Islamic Banking 1

LAWS OF MALAYSIA
Reprint

Act 276

islamic banking act 1983

Incorporating all amendments up to 1 October 2008

Published by
The Commissioner of Law revision, Malaysia
Under the Authority of the Revision of Laws Act 1968
2008
2 Laws of Malaysia Act 276

ISLAMIC BANKING ACT 1983

Date of Royal Assent ... ... ... … … … 9 March 1983

Date of publication in the Gazette … ... 10 March 1983

Previous Reprints

First Reprint ... ... ... ... ... 2001

Second Reprint … … … … … 2006

 Islamic Banking 3
LAWS OF MALAYSIA

Act 276

ISLAMIC BANKING ACT 1983

ARRANGEMENT OF SECTIONS

Part I

PRELIMINARY

Section
1. Short title and application
2. Interpretation

Part II

LICENSING OF ISLAMIC BANKS

3. Islamic banking business to be transacted only by a licensed Islamic

bank
4. Minister may vary or revoke condition of licence
5. Licence not to be granted in certain cases
6. (Deleted)
7. Opening of new branches
8. Islamic bank may establish correspondent banking relationship with bank
outside Malaysia
9. Licence fee
10. Restriction of the use of certain words in an Islamic bank’s name
11. Revocation of licence
12. Effect of revocation of licence
13. Publication of list of Islamic banks
13a. Advice of Syariah Advisory Council
4 Laws of Malaysia Act 276
Part III

FINANCIAL REQUIREMENTS AND DUTIES OF

ISLAMIC BANKS

Section
14. Maintenance of capital funds
15. Maintenance of reserve funds
16. Percentage of liquid assets
17. Auditor and auditor’s report
18. Audited balance sheet
19. Statistics to be furnished
20. Information on foreign branches

Part IV

OWNERSHIP, CONTROL AND MANAGEMENT OF

ISLAMIC BANKS

21. Information on change in control of Islamic banks

22. Sanction for reconstruction, etc., of bank required
23. Disqualification of directors and employees of banks

Part V

RESTRICTIONS ON BUSINESS

24. Restrictions on payment of dividends and grant of advances and loans

25. Prohibition of loans, etc., to directors, officers and employees
26. Restriction on grant of loan, advance or credit facility under subsection
25(4)
27. Restriction of credit to single customer
27a. Control of credit limits
28. Disclosure of interests by directors
29. Limitation on credit facility for purpose of financing the purchase or
holding of shares
30. Proof of compliance with sections 24, 25, 26, 27 and 29
 Islamic Banking 5
Part Va

INTERNATIONAL ISLAMIC BANKING BUSINESS

Section
30a. Prohibition to carry on international Islamic banking business
30b. Application for a licence to carry on international Islamic banking
business by persons other than a licensed Islamic bank
30c. Minister may vary or revoke condition of licence granted under this
Part
30d. Licence under this Part not to be granted in certain cases
30e. Application of the provisions of this Act to international Islamic
bank

Part VI

POWERS OF SUPERVISION AND CONTROL OVER

ISLAMIC BANKS

31. Investigation of banks

32. Special investigation of banks
33. Production of bank’s books and documents
34. Banking secrecy
35. Action to be taken if advances are against interests of depositors
36. Banks unable to meet obligations to inform Central Bank
37. Action by Central Bank if bank unable to meet obligations or conducting
business to the detriment of depositors
38. Effect of removal of office of director or appointment of a director of
a bank by the Central Bank
39. Control of Islamic bank by Central Bank
40. Islamic bank under control of Central Bank to cooperate with Central
Bank
41. Extension of jurisdiction to subsidiaries of banks
42. Moratorium
43. Amendment of bank’s constitution

Part VII

MISCELLANEOUS

44. Indemnity
6 Laws of Malaysia Act 276
Section

45. Priority of Islamic deposits

46. Penalties on directors and managers
47. Offences by directors, employees and agents
48. Offences by companies, etc., and by servants and agents
49. Prohibition on receipt of commission by staff
50. General penalty
51. Power of Governor to compound
52. Consent of the Public Prosecutor
53. Regulations
53a. Power to issue guidelines, etc.
54. Bank holidays
55. Application of other laws
56. Exemption

Part VIII

CONSEQUENTIAL AMENDMENTS

57. Amendment of Banking Act 1973

58. Amendment of Companies Act 1965
59. Amendment of Central Bank of Malaysia Ordinance 1958
60. Amendment of Finance Companies Act 1969
 Islamic Banking 7
LAWS OF MALAYSIA

Act 276

ISLAMIC BANKING ACT 1983

An Act to provide for the licensing and regulation of Islamic

banking business.

[7 April 1983, P.U. (B) 182/1983]

BE IT ENACTED by the Seri Paduka Baginda Yang di-Pertuan

Agong with the advice and consent of the Dewan Negara and
Dewan Rakyat in Parliament assembled, and by the authority of
the same, as follows:

Part I

PRELIMINARY

Short title and application

1.  (1) This Act may be cited as the Islamic Banking Act 1983.

(2) This Act shall apply throughout Malaysia.

Interpretation

2.  In this Act, unless the context otherwise requires—

“branch” in relation to an Islamic bank includes a mobile

branch of the bank and a branch established and maintained for
a limited period only;

“Central Bank” means the Central Bank of Malaysia established

by the Central Bank of Malaysia Act 1958 [Act 519];
8 Laws of Malaysia Act 276

“company” has the meaning assigned to it by the Companies

Act 1965 [Act 125];

“corporation” has the meaning assigned to it by the Companies

Act 1965;

“depositor” means a person who has an account at an Islamic

bank, whether the account is a current account, a savings account,
an investment account or any other deposit account;

“foreign company” has the meaning assigned to it by the

Companies Act 1965;

“foreign institution” means a foreign company which carries

on business outside Malaysia which is similar to the Islamic
banking business as provided under this Act or the business of
any institution licensed under subsection 6(4) of the Banking and
Financial Institutions Act 1989 [Act 372];

“international Islamic bank” means any company or an office

of any foreign institution which carries on international Islamic
banking business and holds a valid licence under section 30b;

“international Islamic banking business” means Islamic banking

business in currencies other than ringgit or such other Islamic
banking business as the Central Bank may specify;

“Islamic bank” means any company which carries on Islamic

banking business and holds a valid licence; 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;

“Islamic deposit” means a sum of money or monies worth

received by or paid to any person, under which the receipt and
repayment shall be in accordance with the terms of an agreement
made under any Syariah principle on any basis including custody
or profit sharing;

“licence” means a licence granted under section 3;

 Islamic Banking 9
“office” includes the principal place of business, a branch, an
agency, a mobile place of business, a place of business set up
and maintained for a limited period only, an electronic terminal
and any other place of business;

“public company” has the meaning assigned to it by the

Companies Act 1965;

“share” means share in the share capital of a corporation and

includes stock, except where a distinction between stock and
share is expressed or implied;

“subsidiary” has the meaning assigned to it under section 5 of

the Companies Act 1965.

Part II

LICENSING OF ISLAMIC BANKS

Islamic banking business to be transacted only by a licensed

Islamic bank

3.  (1) Islamic banking business shall not be transacted in Malaysia

except by a company which is in the possession of a licence in
writing from the Minister authorizing it to do so.

(2) A company which desires authority to carry on Islamic

banking business in Malaysia shall apply in writing through the
Central Bank to the Minister for a licence under this section and
shall supply—
(a) a copy of the memorandum of association and articles of
association or other instrument under which the company
is incorporated, duly verified by a statutory declaration
made by a senior officer of the company; and
(b) such other document or information as may be called
upon by the Minister.

(3)  Upon receiving an application under subsection (2) the

Central Bank shall consider the application and make a
recommendation to the Minister stating whether a licence should
be granted or not and the conditions, if any, to be attached to
the licence.
10 Laws of Malaysia Act 276

(4)  Upon receiving an application under subsection (2) and

the recommendation of the Central Bank under subsection (3),
the Minister may, subject to section 4, grant a licence, with or
without conditions, or refuse a licence.

(5)  The Central Bank shall not recommend the grant of a licence,
and the Minister shall not grant a licence, unless the Central Bank
or the Minister, as the case may be, is satisfied—
(a) that the aims and operations of the banking business which
it is desired to carry on will not involve any element
which is not approved by the Religion of Islam; and
(b) that there is, in the articles of association of the bank
concerned, provision for the establishment of a Syariah
advisory body as may be approved by the Central Bank to
advise the bank on the operations of its banking business
in order to ensure that they do not involve any element
which is not approved by the Religion of Islam.

(5a)  Any Islamic bank licensed under this section shall be

deemed to be a member institution under the Malaysia Deposit
Insurance Corporation Act 2005 [Act 642].

