I’m a non-Muslim, can I apply for Islamic personal loan? This is one of the most frequently asked questions when applying for a personal loan in Malaysia.
The misconception around Islamic banking is not new. Islamic banking itself is not a new concept. However, the loan associated with Islamic banking, especially Islamic personal loan makes some people become uneasy when looking for personal financing.
What is Islamic Personal Loan in Malaysia?
Fundamentally, there isn’t much difference between conventional and personal Islamic financing. To understand what is Islamic personal loan, you will first have to understand the concept of Islamic banking.
Islamic banking follows the Shariah law. Shariah is an Islamic law that set a guideline for all Muslims, including personal financing. Shariah law is derived from the Quran, Hadith, Ijma and other sources based on reasoning and interpretations of Islamic law.
According to Shariah law, one cannot charge any interests when giving a loan. So, to adhere to this concept, no money is involved in Islamic personal loan.
What happens is the Islamic personal loan is treated as a product or an asset. Bank sell the product at a marked-up price. In this case, the cash and make a profit from the transaction.
That is why if you look at any Islamic personal loan plan, there aren’t any interest rate stated. Instead, you will be looking at a profit rate value.
Islamic Banking and Islamic Financing
Islamic financing is offered by Islamic banking. Most banks have their own Islamic banking division to set them apart from their conventional banking.
The main reason is Islamic banking in Malaysia have to strictly follow the Islamic Banking Act of 1983. This Islamic Banking Act has made Malaysia one of the most important Islamic finance centers in the world.
According to Shariah principles, Islamic banks have to conduct their activities without touching any of the following activities:
- Haram business.
- Riba (interest rates).
- Gharar (hazardous or speculative sales where the value is uncertain).
- Maisir or Qimar (gambling).
- Zulm (cruel activities and practices).
These activities are related to each other. For example, Riba or interest rate in the form of fixed deposit, saving a deposit or any loan with interest is considered Haram. The same can be said with a system of economy that is based on maisir (Gambling) and Gharar (uncertainty).
These procedures are determined by the Shariah Advisory Council of Bank Negara (SAC). SAC is the highest authority for Islamic finance in Malaysia will monitor, examine and endorse the Islamic financial products by any financial institution that provide Islamic financing – including Islamic personal loan.
Islamic Financing Types
Bank Negara Malaysia has listed types of Islamic financing, or are formally known as Shariah Contracts. The contracts are:
- Bai’ Dayn
- Bai’ ‘Inah
Explaining all of these Islamic financing types is not the purpose of this guide. Instead, we will take a look at Bai’ ‘Inah or also known as Bai’Al-‘Inah, a widely used concept in Islamic personal financing.
Most Islamic personal financing in Malaysia based on Bai’Al-‘Inah concept. This is the same concept as explained earlier in the article. The seller (bank) sell a product to a buyer (applicant). In this case, the product is the cash (loan). The buyer than buy back the product at a higher price than the selling price.
The Islamic bank then charges the client for providing the client with a personal financing facility. This charge is known as profit rate.
Most Islamic personal loan contract will define the profit rate amount, which is fixed per month or per annum.
Takaful Coverage on Islamic Personal Financing
Most Islamic personal loan plan offers Takaful Insurance coverage with the financing. Some are compulsory, while some are optional.
Takaful coverage is an Islamic Insurance. It works with members contribute money, and the money will be used in the event of losses or damage. Takaful Insurance coverage is available to everyone, including non-Muslim.
Is there any benefit of subscribing to Takaful coverage with your Islamic personal loan?
Usually, if you opt to subscribe to Takaful coverage with your personal loan, the profit rate will be lower than without Takaful coverage. This is because Takaful coverage will reduce the risks for the bank, and the bank can also make more money by selling the Takaful coverage.
We will explain more on Takaful coverage in the upcoming guide.
Islamic Personal Loan Misconceptions
Although Islamic personal financing is not a new concept, many of us are still confused about the in and out of Islamic financing. Below are some the misconception or myths surrounding Islamic personal loan.
Islamic personal financing is only for Muslim
This is the most common myth on Islamic loan. Anyone can apply, even for non-Muslim.
Islamic loan costs more than a conventional loan
There is some truth in this. However, loan costs greatly depend on the financial institution. There are conventional personal loans that cost more than Islamic personal loans and vice versa. The smart things to do when looking for a personal loan, be it Islamic or conventional is to compare them.
Use our personal loans section to choose the best personal loan for you. Click here.
The financing amount is too low
Again, this depends on the bank and the loan offered. There are Islamic personal loans that offer the maximum financing amount up to RM250,000, and there are Islamic personal loans that capped the maximum amount to only RM50,000.
