1.

INTRODUCTION
Conventional banking and finance as we know it today, is governed by the laws of a nation.

However, in Islamic banking and finance is governed by two sets of law, one divine Islamic law

(Shariah) the other man made (conventional laws). Malaysia is a well-known country in

incorporating Shariah in governing Islamic banking and finance. Its advanced position in Islamic

banking and finance is because of its comprehensive legal and regulatory dual system, that is

where conventional banking and finance parallel to Islamic banking and finance.

Islamic banks are operating based on Islamic principles derived from the Quran and the

Sunnah. The first source is the AL-Quran. Al-Quran is the original and eternal source of Shariah

law. It constitutes messages that Allah (swt) inspired the Prophet (pbuh) to relay for the guidance

of mankind. These messages are universal, eternal and fundamental. The hadith is the second

foundation of Shariah which is the next main reference after Al-Quran. It is a piece of

information, such as an account, narrative or story and constitutes a record of the Sunnah of the

Prophet (pbuh), handed down from generation to generation and which has become the rules of

faith and practice of Muslims. The Sunnah signifies the custom, habit or usage of the Prophet

(pbuh).[ CITATION She10 \l 1033 ]

In Islamic banking and finance, honesty is a vital point for it to operate. To ensure honesty,

transparency and ethical dealings in trade, there are injunctions that exist in Shariah which is the

prohibition of riba, gharar, maisir, qimar and jahala. These injunctions are the fundamental

principles governing Islamic banking and finance today.

The giving and receiving of riba is strictly prohibited in Islam. Riba is an increase in a loan

transaction or in exchange of commodity, accrued to the owner (lender) without giving an

1
equivalent counter value or recompensation in return to the other party. It covers interest both on

commercial and consumer loans. Riba in Islamic finance is taken to mean interest paid to

depositors and interest charge upon fund users, and is strictly prohibited in Islam.

Gharar is one of the major constrains on transaction which renders some transaction as

invalid and void. However, some jurists permit some gharar which is light and give benefit to

people, based on the principle of maslahab (public interest). Gharar has been defined as

“danger”, “risk” and also transaction equivalent to “a zero-sum game with uncertain payoffs.”

Gharar sales are invalid precisely because of the excessive uncertainty and risk involved.

[ CITATION Abu07 \l 1033 ]

Qimar is often described as maisir which means something attained through no effort. This is

one of the main reasons that gambling is prohibited in Islam. Maisir or gambling due to its high

risk and uncertain outcome, and jahala sales in which ignorance can lead to uncertainty, are

gharar and invalid. It follows that maisir, qimar and jahala can be described as the subset of

gharar. This is because all jahala transactions would amount to gharar because of the excessive

uncertainty involved, but not all gharar sales are jahala.[ CITATION Sit10 \l 1033 ]

2
 2. MAYBANK ISLAMIC BERHAD.

The global growth of Islamic Finance industry is expected to continue on a strong

momentum and Malaysia is well positioned to be at the forefront of the industry’s development.

On the back of the industry’s growth, Maybank Islamic Berhad offer one new way of Islamic

banking and finance to the customer.

In my assignment, I will focus on Maybank Islamic Berhad to discussed about the product

that they offered to the customer. This product is in accordance with the Shariah principles. The

product is Maybank Al-Ijarah Thumma Al-Bai (AITAB) Car Loan. This is a Shariah-compliant

car financing based on the principles of Ijarah Thumma Al-Bai' which means lease followed with

sale. Most vehicle financing facilities offered by Islamic financial institutions are based on Al-

Ijarah Thumma Al-Bai` (AITAB) concept. This financing offered by Maybank is only for car

financing.

The definition of AITAB is owning the benefit of certain assets for a specific period of time,

by paying an agreed sums of rental, with an agreement that the owner will transfer the rented

asset to the hirer at the end of the agreed period or during the period, provided all rental

payments or installments have been made in entirety. In other words, AITAB is a contract of

leasing with a promise to sell the asset.

The assignment of rights or liabilities does not contradict the Shariah as Islam recognises

transfer of rights and liabilities based on mutual agreement by the parties. In the context of

vehicle financing based on AITAB, if a lessee decides to discontinue the lease, he may transfer

3
his rights and liabilities to another party who will continue the lease and will ultimately purchase

the asset from the Islamic financial institution.

For Maybank Islamic Berhad, this facility is provided to part finance of a motor vehicle. In

this product, upon approval of the facility, an AITAB Agreement shall be entered between the

customer as the Hirer and Maybank Islamic Berhad (the bank) as the Owner of the motor

vehicle. The profit rate for the AITAB facility is calculated based on fixed or variable rate over

the tenure of the facility and the maximum period of a tenure of the facility is up to 9 years only.