(6)  Any person who contravenes the provisions of this section

shall be guilty of an offence and shall, on conviction, be liable to
a fine not exceeding twenty thousand ringgit or to imprisonment
for a term not exceeding three years or to both.

Minister may vary or revoke condition of licence

4.  (1) The Minister may at any time, on the recommendation

of the Central Bank, vary or revoke any existing condition of a
licence or impose conditions or additional conditions.

(2)  The Minister shall, prior to any action under subsection

(1), notify his intention in writing to take such action to the
Islamic bank concerned and shall give the bank an opportunity
to submit within such period, being not less than fourteen days,
as may be specified in the notification reasons why the condition
of the licence should not be varied or revoked or conditions or
additional conditions should not be imposed.
 Islamic Banking 11
(3)  Where a licence is subject to conditions, the Islamic bank
shall comply with those conditions.

(4)  Any Islamic bank which fails to comply with any condition
of its licence shall be guilty of an offence and shall, on conviction,
be liable to a fine not exceeding twenty thousand ringgit.

Licence not to be granted in certain cases

5.  (1) No company shall be granted a licence under section 3

nor shall any company licensed thereunder carry on business
in Malaysia without the written consent of the Minister if its
capital funds unimpaired by losses or otherwise is less than the
minimum amount.

(2)  For the purposes of this section—

“capital funds” means paid-up capital and reserves and any

other sources of capital as may be defined and computed in such
manner as may be prescribed by notice in writing from time to
time by the Central Bank;

“minimum amount” means such amount of capital funds to

be maintained by an Islamic bank as may be prescribed by the
Minister on the recommendation of the Central Bank by notification
in the Gazette.

(3)  The prescription of the minimum amount to be maintained

under subsection (2) shall be complied with within such uniform
period of grace being not less than three months as may be
specified in the notification.

6.  (Deleted by Act A1214).

Opening of new branches

7. Except with the consent in writing of the Central Bank, no

Islamic bank may open a new branch, agency or office in any
part of Malaysia or outside Malaysia.
12 Laws of Malaysia Act 276

Islamic bank may establish correspondent banking relationship

with bank outside Malaysia

8.  (1) Subject to subsection (2), every Islamic bank may establish

a correspondent banking relationship with any bank outside
Malaysia.

(2)  The Central Bank may prescribe by notice in writing that

no Islamic bank shall, except with the approval of the Minister on
the recommendation of the Central Bank, establish a correspondent
banking relationship with any bank established in any of the
countries specified in the notification or with any bank owned
or controlled by the government or an agency of the government
of any such country.

Licence fee

9. Every Islamic bank shall pay to the Central Bank such annual
licence fee as the Minister, on the recommendation of the Central
Bank, may by notification in the Gazette prescribe.

Restriction of the use of certain words in an Islamic bank’s

name

10. Except with the consent in writing of the Minister no Islamic

bank shall be licensed by a name which includes any of the words
“Central”, “Commonwealth”, “Federal”, “Federation”, “Malaysia”,
“Malaysian”, “National”, “Reserve” or “State” either in the national
language or in English or in any other language.

Revocation of licence

11.  (1) Subject to subsection (2), if any Islamic bank—

(a) is pursuing aims, or carrying on operations, involving
any element which is not approved by the Religion of
Islam;
(b) is carrying on its business in a manner detrimental to the
interests of its depositors and other creditors;
(c) has insufficient assets to cover its liabilities to the
public;
 Islamic Banking 13
(d) is contravening any provision of this Act;
(e) has ceased to carry on banking business in Malaysia; or
(f) has ceased to be a member institution under the Malaysia
Deposit Insurance Corporation Act 2005,

the Minister may, on the recommendation of the Central Bank,

revoke any licence issued to such bank.

(2)  The Minister shall, prior to any such revocation, notify his
intention to take such action to the Islamic bank concerned and
shall give the bank an opportunity to submit within such period,
being not less than twenty-one days, as may be specified in the
notification reasons why the licence should not be revoked.

(3)  Where the licence of an Islamic bank has been revoked

under subsection (1), the bank may within thirty days of the
revocation appeal against the revocation to the High Court, which
may make such order thereon as it thinks proper, including any
direction as to the costs of the appeal.

(4)  The Central Bank shall be entitled to be heard on any

such appeal.

(5)  The making of an appeal under this section shall in no

way affect the exercise of the powers and duties of the Central
Bank under sections 37, 39 and 40.

Effect of revocation of licence

12.  (1) Where an order of revocation becomes effective under

section 11—
(a) notice of the revocation shall be published in the Gazette;
and
(b) the Islamic bank shall as from the date of the notice cease
to transact any banking business in Malaysia except as
may be approved by the Minister on the recommendation
of the Central Bank for the purposes of winding up of
its banking business.

(2)  The provisions of paragraph (1)(b) shall not prejudice the

enforcement by any person of any right or claim against the bank
or by the bank of any right or claim against any person.
14 Laws of Malaysia Act 276

Publication of list of Islamic banks

13. The Central Bank shall cause to be published in the Gazette

in each year a list of all Islamic banks to which licences have
been issued under this Act, and if any licence is issued, revoked
or surrendered during the interval between the publication of two
such lists, notice thereof shall also be caused to be published in
the Gazette.

Advice of Syariah Advisory Council

13a.  (1) An Islamic bank may seek the advice of the Syariah
Advisory Council on Syariah matters relating to its banking
business and the Islamic bank shall comply with the advice of
the Syariah Advisory Council.

(2)  In this section, “Syariah Advisory Council” means the

Syariah Advisory Council established under subsection 16b(1)
of the Central Bank of Malaysia Act 1958.

Part III

FINANCIAL REQUIREMENTS AND DUTIES OF ISLAMIC

BANKS

Maintenance of capital funds

14.  (1) The Central Bank may require an Islamic bank to maintain

capital funds, unimpaired by losses or otherwise, in such proportion
to such assets of its branches and offices both in Malaysia and
outside Malaysia or only of its branches and offices in Malaysia
as may be prescribed from time to time by the Central Bank by
notice in writing.

(2)  “Capital funds” in subsection (1) shall have the meaning

assigned to that expression in subsection 5(2) but with such
modifications as may be specified from time to time for the
purposes of subsection (1) by the Central Bank by notice in
writing.
 Islamic Banking 15
Maintenance of reserve funds

15.  (1) Every Islamic bank—

(a) shall maintain a reserve fund; and
(b) before any dividend is declared shall transfer to the
reserve fund out of the net profits of each year, after
due provision has been made for zakat or taxation—
(i) so long as the amount of the reserve fund is less
than fifty per centum of the paid-up capital, a sum
equal to not less than fifty per centum of the net
profits;
(ii) so long as the amount of the reserve fund is fifty
per centum but less than one hundred per centum
of the paid-up capital, a sum equal to not less than
twenty-five per centum of the net profits.

(2)  If the Central Bank is satisfied that the aggregate reserve

fund of an Islamic bank is adequate for its business, it may by
order in writing exempt the bank from the provisions of subsection
(1) for a period of one year.

Percentage of liquid assets

16.  (1) The Central Bank may from time to time prescribe by

notice in writing to each Islamic bank a minimum amount or
amounts of liquid assets to be held by the bank at all times.

(2)  The minimum amount or amounts of the assets so prescribed

to be held shall be expressed in the form of a percentage which
such assets shall bear to the Islamic deposit of each Islamic
bank.

(3)  Whenever the Central Bank issues a notice under subsection

(1) each Islamic bank shall be allowed such uniform period of
grace, being not less than one week, as may be specified in that
notice in which to comply with the provisions thereof.

(4)  An Islamic bank shall not, during any period in which it

has failed to comply with any notice under subsection (1),without
the approval of the Central Bank, lend or advance any money to
any person.
16 Laws of Malaysia Act 276

(5)  For the purpose of computing the minimum amount or

amounts of liquid assets under this section and the Islamic deposit
of an Islamic bank carrying on business in Malaysia and elsewhere
and such other liabilities of such bank as may be determined
by the Central Bank, the offices and branches of such bank in
Malaysia shall be deemed to constitute a separate bank carrying
on business in Malaysia.

(6)  For the purposes of this section liquid assets shall be—
(a) notes and coin which are legal tender in Malaysia;
(b) balances at the Central Bank, not including the reserve
specified in paragraph 37(1)(d) of the Central Bank of
Malaysia Act 1958;
(c) investment certificates issued under the *Government
Funding Act 1983 [Act 275]; and
(d) such other assets as may be approved by the Minister on
the recommendation of the Central Bank.

(7)  The Central Bank may by notice in writing require each

Islamic bank to render such return or returns as the Central Bank
deems necessary for the implementation of this section.

