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 which 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 loans interest-rate free?
The major difference between Islamic personal loans and conventional personal loans is the way banks make their profit.
It can be confusing because Islamic banks claim to not charge interest yet they are charging profit rates.
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 of tenures.
An Islamic personal loan is where the bank buys an asset on behalf of the borrower and sells 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 the 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 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 can I choose the best Islamic loan in Malaysia?
Looking at the profit rate is the 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.
Islamic Personal Loans Profit Rates in 2022
|Bank/Financial Institution||Profit Rate||Minimum Monthly Income||Maximum Financing Amount||Financing Tenure|
|Al Rajhi Bank||4.81% - 6.81% p.a.||RM3,500||RM250,000||1 - 8 years|
|JCL||18% - 20% p.a.||RM1,000||RM50,000||6 months - 5 years|
|Public Bank||3.99% - 4.45% p.a.||RM1,500||RM150,000||2 - 10 years|
|Bank Rakyat||4.64% - 6.25% p.a.||RM1,000||RM200,000||1 - 10 years|
|RHB||4.50% p.a.||RM2,000||RM200,000||2 - 10 years|
|Alliance Bank||3.99% - 8.38% p.a.||RM3,000||RM200,000||1 - 7 years|
|KFH||6.88% p.a.||RM3,000||RM150,000||2 - 8 years|
|HSBC Amanah||4.88% - 10.50% p.a.||RM5,000||RM250,000||2 - 7 years|
|Yayasan Ihsan Rakyat||5.99% - 9.99% p.a.||RM1,500||RM250,000||1 - 10 years|
|AEON Credit Service||7.92% - 18% p.a.||RM1,500||RM100,000||6 months - 7 years|
|AmBank Islamic||8% - 11.99% p.a.||RM3,000||RM150,000||1 - 5 years|
|Yayasan Dewan Perniagaan Melayu Perlis Berhad||5.99% - 9.99% p.a.||RM1,500||RM250,000||1 - 10 years|
Who can apply for Islamic personal loans?
Similar to applying for a conventional personal loan, the requirements of applicants are the same:
- Malaysian citizens - both Muslims and non-Muslims can apply for Islamic banking products.
- The minimum age ranges from 18 - 25 years old.
- The 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 documents should I prepare to apply for an Islamic personal loan?
- Copy of IC (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 the official 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 IC (both sides) AND
Submit ANY one of the following:
- Copy of the latest B Form with the official 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
Here are the 5 best Islamic Personal Loans in Malaysia:
- Alliance Bank CashVantage Personal Financing-i
- Al-Rajhi Personal Financing-i
- JCL i-Fund Personal Financing
- HSBC Amanah Personal Financing-i
- AEON iCash Personal Financing-i-