A database of selected fatwas from various bodies and authorities on related issues in Islamic Finance.Click here to view Malay version
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Islamic Banking
Restructuring and Rescheduling in Islamic Financing Agreement
  • The SAC, in its 26th meeting dated 26 June 2002, has resolved that the proposal to cross refer a rescheduling and restructuring Islamic financing agreement to the original agreement for the purpose of stamp duty exemption is permissible provided that it is done after termination of the original agreement. In relation to the case of restructuring, the SAC has recognised the cross reference method to the original agreement which has been terminated on the ground of maslahah, which is, to avoid double payment of stamp duty. In the 32nd meeting dated 27 February 2003, the SAC has also resolved that based on mutual agreement, the financing period for the customer may be extended without the need for a new contract, provided that both parties satisfy all concluded promises and the price imposed on the customer does not exceed the original sale price.

    -Reference: Shariah Resolutions in Islamic Finance (2nd edition), BNM, http://www.islamicfinance.com/wp-content/uploads/2015/01/Shariah-Resolutions-2nd-Edition-En.pdf


Takaful Coverage for Islamic Financing
  • The SAC, in its 41st meeting dated 8 March 2004 and 43rd meeting dated 29 April 2004, has resolved the following:

    i. For an Islamic financing package which does not include an amount of contribution for coverage, the Islamic financial institution shall offer a takaful plan as the first option to the customer who applied for the Islamic financing that requires coverage.72 If the customer refused the takaful plan on particular reasons, the customer may choose any conventional insurance as he wished. Such an exemption is only given in consideration of the following factors:

    • If the insurance premium is totally borne by the customer;
    • If there is a sector or specific class in insurance whereby takaful has no expertise; or
    • The customer’s application was rejected by takaful company on certain grounds.

    ii. For an Islamic financing package that includes the amount for contribution of coverage, the Islamic financial institution shall ensure that only takaful plan is used to cover such Islamic financing. Conventional insurance premium shall not be included in Islamic financing package; and

    iii. If a customer who has taken a conventional insurance coverage for an Islamic financing passes away or suffers any kind of peril that results in his inability to pay for the financing, the Islamic financial institution is entitled to receive compensation from the conventional insurance.

    -Reference: Shariah Resolutions in Islamic Finance (2nd edition), BNM, http://www.islamicfinance.com/wp-content/uploads/2015/01/Shariah-Resolutions-2nd-Edition-En.pdf


Partnership on a Fixed Profit
  • Q: I have a considerable amount of money saved by me from my monthly income. I want to invest it in a lawful business which can give me some profit. One of my friends has offered me to enter into partnership with him, I shall give him the money and he will invest it in his business which is already established and run by him. He has agreed to pay me a sum of two thousand rupees monthly as my share in the profit. Is it permissible for me to enter into partnership on these terms?

    A: No. A pre-determined amount of money cannot be fixed as a profit in a partnership. If you want to enter into partnership with your friend, you will have to share his risks also. In case he faces a loss, you will have to bear it in proportion to your investment. And if the joint venture brings a profit, the same may be shared on the agreed ratio.

    Thus the amount of profit can only be known after the profit accrues actually, and it cannot be fixed beforehand. However a provisional profit may be distributed before the actual accounting takes place. On this basis, the monthly payment of a particular amount may be agreed but it must always be subject to the final settlement at the end of the term. When this final settlement will take place on the basis of the actual gain or loss, all the provisional payments made earlier must be taken into account and must be adjusted according to the actual profit or loss. Without this necessary condition the said agreement of partnership will not be a valid agreement according to Shariah.

    -Reference: http://muftitaqiusmani.com/en/?p=11041


Permissibility of Using Mixed Asset (asset which consists of both Shariah-compliant and Shariah non-compliant businesses/activities) (Mixed Asset) as an Underlying Asset for Sukuk Ijarah
  • The Shariah Advisory Council of the Securities Commission Malaysia (the SAC) had, at its 174th meeting held on 30 July 2015, deliberated on a proposed issuance of a Sukuk Ijarah.

    Resolution:

    The SAC had resolved that it is permissible to use Mixed Asset as an underlying asset for Sukuk Ijarah provided that:

    • The rentals received from the Shariah non-compliant businesses/activities in the Mixed Asset must be below 20% of the total rentals received, if such rentals could be determined; or
    • The lettable area used for Shariah non-compliant businesses/activities in the Mixed Asset must be below 20% of the total lettable area, if the rentals could not be determined.

    -Reference: https://www.sc.com.my/the-174th-shariah-advisory-council-meeting-30-july-2015/


Application of Wakalah Bi Al-Istithmar
  • 1) Shariah Advisory Council, Bank Negara Malaysia

    Resolution:

    The SAC, in its 2nd special meeting dated 18 June 2007, has resolved that the proposed deposit account which is based on wakalah bi al-istithmar contract is permissible, subject to the following conditions:

    i. If the Islamic financial institution has breached any terms of agreement or has negligently invested in an instrument which has no potential to generate profit at the minimum rate (for example 5% per annum), the Islamic financial institution will have to pay compensation as much as the principal sum of investment plus the actual profit (if any); and

    ii. If the Islamic financial institution invested in an instrument that is expected to generate profit at the rate of at least 5% per annum but failed to reach the targeted rate due to problems which are not attributable to the negligent conduct of the Islamic financial institution, such loss shall be borne fully by the customer.

    Click here to view the source


    2) Dallah al-Barakah

    (8/4) Investment through an Agent for a Specific Fee

    It is permissible to give money to a person who has worked on a specific task by allocating a specific amount of profit for him on the basis that he has participated in a mudarabah partnership. He is entitled to receive a portion from the profit due to his capacity as an entrepreneur ( mudarib ). Likewise, it is also permissible to give a certain amount of money (commission/fee) or to allocate a determined ratio from the capital to someone who has performed his job on the basis of an agency contract ( wakalah ). That person – who acts as an agent ( wakil ) – has the right to receive his commission regardless whether the profit from the job is realized or otherwise. For such transaction, the rulings of wakalah with commission is applied and not the rulings of mudarabah.

    It is also permissible for both the principal and the agent to agree on investing the assets whereby it is stipulated in the agreement that if the amount of profit reaches a certain limit, the agent shall be entitled to an additional amount apart from the allocated fee. This additional amount can be in the form of a certain percentage from the profit or a specific lump sum and this can be considered as a promise to accord an incentive. As for an agency contract to be valid, it depends on the specified determined and known fee.

    Click here to view the arabic versionSource:

    Qararat wa Tausiyat Nadawat al-Barakah lil-Iqtisad al-Islami (2010) (p60)

Conventional Fixed Deposit Certificate as Security in Islamic Financing
  • 1. Shariah Advisory Council, Bank Negara Malaysia

    Resolution:

    The SAC, in its 9th meeting dated 25 February 1999, has resolved that conventional Fixed Deposit Certificate (excluding the amount of interest or riba) is a right or asset of the customer. Hence, it may be used as security for Islamic financing.

    Click here to view the source

Deposit or Customer’s Investment Fund from Doubtful Sources
  • 1. Shariah Advisory Council, Bank Negara Malaysia

    Resolution:

    The SAC, in its 58th meeting dated 27 April 2006, has resolved that Islamic financial institutions are allowed to accept application to open deposit account or investment account from a customer without conducting investigation to ascertain whether the sources of the customer’s fund are permissible (halal), forbidden (haram) or a mixture of the two. Notwithstanding this, the SAC has no objection for Islamic financial institutions to establish an internal screening process to ascertain whether the sources of the fund received are Shariah compliant.

    Click here to view the source

Financing to A Party Who Explicitly Performs Non-Shariah Compliant Activities
  • 1) Shariah Advisory Council, Bank Negara Malaysia

    Resolution:

    The SAC, in its 58th meeting dated 27 April 2006, has resolved that Islamic financial institutions are prohibited from granting financing to companies, bodies or individuals whose activities explicitly involve non-Shariah compliant elements such as gambling, liquor industry and brothel.

    Click here to view the source


    2) Dallah al-Barakah

    (8/1) Leasing of properties for the establishment of markets or restaurants or hotels or tourist facilities that involved prohibited productions or services.

    1. If the leasing of property is meant for purely prohibited purpose, such as to be operated as church, bar or nightclub, the lease contract is then fasid (void), because the subject matter (usufruct) of Ijarah contract is prohibited.

    2. It is prohibited to lease a property for the purpose of selling goods or products which majority of them are impermissible. This is in accordance with the maxim “ li al-ghalib hukm al-kull”. ( The predominant gets the jurisdiction of the whole )

    3. It is permissible to lease a property to those who intends to sell goods which majority of them are permissible or to those who offers services which majority of its nature are permissible, even though some of impermissible goods or services are involved. Such permissibility is due to consideration that the essential objective of the leasing is permitted in which it involves the trading of majority of permissible goods and services. In this arrangement, the lessee will be liable for the sin of conducting impermissible trading. This kind of leasing application is allowed taking into account of its main elements which are permissible. The main element of each business could be ascertained by the size of business activities.

    Click here to view the arabic versionSource:

    Qararat wa Tausiyat Nadawat al-Barakah lil-Iqtisad al-Islami (2010) (p59)

Hibah in Qard Contract
  • 1. Shariah Advisory Council, Bank Negara Malaysia

    Resolution:

    The SAC, in its 55th meeting dated 29 December 2005, has resolved that the practice of giving unconditional hibah in a contract of qard is permissible. Nevertheless, such practice shall not become a norm in order to avoid this practice from becoming an ‘urf that resembles a condition attached to the contract of qard.

    Click here to view the source

Ijarah Contract with Floating Rental Rate
  • 1. Shariah Advisory Council, Bank Negara Malaysia

    Resolution:

    The SAC, in its 33rd meeting dated 27 March 2003, the 35th meeting dated 22 May 2003 and the 38th meeting dated 28 August 2003, has resolved that the rate of rental in ijarah contract may vary based on an upfront agreement to base it against a mutually agreed variable for a specified period.

    In an ijarah contract, the rate of rental of an asset is negotiable between the lessor and the lessee. It can be a fixed rate for the whole tenure until maturity or a flexible rate that varies according to a certain method. In order to avoid any element of gharar (uncertainty), an agreed method must be determined and described upon concluding the contract. Subsequently, both contracting parties are bound by the terms until the maturity date of the contract. Any changes to the agreed floating rate shall be deemed as the risk willingly taken by both parties based on an upfront mutual agreement.

    In addition, the rate of rental must be known by both contracting parties. The determination of the rate may be made for the whole lease period or in stages. The rate may also be fixed or floating depending on its suitability as acknowledged by both lessee and lessor.

    Click here to view the source

    2. Dallah al-Barakah

    (16/6) The Contract of Leasing (Ijarah) Based on Daily Increasing Rental (Ujrah)

    The participants of conference have deliberated on the issue of Ijarah whereby its rental is increasing on daily basis and this arrangement is agreed upon by both contracting parties; the lessor and the lessee. It is concluded in the conference that this type of leasing arrangement is valid according to the Shariah’s requirements due to the fact that the daily increment of the rental is considered as part of the Ijarah contract (which have been agreed by the contracting parties) and it is not a result of the delay in payment. Paying the creditor more than the amount of debt in the event of late payment is prohibited by the Shariah because the additional amount is considered as interest (riba) in return of extension of the payment period.

    Click here to view the arabic version

    Source:

    Qararat wa Tausiyat Nadawat al-Barakah lil-Iqtisad al-Islami (2010) (p49)

Issue on Wakil Transacts with Himself
  • 1. Shariah Advisory Council, Bank Negara Malaysia

    The Shariah Advisory Council (SAC) of Bank Negara Malaysia (BNM) (2013) has discussed this issue of dual agency in the context of tawarruq-based deposit products that involve an action by a party acting as an agent to purchase an asset on behalf of the other contracting parties and that party subsequently acting as an agent to sell the asset on behalf of the same contracting parties to itself.

    The SAC of BNM approved this application of dual agency, subject to its implementation satisfying the following conditions:

    (i) Execution of the sale and the purchase transactions shall be in a proper sequence, and specific notification shall be made in respect of each completed transaction to the principal as follows:

    1. Agent purchases the asset on behalf of the principal;
    2. Agent notifies the principal of the purchase of the asset;
    3. Agent sells the asset on behalf of the principal to himself (agent); and
    4. Agent notifies the principal of the sale of the asset.

     

    (ii) In the event that

    1. the murabahah sale under the tawarruq arrangement is executed on a date later than the date on which the funds are accepted from the principal; and
    2. the profit of the murabahah sale is calculated from the day the funds are accepted, the agent shall notify the principal of the selling price.

     

    (iii) The method of notification shall be in any form accepted by customary business practices (‘urf tijari) and supported by documentary evidence.

     

    Source:

    BNM Shariah Resolutions (2013)


    2. Dallah al-Barakah

    (1/15) Agent purchases and buys for himself

    The appointment of an agent to sell an asset at a specific price is permissible if the transaction been made to the third party (not to the agent). However if the agent decided to sell it to himself, the transaction is permissible if the price is predetermined by the principal.


    Click here to view the arabic version

     

    Source:

    Qararat wa Tausiyat Nadawat al-Barakah lil-Iqtisad al-Islami (2010) (p23)

     

    3. Shaykh Sulayman al-Mani’

    Shaykh Sulayman al-Mani’ highlighted the following important points:

    a) It is permissible for the bank as muwakkil to appoint the customer as its wakil to purchase the assets on behalf of the bank and subsequently to sell the assets to others after the ownership of the assets has been transferred to the bank.

    b) It is prohibited for the bank to appoint the customer as its wakil to purchase the assets on its behalf and subsequently to sell the assets to itself. This is to avoid tuhmah to the bank as it may lead to a fictitious transaction.

    c) However, in the case where the bank has determined the price of the asset at the time the customer has been appointed as agent to purchase the assets on the bank’s behalf and subsequently sell it to himself at a pre-determined price, this is allowable. This is because there is no issue of the wakil assuming two roles of seller and buyer at the same time since the bank as muwakkil has indicated the offer (ijab) by determining the asset’s price at the time it appoints the agent. Thus, the completion of the sale contract will be concluded once the customer accepts purchase of the assets at the price that the bank and the customer had earlier agreed upon. Pursuant to that, the contract is concluded between the seller (bank) and the buyer (customer), and therefore the ruling of the wakil transacting with himself shall not be applicable.

     

    Source:

    Muraja’ah Fatawa Nadwat al-Barakah pp.5&6

Islamic Bank Guarantee for Conventional Bank
  • 1. Dubai Islamic Bank

    Question:

    There was an application from a customer who had terminated all of his transactions and dealings with a conventional bank and now executing his transactions using the services of an Islamic bank. The request was for the Islamic bank to issue a banker’s guarantee for all transactions that had been executed by the customer using a Visa card that was issued by the conventional bank. Is such request permissible?

     Answer:

    It is permissible for the Islamic bank to issue guarantee on behalf of the customer on the principal amount of the debt or the future payment (without the interest portion) to the conventional bank that issued the Visa card which has been utilized by the customer prior to migration to Islamic bank.This is because the debt from Visa card’s services resulted from sale and purchase activities or other transaction is originally permissible unless the Islamic bank discovers that the debt was created from impermissible transactions such as purchase of alcohol, gambling and interest bearing loan. In addition, guarantee for an unknown amount of possible future debt is also permitted, although the common practice of the guarantee must be in a fixed amount. This arrangement can be made after the bank had acquired a sufficient collateral from the customer in order to claim for the outstanding debt should the customer fails to pay the debt within the agreed period.

    In relation to this, the Council would like to recommend the bank to secure a sufficient collateral from the customer for the bank to liquidate, in order to recover the amount of debt upon the occurrence of payment default.

    The Council also recommends the bank to ensure that the source of all the debt that are to be guaranteed must only be derived from the permissible activities.


    Click here to view the arabic version

    Source:

    Fatawa Hai’ah al-Fatwa wa al-Raqabah al-Shar’iyyah Li Bank Dubai al-Islami (Volume 2) (p745)

Islamic Financial Instrument as Underlying Asset in Conventional Transaction
  • 1. Shariah Advisory Council, Bank Negara Malaysia

    Resolution:

    The SAC, in its 19th meeting dated 20 August 2001, has resolved that since the Islamic financial instruments are owned by the conventional financial institutions, it is the institutions’ right and choice to use the Islamic financial instruments as the underlying asset in any conventional transaction. However, those parties who transact conventionally will be held responsible for any transaction which is contrary to Shariah. Shariah compliance of the Islamic financial instruments used in conventional transactions is preserved as long as the executed transaction is not detrimental to the contract and fundamental features of the instruments.

