Resolutions SAC 2ndedition
Resolutions SAC 2ndedition
Resolutions SAC 2ndedition
Securities Commission
Shariah Advisory Council
Second Edition
Contents
RESOLUTIONS OF THE
SECURITIES COMMISSION
SHARIAH ADVISORY COUNCIL
SECOND EDITION
i
Resolutions of the Securities Commission Shariah Advisory Council – Second Edition
Securities Commission
3 Persiaran Bukit Kiara
Bukit Kiara
50490 Kuala Lumpur
Malaysia
Tel: 03-6204 8000 Fax: 03-6201 1818
www.sc.com.my
Copyright
© Securities Commission
ii
Contents
CONTENTS
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Resolutions of the Securities Commission Shariah Advisory Council – Second Edition
CALL WARRANTS 60
TRANSFERABLE SUBSCRIPTION RIGHTS (TSR) 64
ASSET SECURITISATION 67
REGULATED SHORT SELLING AND SECURITIES 71
BORROWING AND LENDING
CRUDE PALM OIL FUTURES CONTRACT 75
COMPOSITE INDEX FUTURES CONTRACT 79
ISLAMIC BENCHMARK BOND 84
FINANCE LEASE AND OPERATING LEASE 89
PREFERENCE SHARES 92
GLOSSARY 171
BIBLIOGRAPHY 177
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Foreword by the Chairman Securities Commission
I thank God almighty that this book on the Resolutions of the Securities
Commission Shariah Advisory Council is now published to serve as a reading
and reference material for those wishing to understand Shariah products
and concepts applied in the Islamic capital market in this country.
It cannot be denied that the Islamic capital market, which complements the
Islamic banking system and Takaful in this country, is growing rapidly. This
positive development began in the early 1990s when many corporate bodies
used Islamic capital market instruments to fund their economic activities.
Investors, too, began to show interest in investing in Shariah-compliant
securities and Islamic unit trust funds. The issuance of private debt securities
based on Shariah principles, too, began to gain acceptance and popularity in
the country’s capital market.
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Resolutions of the Securities Commission Shariah Advisory Council
At the same time, the Commission also formulated short-term and long-
term plans for the development of the Islamic capital market. The Capital
Market Masterplan outlines the objectives in making Malaysia an international
Islamic capital market centre. Thus, in order to achieve the objectives,
comprehensive knowledge and education on Islamic capital market must be
given attention to and nurtured in all investors, market intermediaries, the
regulatory body and everyone directly involved in the Islamic capital market.
The role of the Commission is not only restricted to regulatory oversight but
also encompasses initiating developmental activities, and educating investors
and the general public in developing the country’s capital market. In the
context of the Islamic capital market, various efforts have been initiated by
introducing investor education programmes, such as conducting seminars
and workshops, as well as publishing reading materials. Thus, the publication
of this book is part of the Commission’s continuous efforts to educate investors
on all the resolutions adopted by the SAC in their series of meetings. All
views of the Shariah are presented in a brief and simple manner so that it
can easily be understood by all walks of life.
In conclusion, I would like to thank the SAC, ICMD staff and everyone
involved, directly and indirectly, in the production of this book. It is hoped
that this book will be a useful guide to everyone and can help generate
more intellectuals and investors who are knowledgeable and informed of
the Islamic capital market.
Wassalam.
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Foreword by the Chairman Securities Commission
Members of the SAC who are well versed in the fields of muamalah and
Islamic financial system have collaborated to resolve issues directly and
indirectly related to the Islamic capital market. Collaborative efforts and ideas
of people with different educational backgrounds have resulted in practical
solutions for developing the Islamic capital market, in particular, and the
country’s capital market, in general.
It cannot be denied that there may be several SAC resolutions that differ
from the opinions of Shariah experts in other countries. These variations
exist due to the difference in time and place, and also divergence in needs
and background of a country. If we look at the history of Islamic legislation
development, such varied opinions with regards to certain principles are not
uncommon among the founders. Even Imam Shafi`i, the founder of the Syafi`i
Mazhab had two divergent opinions on a single particular issue depending
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Resolutions of the Securities Commission Shariah Advisory Council
Within the context of the Islamic capital market, differences in opinion among
Shariah experts are those on matters involving peripheral issues and
implementation of methodologies. These differences in opinions are not on
fundamental matters that have to be strictly complied with in muamalah
such as avoiding the practice of riba, cheating, gharar elements and other
practices forbidden by Shariah.
As such, the SAC hopes that these differences in opinion will not obstruct
the development of the Islamic capital market in this country. As the national
SAC for the country’s Islamic capital market, it is imperative for the SAC to
accept only one practical view as the general and sole reference for
implementing Islamic capital market activities. This will give rise to an Islamic
capital market that is organised, uniform and accessible to all layers of society.
This also helps reduce the community’s confusion over the various divergent
opinions of the Shariah.
Through the publication of this book, the SAC hopes to provide clarity on
the resolutions and views of the SAC, as well as the arguments used as the
basis for the formulation of such resolutions. Nevertheless, the SAC always
welcomes views from all parties that would contribute towards a more robust
and dynamic Islamic capital market. It is hoped that efforts made so far have
met with Allah’s pleasure and to Allah we seek guidance and enlightenment.
Wassalam.
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Shariah Advisory Council of the Securities Commission
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Resolutions of the Securities Commission Shariah Advisory Council
INTRODUCTION
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Shariah Advisory Council of the Securities Commission
The Commission has taken the following two approaches in meeting this
objective:
Using these approaches, a dual market system will be created similar to the
existing banking and insurance sectors. The Commission has taken numerous
steps in priming the infrastructure for the development of the Islamic capital
market. These include:
4 Nik Ramlah Nik Mahmood, “Regulatory Framework and the Role of the Securities Commission in
Developing the Islamic Capital Market”, National Conference on Islamic Banking and Investment”, Kuala
Lumpur, 19 November 1996, p. 5.
5 Khairil Anuar Abdullah, “The Issues and Prospects of Establishing a Sound Islamic Capital Market”, Labuan
International Summit on Islamic Financial and Investment Instruments, Financial Park Complex, Labuan,
16–18 June 1997, p. 5.
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Resolutions of the Securities Commission Shariah Advisory Council
The following is a list of the IISG members (from 1994 to 15 May 1996):
(e) Nor Mohamed Yakcop (now Tan Sri and Second Finance Minister);
6 Nik Ramlah Nik Mahmood, “Regulatory Framework and the Role of the Securities Commission in
Developing the Islamic Capital Market”, National Conference on Islamic Banking and Investment”, Kuala
Lumpur, 19 November 1996, p. 5.
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Shariah Advisory Council of the Securities Commission
In introducing the Islamic capital market instruments, the SAC adopted two
approaches. The first approach was to study the validity of conventional
instruments used by the local capital market from the Shariah perspective.
The study focused on the structure, mechanism and use of the instruments
to ascertain whether they were against Shariah principles. The second
approach entailed formulating and developing new financial instruments
based on Shariah principles.
The list of Shariah-compliant securities was used as the basis for developing
the Shariah Index launched by Bursa Malaysia on 17 April 1999. With the
launch, investors will be able to monitor the performance of their investments
more efficiently and effectively. Although the SCA does not expressly state
the formation of the SAC, section 16 of the SCA stipulates that the
Commission has full jurisdiction in carrying out its duties based on securities
laws. Moreover, section 18 of SCA specifies that the Commission is
empowered to form a committee to help it carry out its duties based on the
Act, and the Commission is also permitted to appoint anyone it deems fit to
be a member of such a committee.7
Members of the SAC are appointed by the Commission once every two
years. The table on page 6 lists past and present members of the SAC.
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Resolutions of the Securities Commission Shariah Advisory Council
6
Research Methodologies in the Islamic Capital Market
RESEARCH METHODOLOGIES
IN THE ISLAMIC CAPITAL MARKET
7
Resolutions of the Securities Commission Shariah Advisory Council
RESOLUTION
At its third meeting on 30 October 1996, the Shariah Advisory Council (SAC)
discussed Shariah research guidelines in the capital market and passed a
resolution to accept all sources and manhaj (methodology) of the esteemed
Islamic jurists. These sources of research consist of primary and secondary
sources adopted in Islamic jurisprudence.
PRIMARY SOURCES
The primary sources used by the SAC in conducting research on the capital
market are the Quran and the Sunnah. This is based on the fact that Islam
urges its followers to refer to these sources in solving problems that occur in
their daily lives as commanded by Allah s.w.t.
Meaning: “O you who believe! Obey Allah s.w.t. and obey the
Messenger, and those charged with authority among you. If you differ
in anything among yourselves, refer it to Allah s.w.t. (Quran) and His
Messenger (Sunnah).”
(Surah al-Nisa’: 59)
8
Research Methodologies in the Islamic Capital Market
Meaning: “So take what the Rasulullah s.a.w. (the Messenger) assigns to you,
and deny yourselves that which he withholds from you.”
(Surah al-Hasyr: 7)
Apart from the two primary sources i.e. the Quran and the Sunnah, the SAC
also passed a resolution to use secondary sources and other Islamic
jurisprudence manhaj, such as ijmak, qiyas, maslahah, istishsan, istishab,
sadd zari`ah, `urf, maqasid syari`ah, siyasah syar`iyyah, ta’wil, istiqra’, talfiq
and others which have already been applied in Islamic jurisprudence. This is
based on a hadith (prophetic tradition) when the Prophet s.a.w. appointed
Muaz as qadhi (judge) in Yaman. He had asked Muaz about certain important
principles. He asked: “Muaz, what references do you use when you make a
decision?”. Muaz replied that he would refer to the Quran. The Prophet
s.a.w. then asked further: “What if the matter in question is not found in
the Quran?”. To which Muaz replied that he would refer to any decision
that had been made by the Prophet s.a.w. The Prophet s.a.w. asked again:
“What if the matter had never been decided by me?”. Muaz then replied
that he would apply ijtihad (reasoning of qualified scholars) using his own
thinking and wisdom to come to a decision. The way Muaz handled the
questions on making judgement received the blessings of the Prophet s.a.w.
He then said: “Praise be to Allah s.w.t. for giving guidance to the Prophet
s.a.w. and his representative (Muaz).”8
Ijmak
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Resolutions of the Securities Commission Shariah Advisory Council
Qiyas
This refers to likening an original hukm having nas (explicit legal text) with a
new matter having no nas but having the same illah (cause). Thus, Imam
Syafi`i considered qiyas as the basis for ijtihad.11 It is regarded as a source of
legislation which has significant contribution in solving new issues that have
not been debated.12
Maslahah
Istihsan
This refers to disregarding a hukm that is backed by dalil and applying another
hukm that is more convincing and stronger than the former, based on Syara’
dalil permitting the act in question.15
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Research Methodologies in the Islamic Capital Market
Istishab
Sadd Zari`ah
This refers to the approach used to curtail anything that can cause a Muslim
to do the forbidden. It is considered an early preventive measure to prevent
a Muslim from doing what is forbidden by Allah s.w.t.17
`Urf
This refers to the norms of the majority of a society whether applied in speech
or deed.18 It is considered as ‘adat jama`iyyah (customs that are collectively
acceptable) and can be used as a legal basis so long as it does not contradict
the Syara’.19 In the context of the Islamic capital market, `urf tijari refers to
customary practices in business that are considered a basis for guidance and
hukm.
Maqasid Shariah
This refers to the desired objectives of the Shariah when determining a hukm
aimed at protecting human maslahah.20
Siyasah Syar`iyyah
This refers to the area in Islamic jurisprudence that explains rulings related to
policies and approaches taken in organising the national administrative
structure (and its people) in accordance with the spirit of the Shariah. It
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Resolutions of the Securities Commission Shariah Advisory Council
Ta’wil
Istiqra’
Talfiq
This means introducing an approach that has never been used or discussed
by past mujtahid.24 This manhaj will combine two or more opinions of the
mazhab (school of thought) and derive a different opinion that has never
been discussed by the previous mujtahid.
21 Wizarah al-Auqaf wa al-Syu’un al-Islamiyyah, Al-Mausu`ah al-Fiqhiyyah, Kuwait, 1990, vol. 25, pp.
294–310. Ahmad al-Husary, Al-Siyasah al-Iqtisodiyyah wa al-Nuzum al-Maliyyah fi al-Fiqh al-Islami,
Maktabah al-Kulliyyat al-Azhariyyah, Cairo, p. 12.
22 Al-Duraini, Al-Manahij al-Usuliyyah, Muassasah al-Risalah, Damascus, p. 189.
23 Al-Mausu`ah al Fiqhiyyah, vol. 4, p. 77. Al-Zuhaili, Usul al-Fiqh al-Islami, vol. 2, p. 916.
24 Al-Zuhaili, Usul al-Fiqh al-Islami, vol. 2, p. 1143.
12
Principles of Muamalat in the Capital Market
PRINCIPLES OF MUAMALAT
IN THE CAPITAL MARKET
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Resolutions of the Securities Commission Shariah Advisory Council
MUSYARAKAH MUTANAQISAH
RESOLUTION
At its 7th meeting on 1 December 1995, the Islamic Instrument Study Group
(IISG) passed a resolution to accept musyarakah mutanaqisah as a concept
that can be used to develop instruments for an Islamic capital market.
INTRODUCTION
25 Muhammad Solah al-Sowi, Musykilah al-Istithmar fi al-Bunuk al-Islamiyyah, Dar al-Wafa, Cairo, 1990,
pp. 619, 621.
26 Al-Sowi, Musykilah al-Istithmar, p. 619.
27 Sukuk is a form of financial note. Please refer to al-Mausu`ah al-Fiqhiyyah, vol. 27, p. 46.
14
Principles of Muamalat in the Capital Market
will then buy back all the shares from the investors every month according
to the amount and duration agreed upon i.e. 120 months. This will end at
the point when ABC company owns all the shares.
(b) Promise from the financial institution to sell its share of the company
to its partners; and
(c) The institution sells all of its shares to its partner fully or partially.30
28 Abd al-Sami` al-Misri, Al-Masraf al-Islami: ‘Ilmiyyan wa ‘Amaliyyan, Maktabah Wahbah, Cairo, 1988,
pp. 69–70.
29 Dalil al-Fatawa al-Syar`iyyah fi al-A’mal al-Masrafiyyah, Markaz al-Iqtisad al-Islami, Cairo, 1989, pp.
66–67.
30 Al-Sowi, Musykilah al-Istithmar, pp. 619–627.
15
Resolutions of the Securities Commission Shariah Advisory Council
BAI` DAYN
RESOLUTION
INTRODUCTION
In the context of the Islamic capital market, bai` dayn is the principle of
selling the dayn which results from mu`awadhat maliyyah contracts (exchange
contracts), such as murabahah, bai` bithaman ajil (BBA), ijarah, ijarah
munthiyah bi tamlik, istisna` and others.
31 Wahbah Al-Zuhaili, Al-Fiqh al-Islami wa Adillatuhu, Dar al-Fikr, Damascus, 1989, vol. 4, p. 432.
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Principles of Muamalat in the Capital Market
The bai` dayn principle has always been a point of contention among past
and present Islamic jurists. However, there is no general nas or consensus
(ijmak) among those who forbid it.32
At its 8th meeting on 25 January 1996, the IISG identified the `illah (reason)
for why some Islamic jurists do not allow bai` dayn. The `illah generally touches
on the risks to the buyer, gharar,34 absence of qabadh35 and riba.
The Hanafi Mazhab looked at bai` dayn from the aspects of potential risks
to the buyer, debtor, and the nature of the debt itself. They were unanimous
in not permitting this instrument because the risks cannot be overcome in
the context of debt selling. The debt is in the form of mal hukmi (intangible
assets) and the debt buyer takes on a great risk because he cannot own the
item bought and the seller cannot deliver the item sold.36
The Maliki Mazhab allowed debt selling to a third party subject to certain
conditions to facilitate the use of this principle in the market. The conditions
are as follows:
32 Ibnu Qayyim al-Jauziyyah, I`lam al-Muwaqqi`in, Dar al-Fikr, Beirut, vol. 1, p. 388.
33 Al-Zuhaili, Al-Fiqh al-Islami, vol. 4, p. 433.
34 Please see the resolution on gharar for further explanation.
35 Qabadh means the control and ownership of the item bought. It depends a lot on `urf or the normal
recognition of the local community. Please see the resolution on qabadh for further explanation.
36 Al-Kasani, Badai’i` al-Sana’i`, Dar al- Fikr, Beirut, vol. 5, p. 148.
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Resolutions of the Securities Commission Shariah Advisory Council
(d) The debtor belongs to the group that is bound by law so that he is
able to redeem his debt;
(e) Payment is not of the same type as dayn, and if it is so, the rate should
be the same to avoid riba;
(f) The debt cannot be created from the sale of currency (gold and silver)
to be delivered in the future;
(g) The dayn should be goods that are saleable, even before they are
received. This is to ensure that the dayn is not of the food type which
cannot be traded before the occurrence of qabadh; and
(h) There should be no enmity between buyer and seller, which can create
difficulties to the madin (debtor).
The conditions set by the Maliki Mazhab can be divided into three categories:37
The Syafi`i Mazhab was of the opinion that selling the debt to a third party
was allowed if the dayn was mustaqir (guaranteed)38 and was sold in exchange
for `ayn (goods) that must be delivered immediately. When the debt was
sold, it should be paid in cash or tangible assets as agreed.
Ibnu al-Qayyim was of the opinion that bai` dayn was permissible because
there was no general nas or ijmak that prohibited it. What was stated was
the prohibition of bai` kali’ bi kali’.39
37 Al-Dusuqi, Hasyiah al-Dusuqi ‘ala al-Syarh al-Kabir, Dar Ihya’ al-Kutub al-Arabiyyah, Cairo, vol. 3, p. 63.
38 Dayn mustaqir is redemption-guaranteed debts, e.g. compensation value of damages and properties of
the debtor. Please refer to Al-Syirazi, Al-Muhazzab, Dar al-Fikr, Beirut, vol. 1, p. 262.
39 Ibnu Qayyim, I`lam al-Muwaqqi`in, vol. 1, p. 388. Bai` kali’ bi kali’ is bai` nasi’ah bi nasi’ah which means
a debt sale that is paid by debt. For example, one buys food on credit for two months. When the time
comes, he should redeem his debt. However, he says to the seller: “I still have no food to pay my debt,
so sell it to me for another period.” The seller then sells it to him for another period and increases the
price. In this case, the buyer did not receive anything in exchange when being charged for extending the
period of payment.
