Procedural Laws Governing Event of Default in Islamic Financing in Malaysia: Issues and Challenges

• DOI: https://doi.org/10.1108/978-1-78973-545-120191017
• Date: 26 August 2019
• Pages: 193-207
• Published date: 26 August 2019
• Author: Syuhaeda Aeni Binti Mat Ali,Rusni Hassan,Ahmad Azam Othman

Chapter 11

Procedural Laws Governing Event of

Default in Islamic Financing in Malaysia:

Issues and Challenges

Syuhaeda Aeni Binti Mat Ali, Rusni Hassan and

Ahmad Azam Othman

Abstract

The Malaysian economy is expected to face another tumultuous year in

2019. It has been reported more than 21,000 people lost their jobs in 2018,

half of whom were in Selangor and Kuala Lumpur. This rising unemploy-

ment gravely affects a person’s source of income, particularly when he/she

is the sole breadwinner of the family. It further leads to the inability to pay

one’s monthly commitments such as home, personal and car nancing. Not-

withstanding the above situation, Sharīʿah encourages leniency on the part

of the creditor, that is, when the debtor is in a difculty, to grant him/her

time until it is easy for him/her to pay. Nonetheless, in Malaysia, the in-

ability to pay debt or non-performing loan/nancing entitles the nancial

institutions (both conventional banks and Islamic nancial institutions) to

proceed with legal proceedings in civil court It is trite that Islamic nancing

in Malaysia is governed by Sharīʿah principles and legislations, which are

conventional in nature; and contractual rights and duties involving Islamic

nance are enforceable in the civil court of law. This chapter examines pro-

cedural laws governing the event of default of Islamic nancing in Malaysia.

The methodology adopted in this chapter is doctrinal legal analysis whereby

the relevant laws, namely, Rules of Court 2012, Insolvency Act 1967, Limi-

tation Act 1953, Evidence Act 1950, Court of Judicature Act 1964 and the

National Land Code 1965 are analysed in addition to the relevant case law.

The study reveals that while some of the provisions are sufcient to regulate

the event of default of Islamic nancing, the laws are largely inadequate.

The chapter also nds a signicant number of legal issues and challenges

relating to event of default in Islamic nancing, which require legal reform.

Keywords: Debt; procedural laws; Islamic nancing; default; Sharīʿah; issues

Emerging Issues in Islamic Finance Law and Practice in Malaysia, 193–207

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doi:10.1108/978-1-78973-545-120191017