Abstract

AbstractEffective on 31st January 2016, Development Financial Institutions (Amendments) Act 2015 (Act 618) introduced major amendments to Development Financial Institutions Act 2002 (DFIA 2002) for enhancement of the legal and regulatory framework for Development Financial Institutions (DFIs) in Malaysia. The new Part IIIA DFIA 2002 inserts Shariah Requirement to realign with the provisions of Part IV Islamic Financial Services Act (IFSA 2013). Prior to these amendments, the conversion of Bank Pertanian Malaysia Berhad (Agrobank) to Islamic DFIs on 1st July 2015 was previously regulated under the ambit of Section 129 DFIA 2002. At the date of conversion, the remaining conventional loan assets of Agrobank amounting to RM59.2 million were permitted to be treated as Non-Shariah Assets where its income has to be recorded as liability and to be channelled to charity. This paper tries to analyze the current laws and regulations regulating conversion of DFIs to Islamic DFIs under DFIA 2002 and the legal issues and challenges faced by DFIs on conversion. This study also gathers information from library research and webinars related to this topic. The study finds Bank Simpanan Nasional (BSN), SME Development Bank Berhad (SME Bank), Bank Pembangunan Malaysia Berhad (Bank Pembangunan) and Export-Import Bank of Malaysia Berhad (Exim Bank) have to obtain written regulatory approval from Bank Negara Malaysia (BNM) to convert from Islamic Banking Window under Section 33B(1)(b) to Islamic DFIs under Section 33B(1)(a) DFIA 2002 with permission that certain percentage of unconverted conventional loan assets remain as Non-Shariah assets and become liabilities after conversion. This study shows that Section 33B(1),(2) and (3) DFIA 2002 incorporate the new stringent requirements for conversion of entire business of DFIs with literal interpretation that 100% of its assets must be in accordance with Shariah.KeywordsLegal frameworkConversionDevelopment Financial InstitutionsDevelopment Financial Institutions Act 2002

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call

Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.