Islamic Financial Services

This is a significant Court of Appeal decision — SA Puncak Management Sdn Bhd v KL Petrogas Sdn Bhd (25 August 2026) — that raises several important and, in some respects, provocative points for Islamic finance in Malaysia. Below is my analysis of the key issues from an Islamic finance perspective.

The Core Holding on the Moneylenders Act

The Court of Appeal reversed the High Court on all four questions, holding that the Islamic Pre-Factoring Facility did not breach s 5(1) of the Moneylenders Act 1951 (MA). The Court drew a critical distinction: s 5(1) MA prohibits the business of moneylending, not a mere activity of moneylending, and criticised the High Court for conflating the two. This was grounded in Federal Court authority from Ngui Mui Khin v Gillespie Bros and Yeep Mooi v Chu Chin Chua, both of which held that the MA targets moneylenders as a class of business, not isolated lending transactions.

The Court further held that whole turnover agreements (receivables purchase agreements) are a recognised form of debt financing, not moneylending, relying on the New Zealand authority of Commercial Factors Ltd v Maxwell Printing Ltd. It also held that even if the MA were engaged, SAPM was exempt under the Exemption Order (P.U.(B) 219/2005), a point the High Court had erroneously restricted to "legitimate factoring" only.

The Treatment of Shariah Non-Compliance — A Critical Point

The most consequential aspect of this judgment for Islamic finance practitioners is the Court of Appeal's treatment of the Shariah compliance question in Section F of the judgment. The Court declined to consider KLP's allegation of exorbitant profit and potential breach of Shariah principles for three reasons:

1. Pleading deficiency — KLP's Amended Statement of Claim did not plead that the Islamic Pre-Factoring Facility had breached Shariah principles.
2. Scope of the questions — The four questions before the Court did not concern the exorbitant profit allegation, much less a breach of Shariah principles.
3. Substantive position — Even if there were a breach of Shariah principles, such a breach in itself does not invalidate the Islamic Pre-Factoring Facility.

On the third point, the Court relied heavily on the Court of Appeal's earlier decisions in Tan Sri Halim bin Saad v Amanah International Finance Bhd [2026] 2MLJ 570, and within that, the judgment of Rohana Yusuf JCA in Maybank Islamic Bhd v M-IO Builders Sdn Bhd [2017] 2 MLJ 69. The M-IO Builders line of reasoning holds that:

• The validity of an Islamic finance contract must be assessed under the general law governing contracts (principally the Contracts Act 1950), not solely by reference to Shariah principles.
• Section 24 of the Contracts Act 1950 exhaustively lists the grounds on which a contract may be void or unlawful, and non-compliance with Shariah is not among them.
• Neither the Islamic Banking Act 1 983 (now repealed) nor the Islamic Financial Services Act 2013 (IFSA) provides that a breach of a Shariah principle perse invalidates a financing facility.
• If Parliament had intended Shariah non-compliance to void a contract, it would have expressly added such a ground to s 24 of the Contracts Act 1950, but it has not done so.

Observations and Critique

1. The "Shariah-blindness" concern

The judgment reinforces a well-established but highly debated position in Malaysian law: that Islamic finance contracts are, at bottom, governed by civil law, and Shariah compliance is essentially a regulatory and institutional matter (policed by Bank Negara Malaysia's Shariah Advisory Council and institutional Shariah committees) rather than a contractual validity matter. This can be traced back to Bank Kerjasama Rakyat Malaysia Bhd v Emcee Corporation Sdn Bhd [2003] 2 MLJ 408,which the Court expressly endorsed.

From an Islamic finance purist's perspective, this is troubling. It effectively means that a financier can label a facility as "Islamic," charge profit rates exceeding 100% per annum, and the court will enforce the contract so long as it passes muster under the Contracts Act 1950 — even if the pricing mechanism is functionally indistinguishable from usurious interest (riba). The judgment leaves open the question of what remedy, if any, a customer has when an "Islamic" facility is Shariah-non-compliant in substance.

2. The role of IFSA and the Shariah Advisory Council

The Court noted that neither the IBA nor IFSA provides that a Shariah breach invalidates a financing facility. This is technically correct but arguably incomplete. Section 29 of IFSA requires licensed Islamic financial institutions to ensure that their aims and operations, business, affairs, and activities comply with Shariah. Sections56–58 of IFSA establish the role of the Shariah Advisory Council (SAC) of Bank Negara Malaysia as the authority for the ascertainment of Islamic law for the purposes of Islamic financial business, and s 56(1) provides that the ruling of the SAC shall be binding on arbitral tribunals and courts. The judgment does not engage with this regulatory architecture at all, likely because SAPM is nota licensed Islamic bank but rather a scheduled institution under BAFIA (now a prescribed institution under FSA/IFSA). This is a significant gap: the Shariah governance framework under IFSA may not have applied to SAPM directly, but the Court's broader pronouncements on Shariah compliance and contractual validity have implications well beyond this particular factual matrix.

