Banking Operation & Practices

KOLEJ PROFESIONAL MARA BANDAR MELAKA
BANKING OPERATION AND PRACTICES
MGT 3663
GROUP ASSINGMENT (30%)
TOPIC:

‘COMPARISON ON BANKING OPERATIONS BETWEEN ISLAMIC BANK AND
CONVENTIONAL BANK

PREPARED BY:

NAMA NO ID

SOFFIA HANIM BINTI SAHAR BMF19-06-112

SITI AISHAH BINTI ISKAK BMF19-06-108

NUR QISTINA MAISARAH BINTI AHMAD BMF19-06-103
FAISAL

WAN RAFIQ RAHIMI BIN MOHD SUKRI BMF19-06-092
CLASS:
DBF 6E

PREPARED FOR:
PUAN NOOR AISYAH OTHMAN

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Table of Content
1 Acknowledgement
2 Introduction of the assignment
3 Content
4 References
5 Appendix

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Acknowledgement

First and foremost, we would like to thank ALLAH S.W.T for providing us with the knowledge,
energy, and expertise to obtain opportunities and develop our knowledge and experience by
completing this assignment.and also His messenger, Prophet Muhammad S.A.W. because of His
blessing, we all finish this assignment with successfully.

We are extremely grateful that we were able to complete our Banking Operations And Practices
(MGT 3663) within the time period given by our lovely lecturers, Noor Aisyah Othman. We also
sincerely thank our lecturers, Noor Aisyah Othman, for her assistance and help in completing this
task, as well as for guiding us in this course.

Her Unlimited explanations were given to help us appreciate the various concepts so that we
could interpret it in a brief video clip. This assignment could not have been completed without
the cooperation and assistance of the lecturers, Noor Aisyah Othman, as well as each and every
one of us in our team, whose names are called Aishah Iskak, Soffia Hanim, Qistina Maisarah and
also Wan Rafiq. This assignment is the work of a group of four people who created a brief video
to interpret an idea and completed the report.

Last but not least, we'd like to thank our friends, family, group members and our lecturers, Noor
Aisyah Othman for their encouragement, supported morally and their time that have been spend
on us to finished this assignment.

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Introduction of Assignment

In Malaysia there is two types of bank which is Islamic and Conventional bank. Islamic banking
has the same purpose and operation as conventional banking. However, Islamic banking refers
to a system of banking activities that operates according to Shariah principle while conventional
bank operates according to general bank’s law.

In the banking operation, there must have sources of funds. The financing extended to customers
are sourced from deposit funds and investment funds. There are three deposit funds which is
intended for savings or safekeeping and guarantees repayment of the sum deposited. For the
investment funds, it will be invested without guaranteed or any profit return of the principal. For
the deposit funds there are two main types od deposit which is deposits and term deposits. Then,
the investment funds are divided into two types which is unrestricted and restricted investment
account.

The uses of funds in banking operation for Islamic finance is Islamic retail financing and corporate
financing. For conventional bank, most of the money comes from customer deposits. Individuals
are the most common investors, but companies and government entities with excess funds may
also participate. Banks hold certain deposits for very brief periods of time, such as a month or
less. The majority of conventional banks' funds are used to make loans or to buy debt securities.
They act as creditors in both cases, extending credit to borrowers in need of funds. They make
industrial loans to businesses, personal loans to individuals, and debt securities purchases from
businesses and government agencies. The majority of businesses depend heavily on conventional
banks for funding.

For our group assignment, we choose term deposit as our sources of funds and working capital
which is under corporate financing for uses of funds. In this assignment we will make a research
about the sources and uses of funds from Islamic bank and conventional bank. We will also make
a comparison between these two-banking sector.

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Content

Islamic Bank Term Deposit @ Fixed Deposit

Term Deposit Account-i

What Is the Concept of an Islamic Term Deposit Account? It is An Islamic Fixed Deposit Account
(Islamic FD, also known as Islamic Fixed Deposit-i or General Investment Account-i) is a financial
instrument that provides a fixed benefit / return upon deposit maturity. The primary distinction
between traditional and Islamic Fixed Deposits is that Islamic Fixed Deposits are Shariah
compliant.