(8)  Any Islamic bank which fails to comply with any of the
provisions of this section shall be liable to pay, on being called
upon to do so by the Central Bank, a penalty of not more than
one-tenth of one per centum of the amount of the deficiency for
every day during which the deficiency continues.

(9)  Any Islamic bank which fails or refuses to pay a penalty

under subsection (8) shall be guilty of an offence under this
Act.

Auditor and auditor’s report

17.  (1) Notwithstanding the provisions of the Companies Act 1965,

every Islamic bank shall appoint annually an auditor approved
by the Minister.

*Note—Previously known as the Government Investment Act 1983. Change in short title vide
section 3 of the Government Investment (Amendment) Act 2005 [Act A1242] w.e.f. 17 June
2005.
 Islamic Banking 17
(2)  The Minister on the recommendation of the Central Bank
may appoint an auditor—
(a) if the Islamic bank fails to appoint an auditor; or
(b) if he considers it desirable that another auditor should
act with the auditor appointed under subsection (1),

and may fix the remuneration to be paid by the Islamic bank to

that auditor.

(3)  The duties of the auditor appointed under subsections (1)

and (2) for an Islamic bank shall be—
(a) to carry out for the year in respect of which he is appointed
an audit of the accounts of the bank; and
(b) to make a report in accordance with section 174 of the
Companies Act 1965 upon the annual balance sheet and
profit and loss account of the bank.

(4)  The report of the auditor referred to in paragraph (3)

(b) shall be laid together with the report of the directors of the
Islamic bank at the annual general meeting of the bank; and a
statutory declaration made by a senior officer of the bank to the
effect that the report was so laid shall accompany the documents
forwarded under paragraph 18(1)(c).

(5)  No person having an interest in an Islamic bank otherwise

than as a shareholder, and no director or officer of that bank, shall
be eligible for appointment as an auditor for that bank; and any
person appointed as auditor to an Islamic bank who after such
appointment acquires such interest or becomes a director or an
officer of that bank shall forthwith cease to be the auditor.

(6)  The duties, powers and liabilities imposed and conferred by

section 33 in relation to an investigation by the Central Bank of
the affairs of an Islamic bank under section 31 or 32 are hereby
imposed and conferred in relation to auditors appointed under
this section.

(7)  Any Islamic bank which fails to comply with the requirements
of subsection (4) shall be guilty of an offence and shall, on
conviction, be liable to a fine not exceeding twenty thousand
ringgit.
18 Laws of Malaysia Act 276

Audited balance sheet

18.  (1) Every Islamic bank shall—

(a) exhibit in a conspicuous position in every office or place
of business in Malaysia—
(i) a copy each of its latest audited annual balance
sheet, profit and loss account, together with any
note thereon, and the report of the auditor;
(ii) the full names of all its directors; and
(iii) the names of all subsidiaries for the time being of
the bank;
(b) within fourteen days of the laying of its accounts at its
annual general meeting publish in at least two daily
newspapers published in Malaysia and approved by the
Central Bank a copy each of its latest audited annual
balance sheet, profit and loss account, together with any
note thereon, and the report of the auditor; and
(c) within six months after the close of each financial year
or such further period as the Central Bank may approve,
forward to the Central Bank—
(i) two copies each of its latest audited annual balance
sheet, profit and loss account, together with any
note thereon, and the reports of the auditor and
the directors;
(ii) in the case of an Islamic bank with branches outside
Malaysia, two copies each of its latest audited
annual balance sheet and profit and loss account
in respect of its operations in Malaysia, and two
copies each of its latest audited annual balance
sheet and profit and loss account in respect of its
operations in each country outside Malaysia.

(2)  The form and content of the balance sheet and profit and
loss account shall, together with the report of the directors, be
as approved by the Central Bank.

(3)  The Central Bank may require any Islamic bank to submit
such further or additional information as it may deem necessary
either by way of explanation, amplification or otherwise with regard
 Islamic Banking 19
to the balance sheets and profit and loss accounts forwarded by
that bank under paragraph (1)(c) and that information shall be
submitted within such period and in such manner as the Central
Bank may require.

(4)  Any Islamic bank which fails to comply with the provisions
of this section shall be guilty of an offence and shall, on conviction,
be liable to a fine not exceeding twenty thousand ringgit.

Statistics to be furnished

19.  (1) Every Islamic bank shall send to the Central Bank in

such form as may be prescribed by the Central Bank—
(a) a statement showing the liabilities and assets of its
banking offices and branches in Malaysia at the close of
business on the last business day of each month within
such period as may be prescribed by notice in writing
from time to time by the Central Bank;
(b) a statement giving an analysis of loans, advances and
investment of its banking offices and branches in Malaysia
as at such intervals and within such period as may be
prescribed by notice from time to time by the Central
Bank;
(c) not later than six months after the close of its financial
year, a statement showing the income and expenditure
in respect of its business in Malaysia;
(d) notwithstanding the provisions of subsection 34(3),
a statement showing such credit information of its
customers as is required for the purposes of the credit
bureau established under paragraph 30(1)(mmm) of the
Central Bank of Malaysia Act 1958 at such intervals
and within such period as may be prescribed by notice
in writing from time to time by the Central Bank;
(da) (Deleted by Act A1145)
(e) any such statistical information as may be requested by
the Central Bank.

(2)  Except for the purposes of paragraph (d), any information

received from a bank under this section shall be regarded as
secret between that bank and the Central Bank.
20 Laws of Malaysia Act 276

(3)  Any Islamic bank which fails to comply with any requirement
set out in subsection (1) shall be guilty of an offence and shall,
on conviction, be liable to a fine not exceeding four thousand
ringgit for every day during which the default continues.

(4) It shall be the responsibility of the Central Bank to prepare

and publish consolidated statements aggregating the figures in
the returns furnished under paragraphs (1)(a) and (b).

Information on foreign branches

20. An Islamic bank which operates branch offices or agencies

outside Malaysia shall furnish to the Central Bank any information
relating to the operations of such offices or agencies as may be
requested by the Central Bank.

Part IV

OWNERSHIP, CONTROL AND MANAGEMENT OF

ISLAMIC BANKS

Information on change in control of Islamic banks

21.  (1) Whenever a change is about to occur in the control of

any Islamic bank, the bank shall report the proposed change to
the Central Bank.

(2)  Whenever a loan or advance is made by any Islamic bank

secured in the aggregate by twenty per centum or more of the
paid-up capital shares of any other Islamic bank or of any licensed
bank under the *Banking and Financial Institutions Act 1989
[Act 372] incorporated in Malaysia or of any finance company
licensed under the **Banking and Financial Institutions Act 1989,
the Islamic bank shall report the fact to the Central Bank.

*Note—Previously, Banking Act 1973 [Act 102]. The Banking and Financial Institutions Act 1989
[Act 372] has replaced the Banking Act 1973 w.e.f. 1 October 1989 except for scheduled institutions
and w.e.f. 1 January 1990 for scheduled institutions–see subsection 128(1) of Act 372 and
P.U. (B) 490/1980.
**Note—Previously, Finance Companies Act 1969 [Act 6]. The Banking and Financial Institutions Act
1989 [Act 372] has replaced the Finance Companies Act 1969 w.e.f. 1 October 1989 except for scheduled
institutions and w.e.f. 1 January 1990 for scheduled institutions–see subsection 128(1) of Act 372 and
P.U. (B) 490/1980.
 Islamic Banking 21
(3)  The reports required to be made under subsection (2) shall
contain the following—
(i) the names and addresses of the borrowers;
(ii) the name of the Islamic bank, the licensed bank,
or finance company issuing the shares by which
the loan or advance is secured;
(iii) the number of shares by which the loan or advance
is secured; and
(iv) the amount of the loan or advance.

(4)  The reports under subsections (1) and (2) shall be in

addition to any report which may be required pursuant to the
provisions of any other written law.

(5)  For the purposes of this section, the expression “control”

in relation to an Islamic bank means the possession directly or
indirectly of the power to direct or cause the direction of the
management and policy of the bank.

(6)  Any Islamic bank which fails to comply with the provisions of
subsection (1) or (2) shall be guilty of an offence and shall, on conviction,
be liable to a fine not exceeding twenty thousand ringgit.

Sanction for reconstruction, etc., of bank required

22.  (1) Every Islamic bank shall obtain the approval of the

Minister of any proposed—
(a) arrangement or agreement—
(i) for the sale or disposal of its shares or business;
or
(ii) affecting voting power, management or other
matters,

which will result in a change in the control or management

of the bank; and

(b) scheme—
(i) for reconstruction of the bank; or
22 Laws of Malaysia Act 276

(ii) for amalgamation, merger or otherwise between the

bank and any other corporation,

wherein the whole or any part of the undertaking or

the property of the bank is to be transferred to another
corporation.

