What is Shariah-Compliant Banking?
Islamic banking in Malaysia is strictly regulated as it is governed by the highest Islamic financing Shariah Advisory Council (SAC) of Bank Negara Malaysia. This is a Shariah committee that essentially ensures all Islamic personal loans in Malaysia adhere to the Shariah principles, which excludes all of the following practices:
- Haram - Businesses that include gambling, alcohol, tobacco, pornography and more
- Riba - Practice of lending with high interest rates
- Gharar - Speculative or risky sales where the value is dubious or uncertain
- Zulm - Activities and practices that are exploitative, oppressive or cruel
How does an Islamic Personal Loan Work?
Unlike its conventional counterpart where it is based on the concept of lender and borrower with money as a commodity, Islamic loans do not loan money to the borrower. Islamic banks will instead “purchase” approved assets or commodity for the borrower and sell it at a higher price for financing.
The Islamic loan is structured in a way where real purchase-and-resale of real assets and commodities is being made so that it is Shariah compliant - Islamic loans are prohibited from making money out of money by charging interest (Riba).
Are Islamic Personal Loans Interest-Rate Free?
The major difference between Islamic personal loan and conventional personal loan is the way banks makes its profit. It can be confusing because Islamic banks claim to not charge interest yet they are charging profit rate. Let’s break down the differences:
A conventional personal loan is where the bank lends borrowers money with an interest charged on the amount borrowed - this is how banks make money on loans. The borrower’s monthly loan repayment by instalment includes the specified rate based on a margin above the bank’s base lending rate (BLR) along with the interest rate over a set tenure.
An Islamic personal loan is where the bank buys an asset on behalf of the borrower and selling it at a profit - this profit rate replaces the interest rate (used by conventional loans) as Islamic loans are prohibited from charging interest (Riba). So, the profit rate is like business earnings from the fee and profit for assets purchase-and-resale.
What are the Benefits of an Islamic Personal Loan?
1. Lower late payment fees.
In an event when there’s any late settlement on loan repayments, the fees may be lower than a conventional loan charge - as compounding interest is prohibited by the Shariah principles. Based on Ta’widh concept, Islamic banks are subjected to charge late payment fees at a maximum rate of 1% per annum.
2. No early settlement fees.
Any early loan settlement before the expiry of loan tenure will get a rebate. Known as Ibra’ (rebate), Islamic personal loans pay an incentive to customers who pay off their personal loans ahead of time. Do note that not all Islamic banks provide this benefit.
3. Fixed repayment amount.
The repayment amount is a fixed one for the entire tenure as compared to conventional loans whereby it varies.
What is the Maximum Islamic Personal Loan I Can Borrow?
Depending on the borrower’s credit rating assessed by the bank during the application, Islamic banks in Malaysia offer loans from RM1,000 - RM250,000.
How to Choose the Best Islamic Personal Loan?
Looking at the profit rate is key to choosing the best Islamic personal loan. List down a few Islamic personal loans with a low-profit rate as a start. Next, compare them with the Islamic loan’s tenure which will directly impact monthly repayment.
Use the Personal Loan Calculator to help you estimate your monthly repayment.
How Do I Repay My Monthly Instalment?
Typically, you will have 3 options to choose from such as, salary deduction, auto debit for monthly instalment (for salary crediting account) or via Standing Instruction.
Here are 5 best Islamic Personal Loans in Malaysia:
- Alliance Bank CashVantage Personal Financing-i
A flat rate unsecured Islamic Personal Financing with low monthly instalments and super fast approval. Enjoy 40% cashback on your profit rate for the entire tenure!
- Al-Rajhi Personal Financing-i
Fulfill your personal needs or liberate yourself from debts with a Shariah-compliant personal financing plan at low profit rate and flexible repayment terms.
- KFH Murabahah Personal Financing-i
A flat rate personal financing plan for salaried employees who needs extra cash to lighten their burden or for the purpose of debt consolidation.
- HSBC Amanah Personal Financing-i
Hassle-free Islamic financing with no hidden fees, no guarantor, and affordable monthly payment. High financing up to RM150,000 for new customers with RM5,000 monthly salary.
- AEON iCash Personal Financing-i-
This is a simple AEON Personal Financing with express approval and flexible repayments. Pay at low monthly profit rates for up to 7 years!
Islamic Personal Bank Malaysia Interest Rate 2019
|Bank||Min. Monthly Income||Max. Loan Amount||Interest/Profit Rate (p.a.)||Loan Tenure|
|Bank Rakyat||RM1,000||RM200,000||3.70% - 4.24%||12 - 120 months|
|RHB||RM2,000||RM200,000||4.50%||24 - 120 months|
|Public Bank||RM1,500||RM150,000||4.90% - 4.95%||24 - 120 months|
|Al-Rajhi||RM5,000||RM150,000||4.99%||24 - 96 months|
|Alliance Bank||RM3,000||RM200,000||5.33% - 9.17%||12 - 84 months|
|KFH||RM3,000||RM250,000||6.00%||24 - 120 months|
|HSBC Amanah||RM3,000||RM150,000||6.88%||24 - 84 months|
|Yayasan Ihsan Rakyat||RM1,500||RM150,000||6.99% - 9.99%||12 - 120 months|
|AEON||RM1,500||RM100,000||7.92% - 14.4%||6 - 84 months|
|AmBank Islamic||RM3,000||RM100,000||8.00% - 9.99%||12 - 60 months|
Who Can Apply for Islamic Personal Loans?
Similar to applying for a conventional personal loan, requirements of applicants are the same:
- Malaysian Citizen - both Muslims and non-Muslims can apply for Islamic banking products.
- Minimum Age ranges from 18 - 25 years old.
- Maximum Age ranges from 58 - 65 years old.
- Minimum Monthly Income typically ranges from RM1,500 - RM5,000. For pensioners, the minimum monthly income is RM800.
- A Guarantor or Collateral may or may not be required, depending on the bank. If a guarantor is not required, a security deposit in the form of a 1-month advanced instalment amount. Once approved, your advanced amount will be deducted from your loan amount.
What Personal Documents Do I Need to Apply for an Islamic Personal Loan?
- Copy of NRIC (both sides) AND
Submit ANY one of the following
- Latest 3 months’ validated salary slips
- Latest 3 months’ bank statements of salary crediting account
- Copy of the latest EPF, EA or BE form with tax payment receipt
- Copy of the Letter of Appointment (if employed less than 3 months)
- Copy of the Yearly Commission Statement from employer
- Copy of NRIC (both sides) AND
Submit ANY one of the following
- Copy of the latest Form B with tax payment receipt or CPO2 attached
- Copy of the latest EPF statement
- Copy of the audited financial statement or profit and loss account
- Copy of the Business Registration Form