2.1 THE FLOW OF AITAB TRANSACTION IN MAYBANK ISLAMIC BERHAD

The applicable Shariah contract is Al-Ijarah Thumma Al-Bai’ (AITAB). AITAB is a

leasing contract (Ijarah) followed by sale contract (al Bai’). Under the leasing contract the

customer leases the asset from the Bank at an agreed rental payment over a specific period. Upon

expiry of the leasing period, the customer enters into a sale contract to purchase the asset from

the Bank at an agreed price. So in AITAB, the contract of al-ijarah runs separately from the

contract of al-bay’. The first stage is the executing part of the contract of true leasing (al-ijarah

‘ain) and followed by the second stage which us the executing the contract of sale (al-bai’) at a

nominal value agreed upon by both parties.

In Malaysian context, AITAB client normally identifies and approaches vendor or dealer

of the asset he needs. The dealer then prepares all related documents pertaining to AITAB

financing on behalf of the bank. Here, the dealer merely acts as an agent to the bank. Once the

client and the bank concluded the AITAB contract, the car will be delivered to the client, hence

effectively commencing rental payment. Upon completing all the agreed payment, both parties

4
shall enter into another agreement in which the customers pay a nominal amount of RM1 (may

be variable upon the agreed amount from both parties) signifying sale contract.

(I) First Contract: Contract of Lease (Ijarah)

(a) Vendor or Dealer or Seller sells the vehicle ordered by the customer to the bank or finance

company.

(b) The bank or finance company pays to the Vendor full amount of the vehicle. Therefore, the

banks or finance company became the Owner of the vehicle.

(c) The customer paid the deposit payment (mostly 10%) of the full amount of the vehicle to the

Vendor. The customer agrees to pay the road tax and insurance coverage. He is also responsible

for the maintenance.

(d) Vendor delivers the vehicle to customer. This is done once the bank or finance company

approved the customer’s application upon in the purpose to purchase the vehicle during or at the

end of the contract.

(II) Second Contract: Contract of Sales (Bay’)

(e) Owner hires the vehicle to the customer. The customer became the Hirer.

(f) He is now responsible to pays the rental or installment to the Owner with the agreed amount

until the payment fully paid either during the contract or end of the contract. This is due to

financing he obtained (mostly 90%) from the bank or owner.[ CITATION Ais14 \l 1033 ]

5
Maybank Al-Ijarah Thumma Al-Bai (AITAB) Car Loan is offered to individuals aged 18 years

old and above, sole proprietorships, partnerships and Private Limited & Public Limited

Companies.

2.2 TYPES OF MAYBANK AITAB

Maybank AITAB Car Loan is a vehicle financing facility offered for the purchase of

new, old, and reconditioned vehicles. The following are the vehicle purchase plans available with

Maybank AITAB:[ CITATION Ano18 \l 1033 ]

VEHICLE TYPE REPAYMENT PERIOD MARGIN OF FINANCE

New passenger car, MPV, Up to 9 years (108 months) A maximum of 90% of the

4WD, and SUV (CKD and seller’s or dealer invoice

CBU units)
Old and used passenger car, Up to 9 years (108 months) A maximum of 85% of the

MPV, 4WD, and SUV seller’s or dealer’s invoice

Unregistered reconditioned Up to 9 years (108 months) A maximum of 90% of the

(imported) vehicles seller’s or dealer’s invoice

2.3 RULES IN AITAB AGREEMENT

In providing this financing, Maybank Islamic Berhad also underline the rules for its customer if

they failed to fulfill the obligation under AITAB Agreement. In AITAB financing, the

consequences for the customer if they failed to pay their monthly rental instalment are:

a) Late Payment Charges (LPC)

6
 There are two payments in this LPC which is the first one is Overdue Installment or

Scheduled Payments. For this payment, the customer will be charged of 1% per annum on

the overdue installments from the date of the first drawdown of the Facility until its Maturity

Date. The second one is Upon Maturity Date of the Facility or upon judgment, whichever is

earlier. It is prevailing daily overnight Islamic Interbank Money Market (IIMM) rate on the

outstanding balance due and payable. It is notwithstanding the LPC charged as the said

amount of LPC shall not be further compounded.

b) Right to set-off from the Bank

The Bank reserves the right to set-off any credit balance in the customer savings/current

account maintained with the bank against any outstanding balance in this facility account

c) The Bank as the owner has the right to repossess the vehicle.

d) In addition, legal action may be taken against the customer to recover the amount outstanding

under the facility. This action will affect the customer credit outstanding.

AITAB Agreement offered by the Maybank Islamic Berhad come together with a takaful plan.