(2)  The Minister, on the recommendation of the Central

Bank, may approve or refuse to allow the proposed arrangement,
agreement or scheme, but the approval of the Minister shall not
be unreasonably withheld.

(3)  Subsection (1) shall not apply to any arrangement, agreement

or scheme to be carried out by any Islamic bank under the
Malaysia Deposit Insurance Corporation Act 2005.

Disqualification of directors and employees of banks

23.  (1) Without prejudice to anything contained in the Companies

Act 1965, any person who is a director, manager, secretary or
other officer concerned in the management of an Islamic bank
shall cease to hold office—
(a) if he becomes a bankrupt, suspends payment or compounds
with his creditors; or
(b) if he is convicted of an offence involving dishonesty or
fraud.

(2)  No person who has been a director of, or directly concerned

in the management of, an Islamic bank or a licensed bank under
the *Banking and Financial Institutions Act 1989 which has been
wound up by a court shall, without the express authority of the
Minister, act or continue to act as a director of, or be directly
concerned in the management of, any Islamic bank.

(3)  Any person who acts in contravention of subsection (1)

or (2) shall be guilty of an offence and shall, on conviction,
be liable to a fine not exceeding twenty thousand ringgit or to
imprisonment for a term not exceeding three years or to both.
*Note—This Act has replaced the Banking Act 1973 [Act 102] w.e.f. 1 October 1989 except for
scheduled institutions and w.e.f. 1 January 1990 for scheduled institutions–see subsection 128(1)
of Act 372 and P.U. (B) 490/1980.
 Islamic Banking 23
Part V

RESTRICTIONS ON BUSINESS

Restrictions on payment of dividends and grant of advances

and loans

24.  (1) No Islamic bank shall—

(a) pay any dividend on its shares until all its capitalized
expenditure (including preliminary expenses, organization
expenses, share-selling commission, brokerage, amounts
of losses incurred and any other item of expenditure
not represented by tangible assets) has been completely
written off;
(b) grant an advance, loan or credit facility against the security
of its own shares; or
(c) grant unsecured advances, unsecured loans or unsecured
credit facilities in excess of, in the aggregate and
outstanding at any one time, ten thousand ringgit to any
corporation which is deemed to be related to the bank
as described in section 6 of the Companies Act 1965,
other than an Islamic bank, a licensed bank under the
*Banking and Financial Institutions Act 1989, a finance
company licensed under the **Banking and Financial
Institutions Act 1989, or any other financial institution
approved by the Central Bank.

(2)  For the purpose of this section “unsecured advances”,

“unsecured loans” and “unsecured credit facilities” mean respectively
advances, loans and credit facilities made without security, or, in
respect of any advance, loan and credit facility made with security,
any portion thereof which at any time exceeds the market value
of the assets constituting the security or, where the Central Bank
is satisfied that there is no established market value, the value
made on the basis of a valuation approved by the Central Bank.
*Note—Previously, Banking Act 1973 [Act 102]. The Banking and Financial Institutions Act 1989
[Act 372] has replaced the Banking Act 1973 w.e.f. 1 October 1989 except for scheduled institutions
and w.e.f. 1 January 1990 for scheduled institutions–see subsection 128(1) of Act 372 and
P.U. (B) 490/1980.
**Note—Previously, Finance Companies Act 1969 [Act 6]. The Banking and Financial Institutions Act
1989 [Act 372] has replaced the Finance Companies Act 1969 w.e.f. 1 October 1989 except for scheduled
institutions and w.e.f. 1 January 1990 for scheduled institutions–see subsection 128(1) of Act 372 and
P.U. (B) 490/1980.
24 Laws of Malaysia Act 276

Prohibition of loans, etc., to directors, officers and employees

25.  (1) Unless otherwise exempted by the Central Bank with or

without conditions, or except as provided for under subsection
(2) or subsection (4) of this section, no Islamic bank shall grant
advances, loans or credit facilities to—
(a) any of its directors, officers or employees or other persons
being persons receiving remuneration from it (other
than accountants, advocates and solicitors, architects,
estate agents, doctors and any other persons receiving
remuneration from it in respect of their professional
services);
(b) any firm in which any of its directors, officers or employees
is interested as partner, manager, agent or guarantor;
(c) any corporation in which any of its officers or employees is
a director, manager, agent or guarantor, or any corporation
in the shares of which any of its officers or employees
has any material interest as determined by the Central
Bank;
(d) any corporation in which any of its directors (not being
an executive director, he being within the ambit of the
provisions of paragraph (c) pursuant to subsection (3))
is a member, director, manager, agent or guarantor, or
any corporation in the shares of which any such director
of the Islamic bank has any interest whatsoever directly
or indirectly; or
(e) any individual for whom any of its directors, officers or
employees is a guarantor.

(2)  An Islamic bank may grant to any of its officers or employees

loans which are provided under its appropriate scheme of service
and, where the bank is satisfied that special or compassionate
circumstances exist, a loan not exceeding at any one time six
months’ remuneration of that officer or employee on such terms
and conditions as the bank thinks fit.

(3)  The provisions of paragraph (1)(c) and of subsection (2)

shall also apply to the executive directors of Islamic banks.
 Islamic Banking 25
(4)  The provisions of paragraph (1)(d) shall not apply to the
granting of advances, loans or credit facilities by an Islamic bank
to—
(a) a corporation which is listed on a recognized stock exchange
and in the shares of which no director of that Islamic
bank has, directly or indirectly, any material interest as
determined by the Central Bank; and
(b) a public company in which a director of that Islamic bank
has no interest in his personal capacity, as determined
by the Central Bank:

Provided that for the purposes of this subsection the director

concerned is not an executive director of that Islamic bank.

(5) For the purposes of this section, “director”, “officer” or

“employee” includes a spouse, parent or child of a director, an
officer or employee.

Restriction on grant of loan, advance or credit facility under

subsection 25(4)

26. No Islamic bank shall grant any advance, loan or credit

facility under the exemption referred to in subsection 25(4) unless
the following conditions are satisfied:
(a) that the advance, loan or credit facility meets the
standards of creditworthiness required of other applicant
borrowers;
(b) that the terms of the advance, loan or credit facility are
not less favourable to the bank than those offered to
others;
(c) that the grant of the advance, loan or credit facility will
serve the best interest of the bank; and
(d) that the advance, loan or credit facility has been approved
by the votes of not less than two-thirds of all the other
directors of the bank at a duly constituted meeting of
the full board of directors and the approval has been
recorded in the minutes of that meeting.
26 Laws of Malaysia Act 276

Restriction of credit to single customer

27.  (1) No Islamic bank shall grant any customer any credit
facilities or incur any other liabilities on his behalf to an aggregate
amount in excess of such percentage as may be determined from
time to time by the Central Bank in relation to such bank’s capital
funds unimpaired by losses or otherwise.

(2)  Subsection (1) shall not apply to—

(a) transactions with other Islamic banks, with licensed banks
under the *Banking and Financial Institutions Act 1989 and
with finance companies licensed under the **Banking and
Financial Institutions Act 1989;
(b) any facilities granted in respect of imports into or exports
from Malaysia or trade within Malaysia against letters
of credit or bills of exchange; or
(c) any other transactions which the Central Bank may approve
from time to time.

(3)  For the purposes of subsection (1), the expression “capital

funds” shall have the meaning assigned to it by subsection 5(2).

Control of credit limits

27a.  (1) A director, manager or employee of an Islamic bank

shall not grant any advance, loan or credit facility in excess of
the limit of his authority or contrary to any directions imposed
by the Islamic bank.

(2) For the purpose of this section, the Minister may by written
notice direct an Islamic bank to submit any information relating
to its policy and procedure for the granting of any advance, loan
or credit facility, in particular the limits of authority of a director,
manager or employee of the Islamic bank, or any variation thereof
from time to time:

Provided that the Minister shall have powers to direct an

Islamic bank to amend the procedure employed by the Islamic
*Note—Previously, Banking Act 1973 [Act 102]. The Banking and Financial Institutions Act 1989
[Act 372] has replaced the Banking Act 1973 w.e.f. 1 October 1989 except for scheduled institutions
and w.e.f. 1 January 1990 for scheduled institutions–see subsection 128(1) of Act 372 and
P.U. (B) 490/1980.
**Note—Previously, Finance Companies Act 1969 [Act 6]. The Banking and Financial Institutions Act
1989 [Act 372] has replaced the Finance Companies Act 1969 w.e.f. 1 October 1989 except for scheduled
institutions and w.e.f. 1 January 1990 for scheduled institutions–see subsection 128(1) of Act 372 and
P.U. (B) 490/1980.
 Islamic Banking 27
bank in the granting of any advance, loan or credit facility
including the limits of authority in respect of such grant.

