Malaysian Central Bank Issues New Law For Classifying Customer Money In Islamic Banks

Vanessa Doctor

21 March 2014

, the Malaysian central bank, has announced changes to the way banks classify customers' money.

According to the Islamic Financial Services Act 2013, money that Islamic banking institutions accept from customers should be classified into either Islamic deposits or investment accounts. The new law replaces the Islamic Banking Act 1983, which classified all money accepted as Islamic deposits.

"The differentiation will allow the Islamic banking institutions to develop a wider range of products for both classifications to meet the diverse needs of the customers. The latter will also be able to better appreciate the product offerings by the Islamic institutions and make an informed decision in respect of the choices of products," said the central bank.

Companies practising the old system will be given two years to transition and reclassify their deposits, which will continue to be protected by Perbadanan Insurans Deposit Malaysia. The transition period ends in 30 June 2015.

A recent report by Kuwait Finance House's research arm JKFH Research forecasts that the Islamic banking sector represented almost 80 per cent of the global Islamic banking assets recorded in 2013. Malaysia is second in the world in terms of the size of global Islamic banking jurisdictions at 13 per cent; the first being Saudi Arabia at 18 per cent.