Malaysian courts hearing Islamic finance disputes must refer to national Sharia advisers under a proposed change, the central bank chief said yesterday, as the country seeks to boost its image as an Islamic finance hub.

Under proposed changes to the law, judges would be guided by either the central bank or the capital market regulator's Sharia advisory body in deciding Islamic banking matters, Zeti Akhtar Aziz said.

"In the new central banking act which is due to be presented in parliament, the court shall refer to the Sharia advisory council on Sharia matters," said Akhtar Aziz.

"It would allow for the consistent application of the interpretation given by the sharia advisory council."

Islamic banking matters in Malaysia are heard in civil law courts staffed by judges who are not formally trained in Sharia.

Judges currently can choose whether or not they want to seek the advice of national Sharia advisers when faced with Islamic banking disputes.

An earlier court decision casting doubt on the validity of a popular Islamic finance contract sparked fierce debate about judges' ability to handle sharia financial matters.

In the case, the court had said the deferred payment sale contract, as structured by most Malaysian banks, resembled a conventional banking loan.

A higher court has since ruled that contract is an Islamic sale transaction which should not be compared with a loan.

Lawyers and academics have suggested Malaysia employ judges skilled in sharia banking law or create special courts to hear Islamic finance cases. – TradeArabia News Service