LAWS OF MALAYSIA

Act 276

Islamic Banking Act 1983

Date of Royal Assent 9-Mar-1983

Date of publication in the
Gazette 10-Mar-1983

An Act to provide for the licensing and regulation of Islamic
banking business.

[7th April 1983] PU(B) 182/1983

ARRANGEMENT OF SECTIONS

PART I

PRELIMINARY

1. Short title, commencement 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.

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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.

PART III

FINANCIAL REQUIREMENTS AND DUTIES OF
ISLAMIC BANKS

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
section 25 (4).

27. Restriction of credit to single customer.

27A. Control of credit limits.

28. Disclosure of interests by directors.

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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.

PART VA

INTERNATIONAL ISLAMIC BANKING BUSINESS

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 co-operate
with Central Bank.

41. Extension of jurisdiction to subsidiaries of banks.

42. Moratorium.

43. Amendment of bank’s constitution.

PART VII

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MISCELLANEOUS

44. Indemnity.

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.

PART I

PRELIMINARY

Short title,

commencement and
application.

1.   (1)   This Act may be cited as the Islamic Banking Act
1983 and shall come into force on such date as the Minister
may by notification in the Gazette appoint.

  (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

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for a limited period only;
61/58.    “Central Bank” means the Central Bank of Malaysia

established by the Central Bank of Malaysia Ordinance
1958;

Act 125.    “company” has the meaning assigned to it by the
Companies Act 1965;

   “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;

Act A1307.

Act 372.    “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];

Act A1307.

   “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;

   “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;

Act A1307.

   “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;

Act A1307.

   “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;

Act A1255.

   “investment account liabilities” (Deleted). Act A1255.

   “licence” means a licence granted under section 3;

   “office” includes the principal place of business, a branch,
an agency, a mobile place of business, a place of business set

Act A1307.

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up and maintained for a limited period only, an electronic
terminal and any other place of business;

   “other deposit liabilities” (Deleted). Act A1255.

Act 125.    “public company” has the meaning assigned to it by the
Companies Act 1965;

   “savings account liabilities” (Deleted). Act A1255.

   “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;

   “sight liabilities” (Deleted). Act A1255.

Act 125.    “subsidiary” has the meaning assigned to it under section 5
of the Companies Act 1965;

   “time liabilities” (Deleted). Act A1255.

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.

  (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.

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  (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
Syari’ah 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.

Act 642.   (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].

Act A1255.

  (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 such fine and imprisonment.

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.

  (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

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

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cases. 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). 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.

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.

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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;

(d) is contravening any provision of this Act; Act A1255.

(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—

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(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 (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.

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.

Act A1214.

  (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 (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.

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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.

Act A1255.

  (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.

  (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.

Act A1255.

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  (6)   For the purposes of this section liquid assets shall be—

(a) notes and coin which are legal tender in Malaysia;
61/58. (b) balances at the Central Bank, not including the reserve

specified in paragraph (c) of subsection (1) of section
37 of the Central Bank of Malaysia Ordinance 1958;

Act 275. (c) investment certificates issued under the Government
Investment Act 1983; 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.
Act 125.

17.   (1)   Notwithstanding the provisions of the Companies
Act 1965, every Islamic bank shall appoint annually an
auditor approved by the Minister.

  (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

Act 125. (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 (b) of

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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.

  (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.

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

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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 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.

  (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;

61/58. (d) 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 under section
30 (1) (mmm) of the Central Bank of Malaysia

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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;

(da) (Deleted). Act A1145.

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

  (2)   Except for the purposes of paragraph (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.

Act A1145.

  (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 (a) and (b)
of subsection (1).

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.

Act 102.
Act 6.   (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 Act 1973 incorporated
in Malaysia or of any finance company licensed under the
Finance Companies Act 1969, the Islamic bank shall report
the fact to the Central Bank.

  (3)   The reports required to be made under subsection (2)
shall contain the following—

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(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

(ii) for amalgamation, merger or otherwise between the
bank and any other corporation,

wherein the whole or any part of the under-taking 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 unreasonably withheld.

  (3)   Subsection (1) shall not apply to any arrangement,
agreement or scheme to be carried out by any Islamic bank

Act A1255.

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under the Malaysia Deposit Insurance Corporation Act 2005.

Disqualification of

directors and
employees of banks.

Act 125.

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.

Act 102.   (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 Act 1973 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
such fine and imprisonment.

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

Act 125.
Act 102.

Act 6.

(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

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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.

  (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.

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—

Act A634.

(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

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

  (4)   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—

(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 section
25 (4).

26.   No Islamic bank shall grant any advance, loan or credit
facility under the exemption referred to in subsection (4) of
section 25 unless the following conditions are satisfied:

(a) that the advance, loan or credit facility meets the
standards of credit-worthiness 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 or 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.

Restriction of credit to

single customer.
27.   (1)   No Islamic bank shall grant any customer any

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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—
Act 102.