CIMB-I have offers a Term Deposit Account-I which is an account that allows you to make partial
withdrawals from Unfixed Deposits while still earning high profit rates.

Benefits & Privileges Flexibility Additional Benefits

Earn Profit Select the maturity period Profits are paid upon maturity.
Consistent Profitability

and profit rates that are

right for you.

Enjoy the freedom of deciding
on a maturity period ranging
from one to sixty months, as
well as the corresponding
profit rates.

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Partial Withdrawals For tenures lasting more than

12 months, interim benefit is

Withdraw in multiples of charged after six months.

RM1,000 while maintaining

the predetermined profit rate

on your remaining balance.

Renewing automatically

Possibility of pledging the
certificate of deposits as
collateral for funding

Eligibility
• Individuals over the age of 18
• A joint account is allowable.

PIDM protects deposits up to RM250,000 per depositor.

Requirements
• NRIC or visa
• A minimum deposit of RM5,000 is required for a one-month tenure, and RM1,000 is
required for tenures ranging from two to sixty months.
• Deposit increases in multiples of RM1.
• A copy of your utility bill for address checking.

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Profit Rates

Fixed Return Income Account-i (FRIA-i) – Why Wait
Effective 01 Aug 2020

Tenure (Month) Board Rate (% p.a.)

1 month 1.50%

2 months 1.65%

3 months 1.70%

Fee & Charges

Foreign Currency Fixed Return Income Account-i

No Types of Charges Charge

1 Transaction charges Nil

2 Additional/ reproduction of Statements for FCFRIA-i Account for RM10 (upfront)

period up to 1 year RM2 (additional page)

3 Additional/ reproduction of Statements for FCFRIA-i Account for RM30 (upfront)

period exceeding 1 year RM2 (additional page)

Withdrawal of FCFRIA-i; to be credited to customer's account at
4 Nil

branches within the same clearing zone

Withdrawal of FCFRIA-i; to be credited to customer's account at
5 Nil

Branches not within the same clearing zone

6 Withdrawal via Banker’s Cheque RM0.15 on stamp duty
charges

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Withdrawal
Withdrawals are permitted under the same account number of at least RM1,000 and multiples of
RM1,000. Renewed and new FRIA-i account with effect from 18 January 2015.

Upliftment / retraction before maturity is allowed by means of a refund or Ibra provision in which
the consumer offers to discount Murabahah Sale Price on early demand. The amounts
upgraded/removed are subject to the following conditions:

1. Placements/renewals for FRIA-i effective 1 November 2018:
For the withdrawn sum, no profit would be charged.

2. For placements/renewals prior in FRIA-i to 1 November 2018:

i. FRIA-i for 1 to 3 months' tenure
No profit shall be charged before the end of its term for any sum withdrawn in whole or in
partially.

ii. FRIA-i for 4 months' tenure and above
3 months before finishing
For any withdrawn sum, no profit would be charged in whole or in part*.

3 months after finishing
Half the profit from the contracting rate on any finished month of the cancelation amount is owed
on each completely or partially* withdrawn amount.

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Modus Operandi
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Term Deposit – Conventional Bank

Public Bank

A Term Deposit is a form of savings account in conventional banking that pays a set amount of
interest for a set amount of money deposited over a set period of time. A Term Deposit, unlike a
regular savings account, pays a considerably higher interest rate, allowing account holders to
make more money from interest.

Holders must however, commit their money for a fixed period of time, also known as the FD
tenure, in order to benefit from the higher interest rate. The bank's FDs come in a variety of
lengths, ranging from one month to five years. To summarise, if a holder withdraws his or her
money before the end of his or her FD term (maturity date), the holder essentially forfeits all
future interest payments.

