Was told that the 2.9 was their base rate. On top of that they impose a variable rate which can go up to, but not exceed total 3.50%. All the same tbh.

Not stated anywhere under BNM FAQ that its compulsory but banks will most likely make it mandatory.

Anyway my Islamic BNM fund loan with RHB just got approved

RHB (Step Up Payment)

Home Value= RM300,000.00
Legal Fee Finance Limit: RM5,600
Full Mortgage Reducing Term Takaful: RM16,529
Total Financing Amount: RM322,129.00
Financing rate: Fixed 3.50%p.a.
Financing Tenure: 40 years
First 5 Years Monthly Instalment: RM958
6th Year Onwards Monthly Instalment: RM1,332

Yup it was intentional on my end. Was offered the 'standard' package which is basically flat rate for the entire tenure but I went for the alternative 'step up' package for personal reasons.

For this package first 5 years basically all goes into interest payment (which is why its soo low) and 6th year onwards is when principal deduction gradually increases (which is when monthly payment picks up).