Act 6. (a) transactions with other Islamic banks, with licensed
banks under the Banking Act 1973 and with finance
companies licensed under the Finance Companies Act
1969;

(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 (2) of section 5.

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.

Act A634.

  (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 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 such fine and
imprisonment.

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,

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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

(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

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(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 such fine and imprisonment.

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.

  (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

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Prohibition to carry on
international Islamic

banking business

30A.   (1)   No person shall carry on international Islamic
banking business unless it is—

Act A1307.

(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
such fine and imprisonment.

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—

Act A1307.

(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 application 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 30C.   (1)   The Minister may at any time, on the Act A1307.

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revoke condition of
licence granted under

this Part

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 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 conditions 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—

Act A1307.

(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.

  (3)   The prescription of the minimum amount to be

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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

30E.   (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.

Act A1307.

  (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.
61/58.

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 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
Ordinance 1958.

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

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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.

F.M.S. Cap. 45.   (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.

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.

Act 33.   (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 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—

Act A1255.

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(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 such fine and imprisonment.

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—

Act 125. (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 (4) of section 25; 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 such advance, loan or credit facility
within such time and to such extent as may be specified in
the order.

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  (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.

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) has 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 such 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;

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(b) prohibit the bank from extending any further advance,
loan or credit facility for such period or periods as may
be specified and subject to such exceptions if any and
other conditions as the Central Bank may impose;

(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 (c) of
subsection (2);

(b) to advise the bank on the proper conduct of its
business under paragraph (d) of subsection (2); or

(c) to assume control of, and carry on, the business of the
bank under paragraph (e) of subsection (2),

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 (c)
of subsection (2) of section 37 with respect to an Islamic
bank, the following provisions shall have effect—

Act 125. (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.

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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 (e) of
subsection (2) of section 37, 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 (e) of
subsection (2) of section 37 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 (e) of
subsection (2) of section 37, 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 co-operate
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 (e) of
subsection (2) of section 37, 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
thereunder 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.

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

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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.

  (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

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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 (c), (d) or (e) of subsection (2) of
section 37 shall be deemed to be an officer of the Central
Bank.

Priority of Islamic

deposits.
Act 359.

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:

Act A1255.

(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.

Penalties on directors

and managers.
46.   (1)   Any person who, being a director or manager of an
Islamic bank—

61/58. (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 Ordinance 1958
(hereafter in this section referred to as “the
Ordinance”); or

(b) fails to take all reasonable steps to ensure the
correctness of any statement submitted under the
provisions of this Act or the Ordinance,

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.

  (2)   In any proceedings against a person under subsection

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(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 Ordinance or with the duty of ensuring that those
statements were accurate and that 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 wifully.

Offences by directors,
employees and agents.

47.   Any director, manager, trustee, auditor, employee or
agent of any Islamic bank who—

(a) wifully 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,
condition, assets or accounts of the bank; or

(b) wifully 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 wifully causes any such entry
to be omitted; or

(c) wifully 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 wifully
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
such fine and imprisonment.

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

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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 the
Islamic bank, who asks for or receives, consents or agrees to
receive any 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
endeavoring 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 such fine and imprisonment.

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

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Public Prosecutor.

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 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; and

(iii) all other assets; and

(f) to provide for any matter relating to the regulation and Act A1307.

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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.

Act A1307.

Bank holidays.

Act 102.
54.   No Islamic bank shall do any business with the public
on any day declared a bank holiday under the provisions of
section 57 (1) of the Banking Act 1973.

Application of other

laws.
Act 125.

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.

Act A1307.

PART VIII

CONSEQUENTIAL AMENDMENTS

Amendment of

Banking Act 1973.
Act 102.

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

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

Act 276.     ‘ “Islamic bank” means a bank licensed under
the Islamic Banking Act 1983;’; and

(b) by inserting immediately after the words “other
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 (b) of subsection (1) the
following:

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“(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 (b) of
subsection (1), 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.”.

Amendment of

Companies Act 1965.
Act 125.
Act 276.

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 (j) of subsection (1) the following:

“
Act 102.
Act 276.

(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 the

Central Bank of
Malaysia Ordinance

1958.
61/58.

59.   (1)   Section 2 of the Central Bank of Malaysia
Ordinance 1958, which in this section is referred to as “the
Ordinance”, is amended—

Act 276. (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

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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;

Act 276.     “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,
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 (b) of subsection (1) the
words “other than Islamic banks”;

(b) by inserting immediately after the words “each bank”
in paragraph (c) of subsection (1) 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 (c) of
subsection (1) 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 “banks 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,”.

Act 276.   (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—

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Incorporating latest amendment Act A1307 - Islamic Banking (Amendment) Act 2007

(a) by deleting the words “interest charge” in paragraph
(a) of subsection (4); and

(b) by deleting the word “interest” in paragraph (b) of
subsection (4).

Amendment of

Finance Companies
Act 1969.

Act 6.
Act 276.

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”.

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