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Intengration of Halal Compliance and Islamic Financing : Analysis of Industry in Malaysia
Nathasa Mazna Ramli
,
Nurul Aini Muhamed, Sumaiyah Abd Aziz, Nor Asiah Yaakub
Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia USIM, 71800 Bandar Baru Nilai, Negeri Sembilan
Corresponding author: nathasausim.edu.my
ABSTRACT
Based on Islamic perspectives, the principles of halal products industry and Islamic financing should complement each other. A holistic halal economy should exists, where the governance and supervision of these two industries are not
being separated. In practice, however, the halal product and Islamic finance industries are govern by different entities. The focus of this study is to examine these two industries, focusing o
n the industries’ principles, governance, supervision and development. In addition, this study looks on halal initiative and financing structure of a company
that manufactures halal products. Based on a case study of a company listed on Bursa Malaysia, this study analyses whether the principle of halal compliance and Islamic financing are integrated in the operation of the company. Data of
the study were collected from document reviews that are publicly available. The study provides initial indication on the integration of halal compliance and Islamic financing in company and offers potential research for development of
holistic halal economy.
Keywords
: Halal Compliance, Islamic Financing, Islamic Finance, Halal Economy
1
ICoMS
1. INTRODUCTION
‘Halal’ is an Arabic word meaning lawful or permitted. The antonym term for ‘halal’ is ‘haram’ that refers to
anything that is unlawful or prohibited. Halal and haram are universal terms that apply to all aspects of life.
Under halal industry, the term ‘halal’ is more significant on producing goods and services that can fulfill the
halal requirement. On the other word, this term usually used in relation to goods and services. While many
things are clearly halal or clearly haram, there are some things which are not clear.
Halal industry is a huge industry that involved of several sectors which are food, pharmaceuticals,
services ie. transportation and logistics and, banking and finance. The government of Malaysia has puts its
strong effort to establish Malaysia as a world halal-hub. There are several authority bodies have been given
responsibilities to ensure halal compliance within halal
industry and enhance stakeholders’ confidence. However, there is inconsistency when it comes to the
financial aspect. The halal compliance not only restricted to the narrow perspective of halal ingredients
and production proses only but it should also consider all. On the other word, halal industry should not only
has focusing on production of the goods and services but also the financing. In generally, Islamic finance
means the dealing with “interest-free” in all transactions.
Looking at current situation, there is lack of collaboration between these two industries halal
industry and Islamic financing. Concerns toward this disconnectedness, the industry has to integrate the halal
industry and Islamic finance towards the developing bridging model. On the other word, the sources of
financing from the Islamic banking product and finance industry should be channeled to halal industry. The
Quran clearly stated where Allah has declared war upon for those who are do not shun dealing in interest.
Besides, Quran also clearly condemns al dealings with interest as well as participation in and witnessing such
transaction.
2. DEVELOPMENT OF HALAL INDUSTRY AND ISLAMIC FINANCE
Due toward the increasing of awareness on Halal aspects in foodsservices and, banking and financial
transaction among Muslims in Malaysia noticeably arose in 1960s onward. Besides, halal industry grows
very fast due to high demand from Muslim consumers around the world, affected by courage of religious
concern. Therefore, Malaysia has put full efforts to
develop this industry, both for goods’ and banking and finance sectors. Malaysia aims to become the worldwide
hub for both of the sectors. The establishment of Lembaga Tabung Haji 1964 is
knows as a landmark for halal industry in Malaysia. This institution plays a role in saving institution for the
pilgrimage purpose. It is also as benchmark for Islamic banking and finance in Malaysia and worldwide.
Since then, the government has puts full efforts to push the halal industry, both in banking and consumer goods
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sectors as well. Malaysia undeniably is recognized as among the global leas for Islamic banking and finance
due its growth and comprehensive regulation. This sector started in 1983 with the formation of the first
Islamic bank in Malaysia. From this significant beginning, the sector is expanded to the takaful and
Islamic capital market consist of several financial products such as equity, sukuk and funds. The progress
in the Islamic banking industry is shown by the evidence that it is a second country that has the largest
Islamic banking industry after Saudi Arabia in 2011 Malaysian ICM 2013. The 2012 data shows that
Malaysia’s sukuk outstanding size comprises 68 per cent of the total worldwide size, wherein the capital is
channeled to financing different sectors in the capital market. . In a broader perspective, the halal industry can
be categorized into several sectors, specifically banking and finance, food and beverages, pharmaceutical and
cosmetic products, logistic and tourism see Figure 1.
Figure 1. The selected sectors under the global halal industry
Source: Adapted from Halal Industry Development Corporation 2013
Currently in Malaysia, there is no specific authority body who are conducted or integrated halal industries
with Islamic finance. Specifically, it will assess the
current practices of the authority bodies on ‘halal certified’ or ‘shariah compliance’ through their main
documentation. There are three main bodies which are Jabatan Kemajuan Islam Malaysia JAKIM, Securities
Commision SC and Malaysia Department Standard. Therefore, to make sure that Malaysia applied same
rules of shariah compliance, industry needs one authority body that control all two sector sectors halal
industry and Islamic finance in the same umbrella of industry.
3. HALAL COMPLIANCE
