Tag Archives: bank


6 Feb

by Nurshuhaida Zainal Azahar



Islamic banking (IB) in Malaysia had developed quite fast for the past of more than 20 years, starting with the establishment of Bank Islam in 1983. IB is governed by both Islamic Banking Act 1983(IBA) and Banking and Financial Institution Act 1989(BAFIA). Section 3 of IBA defines Islamic Bank as “any companies which carries on Islamic banking business and hold a valid license; and all the offices and branches in Malaysia of such a bank shall be deemed to be one bank”. Islamic Banking Business is further defined as “banking business whose aims and operations do not involve any element which is not approved by the Religion of Islam”. In addition to this statute, Section 124 of BAFIA allows any licensed institution to carry Islamic Banking Business and Islamic Financial Business.

In my opinion, the progressive development of IB in Malaysia has its advantages and disadvantages. One of the advantages is that IB allows for a wide banking transaction compared to conventional banking. This is supported by the legal definition of “Islamic Banking Business” provided under Section 3 of IBA, “banking business whose aims and operations do not involve any element which is not approved by the Religion of Islam”. Meanwhile, in conventional Banking System, the banking transaction is limited to the definition provided under Section 2 of BAFIA, inter alia receiving deposits, paying and collecting cheques and provision of finance.

On this basis, we can find the concept/ products of Bai’ Bithamin Ajil (deffered sales), Ijarah (leasing), Qard al Hasan (money lending), Mudharabah (dormant partnership) and murabahah (active partnerships), and Istis’na (manufacturing) began to evolve for the past 20 years. However, the development of conventional banking remained static relying heavily on its main business of financing (loan) till now because of the restrictions in BAFIA, example Section 33 (restriction on carrying on of trade) and Section 66 (restriction on investment). Islamic Banking Business to some extent may also include Islamic Insurance (TAKAFUL) without a necessity to form another company to manage it if Bank Negara allows it.

Therefore, I am of the opinion that Islamic Banking had more prospect and profitable than Conventional Banking. This can be seen when many conventional banks had turned to Islamic Banking Business under section 124 of BAFIA. Some of the examples are RHB Islamic Bank and Maybank Islamic Bank. IBB is more profitable owing to the fact that there are wide varieties of banking products yet to be introduced. In addition, majority Muslim population in Malaysia contributes to a good prospect of IBB in future.

Nevertheless Islamic Banking still has its weaknesses. Firstly, there is a conflicting jurisdiction between Civil Courts and Syariah Courts. The issue of Islamic Banking’s jurisdiction had been resolved in the case of BIMB v. Adnan Bin Omar [1994] 3 CLJ 735, by N.H Chan J., where it was held that the case was rightly brought before the Civil Court because List I of Ninth Schedule includes banking being the subject matter where the Parliament can enact laws.

However, in my opinion, Islamic Banking’s cases should be brought before Syariah Court. This is due to the fact that not all Civil Court’s judges (with due respect) are well versed in Islamic transaction, what more in Islamic Jurisprudence in order to interprete the IB’s laws. My opinion might be obsolete based on Adnan’s case but I think that it is the time where High Court may set up an Islamic Division to deal specially with Islamic Banking cases. It would encourage specialization of judges and lawyers in IB as has been done with four other divisions (commercial, civil, criminal and appeal and special powers). This is the least we can do to serve the object of Islamic Banking. What is the point of setting up Islamic Banking if upon disputes; they may be interpreted by non Islamic Principles.

Secondly, Islamic Banking Products to certain extent, especially Bai’ Bithamin Ajil (BBA) is oppressive to the customers. For example in the case of Adnan Omar, the buyer (customer) had entered into BBA contract with BIMB, the purchasing price being RM 265,000 and the selling price was RM 583,000 for a deffered payment to be made in 180 months (15 years). The defendant had defaulted in payment after 2 year the contract was made. It was held in the case that the defendant was required to pay the amount of selling price of RM 583,000 and not entitled to Ibra’ (rebate) for early settlement.

In my opinion, this is unfair. The amount of selling price of RM 583,000 was agreed based on the consideration of the time factor of 15 years. When the defendant defaulted, the value of the house would not reach RM583, 000 just within 2 years, yet the defendant must pay such amount. This is unearned income by the bank. It defeats the object of Islamic transaction as it involves the element of oppression. In Affin Bank v. Zulkifli Bin Abdullah [2006] 1 CLJ 438 Abd Wahab Patail J., fortunately held that the customer was entitled to rebate even though he had defaulted in the payment. This is because the Bank is not entitled to gain such unearned income. The judge also had commented that Islamic Banking is oppressive compared to conventional banking.

In conclusion, Islamic Banking is a relief to the Muslims in this country who longed for Islamic financial aids. IB had come out with many products to serve this purpose. However, the fact that IB cases are decided by Civil Courts by Non Muslim judges or judges who are not well versed in Islamic transaction, raised doubts in the society. Is IB interpreted based on Islamic principles? Another interesting fact is, is BBA Islamic enough? Is the decision in Adnan Omar justifying the Islamic principle that a Muslim is not entitled to an unearned income? Should the Muslims still proceed to BBA knowing the fact that it is oppressive when they are unable to pay the sum within the specified period? Based on these reasons, I am of the opinion that IB must be reviewed frequently so as to ensure Islamic principles, forming the foundation of Islamic Banking is strictly adhered to.