2.4 REPOSSESSION IN AITAB AGREEMENT

If the purchaser failed to make the car payments or otherwise default on the purchaser

loan, the customer risk having their car repossessed by the bank. When we participating in

finance or lease of a car, the customer must realize that the give the bank a security interest in the

vehicle.[ CITATION Nur09 \l 1033 ] For Maybank Islamic Berhad followed the Hire-Purchase Act

1967 regarding the possession of vehicle.

How does repossession take place?

7
a) Repossession will take place when there is:

(i) Two successive defaults of monthly rental instalments, OR,

(ii) Failure to pay final instalment, OR,

(iii) Four successive defaults of monthly rental instalment by next of kin if the hirer is deceased.

b) Repossession Procedures

(i) The Bank will issue a Notice of Intention to Repossess (pursuant to Section 16 (1) of the Hire

Purchase Act 1967 (HP Act). This notice (commonly referred to as the 4th Schedule Notice)

giving you as the hirer 21 days to make good the instalment in arrears.

(ii) If no payment is made within 14 days after the issuance of the 4th Schedule Notice, a notice

pursuant to Rule 15 of the Hire Purchase (Application of Permit and Procedure of Repossession)

Regulations 2011 will be issued, informing you of the intention of the Bank as the owner to take

possession of the vehicle upon expiry of the 4th Schedule Notice.

(iii) Upon expiry of grace period, the Bank may initiate repossession by issuing Repossession

Order to the authorised Repossessors to take possession of the vehicle. However, for cases where

the total instalments paid by the hirer exceed 75% of the original cash price of the vehicle, the

Bank will obtain a Court Order and thereafter proceed with 8 b) (i), (ii) and (iii) as above.

c) Repossessor’s Action

(i) The authorised Repossessor is a holder of permit issued by the Ministry of Domestic Trade,

Co-operatives and Consumerism who will carry out repossession of the motor vehicle and will

be equipped with the following documents:(1) Repossession Order issued by the Bank, (2) Court

Order (if applicable) for repossession.

8
(ii) In carrying out the repossession, the Repossessor must make available for inspection and

verification the above documents, together with his Identification Card and Permit.

(iii) The Repossessor must adhere to the guidelines and code of ethics as issued by the

authorities, including those set up by the Association of Hire Purchase Companies, Malaysia

(AHPCM).

The options available for the purchaser after the repossession take place which is after the

Bank issue a Notice to Redeem (5th Scehedule Notice) which gives the purchaser 21 days to pay

all outstanding arrears and incidental expenses incurred by the Bank to make good the

repossession of the vehicle (including repossession’s fees, towage, storage, etc) or the second

option is to pay in full the entire balance outstanding for the facility, including the incidental

expenses incurred by the Bank or by the third option which is to introduce a buyer to purchase

the vehicle at the price indicated on the notice.

In executing this, Maybank Islamic Berhad, has the right to sell or dispose the vehicle

either by public auction or private sale in order to recover the amount due under the AITAB

facility if the purchaser failed to meet the 21-days deadline on the 5 th Schedule. However, the

purchaser will continue to be responsible for any amount outstanding if the sale proceeds is

insufficient to settle the outstanding amount under the facility in full. On the other hand, if there

is any surplus amount after full settlement, the surplus amount will be refunded to the purchaser.

Accordance to the rule in AITAB Agreement, the Bank also can claim from the guarantor

as the guarantor has agreed to undertake the liability to pay the outstanding amount in the event

of your default. The rights and responsibilities of a guarantor is stated under the Hire-Purchase

Act 1967 A guarantor has the following rights under the AITAB agreement:- i) To receive a

9
copy of the AITAB agreement. ii) To receive all notices on payment issued by the banking

institution to the hirer. iii) To be discharged from liability once the amount due to the banking

institution is fully paid. iv) To take legal action against the hirer for breach of obligation. v) To

be indemnified by the hirer against claims by the Bank after paying the amount due.

In the event of the death of the hirer in AITAB Agreement, if the personal representative

has obtained a Letter of Administration or Grant of Probate, the rights, title and interest will be

transferred to the personal representative who will take over the responsibilities of the hirer. If

the personal representative failed to do so, the Bank has the right to repossess the motor vehicle

after defaults in four successive monthly installments.

Maybank Islamic Berhad prohibit the transaction of transfer/sell/part possession of the motor

vehicle without the Bank’s permission. If the purchaser was found to do such transaction, the

purchaser will incur substantial penalties as they are still fully responsible for the liability and

losses incurred. Also, under Section 38 of the Hire-Purchase Act 1967 [ CITATION Int12 \l 1033 ],

the purchaser may be liable to a fine of up to RM 30,000 or imprisonment of up to three years, or

both.

