M. Mahbubi Ali, PhD International Institute of Advanced ...

M. Mahbubi Ali, PhD International Institute of Advanced Islamic Studies (IAIS) Malaysia

International Webinar, 18 July 2020

Some [Shariah] Considerations

Purpose of financing

Underlying asset/services

Choice of Contracts

Execution of Contracts

Automation of Aqad

Nostro Account Different ShariahInterpretations

Choice of law

Financing/facilitating purchase of Shariah non-

compliance asset

Murabahah on services Ownership Transfer Improper Sequence of Contract

Non-execution of murabahah contract

Wrong selling price Charging commission separate from

murabahah selling price

Extension of murabahahfacility withou new

contract

Bay’ Dayn vs Bay Dayn bi al-Sila’

Kafalah bil Ujrah

Conventional NostroAccount

Shariah Issues

APPENDIX

MAIN FATWA DIFFERENCES BETWEEN INDONESIA, MALAYSIA AND GCC

Bay’ Inah Tawarruq Bay’ Dayn Bay’ Ma’dum Guarantee with Fee

Sale of Gold on Deferred Basis

Bindingness of Promise

Restructuring and Rescheduling

Ibra’ Hibah on Bank Deposit

Fatwa on ‘InahFatwa Issued by

Permissible Impermissible Permissible with Condition

Justification

BNM √ Shafii school

AAOIFI √ Circumvents prohibition of riba

DAB √

MF √

KFH √

DIB √

DSN MUI ?

Bai’ Inah in Fatwa DSN MUI No. 31/DSN-MUI/VI/2002

Fatwa on Organized Tawarruq

Fatwa Issued by: Permissible Impermissible Permissible with Condition

Majma’ Fiqh √

AAOIFI √

DSN MUI (Fatwa No. 82/2011)

√

Majma’ Rabithah √

Dallah Barakah √

Dubai Islamic Bank √

KFH √

Tawarruq Practices in Selected Jurisdictions

• Deposit

• Financing

• Sukuk

• Liquity management and hedging

Malaysia, Brunei, Europe and Most GCC

• Liquidity ManagementIndonesia, Sudan and Saudi Arabia

• Loan settlement of conventional banks

• Liquidity management

• Government funding instruments Qatar

• Dismissed tawarruq outright

• Oman’s Islamic Banking Regulatory Framework (IBRF) issued in Dec 2012: “Commodity murabahah or tawarruq, by whatever name called, is not allowed for the licenses in the Sultanate as a general rule”

Oman

• Tawarruq may be used in exceptional cases requiring specific prior approval of Islamic Banking Department of SBPPakistan

Bay al-Dayn (At Discount)

Fatwa Issued by


Justification

SC √ Debts transacted inthe Islamic CapitalMarket are consideredsecured debt

AAOIFI √ • Classical view• Result in riba

DAB √

MF √

DSN MUI ?

Bay’ al-Ma’dum

Fatwa Issued by


Justification

SC √ Permitted because the uncertainty can be eliminated

AAOIFI √ • Classical view• Result in riba

DAB √

MF √

KFH √

DIB √

DSN √

Sale of Gold on Deferred Basis

Fatwa Issued by: Permissible Impermissible Basis/Justification

DSN MUI(Fatwa No. 77/2010)

√ The reason (‘illah) of gold as a medium of exchange does not exist anymore.

Dallah Barakah √ - Hadith- View of Jumhur- Thamaniyyah

KFH √


Al-Rajhi √

SAC - BNM √

Kafalah bil Ujrah (Guarantee with Fee)

• Permissible with condition that the fee should reflect actual costs.

GCC (AAOIFI, DAB, MF, KFH, DIB)

• Permissible at a reasonable amount.

DSN MUI

(Fatwa No. 11/2000 and No. 57/2007)

• Permissible based on mutual consent

• Maslahah and the needs of the communitySAC BNM

Hibah on Bank Deposit


DSN MUI(Fatwa No. 02/2000 dan No. 86/2012)

√

Dallah Barakah √

KFH √


AAOIFI √

SAC - BNM √

Stipulation of Ibra’ in the Contract


DSN MUI(Fatwa No. 23/2002 tentang potonganpelunasan)

√

Dallah Barakah √

KFH √


AAOIFI √

SAC - BNM √

Bindingness of Wa’d (Promise)

Fatwa Issued by: Binding Non-binding Binding with Condition


√

Majma’ Fiqh √ (Conditional upon the

fulfilment of an obligation and the promisee has already

incurred expenses on the basis of such a promise)