The financing tenure is too short
As with financing amount, the financing tenure depends on personal loans, and the financial institution. Some banks may offer only 5 years of financing tenure, while other banks can offer up to 10 years with the loan.
Are There Any Benefits in Islamic Personal Loan?
There are several benefits if you choose to apply for Islamic personal financing instead of a conventional personal loan.
Fixed profit rate
If you have done your homework and compare personal loan plan between Islamic and conventional, you will notice that Islamic personal loan offer fixed profit rate, while conventional personal loan has a variable interest rate.
Lower late payment fees
Since compounding interest is prohibited by Shariah law, Islamic bank cannot charge you or will charge a minimum amount compared to conventional personal loan for late payment. Based on Ta’widh concept in Shariah, Islamic financial institution can only charge a maximum amount of 1% per annum for late payment fees.
No early settlement fees
Under the concept of Ibra’ (rebate), Islamic bank has to provide a rebate if you choose to settle your loan earlier than the loan tenure in the agreement. This work best for those who know they can pay off their loan early.
Islamic Banks and Islamic Personal Loan in Malaysia
There are many Islamic banks in Malaysia. Most of them have their Islamic counterpart. Below are all the banks and financial institution that provide Islamic personal loan.
- AEON Credit Service M Berhad
- Affin Islamic Bank Berhad
- Al Rajhi Banking & Investment Corporation (Malaysia) Berhad
- Alliance Islamic Bank Berhad
- AmBank Islamic Berhad
- Asian Finance Bank Berhad
- Bank Islam Malaysia Berhad
- Bank Muamalat Malaysia Berhad
- CIMB Islamic Bank Berhad
- HSBC Amanah Malaysia Berhad
- Hong Leong Islamic Bank Berhad
- Kuwait Finance House (Malaysia) Berhad
- Maybank Islamic Berhad
- MBSB Bank Berhad
- OCBC Al-Amin Bank Berhad
- Public Islamic Bank Berhad
- RHB Islamic Bank Berhad
- Standard Chartered Saadiq Berhad
Some of the Islamic banks offer more than two Islamic personal financing schemes. Below are the Islamic personal loans currently offered in Malaysia.
- AEON iCash Personal Financing
- Affin Tawarruq Term Financing-i
- Affin Tawarruq Cash Line-i
- Agrobank Agrocash-i
- Al Rajhi Personal Financing-i
- Alliance Islamic Bank CashVantage Financing-i
- Ambank Personal Financing-i
- AmMoneyLine Facility-i
- Asian Finance Bank Personal Financing-i
- Bank Islam Personal Financing-i (package)
- Bank Islam Personal Financing-i (non-package)
- Bank Islam Floating Rate Personal Financing-i (package)
- Bank Muamalat Pembiayaan Peribadi Pesara (3P)
- Bank Muamalat Pembiayaan Pengurusan Kewangan (PPK)
- Bank Muamalat 3P Special Package (3PS)
- Bank Muamalat PPK Cuepacs Debt Settlement
- Bank Muamalat Micro Financing
- Bank Muamalat Micro Bazar Tok Guru
- Bank Muamalat Modenas Motorcycle
- Bank Muamalat Umrah Ziarah
- Bank Muamalat Education
- Bank Muamalat Membership
- Bank Muamalat Corporate Package
- CIMB Islamic Share Purchase Financing-I (SPF-i) – Employee Share Option Scheme (ESOS)
- CIMB Islamic Share Purchase Financing-I (SPF-i) – Initial Public Offer (IPO)
- CIMB Islamic Xpress Cash Financing-i
- CIMB Islamic Term Financing-i Secured by ASB Certificate
- HSBC Amanah Personal Financing-i
- HBSC Personal Financing-i (education)
- Hong Leong Personal Financing-i
- Kuwait Finance House Murabahah Personal Financing-i Generic
- Kuwait Finance House Murabahah Personal Financing-i Government Employees
- Kuwait Finance House Murabahah Cashline-i
- Public Islamic Bank BAE Personal Financing-i
- Public Islamic Bank PLUS BAE Personal Financing-i
- RHB Islamic Bank Term Financing-I Collateralized by ASB Certificate
- RHB Islamic Bank Personal Financing-i for Pensioner
- RHB Personal Financing-i for Civil Sector
- Maybank Islamic Personal Financing-i
- Standard Chartered Saadiq Personal Financing-i
You can view more on our Islamic Personal Loan in Malaysia page.
How to Apply for Islamic Personal Loan?
You can apply for Islamic personal loan from any of the respective Islamic bank. Do your research first and compare the best Islamic personal financing for your needs. Loan amount, loan tenure and profit rate differ from bank to bank.
Here at personal loan in Malaysia, we have created a personal loan section that can help you to pick the best Islamic personal loan. Use our search function or just browse through all the Islamic personal financing available in Malaysia to make a wise decision.