Islamic Business Loan Malaysia 2026
Malaysia is the global leader in Islamic finance, and Malaysian SMEs have access to a wide range of Shariah-compliant business financing options. Islamic business loans (or more accurately, Islamic financing facilities) follow Shariah principles - no interest (riba), no uncertainty (gharar), and no gambling (maisir).
Whether you prefer Islamic financing for religious reasons or simply find the terms more suitable, this guide covers all your options.
Islamic SME Financing Overview
- Financing Amount:
- RM10,000 to RM20 million
- Profit Rate:
- 4.5% - 10% p.a. (equivalent)
- Tenure:
- 1 to 10 years
- Shariah Concepts:
- Murabahah, Musharakah, Ijarah, Tawarruq
- Key Providers:
- Bank Islam, Maybank Islamic, CIMB Islamic
- Government Schemes:
- GGSM2 available for Islamic financing
- Regulator:
- Bank Negara Malaysia + Shariah Advisory Council
- Market Share:
- 40%+ of Malaysia's banking assets
How Islamic Financing Differs from Conventional Loans
Islamic financing fundamentally differs from conventional loans in structure, though the end result (business gets funding, pays back more over time) appears similar:
| Aspect | Islamic Financing | Conventional Loan |
|---|---|---|
| Concept | Sale, lease, or partnership | Lending money at interest |
| Returns | Profit rate or rental | Interest rate |
| Underlying Asset | Asset-backed transaction required | Cash lending (no asset needed) |
| Late Payment | Charity (ta'widh) penalty | Compound interest |
| Shariah Board | Mandatory supervision | Not applicable |
| Risk Sharing | Some risk shared (in theory) | All risk on borrower |
| Regulatory | BNM + Shariah Advisory Council | BNM only |
Pro Tip
In practice, Islamic financing rates are typically comparable to conventional loan rates. The main difference is the legal structure - Islamic financing involves the sale or lease of an asset, while conventional loans involve lending cash with interest.
Common Islamic Financing Structures
1. Murabahah (Cost-Plus Sale)
The most common structure for SME financing. The bank buys an asset and sells it to you at a markup.
How it works:
- You identify what you need (equipment, inventory, property)
- The bank buys the asset
- The bank sells it to you at cost + agreed profit margin
- You pay in instalments over the agreed tenure
Best for: Equipment purchase, inventory financing, property acquisition
2. Tawarruq (Commodity Murabahah)
Used when there is no specific asset to purchase (working capital).
How it works:
- The bank buys a commodity (usually palm oil or metals) on your behalf
- The commodity is sold to a third party at market price
- You receive the cash proceeds
- You repay the bank the original cost + profit margin in instalments
Best for: Working capital, general business financing, debt consolidation
3. Musharakah Mutanaqisah (Diminishing Partnership)
A partnership where the bank's share diminishes over time.
How it works:
- You and the bank jointly "own" the financed asset
- You make regular payments that buy out the bank's share
- Eventually you own 100% of the asset
- Profit is shared based on ownership ratio
Best for: Property financing, large capital expenditure
4. Ijarah (Lease)
An Islamic lease arrangement.
How it works:
- The bank purchases the asset
- The bank leases it to you for a fixed period
- You pay rental payments throughout the tenure
- Ownership may transfer to you at the end (Ijarah Thumma Al-Bai')
Best for: Vehicle financing, equipment leasing, office space
5. Bai' Bithaman Ajil (BBA - Deferred Payment Sale)
How it works:
- The bank buys an asset at current market price
- Sells it to you at an agreed selling price (higher than cost)
- You pay the selling price in instalments
Best for: Property financing, fixed asset purchase
Not sure which Islamic financing structure suits your needs? Our team can explain the options clearly.
Islamic Banks & Financing Providers
Full-Fledged Islamic Banks
| Bank | SME Financing | Min Amount | Max Amount | Profit Rate |
|---|---|---|---|---|
| Bank Islam | Yes | RM50,000 | RM5,000,000 | 5% - 9% |
| Bank Muamalat | Yes | RM50,000 | RM3,000,000 | 5.5% - 9.5% |
| MBSB Bank | Yes | RM30,000 | RM2,000,000 | 5% - 10% |
| Al Rajhi Bank | Limited | RM100,000 | RM5,000,000 | 5% - 8% |
Islamic Banking Windows (Conventional Banks)
All major Malaysian banks offer Islamic financing through their Islamic subsidiaries:
| Islamic Entity | Parent Bank | SME Products |
|---|---|---|
| Maybank Islamic | Maybank | Full range of SME financing |
| CIMB Islamic | CIMB | Term financing, working capital |
| Public Islamic Bank | Public Bank | SME-i term financing |
| RHB Islamic | RHB | Business financing-i |
| Hong Leong Islamic | Hong Leong Bank | SME financing-i |
| Alliance Islamic | Alliance Bank | Digital SME financing-i |
| AmBank Islamic | AmBank | Business financing-i |
Pro Tip
Islamic banking windows of conventional banks often offer identical products and processing to their conventional counterparts. If you already bank with a conventional bank, check their Islamic subsidiary for Shariah-compliant alternatives.
