Assignment BOP 24_4_2021

KOLEJ PROFESIONAL MARA BANDAR MELAKA
GROUP ASSIGNMENT

TOPIC: COMPARISON ON BANKING OPERATIONS BETWEEN ISLAMIC BANK AND
CONVENTIONAL BANK

MGT 3663
BANKING OPERATIONS AND PRACTICE

PREPARED BY:

NAME ID NUMBER
NUR DEENA FARHANA BINTI HASLAN BMF19-06-043
FARAH AMEERA BINTI SHAHRULNIZA BMF19-06-040
SOFIAH BINTI HAMIDON BMF19-06-035
FATIN MASLIANA BINTI MAT JALI BMF19-06-034
MUHAMMAD AMIR IMRAN BIN ZAMRI BMF19-06-094

PREPARED TO:
PN. NOOR AISYAH OTHMAN

SUBMISSION DATE:
26 APRIL 2021

1

TABLE OF CONTENT

No Content Pages
1 Acknowledgement 3
2 Introduction of the Assignment 4
3 About the Bank 5
4 Sources of the Bank
5 Uses of funds at the Bank 6-8
6 References 9 - 11
7 Appendix
12
13 - 17

2

ACKNOWLEDGEMENT
Alhamdulillah, first and foremost, we would like to thank Allah because we were finally
able to complete our lecturer's assignment. This task was completed with all afford by group
members, despite a minor internet problem that occurred among us while working on this
assignment due to the pandemic situation, which we were only able to discuss through an
online platform. Fortunately, all of the issues were resolved, and we were able to adapt properly
and wisely. Apart from that, we would like to express our gratitude to our lecturer, Pn. Noor
Aisyah binti Othman, because our assignment would not have been completed properly without
her guidance. She is always there to support us and to show us how to complete our
assignments on time.
Qard Current Account (Qard Deposit) and Murabaha Financing from Al Rajhi Bank and
CIMB Bank are the subjects chosen by our group. We had tried our best to do this assignment
and the research also collected as much information that we can in order to complete this
assignment. We search and refer to information from the bank’s website on the internet.
Finally, thank you to our beloved friend who always works together and hard to achieve
a good job with every opportunity and responsibility. I hope all this will bring us and our group
project many benefits. We would also like to thank all of our classmates for helping us by giving
opinions so we can improve our assignment.

3

INTRODUCTION OF THE ASSIGNMENT
We had been asked by our honorable lecturer to make research about the sources of
funds and uses of funds at the conventional and Islamic bank. We decided to choose CIMB
Bank for the conventional bank and Al-Rajhi Bank for the Islamic bank. Furthermore, we
conducted research on the Qard Current Deposit that Al-Rajhi Bank uses as its sources of funds.
For the CIMB Bank, we searched the sources of funds that are almost the same with Islamic
sources. We also explore the Murabahah financing that has been used at Al-Rajhi Bank. Home
financing is the product that we used to make research. Comparison between home financing
and housing loan had been explained in this report.
The Islamic current account is structured by the agreement between Wadiah or even
Qard. If the current account is structured using a Qard contract, a bank is entitled to use the
deposited money. The bank is therefore obliged, on proposal or in accordance with the
contract, to return the deposits. Qard refers to lenders' (customers') money to a borrower
(bank), where the bank is required to repay the lender with an equal substitute amount. In this
situation, the Bank guarantees money repayment and, subject to bank procedures, returns the
same to the lender accordingly
Murabahah financing is the most popular and most common mode of Islamic financing.
Murabahah financing is a sales contract between the bank and its customer for the sale of
goods or equipment at a price plus an agreed profit margin for the bank. It is used if the
customer's wish to purchase the equipment or goods. The contract includes the purchase of
goods by the bank, which then sells them to the customer at an agreed profit margin. The
repayment is usually made in installments.

4

ABOUT BANKS

According to their website, Al Rajhi Bank, believe that the one thing that holds the world
together as people of different nationalities, creeds and beliefs are values. Values define us,
unite us, and garner trust from those they serve. Deeply rooted in Islamic banking principles
and operating on the same platform as its home bank, Al Rajhi Bank was established on the
bedrock values of Integrity and Transparency, Passion to Serve Our Customers, Solution
Oriented, Modesty, Innovativeness, Meritocracy and Care for Society. These values continue to
drive the Bank forward in efforts to honour modern financial demands via the use of technology
and the innovation of bespoke banking products; and have positioned the Bank to emerge as a
prominent banking force in the Kingdom of Saudi Arabia. Backed by the full force of our
established operations in the Middle East, made its maiden foray into the international banking
market by setting up its first overseas operations in Malaysia in October 2006.