(3)  Any person who contravenes any of the provisions of

this section or any directions issued hereunder shall be guilty
of an offence and shall, on conviction, be liable to a fine not
exceeding twenty thousand ringgit or to imprisonment for a term
not exceeding three years or to both.

Disclosure of interests by directors

28.  (1) Every director of an Islamic bank who is in any manner

whatsoever, whether directly or indirectly, interested in an advance,
loan or credit facility or proposed advance, loan or credit facility
from that Islamic bank shall as soon as practicable declare the
nature of his interest to the board of directors of that Islamic
bank and the secretary of that Islamic bank shall cause such
declaration to be circulated forthwith to all the directors.

(2)  The requirements of subsection (1) shall not apply in any

case where the interest of the director consists only in being a
member or creditor of a corporation which is interested in an
advance, loan or credit facility or proposed advance, loan or credit
facility from that Islamic bank if the interest of the director may
properly be regarded as not being a material interest.

(3)  For the purposes of subsection (1), a general notice given

to the board of directors of an Islamic bank by a director to the
effect that he is an officer or member of a specified firm or a
member of a specified corporation and he is to be regarded as
interested in any advance, loan or credit facility which may, after
the date of the notice, be made to that firm or corporation shall
be deemed to be a sufficient declaration of interest in relation
to any advance, loan or credit facility so made if—
(a) it specifies the nature and extent of his interest in a
specified firm or corporation;
(b) his interest shall not be different in nature or greater in
extent than the nature and extent so specified in the
notice at the time any advance, loan or credit facility
is made; and
28 Laws of Malaysia Act 276

(c) it is given at the meeting of the directors or the director

takes reasonable steps to ensure that it is brought up
and read at the next meeting of the directors after it is
given.

(4)  Every director of an Islamic bank who holds any office

or possesses any property whereby whether directly or indirectly
duties or interest might be created in conflict with his duties or
interest as a director shall declare at a meeting of the directors
of the Islamic bank the fact and the nature, character and extent
of the conflict.

(5)  The declaration referred to in subsection (4) shall be made

at the first meeting of the directors held—
(a) after he becomes a director of the Islamic bank; or
(b) (if already a director) after he commenced to hold office
or to possess the property as the case may require.

(6)  The secretary of the Islamic bank shall cause to be brought

up and read any declaration made under subsection (1) or (4)
at the next meeting of the directors after it is given, and shall
record any declaration made under this section in the minutes of
the meeting at which it was made or at which it was brought up
and read.

(7)  Any director who acts in contravention of subsection (1)

or (4) shall be guilty of an offence and shall, on conviction,
be liable to a fine not exceeding twenty thousand ringgit or to
imprisonment for a term not exceeding three years or to both.

Limitation on credit facility for purpose of financing the

purchase or holding of shares

29.  (1) Any credit facility granted by any Islamic bank to any

person for the purpose of financing the purchase or the holding
of shares shall not exceed such percentage of the market value
of the shares at the time the credit facility is granted, as may be
directed by the Central Bank in writing.

(2)  A credit facility granted under this section to any person

shall be accounted for in an account separate from that kept for
any other credit facility granted to him.
 Islamic Banking 29
(3)  The Central Bank may give direction in writing to any
Islamic bank in respect of the following matters, that is to say:
(a) the basis and method for determining the market value
of shares held as security for such credit facility;
(b) the withdrawal of funds or shares by the person to whom
such credit facility was granted;
(c) the substitution of other shares for shares held as security
for such credit facility; and
(d) such other matters as may be deemed necessary.

(4)  Any Islamic bank which acts in contravention of the

provisions of this section or any direction given under this section
shall be guilty of an offence under this Act.

Proof of compliance with sections 24, 25, 26, 27 and 29

30. Any Islamic bank, if at any time called upon in writing by

the Central Bank to do so, shall satisfy it by the production of
such evidence or information as it may require that the bank is
not acting in contravention of any of the provisions of sections
24, 25, 26, 27 and 29.

Part Va

INTERNATIONAL ISLAMIC BANKING BUSINESS

Prohibition to carry on international Islamic banking business

30a.  (1) No person shall carry on international Islamic banking

business unless it is—
(a) an Islamic bank; or
(b) a company or a foreign institution and holds a valid
licence under section 30b to carry on such business.

(2) Any person who contravenes the provisions of this section

commits an offence and shall, on conviction, be liable to a fine
not exceeding twenty thousand ringgit or to imprisonment for a
term not exceeding three years or to both.
30 Laws of Malaysia Act 276

Application for a licence to carry on international Islamic banking

business by persons other than a licensed Islamic bank

30b.  (1) A company or a foreign institution other than a licensed

Islamic bank which desires authority to carry on international
Islamic banking business in Malaysia shall apply in writing
through the Central Bank to the Minister for a licence under this
Part and shall supply—
(a) a copy of the memorandum of association and articles
of association or other instrument under which the
company or the foreign institution, as the case may be,
is incorporated, duly verified by a statutory declaration
made by a senior officer of the company or of the foreign
institution, as the case may be; and
(b) such other document or information as may be called upon
by the Central Bank or the Minister, as the case may be.

(2) Upon receiving an application under subsection (1) the Central

Bank shall consider the application and make a recommendation
to the Minister stating whether a licence shall be granted or not
and the conditions, if any, to be attached to the licence.

(3) Upon receiving an aplication under subsection (1) and the

recommendation of the Central Bank under subsection (2), the
Minister may, subject to section 30c, grant a licence, with or
without conditions, or refuse a licence.

(4) The Central Bank shall not recommend the grant of a

licence, and the Minister shall not grant a licence, unless the
Central Bank or the Minister, as the case may be, is satisfied
that the aims and operations of the banking business which it is
desired to carry on does not involve any element which is not
approved by the Religion of Islam.

Minister may vary or revoke condition of licence granted

under this Part

30c.  (1) The Minister may at any time, on the recommendation

of the Central Bank, vary or revoke any existing condition of a
licence or impose conditions or additional conditions.
 Islamic Banking 31
(2) The Minister shall, prior to any action under subsection (1),
notify his intention in writing to take such action to the international
Islamic bank concerned and shall give the international Islamic
bank an opportunity to submit, within such period being not less
than fourteen days as may be specified in the notification, reasons
why the condition of the licence shall not be varied or revoked
or conditions or additional conditons shall not be imposed.

(3) Where a licence is subject to conditions, the international

Islamic bank shall comply with those conditions.

(4) Any international Islamic bank which fails to comply with any
condition of its licence commits an offence and shall, on conviction,
be liable to a fine not exceeding twenty thousand ringgit.

Licence under this Part not to be granted in certain cases

30d.  (1) No person shall be granted a licence under section 30b

nor shall such person licensed thereunder carry on business in
Malaysia without the written consent of the Minister if—
(a) in the case of a company, its capital funds unimpaired by
losses or otherwise is less than the minimum amount; or
(b) in the case of a foreign institution, its net working funds
unimpaired by losses or otherwise is less than the
minimum amount.

(2) For the purposes of this section—

“capital funds” means paid-up capital and reserves and any

other sources of capital as may be defined and computed in such
manner as may be specified by notice in writing from time to
time by the Central Bank;

“minimum amount” means such amount of capital funds

or such amount of net working funds to be maintained by an
international Islamic bank as may be prescribed by the Minister
on the recommendation of the Central Bank by notification in
the Gazette; and

“net working funds” means such net liabilities of the foreign

institution outside Malaysia as may be defined and computed in
such manner as may be specified by notice in writing from time
to time by the Central Bank.
32 Laws of Malaysia Act 276

(3) The prescription of the minimum amount to be maintained

under subsection (2) shall be complied with within such uniform
period of grace being not less than three months as may be
specified in the notification.

Application of the provisions of this Act to international

Islamic bank

30 e .  (1) For the avoidance of doubt, it is declared that an

Islamic bank or an international Islamic bank shall, in respect
of the international Islamic banking business carried on by it, be
subject to the provisions of this Act, and any provisions of this
Act which apply to an Islamic bank shall apply to an international
Islamic bank as if the references therein to an Islamic bank were
references to an international Islamic bank unless specifically
provided for in this Part.

(2) For the purposes of subsection (1), the Minister on the

recommendation of the Central Bank may by an order published
in the Gazette make such modifications to any provisions of this
Act as he may deem fit.

Part VI

POWERS OF SUPERVISION AND CONTROL OVER

ISLAMIC BANKS

Investigation of banks

31. The Central Bank shall from time to time investigate, under
conditions of secrecy, the books, accounts and transactions of
each Islamic bank and of any branch, agency or office outside
Malaysia opened by an Islamic bank.

