Ismail Shariff - Islamic Banking and Finance Law and Practice in Malaysia

CLJ Publication

Perpustakaan Negara Malaysia Cataloguing-in-Publication Data
Ismail Shariff’s
ISLAMIC BANKING AND FINANCE : THE LAW AND PRACTICE IN
MALAYSIA / ISMAIL SHARIFF’S.
Includes index
ISBN 978-967-457-068-2
1. Banking law (Islamic law)--Malaysia.
2. Finance (Islamic law)--Malaysia
I. Title.
346.595043




Published by
The Malaysian Current Law Journal Sdn Bhd
Unit E1-2, BLK E, Jln Selaman 1
Dataran De Palma, 68000 Ampang,
Selangor Darul Ehsan, Malaysia
[Co No 51143 M]
Tel: 603-42705400 Fax: 603-42705401



2016 © The Malaysian Current Law Journal Sdn Bhd (‘MCLJ’).
All rights reserved. No part of this publication may be reproduced or transmitted in
any material form or by any means, including photocopying and recording, or storing
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permission must also be obtained before any part of this publication is stored in a
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Although every effort has been made to ensure accuracy of this publication,
The Malaysian Current Law Journal accepts no responsibility for errors
or omissions, if any.


Edited by Shah Saharudin
Index by Shah Saharudin
Cover Design by Nurhamimi Mohamad
Typeset by Afrihidayati Asep Hidayat



Printed by
Printmate Sdn Bhd
No. 14 & 16, Jalan Industri P.B.P. 7,
Taman Industri Pusat Bandar Puchong,
47100 Puchong, Selangor Darul Ehsan.

To my late parents Mohamed Shariff Mohamed Abu Bakar
and
Safiyyah Kader Batcha,

my dear wife Datin Haameedha Abdul Wahab
and
family members



Contents



CONTENTS




Foreword i
Preface iii
Abbreviations vii
Table of Cases ix
Table of Legislation xiii
Notes On Definitions of Islamic Terms And
Principles And Their Orthography xxvii

CHAPTER 1
INTRODUCTION
1.1 Genesis of Islamic Banking And Finance 1
1.2 Islam As A Way of Life 2
1.3 Law And Islamic Law 8
1.4 The Sources of Islamic Law 11
1.5 Schools of Jurisprudence In Islam (Madzahib) 29

CHAPTER 2
RIBA AND INTEREST
2.1 Conventional Banking:The Position of Interest 33
2.2 Islamic Banking: The Position of Riba 34
2.3 Riba 37
2.4 How Islamic Banking Differs From Conventional Banking 43

CHAPTER 3
THE LEGISLATIVE CAPACITY OF THE FEDERAL
PARLIAMENT IN MATTERS OF ISLAMIC LAW
3.1 Legislative Powers of The Federation 49
3.2 Legislative Capacity of The Federal Parliament 51
3.3 Distribution of The Legislative Power Between
The Federation And The States 60
3.4 The Position of The Rulers As The Head of Islam
In The States 71
3.5 Malaysia’s Two Systems of Courts 72

Contents



3.6 The Muamalat Division In The High Court 73
3.7 Jurisdiction of The Civil Courts In Islamic Banking
And Takaful Matters 74

CHAPTER 4
ISLAMIC BANKING ACT 1983 AND OTHER LAWS
RELATING TO ISLAMIC BANKING BUSINESS
4.1 Islamic Banking Act 1983 And Islamic Banking
In Malaysia 77
4.2 The Effect of The Islamic Banking Act 1983 And
The Establishment of Islamic Banks On The
Legal System of The Country 78
4.3 The Islamic Banking Act 1983 81
4.4 Islamic Banking Windows 84
4.5 Shariah Advisory Council Under Central Bank
of Malaysia Act 1958 86
4.6 Islamic Banking Caught On 90
4.7 Islamic Banking Act 1983: A Review of The Salient
Provisions 92
4.8 Banking And Financial Institutions Act 1989 133
4.9 Development Financial Institutions Act 2002 137

CHAPTER 5
THE ISLAMIC LAW APPLICABLE TO
ISLAMIC BANKING AND FINANCE IN
MALAYSIA PRIOR TO 2009
5.1 Application of Islamic Law By The Civil Courts
In Malaysia 144
5.2 No Law Reporting System In Shariah Courts 147
5.3 The Law Applicable To Islamic Banking And Finance 148
5.4 Conflicting Shariah Rulings 149
5.5 Central Bank of Malaysia Act 1958 151

