PETALING JAYA: Bank Negara Malaysia (BNM) is seeking to broaden the use of Syariah contracts in Islamic finance, encouraging financial institutions to explore alternative financing structures to better support economic activities and evolving customer needs.
In a strategy paper issued on Nov 3, the central bank outlined three priorities: modernising the Syariah contract framework, enabling more diverse applications of contracts and recalibrating the role of tawarruq.
Tawarruq is an Islamic financing arrangement involving the buying and selling of commodities to facilitate cash financing. It remains widely used in Malaysia due to its practicality and broad applicability.
BNM said tawarruq would continue to serve genuine market needs, particularly where suitable alternatives are unavailable or impractical. However, financial institutions should consider other Syariah contracts where these can deliver meaningful value.
The central bank said that it does not intend to mandate the replacement of existing tawarruq-based products or prescribe specific contractual structures for individual market segments.
Among the alternatives are mudarabah and musyarakah, which involve profit-sharing arrangements and can support financing linked to economic activities.
BNM will also build on initiatives such as the i-CITA programme, which enables Islamic banks to pilot risk-sharing contracts with support from a RM100 million government-backed matching fund. The programme helps reduce banks’ initial risks and supports financing for climate transition and food security projects.
The central bank will explore regulatory and market-development measures, including the regulatory sandbox framework, to test new financing propositions and identify legal, prudential and operational barriers.
Implementation will be phased, beginning with modernising the regulatory framework, followed by market testing and product development. Wider adoption will depend on whether alternative structures demonstrate customer value, commercial viability, sound risk management and alignment with Syariah objectives.
BNM said the strategy aims to strengthen Islamic finance’s contribution to productive economic activities, sustainable value creation and positive societal outcomes.
