INCEIF University Journals
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Possession of Currency Prior to Sale: A Fiqhī and Practical Analysis of Spot FX-i in Malaysia
No full textThis research draws upon a study conducted in 2013 by the Specialist Risk Unit (SRU) of Bank Negara Malaysia (BNM) on the foreign currency (FX) trading practices adopted by Islamic financial institutions (IFIs) in Malaysia. The SRU studied the practice of FX spot trading of five IFIs. Assessment was made on the structure of the products, operational practices, legal documentation and Sharīʿah governance processes. The study found a potential Sharīʿah issue in the practice of FX spot trading in that the IFIs do not have in their possession sufficient currency at the time of selling the currency. Accordingly, this research attempts to get a better understanding of FX spot trading by IFIs in Malaysia and the associated Sharīʿah issues that arise therefrom. II
A Proposed Regulatory Framework for Islamic Microfinance: Adopting the IFSA 2013 Approach
No full textFor an accurate implementation of Islamic microfinance, there needs to be a true understanding of the terms ‘Islamic’ and ‘microfinance’. Unlike conventional microfinance, Islamic microfinance is based on the underlying tenets of Islam which define its functions and operations. While both conventional and Islamic microfinance are guided by the principles of microfinance, Islamic microfinance has the added dimension of compliance with the Sharīʿah (Islamic law) when defining its activities
Application of the Concept of Beneficial Ownership in Ṣukūk Structures: An Islamic Legal Analysis
No full textAsset ownership is an important aspect of ṣukūk structuring and issuance. However, a recurring and contentious issue regarding the underlying ṣukūk asset is the actual nature of its ownership and the corresponding legal implications for ṣukūk holders and other parties in the ṣukūk transaction. Many ṣukūk are based solely on beneficial ownership of the assets whilst legal title is retained by the originator or trustee. This paper attempts to ascertain the status of beneficial ownership vis-à-vis registered legal title from the Islamic legal perspective. The paper begins with an examination of the meaning, origin and status of beneficial ownership under English law. This is followed by a brief discussion on ownership (milkiyyah) from the Sharīʿah (Islamic law) perspective and a deliberation on the status of beneficial ownership under the Sharīʿah. Finally, the paper analyses the use of beneficial ownership in ṣukūk structures and its implication on ṣukūk holders and other parties in the ṣukūk transaction
Personal Cooperatives Model: Basic Concepts and Evidence from Jordan
No full textThis paper focuses on the cooperative finance model and its applications in managing financial needs at personal and household levels. The model is based on the principle of mutual qarḍ ḥasan where interest-free loans are provided to each member of the cooperative society, and the model can be called the Personal Cooperatives (PC) model. It represents an important way to finance consumer needs and enable savings for short and medium-term periods. The PC model is also an interesting phenomenon that should be studied thoroughly in the context of Muslim communities since it represents a substitute for the traditional banking system. This paper accordingly seeks to study the perception of participants involved in the PC model in order to identify their motives and personal evaluation of this model. The study further explores the participants’ attitudes toward the operation of this model based on Sharīʿah (Islamic law) principles. It is an exploratory study utilising the survey research approach. A random sample of participants in a medium-size city in Jordan whose members depend on the PC model in managing their financial needs has been selected. The questionnaire method has been used to collect data about: the economic and demographic traits of the participants; motives behind their participation in the PC model; their experience with and views on the PC model; and whether they find it better to institutionalise the model or maintain the status quo. The main findings of this survey generally agree with the mainstream findings of previous literature. The analysis of demographic traits shows that the PC model is not restricted to a particular gender. Another key finding of this survey is the low ratio of default risk. The general trend shows very positive attitudes of the sampled members towards the PC model. The survey also highlights that PC societies can be a substitute to banks in providing personal credit
Towards a Corporate Model of Islamic Law of Insolvency: A Note on “Voluntary Insolvency”
No full textThe emergence and development of Islamic finance has opened the gate for new, unforeseen questions. One of these new issues is the insolvency and bankruptcy of corporate entities. Classical Islamic law only deals with the insolvency of individuals because there were no corporations in the form of a “legal personality” having the unique attribute of “limited liability” at that time. Thus, it should not come as a surprise that there is no concept of “corporate bankruptcy” under Islamic law. This situation leads us to two conclusions: first, the issue of corporate bankruptcy is difficult to address from an Islamic law perspective, with even its fundamental issues needing to be explored from scratch. Second, looking at financial failure episodes around the world, the Islamic finance industry must be aware of the importance of this problem and try to come up with viable solutions before the industry is confronted with actual insolvency situations. This state of affairs requires rigorous and all-encompassing research on corporate insolvency law from the Islamic law perspective
Sharīʿah Compliance of Islamic Credit Cards Reconsidered: A Case Study of Malaysia