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Principles of Muamalat in the Capital Market
Results of the study showed that the main reason for the clash of opinions
on bai` dayn among the past Islamic jurists centred on the ability of the seller
to deliver the items sold. This was stated by Ibnu Taimiyyah himself and was
also based on statements made in the great books of the four mazhab.
The argument of the Islamic jurists that prohibited bai` dayn to a third
party for fear that the buyer will have to bear great risks (Hanafi Mazhab)
has some truth in it. This is especially true if there is an absence of supervision
and control. In this context, the buyer’s maslahah should be safeguarded
because he is the party that has to bear the risks of acquiring the debt
sale while making the sale contract. In the Malaysian context, the debt
securities instruments based on the principle of bai` dayn are regulated by
Bank Negara Malaysia and the Commission to safeguard the rights of the
parties involved in the contract. Therefore, the conditions set by the Maliki
Mazhab and the fears of risks by the Hanafi Mazhab can be overcome by
regulation and surveillance.
Thus, it can thus be concluded that although there are differences in opinions
on bai` dayn among the Hanafi and Maliki Mazhab, there is a convergence
point which states that bai` dayn can be used if there is a regulatory system
that protects the buyer’s maslahah in an economic system.
The fifth condition set by Maliki Mazhab relates to the exchange of ribawi
goods. In the context of the sale of securitised debt, the characteristics of
securities differentiate it from currency, and hence, it is not bound by the
conditions for exchanging goods.
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Resolutions of the Securities Commission Shariah Advisory Council
BAI` `INAH
RESOLUTION
The SAC, at its 5th meeting on 29 January 1997, passed a resolution that
bai` `inah is a principle that is permissible in the Islamic capital market in
Malaysia.
INTRODUCTION
Bai` `inah refers to trading whereby the seller sells his assets to the buyer at
an agreed selling price to be paid by the buyer at a later date. After that, the
buyer immediately sells back the assets to the seller at a cash price, lower
than the agreed selling price.
The majority of Islamic jurists state that there are three forms of trading40
categorised as bai` `inah, whereby it can be concluded that all the assets sold
The seller sells a product to the buyer at a higher price on a deferred payment basis. After delivery
to the buyer, the seller buys back the product in cash at a much lower price.
A third party is involved, the seller sells a product that is delivered later on for, say RM200. After delivering
it to the buyer, the buyer then sells it to a third party for a lower price, say RM100. The third party then
resells it to the first party (original owner) for RM100. This means the original owner obtained RM100
from the trade.
A man wants to borrow, say RM100. The creditor refuses to lend using the qardh principle. Instead he
says: “I am not giving you qardh (loan) but I will sell you this shirt by deferred payment for RM100
although the market price is RM70.” This is to enable the buyer to sell it for RM70 at the market. When
the buyer agrees, the trade is transacted. What happens is the shirt owner makes a profit of RM30 from
the transaction because the buyer will pay him a deferred payment of RM100.
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Principles of Muamalat in the Capital Market
come from the financier. The financier will sell a product to the buyer at an
agreed price to be paid later. The financier then immediately buys back the
asset at a cash price lower than the deferred selling price.41
Past Islamic jurists had differing views on determining the hukm on bai` `inah.
The following were their views:
The majority42 were of the opinion that bai` `inah was not permissible because
it was the zari’ah (way) or hilah (legal excuse) to legitimise riba (usury).
The Hanafi Mazhab was of the opinion that bai` `inah was permissible only if
it involves a third party, which acts as an intermediary between the seller
(creditor) and buyer (debtor).
The Maliki and Hanbali Mazhab, on the other hand, rejected bai` `inah and
considered it invalid. Their opinion was based on the principle of sadd zari’ah
that aims to prevent practices that can lead to forbidden acts such as, in this
case, riba.
The basis for the opinion of the majority of the Islamic jurists was the hadith
dialogue between Aishah and the slave Zaid bin al-Arqam which showed
the prohibition of bai` `inah.43 They also held to the hadith of the Prophet
s.a.w in which he warned that those who practised bai` `inah would suffer
scorn.44
Please refer to Ibnu `Abidin, Hasyiah Rad al-Mukhtar, Dar al-Fikr, Beirut, 1992, vol. 5, pp. 273 & 325.
Al-Syaukani, Nail al-Authar, Dar al-Fikr, Beirut, 1994, vol. 5, p. 294. Al-San’ani, Subul al-Salam, Dar
al-Kitab al-Arabi, Beirut, 1987, vol. 3, pp. 76–77. Yusuf al-Qaradhawi, Bai` al-Murabahah li al-Amir bi
al-Syira’, Maktabah Wahbah, Cairo, 1987, p. 64. Al-Zuhaili, Al-Fiqh al-Islami, vol. 4, pp. 466–467.
41 Ibnu `Abidin, Hasyiah Rad al-Mukhtar, vol. 5, pp. 273 & 325. Al-Syaukani, Nail al-Authar, vol. 5, p. 294.
Al-San’ani, Subul al-Salam, vol. 3, pp. 76–77. Yusuf al-Qaradhawi, Bai` al-Murabahah, p. 64. Al-Zuhaili,
Al-Fiqh al-Islami, vol. 4, pp. 466–467.
42 The Hanafi, Maliki and Hanbali Mazhab.
43 Ibnu `Abidin, Hasyiah Rad al-Mukhtar, vol. 5, pp. 273 & 325. Al-Shaukani, Nailul Authar, vol. 5, p. 294.
Al-San’ani, Subul al-Salam, vol. 3, pp. 76–77. Yusuf al-Qaradhawi, Bai` al-Murabahah, p. 64. Al-Zuhaili,
Al-Fiqh al-Islami, vol. 4, pp. 466–467.
44 Al-San`ani, Subul al-Salam, vol. 3, pp. 76–77.
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Resolutions of the Securities Commission Shariah Advisory Council
The Syafi`i and Zahiri Mazhab viewed bai` `inah as permissible. A contract
was valued by what is disclosed and one’s niyyah (intention) was up to Allah
s.w.t. to judge. They criticised the hadith used by the majority of the Islamic
jurists as the basis for their argument, saying that it (the hadith) was weak
and therefore could not be used as the basis for the hukm.45
From the study done on the opinions of past Islamic jurists on the issue of
bai` `inah, the SAC decided to accept the opinions of the Syafi`i and Zahiri
Mazhab in permitting bai` `inah. Therefore, it can be developed into a product
for the Islamic capital market in Malaysia.
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Principles of Muamalat in the Capital Market
BAI` MA`DUM
RESOLUTION
The IISG and SAC discussed the bai` ma`dum issue in a series of meetings in
1995 and 1997 in relation to warrants and futures contracts on crude palm
oil, and concluded that bai` ma`dum is permissible.
INTRODUCTION
The bai` ma`dum issue was discussed by past Islamic jurists when they were
debating on the condition of an object in a contract of sale. An in-depth
study is necessary to look for the `illah (reason) for the prohibition of bai`
ma`dum in a vast majority of past Islamic jurisprudence literature to ensure
that no error is made when applying the prohibition rule in many modern
business transactions.
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Resolutions of the Securities Commission Shariah Advisory Council
The Hanafi and Syafi`i Mazhab pronounced that the object of sale must
be in existence at the time the contract is made. Otherwise, the contract will
be deemed invalid because anything that is ma`dum cannot be owned. This
was based on the prohibition by the Prophet s.a.w. on the sale of an unborn
baby camel and a sale of a non-existing object. However, exemption was
made to the salam, ijarah, musaqah and istisna` contracts based on the istihsan
principle.47
The Maliki Mazhab echoed the opinion of the Hanafi and Syafi`i Mazhab
regarding mu`awadhat maliyah (exchange contract), while for the tabarru`at
(ownership contract on voluntary basis) such as hibah, they did not impose
any condition for an existing object. What was important was that it was
expected to exist in the future.48
The Hanbali Mazhab, on the other hand, did not stipulate this condition.
What was important was that a contract did not contain elements of
gharar, which is forbidden by Shariah. Ibnu Taimiyah and Ibnu Al-Qayyim
analysed the question of bai` ma`dum and concluded a sale was forbidden
not because of ma`dum during the contract making, but rather because of
the existence of gharar, which is a forbidden element. This was based on
two arguments:49
(a) Neither the Quran, the Sunnah nor the Prophet’s companions stated
that bai` ma`dum was not permissible. There was, however, a hadith
prohibiting the sale of certain goods with features that did not exist.
The prohibition was also for goods that are available but simply did
not exist at the point of trade. This showed that the prohibition was
due to the existence of the gharar element in the trade. Gharar means
the inability to deliver the goods sold regardless of whether they exist
or not. An example is the sale of a runaway slave or an animal that
ran loose. Although the goods exist, the seller is not able to deliver
them to the buyer, despite the fact that it is his obligation to do so
once the sale and purchase agreement is completed. This failure to
fulfil his obligation implies the presence of the forbidden element of
gharar; and
47 Al-Kasani, Bada’i` al-Sana’i`, vol. 5, pp. 138–139, Al-Zuhaili, Al-Fiqh al-Islami, vol. 4, pp. 427–428. Ali
al-Khafif, Ahkam al-Mu`amalat al-Syari`yyah, Dar al-Fikr al-Arabi, Cairo, pp. 230–231.
48 Al-Kasani, Badai’i` al-Sana’i`, vol. 5, pp. 138–139. Al-Zuhaili, Al-Fiqh al-Islami, vol. 4, pp. 427–428.
Al-Khafif, Ahkam al-Mu`amalat al-Syar`iyyah, Dar al-Fikr al-Arabi, Cairo, pp. 230–231.
49 Ibnu Qayyim, I`lam al-Muwaqqi`in, vol. 2, pp. 8–10.
24
Principles of Muamalat in the Capital Market
Hence, the study shows that the `illah for the prohibition of bai` ma`dum is
gharar51 and not the non-existence of goods. Gharar occurs when the seller
is unable to deliver the objects for sale.
50 Istihsan means disregarding a ruling that has dalil over a matter and replacing it with a stronger ruling
with dalil based on the Syara’.
51 Please refer to further explanation on bai` ma`dum in the SAC resolution on transferable subscription
rights (TSR) and gharar.
25
Resolutions of the Securities Commission Shariah Advisory Council
BAI` WAFA’
RESOLUTION
At its 11th meeting on 26 November 1997, the SAC passed a resolution that
bai` wafa’ is permissible under Islamic jurisprudence and can be developed
as a principle for formulating products in an Islamic capital market.
INTRODUCTION
Bai` wafa’ is also known in other terms, such as bai` thanaya (Maliki Mazhab),
bai` `uhdah (Syafi`i Mazhab), bai` amanah (Hanbali Mazhab) or bai` to`ah or
bai` jaiz. The Hanafi book named it bai` mu`amalah.52
52 Nazih Hammad, Mu`jam al-Mustalahat al-Iqtisodiyyah fi Lughah al-Fuqaha’, The International Institute
of Islamic Thought, Herndon, 1993, p. 86.
53 Ali Haidar, Durar al-Hukkam, Dar al-Jil, Beirut, 1991, vol. 1, p. 111.
54 Al-Zarqa’, Al-Madkhal al-Fiqhi, vol. 1, p. 554.
55 Nazih Hammad, Mukjam al- Mustalahat al-Iqtisodiyyah fi Lughah al-Fuqaha’, p. 86.
26
Principles of Muamalat in the Capital Market
(a) The seller and buyer can terminate the contract at any time;
(b) The asset traded according to wafa’ is not an asset obtained through
musya`;57
(c) The buyer can utilise and benefit from the property bought through
wafa’;
(d) The buyer will be liable if there is any damage caused to the property
by his own carelessness and negligence; and
(e) The buyer cannot transfer the right of ownership of the property to
another person via a sale. However, there are some Hanafi Mazhab
scholars who consider the transfer of ownership to a third party
permissible on the condition that the asset can be reclaimed.
27
Resolutions of the Securities Commission Shariah Advisory Council
the project is completed, ABC will buy back the sukuk from the investors
plus the profits, as agreed. For this type of sukuk, the profits are already
known by the investors because the capital and costs have been determined.
Past Islamic jurists were divided on determining the ruling on bai` wafa’. The
Maliki and Hanbali Mazhab, and mutaqaddimun (the earlier generation)
of the Hanafi and Syafi`i Mazhab considered bai` wafa’ as not permissible
because trading is not the main purpose of the bai` wafa’ contract. They
concluded that its main purpose is to legitimise riba which is forbidden.59
The mutaakhhirun (the later generation) of the Hanafi and Syafi`i Mazhab
permitted bai` wafa’ on the grounds that it is an effort to prevent the
occurrence of riba. They permitted it due to society’s demand and because
it had become the social `urf in many places.60
Some of the Islamic jurists of the Hanafi Mazhab were of the opinion that
both the seller and buyer can sell the wafa’ goods to a third party on the
condition that both parties (seller and buyer) had agreed to the transaction
of the other party.61 In fact, some Islamic jurists such as Al-Ba`lawi from the
Syafi`i Mazhab and Al-Sadr al-Shahid Omar Adul Aziz and Al-Marghinani
from the Hanafi Mazhab even permitted the buyer to sell the wafa’ goods to
a third party without referring to the wafa’ seller.62
59 Yusuf Kamal, Fiqh Iqtisad al-Suq, Dar al-Wafa’, Cairo, 1996, p, 195. ’Ali al-Khafif, Ahkam al-Muamalat,
p. 399.
60 Ba’alawi, Bughyah al-Mustarsyidin, Dar al-Ma’rifah, p. 133. Ibnu Nujaim, Al-Bahr al-Ra’iq, vol. 6, pp. 8–9.
61 Haidar, Durar al-Hukkam, vol. 1, p. 432.
62 Ba’alawi, Bughyah al-Mustarsyidin, p. 133. Ibnu Nujaim, Al-Bahr al Ra’iq, vol. 6, pp. 8–9.
28
Principles of Muamalat in the Capital Market
BAI` MUZAYADAH
RESOLUTION
At its 10th meeting on 16–17 October 1997, the SAC discussed the concept
of bai` muzayadah and passed a resolution that it was permissible according
to Islamic jurisprudence. Thus, this concept can be used as a reference for
developing an instrument in the Islamic capital market in Malaysia.
INTRODUCTION
Bai` muzayadah is the offering of goods for sale in a market by a seller with
a number of interested buyers who compete to offer the highest price. This
process ends with the seller selling the goods to the highest bidder. In other
words, it is similar to an auction.63 Other names for this principle used by
past Islamic jurists are bai` fuqara’, bai` man kasadat bidha`atuhu,64 bai`
mahawij, and bai` mafalis.65
This concept is relevant to many issues in the Islamic capital market, especially
those related to the behaviour of market participants profiteering from price
differences. It is also used as an argument to permit speculation so long as it
is not contrary to Shariah principles.
29
Resolutions of the Securities Commission Shariah Advisory Council
Bai` muzayadah is a form of trading that has existed and been applied in the
muamalat system for a long time. It was a topic of debate to determine its
status among past Islamic jurists. Thus, in evaluating its status from the Shariah
aspect, the opinions of the past Islamic jurists were studied.
Athar as Basis
The following are the athar (practice based on the Companions of the Prophet
s.a.w.) supporting bai` muzayadah:
(a) Imam Bukhari had written a specific topic on the concept and views
of `Ata’ who said that bai` muzayadah was practised by society in the
sale of war booty;66 and
(b) Anas had reported the Prophet s.a.w. selling a carpet and a water
vessel and was calling out for customers. A man offered to buy them
for one dirham. The Prophet s.a.w. then asked for a higher bid. Another
man offered two dirham and so the Prophet s.a.w. sold the wares to
him.67
There were two opinions of the Islamic jurists in determining the hukm of
bai` muzayadah.
66 Al-Bukhari, Al-Jami` al-Sahih, Dar Ibn Kathir, Beirut, 1987, vol. 2, p. 753.
67 Hadith as reported by al-Tirmizi and al-Nasa’i. Al-Tirmizi, Sunan al-Tirmizi, Dar Ihya’ al-Turath al-Arabi,
Beirut, vol. 3, p. 522. Al-Nasa’i, Sunan al-Nasai’i, Maktabah al-Matbu’at al-Islamiyyah, 1986, vol. 7,
p. 259 (hadith no. 4518).
68 Ibnu Rusyd, Bidayah al-Mujtahid, Dar al-Jil, Beirut, 1986, vol. 2, pp. 270–271.
30
Principles of Muamalat in the Capital Market
Al-Kasani, a jurist of the Hanafi Mazhab, said that bai` muzayadah is not
prohibited because the Prophet s.a.w. himself practised it.69
Ibnu Humam, another jurist of the Hanafi Mazhab, also permitted the principle
using the same argument.70
Ibnu Qudamah, a jurist of the Hanbali Mazhab, stated that bai` muzayadah
is permitted accordingly to ijmak based on what was practised by the Prophet
s.a.w.72
31
Resolutions of the Securities Commission Shariah Advisory Council
SUFTAJAH
RESOLUTION
The SAC had discussed this issue in a series of meetings and made a resolution
to permit this concept as a way of risk management in the Islamic capital
market. The features of this product do not contradict the Shariah principles
and benefit both parties, the creditor and debtor.
INTRODUCTION
The word suftajah originated from the Persian language and has been adopted
by the Arabs. It means a document written by a person to his representative
or debtor instructing him to pay a certain sum of money to his creditor.
There is little difference between its meaning in Arabic and its Islamic
jurisprudence terminology, which is a credit instrument in the form of financial
notes given to someone to enable the creditor to use it at another
predetermined venue. The benefits given by the debtor using this method
are from a risk management aspect. A creditor does not run the risk of
losing money during his journey as he is only carrying suftajah notes.73
73 Nazih Hammad, Mu`jam al-Musthalahat, p. 154, Sa’di Abu Jaib, Al-Qamus al-Fiqhi, Dar al-Fikr, Damascus,
1988, p. 173. Ibnu `Abidin, Hasyiah Rad al-Mukhtar, vol. 5, p. 350. Al-Dusuqi, Hasyiah al-Dusuqi, vol. 3,
p. 224.