SAC BNM √

DAB √

KFH √

DIB √

Al-Rajhi √

• In respect of solvent debtor (musir), the views of scholars are presented in the table below:

Refinancing and Restructuring

Fatwa Permissible Impermissible Permissible with Condition

Majma’ Fiqh √

Shari’ah Committeee of Bahrain Islamic Bank

√

Sheikh Abdussattar Abu Ghuddah

√ (1. Executedindependently, (2) the profit in the second debt does not exceed that of the first debt)

Sheikh Nazih Hammad √ (the additional amount in the second debt is not enjoyed by the creditor)


√ (Akad MusharakahMutanaqisah, al-bai’Iwal istijrar, akad al-bai’

SAN BNM √ With a new contract

SHARIAH GOVERNANCE STRUCTURE

United Kingdom• Financial Service Authority• Independent and Self-Regulatory

practice by IFIs

Singapore• Monetary Authority of Singapore• MAS expects each bank to monitor its

own operations and ensure they areShariah compliant.

Indonesia• National Shariah Council (NSC) – non-

governmental body• Indonesia Ulama Council• Komite Perbankan Syariah (the Shariah

Banking Committee)• Institution level, Shariah Supervisory

Board

Malaysia• Two tier system – Regulator and Shariah

body set up by each financial institution• To ensure a comprehensive and efficient

Shariah advisory system in the industry

CENTRALIZED

DECENTRALIZED

SHARIAH GOVERNANCE STRUCTURES

Kuwait• Central Bank of Kuwait Law• Independent Shariah Supervisory

Board, at institution level• No Centralized Shariah Advisory

council• Fatwa Board in the Ministry of Awqaf

and Islamic Affairs

United Arab Emirates• Shariah Supervision Authority at

Institution level• Higher Shariah Authority under Ministry

of Justice and Islamic Affairs

Bahrain• Shariah Committee to Advise central

bank• Independent Shariah Supervisory Board

of IFIs

CENTRALIZED

DECENTRALIZED

SHARIAH GOVERNANCE STRUCTURES

SHARIAH GOVERNANCE STRUCTURE

APPOINTMENT OF THE NATIONAL SHARIAH BOARD MEMBERS

Islamic Banks

• UK• Singapore

Non-governmental authority

• Indonesia

Governmental Authority

• Pakistan• Bahrain• UAE• Kuwait

Sovereign Authority

• King of Malaysia• Sultan of Brunei

APPOINTMENT OF THE IFIS SHARIAH BOARD MEMBERS

Central Bank Approval

• Malaysia• Indonesia• Pakistan

Shareholders Approval

• Bahrain• Brunei• Kuwait

BOD Approval

• UAE• Pakistan

• UK• Singapore

SHARIAH BOARD COMPOSITION AT NATIONAL LEVEL AND IFI LEVEL

8Brunei

5

Pakistan

Not Fixed

MalaysiaUAEBahrainIndonesia

Not Present

UKSingapore

5Malaysia

3

BruneiKuwaitUAEBahrain

2

Indonesia

1

- Pakistan- UAE DIFC forIslamic WindowsBank

At IFI Level(Number of Members)

At National Level(Number of Members)

Not FixedUKSingaporeBest AAOIFI Practices

QUALIFICATION REQUIREMENTS FOR SHARIAH BOARD MEMBERS

Islamic Law/Fiqh Mu’amalat And Finance

Required in:Malaysia, Brunei, Indonesia, Bahrain andPakistan

Bachelor Degree in fiqh mu’amalat or usul al fiqh Required in:Malaysia

English and Arabic

Required in:Pakistan and Malaysia (+Malay Language)

Five Years Experience In Delivering Islamic Rulings

Required in:Pakistan

Must Be Ahl Al-sunnah Wa Al-jamahRequired in:Brunei

No Requirements

No specific requirements in:UKSingapore

RESTRICTIONS FOR SHARIAH BOARD MEMBERS

National Shariah Board member can not be member of SSB at IFI

(Malaysia)

IFI SSB member can not be SSB member of another IFI

(Malaysia)

IFI SSB member can not/ can be SSB member of another IFI

(Pakistan)

IFI SSB member can not be BOD member, have more than 5% of shares of IFI

(Kuwait, Bahrain, UAE)

IFI SSB member can not be SSB member of more than 5 IFIs

(Indonesia)

M. Mahbubi Ali, PhD International Institute of Advanced ...

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