1. GROUP 5 : MARIAH MOHAMED FAUZI
NOR HAMIEZAH AZIEZ
ANIS AMIZA MAZLAN
SITI FATIMAH `ATIQAH SAAD
PREPARED FOR : ASSOC.PROF WAN ASMA’ WAN ABU
BAKAR

2. CONTENTS
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Chapter 3 : LEGAL FRAMEWORK OF
ISLAMIC BANKING

3. Flow oF presentation
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Chapter 3 : LEGAL FRAMEWORK OF
ISLAMIC BANKING

4. ISLAMIC BANKING ACT 1983 (IBA)
DEFINITION OF ISLAMIC BANK
Section 2 of IBA :
‘Islamic Bank’ means any company which carries on Islamic banking
business and holds 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 means ‘ banking business
whose aims and operations do not involve any element
which is not approved by the religion of Islam’.

5. Ambiguities in IBA 1983
Therefore, SAB is needed in Islamic bank to safeguard and
ensure Shariah compliance is strictly observed and seek
the advice of SAC of BNM to monitor Islamic banking
operation.
 NO definition of banking business in IBA.
 NO definition of term “Religion of Islam”
 NO definition of banking business in IBA.
 NO definition of term “Religion of Islam”
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6. SHARIAH ADVISORY BODY
(SAB)
• A statutory requirement for Islamic bank under IBA
1983 must set up the SAB.
• Purpose :
 To ensure business does not contravene the principle of
shariah
 Need to instil confidence in the Muslim public
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Chapter 3 : LEGAL FRAMEWORK OF
ISLAMIC BANKING

7. Cont..
• Provision (Sec 3 (5)- IBA 1983)
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- The aim andoperation of
banking
business willnot involve anyelement whichis not approvedby religion of
Islam
2) - provision for
establishment SAB to
advice the bank on
the operation of its
banking business in
order to ensure that
they do not involve
any element that not
approved by religion
of Islam

8. RELIGIOUS SUPERVISORY CONCIL
(RSC)
Articles of association of BIMB and BMMB:
•Whose member would be may up of muslim religious
scholar in the country, shall be established to advice the
company on the operation of its banking business
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Chapter 3 : LEGAL FRAMEWORK OF
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Member of RSC:
- Must comprise shariah scholars
- minimum 3, maximum 7
- Accepted by minister not exceed 2 year
- each member shall be remunerated for their service and the
remuneration determine by the bank

9. QUIZ
Question: The general definition of Islamic banking
business may have some positive aspect. What do you
think of it?

10. ANSWER
A general definition have very wide definition:
i.It gives as much flexibility and scope as possible to Islamic banks to
enable them to growth,
ii.expand their operation and evolve into viable competitors to
conventional banking.
iii.It would also allowed the adoption and application of different Islamic
commercial laws from a various mazhab thus making it broader and
the resulting proposition of the law more widely acceptable.
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Chapter 3 : LEGAL FRAMEWORK OF
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11. BANKING AND FINANCIAL INSTITUTION
ACT 1989 (BAFIA)
• BAFIA- conventional banking and finance institutions
• BNM realize it was crucial to have a large number of
players (sufficient number of different type
institution)
• BNM allow the existing conventional financial to
offer islamic banking services.
• Interest free banking scheme was launched
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Chapter 3 : LEGAL FRAMEWORK OF
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12. DEFINITION OF BAFIA 1989
• SEC 2 “banking business”
 Receiving deposit on current account,
deposit account, saving account and other
similar account
 Paying or collecting cheque, drawn by or
paid in by customer
 Provision of finance
 such other business
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13. Objective ;
• Provide new law for licensing and regulation of institution carrying
on banking, finance company, merchant bank, discount house and
money broking business
• For regulation of institution carrying on certain other fin businesses
• Matters incidental :
- provide integrated supervision of malaysian fin. System
- Provide CBM with power to speedily investigate
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Chapter 3 : LEGAL FRAMEWORK OF
ISLAMIC BANKING

14. ScOPe OF tHe baFia act
(Sec124)
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ISLAMIC BANKING

15. Licensing
 A licensed finance company is permitted to carry out
the business of:
– Receiving deposit
– Lending of money, leasing, hire purchase act 1967
– Other business
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Chapter 3 : LEGAL FRAMEWORK OF
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16. QUIZ
Question: State 3 different between IBA 1983
and BAFIA 1989