32
Principles of Muamalat in the Capital Market
This concept is not new in financial risk management as seen in the writings
of past Islamic jurists. From a study undertaken by the SAC, it was found
that the concept was based on the following:
Athar as Basis
Those who held this view related the concept to elements of riba because of
the increased value in the form of benefit for the creditor. There is a hadith
of the Prophet s.a.w. that prohibited qardh which gives returns to the creditor
in the form of profits. The hadith means:
The Maliki Mazhab gave some flexibility in permitting this instrument in daily
dealings, with a condition that dharurah (necessity) must exist whereby
33
Resolutions of the Securities Commission Shariah Advisory Council
Some jurists of the Hanbali Mazhab, such as Ibnu Taimiyah, Ibnu Qayyim
and Ibnu Qudamah, were of the opinion that the instrument of suftajah
does not contradict Shariah principles because its benefits are enjoyed by
both creditor and debtor.76
75 Al-Dusuqi, Hasyiah al-Dusuqi, vol. 3, p. 225. Al-Khurasyi, Hasyiah al-Kurasyi, Dar al-Fikr, Beirut, vol. 4,
p. 141.
76 Ibnu Qayyim, I`lam al-Muwaqqi`in, vol. 1, p. 391. Ibnu Qudamah, Al-Mughni, vol. 4, pp. 390–391.
34
Principles of Muamalat in the Capital Market
BAI` `URBUN
RESOLUTION
In its 13th meeting on 19 March 1998, in a discussion on composite index
futures contract, the SAC passed a resolution permitting bai` `urbun from
the Islamic jurisprudence perspective.
INTRODUCTION
It can be mentioned as `urbun, `arabun and `urban. It is a deposit given by
the buyer to the seller in a buying and selling contract. If the sale proceeds,
the deposit will be part of the price of the goods. Otherwise, it will be
considered as hibah (gift) from the buyer to the seller.77
For example, A wishes to buy a car costing RM40,000 from XYZ Company.
A is asked to pay `urbun of RM4,000 as booking fee, and there is a condition
that this money will not be returned to him if he cancels the order. However,
if he proceeds with the purchase, the deposit will be considered as part of
the cost of the car. This means A needs to pay only RM36,000 for the balance.
Based on a study done by the SAC, this concept is permissible from the
Shariah perspective, based on the following arguments.
77 Nazih Hammad, Mu`jam al-Mustalahat, p. 196. Al-Zuhaili, Al-Fiqh al-Islami, vol. 4, p. 448. Al-Zarqa’,
Al-Madhkal al-Fiqhi, vol. 1, p. 495.
35
Resolutions of the Securities Commission Shariah Advisory Council
Past Islamic jurists were divided on determining the ruling of bai` `urbun. The
following is a summary of their opinions:
The majority were of the opinion that bai` `urbun is not permissible as it
contained elements of gharar, gambling and unlawful acquisition of property.
They also discussed the prohibition of bai` `urbun by the Prophet s.a.w.78
Some tabi`in, among them, Mujahid, Ibnu Sirin, Nafi’ bin Haris, Zaid bin
Aslam and the Hanbali Mazhab considered it permissible based on the
practices of Saidina Omar Al-Khattab. He once appointed Nafi’ to be his
representative to buy a house from Safwan bin Umaiyyah in Mecca to be
converted into a prison. Safwan asked Omar for a deposit and laid down the
condition that the deposit would be his if Omar terminated the contract.
Omar agreed to the condition.79 This opinion was strengthened by Kadhi
Shuraih who said that whoever caused ta`attul (delay) and intizar (waiting)
had to pay compensation to the party affected by the termination of the
contract.80
Although there were two opposing views to this method of trading, the
SAC concluded that the concept of bai` `urbun is permissible and can be
developed as an instrument in the Malaysian Islamic capital market. It has
been a common practice in any society to pay a deposit in a business
transaction so that the parties involved will not lose their rights within a
certain given period. This does not contradict Shariah principles because it is
`urf sahih to ensure the smooth running of a muamalah. Bai` `urbun is
permissible because the hadith of the Prophet s.a.w. which indicates the
prohibition is weak.
78 Ibnu Rusyd, Bidayah al-Mujtahid, vol. 2, p. 264. Al-Zuhaili, Al-Fiqh al-Islami, p. 449.
79 Ibnu Qudamah, Al-Mughni, vol. 4, pp. 312–313.
80 A-Zarqa’, Al-Madkhal al-Fiqhi, p. 496.
36
Principles of Muamalat in the Capital Market
RESOLUTION
At its 10th meeting on 16–17 October 1997 and 11th meeting on 26
November 1997, in discussing the issue of crude palm oil futures contract,
the SAC passed a resolution permitting the concept of bai` bima yanqati`
bihi si`r (BBMYS) which is in accordance with Islamic jurisprudence.
INTRODUCTION
BBMYS, as defined by Ibnu Qayyim is the practice of taking a certain
amount of goods, such as bread, meat and oil from the seller by the buyer
every day and paying for them at market price at year-end or month-end
without fixing the price at the inception of the `aqd.81 This practice will
not give rise to any dispute between buyer and seller because they have
agreed on the method of payment and price determination.
The application of this principle in buying and selling is not something new.
Past Islamic jurists had determined its status based on Shariah principles. The
following sums up their opinions:
Generally, there were two opinions on buying and selling using this principle.
The first opinion came from the majority of Islamic jurists, who rejected it.
37
Resolutions of the Securities Commission Shariah Advisory Council
This was based on the existence of the element of jahalah (ignorance) in the
price of the contract that rendered it invalid.82
The second opinion came from some Islamic jurists, such as Imam Ahmad
bin Hanbal, Ibnu Taimiyyah, Ibnu al-Qayyim and the Hanbali Mazhab, who
permitted this principle. Ibnu `Abidin of the Hanafi Mazhab also accepted it
through a contract known as bai` istijrar. They permitted it because the price
fixing method prevented any jahalah (ignorance) or dispute.83
38
Principles of Muamalat in the Capital Market
RESOLUTION
The SAC at its 35th meeting held on 7 November 2001 resolved that a third-
party guarantee on the capital invested based on the mudharabah principle
is permissable.
INTRODUCTION
39
Resolutions of the Securities Commission Shariah Advisory Council
As for this issue, the type of kafalah involved is the kafalah bi mal and it may
be divided into three main categories, including:
90 Al-Zarqa’, Al-Makhal al-Fiqhi, vol. 1, p. 542. Haidar, Durar al-Hukkam, vol. 1, pp. 732–734. Ibnu Rusyd,
Bidayah Al-Mujtahid, Beirut, vol. 2, p. 378.
91 Al-Zarqa’ Al-Madkhal al-Fiqhi, vol. 1, p. 542. Haidar, Durar al-Hukkam, vol. 1, pp. 732–734.
92 Securities Commission, Guidelines on the Offering of Islamic Securities.
40
Principles of Muamalat in the Capital Market
Past Islamic jurists were unanimously of the opinion that in a situation where
a loss occurs on a mudharabah, a capital guarantee by the mudharib is not
permissible. However, they have different opinions on the status of the
contract. The Hanafi and Hanbali Mazhab were of the opinion that the
contract is valid and the conditional guarantee should be nullified. The Maliki
and Syafi’i Mazhab, however, were of the opinion that the mudharabah
contract is immediately nullified if there is such a guarantee.94
93 Al-Kasani, Badai’i` al-Sana’i`, vol. 6, p. 87. Al-Nawawi Al-Majmu` Syarh al-Muhazzab, Maktabah al-
Irsyad, Jeddah, vol. 15, pp. 194–195, 198. Ibnu Rusyd, Bidayah al-Mujtahid, vol. 2, pp. 303, 305. Ibnu
Qudamah, Al-Mughni, vol. 5, pp. 147–148, 192. Ibnu Najjar, Muntaha al-Iradat, vol. 1, pp. 460, 466.
Ibnu Juzay, Al-Qawanin al-Fiqhiyyah, p. 186.
94 Ibnu Rusyd, Bidayah al-Mujtahid, vol. 2, p. 305. Ibnu Qudamah, Al-Mughni, vol. 5, p. 187. Ibnu Juzay,
Al- Qawanin al-Fiqhiyyah, p. 186.
95 Dallah Al-Bakarah, Fatawa Nadawat al-Bakarah, Jeddah, 1995, p. 71.
41
Resolutions of the Securities Commission Shariah Advisory Council
The Shariah Council for Accounting and Auditing Organization for Islamic
Institutions (AAOIFI)98 allowed for third-party guarantees other than by
mudharib or investment agent or business partner towards the liability of
investment losses. However, this is on the provison that the guarantee given
is not tied to the original mudharabah contract.99 The basis of their decision
is tabarru` which is allowed by Shariah.100
42
Principles of Muamalat in the Capital Market
However, the OIC Fiqh Academy, disagrees with the basis of third-party
guarantees that are based on debt and resolved that third-party guarantees
have to be in the form of tabarru`. Otherwise, the contract is deemed to be
an interest-bearing debt which is not permissable.
Mudharib Yudharib
Past Islamic jurists also delved on the issue of mudharabah capital guarantee
in the context of mudharib yudharib. The mudharib invests the capital received
from rabb mal to another party. In other words, the mudharib acts as an
intermediary between the first rabb mal and the actual entrepreneur.
Wahbah al-Zuhaili summed up the views of past Islamic jurists on the issue
of mudharib yudharib that all the four fiqh sects collectively agreed that
the first mudharib shall be responsible for the liability of the guarantee
(dhaman) if the capital is invested or handed over to another mudharib
(third party).103
For financial institutions and companies that issue financial products based
on mudharabah, the concept of mudharib yudharib may be applied if they
invest part of the capital in other parties. If this happens, the financial
institutions or companies should guarantee the capital based on the views
of majority of Islamic jurists. Hence, in such a situation the interest of investors
is guaranteed.
43
Resolutions of the Securities Commission Shariah Advisory Council
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.
INTRODUCTION
Ujrah refers to rental or fees for usage of labour and benefits. In the current
economic context, it may be applied to salaries, wages, fees, commission
and the like.106
Ujrah on Kafalah
The majority of past Islamic jurists were of the view that the charging of
fees on kafalah is not permissible. This view is based on the argument that
a kafalah contract falls under `uqud tabarru`at which is voluntary and
benevolent in nature. Hence, no fee is to be charged.107
44
Principles of Muamalat in the Capital Market
The OIC Fiqh Academy and the Shariah Council AAOIFI resolved that ujrah
on kafalah/dhaman is not permissible. However, the guarantor may claim
for actual expenses incurred on the guarantee.111
45
Resolutions of the Securities Commission Shariah Advisory Council
RESOLUTION
The SAC at its 30th meeting on 8 November 2000 and its 45th meeting on
7 March 2003, discussed the usage of ibra’ (partial surrender of rights) in
Islamic securities and resolved that:
(a) Holders of Islamic securities may offer ibra’ to the issuer based on
the application made by the issuer of the securities concerned;
(b) The formula for the computation of early settlement may be stated as
a guide to the issuer; and
(c) The ibra’ (rebate) clause and the formula for the computation of early
settlement may be stated in the main agreement of the Islamic
securities contract which is based on `uqud mu`awadhat. However,
the ibra’ clause in the main agreement shall be separated from the
part related to the price of the transacted asset. The ibra’ clause shall
only be stated under the section for mode of payment or settlement
in the said agreement.
INTRODUCTION
Ibra’ refers to the act of surrendering one’s claims and rights, such as a
creditor writing off the debts of a debtor. Ibra’ falls under uqud tabarru`at.115
Among the related Shariah issues in the discussion of ibra’ clause in Islamic
securities contracts include:
46
Principles of Muamalat in the Capital Market
(a) Bai`atain fi bai`ah (two sales and purchase contracts in one transaction);
(g) Maslahah.
Bai`atain fi Bai`ah
47
Resolutions of the Securities Commission Shariah Advisory Council
The Islamic jurists were unanimous in declaring that bai`atain fi bai`ah is not
allowed based on the above sayings, but they differ in their opinions in
interpreting the forms of contracts and transactions which are included in
the prohibition.119
Ibnu Rushd120 summarised the types of bai`atain fi bai`ah into three main
categories:
48
Principles of Muamalat in the Capital Market
Safqatain fi Safqah
The basis for the prohibition of safqatain fi safqah is the sayings of the Prophet
s.a.w:
In general, safqah refers to contracts and covers more than just sale and
purchase contracts as it encompasses other contracts as well.123
Past Islamic jurists were of different opinions in the interpretation of the said
sayings and the types of contracts prohibited by the Prophet s.a.w. The
majority of the jurists were of the opinion that safqatain fi safqah refers to
bai`atain fi bai`ah.124
Meaning: “It is not allowable to combine debts with sale and purchase,
two conditions in sale and purchase, taking a profit from an item
which is not secured (occurrence of qabdh), and selling something
which is not owned.”126
49
Resolutions of the Securities Commission Shariah Advisory Council
The Hanbali Mazhab also prohibits this amalgamation based on qiyas of the
Prophets s.a.w. on the prohibition of the amalgamation between bai` and
qardh.128 Nazih Hammad was of the view that this qiyas cannot be the
basis for the prohibition of the amalgamation between sale and purchase
contracts and all contracts of the tabarru` type. This is because sale and
purchase and hibah may be amalgamated into one contract.129
The Hanbali Mazhab is the most open of all sects in issues pertaining to
the inclusion of conditions in a contract. However, they clearly do not allow
the amalgamation of mu`awadhah and tabarru`.
Bai` wa Syart
Conditions in a Contract
127 Ahmad bin Taimiyah, Majmu` Fatawa, vol. 29, pp. 62–63.
128 Nazih Hammad, Al-`Uqud al-Mustajiddah, no. 10, vol. 2, p. 499. Abd Sattar Abu Ghuddah, Al-Tafahum
al-Janibi fi Majal al-`Uqud, p.30.
129 Nazih Hammad, Al-`Uqud al-Mustajiddah, no. 10, vol. 2, p. 499.
130 Al-Syaukani, Nail al-Autar, vol. 5, p. 262.
131 Al-Syaukani, Nail al-Autar, vol. 5, p. 262. Nazih Hammad, Al-`Uqud al-Mustajiddah, no. 10, vol. 2, pp.
484–485.
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Principles of Muamalat in the Capital Market
Mazhab is regarded as the most open in the issue of muqtadha `aqd where
they allow for the addition of a condition in a contract to safeguard the
interest of the parties to the contract so long the condition does not contradict
the Shariah principles.132
Dha` wa Ta`ajjal
132 Al-Zarqa’, Al-Madkhal al-Fiqhi, vol. 1, pp. 482–491. Al-Buhuti, Kasysyaf al-Qina`, Dar al-Fikr, Beirut,
1982, vol. 3, pp. 188–192.
133 Ibnu Taimiyah, Majmu` Fatawa, vol. 29, p. 346.
134 Please refer to the Resolutions of the Securities Commission Shariah Advisory Council on dha` wa
ta`ajjal for further details.
135 OIC, Majallah Majma` al-Fiqh al-Islami, no. 10, vol. 2, p. 502.
51
Resolutions of the Securities Commission Shariah Advisory Council
IQTA`
RESOLUTION
The SAC, at its 39th meeting on 16 May 2002, 41st meeting on 30 August
2002, 47th meeting on 27 May 2003 and 51st meeting on 14 December
2003, resolved several issues on iqta` as follows:
(c) Iqta` can be used in government contracts on assets that are not real
estates; and
(d) The principle of iqta` can be used for state government contracts,
statutory bodies and government-linked companies. The government-
linked companies are entities which are approved by the government
to take-over public agencies and manage them as private companies,
such as the following:
52
Principles of Muamalat in the Capital Market
INTRODUCTION
A supply contract is a contract on items which are supplied for certain activities,
programmes or government agency projects. It is also an input to a certain
work process or service. The supplies are building materials, foodstuff,
clothing, vehicles and office furniture.
53
Resolutions of the Securities Commission Shariah Advisory Council
In general, the debate on iqta` in the books of past Islamic jurists has been
discussed under the section ihya’ mawat (developing neglected property).
This is because iqta` is a form of ihya’ mawat.
137 Nazih Hammad, Mu’jam al-Mustalahat, p. 67. Harith Suleiman Faruqi, Faruqi’s Law Dictionary (English-
Arabic), Librairie du Liban, Beirut, 1991, p. 149.
138 Ernst & Young, Privatisation: Investing in State-owned Enterprises Around the World, John Wiley &
Sons, Inc., New York, 1994, p. 4.
139 Franck Bousquet & Alaian Fayard, Road Infrastructure Concession Practice in Europe, World Bank,
2001, p. 3.
54
Principles of Muamalat in the Capital Market
(b) Ihya’ mawat thumma ijazah amir (developing the neglected property
and then obtaining the permission from the ruler).140
As such, the majority of past Islamic jurists did not define iqta` in detail, just
clarifying its various forms because it is one of the ways of ihya’ mawat.
There are two approaches by Islamic jurists when giving the definition of
iqta` and they are:
Qadhi Iyadh has defined iqta` as the ruler’s gift of a mal Allah (Allah’s
property) to whoever he feels eligible to manage it. Usually iqta` occurs in
respect of real estates.141
Iqta` is also defined as what is given by the ruler in the form of real estate.
The said gift is either in the form of ownership or rights to derive benefits
from the real estate.142
Iqta` Conditions
Based on the debate of past and contemporary Islamic jurists, one can
conclude that the iqta` conditions are as follows:
(a) Iqta` is only given by the ruler with the objective of maslahah;
(b) Muqta` (one who is conferred with iqta` property) is able to develop
iqta` properties;
(c) Property which has been iqta` is not owned by anybody; and
140 Muhammad Rawwas Qal’ahji, Mausu`ah Fiqh ‘Umar bin al-Khattab, Beirut, Dar al-Nafais, 1986, pp.
34–35.
141 Ibnu Hajar al-‘Asqalani, Fath al-Bari, Beirut, Dar al-Fikr, 1993, vol. 5, p. 323.
142 Al-Mausu`ah al-Fiqhiyyah, vol. 6, p. 81.
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(d) Iqta` which is given does not contradict with maslahah `ammah.143
From the conditions outlined for iqta`, the ruler plays the most important
role in an iqta` gift by taking into account public interest.
Iqta` has gone through changes and modification since the era of Saidina
`Umar r.a. This can be seen from the additional forms of iqta` which has been
recorded in the writings of Al-Mawardi and Al-Buhuti.
The question of whether iqta` can be applied on non-real estate is one of the
Islamic jurisprudence issues which emerged while examining the application
of iqta` in modern times. This is due to the majority of past
Islamic jurisprudence debates on iqta` which stated that this principle was
applicable to real estate. This is related to examples that were given by past
Islamic jurists when debating the issue of ihya’ mawat.