    Click here to view the source

Permissibility of using Credit Card in Islam
  • 1) Shariah Advisory Council, Bank Negara Malaysia

    Resolution:

    The SAC, in its 77th meeting dated 3 July 2008 and 78th meeting dated 30 July 2008, has resolved that the proposed credit card structured based on the concept of ujrah is permissible subject to the following conditions:

    i. Islamic financial institutions shall ensure that the ujrah is imposed as a consideration for the provision of actual or non-fictitious services, benefits and privileges that are permissible under Shariah;

    ii. The imposition of different amount of ujrah on various types of credit cards that offer different kind of services, benefits and privileges is permissible;

    iii. The imposition of ujrah on the services, benefits and privileges which are not related to qard, deferment of debt and exchange of cash with cash at a different value is permissible; and

    iv. The imposition of ujrah on the services, benefits and privileges relating to qard, deferment of debt and exchange of cash with cash at a different value is not permissible. However, charges may be imposed to cover the actual management cost (nafaqah/taklufah).

    Source: Click here to view the source


    2) International Islamic Fiqh Academy

    Resolution No.108 (2/12) on “Credit Cards”:

    The Council of the International Islamic Fiqh Academy of the Organization of the Islamic Conference in its Twelfth Session held in Riyadh (Kingdom of Saudi Arabia) during the period from the 25th of Jumad Thani to 1st of Rajab 1421 H (23-28/9/2000),

    And on the basis of its Resolution No. 65/1/7 on Financial Markets which decreed postponement of passing a final decision on the issue of Credit Cards to a forthcoming session,

    And in view of its Resolution No. 102/4/10, and after studying the research papers on Credit Cards, submitted to it, and listening to the discussions of the Fuqaha’a and economists, and in view of its Resolution No. 63/1/7 which defines the Credit Card as:

    A document that its issuer (issuing bank) gives to a natural or legal person (card bearer) according to a contract between them. The card bearer becomes able, by virtue of this arrangement, to purchase goods or services from those who recognize the card without immediate payment of the price as commitment will thus fall on the issuer. Payment is made from the account of the issuer who will afterwards charge the card bearer at regular time intervals. Some issuers used to impose usurious interest on the total outstanding balance that the bearers owe to them, after due date of payment, while other do not,

    Decides the following:

    Firstly: it is impermissible in Shariah to issue a Credit Card or use it if its conditions include imposition of usurious interest. This is so even if the card bearer has the intention to pay within the moratorium period that precedes imposition of interest.

     

    Secondly: it is permissible in Shariah to issue Credit Cards that do not carry a condition of imposing interest on the debt. Permissibility of this deal entails also two further considerations:

    A) Permissibility for the issuer to take from the bearer a specific amount of money at the time of issuing or renewal of the Card. Such amount constitutes the actual fee that the issuer deserves according to the services it provides to the bearer.

    B) Permissibility for the issuer to take a commission on the goods or services purchased by the bearer, provided that such goods or services are sold at the same price whether in cash or credit.

    Thirdly:Using Credit Cards for cash drawing results in a loan from the issuer to the bearer and is permissible if it does not entail payment of usurious interest. The fixed amount of money to be taken by the issuer as a fee for his actual services, and which has nothing to do with the loan amount or duration is not considered as usurious. However, any charge over and above the fixed amount is impermissible because it is usurious as indicated in Resolutions No.13 (10/2) and 13(1/3) of the Academy.

    Fourthly:It is impermissible to use Credit Cards for purchasing gold, silver and currencies.

    Click here to view the arabic version

    Source:

    Resolutions and Recommendations of the Council of the International Islamic Fiqh Academy 1985-2000. Click here to view.

Permissibility of Late Payment Charges
  • 1. Shariah Advisory Council, Bank Negara Malaysia

    Resolution:

    The SAC, in its 4th meeting dated 14 February 1998, 95th meeting dated 28 January 2010 and 101st meeting dated 20 May 2010, has resolved that the late payment charge imposed by an Islamic financial institution encompassing both concepts of gharamah (fine or penalty) and ta’widh (compensation) is permissible, subject to the following conditions:

    i. Ta’widh may be charged on late payment of financial obligations resulted from exchange contracts (such as sale and lease) and qard;

    ii. Ta’widh may only be imposed after the settlement date of the financing became due as agreed between both contracting parties;

    iii. Islamic financial institution may recognise ta’widh as income on the basis that it is charged as compensation for actual loss suffered by the institution; and

    iv. Gharamah shall not be recognised as income. Instead, it has to be channelled to certain charitable bodies.

    Click here to view the source


    2. Shariah Advisory Council, Bank Negara Malaysia.

    Resolution:

    The SAC, in its 50th meeting dated 26 May 2005, 61st meeting dated 24August 2006 and 100th meeting dated 30 April – 1 May 2010, has resolved that the judge may impose late payment charge on judgment debt as decided by the court rules on cases of Islamic banking and takaful based on the methods of gharamah and ta’widh on actual loss according to the following mechanisms:

    i. Court may impose late payment charge at the rate as stipulated by the procedures of court. However, from this rate, the judgment creditor (Islamic financial institution) is only allowed to receive compensation rate for actual loss (ta’widh);

    ii. To determine the compensation rate for actual loss (ta’widh) that may be applied by the judgment creditor, the SAC agreed to adopt the “weighted average overnight rate” of Islamic money market as a reference; and

    iii. The total compensation charge shall not exceed the principal amount of debt. If the actual loss is less than the applicable rate for judgment in current practice, the balance shall be channelled by judgment creditor to charitable organisation as may be determined by Bank Negara Malaysia.

    Click here to view the source


    3. Dallah al-Barakah

    (3/2)  Default in payment by a solvent debtor

    Some of the participating scholars in the Dallah Barakah Conference are of view that it is permissible to impose compensation on a debtor who delays in his payment; despite being capable to pay on time (solvent debtor). This is  to compensate the creditor against any  losses/harms that he/she had incurred due to the  the late payment that occurs without any valid Shariah excuse. The reason behind such permissibility is due to the fact that such an act from the debtor is considered as unjust (zalim). The Prophet (PBUH) had said : “Delay by a rich person (in payment of debt) is a tyranny”. Such circumstance resembles the act of usurpation (ghasb) in which the scholars have resolved that the usurper is liable for the guarantee of the benefits of the usurped items; in addition to the liability to return the items.

    The amount of the compensation (ta`widh) is calculated based on the amount of expected profit (on a normal basis) to be attained by the creditor if the creditor invests – in a permissible manner – that same amount as the amount of the outstanding during the period of default.

    The legal court will determine the amount of compensation by referring to the financial experts based on the permissible methods of investment according to the Shariah. In the event whereby non-usurious financial institutions (such as Islamic banks) are available in the country where the creditor resides, then the average amount of profit that may be attained by these institutions through investment from such amount (similar to the defaulted amount) during the period of delay in repayment shall act as a basis of reference to determine the compensation amount.

    Additionally, it is not permissible to have an upfront agreement to impose such compensation clause between the creditor and the debtor in order to block any means to engaging in usury (riba) due to profiteering from the additional amount on top of the extended loan.

    Some of the participating scholars of the conference are also of opinion that such imposition of compensation must be done on the basis of charging penalty as result of default in payment (gharamah jazaiyyah) which is in conformity with the principle of ensuring public interest (masalih mursalah) and that the disposition of the collected amount must be channelled for permissible charitable purpose.

    Click here to view the arabic versionSource:
    Qararat wa Tausiyat Nadawat al-Barakah lil-Iqtisad al-Islami (2010) (p32)

Permissibility to Charge a Fee for Guarantee
  • 1. Shariah Advisory Council, Bank Negara Malaysia

    Resolution:

    The SAC, in its 10th special meeting dated 9 April 2009 and 95th meeting dated 28 January 2010, has resolved that:

    1. i. The application of kafalah bi al-ujr (guarantee with fee) as the appropriate Shariah concept for the guarantee facility on the sukuk issuance by Danajamin is permissible. Under this concept, Danajamin shall act as the guarantor ( kafil ), the sukuk issuer as the guaranteed party ( makful 'anhu ) and the investors as the beneficiary ( makful lahu ); and
    2. ii. Danajamin is allowed to claim back the amount that has been paid to the investors from the sukuk issuer through this guarantee facility. The repayment period for the amount claimed by Danajamin from the sukuk issuer shall be based on the current market practice subject to obtaining the consent of contracting parties namely Danajamin and the sukuk issuer, and it shall take into consideration the size of the sukuk .

    Click here to view the source

     

    2. Shariah Advisory Council, Bank Negara Malaysia.

    Resolution:

    The SAC, in its 80th meeting dated 7 January 2009, has resolved that the application of kafalah bi al-ujr (guarantee with fee) as the underlying Shariah concept for the operation of Malaysia Deposit Insurance Corporation (PIDM) in managing Islamic deposit insurance fund is permissible. Based on the concept of kafalah bi al-ujr , the premium paid by the member institutions of PIDM offering Islamic banking services is considered as an ujrah or fee for PIDM and thus, belongs to PIDM. As premium is considered as fee, PIDM may structure it in the form of absolute or proportionate value.

    Click here to view the source

     

    3. International Islamic Fiqh Academy

    The Council of the Islamic Fiqh Academy, during its second session, held in Jeddah (Kingdom of Saudi Arabia), from 10 to 16 Rabiul Thani 1406H (22-28 December 1985), having considered the issue of “The Letter of Guarantee” and reviewed the research papers and studies already prepared, after conducting elaborate deliberations and discussions, has reached the following conclusions:

    First: Any letter of guarantee whether initial or final, is either with or without cover. Should it be without cover, then the guarantor is regarded as to have jointly pledged along with the third party, both the performance and financially. This type of pledge is in fact what is referred to as “guarantee or collateral” in Islamic Fiqh. If however the letter of guarantee has a cover, the relationship between the applicant of the guarantee and its issuer, is that of an agency; and an agency may exist with or without fee, tied-in with the link of surety in favour of the beneficiary in whose benefit the guarantee is issued.

    Second: The guarantee ( Kafala ) is a benevolent contract, motivated by grace and mercy. The jurist have decided against taking fee for issuing guarantees ; the reason being that, in the event of guarantor’s payment of the guaranteed sum, it will resemble a loan generated profit to the lender and that is forbidden in Shari’a.

    The Council resolves:

    First: It is not permitted to charge a fee for issuing a letter of guarantee (in which, customarily, the amount and the period of guarantee are considered) whether it is with or without cover.

    Second: The administrative expenses for issuing a letter of guarantee of both kind are permissible by Shari’a, provided they do not exceed actual expenses for services of the same kind. In the event a partial or total cover is presented, it is permissible to take into account, when estimate of expenses is determined, the possible effort which may be required to provide the cover.

    Click here to view the arabic version


    Source:

    Click here to view the source

     

Syndicated Financing between Islamic Financial Institutions and Conventional Financial Institutions
  • 1) Dallah al-Barakah

    (6/14) Participation between Islamic Financial Institutions and Conventional ( riba -based) Financial Institutions

    Participants of the conference had deliberated on the issue of participation ofIslamic financial institution with conventional financial institution in a syndicated financing. They are of the view that if the operating procedures of the syndicated financing complies with the Shariah, there shall be no restriction for the Islamic financial institutions to engage in such arrangement provided that proper measures are being taken to ensure that every aspect of the arrangement conforms to the Shariah.

    As for the ruling on the participation between Islamic financial institutions and conventional financial institutions in providing full guarantee or partial guarantee for financing arrangements that do not comply with the Shariah requirements, the ruling is that it is not permissible for such participation to take place as guaranteeing Shariah non- compliant activities is prohibited in Shariah.

    Click here to view the arabic versionSource:

    Qararat wa Tausiyat Nadawat al-Barakah lil-Iqtisad al-Islami (2010) (p48)

The Use of Interest Rate as A Benchmark for Islamic Banks
  • 1. Dallah al-Barakah

    (22/1) Establishing Islamic benchmark as an alternative to interest-based benchmark for dealings involving deferred payment.

    a. The reliance of Islamic financial institutions on the usage of conventional (interest rate) benchmarking – such as LIBOR and other similar benchmarking – in pricing their products that are based on deferred payment contracts such as Murabahah, Ijarah and Istisna’ as well as using the conventional benchmarking as a as measuring instrument to value the efficiency and productivity of the Islamic bank negates the principals and objectives of Islamic banking. The conventional benchmarking index is not supposed to be utilized as a tool to calculate the composition and the cost of the bank’s funds. Despite that, relying on the conventional benchmarking is a necessity in the absence of islamically accepted benchmarking indexes.

    b. There is no prohibition in relying on the interest rate benchmarking in pricing the Islamic products of which such use of benchmark does not contradict the products’ nature of conforming to the Shariah upon its usage.

    c. The conference recommends that the bodies which oversee and deliberate on Islamic banking issues – such as Islamic Fiqh Academy, Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) – to cooperate with institutions and centres which specialize in researches in the field of Islamic economics, in order to establish an Islamic benchmark which will serve as an alternative to the interest rate benchmark. The Islamic benchmark shall be based on principles and foundations that conform to the provisions and principles of Islamic law and the nature of operations of the Islamic banks. This can be achieved by establishing a special committee whereby it comprises of scholars and experts in the study of economics, accounting and Islamic banking to provide such benchmarking.


    Click here to view the arabic version


    Source:

    Dallah al-Barakah Resolutions and Recommendations (p169)


    2. Mufti Taqi Usmani

    It is thus clear that the use of the rate of interest merely as a benchmark does not render the contract invalid as an interest - based transaction. It is, however, advisable at all times to avoid using interest even as a benchmark, so that an Islamic transaction is totally distinguished from an un-Islamic one, having no resemblance of interest whatsoever.”

    Click here to view the source

    No doubt, the use of the rate of interest for determining a halal profit cannot be considered desirable. It certainly makes the transaction resemble an interest-based financing, at least in appearance, and keeping in view the severity of prohibition of interest, even this apparent resemblance should be avoided as far as possible. But one should not ignore the fact that the most important requirement for validity of murabahah is that it is a genuine sale with all its ingredients and necessary consequences. If a murabahah transaction fulfils all the conditions enumerated in this chapter, merely using the interest rate as a benchmark for determining the profit of murabahah does not render the transaction as invalid, haram or prohibited, because the deal itself does not contain interest. The rate of interest has been used only as an indicator or as a benchmark.”

    Click here to view the source

Financing Based On Musyarakah Mutanaqisah
  • 1) Shariah Advisory Council, Bank Negara Malaysia

    There was a proposal from an Islamic financial institution to offer Islamic house financing product based on the concept of musyarakah mutanaqisah. In general the modus operandi of the house financing product based on musyarakah mutanaqisah is as follows:

    i) A customer who wants to buy a real property applies for financing from the Islamic financial institution;

    ii) The Islamic financial institution and the customer will jointly purchase the real property based on a determined share (for example 90:10) depending on the amount of financing requested

    iii) The deposit paid by the customer is deemed as his initial share of ownership

    iv) The Islamic financial institution’s share of ownership will be leased (based on ijarah) to the customer; and

    v) The monthly instalment by the customer will be used to gradually purchase the share of the Islamic financial institution until the entire share of the Islamic financial institution is fully purchased by the customer.

    In this regard, the SAC was referred to on the following issues:

    i. Whether the collective usage of musyarakah and ijarah agreements in one document of musyarakah mutanaqisah is allowed since such collective usage may be perceived as having two transactions in one sale and purchase contract (bai`atain fi al-bai`ah) which is prohibited in Shariah; and

    ii. Whether a pledge may be imposed by one of the owners of the asset over the jointly owned asset.

    Resolution

     The SAC, in its 56th meeting dated 6 February 2006, has resolved the following:

    1) Collective usage of contracts of musyarakah and ijarah in one document of agreement is permissible as long as both contracts are concluded separately and clearly; and

    2) A pledge in musyarakah mutanaqisah may be imposed if the pledge document involves only the customer’s shares being pledged to the Islamic financial institution. This is because beneficial ownership is recognised by the Shariah.

    Basis of the Ruling

    The aforesaid resolution has considered that a musyarakah mutanaqisah contract that uses both musyarakah and ijarah contracts is deemed as one form of contemporary contract (`uqud mustajiddah) recognised by fiqh scholars in order to fulfill the contemporary needs of Islamic mu`amalah.

    Shariah allows certain forms of management (tasarruf) of musyarakah assets. Among others, both partners in a musyarakah contract are entitled to transact or lease the musyarakah asset because partnership carries wakalah features. Thus, each partner may become an agent for the other partner in transacting or leasing, including selling and purchasing or leasing each other’s shares of the musyarakah asset among themselves. In addition, a partner is also allowed to give and receive a pledge of the musyarakah asset with the permission of the other partner. This is in line with the following fiqh maxim:

     

    All items that can be sold, can be pledged.”