3. ANALYSIS

Despite being one of the most demanding facilities of Islamic bank, AITAB is unfortunately

lacking in Shari’ah regulatory framework. Thus, any dispute arising from the transaction will be

referred to the conventional regulations. The visible inclination of AITAB operation to

conventional concepts is due to several factors including the followings:

10
(a) Absence of proper and standard Islamic hire-purchase regulation, thus practitioners in

AITAB transaction have no other legal recourse except the conventional hire-purchase law; Hire-

Purchase Act 1967 (HPA).

(b) The basic operation of AITAB in effect is similar to conventional hire-purchase; the only

difference is in the issue of interest (ribā) and issuance of acceptance (‘aqd) letter. As regards to

determination of fixed rate, standard documentation, and formation of agreement, AITAB

transaction follows the same spirit of HPA.

(c) Conventional hire-purchase business has been in the market for quite a long period of time

and has established its rules and policy, thus its operation appears to be much easier in practice.

(d) Legal institution (civil court) that handles commercial and mercantile matters will decide a

case based on existing rules of law. Jurisdiction of civil courts also covers Islamic banking

transactions. Since there is no legal authority for AITAB transaction, any case connected to it

will be referred to HPA.

(e) As stated in this assignment, motor vehicles are the most demanding goods under AITAB

facility, and consumer goods are also in demand. Both types of goods are bound by the HPA.

Thus, any institution offering these goods must abide to this law.

(f) Full understanding in Islamic law among the practitioners has not been attained yet.

Therefore, AITAB is operated on the basis of conventional concepts because presently, there is

no written Shari‘ah law which specifically regulates the operation of AITAB. In Malaysia,

because there is no specific regulations governing AITAB, institutions offering this facility tend

to impose rules in the spirit of Hire-Purchase Act 1967 and Contract Act 1950.

11
 4. CONCLUSION

Shariah encompasses more than just law, it includes religious, moral and ethical injunctions.

While the laws of the country may take care of the operation of Islamic banks and conventional

banks offering Islamic products, it is Shariah that governs the financial institutions’ business

principles.

Today, the high cost of living and the increasing prices of assets make it impossible to

purchase on a cash basis. This situation evokes a need for the creation of a new product that is

consistent with Shariah principles. A response to this need has been the introduction of al-ijarah

thumma al bay’ (AITAB), which is a hire-purchase contract comprised of two separate contracts;

the first Is al-ijarah (a lease contract), and the second is the addition of an option to purchase (al-

bay). Under the first contract, the hirer hires the goods from the owner at an agreed rental over a

specified period. Then, upon expiry of the hiring period, the hirer is given an option to enter into

a second contract to purchase the goods from the owner at an agreed price.

12
 Maybank Islamic Berhad has made it very clear that the implementation of Shariah will

ensure the smoothness of banking and financing. As sub-system of Islam, the implementation of

Shariah in banking and finance should ultimately reach the maqasid al-shariah so long as their

operations adhere to the rules and regulations in Shariah. As such, issues that arise should be

taken into consideration seriously. Appropriate measures should be taken to overcome whatever

loopholes. Otherwise, the true concept of Islamic banking and finance may not be realised and

the maqasid al-shariah may not be materialised.

5. REFERENCES
1. Abdullah, N. B. (2009). Good Faith, Fair Dealing and Disclosure Requirements in Hire Purchase
Contracts in Malaysia: Islamic and Conventional Perspectives. Journal of Islam in Asia, 20.

2. Anon. (2018, November 23). Malayan Banking Berhad. Retrieved from

https://www.maybank2u.com.my/mbb_info/m2u/public/personalDetail04.do?channelId=ISL-
IslamicBanking&cntTypeId=0&cntKey=LOA03.02&programId=LOA06-
IslamicLoans&chCatId=/mbb/Personal/ISL-IslamicBanking

3. Damansari, A. K. (2007). Revivalry. Retrieved from The Sin of Gambling Explained:

http://revivalry.blogspot.com/search/label/Mu%E2%80%99amalat%20-%20Rulings

4. Kunhibava, S. (2010). Shariah and Law in Relation To Islamic Banking and Finance. Banking and
Finance Law Review, 15.

5. Manan, S. K. (2010). The Underlying Contracts of Islamic Banking Products and Some Related
Issues in The Current Practice. Malaysian Accounting Review, 20.

6. Rahman, A. A. (2014). Evaluation on Al-Ijarah Thumma Al-Bay' (AITAB) Facility.

7. Services, I. L. (2012). Hire-Purchase Act 1967 (Act 212) & Regulations. ILBS.

13