From their website, CIMB Group is a leading ASEAN universal bank and one of the
region’s foremost corporate advisors. It is also a world leader in Islamic finance.The Group is
headquartered in Kuala Lumpur, Malaysia, and offers consumer banking, commercial banking,
investment banking, Islamic banking and asset management products and services. It is the
fifth largest banking group by assets in ASEAN and, as at the end of December 2020, had
around 34,000 staff and over 16 million customers.CIMB Group Holdings Berhad has been listed
on the Main Market of Bursa Malaysia since 1987 and has market capitalisation of RM43.5 billion
as at 31 December 2020. As at 31 December 2020, total assets stood at RM602.4 billion, with
total shareholders’ funds of RM57.2 billion and total Islamic assets of RM143.0 billion. At the
end of December 2020, the substantial shareholders were Khazanah Nasional Berhad with
27.2%, Employees Provident Fund with 16.0% and Kumpulan Wang Persaraan (Diperbadankan)
with 6.6%.

5

SOURCES OF FUNDS

In Malaysia, there are several types of current deposit account, either it is conventional
or Islamic type of account. Qard Deposit is one of the Islamic current deposit accounts. As per
the example of Al Rajhi Bank compared to CIMB Bank, there are few differences between Qard
Current Deposit Account and Conventional Current Deposit Account offered, respectively. The
first comparison that we can directly notice is regarding the contract that has been used by
both banks. For example, Al Rajhi Bank for Qard Current Deposit Account uses the contract of
qard that is shariah-compliant compared to the CIMB Bank for Conventional Current Deposit
Account which as we know it is a conventional bank that does not have a contract that follows
the shariah-compliant. Qard refers to customers' money to a bank, where the bank is required
to repay the lender with an equal substitute amount. In this situation, the Bank guarantees
money repayment and, subject to bank procedures, returns the same to the lender accordingly.
The second comparison is, regarding their fees and charges. According to the Qard Current
Deposit Account, the cheque book issuance is only free of charge but Conventional Current
Deposit has a payment of RM10. So here we can see the Islamic current deposit account is
more flexible.

Thirdly, there are also several differences for eligibility for Al Rajhi Bank and CIMB Bank.
For eligibility, both Ar Rajh bank and CIMB bank stated that a joint account is allowed. It says
that for Al Rajhi which is Qard Current Deposit, a joint account is allowed with a maximum of
only two persons while CIMB bank which is Conventional Current Deposit allowed to be jointly
by two or more persons. Next, the other difference eligibility required for these two banks is
Qard Current Deposit accepts several non-individual such as non-profit organization which
means a company that supports a social cause which benefits the general public. Second is sole
proprietorship means a person, a corporation, or a limited liability partnership that owns and
manages a business. Next, Qard Current Deposit also accepts partnership means cooperation
between two or more individuals to manage the business. Furthermore, they accept private
limited which is a privately owned and public listed company which means it may sell shares of
its stock to the general public. While different from Conventional Current Deposit it accepts
Small and Medium Enterprises (SMEs) means that a company that keeps their sales, properties,
or employee count below a certain level. Furthermore, the other difference between Qard

6

Current Deposit and Conventional Current Deposit is Qard Current Deposit using profit rate
because they are based on Islamic principle while Conventional Current Deposit is using interest
rate because they are conventional banks.

Besides, the way both banks will close the customer’s account based on the situation is
also different. For Al Rajhi which is Qard Current Deposit, they will close the account if upon
occurrence events such as the customer is facing bankruptcy or liquidation. Next, when the
customer violates any of the terms and conditions. Other than that, when the customer is
involved or suspected involvement in money laundering as prohibited under the Anti-Money
Laundering and Anti-Terrorism Financing Act of 2001 happen. While CIMB for Conventional
Current Deposit, the closure of the account will happen if these events occur which are when
the account has received three or more returned checks in the last 12 months due to a lack of
funds in the Current Account. Next, when an account with a zero balance or a balance of RM10
or less for a term of one year. Lastly, closure happens when any account continues to remain
overdrawn due to unpaid cheques, returned cheques, fees, interest, and service charges.

Before the disclosure, CIMB and Al Rajhi handled the inactive account in different ways.
For Al Rajhi, they will hand over all the money to the Registrar of Unclaimed Money (RUM),
Department of Accounting Malaysia. However, CIMB will deduct some money as a service fee
before the balance money remaining will be handed over to the RUM. There is no interest
charged by Al Rajhi toward its customers but there is an interest charged by CIMB. The
interests are not fixed and will be stated at their website and Bank’s Banking Halls. As for
shariah compliance, AlRajhi Qard Current Account-i have been reviewed and approved in
principle by the Shariah Committee of the Bank, and have further and subsequently been
reviewed and approved in principle by the Shariah Advisory Council of Bank Negara Malaysia
which means they are shariah compliant. Otherwise, CIMB Basic Current Account has no
requirement to comply with shariah law.

