By Habhajan Singh
The strong presence of Islamic finance and the explicit mention of ‘dual banking’ are some of the key changes embedded in the soon-to-be operational Central Bank of Malaysia Act 2009.
An analysis of the new ground rules for Bank Negara Malaysia (BNM), via a copy available at the central bank’s website, shows the strong Islamic finance flavour running through part of the 68-page document, especially in empowering of the Shariah Advisory Council (SAC) which is designated to be the ‘authority for the ascertainment of Islamic law for the purpose of Islamic financial business’.
It now gives the SAC an upper hand over the High Court when it comes to deciding on matters related to Shariah.
The new act, which received the royal assent on Aug 19 and was gazetted on Sept 3, has covered the key bases when it comes to managing Islamic financial institutions, an exciting growth area for Malaysia which today has 17 Islamic banks, two international Islamic banks, eight takaful operators, three retakaful operators, one international takaful operator and four takaful brokers.
"It provides consistency in the application of fatwa across the board. This empowerment is good for the industry," said Affin Islamic Bank Bhd chief executive officer Kamarul Ariffin Mohd Jamil, making specific reference to the SAC, when asked to comment on the new act.
Azrulnizam Abdul Aziz, chief executive Officer and executive director at Standard Chartered Saadiq Bhd, added that the dual banking recognition will ‘further support current legal framework’.
Ernst and Young financial services practices partner Gloria Goh noted that BNM was established under the now-repealed Central Bank of Malaysia Act 1958, to be replaced by the new act.
"This is timely as there has been significant developments in the financial services sector over the past 50 years," she said. Islamic bankers would certainly welcome making SAC the ultimate harbinger on what is Shariah-compliant and what runs foul of the Shariah rules for Islamic banking and takaful products and services.
A High Court judgment by Justice Abdul Wahab Patail in April 2008 had rattled the local Islamic banking fraternity when the court had ruled that widely used Bai Bithaman Ajil (BBA) contracts were contrary to Malaysia’s Islamic banking regulations, putting them on high alert for potential spike in defaults for financing structured around that contract, especially on the home financing front.
On March 31, a three-men bench of the Court of Appeal, chaired by Justice Datuk Md Raus Sharif, had unanimously reversed that decision.
The Court of Appeal judgment brought to closure the much-debated Abdul Wahab’s judgment which probably triggered the central bank into making it mandatory for the courts to refer to the central bank’s SAC when deciding on Shariah matters in Islamic banking and finance cases.
In the past, High Court judges had the option of referring to the SAC for guidance when it was deciding upon Islamic finance matters. But that is no longer the case as the new act has made the Shariah scholar led committee the final arbiter in Shariah matters in view of Section 56.
Entitled ‘Reference to Shariah Advisory Council for ruling from court or arbitrator’, the section states that in ‘any proceedings relating to Islamic financial business before any court or arbitrator any question arises concerning a Shariah matter’, the court or the arbitrator shall take into consideration SAC published rulings or ‘refer such question’ to the SAC ‘for its ruling’.
"While it allows diversity, it sets the grounds rules," added Kamarul Ariffin.
(This story appeared in The Malaysian Reserve on Nov 23, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh) Any source
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