KUALA LUMPUR, March 25 (Reuters) - A provision under Malaysia’s Islamic Financial Services Act 2013 (IFSA) will prompt Islamic banks to diversify the investment products which they offer to customers, bank executives said.
Islamic banks will have until June next year to segregate Islamic deposits from investment accounts and explain the difference to customers. Deposits guarantee customers their principal, while investment accounts do not.
“The differentiation will allow the institutions to develop a wider range of products, for both classifications, to meet the diverse needs,” the Association of Islamic Banking Institutions Malaysia (AIBIM) said in a statement on Tuesday.
Banks will incur some costs in educating staff and customers on the distinction.
“Call centers and people on the front line must be ready to answer queries,” AIBIM president and Bank Muamalat Malaysia chief executive Redza Shah Abdul Wahid told reporters. AIBIM, which has 24 member banks, has been tasked with overseeing the transition under IFSA.
“At the end of the day, it’s a major exercise undertaken by the industry to be able to transition efficiently,” said AIBIM council member and CIMB Islamic Bank chief executive Badlisyah Abdul Ghani.
A clearer distinction between deposits and investment accounts will allow banks to become more creative in designing the accounts; for example, they may offer more products that use liquid assets such as sukuk, equities and commodities as the underlying investment.
“We will sell this product only to sophisticated investors, not just the man on the street,” said Badlisyah.
IFSA, introduced by the central bank last year, aims to increase protection for depositors by giving regulators more oversight over the formation and promotion of financial products. (Reporting By Al-Zaquan Amer Hamzah; Editing By Andrew Torchia)