143 Abd Wahab Hawwas, Al-Iqta` fi al-Fiqh al-Islami wa Atharuhu fi al-Tanmiyah, Dar al-Nahdhah Al-
Arabiyyah, Cairo, 1994, pp. 25–34.
144 Al-Syaukani, Nail al-Autar, vol. 5, pp. 58–59.
145 Al-Syaukani, Nail al-Autar, vol. 5, p. 59.
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Principles of Muamalat in the Capital Market
Meaning: “Whoever leaves the animal at a place that can destroy the
said animal, and then bred by another person, then the said animal
which is being bred becomes his.”
Abu Yusuf is of the view, iqta` imam in the form of tamlik raqabah (individual
ownership) form is permissible whether on ‘aqar (immovable property) or
manqul (movable property).146 The permissibility of iqta` on manqul shows
that there is room to widen the scope on issues that can be classified as iqta`
by the ruler.
For istila’ (authority) on mal mubah (public property which is not owned by
anybody), Ali al-Khafif stressed that it can be done on an `aqar or manqul
form of property.147
Though iqta` which occurred in the past was applied on real estate148 based
on the above factors, there must be a conclusion in determining the forms
of non-real estate which can be classified as iqta` by the ruler.
For ihya’ mawat and iqta`, `urf also plays an important role in determining
the manner and forms because the permissibility of ihya’ was only mentioned
in general by the Prophet s.a.w.150
The above factors can be the arguments for widening the iqta` scope to the
various forms of assets regardless of whether they are based on real estate
or rights of broadcasting, supply, maintenance and others.
146 Ali al-Khafif, Al-Milkiyah fi al-Syari’ah al-Islamiyyah ma’a al-Muqaranah bi al-Syara’i` al-Wad`iyah,
Dar al-Fikr al-`Arabi, Cairo, p. 263.
147 Al-Khafif, Al-Milkiyah fi al-Syari’ah al-Islamiyyah, p. 226.
148 Hawwas, Al-Iqta` fi al-Fiqh al-Islami, p. 37.
149 Al-Suyuti, Al-Asybah wa al-Naza’ir, Beirut, Dar al-Kutub al-‘Ilmiyah, 1994 p. 409.
150 Al-Mawardi, Al-Hawi al-Kabir, vol. 7, p. 486.
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Syeikh Najib Muti`i said that the question of iqta` is similar to tarkhis
(concession/permit/licence)151 whereby, if a businessman or contractor
wants to build a road, he should get permission from the government. Only
upon obtaining permission is he allowed to carry out the works of
construction, maintenance and so on to the road, and can impose a mukus
(toll) to finance the cost and expenditure borne by him.152
Some of the Islamic jurists who attended the Dallah Barakah Symposium
viewed `aqd imtiyaz (concession contract) as a form of iqta` which is
awarded to the concession holder for a certain period of time and thereafter,
will be returned to the government.153
The use of iqta` principle in the context of Islamic investment now is more
suitable compared to `aqd imtiyaz. This is because the adoption of iqta`
terminology reflects the use of Shariah principles in dealing with current
Islamic financial issues.154
151 Hans Wehr, A Dictionary of Modern Written Arabic, Beirut, Librainie Du Liban, 1980, p. 332.
152 Sheikh Najib al-Muti`i, Takmilah al-Majmu`, Maktabah al-Irsyad, vol. 16, p. 149.
153 Fatawa Nadwat al-Barakah, pp. 220–221.
154 Hawwas, Al-Iqta` fi al-Fiqh al-Islami, p. 99.
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Resolutions of the Securities Commission Shariah Advisory Council
CALL WARRANTS
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.
INTRODUCTION
A call warrant is a right, but not an obligation, to buy a fixed quantity of an
asset (such as shares) for a specified price within a limited period of time.155
Underlying Asset
Call warrants are issued based on the underlying assets, for example, the
shares of a company. They give warrant holders the right, but not the
obligation, to buy a certain number of shares of the underlying company at
a price agreed upon before or on a future date.
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Exercise Price
This is the price at which a warrant holder can choose to exercise his right to
buy the underlying shares. The exercise price is fixed at the time the warrants
are issued.
Exercise Period
The validity of the exercise period of a call warrant is limited, after which it
has no value.
Athar157 as a Basis
157 Athar refers to a practice based on the companions of the Prophet s.a.w.
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dirham was given so that the house would not be sold to someone else.158
This narration showed that payment was permissible to give holding right to
a property.
There was also a narration on holding rights in rentals. Such activities were
reported in Sahih Bukhari. Ibnu `Aun narrated, a man asked the owner of a
mount-for-hire, “Prepare your mount, if I do not rent it on the promised
date, I will give you 100 dirham”. The tenant did not rent on the promised
date and Qadhi Shuraih said the condition previously agreed upon had bound
the tenant and considered it an obligation.159
This narration shows that holding rights payment in the form of rental is
permissible and the payment ensured that the mount was not rented out to
someone else.
(a) Haq maliy are rights on assets with financial values. Examples of such
rights are haq dayn (debt rights) and haq tamalluk (ownership rights);
and
(b) Haq ghair maliy are rights not related to assets with financial values.
Examples of such rights are haq hadhanah (child custody rights) and
haq wali (right to be a wali).
The majority of Islamic jurists were of the opinion that something could be
regarded as mal if it could be controlled and benefited from.161
158 Ibnu Qayyim, I`lam al-Muwaqqi`in, vol. 3, p. 402. Ibnu Qudamah, Al-Mughni, vol. 3, p. 313.
159 Al-Bukhari, Sahih al-Bukhari, Dar al-Fikr, Beirut, 1991, p. 243.
160 Abdul Karim Zaydan, Al-Madkhal li Dirasah al-Syari`ah al-Islamiyah, pp. 184–186. Al-Khafif, Al-Milkiyyah
fi al-Syari`ah al-Islamiyah, pp. 8–17.
161 Abdul Karim Zaydan, Al-Madkhal li Dirasah al-Syari`ah al-Islamiyah, pp. 184–186. Al-Khafif, Al-Milkiyyah
fi al-Syari`ah al-Islamiyah, pp. 8–17.
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There were two opposing opinions of past Islamic jurists on rights and benefits;
some regarded rights as not mal while the rest thought that rights could be
divided into two types; rights that could be categorised as mal and
otherwise.163
According to the Hanafi Mazhab, rights and benefits could not be categorised
as mal.
The Maliki, Shafi`i and Hanbali Mazhab and some jurists of the Hanafi Mazhab
of the later generation regarded rights and benefits as mal, if they are related
to mal, or `urf, if they are regarded as something of value.
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RESOLUTION
At its 6th meeting on 5 October 1995, the IISG resolved that transferable
subscription rights (TSR) is an instrument permissible from the Shariah
perspective. The characteristics of this instrument fulfil the principle of mal
according to Islamic jurisprudence as outlined in the haq maliy and haq
tamalluk.
The meeting resolved that what is called bai` ma`dum (buying and selling
something that does not exist) does not occur in TSR trading but such trading
is, instead, bai` maujud (buying and selling something that exists).
INTRODUCTION
TSR is a contract that gives its shareholders a right but not an obligation, to
subscribe to new ordinary shares at an authorised price that has already
been preagreed within a stipulated period. It loses its value after the stipulated
period. In other countries, TSR is commonly known as a warrant.
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Bai` Ma`dum
The main focus is on the purchase of something that does not exist
(bai` ma`dum) as it involves a quantity of shares yet to be subscribed by TSR
holders. Many Islamic jurists do not allow bai` ma`dum in general.164 However,
Ibnu Qayyim studied this issue from two dimensions which show the
permissibility of bai` ma`dum based on certain conditions:
First: It is not true that bai` ma`dum is not permissible. This is because there
is no evidence in the Quran, Sunnah and opinions of the companions of the
Prophet s.a.w. which state that bai` ma`dum is not permissible. The only
thing is a hadith prohibiting certain types of buying and selling, and certain
non-existing products. This is similar to the prohibition of the sale and purchase
of existing products that come with certain features.
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Resolutions of the Securities Commission Shariah Advisory Council
Ibnu Qudamah also addressed the same question by bringing up the issue of
selling fish that are still in the water. According to him, most Islamic jurists
are of the same opinion that such a transaction is illegal. The `illah is due to
the presence of gharar. However, in certain conditions, it is permissible to
sell fish in the water, provided that:
(b) The water in the pond is shallow and the fish in it can be identified;
and
In conclusion, the prohibition of bai` ma`dum is not that the goods do not
exist during the `aqd but because of gharar. Therefore, what is prohibited is
the element of gharar and not the non-existence of the goods.
It can be concluded here that TSR instruments do not contradict the Shariah.
In this context, a TSR is approved by Shariah when the shares to be created
are also shares that comply with the Shariah principles.
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Capital Market Products According to Islamic Jurisprudence
ASSET SECURITISATION
RESOLUTION168
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.
INTRODUCTION
Specifically, financial assets which have a future cash flow will be sold by a
company that needs liquidity or as new funds to a third party known as a
special purpose vehicle (SPV) for cash. To enable the payment for the purchase
of the assets, the SPV will issue asset-backed debt securities to investors,
based on the pledged future cash flow of the assets. Investors will then gain
returns through future cash flows managed by the SPV.
Among the assets with future cash flows that has the potential to be
securitised for the issuance of asset-backed debt securities issues are house
financing receivable account, credit card account, vehicle financing receivable
168 A resolution made was regarding asset securitisation in general. However, several matters related to
this concept specifically are still under study.
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account, highway toll collection, etc. In the Islamic context, assets must be
securitised in accordance with the Shariah.
Cash flow is also included in the category of mal if its origin is halal (lawful)
according to the Shariah. This is because, cash flow is considered a dayn
(debt) and according to Islamic jurisprudence, a debt with no ambiguity is
haq maliy which is included in mal.169
Bai` Dayn
Asset securitisation is related to the sale of debts, (bai` dayn) which is debated
in Islamic jurisprudence. The IISG, at its 8th meeting on 25 January 1996,
and the SAC at its 2nd meeting on 21 August 1996, discussed this issue.
The SAC, at its 2nd meeting, agreed to accept bai` dayn in the structuring of
Islamic capital market products.170
169 See SAC resolution on call warrants for further elaboration on the mal concept.
170 See SAC resolution on bai` dayn for further details.
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In asset securitisation, a fixed cash flow is the main criterion of the asset. The
cash flow of the asset is packaged and made the collateral for issuing
securities. This form of securitisation conforms to the rahn principle in Islamic
jurisprudence. Rahn is a valuable underlying asset (collateral) used to obtain
funding on credit. A collateral must have the mal feature to enhance the
confidence of creditors to provide the funds. The mal can be used as a
collateral to redeem a debt in the event there is a failure to settle the debt.171
There is evidence in Islamic jurisprudence that allows the use of cash flow as
a collateral to obtain new funding which enables the creditor to achieve
liquidity. With this available liquidity the creditor can participate in economic
activities or seize business opportunities without having to wait for a long
time to recover the debt. According to a statement from the Maliki Mazhab,
a debt can be used as a collateral for funding. This means that the Maliki
Mazhab established a concept that packaged cash flow as an underlying
asset for obtaining funds.172
The example quoted from the Maliki Mazhab was wages earned by a
mudabbar173 (slave) from services rendered to his master. This meant that
throughout his master’s life, the mudabbar worked and earned an income
for his master. The Maliki Mazhab stated that an income that was going to
be earned by the mudabbar could be packaged by his master as a collateral
of value for raising funds. This proves that a cash flow can be packaged and
accepted as a collateral of value.174 In short, say a mudabbar works to earn a
monthly wage of RM1,000. In a year he is able to earn RM12,000. The
master can turn the cash flow into a collateral of value for raising funds, e.g.
RM6,000, for a period of less than a year.
Cash flows currently in the form of income from toll collection, electricity
bills, water bills, telephone bills, Islamic house financing, and Islamic vehicle
financing can also be packaged as underlying assets. This is because such
cash flows are fixed cash flows for the company.
171 Al-Asfahani, al-Mufradat, Dar al-Makrifah, Beirut, p. 204. Al-Dardir, Al-Syarh al-Saghir, vol. 2, p. 108.
Al-Zuhaili, Al-Fiqh al-Islami, vol. 5, pp. 180–181.
172 Al-Dusuqi, Hasyiah al-Dusuqi ’ala al-Syarh al-Kabir, Dar Ihya’ al-Kutub al-Arabiyah, Cairo, vol. 3, p. 231.
173 Al-Mudabbar refers to types of slaves who will be free when the master dies.
174 Al-Dusuqi, Hasyiah al-Dusuqi ’ala al-Syarh al-Kabir, p. 233.
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Wathiqah Dayn
The Maliki Mazhab put forward this idea in a term known as wathiqah dayn.175
A paper of value symbolises the total share of ownership of an ongoing
project. It is also known as sukuk (or shahadah).176 Sukuk only acts as a
financial instrument. It is similar to a company share certificate that facilitates
easy transfer of ownership.
175 Al-Dusuqi, Hasyiah al-Dusuqi ’ala al-Syarh al-Kabir, p. 231. Al-Khurasyi, Hasyiah Al-Khurasyi, vol. 5,
p. 236. Nazih Hammad, Mu`jam al-Mustalahat al-Iqtisadiyyah, p. 284.
176 Ma’bid Ali Al-Jarihi, Al-Aswaq al-Maliyyah fi Dau’ Mabadi’ al-Islam, Al-Idarah al-Maliyah fi al-Islam,
Al-Majmak al-Malaki, Jordan, 1989, p. 137.
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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.
INTRODUCTION
RSS is the selling of approved securities,178 where the seller does not have an
exercisable and unconditional right to vest such securities in the purchaser at
the time of the execution of the sale. However, prior to the execution of the
177 http://www.bursamalaysia.com/website/education/glossary.htm#S
178 Please refer to Rule 704 of the Rules of Bursa Malaysia Securities Berhad regarding definitions of approved
securities for regulated short selling.
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Resolutions of the Securities Commission Shariah Advisory Council
sale, the seller has executed an agreement to borrow the approved securities
to enable delivery of the same to the purchaser under the sale, in accordance
with the rules relating to delivery and settlement.179
From the above definition of RSS, it can be surmised that RSS is a form of
short selling that is combined with SBL and executed according to the rules
set by Bursa Malaysia.
The principle of SBL on regulated short selling was first introduced to the
local capital market at the end of 1995. However, it was suspended at the
end of 1997 following the economic crisis which threatened the stability of
the share market activities in the Kuala Lumpur Stock Exchange (now Bursa
Malaysia). However, before SBL was suspended, the SAC had already
conducted studies on this principle from the Shariah perspective and resolved
that it was permissible.
SBL is a securities borrowing and lending activity which involves the borrower
and lender who need to fulfil their temporary needs, and such transactions
must be completed according to specified regulations and guidelines. As an
example, a lender who owns long-term securities (shares) agrees to lend
securities to a borrower for a stipulated period. When the period expires,
the borrower must return the securities either in the original form or
another form of securities of the same type and amount. Meanwhile, the
lender will impose a deposit and service charge on the borrower, as one of
the securities borrowing conditions.
In general, short selling involves the selling of shares not owned by the seller.
As a result, such transactions fall under the category of bai` ma`dum. Islam
prohibits such transactions involving bai` ma`dum since the delivery of the
subject matter cannot be effected and this brings about the prohibited
element of gharar.
However, the issue of gharar can be overcome in RSS – the inclusion of SBL
principles in RSS eliminates the element of gharar. In other words, the
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Capital Market Products According to Islamic Jurisprudence
introduction of SBL can increase the probability that the shares sold will be
delivered. When the probability of delivery is high, then the element of gharar
will no longer be significant. Consequently, when an obstacle that hinders
the recognition of a certain activity as Shariah compliant is overcome, then
that activity can be classified as Shariah compliant. This fulfils a fiqh
methodology: which means: “When an issue that
impedes (the permissibility) is removed, then the activity which was initially
forbidden becomes permissible”.180
Because SBL was something new to the capital market, the SAC undertook
research to determine Shariah principles that could be used as arguments in
evaluating the status of SBL. Based on the research, the following principles
were used as a basis for the permissibility of SBL.
Istihsan Principle
Istihsan that was popularised by the Hanafi jurists and accepted by the
Maliki jurists had become a serious topic of discussion among Islamic
180 Please refer to section 24, Majallah al-Ahkam al-Adliyyah. Haidar, Durar al-Hukkam Syarh Majallah al-
Ahkam, vol. 1, p.39.
181 Al-Zuhaili, Usul al-Fiqh al-Islami, vol. 2, p. 738.
182 Al-Syatibi, al-Muwafaqat, Dar al-Ma’rifah, Beirut, 1986, vol. 2, p. 562.
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jurists from other schools of thought especially the Syafi`i jurists. The Syafi`i
jurists rejected istihsan if it had no basis. Despite that, istihsan is still widely
referred to by those who have accepted it. In truth, many contemporary
problems can be overcome by accepting istihsan. This need is strongly felt,
especially in handling issues that have arisen in a muamalat system which is
always developing and changing from time to time.
The decision taken by the SAC that the selling of borrowed/leased shares to
a third party does not nullify the ijarah `aqd, because the decision is based
on istihsan with maslahah. This gives a clear advantage to the original
shareholder and can provide liquidity to the share market.
Istihsan allows the ijarah concept, with the consent of the owner to sell the
leased shares, to be acceptable as a basis for SBL. According to the original
ijarah concept, the relationship between the owner and lessee will be severed
when a transaction involving the sale and purchase of an asset occurs. This
is because the ijarah contract as defined by the ulama` is the contract for
using the asset and paying for its use.184
With the sale of the assets, the ijarah contract will automatically be terminated.
Nevertheless, as the SBL contract is similar to the terms in the ijarah contract
in many situations, such as the authority of the owner recalling the assets,
evaluating the assets according to current market value and so forth. The
SAC members resolved that the ijarah concept, with the consent of the owner
to sell the leased shares can be applied to the Islamic capital market.
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Capital Market Products According to Islamic Jurisprudence
RESOLUTION
At its 11th meeting on 26 November 1997, the SAC resolved that the futures
contract on crude palm oil is permissible as it is in accordance with Shariah
principles.
INTRODUCTION
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Resolutions of the Securities Commission Shariah Advisory Council
Gambling
There were doubts about this instrument based on the requirement imposed
on a market player to place a deposit as a margin of payment before he
begins trading. This action is regarded as a prohibited bet.