Depositors from conventional banks benefit from their deposits by predetermined interest rates,
regardless of the bank's results. This means that if a conventional bank agrees to pay you 3%
interest on an amount of money for a specified period of time, the bank is obliged to pay you the
interest at the end of the term (even if the bank loses money on its investments). As a result, a
conventional bank is free to increase profits without any restrictions.

One of the conventional banks that offer Term Deposit in Malaysia is Public Bank. If you are 18
years old or older and above and have a conventional personal current or savings account with
Public Bank, and also registered for PBe online banking.

The Requirement for Term Deposit Account

- Minimum of RM1000

Interest Rate Deposit Period Effective Interest Rate
1 month 1.5% p.a.
Deposit 2 months 1.65% p.a.
Min. RM1,000 3 to 5 months 1.7% p.a.
Min. RM1,000 6 to 11 months 1.8% p.a.
Min. RM1,000
Min. RM1,000

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Min. RM1,000 12 to 60 months 1.85% p.a.

Fees and Charges
- Lost of Fixed Deposit Certificate: RM5 Service Charge
- Additional Statement Request: RM2 per document

Requirement
- Minimum Age is 18 years old.

Each month, the interest will be automatically deposited into your current or savings account.
Plus, for your convenience, this fixed deposit has an auto-renewal scheme.
If the depositor withdraw money before maturity, no interest will be paid to the withdrawn
amount. Thus, it is much better to wait until maturity to earn 100% interest returns.

Terms and Conditions
1. Eligibility
➢ The PB eFixed Deposit Account (hereinafter referred to as the “PB eFD”) is
a fixed deposit
➢ account which allows Account creation, placements and withdrawals to be
performed online via
➢ PBe Online Banking (hereinafter referred to as “PBe”).
➢ PB eFD is a conventional fixed deposit product.
➢ 1.3 PB eFD is only available to: -
a) Individual customers aged eighteen (18) years and above and sole
proprietor, who have existing conventional personal Current Accounts
or Savings Accounts (CASA), and who have registered for PBe; and
b) Malaysians without any Foreign Account Tax Compliance Act
(FATCA) and/or Common
➢ Reporting Standard (CRS) indicia.
➢ 1.4 The PB eFD is not available to: -
a) Joint CASA; and

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b)Non-individuals partnerships, corporate entities, associations, clubs,
and societies.

The differences between Islamic and Conventional Term Deposit

Islamic Conventional

Following based on Shariah Compliance, the Following based on general’s banking laws

Islamic principle. and financial practices.

Supersize profit subject according to Shariah Supersize profit without limit and restriction.

principle restriction.

Profit based on agreed profit-sharing ratio. Profit of pre-determined rate of interest.

Based on Profit and Loss sharing. Based on loan contract where the Bank and

client is that of lender and borrower,

respectively.

Did not consist of ‘riba’. Consist of ‘riba’ which not suitable for

Muslims.

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Uses of fund: Islamic Bank Corporate Financing
The Islamic finance system is closely connected to Quran and Sunnah-based financial education
as the proper way to manage capital. Islamic finance adheres to a set of rules that are based on
the Sharia religion. The legal system includes prohibitions on the payment or aggregation of
interest rates (riba), the investment in activities that include the selling or purchase of goods and
services that are prohibited (haram) in the Islamic religion for example, alcohol, pork, and betting,
and the investment in activities that include the sale or purchase of goods and services that are
prohibited (haram) in the Islamic religion for example, gambling Companies working in Sharia-
compliant countries are influenced by these basic concepts. Sharia-compliant businesses must
use an alternative form of corporate finance called Islamic corporate finance, which complies with
the Sharia's fundamental principles.

WORKING CAPITAL-I (CIMB ISLAMIC BANK)
Choose from a comprehensive range of products designed to suit the business’ daily operating
needs. Improve your business cash flow with working capital financing without collateral. This
type of funding addresses companies' short-term needs, which are represented in their balance
sheets as current assets and current liabilities. This funding is needed to cover short-term debts
and operating expenses in order for the company to stay competitive, profitable, and long-term
in the market.

