Shariah Advisory Council of Bank Negara Malaysia issues new rulings on restructuring Islamic financing facilities

28 August 2020

On 14 July 2020, the Shariah Advisory Council of Bank Negara Malaysia issued a ruling on practices of restructuring of Islamic financing facilities during the Covid-19 pandemic ("Ruling"). The Ruling stipulates that restructuring of an Islamic financing facility based on the original Shariah contract(s) may be undertaken using a supplementary agreement that is cross referred to the terms and conditions of the original agreement. No new agreement is required so as to reduce the cost and challenges to customers, and operational burden on Islamic financial institutions (“IFIs”). A new agreement is required under certain specified circumstances.

The Ruling allows IFIs to restructure a conventional loan into an Islamic financing facility. However, it is noted that the converse is not allowed unless that is a choice exercised by the customer. IFIs are also now allowed to include and account for any accrued profit on an original financing as the new principal amount for the restructured facility in order to avoid the multiplying of compounded profits.

Reference materials

The following materials are available on the Bank Negara Malaysia website www.bnm.gov.my:

• Press release: The Shariah Advisory Council of Bank Negara Malaysia (the SAC) 30th special meeting
• The Shariah Advisory Council of Bank Negara Malaysia (SAC) Ruling on Restructuring of Islamic Financing Facility during Covid-19 crisis