Bank Negara Malaysia launches world’s first transaction-based Islamic benchmark rate

The Central Bank of Malaysia, Bank Negara Malaysia (‘BNM’) issued the Policy Document on Malaysia Islamic Overnight Rate (‘MYOR-i’) that took effect on 25 March 2022.
MYOR-i is a significant development as it is the first transaction-based Islamic benchmark rate in the world.1
The policy document on MYOR-i applies to the following interbank institutions, i.e. institutions approved by BNM to deal in the interbank market, whether acting as principals or agents in the wholesale financial markets (‘interbank institutions’): 
  • licensed Islamic banks under the Islamic Financial Services Act 2013; 

  • licensed banks and licensed investment banks approved under section 15(1)(a) of the Financial Services Act 2013 to carry on Islamic banking business; 

  • prescribed development financial institutions approved under section 33B(1) of the Development Financial Institutions Act 2002 to carry on Islamic financial business; and 

  • any other interbank institution which is a direct participant of the Real-Time Electronic Transfer of Funds and Securities System (‘RENTAS’)2
MYOR-i is currently based on the Commodity Murabahah instrument. According to BNM, new Shariah-compliant instruments may be included in the future.3
Presently, eligible transactions comprise the following that are based on Commodity Murabahah instruments: 
  • Unsecured placements between interbank institutions (either brokered or direct/bilateral); and 

  • BNM’s Islamic overnight monetary operations, which comprise tenders conducted through the Fully Automated System for Issuing/Tendering (‘FAST’)4 or manual operations, and direct overnight placements between BNM and interbank institutions but excluding standing facilities. 
MYOR-i is administered and calculated by BNM based on a volume-weighted average rate of return on Shariah-compliant unsecured overnight Ringgit interbank transactions based on data collected from RENTAS and FAST. The MYOR-i for any given business day in Kuala Lumpur will be published on BNM’s website at 12.00 p.m. on the following business day.
MYOR-i has replaced the Kuala Lumpur Islamic Reference Rate (KLIRR), which has been discontinued with effect from 25 March 2022.
MYOR-i has been confirmed by BNM’s Shariah Advisory Council to be Shariah-compliant. The ruling by BNM’s Shariah Advisory Council can be read here.
MYOR-i is another innovative development introduced by BNM to further develop Malaysia’s Islamic financial market. It will reinforce a holistic syariah-compliant ecosystem and enhance best market practices and standards. MYOR-i will not only create transparency for market players to negotiate and standardise their financial contracts; it will also deepen the onshore Islamic financial market and enhance its role in financing real economic activities in Malaysia.
This Alert is by Sharifah Shafika Alsagoff (Partner) and Hafidah Aman Hashim (Partner) of the Islamic Finance Practice of Skrine. 

2 RENTAS is a real time gross settlement system.
4 FAST is a centralised system for the issuance of debt instruments and to facilitate BNM’s monetary policy operations.

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact