Overview of The Malaysian Dual Banking System

Malaysia is the unique country to implement the dual banking system which called as a full fledged Islamic banking system operating on a parallel basis with a full fledged conventional banking system. Then, not only do the two banking systems work on a parallel basis and they also operate fundamentally the similar set of banking infrastructure.

The Malaysia’s model has taken some advantages while contrasted to the banking systems of other countries. The range of Islamic banking products and services in a dual banking system tend to be wider when compared to the single Islamic system. In this dual banking system, the Islamic banks cannot afford to be self-satisfied because they operate in a competitive and dynamic situation. On the other hand, the financial institutions of single Islamic system model would not have a similar inducement to enlarge the range of the Islamic banking products and services as the possibility of domestic customers shifting away to the conventional system does not rise.

In addition, the products and services of the Islamic banking in the dual system can also be expected to have a higher level of sophistication contrasted to the Islamic banking products of the single Islamic system from perspective of wider range of services. In the international conventional banking system, innovations are necessary over the time so new products announce one stream very regularly. In a dual system of banking, such innovations will rapidly get their way to the domestic conventional banking system. The Islamic bankers operating in the dual system would have no choice but to create alike sophisticated products on an Islamic basis. This will be a continuing process, whereby the level of sophistication in the Islamic banking system will incessantly be upgraded.

Today, Malaysia has been successful in executing a dual banking system and has emerged as the first nation to have a full-fledged Islamic system operating abreast with the conventional banking system. The goal to establish a widespread Islamic banking and finance system has created a lot of effect to the non-bank Islamic financial intermediaries which started to offer Islamic financial products and services. Such institutions include the takaful companies, the savings institutions and the developmental financial institutions.