CHAPTER 6
ISSUES RELATING TO THE LAW APPLICABLE TO
ISLAMIC BANKING AND FINANCE IN MALAYSIA
6.1 Components of Malaysian Law 155
6.2 Scope of Islamic Law To Be Applied 156

Contents



6.3 Application of Civil Law To Islamic Transactions 158
6.4 Misconception About Islamic Law 160
6.5 Suo-Moto Examination of The Contracts Act,
Sale of Goods Act And Partnership Act 163
6.6 Authoritative Texts 172
6.7 Rules of The Court 174
6.8 Other Civil Laws 188
6.9 Application of Islamic Law (Muamalat Transactions)
Bill 2008 198

CHAPTER 7
CENTRAL BANK OF MALAYSIA ACT 2009
AND ISLAMIC FINANCIAL SERVICES ACT 2013
7.1 The Islamic Law Applicable To Islamic Banking And
Finance Post 2009 201
7.2 Central Bank of Malaysia Act 2009 206
7.3 Islamic Financial Services Act 2013 232
7.4 Landmark Legislation 334

CHAPTER 8
ISLAMIC FINANCING PRODUCTS, TRANSACTIONS
AND DOCUMENTATION
8.1 Bai Bithaman Ajil 337
8.2 Bai’ ‘Inah 338
8.3 Bai’ Mu’ajjal 341
8.4 Bai’ Muzayadah 341
8.5 Bai Salam 341
8.6 Mudarabah 342
8.7 Murabahah 343
8.8 Musawamah 345
8.9 Musharakah 345
8.10 Ijarah 347
8.11 Istisna’ 354
8.12 Hawalah 357
8.13 Hibah 358
8.14 Ibra’ 360
8.15 Kafalah 360

Contents



8.16 Rahn 362
8.17 Tawarruq 362
8.18 Urbun 365
8.19 Wa’d 365
8.20 Wadi’ah 366
8.21 Wakalah 367
8.22 Application of Shariah Principles In
Muamalat Transactions 368
8.23 Islamic Financing: Legal Documentation
Principles 431


CHAPTER 9
RECOVERY ACTIONS AND CASES
9.1 Recovery Actions 445
9.2 Islamic Banking Cases 459



Appendices 577
Glossary 587
Index 593

Foreword i



PRESIDEN PRESIDENT
MAHKAMAH RAYUAN MALAYSIA COURT OF APPEAL MALAYSIA
PUTRAJAYA PUTRAJAYA




FOREWORD


First and foremost, let me congratulate Prof Dato’ Mohamed Ismail Shariff
and the Current Law Journal for authoring and publishing the book “Islamic
Banking and Finance: The Law and Practice in Malaysia”. Bearing in mind that
Islamic Financial Institutions are required to ensure that their operations,
business affairs and activities are fully shariah-compliant, the dissemination
of appropriate Islamic finance literature such as the one under scrutiny is
commendable and deserves to be welcomed and acclaimed.
The book by Prof Mohamed Ismail explains many areas of this emergent
banking system that is both novel and intriguing. It is written in an easy-to-
read-and-understand language and should thus appeal even to the laymen.
Another unique feature of the book is the discussion on the judgments of the
courts pertaining to Islamic banking transactions in this country. The discourse
undertaken is particularly useful to practitioners of Islamic banking and finance,
as it explains and critically examines the basis or rationale for the judgments.

It may be emphasised that the author is eminently qualified to write this book,
given his 45-year standing at the Malaysia Bar, his involvement in Islamic
Banking and Finance and his experience as a director of two Islamic banks.
Prof Mohamed Ismail is also a member of the Shariah Advisory Council of
the Securities Commission Malaysia and has served the Law Harmonisation
Committee of Bank Negara Malaysia.

I trust that the book will prove to be a worthy companion to members of the
banking and finance fraternity as a whole. I am confident too that it will be well
received by the industry as well as the legal profession.

Thank you.






(TAN SRI DATO’ MD RAUS BIN SHARIF)
President
Court of Appeal Malaysia


Istana Kehakiman, Presint 3, 62506 Putrajaya
Tel: 03-8880 3500 Fax: 03-8880 3595

ii Foreword











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