3. The exorbitant profit issue

The Court declined to address the allegation that profit exceeded 100% per annum because it was not pleaded as a Shariah breach and was not within the four questions. This is procedurally sound, but it sidesteps a substantive concern that goes to the heart of Islamic finance: the prohibition of riba (usury/interest). A profit rate exceeding 100% per annum on a facility labelled "Islamic" raises serious questions about whether the arrangement is, in economic substance, a loan at interest rather than a genuine sale-based or agency-based financing. The Court's characterisation of SAPM's business as "Debt Financing" rather than moneylending does not address the Shariah dimension of this concern.

4. Policy implications for whole turnover agreements

The Court's robust endorsement of whole turnover agreements as lawful debt financing instruments is commercially significant. The reasoning that Malaysian businesses should not be deprived of this financing tool, and that prohibiting such agreements would drive financing offshore, is pragmatic and commercially sensible. However, this pragmatism sits uneasily with the Islamic labelling of the facility. If the structure is endorsed purely on civil law grounds, one might question what the "Islamic" label adds — or whether it creates a false assurance of Shariah compliance for customers.

5. The closing reminder

The Court's final observation is telling: "unless it is abundantly clear that a genuine financing agreement or transaction is prohibited by our written law, either expressly or by necessary implication, courts should uphold and enforce the Financing Agreement/Transaction". This is a strong pro-enforcement, pro-commercial certainty statement that aligns with the principle in Lori Malaysia Bhd v Arab-Malaysian Finance Bhd that courts should be slow to strike down commercial transactions. For the Islamic finance industry, the message is clear: the courts will not use Shariah principles as as word to invalidate otherwise lawful contracts.

Summary

This judgment is a significant reaffirmation of the M-IO Builders/Emcee Corporation line of authority. It will be welcomed by financiers and the factoring industry for its commercial certainty and its validation of whole turnover agreements. However, it does leave a gap in the protection available to customers under Islamic finance arrangements, particularly where facilities carry the "Islamic" label but impose pricing that may be inconsistent with the prohibition of riba. The judgment essentially directs Shariah compliance disputes away from the courts and towards the regulatory framework —but without engaging with whether that framework adequately addresses the customer's position. This tension between contractual enforceability under civil law and substantive Shariah compliance remains one of the most live issues in Malaysian Islamic finance jurisprudence.

This article is for general informational purposes only and does not constitute legal advice. Please contact us if you require advice on how these developments may affect your business.

New Regulatory Framework for Consumer Credit Industry Now in Effect

The Consumer Credit Commission (Suruhanjaya Kredit Pengguna, "SKP") has today, 5 June 2026, issued its Authorisation Standards (Version 1.0) pursuant to section 123 of the Consumer Credit Act 2025 ("CCA"). The Standards take immediate effect and establish the licensing and registration framework for entities carrying on credit businesses and credit service businesses in Malaysia.

Who is affected?

The Standards apply to entities carrying on or intending to carry on the following regulated activities:

• Credit business (requiring a licence): buy now pay later schemes, factoring, and leasing, including their Islamic equivalents.

• Credit service business (requiring registration): impaired loan or financing acquisition, debt collection, and debt counselling and management.

Entities already engaged in these activities, as well as new entrants to the market, must familiarise themselves with the authorisation criteria and ensure compliance.

Key requirements at a glance

The Standards prescribe minimum financial thresholds of RM2 million in shareholders' funds or total equity for credit businesses, and RM500,000 (or RM250,000 with professional indemnity insurance of RM250,000) for credit service businesses. Applicants must be companies incorporated in Malaysia under the Companies Act 2016 and must demonstrate organisational competence, sound business management, and the fitness and propriety of their key persons, including controllers, directors, and senior management.

All applications must be submitted via SKP's new digital regulatory platform, the Consumer Credit Commission Online Regulatory System ("CORE System"), together with the prescribed processing fee of RM2,000 per type of business.

Islamic credit business

The Standards include dedicated provisions for Islamic credit providers, who may operate either as full-fledged Islamic entities or through an Islamic window model. Key obligations include end-to-end Shariah compliance, establishment of an Islamic Credit Business Fund for window operators, prohibition on commingling of Islamic and conventional funds, and the appointment of a qualified Shariah adviser or Shariah committee.

Post-authorisation obligations

Authorised entities face ongoing compliance obligations, including periodic data submissions to SKP (annual audited financial statements, quarterly operational data, and monthly complaints data), notification requirements within 14 calendar days of specified events, and the obligation to submit credit consumer data to a credit reporting agency within 12 months of authorisation. Prior approval from SKP is required for matters such as changes in control, appointment of the chief executive, and addition of new business types.