Features of working capital
There are three types of working capital that CIMB Islamic Bank offers,

• Term Financing-i
• Revolving Credit-i
• Trade Facilities

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1) Term Financing-i

Term financing-I for CIMB Islamic bank is secured by Amanah Saham Bumiputera (ASB)
and the name is TF-I ASB. TF-i ASB based on the concept of Commodity Murabahah-
Tawarruq which is secured by ASB Certificate, it helps you to grow your wealth and
achieve your financial goals. The benefits & privileges that CIMB Islamic offer are
competitive rate, flexible financing, and financing protection.

The first benefit and privileges is competitive rate. Profit rate of base rate that CIMB
Islamic offers is + 1.20% p.a. Enjoy a stable Profit Rate throughout your financing tenure
of which is being capped at Ceiling Profit Rate (CPR) of 10.75%. The second benefit and
privileges is flexible financing. The financing tenure is from 5 years up to a maximum of
40 years or 70 years of age. Next, the financing amount is minimum RM10k and maximum
RM200k. the High Margin of Financing (MOF) that CIMB Islamic offers is Up to 100% MOF
+ 5% Takaful coverage. The third benefit and privileges is financing protection. The
financing protection is up to 100% add 5% takaful coverage that protected by Group
Term Financing Takaful (GTFT).

Fee and charges Charges
Products/items -
Documentation Fee:
ASB/ASB2 Certificate Lien Fee RM50 payable to Amanah Saham
Nasional Berhad (ASNB)
Nominal Stamp Duty RM10

The eligibility for term financing is for Malaysia Bumiputera only. Next, Individuals aged
18 years and above, with evidence of income only. Then, the Joint application is limited
to parents/ spouse/ siblings/ adult children only. The requirements need submit the

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application are photocopy of NRIC and evidence of income. There are two types of
evidence of income is require. Firstly, salary earners which are latest 1 month’s salary.
Secondly, self-employed / business owners / sole proprietors.

2) Revolving Credit-i

Revolving Credit-I CIMB Islamic is a Shariah-Compliant Revolving Credit facility, based on
Commodity Murabahah structure provides you with ready funds when needed with
certainty. The features & benefits is best of all, this facility is Shariah-compliant that based
on the Commodity Murabahah structure. This product uses a flexible financing which to
optimise the revolving credit facility with eligible financing amount that depends on your
needs for working capital and collateral value. It’s simple and convenient for the business
company to apply the most important things it’s shariah-compliant. So all the company no
need to worry about riba, gharar and maysir. Next, revolving credit facility-I is where the
company business can get additional funds for what your business requires and the fund
also is disburse as needed when you need it and manage your cash flow to satisfy your
upcoming operations through our working capital solutions. Lastly to secure or unsecure,
in this revolving credit facility-I you may choose an option of pledging security or without
security.

3) Trade financing
Trade financing is with the advantage of CIMB Islamic extensive range of trade finance
solutions, you can expand your foreign trade projects while reducing risk. Because of CIMB
Islamic in-depth knowledge of local markets, they can predict your needs and maximise
your chances by implementing effective solutions.

Under these trade financing CIMB Islamic offers 6 products. Documentary Credit-i (DC-i)
and Inward Bills for Collection-i (IBC-i). They share the same purpose which is Eligible for
buyers of both domestic purchases and imports. Next Shipping Guarantee-i (SG-i), the
function is Applicable for importers while Accepted Bills-i (AB-i) is applicable for domestic
and foreign buyers and sellers. Then, Trust Receipt-i (TR-i) applicable for buyers dealing

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in domestic purchases and imports and lastly, Multi Currency Trade Financing-i (MCTF-i)
applicable for domestic and foreign buyers and sellers.

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Working capital- Conventional bank

Public bank
A working capital is working capital is the amount of cash a business can safely spend.
It’s commonly defined as current assets minus current liabilities. Usually working capital
is calculated based on cash, assets that can quickly be converted to cash (such as invoices
from debtors), and expenses that will be due within a year.