7

In conclusion, qard current deposit account can be similar to the conventional checking
account and the principal is guaranteed. Then, regarding the fund can be deployed in any
permissible area chosen and as we know the benefit payment is not obligatory. The main
motive for a customer to have a current account is to keep excess liquidity available in demand.
The objective to earn profit is not the priority. These accounts are operated for the safe custody
of deposits, and for the convenience of customers. Qard took a role-reversal shape in the
Islamic banking sector — structured like a deposit product contract. Depositors (or clients) thus
become lenders by depositing with the borrowers, Islamic banks. They become banks. In
practise, the operation of the Qard contract shall not provide the loaner with any contractual
advantage. The practise of mixing a sales contract with a credit contract is a deceptive practice
for avoiding direct charging of interest on a loan and disguising it as an Islamic lending facility.

8

USES OF FUNDS

Murabahah financing, also known as cost plus with markup price financing, is an Islamic
financing structure where sellers and buyers agree on the cost and markup of an asset. It is not
an interest-bearing loan (Qardh Ribawi), but an acceptable form of sale on credit under Islamic
law. There are many products offered by the Islamic bank that use the Islamic concept of
Murabahah financing. In this part, we decided to make a comparison for Home Financing at
Al-Rajhi Bank and Housing Loan at CIMB Bank. Home financing that is offered by Al-Rajhi bank
uses the Islamic concept of Murabahah financing.

First and foremost, there are differences in modus operandi for home financing offered
by Al-Rajhi Bank and housing loans offered by CIMB Bank. In Al-Rajhi Bank modus operandi, it
uses Murabahah as a mode of financing whereby Al-Rajhi Bank will purchase the house that the
customer wants first and get the full ownership of the house. After that, Al-Rajhi Bank will sell
the house to the customer. The customer needs to pay the cost plus the markup price of the
house in deferred payment. However, in CIMB Bank, it happens between a borrower and the
bank. The borrower will borrow the sum amount of money from the bank to purchase the
house that he wants. He needs to pay back the cost price plus the interest that had been
decided by the CIMB Bank. Interest is forbidden in Islamic Law.

Other than that, as mentioned earlier, in Al-Rajhi Bank, they will get their profit when
they charge the markup price to the customer. Charging the markup price to the customer is
allowable in Islam because the contract between Al-Rajhi Bank and the customer is a sale and
purchase contract. Al-Rajhi Bank charges the customer based on the profit rate that has been
agreed at the beginning of the contract. The profit rate is also in fixed amounts throughout the
tenure. The estimated profit rate that Al-Rajhi charges to the customer who makes the home
financing more than RM50,000 is 4.7% per annum. Nonetheless, CIMB Bank will get the profit
based on interest that they charge to the borrower. Interest will be charged according to the
interest rate. The effective interest rate that will be charged for housing loans less than
RM200,000 is 4.20% per annum.

9

Besides, the tenure for housing loans and home financing are also different. Tenure is
the period or duration for which the loan or financing amount is approved. The minimum tenure
for housing loans at CIMB Bank is 5 years and the maximum is 35 years or 75 years of age,
whichever is earlier. For a further explanation of the maximum tenure, a borrower needs to be
below 75 years to apply for the housing loan. If during his application for a housing loan his age
is 60 years, so the maximum tenure for him is 15 years only. However, the tenure for home
financing in Al-Rajhi Bank is flexible tenures of minimum 5 years up to 35 years or age 65
years, whichever is earlier.

Next is about the eligibility the banks provide for their customer to follow the
appropriate conditions. As we know, banks have their right to make rules for their customers to
follow. It clearly makes the banks have different eligibility. It is made up to make every process
run smoothly. For example, eligibility of the Al- Rajhi bank home financing is that the customers
have to reach 21 years old and maximally just until 65 years old. Compared to the CIMB Bank
housing loan, borrowers must be aged 18 years old and above to apply their products. The
maximum is 75 years of age. Also, the Al- Rajhi Bank only open the housing loan product for
Malaysian compared to CIMB Bank who open to Malaysian and foreign permanent residents.