    Click here to view the source

Dealing With A Charged Asset
  • 1) Shariah Advisory Council of BNM

    The appreciation of the market value of a charged asset, particularly a real estate leads to a situation where the security value is more than enough to cover the financing amount compared to when it was initially charged.

    In addition, consistent payment of debt by the debtor in accordance to the agreed schedule will gradually reduce the amount of outstanding debt and will consequently lead to the security in excess of the required security coverage rate.

    In this situation, the owner of the charged asset may seek to charge the asset for security in another transaction (second charge) by way of charging the value that is in excess of the required first charge amount.

    In this regard, the SAC was referred to on the following issues:

    i) Whether the consent to the second charge given by the first chargee may be construed as waiver of his claim towards the asset under the first charge; and

    ii) Whether a sale contract or another charge may be transacted on some part of the asset’s current value.

    Resolution

    The SAC, in its 6th meeting dated 26 August 1998, has resolved the following:

    i) The consent to the second charge given by the first chargee shall not be construed as waiver of his claim towards the asset under the first charge. In addition, consent of the first chargee shall be given in writing to avoid any dispute; and

    ii) Any sale contract or charge transacted on some part of the total asset value is allowed. However the asset is deemed as an undivided property (musya`) owned by the buyers according to their respective percentage of shares. Similarly, the rights over the foreclosed charged asset shall be shared among the chargee according to the agreed terms and conditions.

    Basis of the Ruling

    The consent to the second charge given by the first chargee shall not be construed as a waiver of his claim towards the asset under the first charge because:

    i) Prior to settlement of debt by the chargor, the first chargee still has the interest on the charged asset; and

    ii) Only the remaining value of the charged asset is allowed to be charged for the second charge, and not the part that is charged to the first chargee.

    The consent of the first chargee to the second charge shall be clearly conducted to avoid any confusion in the usage and ownership of the charged asset. In addition, any sale contract or charge transacted on some parts of the actual value of the asset is allowed based on the following juristic views:

    i) Majority of fiqh scholars other than the Hanafi school allow charge on undetermined part of the actual value of an asset (rahn al-musya`).56 This view relies on the following maxim:

     

    Anything that can be sold, can be charged, either it is a kind of undivided ownership or otherwise.”

     

    ii) Imam Syafii also stated that:

    ”It is permissible for a person to charge half of his land, and half of his house, and a part of his undivided shares of the land and house if all parts of the asset are clearly identified and the charged portion of the asset are also identified. In this matter, there is no difference between charge and sale.”

    Click here to view the source

     

Application of al-ijarah thumma al-bai` in vehicle financing
  • 1) Shariah Advisory Council of BNM

    There has been a proposal by an Islamic financial institution to introduce vehicle financing based on al-ijarah thumma al-bai` (AITAB) concept. The financing based on AITAB involves two types of contracts, namely leasing contract (ijarah), followed by sale contract (al-bai`).

    At the initial stage, the Islamic financial institution will conclude an ijarah agreement with the customer. Under this agreement, the Islamic financial institution will appoint the customer as an agent to purchase the vehicle identifiedby the customer. Subsequently, the Islamic financial institution will lease the vehicle to the customer for a specified period.

    Upon expiry of the lease period, the customer has the option to purchase the vehicle from the Islamic financial institution. If the customer opts to purchase the vehicle, the Islamic financial institution and the customer will conclude a sale contract and the ownership of the vehicle will be transferred from the Islamic financial institution to the customer.

    In this regard, the SAC was referred to on the issue as to whether the application of AITAB in the aforesaid vehicle financing is allowed by the Shariah.

    Resolution

    The SAC, in its first meeting dated 8 July 1997 and 36th meeting dated 26 June 2003, has resolved that the application of the AITAB concept in vehicle financing is permissible, subject to the following conditions;

    i- The modus operandi of AITAB shall consist of two independent contracts, namely ijarah contract and al-bai` contract;

    ii- The sale price upon expiry of the lease period may be equivalent to the last rental amount of ijarah;

    iii- An agency letter to appoint the customer as an agent for the Islamic financial institution shall be introduced in the modus operandi of AITAB;

    iv- The AITAB agreement shall include a clause that specifies “will purchase the vehicle” at the end of the lease period, as well as a clause on early redemption by the lessee;

    v- The deposit paid to the vehicle dealer does not form a sale contract since it is deemed as a deposit that has to be paid by the Islamic financial institution;

    vi- In line with the principles of ijarah, the Islamic financial institution as the owner of the asset shall bear all reasonable risks relating to the ownership; and

    vii- For cases relating to refinancing with a new financier, the lessee shall firstly terminate the existing AITAB contract before entering into a new AITAB agreement.

    Basis of the Ruling

    The aforesaid SAC’s resolution has considered the following:

    i) The option to execute a sale contract at the end of the lease tenure is a feature of AITAB and ijarah muntahia bi al-tamlik that is permissible and practised in the market. This option does not contradict the Shariah as the ijarah contract and the sale contract are executed independently and

    ii) The OIC Fiqh Academy, in its resolution no. 110 (12/4), has also allowed ijarah muntahia bi al-tamlik, subject to certain conditions.

    Click here to view the source

Third Party Guarantee For Capital And/Or Profit In Mudarabah Transaction
  • 1) Shariah Advisory Council of BNM

    The SAC was referred to on the issue as to whether a third party may guarantee the capital and/or profit of mudarabah transaction.

    Resolution

    The SAC, in its 91st meeting dated 1 October 2009, has resolved that a third party guarantee on the capital and/or expected profit in a mudarabah transaction is allowed on the condition that the third party who will provide the guarantee shall be an independent party and does not have any kind of relationship, whether directly or indirectly, with the mudarib. In the event whereby the third party guarantor is allowed to claim the guaranteed amount from a sukuk issuer if there is a loss, or he is charging a fee for such guarantee, such a guarantor will be classified as a limited third party, thus, the abovementioned condition has not been satisfied.

    Basis of the Ruling

    A guarantee of capital and/or expected profit by a third party in a mudarabah transaction is based on maslahah which is to ensure continuous investors’ confidence in investing into the country’s significant projects.

    Click here to view the source

The Letter of Guarantee
  • The Council of the Islamic Fiqh Academy, during its second session, held in Jeddah (Kingdom of Saudi Arabia), from 10 to 16 Rabiul Thani 1406 H (22-28 December 1985) ;
    Having considered the issue of "The Letter of guarantee”; Having reviewed the research papers and studies already prepared;
    After conducting elaborate deliberations and discussions;

    Has Reached the Following Conclusions

    First: Any letter of guarantee, whether initial or final, is either with or without cover. Should it be without cover, then the guarantor is regarded as to have jointly pledged along with the third party, both the performance and financially. This type of pledge is in fact what is referred to as "guarantee or collateral" in Islamic Fiqh. If however the letter of guarantee has a cover, the relationship between the applicant of the guarantee and its issuer, is that of an agency ; and an agency may exist with or without fee, tied-in with the link of surety in favor of the beneficiary in whose benefit the guarantee is issued.

    Second: The guarantee (Kafala) is a benevolent contract, motivated by grace and mercy. The jurists have decided against taking fee for issuing guarantees ; the reason being that, in the event of guarantor's payment of the guaranteed sum, it will resemble a loan generated profit to the lender and that is forbidden in Shari'a.

    RESOLVES
    First: It is not permitted to charge a fee for issuing a letter of guarantee (in which, customarily, the amount and the period of guarantee are considered) whether it is with or without cover.

    Second: The administrative expenses for issuing a letter of guarantee of both kind are permissible by Shari'a , provided they do not exceed actual expenses for services of the same kind. In the event a partial or total cover is presented, it is permissible to take into account, when estimate of expenses is determined, the possible effort which may be required to provide the cover.

    Click here to view the source

Auction Contracts
  • The Council of the Islamic Fiqh Academy, holding its Eight Session in Bandar Seri Begawan, Brunei Darussalam, from 1 to 7 Muharram 1414H (21- 27 June 1993).
    Having examined The research, received by the Academy on the subject of "Auction Contracts".
    Having listened to the debate on the matter.
    Given the fact that auction sales are a common practice today and in some instances have involved certain excesses which have made it necessary to regulate its usage in a way that would preserve the rights of the parties to the contract in conformity with Islamic Shari'a rules, as they have been adopted by institutions and governments under specific administrative regulations, and in order to elucidate the Shari'a rules with respect to such contracts.

    RESOLVES

    1. An auction contract is an exchange contract involving an invitation to interest parties, verbally or in writing, to partake in the auction. The contract is concluded with the consent of the seller.
    2. An auction contract may vary in nature according to its object, and ramify into a sale or lease or other types of contract. According to its nature it may also be either optional such as ordinary auctions amongst individuals, or compulsory such as in the case of auctions dictated by law. It may be required by public and private institutions as well as governmental bodies and individuals.
    3. The auction contract procedures in terms of written records, arrangements and administrative and legal terms and conditions must not be in contradiction with the rules of Islamic Shari'a.
    4. Requiring a deposit from those wishing to enter the auction sale is permissible in terms of Shari'a. Their deposits must be re instituted to all the participants who have not been the last bidders. The deposit is deducted from the selling price for the last bidder.
    5. There is no objection from Shari'a point of view to levying entrance fees (value of the schedule of conditions, not exceeding actual value) as it represents a cost thereto.
    6. An Islamic financial institution or any other party may initiate investment projects so as to secure a higher benefit for itself, whether the investor is a party in a Mudharaba contract with the Bank or not.
    7. "Najash" (Deception in bidding), is prohibited by Shari'a. It include the following practices:
    1. Someone with no intention of buying offers higher bids just to entice the earnest buyer into making higher offers.
    2. Someone not really intending to buy pretends to admire the commodity as an expert, and extol its benefits to the buyer, thus effecting a higher price.
    3. That the owner of the commodity, the agent or the broker, claims falsely that a specific price has been paid for it, so as to mislead the buyer.
    4. Contemporary forms of "Najash" prohibited by Shari'a include the use of the media, whether audio, visual, or in print to ascribe to the commodity unreal characteristics, or increase the price so as to seduce the buyer and entice him into entering the contract.

    Click here to view the source

Takaful
Takaful Coverage for Islamic Financing
  • The SAC, in its 41st meeting dated 8 March 2004 and 43rd meeting dated 29 April 2004, has resolved the following:

    i. For an Islamic financing package which does not include an amount of contribution for coverage, the Islamic financial institution shall offer a takaful plan as the first option to the customer who applied for the Islamic financing that requires coverage.72 If the customer refused the takaful plan on particular reasons, the customer may choose any conventional insurance as he wished. Such an exemption is only given in consideration of the following factors:

    • If the insurance premium is totally borne by the customer;
    • If there is a sector or specific class in insurance whereby takaful has no expertise; or
    • The customer’s application was rejected by takaful company on certain grounds.

    ii. For an Islamic financing package that includes the amount for contribution of coverage, the Islamic financial institution shall ensure that only takaful plan is used to cover such Islamic financing. Conventional insurance premium shall not be included in Islamic financing package; and

    iii. If a customer who has taken a conventional insurance coverage for an Islamic financing passes away or suffers any kind of peril that results in his inability to pay for the financing, the Islamic financial institution is entitled to receive compensation from the conventional insurance.

    -Reference: Shariah Resolutions in Islamic Finance (2nd edition), BNM, http://www.islamicfinance.com/wp-content/uploads/2015/01/Shariah-Resolutions-2nd-Edition-En.pdf


The Status of Conventional Policy Insurance Compensation Benefits After the Death of Policyholder
  • Decision:

    The 94th Discourse of the Fatwa Committee of the National Fatwa Council for Islamic Religious Affairs Malaysia convened on 20th-22nd April 2011 had discussed the Status of Conventional Policy Insurance Compensation Benefits After the Death of Policyholder. The Discourse has decided as follows:

    After examining the evidence, contentions and views presented, the Discourse is of the view that conventional insurance is a form of Shari`ah non-compliant transaction as it contains elements contrary to fundamental Islamic principles.

    Pursuant to that, the Discourse has decided that compensation benefits under a conventional insurance policy received by heirs of a deceased policyholder are regarded as a non-Shari`ah compliant asset.

    In this case, only the principal amount of the premiums paid by the policyholder during his lifetime shall be distributed according to the faraidh system. Meanwhile the surplus of the compensation benefits cannot be inherited by the heirs according to the faraidh system and must be disposed of by surrendering them either to Baitulmal authorities of State Religious Councils or by way of donation for welfare purposes, including to the poor and destitute.

    If any of the policyholder’s heirs, such as the wife or child is categorised as a destitute or poor person, then it is permissible for the said heir to receive the compensation benefits under the conventional insurance policy in such requisite amount sufficient for him (to meet his needs) as a destitute or poor person upon the approval given by the authority or the Kariah Committee of the relevant residential area. The surplus of such compensation benefits shall then be disposed of according to the method specified in paragraph (3) above.

    Click here to view the source

Takaful Coverage for Conventional Loans
  • Resolution:

    The SAC, in its 54th  meeting dated 27 October 2005, has resolved that a takaful company may offer a takaful coverage for a customer’s asset even though the asset is financed conventionally, provided that it is offered separately and not as a package.

    Click here to view the source

Imposition of Management Fee on Takaful Participants’ Contribution
  • Resolution:

    The SAC, in its 62nd meeting dated 4 October 2006, has resolved the following:

    i. For takaful model based on wakalah contract, takaful company is allowed to charge management fee on contribution paid by takaful participants. The amount of management fee shall consider the responsibilities of takaful company towards takaful participants and shall be agreed upon by the contracting parties. The imposition of management fee shall be clearly stated in takaful agreement contract; and

    ii. For takaful model based on mudarabah contract, takaful company is not allowed to charge any management fee on contribution paid by takaful participants. On the other hand, all operational expenses shall be borne by the shareholders fund whereby its income is derived from its share of investment profits or surplus of the takaful fund.

    Click here to view the source

Takaful Coverage for Conventional Credit Card Product
  • Shariah Advisory Council, Bank Negara Malaysia

    The SAC was referred to a proposal by a takaful company to offer group takaful coverage for conventional credit card customers. Under this conventional credit card product, the banking institution will stipulate a condition on the customer to get takaful coverage in the course of application for the conventional credit card. This condition aims to cover the customer in undesirable situations including death or permanent disability of the customer that disables him from settling his conventional credit card debt.

    Resolution :

    The SAC, in its 70th meeting dated 12 September 2007, has resolved that a specific takaful coverage for conventional credit card as proposed is not allowed.

    Click here to view the source.

Co-Takaful Agreement
  • Shariah Advisory Council, Bank Negara Malaysia

    A co-takaful agreement is a risk sharing agreement concluded between a takaful company and another takaful company, or between a takaful company and a conventional insurance company. In this risk sharing agreement, two or more takaful companies or conventional insurance companies agree to share the underwritten risks. Nevertheless, separate takaful certificates will be issued by the takaful company to the takaful participants if the risk sharing is done with a conventional insurance company, and single takaful certificate issued if the risk sharing is done amongst takaful companies only. In this regard, the SAC was referred to on the issue as to whether co-takaful between a takaful company and a conventional insurance company is permissible in Shariah.

    Resolution:

    The SAC, in its 47th meeting dated 14 February 2005, has resolved that co-takaful between a takaful company and a conventional insurance company is permissible provided that the execution of the agreement between the customer and the takaful company as well as between the customer and the conventional insurance company are done separately.

    Click here to view the source.

Others
Zakat on Private Properties, Horses and Any Other Sources of Income
  • [132]  عرض على اللجنة الأسئلة المقدّمة من المدعو/ عبد المجيد، ونصّها كالآتي:

              السؤال الأول: رجل يعمل في التجارة، يكسب منها الخير الكثير، اعتاد أن يقضي أشهر الصيف مع عائلته في الخارج، فاشترى مسكناً خاصاً في إسبانيا، وشقة في لندن، وفيلا في جنوب فرنسا وأخرى في القاهرة، بالإضافة إلى  مسكنه الأصلي في الكويت، هل يتوجب على هذا التاجر زكاة عـن هذه المساكن؟  علماً بأن أغلب هذه المساكن يظل مقفلاً بدون استعمال لعدة سنوات، وإذا استعمـل لا يكون ذلك إلاَّ لأشهر معدودة، وإذا كان يتوجب عليه زكاة فكيف يكون تقدير ذلك؟ هل على أساس ما دفعه ثمناً للأرض وتكاليف البناء أم على أساس القيمة الحالية ؟

    * أجابت اللجنة بما يلي:

              إن هذه الدور والمساكن كلها للاستعمال الشخصي وهو ما يسميه الفقهاء  "القنية " وهذه ليس فيها زكاة لعدم النماء الحاصل بالتجارة بها. أما إذا آجرها خلال الفترة التي لا يستعملها بالسكنى فإن موارد الإيجار تعتبر من المال المستفاد في أثناء الحول، والحكم فيه أن يضم إلى الأموال الأصلية للشخص والعبرة بحولان الحول على النصاب الأول فتزكى في حوله. واللَّه أعلم.

