Legal Obstacles Facing Islamic Banking in Malaysia
Legal Obstacles Facing Islamic Banking in Malaysia
Legal Obstacles Facing Islamic Banking in Malaysia
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sitt<strong>in</strong>g <strong>in</strong> the shari’ah Advisory Boards of the <strong>Islamic</strong> banks? For susta<strong>in</strong>able of<strong>Islamic</strong> bank<strong>in</strong>g this needs to be clarified too.(4) Documentation obstacle: Sophisticates and unambiguous contracts which reflectsthe <strong>in</strong>tention of the parties is vital for any transaction which <strong>in</strong>volves cumbersomeprocedures. In <strong>Islamic</strong> bank<strong>in</strong>g the content and the sequence of <strong>Islamic</strong> bank<strong>in</strong>gdocuments is also important. In <strong>Malaysia</strong>, <strong>Islamic</strong> bank<strong>in</strong>g documents need to bevalid under the <strong>Malaysia</strong>n law and also the <strong>Islamic</strong> law. Hence, the burden on thedrafter is very high. The documentation obstacle fac<strong>in</strong>g <strong>Islamic</strong> bank<strong>in</strong>g <strong>in</strong> <strong>Malaysia</strong>is evident from the case law. For example, <strong>in</strong> the case of Malayan <strong>Bank<strong>in</strong>g</strong> Bhd vMarilyn Ho Siok L<strong>in</strong> (2006), the <strong>Islamic</strong> bank<strong>in</strong>g documents presented to the court toprove the case lacks coherence and substance which ought to be <strong>in</strong> it from shari’ahperspective. The behaviour and the nature of the product advanced to the customerare not mentioned <strong>in</strong> the document and it would be impossible for a person tounderstand the nature of BBA facility which was given to Marilyn (client) by read<strong>in</strong>gthe documents. Hence, the drafter has failed <strong>in</strong> achiev<strong>in</strong>g the objective of draft<strong>in</strong>gthe document as the <strong>in</strong>tention of the parties is not reflected <strong>in</strong> the documents.(5) Money launder<strong>in</strong>g obstacle: Money launder<strong>in</strong>g is the biggest challenge faced to anybank<strong>in</strong>g <strong>in</strong>stitution. People perceive that <strong>Islamic</strong> banks are prone to moneylaunder<strong>in</strong>g. For example, recent statement by the sections of the AmericanGovernment implies that all <strong>Islamic</strong> banks <strong>in</strong> <strong>Islamic</strong> countries are poorly regulatedaga<strong>in</strong>st money launder<strong>in</strong>g (Yas<strong>in</strong>, 2010). But this is not true <strong>in</strong> <strong>Malaysia</strong> as there arestrict laws made to curb money launder<strong>in</strong>g where death sentence is the highestpunishment which could be given to the crime under Anti-Money Launder<strong>in</strong>g andAnti-Terrorism F<strong>in</strong>ancial Act 2001 (“AMLATFA”), which is also applicable to <strong>Islamic</strong>bank<strong>in</strong>g Institutions. But the challenge here is that <strong>Islamic</strong> banks still need todevelop <strong>in</strong>ternal procedures to fight aga<strong>in</strong>st this crime. Unlike <strong>in</strong> the conventionalbanks, <strong>in</strong> <strong>Islamic</strong> banks the methods utilized by crim<strong>in</strong>als would be different and itmight be hard to detect these crim<strong>in</strong>als without cont<strong>in</strong>uous effort of the officers ofthe Bank and develop<strong>in</strong>g a sophisticated fraud screen<strong>in</strong>g method. Hence, there is avital and imm<strong>in</strong>ent need to always try on cont<strong>in</strong>uous develop of sophisticated<strong>in</strong>ternal procedures <strong>in</strong> <strong>Islamic</strong> banks of <strong>Malaysia</strong> to vigilantly fight aga<strong>in</strong>st this crimewhich changes it tactics at a bl<strong>in</strong>k of an eye.5. Summary and ConclusionsIt is evident from the research that there are legal obstacles fac<strong>in</strong>g <strong>Islamic</strong> bank<strong>in</strong>g <strong>in</strong><strong>Malaysia</strong> and it is imperative to curb these obstacles for the susta<strong>in</strong>able development of<strong>Islamic</strong> bank<strong>in</strong>g <strong>in</strong> <strong>Malaysia</strong>. Further research needs to be carried out on the specific legalobstacles identified here, to f<strong>in</strong>d the adequate and practical ways to curb them. It is hopedthat this research would contribute to susta<strong>in</strong> <strong>Islamic</strong> bank<strong>in</strong>g <strong>in</strong> <strong>Malaysia</strong>.