In addition, their fees and charge in the letter of confirmation of Employees Provident
Funds (EPF) withdrawal and redemption statement fee show the difference between the Al-
Rajhi Bank and CIMB Bank. People who want to apply for housing loans and financing can
withdraw from EPF to finance the purchase of a house. To do this, the banks will make a fee for
their services. For instance, Al- Rajhi Bank’s home financing customer needs to pay MYR10 per
request. In comparison, CIMB Bank’s housing loan borrower needs to pay double the Al- Rajhi
customer’s need which is MYR20 per request. Moreover, in the redemption statement of
Al-Rajhi Bank, their fee is MYR10 per request and CIMB Bank's fee is MYR50 per request. Based
on this comparison we can say that Al- Rajhi fees are more affordable than CIMB Bank fees.

10

Afterward is the insurance type provided by banks to their clients. There is lots of
insurance that can be the customer’s protection for his home loan. In Malaysia, we have
Mortgage Reducing Term Assurance (MRTA), Mortgage Level Term Assurance (MLTA),
Mortgage Reducing Term Takaful (MRTT), Mortgage Level Term Takaful (MLTT), Group
Mortgage Term Assurance (GMTA) and others. The bank that we have chosen shows that they
are provided Mortgage Reducing Term Takaful (MRTT) and House Owner Takaful insurance for
their customers of Al- Rajhi Bank home financing compared to CIMB Bank housing loan
insurance provided Group Mortgage Term Assurance (GMTA) for their clients. It is important to
have insurance protection for housing loans because customers cannot predict what may
happen in the future.

In short, we can conclude that Murabahah financing, also known as cost-plus with
markup price financing, is an Islamic financing structure where sellers and buyers agree on the
cost and markup of an asset. It is not an interest-bearing loan (Qardh Ribawi), but an
acceptable form of sale on credit under Islamic law. The customer needs to pay the cost plus
the markup price of the house in deferred payment. The borrower will borrow the sum amount
of money from the bank to purchase the house that he wants. As mentioned earlier, Al-Rajhi
Bank will get their profit when they charge the markup price to the customer. In sequence,
people who want to apply for housing loans can withdraw from EPF to finance the purchase of a
house. Moreover, in the redemption statement of Al-Rajhi Bank, their fee is MYR10 per request
and CIMB Bank's fee is MYR50 per request. Lastly, in Malaysia, we have lots of insurance types
that are provided to clients, so they can have protection.

11

REFERENCES

1. Al-Rajhi Bank. (n.d.). Product Disclosure Sheet.
https://www.alrajhibank.com.my/images/page_pdfs/1594283950_Product%20Dislosure
%20Sheet.pdf

2. Al-Rajhi Bank. (n.d.). Al Rajhi Structured Home Financing-i.
https://ringgitplus.com/en/home-loan/Al-Rajhi-Structured-Home-Financing-i.html

3. Al-Rajhi Bank. (n.d.). Home Financing-i.
https://www.alrajhibank.com.my/page/personal/financing/property-financing/home-financi
ng

4. Al-Rajhi Bank. (n.d.). Current Account-i.
https://www.alrajhibank.com.my/page/personal/deposit-accounts/current-account

5. CIMB Bank. (n.d.). Basic Current Account.
https://www.cimb.com.my/en/personal/day-to-day-banking/accounts/current-account/basi
c-current-account.html

6. CIMB Bank. (n.d.). Property Loans.
https://www.cimb.com.my/en/personal/help-support/rates-charges/interest-rates-charges/
fees-charges/property-loans.html

7. CIMB Bank. (n.d.). Property Loan Interest Rates.
https://www.cimb.com.my/en/personal/help-support/rates-charges/interest-rates-charges/
interest-rates/property-loan.html

8. CIMB Bank. (n.d.). Home Loan.
https://www.cimb.com.my/en/personal/day-to-day-banking/financing/property-financing/h
omeloan.html

9. CIMB Bank. (n.d.). CIMB Regular Current Account.
https://ringgitplus.com/en/current-account/CIMB-Regular-Current-Account.html

10. CIMB Bank. (n.d.). Property Loans Fees and Charges.
https://www.cimb.com.my/en/personal/help-support/rates-charges/interest-rates-charges/
fees-charges/property-loans.html

12

APPENDIX
Assignment Discussion (Google Meet)

13

Sources of Funds: Qard Current Account (Al-Rajhi Bank)

Al Rajhi Current Account-i Website

Product Disclosure Sheet
14

Sources of Funds: Current Account (CIMB Bank)

CIMB Basic Current Account Website

Product Disclosure Sheet
15

Uses of Funds: Murabahah Financing (Al-Rajhi Bank)

Product Disclosure Sheet

Al-Rajhi Structured Home Financing-i
16

Uses of Funds: Housing Loan (CIMB Bank)

Home Loan

Property Loan Interest Rate
17