     

    Zakat on Private Properties, Horses and Any Other Sources of Income

    The question has been given by a person by name of Abdul Majid, the text of the query are as follows:

    Question: There is a businessman who owns a very profitable business. He always spent his summer with his family abroad. He had bought a house in Spain, an apartment in London and a villa which is located in south of France and other property in Cairo, Egypt, apart from his house in Kuwait. Shall the businessman pay zakat on all of the properties? Taking into consideration that most of the properties will only be locked for few years and would only been used for few months. Should the properties are subjected to zakat, and how should it be computed? Would it be calculated based on the purchase price or it shall be paid based on the current value of the properties?

    Answer: Essentially, the properties are for personal consumption and these are termed as ‘Qunyah’ (personal usage). In such case, zakat will not be imposed on it as the properties are not complying with the requirement of Nama’ (potential for growth) that is usually caused by business activity from it. However, if the owner rents the properties out during the said period, then the rentals will be considered as Al-Mal Al-Mustafad (earning) during the completion of the haul (zakat year) and must to be included together with his monies for zakat computation. The haul will be referred/considered in relation with the nisab (minimum amount) of his monies, then, it will be paid during the completion of the haul

     

Using Interest Income for the Benefits of Public in an Area
  • [2379] عرض الاستفتاء المقدم من رئيس مجلس حي منطقة ما السيد/ ثنيان، ونصه:

     يرجى التكرم بالعلم بأنه قد تم إنشاء مجلس حي منطقة السالمية كلجنة خدمة اجتماعية من قبل جمعية السالمية التعاونية للعمل على ترقية شئون المنطقة والنهوض بها وتطويرها على كافة المستويات الاجتماعية و الثقافية والدينية والصحية والترفيهية والعمل على حل مشاكل المنطقة بالتعاون مع وزارات الخدمات المختلفة في الدولة ويقوم المجلس بالصرف على هذه الأنشطة من مخصص المعونة الاجتماعية (20% من صافي أرباح الجمعية سنويا) ولكن هذا العام وبعد أن من الله علينا بنعمة النصر والتحرير وطرد المعتدي الأثيم لا يوجد رصيد في ميزانية مجلس الحي حيث لم تحقق الجمعية أية أرباح بسبب الغزو الغاشم وبالتالي لم يحول إلى مجلس الحي أية مخصصات.

     هذا ويوجد لدى الجمعية مبلغ (40000) د.ك فوائد وأرباح لوديعة سابقة في بنك ربوي ، وتريد الجمعية هذا المبلغ إلى مجلس الحي فهل يجوز الصرف من هذا المبلغ على نشاطات المجلس التالية:

    1- تجميل المنطقة (المدارس ـ المستوصفات ـ الأندية الرياضية ـ المساجد .... الخ.

    2- المساعدات الاجتماعية للأسر المحتاجة في المنطقة.

    3- منح الزواج التي تقدم هدية للمساهمين في الجمعية عند الزواج.

     4- مرتبات وأجور العاملين في مجلس الحي.

     

    وأجابت اللجنة بما يلي :

     لا يجوز إيداع الأموال في البنوك الربوية بقصد تحصيل الفوائد، ولو كانت النية قائمة عند الإيداع لصرفها في وجه الخير.

     سبيل التصرف في الفوائد الربوية صرفها في وجوه الخير تخلصا من الحرام, لأن المال المشبوه أو المختلط بالحرام سبيله الصرف في وجوه الخيرات والبر والنفع العام، وإذا كان الصرف لأفراد أو مجموعات من الناس فيشترط أن يكونوا من ذوي الحاجة، ويمنع صرف شيء من ذلك في المساجد، أو في طباعة المصاحف، وليس لمن وصلت إليه فوائد عن أمواله المودعة في البنوك الربوية أن يسد بها دينا، أو يدفع منها أجرا، أو أن يؤدي عنها حقا في ذمته.

     وعليه فيجوز صرف هذه المبالغ في تجميل المدارس والمستوصفات والأندية الرياضية، ولا يجوز صرفها في المساجد، ولا أن تدفع أجوراً للعاملين في مجلس الحي ولا في إعانة الراغبين في الزواج إلا إذا كان الراغب في الزواج من ذوي الحاجة. والله أعلم.

     

    Using Interest Income for the Benefits of Public in an Area

    The question was given by the Head of one of the district council, the query is as follows:

    Question:

    The Council for As-Salmiya district has setup a committee through Foundation of As-Salmiya, with the aim to develop and upgrade the area in many of its aspects including the society, education programmes, religious aspects, culture enrichment, health and entertainment facilities. This includes to solve any problem concerning the district. For such, these good efforts are run in collaboration with various ministries in the country. The Foundation conducts a lot of activities by using the society fund (of which 20% came from annual net income). However, in this year, although after the blessing of freedom that we enjoyed, there is no balance left in the Foundation’s account as there is no income generated causing the chaos, war, and destruction.

    Nonetheless, the Foundation still owns an amount of 40,000 Dinar Kuwaiti including the interest portion generated from its last placement in conventional bank. For such, the Foundation intends to donate the amount to the district council. In relation with this, is it permissible for the amount to be source of/used for the following activities?

    1. Beautification and refinement of the district (Including its schools, hospitals, sport centres, mosques etc.
    2. Social aid for the needy families in the district.
    3. Financial assistance during marriage event in form of gift provided to those who participate in the committee.
    4. Salary and allowances for the district council staffs.

     

    Answer:

    It is not permissible to keep money in the conventional bank to get interest income, even if the intention is to distribute the interest for noble courses.

    The way to utilize the interest portion is to distribute to noble’s courses (Wujuh Al-Khair) as purification from the non-compliance earning. This is in line with the ruling that any wealth/asset mixed with impermissible sources shall be distributed for charity and public good.

    In the case where the money is to be given to individuals or specific groups, it is required to ensure that they are among the needy. Furthermore, the income is not allowed to be distributed to mosques, or for Mushaf publication. The person who gains the interest shall not also utilize the portion for personal usage such as settling debt or paying rental or paying any life expenses.

    In relation with the question, the interest earning may also be purified for beatification of schools, hospitals and sport centres. However, the amount cannot be given to mosques and also cannot be given as salaries to charity committee and gifts for the said marriage unless to those who are really in need.

Changing Car’s Mileage
  • عنوان الفتوى: التغيير في عداد السيارة

     سؤالي هو: اشتريت سيارة وصل عداد السرعة فيها 240000 كيلوا متر وأريد أن أغيرها إلى أقل من 100 ألف كيلو للأسباب التالية: - في حال ما إذا احتفظت بها ستمثل عاملا نفسيا لي لجودة السيارة. وإذا بعتها سيكون سعرها أفضل (مع العلم أني أنوي التوضيح والتبيين للمشتري بأني قمت بتعديل عداد السرعة). فهل يجوز لي ذلك في كلا الحالين؟ أرجو إفادتي. جزاكم الله خيرا.

    نص الجواب

    رقم الفتوى

    27229

    20-نوفمبر-2012

    الحمدلله رب العالمين، والصلاة والسلام على أشرف المرسلين سيدنا محمد وعلى آله وصحبه أجمعين، أما بعد.

    بارك الله تعالى فيك: ما تفضلت بذكره لا يُبيح لك القيام بتغيير عداد سيارتك، أما تبريرك بالاطمئنان النفسي لجودة السيارة فإنك لا تخادع نفسك، لأنه لا  فائدة أن تظهر لنفسك أن السيارة لم تقطع مسافة كثيرة، وأنت تعلم أنها ليست كذلك، وأما إظهارها للمشترين على أنها قطعت قليلا من المسافة وهي ليست كذلك فهذا غش وتدليس واضح في التعامل وهو منهي عنه شرعا، وغير جائز، حتى ولو علمت أنك ستُبينُ هذا العيب عند الشراء، قال العلامة ابن أبي زيد القيرواني رحمه الله تعالى في كتابه (ولا يجوز في البيوع التدليس ولا الغش) :"الرسالة"

    وحتى على افتراض أنك ستبين هذا العيب فإنك لا تضمن أن الشخص الذي ستبيعها عليه سيبين هذا العيب عند بيعها.

    وبناء على هذه أخي فعليك أن لا تقدم على هذه الخطوة لما فيها من التدليس المنهي عنه شرعا، والله تعالى أعلم.

    والخلاصة

    لا يجوز لك أن تُبَدل عداد سيارتك من مسافة أكثر إلى مسافة أقل منها لما في ذلك من التدليس المنهي عنه شرعا في التعامل، والله تعالى أعلم.

     

    Fatwa topic: Changing Car’s Mileage

    Question:

    I have bought a car whereby the mileage meter had reached 240,000 km and I want to change it to be less than 100,000 km for the following reasons:
    If the car is still retained/used by me, the change will be up to my satisfaction and make me confident in the quality of the car. Also, in the future, if I want to sell the car, the price will be better for me (with my intention to tell the buyer that I have modified the car’s mileage meter). Is it permissible for me to do it for both situations? Seek your kind guidance on this matter. Thank you very much.

    Answer:

    Fatwa no. 27299 (20 November 2012)

    Praise for Allah the God of universe, peace be upon Prophet Muhammad SAW, his family and the companions.

    May Allah bless you always; I would like to mention to you that it is not allowed for you to change the car’s mileage meter (from high mileage to low mileage). Despite your attempt to make yourself more confident with the perceived quality of the car in your mind, indeed, you could never cheat yourself. Thus, there is no benefit to show yourself that the car may not reach/achieve long distance with your awareness of the actual fact. Besides, showing to the buyers that the car’s mileage meter is low (after you have changed/modified it), when in fact, the car is not actually what it seems to be is actually an obvious cheating and deception in transaction, which is prohibited in the Islamic laws (Shari’ah). It is not permissible, even though with your explanation regarding the defects and flaws of the car during buying and selling process of the car. Al-Imam Ibnu Abi Zaid al-Qairawani had mentioned in his book ‘al-Risalah’: “It is impermissible in buying and selling transaction the element of cheating (al-ghish) and deception (al-tadlis)”

    Even though with the assumption that you will explain the defects (change in mileage), it is not guaranteed that the next seller after you will do the same action, if he sells the car later in another future transaction.

    Due to this kind of situation, my dear brother, you shall avoid doing this action as this action will definitely lead to deception (al-tadlis) - which is prohibited in Islamic laws (Shari’ah).

    Conclusion:

    It is impermissible for you to modify the number of mileage meter of your car from long distance meter (showing high mileage) to the short distance meter (showing low mileage) due to the deception (al-tadlis) - which is prohibited in Islamic laws (Shari’ah). Wallahu a’lam.

    Click here to view the source

Dealing in Gold and its Banking Practice
  • 1) Dallah al-Barakah

    (25/1) Dealing in gold and its banking practice

    First:

    (a) Affirmed the resolution made by various Fiqh Councils that the rulings on gold, silver and money exchanges have to be similarly applied to the transactions involving paper currencies. Thus, with regards to exchanging paper currencies of the same type, the transaction must observe the condition of taqabudh (which means that the transaction must be of spot basis whereby there must be no delay in the delivery of the counter values) and tamathul (which means the exchange must be of the same amount/ value).

    (b) Affirmed the International Islamic Fiqh Academy’s resolution No.53 (4/6) and its juristic requirements stated in the Shariah standard No. 1 with regards to trading currencies, that the legally required Taqabudh when dealing with gold, silver and monies is achieved via actual delivery (qabadh haqiqi) or via constructive delivery (qabadh hukmi) whereby the constructive delivery enables the owner to dispose the purchased currency by converting the currency from a country to another foreign currency in another country and transferring funds from one account in a specific currency to another account in a different currency through the very same bank or via different banks.

    Affirmed the Council’s resolution that the amount of days permitted for any delays in the delivery and possession of gold and currencies is 3 days. The reason for such allowances is to give room for delays due to administrative purposes in the process of transferring the rights and not because of delaying the delivery for the intended purpose of providing allowances for indebtedness.

    Secondly: When dealing with gold, there are various forms. Among the important forms are:

    The First Form: Purchase and Sale of Gold on a Spot Basis

    Irrespective of the fact that the two contracting parties are in the same place or in two different places and they executed the transaction via contemporary modes of communication such as telephone, telex and the internet and together with the obtain of constructive delivery as per described in the clauses as well as not disposing the gold via sale contract or gift contract before one obtains the right to dispose, such form is permissible according to the Shariah.

    The Second Form: Purchase and Sale of Gold via Passbook

    This is done through the purchase of a specified amount of gold from the bank. The bank will then credit the amount purchased to the customer’s account and settle the payment for the purchased gold with the customer’s purchased gold being kept at the bank. The customer also appoints the bank to act as his agent to sell his gold when the value of gold appreciates. This form of transaction is legally permissible if the transaction is completed with the determination of the amount of purchased gold and the gold can be differentiated from other customers’ gold thus distinguishing the ownership of the customer. The ownership of the gold can be determined by stamping the gold or fixing the gold’s serial number so that the ownership will be certain and no one can dispose the gold other than the owner himself.

    The Third Form: Agreement for Custody of Gold In Exchange For Custody of Price:

    Such transaction is known by the name of “Azzahabu Al-‘Ayn” and it is executed when the customer deposits a certain amount of money with the bank for safe custody purposes, together with the payment of an agreed amount for insurance. The bank will then deliver the gold to the customer without selling the subject matter to him. The customer has the right to buy the gold or part of it which is in his possession at any time that he desires to do so. Once he buys the gold, the bank will deduct the amount -which corresponds to the value of the gold-from the customer’s account. If the amount of the counter value increases then there will be discount for the insurance. If the value of the gold increases above the amount of the deposited price and insurance during the period of custody, then the customer will have to pay more for the insurance.

    This form of gold transaction is prohibited due to the absence of sale contract and the above transaction is just purely transacted based on exchanges of responsibilities in guaranteeing the subject matters that are in the custodies of the contracting parties. Thus, the consequences of such agreement are, the bank permitted the customer to dispose the gold via sale contracts and to change its form –provided it provides its substitute of the same nature- and if the customer does not pay for the additional insurance amount in the event when the gold value appreciates above his deposit amounts as well as the insurance paid, then the bank will consider the customer as a buyer of the gold.

    Despite the transaction being prohibited and its aqad is considered as fasid (corrupted), the status of the transaction can change from being prohibited to being permitted and valid if the customer executes a new contract upon wanting to purchase the gold or part of it and the bank will deduct the price of the gold from the deposit that the customer has with the bank.

    Third: Gold certificates and shares of gold mining companies:

    Since the companies that run gold mining have assets other than gold – physical asset such as fixed assets, and non-physical such as trade name – the shares of these companies represent a mix and it is fit for the gold to follow the objects or the benefits if the value is not less than the value of gold when compared. It is then permissible to purchase without taking into action the tamathul (same amount and quantity) as the exchange involves two different items which are gold and the other objects and benefits, provided that the price (share value) must be on the spot. This is because the condition of taqabudh is still remains. The delivery of the shares or certificate, or enrolment in the account, are considered as qabdh hukmi (constructive delivery) of the gold.


    Click here to view the arabic version

    Source:

    Qararat wa Tausiyat Nadawat al-Barakah lil-Iqtisad al-Islami (2010) (p193)


    2) Dubai Islamic Bank

    Question:

    There is a question raised to the Council with regards to the permissibility of selling gold on murabahah basis, with the gold being delivered on spot basis while the price being paid later -of which the price is paper money-, to be paid in instalment or lump sum.

    Answer:

    The Council has reviewed the researches that have been written, the discussions that revolved around this topic, seminars and conferences that were held on this subject, and it has reached to the following resolutions:

    There is a clear prohibition on selling gold with gold unless it is of equal value and on the spot exchange basis. Both the traditional and contemporary jurists have agreed that the meaning of gold here comprises of both minted gold such as gold coins, and non-minted gold such as jewelry, gold dust and many others. Gold, with its different forms, is not permitted to have any additional amount and the exchange itself is prohibited to be delayed when it is exchanged with gold. However, some of the muhaddithin are of different views whereby they said that there is no occurrence of usury (riba) when dealing with gold as it is considered as a commodity like any other commodity. This opinion contradicts the ijma’ (consensus of Muslim Scholars) thus it is disregarded. This is because the hadiths came in absolute terms with regards to sale of gold with gold.

