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The practice of Islamic banking and finance in Malaysia is relatively new and fast growing. To provide practitioners and others involved in Islamic banking a good working knowledge on the basic principles of Islamic law, the relevant legislation and the products and services available, the Professional Standards and Development Committee (PSDC) has organised the 3 series seminar on Islamic banking.

The first of the series opened to a 191-strong participation at the BC Auditorium on 12 July 2007. Despite the short notice, attendance was very encouraging, testament to the urgent need for education in this area. The session even attracted participants from as far as Johor, Penang and Pahang.

In his opening remarks, Steven Thiru, Chairman of PSDC, explained that in line with the government's move to position Malaysia as an international Islamic financial hub, it has launched the Malaysia International Islamic Financial Centre (MIFC) initiative.

MIFC comprises of a diversified range of financial institutions operating from anywhere in Malaysia, who offer Islamic financial products and services in any currency to non-residents and residents. Bank Negara is concerned that Malaysia's current legal sector lacks the necessary legal expertise to attract foreign investment to Malaysia as an international Islamic financial hub. Thus, Bank Negara intends to facilitate the admission of foreign lawyers and firms to practice Islamic banking, finance and capital markets here, targeting year-end for implementation. There are concerns whether this move would pose a threat to local practitioners, whether there would be a transfer of skill and technology and what would be the regulation and registration framework and processes.

Steven Thiru said that the Bar Council is determined to equip lawyers to face this tide. On Islamic banking alone, two further seminars will take place from September onwards. In tandem with the agenda for the year, many seminars and workshops to increase information, working knowledge and provide training on various areas and aspects have been lined-up. Also in the pipeline, is the proposal to introduce certification for participation.

Mohd Shuhaimi Ismail, partner of Messrs Hisham Sobri & Kadir, and head of the firm's Islamic Banking & Finance Department moderated the session. After a generous introduction, he invited the speaker to take the podium.

No one would have been more qualified to lead this series than Mohamed Ismail Shariff. A long-standing member and dear friend of the Bar, En.Ismail, is a senior partner of Messrs Mohamed Ismail & Co. and has been associated with Islamic banking since its introduction in 1983. He has the distinction of being involved in the drafting of the 1st Malaysian Islamic banking documents, and has since served and continues to serve in various capacities in this area; in working committees of Bank Negara and the Securities Commission, and is equally active in the academia.

The session was carefully structured into 3 sections:

• The fundamentals and the concept of Islamic banking

• How Islamic banking differs from conventional banking

• Law relating to Islamic banking

1. The fundamentals and the concept of Islamic banking

En. Ismail introduced several relevant principles of Islam, to aid a better understanding of Islamic banking, namely syariah and muamalat. He then proceeded to discuss the nature, characteristics and composition of Islamic law. He explained that Islamic law was a unique combination of different types of law, some unchangeable like divine law as prescribed in the Al-Quran, and the hadis and sunnah, being sayings and doings of the Holy Prophet; whilst others are open to modification and re-interpretation.

He also touched on the 4 Sunni Schools of Law and informed that more than 90% of Malaysian Muslims adhere to the Shafi'e madzhab. Hence, most of the syariah rulings and Islamic banking documentation is based on the principals and interpretation of this madzhab.

2. How Islamic banking differs from conventional banking

The speaker took pains to clear the common misunderstanding that Islamic banking is merely another form of conventional banking minus the interest element, or a mere play of semantics by replacing the word "interest" with "profit". He cautioned that for a correct understanding of Islamic banking, one must recognize and accept that at its very essence Islamic banking and conventional banking are 2 distinct activities based on different principles and considerations.

Conventional banking, in 4 simple words is, "lending money at interest"; whereas interest or riba in Islam is strictly prohibited.

How then, the question arises, is Islamic banking carried on. En. Ismail explained that in Islamic banking, there is no lending or Islamic loans, safe for qard hassan, an interest-free loan. Islamic banking is essentially a trading transaction, based on an asset (which may be tangible or not) or an economic activity. Therefore, what is done with the asset (or the activity) is the underlying transaction as opposed to conventional banking where the underlying transaction is money-lending at an interest.

3. Law relating to Islamic banking

It was interestingly pointed out the governing legislation, the Islamic Banking Act 1983 is regulatory in nature and does not touch on Islamic law and principles. As such, pursuant to an amendment on 2003, the advice of the Syariah Advisory Council (which was formerly available to conventional banks only) is now made available to Islamic banks. Hence the Syariah Advisory Council rulings now apply to both Islamic banking and conventional banks offering Islamic banking products and services.

En. Ismail strongly suggested the Syariah Rulings published by Securities Commission as valuable reference on clarification and justification of the various syariah rulings.

On the matter of applicable laws, rules and enforceability in Courts, the speaker elucidated as follows:

• Documents and instruments used in Islamic banking have to:

- comply with Islamic law
- comply with civil laws
- drafted ins such away (eg. as to form, manner of execution and registration) as to be enforceable in the civil courts

This poses a "double-jeopardy" situation for practitioners, as they cannot flout either of the laws when in conflict, as there is no specific provision of law as to which law should prevail. In such circumstances, it would be a matter for the Court to decide.

• As Islamic banking is governed by Federal Law, it falls under the jurisdiction of the civil courts.

• The applicable rules are the RHC 1980.

Another practical area in litigation that was probed was whether an expert in Islamic law can be called to lead evidence on an intricate or difficult issue in contention. The answer is a firm "No" following the Court of Appeal's decision in Ramah v Laton (1927) 6 FMSLR 128. Muslim law is not foreign law, but rather local law of which the Court must take judicial notice. However, the Court may be assisted by rulings of the Syariah Advisory Council on matters referred to it, but the Council's rulings are not binding.

The day ended with a lively Q & A session that tackled issues of enforcement of Islamic banking transactions, redemption of non-Islamic loans, applicable law, situations of conflict in interpretation Islamic banking products, amongst others.

In closing, En. Ismail stressed that Islamic banking is still in its infancy and slowly evolving and so issues of uncertainty and differing views are expected.

It was truly a productive afternoon for all. The presentation was lucid and instructive, peppered with just the right touch of humour.

The session also provided a valuable opportunity for interaction between the Bar and members of the various Islamic banking sectors, particularly the banking sector, which was well represented.

Going by the success of this session, the 2nd and 3rd sessions scheduled on 16 August and 6 September are definitely not to be missed. As a sneak preview, these sessions will touch on specific Islamic banking products and services, as well as recovery actions; and an in-depth analysis of 5 decided cases on financing transactions.

For registration and further information, please contact our PSDC or the supporting Executive Officer, Nurul Sheila Ibrahim at 2031 3003 x 142.

Steven Thiru, Chair of PSDC welcoming participants to the 1st series of the Seminar	Mohd Ismail holds forth

Mohd Ismail (left) stressing a point while Mohd Shuhaimi who chaired series looks on.

Participants listening attentively and busy taking note.

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