Shariah and legal in housing buying in Malaysia: Do we need to radically revamp the practice?

The primary function and duty of Islamic banks and financial institutions in Malaysia, is to carry out Islamic banking and financial activities and providing products which are in accordance with the teachings of Islam.The Islamic banking and financial products produced by Islamic banks and financial institutions are also subject to the scrutiny and approval of the Shariah Advisory Council (SAC) of the Bank Negara and the internal Shariah Advisory Bodies (SAB) or the Shariah Committees of the respective financial institutions. Nevertheless, after more than 25 years establishment of Islamic banking and financial institutions in Malaysia, it is still skeptical that they have been satisfactorily carrying out the required duty. One of the areas which is worth examined is the transaction involving house buying, especially house buying falling under the purview of the Housing Development (Control and Licensing) Act 1966 (Act 118)or transaction involving the pending completion houses.This paper examines this area of transaction and the loan agreement, effected via Bay' Bithaman al-Ajil (BBA), provided by the Islamic banking and financial institutions in Malaysia.The purpose is to see to what extent the sale and purchase agreement and the loan agreement have really complied with the requirements of Islamic Law, in the protection of the stakeholders and what are the practical suggestions should be made to improve the existing practice.Further, this paper will also examine the functions, roles, establishment and problems plaguing the SAC and the SAB, particularly in respect of their role in advising the institutions on transaction of house buying in Malaysia and bearing on provisions in the recent statute - the Central Bank of Malaysia Act 2009 (Act 701), enforced on 19 August 2009