Islamic Financing Products for SMEs
Working Capital Financing-i
For daily operational needs:
| Feature | Details |
|---|---|
| Structure | Tawarruq (Commodity Murabahah) |
| Amount | RM50,000 to RM5,000,000 |
| Profit Rate | 5% - 9% p.a. |
| Tenure | 1 - 7 years |
| Collateral | May be required above RM500,000 |
Term Financing-i
For asset purchase and business expansion:
| Feature | Details |
|---|---|
| Structure | Murabahah / BBA |
| Amount | RM50,000 to RM10,000,000 |
| Profit Rate | 4.5% - 8% p.a. |
| Tenure | 1 - 10 years |
| Collateral | Asset being financed + additional if needed |
Trade Financing-i
For import/export businesses:
| Feature | Details |
|---|---|
| Structure | Murabahah / Wakalah |
| Facilities | Letter of Credit-i, Trust Receipt-i, Banker's Acceptance-i |
| Amount | Based on trade volume |
| Tenure | 30 - 180 days |
Overdraft Facility-i
For short-term cash flow needs:
| Feature | Details |
|---|---|
| Structure | Tawarruq |
| Limit | RM50,000 to RM1,000,000 |
| Profit Rate | 6% - 10% p.a. |
| Tenure | Revolving (annual review) |
Islamic Financing with Government Guarantee
All GGSM2 participating banks offer Islamic financing options:
GGSM2 + Islamic Financing Benefits
- 80% government guarantee applies to Islamic facilities
- Same guarantee fee structure (0.5% - 1% p.a.)
- Lower profit rates due to reduced bank risk
- Available through 20 participating financial institutions
- Shariah-compliant structure maintained alongside guarantee
See our GGSM2 guide for full details on government guarantee schemes.
Eligibility Requirements
Islamic financing eligibility is virtually identical to conventional loans:
Islamic SME Financing Requirements
- Malaysian-owned business (51%+ Malaysian shareholding)
- Registered with SSM
- Minimum 1-2 years in operation (varies by bank)
- Annual revenue RM100,000+ (varies by bank)
- Clean CCRIS/CTOS credit record
- Valid business licenses
- Not involved in non-halal or Shariah non-compliant activities
For the complete eligibility checklist and required documents, see our SME Loan Requirements Guide.
Shariah-Compliant Business Activities
Islamic banks may decline financing for businesses involved in activities considered haram (forbidden) under Shariah law. This includes alcohol, gambling, tobacco, non-halal food production, and conventional interest-based financial services. Mixed businesses (e.g., restaurants serving alcohol) may face restrictions.
Business Activities Considered Non-Shariah Compliant
| Activity | Status |
|---|---|
| Alcohol production/sales | Not eligible |
| Gambling/betting operations | Not eligible |
| Tobacco manufacturing | Not eligible |
| Non-halal meat processing | Not eligible |
| Conventional banking/insurance | Not eligible |
| Entertainment (clubs, bars) | Case by case |
| Mixed restaurants (with alcohol) | Case by case - depends on revenue percentage |
Required Documents
Documents are similar to conventional loans:
Islamic Financing Documents
- SSM registration and company profile
- Form 9, 24, 49 (for Sdn Bhd)
- 6-12 months bank statements
- 2-3 years audited financial statements
- Latest tax returns
- MyKad copies of all directors
- Business plan and financing purpose
- Quotation/invoice for asset being financed (for asset-based structures)
- Halal certification (if applicable to your business)
Islamic vs Conventional: Cost Comparison
A common question is whether Islamic financing is more expensive:
| Factor | Islamic | Conventional |
|---|---|---|
| Advertised Rate | 5% - 9% (profit rate) | 4.5% - 9% (interest rate) |
| Effective Cost | Comparable | Comparable |
| Early Settlement | May include ibra' (rebate) | Usually rebate on unearned interest |
| Late Payment | Ta'widh (charity penalty, capped) | Compound interest (can escalate) |
| Legal Fees | Slightly higher (more documentation) | Standard |
| Government Subsidy | Same access to GGSM2, BNM funds | Same |
Pro Tip
The total cost of Islamic and conventional financing for the same amount and tenure is typically very similar. Choose based on your preference and values rather than cost alone. Some SMEs prefer Islamic financing for the late-payment protection - penalties are capped and go to charity, not the bank.
How to Apply for Islamic Business Financing
Step 1: Choose Your Provider
Decide between a full-fledged Islamic bank or an Islamic window of your existing bank.
Step 2: Identify the Right Structure
Your bank will advise on the appropriate Shariah structure based on your financing purpose.
Step 3: Prepare Documents
Same documentation as conventional loans, plus any Shariah-specific requirements.
Step 4: Submit Application
Process is identical to conventional loans. Many banks handle Islamic and conventional applications through the same team.
Step 5: Shariah Committee Approval
The bank's internal Shariah committee reviews and approves the facility structure. This typically doesn't add processing time.
Frequently Asked Questions
Frequently Asked Questions
Related Financing Guides
- Best Bank for SME Loan - Compare all banks including Islamic options
- SME Loan Requirements - Complete document and eligibility checklist
- GGSM2 Government Loan - Government guarantee for Islamic facilities
- SME Loan Malaysia - General SME loan overview
Disclaimer: Interest rates, loan amounts, and eligibility requirements shown are indicative and subject to change. Contact the respective bank or institution directly for the latest rates and terms. Last reviewed: January 2026.
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