The SAC resolved that such a trading activity does not constitute gambling
because the fluctuation of the value occurs due to the change in demand in
the crude palm oil futures market. It is also a common phenomenon in the
trading world. It is not appropriate to judge a contract whose value fluctuates
due to the changing demands for crude palm oil futures market as a gambling
activity. This is because gambling activities depend solely on luck and are not
related to demand and offer.
Gharar
Meaning: “For them, they secretly and openly hope for a commerce
that will never fail.”
(Surah Fatir: 29)
Similarly, in Surah al-Taubah verse 24 which describes the worry over a losing
concern. Allah s.w.t. states:
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Capital Market Products According to Islamic Jurisprudence
This shows that profit and loss is a characteristic of trading and a trader
should take steps to minimise loss.
The main question in a crude palm oil futures contract is whether gharar
really exists. An important element in trading raised by Islamic jurists is the
element of ghalat.187 This must be clarified as there is a misunderstanding
that it is similar to the principle of gharar. The Islamic jurists see ghalat
from the view point of maslahah istiqrar ta`amul which means that market
players are given the freedom to trade, accept and trust each other in their
transactions to ensure that the market runs smoothly. Factors that can
disturb the market operations are cheating and manipulation. Ghalat that
involves a wrong assessment of an individual (ghalat `aqid) cannot be used
as a basis to terminate a contract. The factor that can terminate a contract is
ghalat wadhih, which is a mistake caused by apparent cheating.188
Ibn Qayyim had studied the issue of bai` ma`dum190 and clarified that the
prohibition of bai` ma`dum was actually due to presence of the element of
uncertainty to hand over the goods sold. Such transactions can take place
regardless of whether the goods exist or not. Nevertheless, bai` ma`dum that
involves something that exists and the seller can obtain it or in the form that
can be made tangible, is approved and valid. This often occurs in Shariah,
such as salam (forward sale) and istisna` (contract of manufacture). Therefore,
bai` ma`dum is prohibited because of the element of gharar rather than the
element of ma`dum.191
The above situation does not occur in the crude palm oil futures market. The
contract can be settled in cash before the due date or settlement by delivery
187 It means mistake. See SAC resolution on ghalat for further details.
188 Al-Zarqa’, Al-Madkhal al-Fiqhi, vol. 1, pp. 390–405.
189 See Futures Industry Act 1993, Business Rules (Exchange and Clearing House).
190 See SAC resolution on bai` ma`dum for further details.
191 Ibnu al-Qayyim, I`lam al-Muwaqqi`in, vol. 2, pp. 8–10.
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on the due date. In addition, the clearing house ensures the delivery and
settlement of a transaction. Therefore, the element of gharar does not exist
or is insignificant.
Speculation
Speculation is also one of the issues that cast doubts on the permissibility of
crude palm oil futures contracts according to the Shariah.192
Present Islamic scholars194 put forward the issue that `iwadh does not occur
in crude palm oil futures transactions. `Iwadh means the exchange in buying
and selling, but in this context no purchase of goods in the actual sense has
occurred. Therefore, there is no increase in the value of economic activities.
Crude palm oil futures contract trading, in actual fact, gives an increase in
value to market players. For example, when producers of crude palm oil
hedge,195 they endeavour to cut costs. This will indirectly improve company
profits and make their products more competitive.
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RESOLUTION
At its 13th meeting on 19 March 1998, the SAC resolved that the mechanism
for stock index futures contracts does not contradict Shariah principles.
Therefore, stock index trading is allowed as long as it is Shariah compliant,
and this is done by ensuring that the index component is made up of Shariah-
compliant securities.
INTRODUCTION
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Resolutions of the Securities Commission Shariah Advisory Council
The issues of muqamarah (gambling), jahalah, gharar and bai` ma`dum are
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Capital Market Products According to Islamic Jurisprudence
Buying and selling of index is not synonymous with gambling because there
is no similarity to losing a bet. In gambling, the player loses all his money if
his guess is wrong. This does not happen in index trading as the total index
point has its own inherent value. What happens is, the investor will experience
a decrease or increase in the value depending on the demand for the total
number of shares that comprise the index component. Index trading does
not involve any element of betting.196
This contract also does not contain elements of jahalah and gharar as it is
traded in clear quantities and pricing. There is no vagueness in price and
quantity. The price is determined by the market based on demand and supply.
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`Urf are common practices recognised by the local people in their daily lives
be they in action or words. The composite index futures contract is an
instrument that can be used by fund managers, underwriters and market
players to transfer market price risks. In principle, it is a valid `urf iqtisadi khas
(common practices specifically occurring in economic activities) that does
not contradict the Shariah principles. What needs to be corrected is that the
index component must consist of securities that are Shariah compliant. This
is overcome by the establishment of the Shariah Index.
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utilised before that date, the right no longer has value.204 Likewise in a
composite index futures contract, it is of value until the maturity date, after
which the contract cannot be traded. However, the holder of the contract
still benefits from the difference in the buying and selling price upon maturity.
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RESOLUTION
The SAC discussed this in a series of meetings and, at its 8th meeting on
9 June 1997, agreed to the structuring of the Islamic benchmark bond, also
known as the Khazanah Bond. This bond is structured based on murabahah
principles.
INTRODUCTION
The main function of the Khazanah Bond is not to raise capital or to finance
a certain project but is created specifically as a benchmark for corporate
bonds to be issued.
(a) The bond is liquid, that is, it can be traded actively in a secondary
market;
(c) The returns from the bond must be made known; and
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Capital Market Products According to Islamic Jurisprudence
(d) The returns from the bond are determined by the market.
In this context, the Khazanah Nasional Bhd (KNB) was found to be a suitable
corporate institution for issuing the bonds. It is a government corporation
that manages the assets of the Malaysian government.
Under this concept, KNB will sell its Shariah-compliant assets to investors for
cash, and buy them back at a higher price on a deferred basis.
What is interesting about the Islamic benchmark bond is that the asset buy-
back price through the murabahah way is predetermined by KNB but the
cash price or selling price (cost to the investor) will only be known through a
tender process by bidding using the bai` muzayadah principle (bidding or
bargaining). After the bidding is carried out, the cash selling price and buy-
back price through murabahah for trading the KNB assets are agreed upon
by both parties. This agreement is called ittifaq dhimni. The cash selling price
is lower than the buying-back price as the latter has already included profits
to the investor. For example, if the cash selling price for the investor is RM90
million and the buy-back price from the investor five years later is RM100
million, this means that the investor receives a profit of RM10 million. This
trading is then structured into securities to enable it to be a capital market
instrument.
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transparent, fair and efficient, and with market integrity. Hence, participating
individuals will not be ignorant of the market and will be able to facilitate
trading activities to fulfil their needs.206 To achieve this, Islam defined the
principle of ghalat207 and prevented the occurrence of gharar. With the
establishment of benchmark, the uncertainty of pricing is minimised and
the market is made more transparent and efficient.
The principle involves an `aqd for buying and selling assets whereby the
price which includes a profit margin is agreed upon by both parties (the
buyer and seller). This concept is appropriate in structuring an Islamic
benchmark bond as the profit in selling the asset has been predetermined.
The price of the issued bond and yield to be earned will be determined
based on the total assets transacted and the murabahah profit.
After the buying and selling of assets have been concluded according to
murabahah, the Islamic debt securities can be structured and sold in a
secondary market according to the principle of bai` dayn. The SAC, at its 2nd
meeting on 21 August 1996, agreed to accept the principle of bai` dayn as
an instrument for the Islamic capital market.208
In the context of the Islamic benchmark bond, the KNB will sell its assets in
cash to a principle dealer (PD)209 and buys them back on murabahah. The
murabahah price which is paid in instalments is a right to the debt for the
PD. This right is haq maliy or the right on an asset that can be traded.210 The
right to the debt which is in the form of syahadah dayn (debt certificate) can
be used to obtain cash by redeeming it from the debtor upon maturity. This
syahadah dayn complies with mal according to a majority of Islamic jurists211
and can be traded.
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(a) The debt must be the result of trading activities permissible in Islam
and the `aqd must be legal according to Shariah; and
In this context, the Islamic benchmark bond that is issued through the KNB,
fulfils both criteria above. This is because the KNB has a sound credit rating
supported and guaranteed by the Malaysian government.
This principle allows the market player to obtain the true market value of the
assets sold. As many financial institutions are willing to buy the assets in
cash, KNB will open tenders for the purchase of the assets. KNB will choose
the best price offered at the lowest cost and with high liquidity.
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bidden on. This refers to the tacit understanding in a sale and purchase
transaction, in accordance with muzayadah trading. It is likely that in the
context of forming an Islamic benchmark bond, there is more than one PD
successfully buying the assets. Therefore, several PDs will be partners in buying
the assets according to their allotment.
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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 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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From research carried out, the SAC resolved that finance lease and operating
leases are permissible. This is based on the following:
The mechanisms that are almost similar to finance leases and operating leases
in daily practices are ijarah and ijarah thumma bai`. Other terms used are
ijarah wa iqtina` and ijarah muntahiyah bi tamlik.
The concept for finance and operating leases without the late payment clause
is no different from ijarah and ijarah thumma bai`. In an operating lease, the
lessee has the right of utilising the assets within a specific period as agreed
to in the contract. As a consumer of the assets, he is required to pay for the
consumption within a certain period, whereas ownership of the assets is still
under the jurisdiction of the lessor.
The principle is similar to ijarah as the assets can benefit the lessee (musta’jir)
within a certain period for a certain sum agreed on. Meanwhile, the assets
still belong to the original owner (mua’jjir). The musta’jir only has the right
to benefit from the assets. However, the Islamic jurists still include ijarah in
the category of buying and selling (bai`). The item traded is a benefit which
is the right to use the asset.213 It is to be understood that Islamic jurisprudence
recognises the right as mal.
The basis of finance lease is similar to ijarah thumma bai`. This mechanism is
a development of the principle of ijarah which is in the nominee contract as
it is more of a financing feature. Unlike the first instrument, it gives a choice
to the musta’jir at the end of the ijarah period whether to buy the asset or to
dispose of it. If the musta’jir chooses to buy the asset, a new contract will be
drawn up.
The SAC then resolved that finance and operating lease activities without
the penalty clause do not contradict the Shariah as they are similar to our
daily practices of ijarah and ijarah thumma bai`.
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Penalty
Regarding the penalty on late payment for finance and operating leases, the
SAC at its 20th meeting on 14 July 1999 agreed to accept the resolution of
the SAC of Bank Negara Malaysia. The resolution allowed only one per cent
penalty rate to be imposed on late payment and the calculation of the penalty
is not based on compounded value. Based on the resolution, the SAC resolved
to take into account the difference between penalty rates imposed by a
company that provides finance and operating lease facilities with a permitted
penalty rate of one per cent.214
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Resolutions of the Securities Commission Shariah Advisory Council
PREFERENCE SHARES
RESOLUTION
At its 20th meeting on 14 July 1999, the SAC resolved that the basic
preference share (non-cumulative) is permissible based on tanazul.215
INTRODUCTION
The Companies Act 1965 defines preference share as a share that does not
give a right to the shareholders to vote at its general meeting or any right to
participate in any distribution of the company that is above the stated amount,
whether through dividends or redemption, dissolution or otherwise.216
There are many forms of preference share in the market, among which are:
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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.
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Resolutions of the Securities Commission Shariah Advisory Council
RESOLUTION
The Shariah Advisory Council (SAC) resolved that riba is one of the main
criteria causing securities of listed companies to be excluded from the
SAC-compliant list. The Islamic Instrument Study Group (IISG), at its 5th
meeting on 23 August 1995 resolved that securities of a company whose
operations and main activity are based on riba are not halal. Examples are
merchant banks, commercial banks and finance companies.
INTRODUCTION
Meaning: “O you who believe! Fear Allah, and give up what remains
of your demand for riba, if you are indeed believers. If you do it not,
take notice of war from God and His Messenger. But if you turn back,
you shall have your capital sums: deal not unjustly, and you shall not
be dealt with unjustly.”
(Surah al-Baqarah: 278–279)
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The threat of war as stated by Allah s.w.t. in the above verse shows that riba
is an activity prohibited by Allah s.w.t. Muslims must purify themselves and
avoid these activities.
Riba in Arabic means something that has increased,218 but it does not mean
that everything that increases is riba, according to Islamic jurisprudence. As
narrated by al-Tabari, riba, was commonly practised during the jahiliyah
(pre-Islamic times) period, for example buying on credit. When the period of
credit expired and a buyer could not settle his debt, the seller would extend
the loan period and increase the amount of the debt.219
DIVISION OF RIBA
In general, riba is divided into two categories:
(a) The debtor borrows a certain sum for a certain period according to
the agreed terms; the debtor must pay back more than the capital
sum or loan;
(b) A creditor gives a periodic loan and earns monthly interest. The loan/
capital sum lasts until the period of expiry. Upon expiry, if the debtor
fails to pay back the capital sum, the period to pay back will be
extended. The creditor will continue collecting interest until the new
expiry date. In other words, this type of riba is more like money lending.
In other words, the money supplier lends his money to earn interest
every month, until the period expired; and
218 Fairuz Abadi, Al-Qamus al-Muhit, Dar al-Fikr, Beirut, 1995, p. 1158.
219 Ibnu Jarir al-Tabari, Jami` al-Bayan, Dar al-Fikr, Beirut, 1995, vol. 5, p. 140.
220 Al-Jassas, Ahkam al-Quran, Dar al-Ihya’ al-Turath al-’Arabi, Beirut, vol. 2, pp. 183–189.
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(c) A trader sells his product with payment deferred to a specific period.
If the buyer fails to pay within that period, the period will be extended
by increasing the interest on the product price.
Upon close examination, the type of riba qurudh prohibited by Allah s.w.t. is
similar to activities practised by commercial banks and conventional finance
companies. This is because banks or institutions give out loans and obtain
interest from the loan.
Riba buyu` occurs in the trading of ribawi products as stated by the Prophet
s.a.w. in his hadith:
Meaning: “Exchange gold for gold, silver for silver, grain for grain,
barley for barley, dates for dates, salt for salt in the same amount and
of the same type and must be handed over in an `aqd ceremony. If
what you have exchanged differs in type, you can trade according to
your wishes but it must be done on the spot.”221
It covers two types of riba; riba nasi’ah, trading in which the settlement is
deferred and not done on the spot and riba fadhl which means unlawful
excess gained in any exchange of ribawi products.222
In the above hadith, the Prophet s.a.w. explained a way to trade the goods
categorised as ribawi products, such as gold, silver, grain, barley, dates and
salt.
In general, all ribawi products mentioned in the above hadith can be classified
into two categories. Any product possessing similar features can be classified
according to the type of riba product. The two categories are, medium of
exchange and non-perishable staple food.223
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Capital Market Issues According to Islamic Jurisprudence
(a) Medium of exchange – this refers to gold and silver which are used to
measure value because of their strength to back currency. For example,
gold has long been used to back the reserves of a country, as well as
the issuance of currency. Therefore, currency is classified as a ribawi
product because it acts as a measure of value. Money is commonly
used to measure something of value (property); and
Meaning: “The same amount and the same type of goods must be
surrendered at the `aqd ceremony. If what you exchange is different
in types, then you can exchange according to your wishes but it must
be on the spot.”
Based on the hadith above, Islamic jurists have set down specific conditions
for trading ribawi products with similar `illah and type as follows:
224 Al-Sowi, Musykilah al-Istismar, pp. 343, 347. Rafiq al-Misri, Masraf al-Tanmiyah al-Islami, Muassasah
al-Risalah, Beirut, 1987, pp. 163–167.
225 Al-Sowi, Musykilah al-Istismar, pp. 343, 347. Rafiq al-Misri, Masraf al-Tanmiyah al-Islami, pp. 163–167.
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GHARAR
RESOLUTION
The SAC resolved that the existence of gharar in the main activities of a
company can cause the company’s securities listed on Bursa Malaysia to be
excluded from the list of securities approved by the SAC. The IISG at its 5th
meeting on 23 August 1995, resolved that securities with gharar features
are not halal. Company activities categorised as gharar include conventional
insurance activities.
INTRODUCTION
In Arabic, gharar 226 has the same meaning as khatar which means something
dangerous.227 It also carries the meaning of khida` or cheating.228 In terms
of terminology, gharar refers to elements of uncertainty that can expose
someone to danger. In the context of buying and selling, if it is said that an
`aqd has the element of gharar, it means that there is an element of uncertainty
in the `aqd. As an example, a sale and purchase contract which does not
state its price is said to possess an element of gharar as cheating in price can
occur.
226 According to Islamic jurisprudence, gharar differs from taghrir which is synonymous with ghurur or
tadlis. Gharar has no elements of cheating while taghrir has. Please refer to al-Dhariri, al-Gharar wa
Atharuhu fi al-`Uqud al-Fiqh al-Islammi, Dar al-Jil, Beirut, 1990, p. 35.
227 Majma` al-Lughah al-Arabiyyah, Al-Mu`jam al-Wasit, Dar al-Dakwah, Istanbul, 1980, vol. 2, p. 648.
228 Fairuz Abadi, Al-Qamus al-Muhit, p. 577.
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From studies done, the SAC concluded that gharar is a negative element in
trading. This is based on the following factors:
First: Gharar which means jahalah about the products. Among ulama’ with
such a view were Al-Sarakhsi and Al-Zaila`i from the Hanafi Mazhab. Al-
Sarakhsi defined gharar as something with unknown consequences.231
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He outlined this while discussing the trading of goods that have yet to be
seen by the buyer. For the Hanafi Mazhab, such a trade is lawful because the
buyer has the right to make a choice after he has viewed the goods. This
view is based on the Prophet s.a.w. hadith:
The Hanafi Mazhab was of the opinion that the risk of the buyer being
exposed to uncertainty is minimum, as when the goods arrive, the buyer can
make a choice based on what he sees.
Third: Gharar refers to something with unknown consequence. This was the
opinion of a majority of Islamic jurists.