Special investigation of banks

32. The Minister may at any time direct the Central Bank to
make an investigation, under conditions of secrecy, of the books,
accounts and transactions of an Islamic bank, if he has reason to
believe such Islamic bank is carrying on its business in a manner
 Islamic Banking 33
detrimental to the interests of its depositors and other creditors,
or has insufficient assets to cover its liabilities to the public, or
is contravening the provisions of this Act or of the Central Bank
of Malaysia Act 1958 [Act 519].

Production of bank’s books and documents

33.  (1) Subject to subsection (2), for the purposes of an investigation

under section 31 or 32, an Islamic bank shall afford the Central
Bank access to its books, accounts and documents and shall give
such information and facilities as may be required to conduct
the investigation.

(2)  Books, accounts and documents shall not be required to

be produced at such times and at such places as shall interfere
with the proper conduct of the normal daily business of the bank
concerned.

(3)  Any Islamic bank which fails to allow access to its books,
accounts and documents or to give information or facilities in
accordance with subsection (1) shall be guilty of an offence and
shall, on conviction, be liable to a fine not exceeding four thousand
ringgit for every day during which the default continues.

(4)  For the purposes of an investigation under section 31 or 32,

all officers and employees of the Central Bank shall be deemed
to be public servants within the meaning of the Penal Code
[Act 574].

Banking secrecy

34.  (1) Except as provided in sections 31 and 32, nothing in

this Act shall authorize the Minister to direct the Central Bank,
or shall authorize the Central Bank, to enquire specifically into
the affairs of any individual customer of any Islamic bank and
any incidental information relating to the affairs of the individual
customer obtained by the Central Bank in the course of an
inspection or investigation made by the Central Bank under the
provisions of this Act shall be secret between the Central Bank
and that bank.
34 Laws of Malaysia Act 276

(2)  Nothing in this section shall be deemed to limit any powers

conferred upon the High Court or a Judge thereof by the Bankers’
Books (Evidence) Act 1949 [Act 33] or to prohibit obedience to
an order made under that Act.

(3)  Except with the consent of the Central Bank in writing

and to the extent specified therein, no officer of any Islamic bank
and no person who by reason of his capacity or office has by
any means access to the records of that bank, registers or any
correspondence or material with regard to the account of any
individual customer of that bank shall give, divulge or reveal any
information whatsoever regarding the moneys or other relevant
particulars of the account of the customer unless—
(a) the customer or his personal representative gives his
permission so to do;
(b) the customer is declared bankrupt; or
(c) the information is required to assess the creditworthiness
of the customer relating to a bona fide commercial
transaction or a prospective commercial transaction.

(4)  Subsection (3) shall not apply to the disclosure of information

or document to—
(a) any director, officer, employee or agent of the Malaysia
Deposit Insurance Corporation (hereinafter in this
paragraph referred to as “the Corporation”) established
under the Malaysia Deposit Insurance Corporation Act
2005 where such disclosure is for the purpose of the
exercise of powers, the performance of functions or the
discharge of duties of the Corporation or of the directors,
officers, employees or agents of the Corporation under
that Act; or
(b) auditors appointed under section 17, officers and employees
of the bank who are resident in Malaysia.

(5)  Any person who acts in contravention of the provisions of

this section shall be guilty of an offence and shall, on conviction,
be liable to a fine not exceeding forty thousand ringgit or to
imprisonment for a term not exceeding three years or to both.
 Islamic Banking 35
Action to be taken if advances are against interests of
depositors

35.  (1) Every Islamic bank shall send to the Central Bank within
such period as may be prescribed by notice in writing from time
to time by the Central Bank after the last day of each month
a statement in the form to be prescribed by the Central Bank
showing particulars of all advances, loans or credit facilities
granted by it to—
(a) any corporation which is deemed to be related to the bank
as described in section 6 of the Companies Act 1965;
(b) any corporation or public company referred to in subsection
25(4); and
(c) any individual in whom and any firm or corporation
in which any of its directors is interested, directly or
indirectly, as declared under the provisions of section 28,
other than advances, loans and credit facilities particulars
of which have already been supplied pursuant to the
preceding paragraphs.

(2)  If on examination of the particulars supplied by an Islamic

bank under subsection (1) it appears to the Central Bank that
any such advance, loan or credit facility is being granted to
the detriment of the interests of the depositors of that bank, the
Central Bank may by order in writing prohibit that bank from
granting any further advance, loan or credit facility or impose
such restrictions on the grant thereof as the Central Bank thinks
fit, and may further direct that bank to secure repayment of any
advance, loan or credit facility within such time and to such
extent as may be specified in the order.

(3)  Any Islamic bank which has been issued with an order by
the Central Bank pursuant to this section may appeal in writing to
the Minister, who may, as he thinks fit, confirm, vary or revoke
the order of the Central Bank.

Banks unable to meet obligations to inform Central Bank

36. An Islamic bank which considers that it is likely to become

unable to meet its obligations or is about to suspend payment
shall forthwith inform the Central Bank of that fact.
36 Laws of Malaysia Act 276

Action by Central Bank if bank unable to meet obligations or

conducting business to the detriment of depositors

37.  (1) Where—
(a) an Islamic bank informs the Central Bank—
(i) that it considers that it is likely to become unable
to meet its obligations; or
(ii) that it is about to suspend payment;
(b) an Islamic bank becomes unable to meet its obligations
or suspends payment; or
(c) after an investigation is made under section 31 or 32 the
Central Bank is of the opinion that an Islamic bank—
(i) is following unsound or improper practices;
(ii) is likely to become unable to meet its obligations
or is about to suspend payment;
(iii) h as contravened or failed to comply with any
provision of this Act;
(iv) has contravened or failed to comply with any
condition imposed on its licence; or
(v) is likely to be carrying on its business in a manner
detrimental to the interests of its depositors,

the Central Bank, with the concurrence of the Minister, may

exercise such one or more powers specified in subsection (2) as
it deems to be necessary.

(2)  Subject to subsection (1), the Central Bank may—

(a) issue orders to the bank to take steps as the Central
Bank may consider necessary to rectify the matter and
the bank shall carry out such orders within such time
as may be prescribed by the Central Bank;
(b) prohibit the bank from extending any further advance, loan
or credit facility for such period as may be specified and
subject to such exceptions if any and other conditions
as the Central Bank may impose;
 Islamic Banking 37
(c) remove from office any of its directors or appoint any
person as its director;
(d) appoint a person to advise the bank on the proper conduct
of its business;
(e) assume control of, and carry on, the business of the bank
or appoint some other person to assume control of, and
carry on, the business of the bank; or
(f) present a petition to the High Court for the winding up
of the bank by the Court.

(3)  Where the Central Bank has appointed a person—

(a) to be a director of the bank under paragraph (2)(c);
(b) to advise the bank on the proper conduct of its business
under paragraph (2)(d); or
(c) to assume control of, and carry on, the business of the
bank under paragraph (2)(e),

the Central Bank may fix the remuneration and expenses to be

paid to that person by the bank.

Effect of removal of office of director or appointment of a

director of a bank by the Central Bank

38. Where the Central Bank has acted under paragraph 37(2)(c)
with respect to an Islamic bank, the following provisions shall
have effect:
(a) notwithstanding anything contained in the Companies Act
1965 and the articles of association of the bank, the rights
of the members or holders of shares to elect directors of
the bank in place of those who are removed from office
by the Central Bank shall cease to be exercisable;
(b) any director removed from office under that paragraph
shall cease to hold office, and shall not be entitled to
claim any compensation for the loss or termination of
office; and
(c) every removal or appointment under that paragraph shall
be final and conclusive and shall not be questioned in
any Court.
38 Laws of Malaysia Act 276

Control of Islamic bank by Central Bank

39.  (1) Where the Central Bank has assumed or has appointed

another person to assume control of the business of an Islamic
bank in pursuance of paragraph 37(2)(e), the Central Bank or
that person shall, subject to subsection (2), remain in control
of the bank and continue to carry on the business of the bank
in the name and on behalf of the bank until such time as the
Central Bank is satisfied that the reasons for which it assumes
control or has appointed another person to assume control have
ceased to exist.

(2)  Where the Central Bank has assumed control, or has

appointed another person to assume control, of the business of an
Islamic bank in pursuance of paragraph 37(2)(e) the High Court
may, upon application of the bank, order that the Central Bank
shall cease to control the business of the bank as from a date
specified in the order if the High Court is satisfied that it is no
longer necessary for the protection of the depositors of the bank
that the Central Bank should remain in control of the business
of the bank.

(3)  Where the Central Bank has assumed control, or has

appointed another person to assume control, of the business of
an Islamic bank in pursuance of paragraph 37(2)(e), or ceased
to control the business of an Islamic bank in pursuance of this
section, the Central Bank shall notify that fact in the Gazette.