    It is narrated that majority of the scholars have stated that the legal reason for the prohibition in gold is currency or they are accepted currency in use i.e. gold is considered as a price and gold falls under the category of medium of exchange. Anything that is considered as price such as paper money or fiat money are considered as currency. All of these are considered as a type of price and if it is being exchanged with gold, then any additional amount is permissible, provided that the exchange must be done on a spot basis and there is no delay in the transaction.

    Some of contemporary researchers have a different opinion pertaining to the occurrence of usury in paper money transactions. They opined that paper currency is neither gold nor does it represent gold because the currency itself is not being backed by gold. Thus, it does not represent gold- backed instruments but rather, it represents certain amount of goods and services, worthy of the balance of the national economy. Hence, the counter values involved in the exchange are gold and the value of the reciprocating goods and services and this kind of transaction is permissible.


    Click here to view the arabic version
    Source:
    Fatawa Hai’ah al-Fatwa wa al-Raqabah al-Shar’iyyah Li Bank Dubai al-Islami (Volume 1) (p244).

    3) Dubai Islamic Bank

    Question:

    Is it permissible to use a Visa card (of the Bank) to buy gold? Knowing that there are two ways for the trader to obtain the value.

    The first way: through the POS machine, which is connected to the Bank’s computer to obtain the approval. In this case, the trader gets the value within 3 days.

    The second way: through the utilization of a device that is not connected to the computer. In this case, the trader will get the value within 4 days to a week.

    Please kindly provide us with your opinion with regards to the two ways that are being utilized by the trader.

    Answer:

    It is permissible to transact the purchase of gold and silver via Visa, regardless in the case whereby the trader uses the device connected to the Bank that issued the card for fast approval, or the trader uses the device that is not connected with the issuing bank for fast approval, as long as the card allows the bearer to purchase and allows prompt payment to be deducted from his account. That is because the card with immediate deduction is considered as taqabudh hukmi (constructive delivery).


    Click here to view the arabic versionSource:Fatawa Hai’ah al-Fatwa wa al-Raqabah al-Shar’iyyah Li Bank Dubai al-Islami (Volume 2) (p840)

Individual Spot Forex (Foreign Exchange) through Electronic Platform
  • 1) National Council for Islamic Religious Affairs Malaysia

    Ruling on Individual Spot Forex Electronic Transactions

    The 98th Discourse of the Fatwa Committee of the National Fatwa Council for Islamic Religious Affairs Malaysia convened on 13-15 February 2012 had discussed the Ruling on Individual Spot Forex Electronic Transactions. The following decisions were made:

    After listening to the briefing and clarification given by experts from the International Shariah Research Academy for Islamic Finance (ISRA), and upon examining the evidence, contentions and opinions that were forwarded, the Discourse emphasised that individual spot forex electronic transactions involve currency which is a ribawiitem, and from the Islamic jurisprudence standpoint, it is governed under the Islamic ruling on a contract of exchange of money for money (Bay’ al-Sarf). The general conditions of sale and purchase and specific requirements ofBay’ al-Sarfthat need to be complied with are as follows:

    General conditions of sale and purchase:

    (a) The parties entering the agreement must be qualified to perform the contract (Ahliyyah al-Ta’aqud);

    (b) The purchase price must be clearly known by both parties to the agreement;

    (c) The item purchased must be one that exists and is fully owned by the party selling it and is capable of being transferred to the purchaser

    (d) The formal indication of willingness to enter into the agreement (sighah) must indicate the consent of both parties, be free of any time contingency, and the offer and acceptance must be consistent and match one another in terms of the details and rates.


    Specific requirements of Bay’ al-Sarf:

    (a) The two items involved in the exchange must be taken possession of before the separation of the two parties carrying out the transaction;

    (b) The forex trading must occur on the spot and there cannot be any deferment; and

    (c) The offer and acceptance of such a contract must be free of any optional condition (khiyar al-syart).

    Apart from fulfilling the above conditions, the Discourse also emphasized that forex trading must be free from all elements of usury (riba), a sale contract with credit term (al-salaf wa al-bay’), gambling, excessive uncertainty, oppression or exploitation.

    Based on the in-depth research conducted, the Discourse has found that individual spot forex electronic transactions contain elements of usury (riba) in the imposition of rollover interest, resemble a sale contract with credit term by way of leverage, is ambiguous in terms of the transfer of the possession of items exchanged between the parties, include the sale of currency that is not in possession as well as speculation that involves gambling. Furthermore, it is also illegal under the laws of Malaysia.

    In relation to the above, the Discourse has agreed to decide that the existing individual spot forex electronic transactions are prohibited as they are contrary to the precepts of the Shariah and are illegal under Malaysian law. Therefore, the Muslim community is prohibited from engaging in forex transactions such as these.

    The Discourse also stressed that the decision made is not applicable to foreign currency exchange operations carried out at licensed money changer counters and those handled by financial institutions that are licensed to do so under Malaysian law.

    Source:

    e-Fatwa, Department of Islamic Development Malaysia (JAKIM)

    Click here to view

Selling of Merchandise before Possession (Qabadh)
  • 1) Dallah al-Barakah

    (6/15) Selling of merchandise before possession

    The participants of the conference had deliberated on the request by some of the companies and banks to sell the assets which are yet to be owned by them, where they purchase the assets from market and immFediately sell it to buyers before taking possession on the purchased assets. The Council is of the view that it is permissible as long as it does not involve  of any kind of foods. This is due to the fact that the prohibition of selling goods that are yet to be possessed is only meant for food.


    Click here to view the arabic version
    Source:
    Dallah al-Barakah Resolutions and Recommendations (p49)

Selling of Gold with Deferred Delivery
  • 1. Dubai Islamic Bank

    Question:

    Does transaction between gold, silver and money that conducted in forward basis is permissible?

    Answer:

    The transaction between gold, silver and money is impermissible unless it is conducted on spot basis. Any transaction made between this kinds of assets (currency) in forward basis is considered as riba which is impermissible in Shariah perspective.

    Click here to view the arabic version

    Source:Fatawa Hai’ah al-Fatwa wa al-Raqabah al-Shar’iyyah Li Bank Dubai al-Islami

The Rulings for Investment in Currency Fund
  • 1) Dubai Islamic Bank

    Question:

    What are the Shariah parameters for investment in currency fund?

    Answer:

    The Council had reviewed the above topic, and had studied briefly related papers that explained the fund and its objectives as well as its modus operandi and the followings are found:

    1- The fund trades in various currencies; be it selling of currencies and buying of currencies and this falls under the category of foreign exchange (bay’ sarf). Foreign exchange has its own specific and detailed conditions that it needs to observe. Thus, it is mandatory to ensure that the modus operandi of the fund -that trades in various currencies- to comply with the conditions of sale and purchase transaction as well as the condition of physical delivery. As stated in the prospectus, the sale and purchase must be done on spot basis, and this signifies the delivery of the two exchanges. However, the Council is of opinion that that we request the fund to first seek our approval for its modus operandi, the mechanism used to deliver the currencies, and the sale and purchase matters, in an extensive and detailed manner.

    2 The prospectus has also stated that it is permissible in the Shariah for a fund manager who may be a mudharib (entrepreneur) or wakil (agent) for the investment to have a profit share of 20%.

    3  The utilization of surplus of currencies in murabahah (cost plus mark-up) transactions is legally permissible but the mechanism of murabahah used must be reviewed to ensure the validity of the contract and that is, it must be ensured that the fund must own and possess the subject matter that involves in the murabahah contract before the sale contract is executed.

    4 Trading of currencies must be settled on a weekly basis and the Council wants to know the mechanism and method on how the weekly settlement are being done and how the investment centre settles the fund on a weekly basis.

    5 It is mentioned that the fund can be legally invested according to the Shariah and the Fatwa Council for this fund had already approved for the funds to be invested. The Council also intends to clarify on how the fund works thus it needs to obtain the fatwas or researches that the Council has prepared with regards to this issue from the management immediately to further assistance.

    6 The important thing is to know the size and nature of the risks of investing in this fund, during the currency fluctuation, and is it possible that the investor loses without limits, or is there any mechanism to mitigate and control the risk. This mechanism must also be legitimate. Shariah requires creation of mechanisms to identify and mitigate the risk, not prevent it. Therefore, if the mechanism is legitimate in the eye of Shariah then it is acceptable. Otherwise, high-risk business is then not permissible.

    The question that is directed to the fund is to request (study prepared for mechanism of control and identifying the risk in the currency market).

    7 What are the guarantees for the investors who invested in this fund? Are there banks where the funds are deposited? Do the banks guarantee the funds? And is there any insurance or guarantee from these banks for the receipt of income from the fund?

     

    Conclusion: Looking back to the history of investment in currencies, and since it is a field of trade related to the Shariah rules of al-sarf, where it needs to observe rules that are very precise, and because the bank is religiously obliged -in all of its investments- to be aware of the size and type of risk, due to its capacity as an agent and trustee to the depositors and shareholders, the Council considers requesting for a thorough study to be conducted on the fund, its objectives and mechanisms, its contracts, method in executing it, and its risk calculation.

    The Council is pleased to contribute to the correction and the development of the mechanisms or any means that benefit the fund, and it wants the bank itself to run this activity if it its feasibility is positively acknowledged based on the risk study. However, analyzing the experiences and the modus operandi of others are deemed necessary to the Council, and the Council has information about the existence of such funds in some of the Arab and Islamic countries.


    Click here to view the arabic version
    Source:

    Fatawa Hai’ah al-Fatwa wa al-Raqabah al-Shar’iyyah Li Bank Dubai al-Islami (Volume 2) (p711)

Rulings on Competition Cards
  • Resolution No. 127 (1/14) Concerning Competition Cards

    The Council of the Islamic Fiqh Academy of the Organization of the Islamic Conference in its Fourteenth session held in Doha (State of Qatar) from 8th to 13th Dhul Qa’idah 1423H (11-16 January 2003).

    Having studied on the research papers presented to the Council on the subject of “Competition Cards” and having listened to the discussion on the subject,

    RESOLVES

    First: Definition of Competition:
    Competition is an activity which involves betting between two parties or more, in realizing something or in performing something, regardless whether there is a prize or otherwise.

    Second: Permissibility of Competition:
    1.   Competition which does not offer a prize is permissible in matters that are not being prohibited by the Shariah and the matters that do not lead to abandoning what is obligatory (wajib) and committing what is impermissible (haram).

    2.   Competition which offers a prize is permissible if it complies with the following conditions:

    1. The objectives, means, and the scope of the competition must be permissible.
    2. The prize should not be derived from all of the competitors/participant of the contest.
    3. The competition has to achieve any of the objectives recognized by the Shariah.
    4. It must not lead to abandoning what is obligatory (wajib) and committing what is forbidden (haram).

    Third: Competition cards (coupons/tokens) whereby its price or part of its price is being used for the prizes, are not permissible in the Shariah because they are considered as a type of gambling (maysir).

    Fourth:  Betting between two parties or more on the result of others’ conduct, be it in tangible or intangible matters, is not permissible; by virtue of general Quranic and Prophetic texts on the prohibition of gambling.

    Fifth: Paying for phone calls in order to participate in competitions is not permissible if the amount or part of it is included in the prize value. This is to prevent from taking others’ property in an impermissible way.

    Sixth: There is no prohibition for sponsors to benefit from promoting their products – without taking financial gains – through organizing permissible competitions, provided that the value of the prizes does not derive from the competitors’ contribution, and the promotion does not contain element of cheating, deception and betrayal to the consumers.

    Seventh: increasing or decreasing the prize value in the event of loss in the round(s) that follow a victory is impermissible in the Shariah

    Eighth:  Membership cards for hotels, airline companies and institutions that award points which can bring about permissible benefits, are permissible if they are free of charge (without payment). If they are issued with payment, then such acts are not permissible as they contain element of ambiguity.

    RECOMMENDATIONS:
    The Council recommends Muslims to seek for halal in their transactions as well as in their intellectual and recreational activities and to avoid any extravagance and wasteful expenditure.

    Click here to view the source

Ruling on the Channelling of Penalty Funds of Islamic Financial Institutions to Baitulmal (Islamic Treasury)
  • Decision:

    The 99th Discourse of the Fatwa Committee of the National Fatwa Council for Islamic Religious Affairs Malaysia convened on 4-6 May 2012 had discussed the Ruling on the Channelling of Penalty Funds of Islamic Financial Institutions to Baitulmal (Islamic Treasury). The following decisions were made:

    After listening to the briefings, explanations and examining the evidence, contentions and opinions that were forwarded, the Discourse emphasised that the permissibility of imposing penalty on defaulting debtors is based on the hadith of Rasulullah S.A.W. that describes the late payment of debt by one who has the means to pay as an oppression and can harm the Islamic financial institution.

    The Discourse is also of the view the penalty imposed by Islamic financial institutions must be channelled to institutions that are specifically relevant to the Muslim community so that it will not be abused.

    In relation thereto, in line with the position and function of Baitulmal as the highest institution that manages the monies and assets of the Muslim community, the Discourse has agreed to decide that the penalty funds of Islamic financial institutions must be channelled to Baitulmal to ensure that the application of such funds corresponds to the public interest (maslahah amah) of the Muslim community.

    Click here to view the source

The Ruling of Skim Sijil Simpanan Premium Bank Simpanan Nasional (BSN) from Shariah perspective
  • Decision:

    The 98th Discourse of the Fatwa Committee of the National Fatwa Council for Islamic Religious Affairs Malaysia convened on 13-15 February 2012 had discussed the Current Status on the Shari`ah Compliance of Skim Sijil Simpanan Premium Bank Simpanan Nasional (BSN). The following decisions were made:

    After listening to the briefing and clarification given by Bank Simpanan Nasional (BSN), the Discourse is satisfied and has found that the implementation of Skim Sijil Simpanan Premium (SSP) by BSN has been updated by including an agreement for profit-sharing (Aqad Mudharabah), the SSP funds are invested in instruments and assets that are Shari`ah-compliant and the gifts that are given are sourced from BSN’s Islamic Banking Scheme.

    In relation thereto, the Discourse has agreed to decide that the implementation of Skim Sijil Simpanan Premium as improvised by BSN is a product that fully complies with, and is permissible under the Shari`ah.

    Click here to view the source

The Ruling on SMS Competition and One’s Participation in It
  • Decision:

    The 64th Muzakarah (Conference) of the Fatwa Committee National Council of Islamic Religious Affairs Malaysia held on 27th July 2004 had discussed the ruling on SMS competition and participating in it. The committee had decided that Short Messaging System (SMS) competitions contain elements of exploitation, uncertainties and gambling. Hence, the ruling on such competitions is forbidden.

    Explanation/ Argument:
    Background

    This particular issue arises when there are some disputes of opinions with regards to the legitimacy of the increasing existence of SMS contests that offer luxurious prizes. Offering such prizes has attracted up to hundreds of thousands of people to participate in it and thus, trigger questions on its permissibility.

    Traditionally, such contests require participants to fill in physical forms and submit to the organising companies and the participants would have to pay for the stamp fees. As time goes by, the medium of such contests have evolved from the traditional mailing mode to the modern SMS mode. This change has lead the organizers to reap tremendous profits from the SMS charges that are imposed on the participants of the contest, which in turn cause the participants to foot bills of excessive amounts as a result of participating in the contests.

    Through analysing the mechanism of how such contests operate, it is found that the participants may be exposed into taking part in something of vague nature. It is more alarming and requires immediate attention if there is any element of gambling or fraud that exists in the SMS contest due to the fact that participants possess the chance to own luxurious prizes just by placing bets via the telephone charges.

    Literally, gambling means a game that involves arrow. According to Stephen Lea in his book titled The Individual in the Economy, A textbook of Economic Psychology (1987), gambling indicates a condition whereby there is a probability of losing something precious that one owns or any act that contains risk. However, one should practise caution when labelling an act that involves risk as gambling as there are other acts that involves risk but they do not fall under the category of gambling. Hence, there are 3 factors in determining whether an act that involves risk should be considered as gambling or otherwise:

    a. Gambling is a social activity which involves placing bets (be it money or anything valuable) whereby the winner will acquire the betted items from the losing party.

    b. The assumed risk depends on the occurrence of something which is unknown of its outcome in the future and most of the occurrences are determined by an event which is coincidental in nature.

    c. The assumed risk is not something that must be undertaken as losing can be prevented by not participating in gambling. 

    From the above explanation, it can be deduced that gambling is an act that involves risks of losing something valuable. Gambling also requires social interaction and it has the element of freedom of choice whether to take risks in losing that item or otherwise.

    Arguments And Evidences

    Islam does not prohibit people to accumulate wealth but such activity comes with the condition that it does not transgress the Shariah principles. This is because, the primary principal that Islam firmly upholds when addressing the issue of finding one’s source of income is that the income must derive from one’s effort without neglecting the responsibilities that are bestowed upon him as a Muslim.

