The Legal and Regulatory Framework of Ibra’ in Islamic Financial Institutions and Islamic Co-Operatives: A Comparative Analysis

Abstract

Malaysia is leading the global Islamic banking and finance industry with a proper and well-designed legal and regulatory framework for Islamic financial institutions in the area of Ibra’ (rebate). In addition, Islamic co-operatives are among the providers of some form of Islamic financial service similar to Islamic financial institutions. An Islamic co-operative conducts activities and business based on Shariah principles. Being a non-banking financial institution, the legal and regulatory framework of Ibra’ for Islamic financial institutions does not apply to Islamic co-operatives. Islamic co-operatives instead have their own legal and regulatory framework of Ibra’ to address the issue. This article embarks on the qualitative and doctrinal approaches involving library-based research because it reflects the sources that the article analyses and the comparative approach as it compares the legal and regulatory framework of Ibra’ that is applicable to Islamic financial institutions and Islamic co-operatives. The current legal framework of Ibra’ indicates that it is applicable in cases of early settlement. It is noteworthy that nearly all of the SKM Guidelines’ content reflects that of the BNM Guidelines, but with specific changes to accommodate the co-operative sector’s comparatively lenient and adaptable characteristics. Despite efforts to rectify the shortcomings in the SKM Guidelines, they remain imperfect. By emphasising the shortcomings of the SKM Guidelines, regulators can proactively address the issues, and recommendations are proposed to address the limitations.