Islamic bank under control of Central Bank to cooperate with

Central Bank

40.  (1) Where the Central Bank has assumed control, or has

appointed another person to assume control, of the business of
an Islamic bank in pursuance of paragraph 37(2)(e), the Islamic
bank shall submit its business to the control of the Central Bank
or to that person and shall provide the Central Bank with such
facilities as the Central Bank requires to carry on the business
of that bank.

(2)  Any Islamic bank which fails to comply with subsection

(1) or with any requirement of the Central Bank there under shall
be guilty of an offence and shall, on conviction, be liable to a
fine not exceeding four thousand ringgit for every day during
which the default continues.
 Islamic Banking 39
Extension of jurisdiction to subsidiaries of banks

41. Any reference in this Part to an Islamic bank shall be read

as including a reference to a subsidiary of an Islamic bank.

Moratorium

42.  (1) The Central Bank may, with the approval of the Minister,
if it considers it to be in the interests of the depositors of an
Islamic bank, make an order prohibiting the bank from carrying
on banking business or from doing or performing any act or
function connected with banking business or any aspect thereof
as may be specified in the order.

(2)  The Central Bank may, with the approval of the Minister,
if it considers it to be in the interests of the depositors, apply
to the High Court for an order staying the commencement or
continuance of any proceedings by or against the bank in regard
to any business of the bank. Such an order shall be valid for a
period not exceeding six months.

(3)  So long as an order under subsection (1) remains in force the

licence granted to the bank under this Act shall be suspended.

(4)  Where an order has been made under subsection (1), the
Central Bank shall notify that fact in the Gazette.

Amendment of bank’s constitution

43.  (1) Every Islamic bank shall, prior to the making of any

amendment or alteration in the memorandum of association
or articles of association or other instrument under which it is
incorporated, furnish to the Central Bank particulars in writing
of such proposed amendment or alteration for its approval.

(2)  Every Islamic bank shall, within three months after the
making of any amendment or alteration in the memorandum of
association and articles of association or other instrument under
which it is incorporated, furnish to the Minister through the Central
Bank particulars in writing (verified by a statutory declaration
made by a senior officer of the bank) of such amendment or
alteration.
40 Laws of Malaysia Act 276

(3)  Any Islamic bank which fails to comply with the requirements
of subsection (1) or (2) shall be guilty of an offence and shall,
on conviction, be liable to a fine not exceeding two thousand
ringgit for every day during which the default continues.

Part VII

MISCELLANEOUS

Indemnity

44.  (1) Neither the Government nor the Central Bank nor any
officer of either shall be subject to any action, claim or demand
by or liability to any person in respect of anything done or
omitted to be done in good faith in pursuance or in execution
or intended execution, or in connection with the executing or
intended execution, of any power conferred upon the Government,
Central Bank or the officer by this Act.

(2)  For the purposes of this section a Minister and any public
officer shall be deemed to be an officer of the Government; and
the Governor and Deputy Governor of the Central Bank and any
director or employee thereof and any person holding any office
therein or appointed by the Central Bank under paragraph 37(2)(c),
(d) or (e) shall be deemed to be an officer of the Central Bank.

Priority of Islamic deposits

45.  (1) Where an Islamic bank is wound-up under paragraph

37(2)(f), the proceeds of the liquidation of the Islamic bank shall,
subject to section 10 of the Government Proceedings Act 1956
[Act 359] and subsection (2), be paid to the depositors in priority
over all other unsecured liabilities in the following manner:
(a) Islamic deposits based on custody; and
(b) other Islamic deposits.

(2)  Where a person has been appointed under paragraph 37(2)

(d) or (e), as the case may be, or an Islamic bank is wound-up
under paragraph 37(2)(f), all proper costs, charges and expenses,
including the remuneration, of such appointed person shall be
payable out of the assets of the Islamic bank in priority over all
other claims.
 Islamic Banking 41
Penalties on directors and managers

46.  (1) Any person who, being a director or manager of an

Islamic bank—
(a) fails to take all reasonable steps to secure compliance by
the bank with the requirements of this Act and of the
Central Bank of Malaysia Act 1958 (hereafter in this
section referred to as “the Act”); or
(b) fails to take all reasonable steps to ensure the correctness
of any statement submitted under the provisions of this
Act or the Act,

shall be guilty of an offence and shall, on conviction, be liable to

a fine not exceeding twenty thousand ringgit or to imprisonment
for a term not exceeding three years or to both.

(2)  In any proceedings against a person under subsection (1)

it shall be a defence to prove that he has reasonable grounds to
believe that another person was charged with the duty of securing
compliance with the requirements of this Act or the Act or with
the duty of ensuring that those statements were accurate and that
person was competent and in a position to discharge that duty.

(3)  A person shall not be sentenced to imprisonment for any

offence under subsection (1) unless in the opinion of the Court
he committed the offence wilfully.

Offences by directors, employees and agents

47. Any director, manager, trustee, auditor, employee or agent

of any Islamic bank who—
(a) wilfully makes or causes to be made a false entry in
any book of record or in any report, slip, document or
statement of the business, affairs, transactions, conditions,
assets or accounts of the bank; or
(b) wilfully omits to make an entry in any book of record or
in any report, slip, document or statement of the business,
affairs, transactions, condition, assets or accounts of the
bank, or wilfully causes any such entry to be omitted;
or
42 Laws of Malaysia Act 276

(c) wilfully alters, abstracts, conceals or destroys an entry in

any book of record or in any report, slip, document or
statement of the business, affairs, transactions, condition,
assets or accounts of the bank, or wilfully causes
any such entry to be altered, abstracted, concealed or
destroyed,

shall be guilty of an offence and shall, on conviction, be liable

to a fine not exceeding fifty thousand ringgit or to imprisonment
for a term not exceeding five years or to both.

Offences by companies, etc., and by servants and agents

48.  (1) Where any offence against any provision of this Act has
been committed by a corporation, firm, society or other body of
persons, any person who at the time of the commission of the
offence was a director, manager, secretary or other similar officer
thereof or was purporting to act in such capacity shall be deemed
to be guilty of that offence unless he proves that the offence was
committed without his consent or connivance and that he exercised
all such diligence to prevent the commission of the offence as
he ought to have exercised, having regard to the nature of his
functions in that capacity and to all the circumstances.

(2)  Where any person would be liable under this Act to any
punishment or penalty for any act, omission, neglect or default,
he shall be liable to the same punishment or penalty for every
such act, omission, neglect or default of any clerk, servant or
agent, or of the clerk or servant of the agent, provided that the
act, omission, neglect or default was committed by the clerk or
servant in the course of his employment, or by the agent when
acting on behalf of the person, or by the clerk or servant of
the agent when acting in the course of his employment in such
circumstances that had the act, omission, neglect or default been
committed by the agent his principal would have been liable
under this section.

Prohibition on receipt of commission by staff

49. Any director, officer or employee of an Islamic bank, or

other persons being persons receiving remuneration from Islamic
bank, who asks for or receives, consents or agrees to receive any
 Islamic Banking 43
gift, commission, emolument, service, gratuity, money, property
or thing of value for his own personal benefit or advantage
or for that of any of his relatives, from any person other than
from that bank, for procuring or endeavouring to procure for
any person any advance, loan or credit facility from that bank
or the purchase or discount of any draft, note, cheque, bill of
exchange or other obligations by the bank, or for permitting any
person to overdraw any account with that bank, shall be guilty
of an offence and shall, on conviction, be liable to a fine not
exceeding twenty thousand ringgit or to imprisonment for a term
not exceeding three years or to both.

General penalty

50. Any Islamic bank which contravenes or fails to comply with

any provision of this Act or regulations made thereunder for which
no penalty is expressly provided shall be guilty of an offence
and shall, on conviction, be liable to a fine not exceeding fifty
thousand ringgit.

Power of Governor to compound

51.  (1) The Governor of the Central Bank, with the concurrence

of the Minister, may compound any offence punishable under
this Act by accepting such sum of money as he thinks fit, being
not exceeding the amount of the maximum fine to which that
person would have been liable if he had been convicted of the
offence.

(2)  Any moneys paid to the Governor pursuant to the

provisions of subsection (1) shall be paid into and form part of
the Consolidated Fund.

Consent of the Public Prosecutor

52. No prosecution in respect of any offence under this Act

shall be instituted without the consent in writing of the Public
Prosecutor.
44 Laws of Malaysia Act 276

Regulations

53.  (1) The Central Bank may with the approval of the Minister
make such regulations as may be required from time to time for
carrying into effect the objects of this Act.