    Islam forbids gambling as well as drinking liquor, worshipping idols and fortune telling using arrows. All of the mentioned acts are likened to the acts of Satan. Allah the Almighty has said in verse 90 of Surah al- Maidah which means:

    “O you who have believed, indeed, intoxicants, gambling, [sacrificing on] stone alters [to other than Allah], and divining arrows are but defilement from the work of Satan, so avoid it that you may be successful.”

    As for the ruling of utilising telephone bills to enter a contest, it is not permissible according to Shariah if the company that sponsors the contests utilises the proceeds from the telephone charges to conduct the contests (including the advertisements and the prizes). Such contests will fall under the category of al maysir or gambling according to Shariah. 

    Analysing this issue from another angle, the reason for the prohibition of the contests –besides the fact that it is considered as gambling- is that the individuals who intend to participate in these contests will have to pay a higher amount from the normal telephone charges per SMS or per minute. Even if the participants are charged at the normal rate, this type of competition still falls under the category of gambling as the participant will have to make calls and be willing to pay for the charges for the purpose of winning a prize. 

    Subsequently, the vagueness of the contest may lead to animosity between the participants and the organizer which then may contribute to breakout of arguments and quarrels. Allah the Almighty has reminded on this issue in verse 91 of Surah al- Maidah:

    Satan only wants to cause between you animosity and hatred through intoxicants and gambling and to avert you from the remembrance of Allah and from prayer. So will you not desist?

    Scholars have imposed certain conditions which are mandatory to avoid so that a contest will be devoid of any gambling elements. The imposed conditions are:

    1. There is no agreement between the organizer and the telecommunications company stating that such contests are among the avenues for them to attain profit.

    2. The contest should not impose any participation fees be it the payment being made according to certain means or the payment being made via an increase in the cost of calls made if the contest is conducted via phone.

    3. The contest must be conducted in a way that it is beneficial and not (otherwise such as) in the form of questions pertaining to certain films or others.

    4. The contest is not intended to take advantage of the public in a way that they join the contest with hopes of getting the prizes while at the same time, their acts lead to financial wastage.

    Click here to view the source

The Ruling on Multilevel Marketing in Islam
  • Decision:

    The 72nd Muzakarah (Conference) of the Fatwa Committee of the National Council for Islamic Religious Affairs Malaysia held on 23rd January 2006 had discussed the ruling on multilevel marketing in Islam. The Committee had decided that the concept, structure, and regulations of Multilevel Marketing (MLM) approved by the Government are permissible and not in contradict ion to the Islamic business concept.

    Click here to view the source

Gold Investment Parameters
  • The 96th Discourse of the Fatwa Committee of the National Fatwa Council for Islamic Religious Affairs Malaysia convened on 13th-15th October 2011 had discussed the Parameters of Gold Investment and made the following decision:

    After hearing the briefing and explanation given by Y. Bhg. Dr. Ashraf Md. Hashim and Y. Bhg. Ustaz Lokmanulhakim bin Hussain from the International Shari`ah Research Academy for Islamic Finance (ISRA), the Discourse has agreed to accept and approve the following Gold Investment Parameters:

    General Conditions of Sale and Purchase

    1. Sale and purchase transactions of gold must comply with all the conditions of sale and purchase as prescribed by Shari`ah, namely the contracting parties, items of exchange and pronouncement according to the customary practice. If a particular transaction fails to fulfil one of the sale and purchase conditions, the said transaction shall be considered void.

    Contracting Parties

    2. The Contracting Parties must be those having the capacity to execute a contract (Ahliyyah al-Ta’aqud), that is, by fulfilling the following criteria:

    i. Age of majority, soundmind and discerning (rasyid)

    A sale and purchase transaction by a contracting party who is insane or a child, whether prudent (mumayyiz) or imprudent (tidak mumayyiz), is void. An offer and acceptance made by a prudent child is invalid on the ground that the sale and purchase involves highly valuable goods.

    ii. Consent

    The contract of sale and purchase must be concluded by two consenting parties, without elements of coercion, pressure and exploitation.

    Purchase Price (al-Thaman)

    3. The purchase price (al-Thaman) must be clearly known to the contracting parties during the sale and purchase transaction.

    The Purchased Goods (al-Muthman)

    4. The purchased goods (al-Muthman) shall be something that is in existence, and entirely owned by the seller during the occurrence of the sale and purchase contract. Therefore, the sale and purchase of something that does not physically exist and is not owned by the seller is void.

    5. The purchased goods (al-Muthman) must be something that is transferrable to the buyer or his representative. In the event that the purchased goods are not capable of being transferred to the buyer, or the seller makes it a condition not to transfer the goods to the buyer, then the contract is void.

    6. The purchased goods (al-Muthman) shall be known to both contracting parties during the sale and purchase transaction. This is possible through the following mechanisms:

    i. Personally viewing the goods to be purchased during the sale and purchase transaction, or if viewed prior to the contract it must be within a timeframe that will not affect the characteristics of the goods.

    ii. Viewing the sample of the goods to be purchased. This usually takes place during the ordering process and prior to execution of the contract.

    iii. Identifying features and rate of the purchased goods in detail, which customarily will not give rise to a dispute. In the context of gold, its identification is performed by defining the level of authenticity of the gold, using the old standard based on carat (such as the 24 carat gold), or the new standard based on percentage (such as the 999 gold). This feature identification must also cover the gold forms, either in the shapes of coins, wafers, blocks, etc). Accuracy in the weighing of gold is also a condition in the identification of the gold features.

    Pronouncement

    7. In a sale and purchase transaction, pronouncement indicates consent of both parties to conclude a sale and purchase contract. It can be materialized either verbally, or through a method that can possibly bear the values of an oral speech such as writing, and the equivalents. Meanwhile, sale and purchase through Mu’ataah is regarded as a credible pronouncement by some jurists.

    8. The element of time contigency must not be included as part of the pronouncement in a sale and purchase transaction. For instance, a person says, “I am selling these goods to you at the price of RM100 for the period of one year”.

    9. Offer and acceptance must match and be identical with one another in terms of attribute and rate.

    Specific Conditions for Sale and Purchase of Gold with Usury Attribute

    10. Due to the reason that gold and money are two items containing the element of usury and sharing the same effective cause, therefore the following additional conditions must be fulfilled:

    i. Taqabudh (transfer) of the two items involved in the transaction must take place before the contracting parties depart from the contract session.

    ii. The sale and purchase of gold must be executed on the spot without any delay. The said conditions only applicable to the types of gold having an usury attribute, such as gold blocks and gold coins. These conditions will not apply to gold jewellery as it falls outside the scope of the effective cause of usury (riba).

    The particulars of taqabudh and other on-the-spot transactions are as follows:

    The first condition: Taqabudh

    11. Taqabudh (transfer) must apply to both sale and purchase items namely the price and purchased goods (gold), and it must be executed prior to the departure of both parties from the contract session.

    12. The consideration may be executed through the following methods:

    • a. Cash payment
    • b. Payment by certified cheques (e.g. banker’s cheque)
    • c. Payment by personal cheques
    • d. Payment by debit card
    • e. Payment by credit card
    • f. Cash transfer from a savings or current account

    Traditionally (by ‘urf) all of the above modes of payment, except for (c) are regarded as cash payment by the seller. Payment through the credit card is still considered as cash due to the seller being able to claim the selling price in full from the credit card issuer. Any debt, if it does exist, is a matter between the credit card holder and the card issuer, not the seller.

    This cash term is still customarily acceptable to the seller notwithstanding that in actual fact, the payment is physically obtained or gets transferred to his account several days after the transaction takes place.

    13. The actual transfer of the purchased goods (the gold) must take place or done through an acceptable method that can replace the actual transfer. The latter will have the same effects as the actual transfer, namely:

    a. Transfer of dhaman (pledge) from the seller to the buyer b. The buyer’s capacity to obtain his purchased goods at anytime without any deterrence.

    14. The contract session in a sale and purchase transaction may take place by way of physical meetings, or through constructive means (maknawi). An example of the latter is an offer and acceptance via telephone, short message service (sms), email, facsimile, etc. For this category of contract session, it is a condition that taqabudh shall take place, for instance through a wakalah transfer (transfer by one’s representative).

    It must be noted that a contract session in the form of writing shall only begin when (the written document) is received by the contracting party. For example, the buyer signs a sale and purchase agreement and subsequently mails it to the seller. After three days, the agreement reaches the seller. In this situation, the contract session begins at that point of time and if the seller agrees, he shall complete the contract session by affixing his signature to the agreement. The purchased goods shall be transferred to the buyer through actual or constructive means.

    The second condition: On the spot

    15. The sale and purchase transaction shall take place on the spot and there must not be any element of delay, either in the transfer of consideration or gold.

    16. The prohibited delay in the transfer of consideration shall cover purchase by full credit or purchase by instalments.

    17. Any delay in the transfer of gold that exceeds three days after the conclusion of the sale and purchase transaction is totally prohibited.

    As for the delay in the transfer of gold that is less than three days, the Discourse is aware that there exist different views by scholars on this matter. Despite that, the Discourse is in favour of adopting the opinion that forbids any delay even if the period is less than three days. In other words, the transfer of gold shall take place in a contract session without any postponement. This is because in gold trading, the delay of three days is not an urf, unlike in the case of a foreign currency exchange.

    In a foreign currency exchange, the period of T+2 is necessary as it goes through a certain process that involves the different working hours between countries, electronic money transfer, clearing house, etc. The processes mentioned here do not exist in the sale and purchase of physical gold. Therefore it is inaccurate to apply qiyas (analogical reasoning) to the foreign currency exchange process.

    However, practically, the seller will transfer the gold after the amount of payment, made by cheque, etc is credited to his account. This process usually takes three working days. In dealing with the period between the cheque transfer and the receipt of gold, the seller and the buyer may adopt the following rules:

    The buyer shall only make an order to the seller by mentioning the type and weight of gold that he wishes to buy. This order shall be accompanied by his remittance of money to the seller’s account. At this stage, the following must be given due attention:

    i. At this stage, the contract of sale and purchase of gold has not taken place.

    ii. The money that has been deposited to the seller’s account is not yet his. It still belongs to the purchaser and is kept on trust by the seller. In this case, it is better for the seller to open a special trust account.

    iii. The gold is still owned by the seller and he is fully responsible for it.

    iv. At this stage, the purchaser may still be able to cancel his order and but in such case the seller shall return the money to the purchaser. However, if there is any actual loss due to the cancellation, a condition may be imposed to the effect that it shall be borne by the buyer. For instance, the buyer made an order of 100gm of 999 gold at the price of RM 20,000. At this point, the seller will have reserved the said gold and not sell it to any other party prepared to purchase it. After three days, when the seller is ready to execute the sale and purchase contract and thereafter transfer the said gold to the buyer, the buyer decides to cancel his order. On the very same day, the gold price has dropped to RM 19,000. In other words, the seller would suffer a loss of RM 1,000 if he sold it to another party. In this case, the actual loss is RM 1,000.

    Once the bank has cleared the money order, then the sale and purchase contract must be executed. The money in the trust account (if any) can be transferred to the seller’s account and the gold shall be handed over to the buyer.

    Contract and Additional Elements

    18. The involvement of hibah (gift) in a sale and purchase transaction whether in kind or cash is permitted if it fulfils the conditions of hibah, and does not involve elements that are contrary to shari`ah. It must be pointed out that hibah is in fact a voluntary contract and is not in the typical form (of transaction). In other words, if an undertaking (to grant) hibah is not fulfilled by the seller, the purchaser cannot compel him to grant the said hibah.

    19. The involvement of wadiah (safekeeping) in the gold investment plan shall comply with the rules and regulations of wadiah, which include among others that the holding of wadiah must be based on Yad Amanah (savings with guarantee).

    20. A person who buys gold is free to deal with his gold (tasarruf), including granting loans (qardh) to others. However it must satisfy the criteria of qardh allowed by the shar’iah, which inter alia include, being free from the elements of interest and “salaf wa bay”, namely a debt that is tied to the sale and purchase.

    21. A person who buys gold is free to deal with his gold (tasarruf) including using it as a security against a cash loan, as long as the concept of al-Rahn (pledge) that is applied is in line with shari`ah. However in theory, this is not encouraged as it leads to unnecessary debt-contracting activities.

    22. Wa’d (promise) can be included in a gold investment, so long as it is a wa’d on one side and not muwa’adah (promises) on both sides. An example of application of wa’d in this context is making a purchase order i.e. when a customer makes an undertaking to buy gold at a certain price. This purchase agreement is known as ‘price-locking’. If the process of price-locking is similar to a contract of sale and purchase, then it is prohibited as it would lead to delay.

    23. Sale and purchase transactions must be free from elements of usury, gambling, excessive uncertainty and oppression. If any of such elements exists, it is presumed that the sale and purchase transaction does not fulfil the shari`ah criteria.

    Sources:

    Click here to view source.

The ruling of distributing zakat to non-Muslims for dakwah purposes
  • Decision:

    The 79thMuzakarah (Conference)of the Fatwa Committee National Council of Islamic Religious Affairs Malaysia held on 6th-8thSeptember 2007 has discussed the ruling of distributing zakat to non-Muslim for dakwah purposes. The Committee has decided that the priority should be given to Muslims according to the lists of eligible asnaf (the persons who are entitled to receive zakat). However, the government is allowed to distribute zakat to non-Muslims according to principle of siyasah syar’iyyah and for dakwah purposes.


    2) Gold Investment Parameters

    The 96th Discourse of the Fatwa Committee of the National Fatwa Council for Islamic Religious Affairs Malaysia convened on 13th-15th October 2011 had discussed the Parameters of Gold Investment and made the following decision:

    After hearing the briefing and explanation given by Y. Bhg. Dr. Ashraf Md. Hashim and   Y. Bhg. Ustaz Lokmanulhakim bin Hussain from the International Shari`ah Research Academy for Islamic Finance (ISRA), the Discourse has agreed to accept and approve the following Gold Investment Parameters:

    General Conditions of Sale and Purchase

    1. Sale and purchase transactions of gold must comply with all the conditions of sale and purchase as prescribed by Shari`ah, namely the contracting parties, items of exchange and pronouncement according to the customary practice. If a particular transaction fails to fulfil one of the sale and purchase conditions, the said transaction shall be considered void.


    Contracting Parties

    2. The Contracting Parties must be those having the capacity to execute a contract (Ahliyyah al-Ta’aqud), that is, by fulfilling the following criteria:

    i. Age of majority, soundmind and discerning (rasyid)

    A sale and purchase transaction by a contracting party who is insane or a child, whether prudent (mumayyiz) or imprudent (tidak mumayyiz), is void.  An offer and acceptance made by a prudent child is invalid on the ground that the sale and purchase involves highly valuable goods.

    ii.Consent

    The contract of sale and purchase must be concluded by two consenting parties, without elements of coercion, pressure and exploitation.

    Purchase Price (al-Thaman)

    3. The purchase price (al-Thaman) must be clearly known to the contracting parties during the sale and purchase transaction.

     

    The Purchased Goods (al-Muthman)

    4. The purchased goods (al-Muthman) shall be something that is in existence, and entirely owned by the seller during the occurrence of the sale and purchase contract. Therefore, the sale and purchase of something that does not physically exist and is not owned by the seller is void.

    5. The purchased goods (al-Muthman) must be something that is transferrable to the buyer or his representative. In the event that the purchased goods are not capable of being transferred to the buyer, or the seller makes it a condition not to transfer the goods to the buyer, then the contract is void.

    6. The purchased goods (al-Muthman) shall be known to both contracting parties during the sale and purchase transaction. This is possible through the following mechanisms:


    i. Personally viewing the goods to be purchased during the sale and purchase transaction, or if viewed prior to the contract it must be within a timeframe that will not affect the characteristics of the goods.

    ii. Viewing the sample of the goods to be purchased. This usually takes place during the ordering process and prior to execution of the contract.

    iii. Identifying features and rate of the purchased goods in detail, which customarily will not give rise to a dispute. In the context of gold, its identification is performed by defining the level of authenticity of the gold, using the old standard based on carat  (such as the 24 carat gold), or the new standard based on percentage (such as the 999 gold). This feature identification must also cover the gold forms, either in the shapes of coins, wafers, blocks, etc). Accuracy in the weighing of gold is also a condition in the identification of the gold features.


    Pronouncement

    7. In a sale and purchase transaction, pronouncement indicates consent of both parties to conclude a sale and purchase contract. It can be materialized either verbally, or through a method that can possibly bear the values of an oral speech such as writing, and the equivalents. Meanwhile, sale and purchase through Mu’ataah is regarded as a credible pronouncement by some jurists.