The Syafi`i Mazhab defined gharar as khatar (of high risks). Al-Syirazi, a jurist
in this mazhab, defines gharar as something whose condition and
consequence are unknown.234 Al-Ramli stated that, gharar is something
that has two assumptions, positive and negative, with the negative being
more dominant.235 Al-Sharqawi and Al-Qalyubi, also jurists from the Syafi`i
Mazhab, defined gharar as something whose consequence is unknown
and has two assumptions, positive and negative, the negative outweighing
the positive.236
Between the views of the Hanafi and Syafi`i schools of thought, the Syafi`i
Mazhab was of the opinion that jahalah about a product during the buying
and selling `aqd is a significant gharar. This nullifies the `aqd. That is why the
Syafi`i Mazhab stipulated that a buyer must know the specifications and
features of the product he is interested to buy, at the time of the `aqd.237
From the views of these two mazhab, it can be seen how the different
interpretations of gharar have a different impact on the relevant rulings. This
case puts forward buying and selling of a product that has not been seen by
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Forms of Gharar
(a) Sighah contract: such as two sales and purchases in one transaction
(bai`atain fi bai`ah); and
Gharar is divided into three,239 that is gharar fahisy (plenty),240 gharar yasir
(a little)241 and gharar mutawassit (moderate).242 Ulama’ unanimously say
that gharar fahisy can nullify the contract, especially `uqud mu`awadhat and
gharar yasir do not give any effect on the contract. However, they have
differences of opinions on gharar mutawassit.
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GAMBLING
RESOLUTION
The SAC concluded that gambling is one of the main criteria causing a listed
company’s securities to be excluded from the list of Shariah-compliant
securities by the SAC. The IISG, at its 5th meeting on 23 August 1995, resolved
that the securities of a company carrying out gambling activities are not
permissible. The activities include casinos and gaming.
INTRODUCTION
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Resolutions of the Securities Commission Shariah Advisory Council
GHALAT
RESOLUTION
Ghalat is a negative element that can invalidate an `aqd according to Islamic
jurisprudence. There is, however, a number of interpretations given by past
and modern Islamic jurists pertaining to ghalat that offer pros and cons
to its practice in the present day. Hence, the SAC, when discussing crude
palm oil futures contracts, outlined the scope of ghalat as a guidance in
assessing capital market issues.
INTRODUCTION
Although past Islamic jurists did not present the ghalat theory in a specific
topic, modern Islamic jurists248 have tried to present the ghalat theory as a
negative element in an `aqd based on principles outlined in the muamalat.
This is based on the studies on forms of errors in `aqd, whereby Islamic
247 Fairuz Abadi, Al-Qamus al-Muhit, p. 612, Majma` al-Lughah al-`Arabiyyah Al-Mu’jam- al-Wasit, p. 658.
248 As an example refer to Abd Razzak al-Sanhuri, Masadir al-Haq fi al-Fiqh al-Islami, Dar Ihya’ al-Turath al-
`Arabi, Beirut, vol. 2, pp. 104–146. Al-Zarqa’, Al-Madkhal al-Fiqhi, vol. 1, pp. 390–407. Muhammad
Yusuf Musa, Al-Amwal wa Nazariyyah al-Aqd, Dar al-Fikr al-Arabi, Cairo, 1996, pp. 366–369. Al-Zuhaili,
Al-Fiqh al-Islami, vol. 4, pp. 216–218.
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jurisprudence has given the right to a buyer to cancel the `aqd should there
be an error through khiyar wasf,249 khiyar `aib250 and khiyar ru’yah.251
Ghalat takes place when the assumption made by a buyer about what he
wants turns out to be otherwise, and this assumption is the reason why the
buyer carried out the sale and purchase `aqd.252
An example of ghalat in the capital market is the case of buying shares. For
example, someone buys ABC shares on the assumption that they can bring
good returns. However, after the purchase, the share price falls. This situation
is categorised as ghalat `aqid (an error on the part of the buyer). According
to Islamic jurisprudence, this error does not allow the party to withdraw
from the `aqd. This is because the consideration to buy the ABC shares was
based on a personal decision after taking into account the expected future
positive performance of the shares. The `aqd carried out does not contain
any gharar element and what has happened is merely ghalat `aqid which
does not nullify the `aqd because it is a normal situation. In Islamic
jurisprudence ghalat can affect an `aqd and causes it to be annulled if it
pertains to the type and feature of the traded object. For example, ghalat
pertaining to a type of object is when someone buys jewellery assumed to
be gold but which later turns out to be gold-plated copper. Ghalat pertaining
to feature is when someone buys a watch believing it to be of a famous
brand, only to discover later that it is a common brand in which he is not
interested.253
249 Khiyar wasf is the right to make a choice given to the buyer when he finds that the features of the
object purchased differ from what have been described by the seller. Please refer to Al-Mausu`ah al-
Fiqhiyyah, vol. 20, p. 157.
250 Khiyar `aib is the right to make a choice given to parties in a contract to cancel the `aqd when there
is an `aib or defect in the object and also payment. Please refer to Al-Zuhaili, Al-Fiqh al-Islami, vol. 4,
p. 261.
251 Khiyar ru’yah is the right to make a choice given to a buyer on whether to proceed with a contract or
cancel it when he finally sees the object for sale, which he did not at the time of the `aqd. Please refer
to Al-Zuhaili, Al-Fiqh al-Islami, vol. 4, p. 267.
252 Al-Zarqa’, Al-Madkhal al-Fiqhi, vol. 1, p. 390.
253 Musa, Al-Amwal, p. 366.
254 Al-Zarqa’, Al-Madkhal al-Fiqhi, vol. 1, pp. 391–392.
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If ghalat `aqid is allowed to invalidate an `aqd, then the market will not run
smoothly. The seller will always have to think of the buyer’s expectations.
This worry will cause the absence of istiqrar ta`amul (stability of business
transactions) in the market, because the buyer will always take the
opportunity to cancel the `aqd resulting in a loss to the seller. Hence,
Islamic jurisprudence emphasises that the buyer is given the right to cancel
the `aqd only in cases of ghalat wadhih.255 Ghalat wadhih is a clear error
and it happens under two conditions, i.e. `aqid (party who participates in
the `aqd) has explained clearly what he wants at the time of the `aqd, or if he
has evidence to show what he wants, and qarinah, where the error is on the
part of the seller and not the buyer.256
255 Al-Zarqa’, Al-Madkhal al-Fiqhi, vol. 1, p. 390. Ghalat wadhih means clear error.
256 Al-Zarqa’, Al-Madkhal al-Fiqhi, vol. 1, p. 393.
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SPECULATION
RESOLUTION
The SAC, at its 10th meeting on 16–17 October 1997, and 11th meeting on
26 November 1997, discussed the issue of crude palm oil futures and resolved
that speculation is permissible under Islamic jurisprudence.
INTRODUCTION
257 Dewan Bahasa dan Pustaka, Kamus Dewan, Kuala Lumpur, 1989, p. 1224
258 Dewan Bahasa dan Pustaka, Kamus Ekonomi, Kuala Lumpur, 1993, pp. 245–246.
259 Jack P. Friedman, Dictionary of Business Terms, Barron’s, New York, 1987, p. 570.
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What is clearly forbidden in Islam are fraud and manipulation. These practices
have to be monitored and supervised to ensure fairness for market players,
and to minimise forbidden practices. A situation whereby a trader makes
bountiful gains as a result of a price increase following an increase in demand
is acceptable in Islam. It represents a blessing and an opportunity for the
trader. Rasulullah s.a.w. himself said:
Meaning: “Let the people seek their own livelihood provided by Allah
s.w.t. for them.”261
260 Please refer to the SAC resolution on bai` muzayadah for further details.
261 Hadith narrated by Muslim.
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The Prophet s.a.w. himself was loath to interfere in the fixing of prices in the
market after finding that the prices were being determined by market forces,
and not by any act of manipulation. This view was supported by a prophetic
tradition which told of how the Prophet s.a.w. responded to a request made
of him to arrest the prevalent rise in prices by fixing the prices in the market.
He said:
The Prophet s.a.w. described the act of fixing prices as tyranny towards the
seller if price fluctuations in the market were due to normal market forces.
An increase in price due to increasing demand should be seen as an
opportunity for the seller to make more profits from the prevalent market
climate. Fixing the price means forcing the seller to sell at the fixed price and
stopping him from enjoying the bounties provided by Allah s.w.t. Thus, it
will not be against the Syara` if market players take advantage of the rise
and fall in prices following the forces of supply and demand of the goods
offered.
The share market is not a place for gambling. On the other hand, the share
market is a place which allows shareholders to dispose ownership of shares
to other investors in order to gain liquidity. Whether it is gambling or not
depends on the conduct of the investors who enter and leave the market, as
well as their motives. There are those who are well informed when they
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enter the market. This is good because they enter with careful consideration.
There are, however, those who enter the market depending solely on luck.
This not only exposes them to risk, but is also not in line with what is required
in Islam.
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QABADH
RESOLUTION
The IISG, at its 8th meeting on 25 January 1996, resolved that the local `urf
be made the basis and guideline to determine the qabadh status in any
transaction. Subsequently, whatever is accepted by the `urf as qabadh can
be used as a guideline for transactions conducted in the Malaysian capital
market.
INTRODUCTION
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(a) `Aqar – fixed property such as land and buildings. Qabadh for fixed
property like land is considered to have taken place when the original
owner gives permission to the buyer to take control of the land and
carry out whatever activity he wishes without hindrance. In the context
of administering the real estate, official transfer of ownership by
changing the name on the ownership certificate and the like is enough
to complete the qabadh;268 and
266 Ribawi goods comprise various types of goods which have elements of riba. Exchange of such goods
must follow certain set ways to avoid the incident of riba. Please refer to the SAC resolution on riba for
further details.
267 OIC, Majallah Majma` al-Fiqh, no. 6, vol. 1, pp. 717–723.
268 Al-Zarqa’, Al-Madkhal Al-Fiqhi, vol. 2, p. 648.
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Qabadh hukmi is the opposite of qabadh hakiki, in that the transaction that
takes place is implicit. However, Islamic jurisprudence still equates its status
with that of qabadh hakiki. The following conditions are considered as qabadh
hukmi:
(a) Takhliah – that is, the seller gives permission to the buyer to take the
goods sold, unhindered. For example, the seller delivers the sold goods
to an agent appointed by the buyer to receive the goods on his behalf.
Another example is, the seller opens up his warehouse to show the
wheat to the buyer, as an indication of handing over the wheat to be
sold;270
(c) Earlier action – Qabadh hukmi can also take place due to an earlier
action which shows that qabadh has taken place earlier, although the
earlier qabadh differs in form from the new qabadh. For example, in
the case of a qabadh rental that is followed by a purchase. During
rental, the tenant occupied the rented premises. This represents a
form of early qabadh. Then, the premises is sold to the tenant, and
qabadh hukmi takes place although the qabadh hakiki is after the
sale and purchase `aqd;272 and
(d) Itlaf – qabadh hukmi also takes place when there is itlaf. Itlaf means
damage. If the goods are damaged by the buyer before the sale and
purchase `aqd – when the goods are in the hands of the buyer, qabadh
is still considered to have taken place. The buyer has to pay for the
269 OIC, Majallah Majma` al-Fiqh, no. 6, vol. 1, pp. 560–561, 712–716. Ibnu `Abidin, Hasyiah Rad al-
Mukhtar, vol. 4, p. 562.
270 OIC, Majallah Majma` al-Fiqh, no. 6, vol. 4, p. 562. Haidar, Durar al-Hukkam, vol. 1, p. 251 (section
263, Majallah al-Ahkam al-’Adliyyah).
271 OIC, Majallah Majma` al-Fiqh, no. 6, vol. 4, pp. 726–727.
272 OIC, Majallah Majma` al-Fiqh, no. 6, vol. 4, p. 729.
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In the present context of the capital market, the concept of qabadh often
touches on issues like bai` dayn, crude palm oil futures contract and contra
trading in the capital market. Hence, understanding this concept is very
important in determining whether the trading status of the instrument is in
line with Shariah principles.
The majority of Islamic jurists were of the view that qabadh represented a
valid condition in the transaction of ribawi goods if the said goods have
similar `illah riba, such as similarity in type (sale and purchase of gold with
gold) or difference in type (sale and purchase of gold with silver). The
transaction should meet the conditions of the `aqd ceremony whereby goods
are handed over and payment is made on the spot.
Such a condition does not apply when the transaction of ribawi goods involves
ribawi goods of different `illah, such as buying gold and paying for it with
rice. Gold is categorised as a medium of exchange whereas rice is a staple
food. (See chapter on riba).
First viewpoint: Some Islamic jurists were of the view that qabadh is not a
valid rule for a business transaction. Hence, a person should sell his goods
(without exception) before qabadh can take place. Among those of this
view were `Ata’,274 `Uthman al-Batti275 and Syi`ah Imamiyah.276
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Second viewpoint: The majority of Islamic jurists were of the view that
qabadh hakiki is valid for the transaction of some types of goods.277 This was
based on validated prophetic traditions which forbade the sale of some
types of goods before qabadh hakiki.
Meaning: “From Ibnu `Abbas, it was narrated that the Prophet s.a.w.
had forbidden a man from selling food he had not yet procured. Ibnu
`Abbas was asked as to its form. He answered; dirham with dirham,
and food after it has been procured.”278
Meaning: “From Abdullah bin Dinar that he had heard Ibnu ’Umar
said, the Prophet s.a.w. said: Whoever buys food, he should not resell
it before he procures it (qabadh hakiki).”279
Based on the above hadith and a few other narrations with the same
understanding, the Prophet s.a.w. had forbidden the resale of food before
qabadh hakiki. Such evidence shows the importance of qabadh hakiki in
sale and purchase transactions involving specifically food which is perishable.
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In general, the Hanafi, Shafi`i and Hanbali Mazhab were of the view that the
`illah forbidding the sale of an object before qabadh hakiki was due to the
presence of gharar. This was because of the concern that the goods might
not be delivered due to damage or other factors.
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DHA` WA TA`AJJAL
RESOLUTION
The SAC discussed the issue of dha` wa ta`ajjal in a series of meetings. At
its 10th meeting on 16–17 October 1997, the SAC agreed to accept the use
of the dha` wa ta`ajjal principle in developing Islamic capital market
instruments.
INTRODUCTION
Dha` wa ta`ajjal is the action of a creditor writing off part of the debt when
the debtor settles the balance of his debt earlier.280
Based on the results of a study undertaken, the SAC is of the view that the
principle of dha` wa ta`ajjal is permissible. This is based on the following
dalil:
280 Ali al-Salus, Al-Iqtisad al-Islami, Dar al-Thaqafah, Doha, 1996, vol. 2, p. 568. Al-Zuhaili, Al-Fiqh al-
Islami, vol. 4, p. 693.
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Meaning: Narrated from Ibnu `Abbas that the Prophet s.a.w. ordered
the Bani Nadhir to leave Medinah and was then duly informed that
there were still many in the city who owed them money. Said the
Prophet s.a.w: “Give a discount on the debt and hasten the
payment.”281
Ibnu `Abbas is of the opinion that dha` wa ta`ajjal is permitted with the
following argument:
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The past Islamic jurists differed in their views on dha` wa ta`ajjal. Generally,
there were two main views regarding this issue:
The first view permited dha` wa ta`ajjal. Among those advocating this view
were Ibnu `Abbas, al-Nakha`i, Zufar, Abu Thaur, Ibnu al-Qayyim and Ibnu
Taimiyyah. Their argument was based on the prophetic sayings explained
earlier.284
The second view did not permit it. This was the view of the majority of
Islamic jurists. Their argument was that there is a similarity between the
concept of dha` wa ta`ajjal and riba, in the prohibition of the increase in
payments. The similarity lies in using time/duration to determine the price.
This is made clear when an extension in time results in an increase in price,
and vice versa when a reduction in time results in a reduction in price.285
Ibnu Qayyim reinforced the view of the group permitting dha` wa ta`ajjal
with the following conclusion:
(a) Either you increase the payment (due to late payment), or settle the
debt (in time) – this is riba; and
(b) Quickly settle your debt with me and as an incentive I will discount
part of it – this is dha` wa ta`ajjal.”
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Where is the similarity between the two? In addition, there are no nas, ijmak,
and validated qiyas that forbid this concept.286 Based on these views, the
SAC adopted the principle of reduced debt to be applied in the capital market.
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Capital Market Issues According to Islamic Jurisprudence
`UMUM BALWA
RESOLUTION
The SAC, at its 2nd meeting on 21 August 1996, when discussing the issue
of a benchmark for haram elements in a mixed company (see definition in
chapter on mixed company), resolved that the situation categorised as `umum
balwa needs to be considered in determining the status of a mixed company.
INTRODUCTION
287 Situations categorised as `umum balwa in a very small ratio are excused by Islamic jurisprudence. Please
refer to Mu`jam al-Mustalahat, p. 203.
288 Nazih Hammad, Mu`jam al-Mustalahat, p. 203.
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Meaning: “If a situation faces a problem, Syara’ allows for a way out.”
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Capital Market Issues According to Islamic Jurisprudence
TA`WIDH
RESOLUTION
The SAC, at its 12th meeting on 14 July 1999, agreed to allow the imposition
of ta`widh (compensation) on the late repayment of Islamic financing.
INTRODUCTION
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(a) For the late payment of profit, the rate of ta`widh which can be imposed
is one per cent per year on payment in arrears of profit. However, the
sum of ta`widh cannot be compounded;
(b) For not settling the payments of the principal sum, the ta`widh which
can be imposed is at the current rate of Islamic interbank money
market;
(c) The maximum amount of ta`widh that can be imposed on any unsettled
payment of financing cannot exceed the total amount of the remainder
of the financing balance; and
(d) Ta`widh obtained from financing for which payment has not been
settled, may be consumed by the financiers involved and distributed
according to the bank’s prevailing rate of profit distribution ratio.
Hadith
The Prophet s.a.w. rebuked those who delay the payment of a debt:
Meaning: “The rich who delay the payment of a debt are committing
tyranny.”
Qiyas
The delay in paying off a debt can be compared with ghasb (usurpation) of
valuable property. This is because of the similarity of `illah between the two,
that is obstructing the use of property and exploiting it in a tyrannical way.
According to the Syafi`i and Hanbali Mazhab, in the case of ghasb, the usurper
has the benefit of using the property that he has seized and therefore must
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Capital Market Issues According to Islamic Jurisprudence
Based on this principle, the debtor’s act of delaying payment is a loss to the
creditor. This situation has to be avoided so that businesses are conducted
according to the istiqrar ta`amul principle, that is the smooth running of the
market. It is supported by another maxim of Islamic jurisprudence:
In the context of this discussion, losses that are borne by a creditor must be
removed by the provision of a suitable approach. Imposing ta`widh on a
delayed payment of debt is a suitable approach for covering the loss borne
by the creditor and it encourages the debtor to settle the debt within the
stipulated time frame.