17. Answer :
Element IBA 1983 BAFIA 1989
Field of the act - For Islamic banking only - For conventional financial
institutions to offer Islamic
banking services.
Operation of
banking business
-Not involve in any element
which is not approved by
religion of Islam
- Not restricted to any
business operation
Appointment of
SAC
- Requirement to establish
SAC for financial institution
- No requirement to establish
SAC for financial institution
which carry Islamic banking
business
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Chapter 3 : LEGAL FRAMEWORK OF
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18. ceNtRaL OF baNKiNG
act 2009 (cba)
Development:
Pre 2003 Cases – Attitude Of The Civil Courts
 no any provision under CBMA regarding
operation of IBF
Pre 2009 : The Central Bank Of Malaysia
Act 1958 (Act 509)
Any proceeding relating to IBF, the court or
arbitrator may refer to SAC for its ruling
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ISLAMIC BANKING

19. CBMA 2009 ( ACT 701)
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Chapter 3 : LEGAL FRAMEWORK OF
ISLAMIC BANKING

20. POST 2009 cases
Issue arise:
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21. SHARIAH ADVISORY COUNCIL (SAC)
• Definition (Sec 51)
- SAC on Islamic finance
• Authority of BNM to establish SAC and
clarifies its jurisdiction and functions
(Sec 52(1)
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22. Functions of SAC (BNM 2009)
Sec 52 (1)
• To ascertain Islamic law on any financial
matter and issue a ruling upon reference
make to it in accordance with the relevance
part of the act
• To advice bank on any syariah issue related
to Islamic Financial business, the activities
or transaction of the bank
• To provide advice to any IFI or any other
person as maybe provided under any
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Chapter 3 : LEGAL FRAMEWORK OF
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23. MEMBERS OF SAC
• Qualified in the shariah
• Knowledge or experience in
shariah and in banking, finance,
law
• Appointment made by YDPA
• Advice of MOF, after
consultation with CB
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24. QUIZ
Question: Determine the functions and
duties of SAC

25. Answer:
1.Advice management of Islamic financial institution on
Shariah matter in its business operations
2.To endorse and validate relevant documentation such as
proposal form, contract agreement, brochures and etc
3.Advice and provide assistance to the related parties of the IFI
such as legal council
4.Advice IFI to refer to SAC concerning matter which has not
been resolved
5.To assist SAC by giving explanation and recommendation on
any Shariah matter to ensure SAC decision are properly
implemented by IFI
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Chapter 3 : LEGAL FRAMEWORK OF
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26. BAnking OpERAtiOn OF
iSlAMiC BAnkS
1. Customer’s deposit
• Current account
• Saving account
• General investment account
• Special investment account
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ISLAMIC BANKING

27. 2. Financing
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28. Issues In Islamic Banking

29. • Governor of central bank said that this legislation will help
Bank Negara better regulate the industry
• The legal regulatory and supervisory framework will need to
be adjusted to accord greater clarity to the appropriate legal
and regulatory treatment.
• The new framework will streamline the legal requirement
across the Islamic finance industry, where there is current
lack of clarity that potentially hinders its growth ambitions.
• (The star online, Dec 20, 2012 , : New Malaysian law for Islamic banking
and takaful products )
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30. • Tan Sri Zeti Akhtar Aziz, said new legal framework would not only
streamline the legal requirement across sector built would ensure
that the law was reflective of the nature and features of shariah
contract.
• The greater clarity on legal and prudential requirements under
pinned by Shariah principles will enables participants of the Islamic
financial system to align to their practices and expectation
accordingly when undertaking Islamic financial business and
transaction.
( The Star Online, Dec 6, 2012 : Legal Framework For Islamic Banking,
Takaful Being Enacted )
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31. • The Islamic Banking Act had paved the way for the nation to develop IBF industry
• Malaysia has received much recognition from the global banking and finance.
• Among the achievement has achieved in the last three decades in term of:
1. Growth in Islamic bank and financial institutions assets.
2. Increase market share of products and services in banking and financial system
3. Formulation of legal framework and various standards
4. Development of infrastructure and institutional capacity
5. Education and training facilities
• On the International IBF front , Malaysia also dominate the global market for
sukuk.
( The Star Online, March 12,2013 : Islamic Banking Shine )
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32. CONCLUSION
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33. • THANK YOU
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ISLAMIC BANKING
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