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

Date26 August 2019
Published date26 August 2019
AuthorSyuhaeda 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
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
Copyright © 2019 by Emerald Publishing Limited
All rights of reproduction in any form reserved

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