ISLAMIC BANKING ACT 1983

This Act shall apply throughout Malaysia.

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—

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.

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.

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—

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 such fine and imprisonment.

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.

Where a licence is subject to conditions, the Islamic bank shall comply with those conditions.

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.

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;

ociation of e establish-advise the ng business ction shall be aysia Deposit a term not d imprison-recommen-any existing or additional action under ing to take d and shall within such as may be the condition ed or condi e imposed.

iditions, the iditions.

ply with any offence and not exceeding icence under 1 thereunder the written s unimpaired num amount.

and reserves defined and prescribed by 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.

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.

For the purposes of this section, a company shall be deemed to be foreign-owned or controlled if fifty per centum or more of its capital issued and paid-up is owned by or on behalf of persons who are not citizens of Malaysia, or if a majority of the persons having the direction, control or management of the company are not citizens of Malaysia.

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.

is pursuing aims, or carrying on operations, involving any element which is not approved by the Religion of Islam;

is carrying on its business in a manner detrimental to the interests of its depositors and other creditors;

has insufficient assets to cover its liabilities to the public;

is contravening any provision of this Act; or

has ceased to carry on banking business in Malaysia.

may.

the Minister may, on the recommendation of the Central Bank, revoke any licence issued to such bank.

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.

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.

The Central Bank shall be entitled to be heard on any such appeal.

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.

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notice of the revocation shall be published in the Gazette; and

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.

The provisions of paragraph (b) of subsection (1) 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.

"Capital funds" in subsection (1) shall have the meaning assigned to that expression in subsection (2) of section 5 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.

shall maintain a reserve fund; and

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—

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;

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.

The minimum amount or amounts of the assets so prescribed to be held shall be expressed in the form of—

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.

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.

For the purpose of computing the minimum amount or amounts of liquid assets under this section and the sight, savings account, investment account, time and other deposit liabilities 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.

For the purposes of this section liquid assets shall be—

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.

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.

Any Islamic bank which fails or refuses to pay a penalty under subsection (8) shall be guilty of an offence under this Act.

The Minister on the recommendation of the Central Bank may appoint an auditor-

The duties of the auditor appointed under subsections (1) and (2) for an Islamic bank shall be—

The report of the auditor referred to in paragraph (b) of subsection (3) 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 (c) of subsection (1) of section 18.

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.

uses to pay guilty of an f the Com-all appoint ster.

t an auditor;

other auditor pointed under y the Islamic d under sub all be—

tion of the t of which he counts of the th section 174 on the annual account of the in paragraph ther with the bank at the id a statutory ne bank to the accompany the (c) of sub-n Islamic bank no director or or appointment person appointed such appoint-director or an ease to be the

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.

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.

exhibit in a conspicuous position in every office or place of business in Malaysia—

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;

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

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—

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;

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 to the balance sheets and profit and loss accounts forwarded by that bank under paragraph (c) of subsection (1) and that information shall be submitted within such period and in such manner as the Central Bank may require.

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.

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.

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;

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;

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;

notwithstanding the provisions of subsection (3) of section 34, a statement showing such credit information of its customers as is required for the purposes of the credit bureau established ormation as it explanation, o the balance arded by that (1) and that ch period and y require.

mply with the of an offence not exceeding o the Central by the Central s and assets of in Malaysia at business day od as may be from time to sis of loans banking offices such intervals be prescribed by the Central the close of its ng the income ts business in subsection (3) ng such credit is required for au established

ISLAMIC BANKING under section 30 (1) (mmm) of the Central Bank of Malaysia Ordinance 1958 at such intervals and within such period as may be prescribed by notice in writing from time to time by the Central Bank; and

any such statistical information as may be requested by the Central Bank.

Except for the purposes of paragraphs(d) of subsection (1), any information received from a bank under this section shall be regarded as secret between that bank and the Central Bank.

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.

It shall be the responsibility of the Central Bank to prepare and publish consolidated statements aggregating the figures in the returns furnished under paragraphs (a) and (b) of subsection (1).

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;

grant an advance, loan or credit facility against the security of its own shares; or

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 Act 1973, a finance company licensed under the Finance Companies Act 1969, or any other financial institution approved by the Central Bank.

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.

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);

any firm in which any of its directors, officers or employees is interested as partner, manager, agent or guarantor;

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 loans or of, in the one time, tion which is described 1965, other bank under companyanies Act institution unsecured credit and credit ect of any h security, xceeds the security or, here is no n the basis c.

of sub-ral Bank with ded for under employees or ing remuneants, advocate agents, living remuprofessional ors, officers r, manager, officers or agent or shares ofees has any the Central

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

any individual for whom any of its directors, officers or employees is a guarantor.

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.

The provisions of paragraph (c) of subsection (1) and of subsection (2) shall also apply to the executive directors of Islamic banks.

The provisions of paragraph (d) of subsection (1) shall not apply to the granting of advances, loans or credit facilities by an Islamic bank to—

For the purposes of this section, "director", "officer" or "employee" includes a spouse, parent or child of a director, an officer or employee.

Subsection (1) shall not apply to—

For the purposes of subsection (1), the expression "capital funds" shall have the meaning assigned to it by subsection (2) of section 5.

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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.

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—

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.

The declaration referred to in subsection (4) shall be made at the first meeting of the directors held-

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.

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 such fine and imprisonment.

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.

The Central Bank may give direction in writing to any Islamic bank in respect of the following matters, that is to say—

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.

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.

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.

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.

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 or to prohibit obedience to an order made under that Act.

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—

The provisions of subsection (3) shall not apply to the giving of information to auditors appointed under section 17, officers and employees of the bank who are resident in Malaysia.

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 such fine and imprisonment.

any corporation which is deemed to be related to the bank as described in section 6 of the Companies Act 1965;

any corporation or public company referred to in subsection (4) of section 25; and

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.

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 such advance, loan or credit facility within such time and to such extent as may be specified in the order.

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.

an Islamic bank informs the Central Bank-

that it considers that it is likely to become unable to meet its obligations; or

an Islamic bank becomes unable to meet its obligations or suspends payment; or

after an investigation is made under section 31 or 32 the Central Bank is of the opinion that an Islamic bank—

is following unsound or improper practices;

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.

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