(2)  Without prejudice to the generality of subsection (1),

regulations may be made—
(a) to provide for control by the Central Bank with respect to
the acquisition or holding by an Islamic bank of shares
of any corporation or the acquisition or development by
the bank of any immovable property;
(b) to provide for control by the Central Bank with respect
to an Islamic bank becoming a partner or proprietor of
any firm with unlimited liability;
(c) to provide for control by the Central Bank with respect
to the granting of any credit facility to any person for
the purpose of financing the acquisition or holding of
immovable property, shares and contracts in consumer
credit and commodity futures;
(d) to provide for the declaration by directors of Islamic
banks to the board of directors of their respective Islamic
banks of the number and description of any shares in
any corporation which are held by or in trust for them
or of which they have any right to become the holder
(whether on payment or not) or in which they have,
directly or indirectly, any beneficial interest, and of the
nature of their interest as partner, director, manager or
agent in any firm or corporation;
(e) to provide for the declaration by executive directors,
officers and employees of Islamic banks to the respective
boards of directors of such Islamic banks or such other
person as may be specified in the regulations of the
following kinds of interest held by or for any of them
or any of their spouses or children:
(i) the number and description of any shares in any
corporation which are held by or in trust for any
such executive director, officer, employee, spouse
or child or of which he has any right to become
 Islamic Banking 45
the holder (whether on payment or not) or in
which he has, directly or indirectly, any beneficial
interest;
(ii) the nature of any interest as partner, director, manager
or agent in any firm or corporation;
(iii) all others assets; and

(f) to provide for any matter relating to the regulation and

supervision of international Islamic bank.

Power to issue guidelines, etc.

53a. The Central Bank or the Minister may, from time to time,
issue such guidelines, circulars or notes as the Central Bank or
the Minister may deem expedient or necessary for carrying into
effect the objects of this Act.

Bank holidays

54. No Islamic bank shall do any business with the public on any
day declared a bank holiday under the provisions of *subsection
120(1) of the Banking and Financial Institutions Act 1989.

Application of other laws

55. An Islamic bank which is incorporated under the Companies

Act 1965 shall be subject to the provisions of that Act as well as
to the provisions of this Act, save that where there is any conflict
or inconsistency between the provisions of that Act and the
provisions of this Act the provisions of this Act shall prevail.

Exemption

56. The Minister may, on the recommendation of the Central

Bank, if he considers it consistent with the purposes of this
Act, by order published in the Gazette, exempt with or without
conditions, any Islamic bank, international Islamic bank or person
from all or any provision of this Act.
*Note—Previously, subsection 57(1) of the Banking Act 1973.
46 Laws of Malaysia Act 276

Part VIII

CONSEQUENTIAL AMENDMENTS

Amendment of Banking Act 1973

57.  (1) Section 2 of the Banking Act 1973 is amended—

(a) by inserting immediately after the definition of “depositor”

the following new definition:

‘ “Islamic bank” means a bank licensed under the

Islamic Banking Act 1983;’; and

(b) by inserting immediately after the words “order licensed

bank” in the definitions of “other deposit liabilities”,
“sight liabilities” and “time liabilities” the words “, any
Islamic bank”.

(2)  Section 9 of the Banking Act 1973 is amended by substituting

for paragraph (1)(b) the following:
“(b) no bank shall hereafter be licensed by a name which
includes—

(i) any of the words “Central”, “Commonwealth”,

“Federal”, “Federation”, “Malaysia”, “Malaysian”,
“National”, “Reserve”, or “State”;

(ii) any of the words “Islamic” or “Muslim” or any other

words capable of being construed as indicating that
the bank carries on Islamic banking business,

either in National Language or in English or in any

other language.”.

(3)  Section 59 of the Banking Act 1973 is amended by deleting

the word “and” at the end of paragraph (1)(b), substituting a
semicolon for the full stop at the end of paragraph (c) of that
subsection and inserting immediately thereafter the word “and”,
and inserting immediately after that paragraph the following new
paragraph (d):

“(d) any Islamic bank.”.

 Islamic Banking 47
Amendment of Companies Act 1965

58.  (1) Section 4 of the Companies Act 1965 is amended by

inserting immediately after the words “1973” in the definition of
“banking corporation” the words “and an Islamic bank as defined
in the Islamic Banking Act 1983”.

(2)  Section 218 of the Companies Act 1965 is amended by

substituting for paragraph (1)(j) the following:
“(j) the company has held a licence under the Banking Act
1973 or the Islamic Banking Act 1983, and that licence
has been revoked or has expired and has not been
renewed; or”.

Amendment of Central Bank of Malaysia Ordinance 1958

59.  (1) Section 2 of the Central Bank of Malaysia Ordinance

1958, which in this section is referred to as “the Ordinance”, is
amended—
(a) by inserting immediately before the semicolon at the end
of the definition of “bank” the words “or the Islamic
Banking Act 1983”;
(b) by inserting immediately after the definition of “Governor”
the following new definitions:
‘ “investment account liabilities” in relation to an
Islamic bank means the deposit liabilities at that bank
in respect of funds placed by a depositor with that
bank for a fixed period of time under an agreement
to share the profits or losses of that bank on the
investment of such funds;
“Islamic bank” means a bank licensed under the
Islamic Banking Act 1983;’; and
(c) by inserting immediately after the words “in relation to
a bank” in the definition of “other deposit liabilities”
the words “other than an Islamic bank” and by inserting
immediately after the semicolon at the end of that
definition the following words:
“and in relation to an Islamic bank means deposit
liabilities at that bank other than savings account,
48 Laws of Malaysia Act 276

investment account, sight and time liabilities and

deposit liabilities from another bank or the Central
Bank;”.

(2)  Section 37 of the Ordinance is amended—

(a) by inserting immediately after the words “payable to or
by banks” in paragraph (1)(b) the words “other than
Islamic banks”;
(b) by inserting immediately after the words “each bank”
in paragraph (1)(c) the words “, other than an Islamic
bank,” and by substituting a semicolon for the full stop
at the end of that paragraph;
(c) by inserting immediately after paragraph (1)(c) the
following new paragraph (d):
“(d) a reserve to be held by each Islamic bank at the
Central Bank comprising such amounts expressed
as a percentage of each bank’s sight, savings
account, investment account, time and other deposit
liabilities as may be approved by the Minister on the
recommendation of the Board, whether denominated
in Malaysian or foreign currency.”; and
(d) by inserting immediately after the words “paragraph (c)”
in subsection (2) the words “or (d)”.

(3)  Section 41 of the Ordinance is amended by substituting

for the words “bank or groups of banks” in the first paragraph
the words “banks other than Islamic banks or groups of such
banks, nor shall it discriminate among Islamic banks or groups
of Islamic banks,”.

(4)  Section 42 of the Ordinance is amended by inserting

immediately after the words “Banking Act 1973” the words “or
the Islamic Banking Act 1983”.

(5)  Section 51 of the Ordinance is amended—

(a) by deleting the words “interest charge” in paragraph (4)
(a); and
(b) by deleting the word “interest” in paragraph (4)(b).
 Islamic Banking 49
Amendment of Finance Companies Act 1969

60. Section 2 of the Finance Companies Act 1969 is amended

by substituting for the words “to carry on banking business in
the Federation” in the definition of “bank” the words “under the
Banking Act 1973 or an Islamic bank licensed under the Islamic
Banking Act 1983”.
50 Laws of Malaysia Act 276

LAWS OF MALAYSIA

Act 276

ISLAMIC BANKING ACT 1983

LIST OF AMENDMENTS

Amending law Short title In force from

Act A634 Islamic Banking (Amendment) 10-01-1986

Act 1985

Act 330 Finance (Banking and Financial 01-01-1987

Institutions) Act 1986

Act A1145 Islamic Banking (Amendment) 01-03-2002

Act 2002

Act A1214 Islamic Banking (Amendment) 01-01-2004

Act 2003

Act A1255 Islamic Banking (Amendment) 01-04-2006

Act 2005

Act A1307 Islamic Banking (Amendment) 31-07-2007

Act 2007
 Islamic Banking 51
LAWS OF MALAYSIA

Act 276

ISLAMIC BANKING ACT 1983

LIST OF Sections amended

Section Amending authority In force from

2 Act A1255 01-04-2006

Act A1307 31-07-2007
3 Act A1214 01-01-2004
Act A1255 01-04-2006
6 Act A1214 01-01-2004
11 Act A1255 01-04-2006
13a Act A1214 01-01-2004
16 Act A1255 01-04-2006
19 Act 330 01-01-1987
Act A1145 01-03-2002
22 Act A1255 01-04-2006
25 Act A634 10-01-1986
27a Act A634 10-01-1986
30a-30e Act A1307 31-07-2007
34 Act A1255 01-04-2006
45 Act A1255 01-04-2006
53 Act A1307 31-07-2007
53a Act A1307 31-07-2007
56 Act A1307 31-07-2007

DICETAK OLEH
PERCETAKAN NASIONAL MALAYSIA BERHAD,
KUALA LUMPUR
BAGI PIHAK DAN DENGAN PERINTAH KERAJAAN MALAYSIA
JW512851