o Loan tenure = d (Note:
Loan tenure is based on
daily calculation.

18

BANK RAKYAT DIFFERENCES PAWNZON MALAYSIA
(ISLAMIC BANK) ELIGIBILITY (CONVENTIONAL)
Pawn Broking-i
Conventional Pawning
- Individuals. - All Malaysian citizens,
- Malaysian/ non- Malaysian /
permanent residents, and
Permanent Resident. non-residents are eligible
- 18 years old and above. (subject to the country of
- Not a bankrupt origin).
- Individuals 18 years of age
and older.

BANK RAKYAT DIFFERENCES PAWNZON MALAYSIA
(ISLAMIC BANK) PRIVILEGES (CONVENTIONAL)
Pawn Broking-i
Conventional Pawning
• Free from riba.
• No process fees. • Interest rate (below 2% p.a)
• Profit amount is calculated daily. • Fast services to approve
• Longer pawn period.
• Jewellery kept safely under pawning.
• Pawn period up to 6 months.
Takaful protection. • Payback payment can be made
• Transparent business deal and
online and through shops.
transaction is performed in a • VIP Room provided to secure
dedicated room with the
customer present. accommodation.
• The customers will receive Ibra’ if • Items are kept with 24-hours
settled the repayments before
the maturity date. CCTV surveillance with Full
Insurance.
Early Settlement Amount = Outstanding Selling Price – Ibra’ • No credit history check
Ibra’ = Total Profit – Accrued Profit – Other Cost(If any)

19

BANK RAKYAT DIFFERENCES PAWNZON MALAYSIA
(ISLAMIC BANK) FEES AND (CONVENTIONAL)
Pawn Broking-i CHARGES
Conventional Pawning
- No charges and fees.
- Fee RM0.50 for every pawn

ticket issued.

- Pay redemption amount and

Interest charges.

BANK RAKYAT DIFFERENCES PAWNZON MALAYSIA
(ISLAMIC BANK) PAYMENT TERM (CONVENTIONAL)
Pawn Broking-i
Conventional Pawning
a. Total Profit • Issued pawn ticket(s) are

Profit must be paid before/on due required upon ticket(s)
maturity profit date for every 1st renewal
and 2nd cycle of 6 month. at ORIGINAL Pawnzon
partner.
b. Amount Finance • Customer’s Identity will be
verified and recorded.
Amount finance must be paid on • Customers are required to pay
the expiry of tenure. (Principal redemption amount which
amount + profit (3rd cycle). includes pawn amount and
interest charges.
• Pawned item(s) will be
returned to customers after
redemption process is
completed.
• Redemption needs to be done
within 6 months from ticket
issued date.

20

REFERENCES

AmBank Deposit 2021. (n.d.). AmBank. Retrieved April 11, 2021, from
https://ringgitplus.com/en/fixed-deposit/AmBank-Conventional-Fixed-Deposit.html?filter=AmBank

AmBank Product 2021. (n.d.). AmBank Product. Retrieved April 11, 2021, from
https://www.ambank.com.my/ambank/SiteAssets/SitePages/simple/product-disclosure-
sheet/PDSFixedDepositTermDeposit.pdf

AmBank TAC 2021. (n.d.). AmBank TAC. Retrieved April 11, 2021, from
https://www.ambank.com.my/ambank/SiteAssets/SitePages/simple/terms-and-
conditions/TCAccountsAndServicesEng.pdf

Bank Rakyat 2021. (n.d.-b). Bank Rakyat Deposit. Retrieved April 11, 2021, from
https://www.bankrakyat.com.my/d/personal/savings/term_deposit_i_account-
18/dwpds/PRDG%20-%20PDS%20BI%2029%20Okt%202018%20FINAL%20(1).pdf

Bank Rakyat 2021. (n.d.-c). Bank Rakyat Deposit. Retrieved April 11, 2021, from
https://ringgitplus.com/en/fixed-deposit/Bank-Rakyat-Term-Deposit-Account-i.html

Bank Rakyat Deposit. (n.d.). Bank Rakyat. Retrieved August 2, 2017, from
https://www.bankrakyat.com.my/index.php?rp=business_deposit_1

iMoney 2021. (n.d.). IMoney. Retrieved April 11, 2021, from https://www.imoney.my/fixed-
deposit

Bank Rakyat. (2020, February 1). Pawn Broking-i. Retrieved from
https://www.bankrakyat.com.my/c/personal/financing_i/pawn_broking_i-38/pawn

How It Works. (n.d.). Pawnzon. Retrieved April 11, 2021, from https://pawnzon.com.my/how-
it-works/

About Us. (n.d.). Pawnzon. Retrieved April 11, 2021, from https://pawnzon.com.my/about/

21

PAWNBROKERS’ TERMS AND CONDITIONS. (n.d.). Pawnzon. Retrieved April 11, 2021, from
https://pawnzon.com.my/pawnbrokers-terms-and-conditions/
Amir, A. (2019, January 21). Financing: Tawarruq (Commodity Murabaha). Islamic Bankers
Resource Centre. https://islamicbankers.me/islamic-banking-islamic-contracts/financing-
commodity-murabaha-tawarruq/
Al-rahn. (n.d.). IslamicMarkets.Com. Retrieved April 11, 2021, from
https://islamicmarkets.com/dictionary/a/al-rahn
L. (2019, November 19). Ar Rahnu – Islamic Pawnbroking in Malaysia. | Loanstreet.
https://loanstreet.com.my/learning-centre/ar-rahnu-islamic-pawn-broking-in-malaysia
How Pawnshops Make Money. (n.d.). Investopedia. Retrieved April 11, 2021, from
https://www.investopedia.com/articles/personal-finance/112415/how-pawnshops-make-
money.asp
Learn About Simple Interest. (n.d.). Investopedia. Retrieved April 11, 2021, from
https://www.investopedia.com/terms/s/simple_interest.asp
Future Value (FV). (n.d.). Investopedia. Retrieved April 11, 2021, from
https://www.investopedia.com/terms/f/futurevalue.asp
Norwalk Loanco. (2017, August 19). How a Pawn Loan Works [Video]. YouTube.
https://www.youtube.com/watch?v=cP8ObpdgSs0

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APPENDICES
23

24

25

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