    8. The element of time contigency must not be included as part of the pronouncement in a sale and purchase transaction. For instance, a person says, “I am selling these goods to you at the price of RM100 for the period of one year”.

     

    9. Offer and acceptance must match and be identical with one another in terms of attribute and rate.

     

    Specific Conditions for Sale and Purchase of Gold with Usury Attribute

    10. Due to the reason that gold and money are two items containing the element of usury and sharing the same effective cause, therefore the following additional conditions must be fulfilled:

     

    i. Taqabudh (transfer) of the two items involved in the transaction must take place before the contracting parties depart from the contract session.

    ii. The sale and purchase of gold must be executed on the spot without any delay.

       The said conditions only applicable to the types of gold having an usury attribute, such as gold blocks and gold coins. These conditions will not apply to gold jewellery as it falls outside the scope of the effective cause of usury (riba).

    The particulars of taqabudh and other on-the-spot transactions are as follows:

    The first condition: Taqabudh

    11. Taqabudh (transfer) must apply to both sale and purchase items namely the price and purchased goods (gold), and it must be executed prior to the departure of both parties from the contract session.

    12. The consideration may be executed through the following methods:

    a. Cash payment
    b. Payment by certified cheques (e.g. banker’s cheque)
    c. Payment by personal cheques
    d. Payment by debit card
    e. Payment by credit card
    f. Cash transfer from a savings or current account

    Traditionally (by ‘urf) all of the above modes of payment, except for (c) are regarded as cash payment by the seller. Payment through the credit card is still considered as cash due to the seller being able to claim the selling price in full from the credit card issuer.  Any debt, if it does exist, is a matter between the credit card holder and the card issuer, not the seller.

    This cash term is still customarily acceptable to the seller notwithstanding that in actual fact, the payment is physically obtained or gets transferred to his account several days after the transaction takes place.

    13. The actual transfer of the purchased goods (the gold) must take place or done through an acceptable method that can replace the actual transfer. The latter will have the same effects as the actual transfer, namely:

    a. Transfer of dhaman (pledge) from the seller to the buyer

    b. The buyer’s capacity to obtain his purchased goods at anytime without any deterrence.

     

    14. The contract session in a sale and purchase transaction may take place by way of physical meetings, or through constructive means (maknawi). An example of the latter is an offer and acceptance via telephone, short message service (sms), email, facsimile, etc. For this category of contract session, it is a condition that taqabudh shall take place, for instance through a wakalah transfer (transfer by one’s representative)

    It must be noted that a contract session in the form of writing shall only begin when (the written document) is received by the contracting party. For example, the buyer signs a sale and purchase agreement and subsequently mails it to the seller. After three days, the agreement reaches the seller. In this situation, the contract session begins at that point of time and if the seller agrees, he shall complete the contract session by affixing his signature to the agreement. The purchased goods shall be transferred to the buyer through actual or constructive means.

     

    The second condition: On the spot

    15. The sale and purchase transaction shall take place on the spot and there must not be any element of delay, either in the transfer of consideration or gold.

    16. The prohibited delay in the transfer of consideration shall cover purchase by full credit or purchase by instalments.

    17. Any delay in the transfer of gold that exceeds three days after the conclusion of the sale and purchase transaction is totally prohibited.

    As for the delay in the transfer of gold that is less than three days, the Discourse is aware that there exist different views by scholars on this matter. Despite that, the Discourse is in favour of adopting the opinion that forbids any delay even if the period is less than three days. In other words, the transfer of gold shall take place in a contract session without any postponement. This is because in gold trading, the delay of three days is not an urf, unlike in the case of a foreign currency exchange.

    In a foreign currency exchange, the period of T+2 is necessary as it goes through a certain process that involves the different working hours between countries, electronic money transfer, clearing house, etc. The processes mentioned here do not exist in the sale and purchase of physical gold. Therefore it is inaccurate to apply qiyas (analogical reasoning) to the foreign currency exchange process.

    However, practically, the seller will transfer the gold after the amount of payment, made by cheque, etc is credited to his account. This process usually takes three working days. In dealing with the period between the cheque transfer and the receipt of gold, the seller and the buyer may adopt the following rules:

    The buyer shall only make an order to the seller by mentioning the type and weight of gold that he wishes to buy. This order shall be accompanied by his remittance of money to the seller’s account. At this stage, the following must be given due attention:


    i. At this stage, the contract of sale and purchase of gold has not taken place.

    ii. The money that has been deposited to the seller’s account is not yet his. It still belongs to the purchaser and is kept on trust by the seller. In this case, it is better for the seller to open a special trust account.

    iii. The gold is still owned by the seller and he is fully responsible for it.

    iv. At this stage, the purchaser may still be able to cancel his order and but in such case the seller shall return the money to the purchaser. However, if there is any actual loss due to the cancellation, a condition may be imposed to the effect that it shall be borne by the buyer. For instance, the buyer made an order of 100gm of 999 gold at the price of RM 20,000. At this point, the seller will have reserved the said gold and not sell it to any other party prepared to purchase it. After three days, when the seller is ready to execute the sale and purchase contract and thereafter transfer the said gold to the buyer, the buyer decides to cancel his order. On the very same day, the gold price has dropped to RM 19,000. In other words, the seller would suffer a loss of RM 1,000 if he sold it to another party. In this case, the actual loss is RM 1,000. 

    Once the bank has cleared the money order, then the sale and purchase contract must be executed. The money in the trust account (if any) can be transferred to the seller’s account and the gold shall be handed over to the buyer.

     

    Contract and Additional Elements

    18. The involvement of hibah (gift) in a sale and purchase transaction whether in kind or cash is permitted if it fulfils the conditions of hibah, and does not involve elements that are contrary to shari`ah. It must be pointed out that hibah is in fact a voluntary contract and is not in the typical form (of transaction). In other words, if an undertaking (to grant) hibah is not fulfilled by the seller, the purchaser cannot compel him to grant the said hibah.

    19. The involvement of wadiah (safekeeping) in the gold investment plan shall comply with the rules and regulations of wadiah, which include among others that the holding of wadiah must be based on Yad Amanah (savings with guarantee).

    20. A person who buys gold is free to deal with his gold (tasarruf), including granting loans (qardh) to others. However it must satisfy the criteria of qardh allowed by the shar’iah, which inter alia include, being free from the elements of interest and “salaf wa bay”, namely a debt that is tied to the sale and purchase.

    21. A person who buys gold is free to deal with his gold (tasarruf) including using it as a security against a cash loan, as long as the concept of al-Rahn (pledge) that is applied is in line with shari`ah. However in theory, this is not encouraged as it leads to unnecessary debt-contracting activities.

    22. Wa’d (promise) can be included in a gold investment, so long as it is a wa’d on one side and not muwa’adah (promises) on both sides. An example of application of wa’d in this context is making a purchase order i.e. when a customer makes an undertaking to buy gold at a certain price. This purchase agreement is known as ‘price-locking’. If the process of price-locking is similar to a contract of sale and purchase, then it is prohibited as it would lead to delay.

    23. Sale and purchase transactions must be free from elements of usury, gambling, excessive uncertainty and oppression. If any of such elements exists, it is presumed that the sale and purchase transaction does not fulfil the shari`ah criteria.

    Source:

    Click here to view the source

Selling what one does not own
  • A woman put out an advertisement for her work as a merchant in the following manner:

    She shows her clients the commodities she has or describes to them those which she does not have. She then purchases the items they choose and sells them to the clients on deferred payment basis with profit. Please note that some people consider such transactions to be forbidden. They maintain that she is not entitled to trade in all commodities and that she must have the commodities in her possession and not merely buy them according to her clients' wishes. According to them, such transactions do not subject her to loss which is among the conditions of trade.

    Answer:

    Based on the opinion of the majority of scholars, it is established in Islamic law that transactions involving selling for either immediate or deferred payment for a determinately known maturity date are valid. This is because such transactions are a form of murabaha.

    What is murabaha?

    It is a transaction sanctioned in Islamic law in which it is permissible for the seller to stipulate an increase in price in return for deferring payment. This is because even though the deferment does not equal real currency, in murabaha there is an increase in price in exchange for deferment when a specific date is mentioned. Conditions include:

    - Attaining an agreement between the parties involved.

    - There is nothing to prevent such a sale.

    - The people are in need of it, whether they are buyers or sellers.

    Trading in commodities

    The claims that a merchant is not entitled to trade in all commodities but must stick to one product and that his trade must be subject to loss amount to speaking on behalf of Allah without knowledge.

    Selling what one does not have

    It is valid to sell a commodity before taking possession of it in the context of a salam transaction (buying in advance) which involves selling described merchandise which the seller is under obligation to deliver to the buyer. Its permissibility is evidenced by the Qur`an, sunnah, and scholarly consensus.

    Allah the Almighty says,

    O ye who believe! When ye deal with each other, in transactions involving future obligations in a fixed period of time … [Al-Baqarah: 282]

    Ibn Abbas (may Allah be pleased with them both) said, "This verse was revealed in relation to salam sale."

    The Prophet said, "Whoever enters into a [salam] contract for dates should do so for a determinately known measure, weight and date" [recorded by Al-Bukhari and Muslim]. A salam transaction is most manifest in a sale involving a conventional commodity such as a refrigerator of a certain brand, capacity, color and features.

    The kind of sale mentioned in the question can be amended in the following manner:

    - The merchant agrees with the buyer on the commodity the latter wishes to buy from him;

    - The merchant buys it first;

    - The merchant then sells it to his client.

    In this instance, the transaction is considered the permissible sale of a commodity in the merchant's possession and not from among the prohibited transactions involving the sale of absent goods. Furthermore, the buyer can accompany the merchant to the place from where he will buy the desired commodity. Then the merchant buys the commodity and sells it to the buyer on credit. The merchant may also commission the buyer to buy the commodity on his behalf in cash. The buyer then purchases it from him and pays in installments. There is no doubt concerning the lawfulness of this transaction — it benefits both parties and facilitates matters for both without contravening Islamic law.

    The ruling

    Based on the above, this woman's work is permissible if conducted in the manner described above.

    Allah the Almighty knows best.

    Source:

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Zakat On Shariah Compliance Banks And Business Companies Where The Parent Bompanies Are Owned By Non Muslims
  • Decision:

    The Special Muzakarah (Conference)of the Fatwa Committee National Council of Islamic Religious Affairs Malaysia held on 16thAugust 2001 has discussed zakat on Shariah-compliance-banks and business companies where the parent companies owned by non Muslims. The Committee has decided that all Islamic banks and counters that operate on Shariah basis are obliged to pay zakat although their parent companies are owned by non Muslims.

    e-Fatwa, Department of Islamic Development Malaysia (JAKIM)

    Click here to view the source

Shariah Compliant Re-Financing
  • The National Shariah Committee (Dewan Syariah Nasional) – Majelis Ulama Indonesia (DSN-MUI), after considering the following:

    1. That there is a question among the people regarding refinancing transaction that complies with Shariah requirements;
    2. There is no specific Shariah ruling issued by DSN-MUI with regards to refinancing transaction.
    3. Pursuant to item (a) and (b), DSN-MUI affirms the necessity to issue the said ruling on Shariah compliant refinancing to be the reference for Lembaga Keuangan Syariah “LKS” (Shariah Financial Body/Islamic Financial Institution).

    Based on:

    1. Quranic verses
    2. (Al-Maidah : 1)

    O you who have believed, fulfill [all] contracts

    1. (An-Nisa’:58)

    Indeed, Allah commands you to render trusts to whom they are due and when you judge between people to judge with justice

    1. (Al-Isra’: 34)

    And fulfill [every] commitment. Indeed, the commitment is ever [that about which one will be] questioned.

    1. (Al-Baqarah : 278)

    O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers.

     

    1. (Al-Baqarah: 283)

    O you who have believed, do not consume one another's wealth unjustly but only [in lawful] business by mutual consent.

     

    1. (Al-Baqarah: 283)

    And if one of you entrusts another, then let him who is entrusted discharge his trust [faithfully] and let him fear Allah, his Lord.

    1. Prophetic Narrations:
    2. Narrated by ‘Ubadah Ibn As-Somit and recorded by Ibn Majah, narrated by Ibn Abbas and recorded by Imam Ahmad, narrated by Yahya from Malik:

    The prophet peace be upon him asserted that “harm shall neither be inflicted nor reciprocated.”

    Sunan Ibnu Maah: 2331

    1. Allah s.w.t announced: I am the third between two partners as long as both not betray among others. However, if one of the two betray his/her partner then I will leave them.

    Recorded by Abu Dawud

    1. View from Scholars:
    2. If one of the partners buy the portion of his/her partner’s share, it is permissible as he buy another’s asset.

    Al-Mughni, Ibn Qudamah, 5/35

    1. If one of two partners who has a share in a building sell his portion to a third party, thus it is impermissible. However, it is permissible to sell to his partner.

    Hasyiah Ibn Abidin, V. 4 P. 301

    1. This kind of Musyarakah (Diminishing Partnership) is permissible from Shariah perspective -same as Ijarah Muntahiyah Bi at-Tamlik- whereby the bank undertakes to its customer to sale its share once the customer has paid all the amount equivalent to the asset value. In relation with this arrangement, it is considered as Syarikah Al-‘Inan whereby both parties contribute the capital and the bank authorizes its partner to run the project.  At the end of the partnership, the bank then will sell its portion to its partner in total or proportionately. This been done with separate contract and have no relation with the partnership (Syirkah).

    (Al-Muamalah Al-Maliah AL-Muasorah, Wahbah Az-Zuhaili, 436-437)

    1. The leased asset is considered as trust under the lessee. Any defection occurred without negligence, the lessee is not obliged to indemnify such asset.

    (Al-Mughni, Ibnu Qudamah, 5/267)

    1. AAOIFI Resolution No. 13 (7/1/7)

    In principle, the capital of Mudharabah must be provided in form of cash. However, it may be presented in the form of tangible assets, in which case the value of the assets is the contribution to the Mudharabah capital. The valuation of the assets may be conducted by experts or as agreed upon by the contracting parties.

    Commemorating the following:

    1. Outcome from the discussion by Working Group Perbankan Syariah (WGPS) for the issue of refinancing with Lembaga Keuangan Syariah “LKS” held at Bandung on 7th-9th February 2013and on 27th-29th September 2013;
    2. Resolutions from the discussion by Working Group Perbankan Syariah (WGPS) with Asosiasi Bank Syariah Indonesia (Asbisindo) on the issue of refinancing among LKS held at Anyer on 20th to 22nd June 2013;
    3. Views from the participants of the round table discussion DSN-MUI held on Wednesday, 4th December 2013.

    HEREWITH RESOLVED THE FOLLOWING:

    First    : Ruling

    In this fatwa, the following are referred as:

    1. Refinancing is granting a new facility to for a new customer or previous customers who have yet to settle his/her debt;
    2. Shariah refinancing is refinancing that adhere to and comply with all Shariah requirements.
    3. Shariah refinancing consists the two scenarios: 1) Financing given to new customer who have acquired the asset in full; and  2) financing granted to the customer who had outstanding debt  to be settled
    4. Taqwim Al-‘Urudh is valuation of goods/assets with the currency agreed by contracting parties.

    Second : Shariah Ruling

                Refinancing can be executed by LKS by complying all requirements outlined in this fatwa.

    Third : Rulings in accordance with related aqad/contracts of refinancing

                Type 1: The contract of Musyarakah Mutanaqisah

    1. All pillars, conditions, requirements and guidelines with regards the contract of Musyarakah Mutanaqisah (fatwa DSN-MUI No: 73/DSN-MUI/XI/2008 in relation to Musyarakah Mutanaqisah) are complied in the refinancing contract.
    2. Syirkah (Partnership) capital in Musyarakah Mutanaqisah may be in form of cash by agreement of contracting parties and may be also in form of kind (asset), and
    3. If the partnership capital is in form of kind (asset), it may be subjected to valuation


    Type 2: The contract of Al-Baiy Wa Al-Isti’jar

    1. All pillars, conditions, requirements and guidelines with regards the contract of Al-Bay Wa Al-Isti’jar (fatwa DSN-MUI No: 71/DSN-MUI/VI/2008 in relation to Sale and Lease Back) must be complied in the refinancing contract.
    2. All pillars, conditions, requirements and guidelines with regards the contract of Ijarah Muntahiyyah Bi At-Tamlik (fatwa DSN-MUI No: 27/DSN-MUI/III/2002 in relation to Al-ijarah Al-Muntahiyah bi At-Tamlik) are complied in Isti’jar in case of the of Al-Ijarah Al-Muntahiyah Bi At-Tamlik; and
    3. Transfer of ownership of the leased asset after the end of the leased period shall be done by hibah arrangement and shall be not done via sale contract.