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date, I will pay you of 100 dirham.” Apparently, the customer did not
proceed with the deal, and so, according to Qadhi Syuraih: “Whoever
imposes a condition upon himself voluntarily, then that condition is
binding.”294
Qadhi Syuraih resolved that the condition stated by the potential customer
is binding. Based on this resolution, it can be used as an Islamic jurisprudence
principle to permit the imposition of a condition in the form of ta`widh in a
business transaction. The payment is for opportunity loss borne by the creditor.
Al-Zarqa’ sums it up by saying:
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Capital Market Issues According to Islamic Jurisprudence
HIBAH RUQBA
RESOLUTION
The SAC at its 44th meeting on 15 January 2003, passed a resolution to
accept the use of hibah ruqba296 principle as the Shariah basis in implementing
the hibah declaration forms for transactions involving joint unit trust fund
accounts, especially for Muslim account holders.
INTRODUCTION
Studies on hibah `umra297 and ruqba were conducted with the intention of
finding a solution to the possible emergence of dispute when one of the
account holders of the joint account dies. According to the normal practice
of unit trust funds, when one of the account holders dies, the other living
person is entitled to the whole amount in the said fund. This practice is
based on the “survivorship” method.
Guided by the existing trust deed, it is the condition that if either one of the
joint unit trust holders dies, the other surviving joint unit trust holders have
the right to all the units of the said account.
296 Hibah ruqba is “a conditional gift determined by the hibah giver whereby the hibah property will be
owned by the hibah recipient in case the hibah giver dies. But if the hibah recipient dies before the
hibah giver, the hibah shall be returned to the hibah giver”. Please refer to Al-Syawkani, Nail al-Awtar,
Dar al-Fikr, Beirut, 1994, vol. 6, pp. 112–113. Ibn Qudamah, al-Mughni, Dar al-Fikr, Beirut, 1994, vol. 5,
p. 335. Wahbah al-Zuhaili, al-Fiqh al-Islami Wa Adillatuhu, Dar al-Fikr, Damascus, 1989, vol. 5, p. 10.
Wizarah al-Awqaf wa al-Syu’un al-Islamiah, al-Mawsu`ah al-Fiqhiyyah, Kuwait, 1992, vol. 23, pp. 5–6.
297 Hibah ‘umra is “A temporary gift referring to the life of either the giver or the recipient of the hibah. If
the recipient of the hibah dies, the hibah property shall be returned to the hibah giver. Conversely, if the
hibah giver dies, hibah property shall be returned to the next-of-kin of the hibah giver”. Please refer to
Wizarah al-Awqaf wa al-Syu’un al-Islamiah, al-Mawsu`ah al-Fiqhiyyah, vol. 30, p. 311.
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The joint holder of the unit trusts means that anyone who holds unit trusts
or part thereof based on the provision under the trust deed, jointly with
another person will also be known as a joint holder.
While holding unit trusts on a joint basis, unit holders can choose whether
one of them or both are allowed to sign when making withdrawals or selling
the units. This situation is allowed provided all of them have attained the
age of 18 and above. This means that in a joint account there is an element
of hibah or gift whereby both parties benefit from the said property while
still alive. It differs from an account which has a nominee.
The majority of Islamic jurists are of the opinion that hibah which is temporary
in nature such as hibah ruqba and hibah `umra are permissible but that the
conditions be nullified.299 They argued that should the conditions be applied
it will mean that it is in conflict with muqtadha al-`aqd and also the
requirement of the Shariah rules. They were also guided by the sayings of
the Prophet s.a.w.:300
298 Al-Zaila`i, Tabyin al-Haqai’q Syarh Kanz al-Daqa’iq, Dar al-Kitab al-Islami, Cairo, vol. 5, p. 104.
299 Al-Kasani, Badai’i` al-Sana’i`, vol. 6, p. 116. Al-Zaila`i, Tabyin al-Haqai’q, vol. 5, p. 104. Ibn ‘Abidin, Hasyiah
Rad al-Muhtar, Dar al-Fikr, Beirut, 1992, vol. 5, p. 707. Ibn Qudamah, al-Mughni, Dar al-Fikr, Beirut,
1994, vol. 6, pp. 339–340.
300 Al-Kasani, Bada’i` al-Sana’i`, vol. 6, p. 116.
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Some Islamic jurists from the Hanbali, Imam Malik, Imam al-Zuhri, Abu Thur
Mazhab and others, as well as the early views (qadim) of Imam Syafi`i
are of the opinion that hibah `umra is permissible and its condition valid
provided it is not mentioned by the giver of the hibah that the asset which is
put on hibah will be owned by the hibah receiver’s next of kin after the
death of the hibah receiver.301 This means that hibah item will be returned to
the giver of hibah after the death of the hibah receiver. There are other
opinions whose approach is that hibah being temporary in nature, in reality
it is not hibah but `ariyah (lending).302
Imam Abu Hanifah and Imam Malik allowed hibah `umra but disallowed
hibah ruqba.303 Their views are guided by the sayings of the Prophet s.a.w.
who allowed hibah `umra and annulled hibah ruqba. However these sayings
were criticised by Imam Ahmad because its validity is not known.304 In their
opinion hibah ruqba is hibah ta`liq on something which is uncertain from
the aspect of the period of implementation.305
The mazhab that says hibah ruqba and hibah `umra are not permissible are
being guided by the sayings of the Prophet s.a.w.:306
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The mazhab that allows hibah ruqba and hibah `umra made the following
sayings of the Prophet s.a.w.307 as their argument:
Studies regarding al-ruju` fi al-hibah was made because the features of al-
ruju` fi al-hibah are similiar to the hibah ruqba concept from the aspect of
the rights of a hibah giver to get back the goods which have been hibah.
Despite the method of getting back the goods by the hibah giver in the
context of al-ruju` fi al-hibah is different from the hibah ruqba method, the
effect is the same, that is goods which have been hibah can be returned to
the hibah giver.
Islamic jurists of the Hanafi Mazhab are of the opinion that annulment of
hibah is permissible but makruh (forbidden but not haram) even if delivery
has taken place. This is because the right to return hibah property is the
prerogative of the giver.308
Their argument was based on the saying of Saidina Umar al-Khattab which
means: “Whoever gives hibah to their relatives or (the gift concerned) on
the basis of alms, they are prohibited from asking the hibah item to be
returned, and whoever gives the hibah with the hope of receiving reward in
return, then he can ask for the return of hibah item, if he so decides”.309
Generally, the Syafi`i and Hanbali Mazhab, and some of the jurists of the
Maliki Mazhab are of the opinion that annulment of hibah is permissible as
long as there is no qabd (surrender). If qabd happens then hibah contract
becomes customary (binding) and at that point of time it is not permissible
to annul hibah except hibah from parents to their children.310
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Capital Market Issues According to Islamic Jurisprudence
Imam Ahmad and Islamic jurists of the Zahiri Mazhab do not allow the
annulment of hibah.311 Their arguments were based on a unanimously
accepted general saying which states: “Whoever takes back the hibah item
(given by him) is just like a dog that swallows its own vomit”.312
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Resolutions of the Securities Commission Shariah Advisory Council
CONDITIONAL HIBAH
RESOLUTION
The SAC, at its 44th meeting on 15 January 2003, resolved that hibah bi syat
`iwadh (hibah with return condition) is in line with the principle of Shariah
and is applicable in structuring Islamic bonds.
INTRODUCTION
It is one of the solutions to avoid the occurrence of bai` dayn bi dayn on the
part of the SPV when issuing Islamic bonds. This is because if the financial
right that was bought by the SPV from the original owner is being made
the underlying asset to the Islamic bond which is based on bai` bithaman
ajil (BBA), it will lead to bai` dayn bi dayn which is disputable. As such, the
property which is being hibah to the SPV will be used as the underlying asset
in issuing Islamic bonds based on BBA.
However, the type of hibah that is given by the original asset owner to the
SPV is conditional hibah. The original owner imposes a condition on the
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SPV that the property which is being hibah will be returned after it has been
used by the SPV in issuing Islamic bonds.
The majority of the Islamic jurists collectively allow hibah bi syart `iwadh.
However, they have differences in opinions in deciding on the type of contract.
The Hanafi Mazhab is of the opinion that this contract is classified as hibah
at the beginning of the contract that is before qabdh, and will end with bai`
when `iwadh occurs. Whereas, the Maliki Mazhab is of the view that this
contract is similar to bai`.
The Syafi`i and Hambali Mazhab are of the opinion that this contract is a bai`
contract and should meet the sales and purchase conditions.316
314 Al-Zarqa’, Al-Madkhal al-fiqhi, vol. 1, pp. 482–491. Al-Buhuti, Kasysyaf al-Qina`, vol. 3, pp. 188–192.
315 Al-Zarqa’, Al-Madkha al-Fiqhi, vol. 1, p. 491.
316 Al-Zuhaili, Al-Fiqh al-Islami, vol. 5, pp. 29–30.
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RESOLUTION
The SAC, at its 38th meeting on 2 April 2002, agreed that the process of
when issue (securities futures trading) in the Islamic bond market is in line
with the Shariah requirement. It is a process that has been practised in
conformity with the “al-wa`d“ principle that is the use of a promise. This
activity is permissible because it has been ascertained to be free of riba or
gharar elements.
INTRODUCTION
The process of securities futures trading was created with the objective of
obtaining a suitable bid price by a principle dealer when making a buying
offer before the issuance of the bond. At the same time the principle dealer
will be able to identify the demand level of a particular bond which is to be
launched. By identifying the demand level of the bond, the principle dealer
will be able to estimate the risk control which has to be taken during the
purchase of the bond.
The process of securities futures trading between the investor and the principle
dealer does not involve any contract but it is a promise to buy and sell. All
promises to buy and sell are recorded in the system and the parties involved
are responsible to fulfil their promises. If the party that promises to sell fails
in the bid, then the said party will buy from the market in order to deliver
to the party that has been given the promise.
The possibility of a party reneging on his promise in this process is very unlikely
because the party that made the promise will endeavour to fulfil the promise
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Capital Market Issues According to Islamic Jurisprudence
for the sake of reputation, as well as maintaining the smooth flow of the
market.
Based on the resolution of the SAC above, it is clear that the two Shariah
principles play the same role in the process of securities futures trading, as in
the process of Khazanah bonds. The only additional issue involving Shariah
basis in the process of securities futures trading is the promise or wa`d .
Al-Wa`d Principle
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Resolutions of the Securities Commission Shariah Advisory Council
The majority of past Islamic jurists allowed the practice of promises to buy
and sell. The Maliki Mazhab is of the opinion that if a promise is used to fix
the rate of profit then it is not permissible.
Current Islamic jurists have opinions that do not allow promises to buy and
sell. Their rejection of this principle is based on their understanding that it is
similar to what happens in bai` `inah. It is not allowed because there are
elements of tawatu’ (collusion) between buyers and sellers.318
The decree by the Mufti of Saudi Arabia, Sheikh Abdul Aziz bin Baz resolved
that promises to sell are permissible provided that the goods that have been
pledged are owned by those who made the promises.319
Imam Syafi`i allowed the promises to buy and sell currencies.320 The Maliki
Mazhab prohibited promises in currency transactions except by spot.321
Ibn Hazm allowed promises to buy and sell currencies at the agreed price of
the day, followed by the actual buying and selling which is sealed by both
parties. However, parties that make the promise are allowed to abort by not
executing the contract for buying and selling. Promises can be aborted since
they are not binding.322
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Capital Market Issues According to Islamic Jurisprudence
RESOLUTION
The SAC, at its 30th meeting on 8 November 2000, resolved that the use of
forward pricing is permissible for creating and cancelling units of unit trust
funds which take place between the management company and unit trust
holders.
INTRODUCTION
The Securities Commission provided a rule stating that the price of creating
and cancelling units is equal to the net asset value per unit at the next
valuation. This means that each unit price created and cancelled will only be
known at the end of the transaction day (based on forward pricing).323
For example, if units are created based on yesterday’s price, and that the
management company is aware that the share market is on an uptrend, it is
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Resolutions of the Securities Commission Shariah Advisory Council
able to maximise its profit by instructing the trustee to create units today
(based on yesterday’s price) and instruct the trustee the next day to cancel
the said units. In this situation, there is a high possibility that the cancelled
price was higher (because the market was on the uptrend) than the price
when the units were created, and the difference has to be absorbed by the
existing unit trust holders.
Apart from that, the management company can also adopt an opposite
strategy if the share market is on a downtrend. The management company
will instruct the trustee to cancel the units for today (based on yesterday’s
price) and instruct the trustee the next day to create the said units. The price
to create the units in this case is possibly lower (because the market is on a
downtrend) than the price of cancellation, and the difference has to be
absorbed by the unit trust holders.
Generally, a majority of Islamic jurists stressed that any sales and purchase
contract done without determining the price is invalid. This is the general
guideline that needs to be complied with.324
Shariah stipulates the need to know the price to avoid niza` (dispute) and
gharar. If both parties to the contract agree on the basis that must be used in
determining price according to the certain mechanism, then the issue of
niza’ and gharar can be solved.325
324 Al-Dharir, al-Gharar Wa Atharuhu fi al-‘Uqud fi al-Fiqh al-Islami, p. 255. Al-Zarqa’, Al-Madkhal al-Fiqhi,
vol. 2, pp. 691–692.
325 Al-Jaziriy, Kitab al-fiqh ‘Ala al-Mazahib al-Arba`ah, vol. 2, p. 165. Al-Dharir, al-Gharar Wa Atharuhu fi
al-‘Uqud fi al- Fiqh al-Islami, p. 271.
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Ibn Qayyim is of the opinion that buying and selling, without knowing the
price in advance when contracting, is valid so long as the method to determine
the price has been agreed by both parties, buyer and seller. This method
was adopted from the views of Imam Ahmad and was further strengthened
by the arguments of `urf and qiyas.326
According to him, `urf was used to allow buying and selling since it does not
cause niza`. This was proven during his time, where people had already
practised such buying and selling in the trading of bread and meat. What is
important here is the agreement of both parties as to how a price is to be
determined for buying and selling without necessarily knowing the price in
advance.
He also provided an analogy for such buying and selling with mahr mithl327
in marriage contracts. Although the amount of mahr is not known when a
marriage is being carried out, such marriage is valid because the method of
determining the mahr has been agreed upon, that is based on mahr mithl.
The same issue was also being recognised by Islamic jurists in determining
ijarah based on the value of mithl.
Some modern Islamic jurists of the Hanafi Mazhab recognise buying and
selling which they called bai`al-istijrar.328 This form of buying and selling is
similar to al-bai` bima yanqati` bihi al-si`r which is permissible in the
Hanbali Mazhab. With this, there is a point of convergence between modern
Islamic jurists from the Hanafi and Hanbali Mazhab.329
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142
Shariah Criteria for Listed Securities
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Resolutions of the Securities Commission Shariah Advisory Council
INTRODUCTION
At the end of 1995, the Islamic Capital Market Department (ICMD) of the
Securities Commission (Commission) with the co-operation of the Islamic
Instrument Study Group (IISG) took the initiative to begin a study of securities
listed on Bursa Malaysia (formerly known as Kuala Lumpur Stock Exchange).
As a result of the study, a set of criteria were formulated to be used as
basic guidelines for the study of listed securities. This study was continued
by the ICMD with the establishment of the Shariah Advisory Council (SAC)
that replaced the IISG. The role of the SAC was to ensure that the studies
carried out were conducted according to Shariah principles. In June 1997,
the Commission published a list of Shariah-compliant securities based
on Shariah principles. At that time, the number of Shariah-compliant
securities was only 371 or approximately 57% of the total listed securities.
By 28 October 2005, a total of 857 securities or 85% of the listed securities
were found to comply with the Shariah principles, enabling Muslim
investors to invest the Islamic way.
The IISG and SAC carried out their study from various angles, including
considering the views from within and outside the country before publishing
the initial list of Shariah-compliant securities. However, the criteria used as a
basis to review the securities are constantly updated based on the research
and case studies of all the listed securities on Bursa Malaysia. This is to
ensure that Shariah-compliant securities go through the appropriate review
process, in line with the requirements for the development and progress
of the Islamic capital market in this country.
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Shariah Criteria for Listed Securities
SHARIAH CRITERIA
After a lengthy study and discussion with various parties within and outside
the country, the SAC established that the following criteria can be used to
analyse whether securities of a particular company can be deemed Shariah
compliant or not. By applying these criteria, the Shariah-compliant securities
can be separated from all listed securities. The IISG, at its 5th meeting on
23 August 1995, decided on four basic primary criteria to analyse listed
securities.
In general, these criteria were established after referring to the Quran, hadith
and general Shariah principles, and were formulated according to the activities
of a particular company. The criteria are as follows:
First Criterion
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Resolutions of the Securities Commission Shariah Advisory Council
Meaning: “Those who devour riba will not stand except as one whom
the evil one by his touch hath driven to madness. That is because they
say: ‘Trade is like riba,’ but God hath permitted trade and forbidden
riba. Those who after receiving direction from their Lord, desist, shall
be pardoned for the past; their case is for God to judge; but those
who repeat (the offence) are Companions of Fire: they will abide therein
(forever). God will deprive riba of all blessing, but will give increase
for deeds of charity: for He loveth not creatures ungrateful and
wicked.”
Islamic jurists from all the mazhab unanimously view that riba is
forbidden. Because of this consensus of opinion, the prohibition on
riba has become ijmak.331
Second Criterion
The prohibition on gambling is clear in the Quran, where Allah s.w.t. ordered
the faithful to stay away from it, as decreed in verse 90, Surah al-Maidah:
331 Ibnu Qudamah, Al-Mughni, vol. 4, p. 134. Al-Syirazi, Al-Muhazzab, vol. 1, p. 170. Ibnu Rusyd, Bidayah
al-Mujtahid, vol. 2, p. 217. Al-Zuhaili, Al-Fiqh al-Islami, vol. 4, p. 670.
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Third Criterion
The primary activity of a company is the production and sale of goods and
services that are prohibited in Islam, including:
Islam urges the whole of mankind to eat food which is halal and
good. This exhortation is based on the decree of Allah s.w.t. in the
Quran, verse 168, Surah al-Baqarah:
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Meaning: "Forbidden to you (food) are dead meat, blood, the flesh of
swine, and that on which has been invoked other than Allah’s name,
that which has been killed by strangling, or by a violent blow, or by a
headlong fall, or by being gored to death, that which has been eaten
by a wild animal, unless you are able to slaughter it (in due form), and
that which is sacrificed on stone altars."
(Surah al-Maidah: 3)
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Similarly, with a company which carries out immoral activities like selling
alcoholic drinks, running pubs and discos, prostitution, etc. because such
activities encourage vice.
