Recovery Process and Its Governing Legal Framework for Islamic Banking in Malaysia and Indonesia: A Comparative Study

Abstract

This paper works towards recovery process of financing facilities and its governing legal framework for Islamic banking by mean of perspectival comparative of two different countries which are Malaysia and Indonesia. The recovery process under the Islamic banking of both states quite similar to each other. However, their regulatory authority governing the Islamic banking as well as recovery process have some differences specifically concerning foreclosure mechanisms and issue on ‘choice-of-forums’. Moreover, whilst litigation process of the recovery in Malaysia and Indonesia are resolved by civil court and religion court respectively, the Shariah Advisory Council (SAC) of BNM shall be chief reference either by the civil court or arbitration in resolving unsettlement of arrears of financing facility but then not for the fatwa of National Shari’ah Board-Indonesia Ulema Council (DSN-MUI) which is neither legally binding before the religion court nor arbitral practice. This paper finds the roots of end-to-end recovery process between Malaysian and Indonesian Islamic Banking system to gain full recognition of the enactment of the recovery.