    Type 3: Al-Bay’ (Sale) in the contract of Musyarakah Mutanaqisah:

    1. All pillars, conditions, requirements and guidelines with regards the contract of Al-Bay’ (among others fatwa DSN-MUI No: 71/DSN-MUI/XI/2008 in relation to Sale and Lease Back) are complied in the refinancing contract.
    2. All pillars, conditions, requirements and guidelines with regards the contract of Musyarakah Mutanaqisah (fatwa DSN-MUI No: 73/DSN-MUI/XI/2008 in relation to Musyarakah Mutanaqisah) are complied in the refinancing contract.

    Fourth : The mechanism of Musharakah Mutanaqisah

    1. Potential customer seeks refinancing from LKS.
    2. LKS conducts valuation for the customer’s asset to determine the reasonable price in order to determine the capital provided by the customer for the partnership with the LKS
    3. LKS will provide a sum of money as capital for the partnership with customer with condition that the customer fully settle his/her outstanding debt if any;
    4. LKS appoints the customer to be the agent in order for him to undertake Shariah compliant business including Ijarah contract.
    5. The customer and LKS distribute the profit between them in accordance with the pre agreed ratio or based on capital sharing ratio. The losses will be borne based on capital contribution ratio; and
    6. The customer will gradually purchase the LKS’s ownership in the venture in accordance with the agreement.  

    Fifth : Mechanism of Al-Bai’ Wa Al-Isti’jar

    1. Customer who owned an asset seek for financing from LKS for purpose of refinancing.
    2. LKS will buy the asset owned by customer by using contract of Al-Bai’ (sale)
    3. Customer then settle the outstanding debt if any,
    4. LKS and the customer enter into a contract of Al-Ijarah Muntahiyah bi At-Tamlik’and
    5. Ownership for the leased asset may only be transferred to customer by arrangement of hibah at the end of Ijarah period.

    Sixth : Mechanism of Sale in Musharakah Mutanaqisah

    1. Customer who owned an asset seek for financing from LKS for purpose of refinancing.
    2. LKS will conduct valuation for the said asset in order to determine the reasonable price, for the LKS to buy a portion of it.
    3. LKS then will buy a portion of customer asset and consequently the asset is co-owned by both and under Musyarakah arrangement..
    4. Customer then settle the outstanding debt if any,
    5. LKS and customer execute the contract of Musharakah Mutanaqisah by using the capital that have been mentioned above.

    Seventh: If one of the parties didn’t fulfil his/her obligation or if any dispute occurred between the contracting parties, the dispute will be solved by board of arbitrators should the case cannot be resolved by way of Musyawarah (Negotiation between Contracting Parties).

    Eight   : This fatwa is effective by its issuance date and if there is any misunderstanding in future, the fatwa will be improvised accordingly.

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Zakat On Debts
  • The Council of the Islamic Fiqh Academy, during its second session, held in Jeddah (Kingdom of Saudi Arabia), from 10 to 16 Rabiul Thani 1406 H (22-28 December 1985) ; Having looked into the studies presented about << Zakat on debts >>, and

    After thorough discussions which covered the subject from its different aspects, it became evident that:

    1. There is no statement in the Book of Allah, Almighty, or the Sunnah of His Messenger (PBUH), elaborating (rules of) Zakat on Debts. ;

    2. Numerous views have been reported from the Companions and the Tabe'een (the generation after the Companions) –May Allah be satisfied with them- from the viewpoint of the method of paying Zakat on debts.

    3. Accordingly, the Islamic Schools of Jurisprudence have differed clearly on
    4. the subject.

    5. The difference of opinion (regarding this subject) is, in turn, caused by their differing opinion regarding the (following) fundamental principle: whether receivable assets can be classified as actually received assets.

    The Council RESOLVES THE FOLLOWING:

    1. The lender is obligated to pay Zakat, every year, on his loaned money, if the borrower is solvent.
    2. The lender is obligated to pay Zakat, after the elapse of one year starting from the day he actually receives his loaned money, if the borrower is impoverished or controverting.

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Payment of Zakat on Company Shares
  • The Council of the Islamic Fiqh Academy, holding its Fourth session, in Jeddah, (Kingdom of Saudi Arabia), from 18 to 23 Jumada Thani 1408 H (February, 6 to 11, 1988) ,
    Having considered the research papers submitted to the Academy concerning "Payment of Zakat on company shares" ;

    RESOLVES,
    First: Shareholders may pay Zakat on their shares. The company's management may pay Zakat on their behalf:
    􀂄 If its statutes so stipulate,
    􀂄 by virtue of a General Assembly ruling
    􀂄 If the law of the land requires that companies must pay Zakat on behalf of its shareholders
    􀂄 Or if a shareholder himself empowers the Management of the Company to pay Zakat on his behalf.

    Second: The management of the company shall pay Zakat on shares in the same manner as person pays Zakat on his wealth. In other words, it shall pay Zakat on the assumption that the capital of all shareholders is the property of a single person, and calculate Zakat accordingly, taking into account the type and value of assets subject to Zakat, its percentage and any other consideration relevant the Zakat of a physical person ; according to the principle of mixed assets generally accepted by some Fiqh scholars (Fuqahas) concerning all assets.

    In calculating Zakat, the company shall take due account of shares not liable to Zakat, such as shares owned by the Public Treasury, charitable institutions, philanthropic societies and non Muslim shareholders, and make the necessary deductions.

    Third: If, for any reason, the company did not pay Zakat on its assets, each shareholder liable to Zakat must do so on shares he owns. If the shareholder can calculate the amount the company would have paid on his behalf had it done so, he should then pay the same, since that is the basis for calculating Zakat on shares.

    If the shareholder has no mean of knowing these elements of information for calculating the amount due, then : If he had invested in the company to benefit from the annual dividends of his shares, and not for trading purposes, then the owner of such shares will not pay Zakat on the market value of shares, but only on the basis of the dividends, at the rate of 1/4 of 1/10 (2.5%) after the elapse of one year from the date of the actual reception of the dividends, provided that all other conditions are met and no impediment exists. This ruling is in conformity with resolution 2 (2/2) adopted by the Council of the Academy at its 2nd session, with respect to Zakat on the rented real estates and non agricultural leased lands.

    If, on the other hand, the shareholder has invested in shares for trading purposes, then his shares are subject to Zakat as commercial goods. After the elapse of one year period, and if they are still in his possession, he shall pay Zakat on their market value ; if there is no stock market, he will pay Zakat on their value as appraised by qualified experts. He will pay 1/4 of 1/10 (2.5%) of their market value plus their dividends, if they yield any dividend.

    Fourth:
    If during the year, the shareholder sells his shares he will add their price to his wealth and should pay Zakat on the total of his assets at the end of the year. As far as the buyer is concerned, he shall pay Zakat as indicated above.

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Islamic Capital Market
Image as Criteria for Listed Securities
  • Shariah Advisory Council, Securities Commission Malaysia

    Resolution:

    The SAC, at its 40th meeting on 22 July 2002, resolved that image is part of Shariah criteria which forms the basis of analysis on companies listed on Bursa Malaysia. Image is used as one of the criteria because it refers to the following three bases:

    (a) Image based on maslahah rajihah (tangible deeds)

    Image involving public interest and a mix of activities which do not comply are small and forgivable. For example, hotel activities. Such an image has a benchmark of 25 per cent;

    (b) Image based on sadd zari`ah

    Image involving activities where the benefits are disputed, and may lead to harm and aspersion to the public. For example, manufacturing of condoms. Such an image has a benchmark of 5 per cent; and

    (c) Image based on factors between maslahah and sadd zari`ah

    Image involving activities that largely benefit the Muslim society but at the same time has its negative element which portrays a bad image of the Muslim society. For example, sale of liquor in public transport. Such image does not have a particular benchmark and its resolution is based on the discretion of the SAC.

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Preference Shares
  • Shariah Advisory Council, Securities Commission Malaysia

    Resolution:

    RESOLUTION At its 20th meeting on 14 July 1999, the SAC resolved that the basic preference share (non-cumulative) is permissible based on tanazul.

    Arguments That Support The Permissibility Of Preference Shares:

    The SAC ruled that non-cumulative preference shares are permissible based on tanazul where the right to profit of the ordinary shareholder is willingly given to a preference shareholder. Tanazul is agreed upon at an annual general meeting of a company which decides to issue preference shares in an effort to raise new capital. As it is agreed at the meeting to issue preference shares, this means that ordinary shareholders have also agreed to give priority to preference shareholders in dividing the profits, in accordance with tanazul. In the context of preference shares, tanazul means surrendering the rights to a share of the profits based on partnership, by giving priority to preference shareholders. It is also known as isqat haq in Islamic jurisprudence.

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Regulated Short Selling and Securities Borrowing and Lending
  • Shariah Advisory Council, Securities Commission Malaysia

    Resolution:

    At its 13th meeting on 19 March 1998, the SAC resolved to accept the existing securities borrowing and lending (SBL) principles in the securities industry. To comply with Shariah principles, SBL will be aligned to ijarah (leasing contract) principles. Nevertheless, the istihsan methodology is used as an exception to the general ijarah principle. This means the ijarah relationship between the lessee and the shareholder is not severed even though in SBL, the lessee has to surrender the share leased. In addition, the SAC at its 69th meeting on 18 April 2006 resolved that regulated short selling (RSS) is in line with the Shariah as the inclusion of SBL principles in RSS eliminates the element of gharar.

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Ujrah For Guarantees
  • Shariah Advisory Council, Securities Commission Malaysia

    Resolution:

    The SAC, at its 36th meeting held on 6 February 2002, resolved that ujrah (fees) paid for third-party guarantees in mudharabah is allowable on the condition that the investor cannot claim for any repayment from the issuer should there be any losses incurred in the investment. The investor is also permitted to request for collateral from the issuer to cover against any likelihood of losses due to gross negligence by the issuer.

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Asset Securitisation
  • Shariah Advisory Council, Securities Commission Malaysia

    Resolution:

    At its 7th meeting on 1 December 1995, the IISG resolved that asset securitisation is permissible if the underlying asset of the instrument is Shariah compliant.

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Finance Lease And Operating Lease
  • Shariah Advisory Council, Securities Commission Malaysia

    Resolution:

    The SAC, at its 14th meeting on 7 May 1998 resolved that rental payments from finance leases and operating leases are Shariah-compliant products if they are free of any element of penalty.

    Introduction:

    Finance lease facilities are usually given by finance companies registered with Bank Negara Malaysia. Most of these companies are subsidiaries of financial institutions. There are also other non-finance lease companies which offer leasing facilities commonly known as operating lease. Operating lease services can be slightly different from that of finance lease services in that an operating lease does not offer an option to customers to buy the leased assets at the end of the period. In calculating the lease rental, the approach adopted by the finance leasing and operating leasing companies is similar, that is based on the value of asset being financed, rate of charge or returns and the period of financing. In general, the penalty rate on late payment is high. This payment charge is imposed to discourage late payment by customers as well as to prevent leasing companies from being exposed to losses due to opportunity loss.

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Call Warrants
  • Shariah Advisory Council, Securities Commission Malaysia

    Resolution:

    At its 4th meeting on 26 July 1995, the Islamic Instrument Study Group (IISG) passed a resolution permitting the use of call warrants on the condition that the underlying shares of the warrants in question are Shariah compliant. This instrument fulfils the features of mal (asset) according to Islamic jurisprudence as outlined in the haq maliy and haq tamalluk principles. Haq maliy can be traded if it complies with Islamic principles and conditions of buying and selling.


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Bai’ Dayn
  • Shariah Advisory Council, Securities Commission Malaysia

    Resolution:

    At its 2nd meeting on 21 August 1996, the Shariah Advisory Council (SAC) unanimously agreed to accept the principle of bai` dayn i.e. debt trading as one of the concepts for developing Islamic capital market instruments. This was based on the views of some of the Islamic jurists who allowed this concept subject to certain conditions. In the context of the capital market, these conditions are met when there is a transparent regulatory system which can safeguard the maslahah (interest) of the market participants.


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Islamic Exchange-Traded Fund Based on Gold and Silver 16 (Islamic Etf Gold And Silver)
  • Introduction

    Islamic exchange-traded fund based on gold and silver (Islamic ETF Gold and Silver) is an ETF which uses gold and silver (such as gold and silver bullions/bars) as the underlying asset. The Islamic ETF units represent the unitholders’ undivided ownership of the gold and silver on a pro-rata basis. The gold and silver will be held by the custodian during the tenure of the fund. Since this product involves ribawi item i.e. gold and silver as underlying asset, hence it was presented and discussed in the SAC meeting to seek their opinion on this matter.

    Resolution

    The SAC, in a series of its meetings, discussed the issues relating to the Islamic exchange-traded fund based on gold and silver (Islamic ETF Gold and Silver). In the 142nd meeting on 30 January 2013 and 161st meeting on 21 June 2014, the SAC resolved that gold and silver (such as gold and silver bullions/bars) may be used as underlying asset for Islamic ETF. The SAC also resolved that the concept of Islamic ETF based on gold and silver are acceptable by Syara’ and it is Shariah compliant subject to the following conditions:

    Conditions for Establishment, Structuring and Trading of Islamic Etf Based on Gold and Silver as The Underlying Asset

    (i) The Islamic ETF units represent an equivalent amount of physical gold and silver held by the custodian on behalf of the Islamic ETF. Hence, the Islamic ETF units represent the unitholders’ ownership of the gold and silver on a pro-rata basis. The creation and redemption of the Islamic ETF units must be backed by physical gold and silver with specified quantity and quality. Therefore, at the inception and creation of the Islamic ETF units, the fund manager and Shariah adviser of the Islamic ETF must verify that: (a) The gold and silver, with the correct quantity and quality as per the specification, are in existence; (b) The gold and silver which forms the underlying assets for the creation of the Islamic ETF units are allocated and segregated; and (c) The gold and silver can be delivered to the unitholders when they redeem the Islamic ETF units.

    The trading of the Islamic ETF units between the buyer and the seller must be carried out in cash and on spot basis.3 (iii) Since the trading of the Islamic ETF must be carried out on cash basis, the Islamic ETF units can only be traded if the buyers have cash accounts or margin facility (via third-party financing). (iv) The Shariah adviser of the Islamic ETF must provide detailed reasoning on the Shariah compliance of the Islamic ETF in the Shariah pronouncement on the following:
    (a) Structure, creation and redemption of the Islamic ETF units; and (b) Trading of the Islamic ETF units in the secondary market. (v) The Shariah adviser of the Islamic ETF must conduct an annual audit (including a site visit to the place where the gold and silver are kept) to confirm its existence, quantity and other details such as record of its movement. This is to ensure that the Islamic ETF units created are backed by the actual gold and silver kept in the vault in a segregated and allocated manner.

    The Shariah adviser of the Islamic ETF must also prepare a report on the annual audit, to be included in the Shariah adviser’s compliance report to the unitholders. (vii) The unitholders are entitled to redeem the Islamic ETF units in physical gold and silver or its equivalent in cash.

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Stapled Securities
  • Introduction

    Stapled securities refers to a situation where investors own two or more securities which are generally related to each other and contractually bound together through a single vehicle that cannot be traded separately. For example, shares of listed companies attached to the real estate investment trust (REIT) thus, becomes a new product. In relation to stapled securities, a proposal from the industry has been presented to the SAC involving shares of a company that are classified as Shariah-compliant securities by the SAC. The shares are stapled with the units of Islamic real estate investment trust (Islamic REIT) and listed on Bursa Malaysia as “stapled securities” replacing the existing shares of the company.

    Resolution

    The SAC at its 142nd meeting on 30 January 2013 resolved that in general, for any stapled securities to be classified as Shariah compliant, each of the securities stapled must be Shariah compliant.

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Benchmark for Cinema Business
  • Introduction

    The SAC has set out certain benchmarks to classify securities of a company listed on Bursa Malaysia as Shariah compliant. Cinema business is among the activities which are analysed by the SAC. For cinema business, the benchmark which has been determined by the SAC previously to measure the contribution of mixed activities is five per cent based on sadd zari`ah (i.e. to prevent the access that can lead to bad practice since there is negative image associated with cinema).4 However, the issue of benchmark was discussed again in the SAC meeting to ensure whether cinema business can be equated with other activities which are clearly prohibited by Syara’ such as riba (interest-based companies such as conventional banks), gambling, liquor and pork which are classified under the five per cent benchmark.

    Resolution

    The SAC at its 151st meeting on 26 September 2013 updated the resolution on the benchmark for cinema business from five per cent benchmark to 20 per cent benchmark. The SAC resolved that it is not suitable to equate cinema business with other activities which are clearly prohibited by Syara’ such as riba (interest-based companies such as conventional banks), gambling, liquor and pork which are classified under the five per cent benchmark.

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