Fourth Criterion
333 For further details please refer to the SAC resolution on gharar.
334 Hadith narrated by Muslim.
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MIXED COMPANIES
RESOLUTION
The SAC, at its 2nd meeting on 21 August 1996, discussed the status of
companies running a mix of permissible and prohibited activies. The SAC
resolved that such companies, with a certain degree of prohibited elements
which do not exceed the benchmark set by the SAC, can be included in the
List of Shariah-compliant Securities by the Shariah Advisory Council of the
Securities Commission. The SAC also resolved that the subject of ’umum
balwa and gharar yasir need to be taken into account when justifying a
company with a mix of permissible and prohibited elements, whereby its
core activity is permissible. At its 9th meeting on 27 August 1997, the SAC
decided on a benchmark in relation to the image factor of a company.
INTRODUCTION
A mixed company is one where its core activities are permitted by Shariah,
although there are some other activities that may contain a small extent of
prohibited elements. For mixed companies, the SAC carries out an analysis
with additional considerations before including these companies in the list
of Shariah-compliant securities. These considerations are–
(a) the core activities of the company must be activities which are not
against the Shariah principles as outlined in the four primary criteria
(that were explained earlier). Furthermore the haram element must
be very small compared to the main activities;
(b) public perception of the image of the company must be good; and
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(c) the core activities of the company have importance and maslahah
(benefit in general) to the Muslim ummah and the country, and the
haram element is very small and involves matters such as `umum balwa
(common plight), `urf (custom) and the rights of the non-Muslim
community which are accepted by Islam.
335 Fasad al-zaman means the lack of good deeds and practices at a particular time.
336 Abdul ’Aziz Khayyat, Al-Syarikat fi Dhau’ al-Islam, Al-Idarah al-Maliyyah, Al-Majma’ al-Malaki, Amman,
1989, vol. 1, p. 196.
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The form of prohibited activity in the first case is more for financing the
company’s purchase of machinery, equipment and others. The form of
prohibited activity in the second company is to provide a service to non-
Muslims.
The next issue also addressed by the Islamic jurists concerns companies owned
by Muslim partners but where one partner carries out a prohibited activity,
for example, riba. The situation comes about because this partner
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is not that observant about religious and moral practices. A matter such as
this also gives rise to a difference of opinion among the past Islamic jurists
because it was related to the principle about a person’s sins not being
transferable to another and also the principle of muamalat transactions being
generally permissible. It means that we are allowed to practise muamalat
among fellow Muslims who may be faithful or fajir338 or between Muslims
and non-Muslims or vice-versa.
The past Islamic jurists did not make religion a condition for incorporating a
company except when it concerns a mufawadhah company.339
Some Islamic jurists believe that it is permissible for Muslims to partner non-
Muslims in business, although it is not encouraged. The Islamic jurists were
from the Syafi`i Mazhab, and some from the Hanafi, Maliki and Hanbali
Mazhab.340
338 Muslim fajir means a Muslim who does not follow the commandments of Allah s.w.t. and does not
protect himself from doing what is prohibited.
339 A mufawadhah company is a company with partners who share the capital, action, debts and profits,
starting from the beginning of the company’s operations right up to the end. See Al-Khafif, Ahkam al-
Muamalat, p. 458. Nazih Hammad, Mu`jam al-Mustalahat, p. 169.
340 Al-Hattab, Mawahib al-Jalil, vol. 5, pp. 118–119. Al-Buhuti, Kasysyaf al-Qina’, 1982, vol. 3, p. 496.
Al-Ramli, Nihayah al-Muhtaj, Dar al-Fikr, Beirut, vol. 5, p. 6. Al-Rafi`i, Fath al-’Aziz (Al-Majmu` Syarh al-
Muhazzab), Dar al-Fikr, Beirut, vol. 10, p. 405.
341 Al-Hattab, Mawahib al-Jalil, vol. 5, pp. 118–119. Al-Buhuti, Kasysyaf al-Qina’, vol. 3, p. 496. Al-Ramli,
Nihayah al-Muhtaj, vol. 5, p. 6. Al-Rafi`i, Fath al-`Aziz, vol. 10, p. 405.
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Imam Hanafi and Muhammad were from among the early generation of the
Hanafi Mazhab who did not believe it was permissible for Muslims to
collaborate with non-Muslims through mufawadhah. This was because Islamic
and non-Islamic activities differ. What was permissible for non-Muslims was
considered mal such as liquor and pork, which were prohibited for Muslims.
Based on the views of many Islamic jurists,342 the approach towards permitting
Muslims to invest in the shares of companies with a mix of permissible and
prohibited activities is justified. This is because the esteemed Islamic jurists
did not prohibit such companies when evaluating the status of companies
jointly owned by both good Muslims and fajir Muslims, even though the
companies were later found to carry out prohibited activities, such as riba
and the sale of liquor.
Past Islamic jurists also discussed the issue of funding from both permissible
and prohibited sources. The majority of the Islamic jurists allowed such
transactions involving permissible and prohibited funding, provided the ratio
of permissible funds is more.
Meaning: “If the permissible money is more, that is, one dirham of
prohibited money is mixed with one thousand of permissible money,
then the transaction is allowed.”343
342 A majority of Islamic jurists from the Hanafi, Maliki, Syafi`i and Hanbali Mazhab found mixed companies
to be permissible. Regardless of the Islamic jurists, who came before the Hanafi Mazhab, not permitting
such companies; the later Islamic jurists permitted them based on a differing interpretation towards the
social situation which could influence a fatwa. The change in judgement from not permitting to permitting
was seen as meeting the needs of Muslims to be involved in controlling a company in a plural society.
343 Izz al-Din bin Abd al-Salam, Qawa`id al-Ahkam, vol. 1, pp. 72–73.
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Ibnu Taimiyyah also gave the same view with regards to funds where
permissible and prohibited assets are mixed:
...
Gharar346 and ghabn347 are two negative elements that can ruin a contract.
However, should it occur in a small amount, Islamic jurisprudence
considers it normal and will not adversely affect the contract’s goodwill. In
other words, the miniscule presence of these two negative elements in a
contract is excusable. The same situation can happen in a mixed company
where the permitted activity is more than the prohibited activity. Therefore,
the nature of such a company is within the permissible bounds of the Islamic
jurisprudence and is excusable.
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With reference to the masalih dharuriah,349 Syara` has listed hifz al-mal350 as
a masalih dharuriah that must be regarded very seriously. The question of
the Muslims’ economic strength and integrity is an important factor in the
continuity and progress of Muslims. Large companies whose core activity is
permissible, should not be cast aside by Muslims just because there is a small
number of activities that do not comply with the Shariah requirements. If
Muslims are involved in these companies, they can concentrate their capital
in permissible activities that outweigh those which are prohibited. Besides,
this will benefit Muslims as they can participate in the economy, especially in
companies that are important and strategic to them.
348 Please refer to the SAC resolution on `umum balwa for further details.
349 Al-Syatibi, Al-Muwafaqat, vol. 2, pp. 8–10. Al-Masalih al-Dharuriyyah refers to the five primary concerns
of mankind – preservation of religion, self, mind, genealogy and property.
350 Hifz al-mal means preservation of property.
351 Al-Zarqa’, Al-Madkhal al-Fiqhi, vol. 2, p. 923.
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Even then, changes are confined to rulings that are ijtihadi in nature.
The reason for deciding on a ruling that differs completely from its original
ruling, that is from not permitting to permitting, is so that the religious
maslahah will continue to be preserved. If the ruling is not updated in line
with the changing times and environment, religious study and its propagation
would almost certainly be completely neglected. This contradicts the
requirement of the Shariah which wants such noble efforts to continue.
Thus, maintaining an old ruling which has no maslahah is contradictory to
Shariah principles.
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There are parties opposed to the inclusion of a mixed company in the list of
Shariah-compliant securities due to its non-compliance with the maxim
( ) which means that if the permissible is
mixed with the forbidden, then it should be ruled as forbidden. They are of
the view that such a mixed company should not be at all included in list of
Shariah-compliant securities.
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Shariah Criteria for Listed Securities
(c) Maslahah
If such an action is taken, and hopes of achieving good are more positive,
and the disadvantage can be overcome and averted, then such an action
should continue. This takes into consideration the command of Allah s.w.t.:
On the contrary, if the bad cannot be overcome and the good cannot be
obtained because the bad outweighs the good, then the decision not to
proceed with the planned action is wiser to avoid the bad.
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The esteemed past Islamic jurists did not draw up a benchmark for
determining the status of a mixed company. This, therefore, gives modern
Islamic jurists the opportunity to think about such a benchmark.
The SAC took into account additional elements like maslahah, `umum balwa,
`urf khas min asalib iqtisodiyah, 358 fasad al-zaman and huquq ghair
muslimin.359 The SAC also looked at numerous fatwa (religious edict from
a qualified scholar) which have become exceptions to the maxim
which means, if there is a mix of the
permissible and the prohibited, then it is ruled as prohibited.
For example, the mixing of slaughtered animals by Muslims and the Majusi
is ruled to be totally prohibited.360 This fatwa is in line with the maxim
because such a mixed item is prohibited in
essence. Whereas if the essence of such an item is not prohibited, but is
prohibited for other reasons, then it needs to be scrutinised differently.
Ibnu Qayyim in his Bada’i` al-Fawa’id361 divided the nature of prohibited assets
into two groups:
(a) Prohibited because of its zat (nature), for example liquor, pork, etc.
This relates to the case of mixing slaughtered animals mentioned earlier;
and
(b) Prohibited due to other reasons, for example, the means by which
money is earned is prohibited. Money, in essence is not prohibited,
but if money is obtained as a result of theft, robbery, cheating, etc.;
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Meaning: “The Prophet s.a.w. took a piece of silk and placed it on his
right. He took some gold and placed it on his left. Then he said: Both
these things are prohibited unto men among my followers, but
permissible for the women.”362
However, it can be worn by men if the ratio of silk thread mixed with the
common thread does not exceed 50%. The benchmark concerning such a
mixture is 50%. In other words, if the mixture of silk does not exceed 50%,
the cloth may be worn by men. The question is whether such a benchmark
is suitable for application in the context of mixed securities. However, from
the viewpoint of asset characteristic, both cases are essentially similar, as
they appear to be assets that are not prohibited in essence.
Benchmark of One-third
The Prophet s.a.w.’s condition of 1/3 (33.33%) is a very generous limit which
can also be considered for use as the benchmark for mixed companies. This
statement can be supported by the legacy of Sa`ad Ibn Abi Waqas who
wanted to leave his assets as alms as in the following hadith:
362 Hadith narrated by Ahmad, Abu Daud, Nasa’i and Ibn Majah.
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Meaning: “One day, the Prophet s.a.w. visited Sa`ad bin Abi Waqas
who was ill. Sa`ad expressed to the Prophet s.a.w. his feelings that his
illness was entering the last phase and that death was near. He asked
for the Prophet s.a.w.’s opinion on giving his assets away as alms for
he had only one daughter to inherit his wealth. Therefore, he wished
to give as alms 2/3 of his property. However, the Prophet s.a.w. stated
his objections. Then Sa`ad asked whether he could give away 1/2 of
his property. The Prophet s.a.w. still said no. The Prophet s.a.w. then
said: 1/3 (of Sa`ad’s property to give away as alms) is enough, that too
is still too much. Verily, to leave your heir wealthy is far better than to
leave you heir impoverished and dependant on other people’s
charity.”363
Based on the Prophet s.a.w.’s words, 1/3 or 33.33% “is enough” and can be
used as a guideline for the basis of formulating a benchmark. The question
is whether this benchmark is suitable to be used for mixed companies,
because it relates to the bequest of property and giving of alms. Even so,
it cannot be denied that it can be used as a benchmark to set the upper
limit of a mixture because an amount exceeding the percentage set will
be considered excessive.
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(b) 10 per cent for animals, including those used for riding; and
365 Tanajusy refers to a collusion between the seller and the buyer outside the actual market in order to
stimulate interest among buyers to buy at a higher price, when the said buyer has no wish to buy. The
motive of the collusion is to influence the market and subsequently take the opportunity to make
profits. It is a form of cheating and is prohibited in Islam. Please refer to Nazih Hammad, Mu`jam al-
Mustalahat, p. 274.
366 Al-Zarqa’, Al-Madkhal al-Fiqhi, vol. 1, p. 378.
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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:
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
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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INTRODUCTION
The SAC used two approaches in its resolution of analysing listed companies:
The SAC’s resolution on the status of listed securities related to image depends
on the following categories:
The SAC resolved that hotel activities do not comply with Shariah
because of image. This is due to the existence of night clubs provided
by the hotel management, for which their contribution are not
accounted for because they are considered as complimentary for the
hotel guests. In addition, hotel activities give a negative image to the
public. As such, the SAC placed a benchmark of 25 per cent on the
image factor for hotel activities; and
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(f) Equity holding of listed companies that do not comply with the Shariah.
Studies on image from the perspective of the Shariah are carried out to
identify the actual meaning of image according to the views of the Shariah.
At the same time, it is also to avoid any misunderstanding in the use of the
image terminology which all this while has been used as the basis to assess
a listed company.
Definition of image
367 Dewan Bahasa dan Pustaka, Kamus Dewan New Edition, Kuala Lumpur, 1989.
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368 The Concise Oxford English-Arabic Dictionary, Edited by N.S. Doniach, Oxford University Press, 1982.
369 Yusuf al-Qaradhawi, Madkhal li Dirasah al-Syari`ah al-Islamiyyah, p. 104.
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Sadd zari`ah is among the methods acceptable and used by some Islamic
jurists. In fact it was made as one of the important principles by Maliki
Mazhab in determining certain laws.
The tazarra` method as debated by Islamic jurists is divided into two sections.
The first section refers to paths or ways that are expected, whether
compulsory, optional or permissible. In this context, it is called “fath zari`ah”
or paths which are open and permissible. The second section refers to
paths which will lead to adversity and things that are prohibited. This
second path becomes the basis for Islamic jurists of the Maliki Mazhab in
determining the law.
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Izz al-Din urged when there is a meeting point of the good and adverse, the
solution is to weigh intelligently how far the good is implemented and
adversity is avoided.374
The Shariah principle for mixed companies as clarified earlier is also used
to assess the image status. In order to make the relationship between the
Shariah principle and image even clearer and more complete, the following
principles were used for the image criteria. The three main principles are:
Maslahah Rajihah
Company activities which are closely related to this method are hotel
activities, including resorts and chalets. Although hotel activities or rest
houses were initially permissible according to the Shariah, but due to other
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supporting services which are prohibited by the Shariah, such as the sale of
alcohol, massage parlours, night clubs and others; hotel activities are
bound by the image criteria. However, in order to honour the rights of non-
Muslims, it is forgiven.
Sadd Zari`ah
Company activities classified under this method are activities whose benefits
are disputed by the Islamic jurists and may give rise to detrimental acts or
aspersion if they are not controlled. One such activity is the manufacturing
and marketing of condoms.
The condom itself initially does not give rise to any problem if used in a
permissible way. But studies showed that condoms are used for immoral
activities and can give rise to aspersions, such as promiscuity which is
prohibited.
The meeting point of maslahah and sadd zari`ah can happen when an activity
is seen as one that brings enormous benefit to mankind. However, at the
same time, there are mixed activities which give a bad perception to the
Islamic image and also in the eyes of Muslims.
The maslahah is that most of the processed foods and drinks are halal and
give benefits to society. Due to the prohibited element which also concerns
food, the image implicating the unhealthy mixture of activities becomes a
concern to the SAC in assessing which is more aslah to society.
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Glossary
GLOSSARY
Ahli Kitab the kitabis, people of the Book i.e Christians and
Jews
`aqd contract
bai` sale
bai` ma`dum buying and selling something that does not exist
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dayn debt
dharurah necessity
halal lawful
haq right
hibah gift
172
Glossary
`illah cause
initizar waiting
juz’ie branch
khiyar option
mal asset/property
manhaj methodology
mudabbar slave
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Resolutions of the Securities Commission Shariah Advisory Council
muqamarah gambling
musyarakah partnership
qabadh possession
qadhi judge
qardh loan
qiyas analogy
riba usury
ta`attul delay
174
Glossary
ta`widh compensation
ta’wil interpretation
`uqud contracts
175
Bibliography
BIBLIOGRAPHY
Al-`Al, Ismail Salim Abd, Al-Bahth al-Fiqhi, Maktabah al-Zahra’, Cairo, 1992.
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Resolutions of the Securities Commission Shariah Advisory Council
Al-Dusuki, Hasyiah al-Dusuqi `ala al-Syarh al-Kabir, Dar Ihya’ al-Kutub al-
Arabiyyah, Cairo.
Al-Jaziri, Abd al-Rahman, Kitab al-Fiqh `Ala al- Mazahib al-Arba`ah, al-
Maktabah al-Tawfiqiyyah, Cairo.
178
Bibliography
Al-Misri, Rafiq Yunus, Usul al-Iqtisad al-Islami, Damascus, Dar al-Qalam, 1989.
Al-Ramli, Nihayah al-Muhtaj ila Syarh al-Minhaj, Dar al-Fikr, Beirut, 1984.
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Resolutions of the Securities Commission Shariah Advisory Council
Al-Sanhuri, Abdul Razzak, Masadir al-Haq fi al-Fiqh al-Islami, Dar Ihya’ al-
Turath al-`Arabi, Beirut.
Al-Zaila`i, Tabyin al-Haqai’q Syarh Kanz al-Daqa’iq, Dar al-Kitab al-Islami, Cairo.
180
Bibliography
Dewan Bahasa dan Pustaka, Kamus Dewan Edisi Baru, Kuala Lumpur, 1989.
Friedman, Jack P., Dictionary of Business Terms, Barron’s, New York, 1987.
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Resolutions of the Securities Commission Shariah Advisory Council
Ibn Nujaim, Al-Bahr al-Ra`iq Syarh Kanz al-Daqa`iq, Dar Al-Makrifah, Beirut,
1993.
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Bibliography
Khallaf, Abd al-Wahab, Masadir al-Tasyri` al-Islami fi ma la Nassa fihi, Dar al-
Qalam, Kuwait, 1982.
Nik Ramlah Nik Mahmood, “Regulatory Framework and the Role of the
Securities Commission in Developing the Islamic Capital Market”,
National Conference on Islamic Banking and Investment, Kuala Lumpur,
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OIC Fiqh Academy at its 10th conference on 28 June–3 July 1997 in Jeddah.
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