Fees

Inaugural authorisation fees are RM8,000 per licence (credit business) and RM5,000 per registration (credit service business), with a 50% reduction for approvals granted in the second half of the calendar year. Annual fees are tiered by revenue, ranging from RM8,000 to RM100,000 for credit businesses and RM5,000 to RM50,000 for credit service businesses.

Entities not serving credit consumers

Entities carrying on a credit business or credit service business that does not involve credit consumers are not subject to the licensing or registration requirement. However, they must submit an annual declaration to SKP under section 79(2) of the CCA confirming their noninvolvement with credit consumers.

What should affected entities do now?

Entities currently carrying on or planning to carry on any of the regulated activities should review the Authorisation Standards in full, assess their readiness against the authorisation criteria, and take steps to prepare their applications via the CORE System. Particular attention should be given to ensuring that key persons meet the fit and proper criteria and that the requisite policies, procedures, and financial resources are in place.

We are available to assist clients in navigating the new framework, including advising on authorisation applications, corporate structuring, Shariah governance arrangements, and ongoing compliance obligations.

The full text of the Authorisation Standards is available on SKP's website at www.skp.gov.my.

If you have any questions or require any additional information, please contact Sharifah Shafika Alsagoff or the partner you usually deal with in Zaid Ibrahim & Co

This alert is for general information only and is not a substitute for legal advice.

Bank Negara Malaysia (“BNM”) (Central Bank of Malaysia) has recently proposed standards and guidelines for sell and buy back agreements (“SBBA”) and collateralized commodity murabahah (“CCM”) transactions used as Islamic financial instruments in the Islamic Interbank Money Market (“IIMM”).  

BNM’s exposure draft of 2 October 2023 sets out these proposals. Industry players have been asked to provide feedback by 31 October 2023, after which BNM will formalize a policy document on 1 January 2024.

The objectives of the policy document are to:

1. outline the scope of the SBBA and CCM transactions;
2. provide the regulatory requirements and BNM’s expectations for such transactions;
3. promote sound risk management practices for the conduct of such transactions; and
4. ensure compliance with Shariah principles.

Policy document will supersede previous guidance notes on SBBA

When it comes into effect, the policy document will supersede the Guidance Notes on Sell and Buy Back Agreement (“Guidance Notes”), previously issued on 28 June 2013.

The Guidance Notes provided best practices governing the conduct of the SBBA transaction. The SBBA, which is akin to the conventional repurchase (“Repo”) agreement, was modified to comply with Shariah principles and approved by the Shariah Advisory Council of BNM as an Islamic financial instrument.

A Repo agreement is guided by the Repurchase Agreement Transactions Policy Document issued by BNM in 2019. The policy document defines a Repo as a transaction which involves the sale of securities with a simultaneous agreement to repurchase them on a future date and at a higher price. The repurchase price consists of the original price plus an interest rate on the cash leg of the transaction.

In the SBBA, there are two distinct contracts which are concluded at two separate times, namely, the sale of securities in the first contract and the repurchase of the securities in the second contract. In addition, there is no stipulated condition to repurchase the securities by the seller in the first contract. The Wa’d or promise to repurchase and/or to sell the securities in the SBBA overcomes the inter-conditionality issue in the Repo, as the promise is only made upon the conclusion of the first contract.

The SBBA is thus the answer to a Shariah compliant repurchase agreement.

Policy document will enhance features and provide clarity in SBBA

The proposed policy document enhances the features of the existing SBBA transaction, namely by providing clarity to its definition and transaction sequence as follows:

The element of promise or Wa’d in the SBBA arrangement prevents inter-conditionality between the sale and purchase transactions entered by the SBBA buyer and SBBA seller.

Key differences between the policy document and previous guidance notes

The key difference between the policy document and the Guidance Notes is the introduction of CCM as an alternative Islamic financial instrument for the IIMM. The CCM is an arrangement based on the Shariah principle of murabahah where a CCM pledgor buys commodity from a CCM pledgee on deferred payment terms. The CCM pledgor then pledges Shariah compliant securities as collateral for the deferred payment obligation under the murabahah contract.

Other salient differences between the Guidance Notes and the policy documents are set out below:

Conclusion

In 2014, the International Islamic Financial Market issued a Master Collateralized Murabahah Agreement (“MCMA”) which is a standard template used as an alternative to the Repo. The MCMA is based on the Shariah principles of murabahah and rahn and aims to address the issues and diversity in practices around the buying and selling of securities by the same counterparties at a future date.

Since then, international banking institutions, especially in the United Arab Emirates, have used the MCMA as a liquidity management tool.

Therefore, the introduction of CCM in this proposed BNM’s policy document may be more appealing to banking institutions that are less favourable towards the SBBA.

If you have any questions or require any additional information, please contact Lily Adelina Hashim, Raihan Naseeha Rafidi, or the Zaid Ibrahim & Co partner you usually deal with.

This alert is for general information only and is not a substitute for legal advice.