Coexistence of Conventional and Islamic Banking in Malaysia: Legal and Regulatory Challenges – A Literature Review

Malaysia’s dual banking system, which permits both conventional and Islamic financial institutions to operate side by side, represents the country’s effort to accommodate financial inclusion and religious diversity. While this system has supported the rapid growth of Islamic finance, it also raises legal and regulatory challenges that require closer examination. This paper presents a structured literature review that explores how regulatory policies, governance frameworks, and court decisions influence the coexistence of these two banking models. It discusses key issues such as the overlap in jurisdiction between civil and Shariah courts, variations in Shariah interpretation, and the difficulties involved in resolving financial disputes. Drawing from academic studies, regulatory guidelines, and legal commentaries, this review identifies weaknesses in the current legal setup and offers suggestions for reform aimed at achieving greater legal certainty and coherence. The study contributes to ongoing discussions on how to strengthen dual financial systems in a legally pluralistic environment.

Islamic banking, dual banking system, legal framework, Shariah governance, Malaysia.

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