The financing package:
• To purchase or refinance your own business premises, such as shophouses,
warehouses and industrial factories.
• To raise working capital, including Overdraft and trade bills facilities.
• To raise funds for making personal investments.
• To finance the purchase of selected equipment & machinery.

Loan for Working Capital:
1)Overdraft:-

Allow us to draw additional funds quickly and conveniently from our current account
when we require it. Raising additional capital for running business or making investments
is fast, simple and convenient. Overdraft will offer us no fixed repayment schedule and
interest charge when funds are used.

2)Revolving credit:-
A working capital facility to address your financing needs over a short to medium term

period. We can choose to either repay the full amount or renew the loan tenure by
servicing the interest at the end of the loan period. Revolving credit will offer us flexibility
of drawing funds, repayable over 1,3,6,9 and 12 months terms and we can chose repaying
in upon maturity or pay only the interest.

3)Trade Financing
Public Bank is the ideal partner to help you efficiently handle your trade transactions as

well as address your financing needs. Public Bank offer a range of solution and services

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to meet trade financing needs. Under these trade financing Public Bank we have 2 section
which is local purchases ,import services and that local sales, export services. For local
purchases and import services first is letter of credit that issued by the bank to your
suppliers as a form of guaranteed payment. The supplier will be able to collect the
payment when all conditions of the LC are met. Next, trust receipt A form of financing
for your purchases, where we pay your suppliers 100% of the value of the goods, so that
you can take delivery promptly and defer payment for an agreed period of time. Then,
Banker’s Acceptance that the bank provide financing for importer and local purchaser so
we can take delivery of goods faster. Next, shipping guarantee that Allows you to take
delivery of your goods prior to arrival of original transport documents. For the Local Sales
And Export Services, first is Banker’s Acceptance that the bank will pay you immediately
in exchange for your invoices in a trade transaction. This gives you instant cash in hand
for other business needs while the bank collects payment from your buyer at a later date.
Next, Banker’s Guarantee When you submit a tender, or need a guarantee of payment to
a supplier or a business partner, you can use a Banker's Guarantee as a viable alternative
to cash deposits

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Key differences between conventional working capital and Islamic working capital.

Conventional Differences Islamic
Uses Islamic contracts,
Customers can borrow Contract which are murabahah in
principle. To make the trade
money and repay it to the clear, the bank will use a
third party to sell and buy
bank with interest under a commodities.
• Term Financing-i
loan-based contract. • Cash Line-i
• Revolving Credit-i
• Overdraft Product offer • Trade Facilities
• Revolving credit
• Trade financing

Although the majority of the products and services offered are similar, Islamic working capital
places a greater focus on Shariah-compliant practises than the conventional working capital.

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Reference

• https://www.cimb.com.my/en/personal/day-to-day-banking/accounts/fixed-term-
deposit/fixed-return-income-account-i-maturity-returns.html

• https://www.pbebank.com/Business-Banking/Banking/Financing/Loans-For-Working-
Capital/Overdraft.aspx

• https://www.cimb.com.my/en/personal/day-to-day-banking/financing/personal-
financing/term-financing-i-secured-by-asb-certificate.html

• https://www.cimb.com.my/en/business/solutions-products/trade-finance/importtrades-
cimb.html

• https://www.cimb.com.sg/en/business/solutions-products/loans-financing/corporate-
loans-financing/revolving-credit-facility-i.html

• https://ringgitplus.com/en/fixed-deposit/Public-Bank-eFixed-
Deposit.html?filter=Public%20Bank

• https://ringgitplus.com/en/blog/banking/the-difference-between-islamic-and-
conventional-fixed-
deposits.html#:~:text=In%20Conventional%20Banking%2C%20a%20Fixed,a%20pred
etermined%20period%20of%20time.&text=FD%20tenures%20offered%20by%20the,to
%20up%20to%205%20years

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Appendix
CIMB Islamic
Public Bank

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