No full textMany structures have been proposed by Islamic banks in Malaysia for Islamic credit cards including murābaḥah (sale with mark-up), bayʿ al-ʿīnah (sale and immediate buy-back) and tawarruq (tripartite sale). However, recently, some Islamic financial institutions have employed the contracts of ijārah (leasing), ujrah (fee) and mushārakah mutanāqiṣah (diminishing partnership) as an alternative for structuring Islamic credit cards. This paper aims to examine a new structure for an Islamic credit card offered by an Islamic bank in Malaysia using the contract of ujrah and kafālah bi al-ujr (guarantee with fee). This paper is qualitative in nature and employs a case study to examine the Sharīʿah issues arising from this structure. Based on the case study presented, the paper finds that the structure combines three contracts—namely, qarḍ (loan), kafālah (guarantee) and ujr (fee). The Sharīʿah issues relate to the monthly management charges, cash withdrawal management charges and the combination of sale and loan contracts. It is observed that the actual monthly management charges (AMMCs) and actual cash withdrawal management charges (ACWMCs) are comparable to ribā al-qarḍ since the bank imposes fees tied to the amount of outstanding balance. Meanwhile, the issue of combination of contracts arises as the product combines qarḍ (non-exchange contract) with kafālah bi al-ujr (exchange contract) in one deal. This combination was prohibited by the Prophet (SAW) as it has been used as a method for circumventing the prohibibion of ribā (interest). This study proposes that the bank may retain the fixed monthly management charges (FMMCs) and fixed monthly cash withdrawal charges (FMCWCs), but it has to eliminate the AMMCs and ACWMCs as they amount to ribā. In order to resolve the controversial issue of combining exchange and non-exchange contracts, it is proposed that the contract of kafālah bi al-ujr be replaced with the concept of takāful (Islamic insurance). Thus, with some improvements and modifications required in the structure of the Islamic credit card examined, this paper looks into ways of maintaining the Sharīʿah compliance of the product
Hotel Investment and Financing: A Call for Sharīʿah Consideration and New Methodology of Assessment and Screening
No full textThe objective of this paper is to initiate a debate on the issue of investment in and financing of the hotel business. The motive behind the discussion is the fact that the hotel business, as a stand-alone activity, is considered a Sharīʿah non-compliant asset and is listed in the negative list in Malaysia. Hence, as a general Sharīʿah rule, it is not allowed to invest in the hotel business or provide financing to it as a stand-alone entity
The Relationship Between Islamic Mutual Funds and Oil Prices: Which Leads The Other?
No full textThis paper attempts to investigate the causal relationship between Islamic mutual funds and oil prices using a rich dataset from leading world markets. The issue is an important one to examine because, since the 1990s, Islamic mutual funds have emerged to occupy an important place in all the major stock markets of the world. On the other hand, oil is the most critical and crucial commodity and occupies a key role in the economies of many countries, especially in the Middle East. The Middle East has more than half of the world’s proven oil reserves and remains the locus of the global oil market. To meet the demand of Muslims (particularly in Middle Eastern countries) who wish to invest in equities, including non-conventional ones, Islamic equity funds have emerged rapidly since the early 1990s. Much attention has been given to the temporal relationship between oil prices and index returns. However, there is a serious gap in the literature on the temporal relationship between oil prices and Islamic mutual fund performance, and this paper attempts to fill this gap. The empirical results show that oil prices do not cause changes in Islamic mutual fund performance; rather, Islamic mutual funds cause changes in oil prices. Moreover, the results also indicate that there is a long-run relationship between Islamic mutual funds and oil prices. These results are consistent with previous studies, which show that during recession periods, stock markets lead oil prices because the equilibrium between demand and supply for oil is volatile and because oil is not only a fuel but also an investment commodity
Legal Issues in Sharīʿah Governance in the Islamic Finance Industry in Malaysia
No full textIn Malaysia, the Islamic Financial Services Act 2013 (IFSA), the Central Bank of Malaysia Act 2009 (CBMA) and the Shariah Governance Framework (SGF) prescribe the structures and processes required for the Islamic finance industry to ensure compliance with the Sharīʿah (Islamic law). The Shariah Advisory Council of Bank Negara Malaysia (SAC)—the apex authority on Sharīʿah matters relating to banking and takāful—passes rulings and advises Bank Negara Malaysia (BNM), Islamic financial institutions (IFIs), the courts and arbitrators on Sharīʿah issues. The Shariah Committee (SC) of each IFI, on the other hand, functions within the specific IFI to ensure compliance of its operations with the Sharīʿah. This research highlights current legal issues within the Islamic finance industry that should be addressed to optimise the role that each organ plays. The research highlights that the role of the SAC should be beyond just ‘ascertainment’ of Islamic law and suggests the amendment of s.57 of the CBMA. It also proposes to allow ‘other persons’ to seek the expert advice of the SAC. The enhanced role of monitoring and rectifying Sharīʿah non-compliance and the distinct burden and liability of the SC is highlighted in this research. Also, the role of the Board of Directors (BOD) vis-à-vis the SC and their shared responsibility in relation to Sharīʿah compliance is explored. Finally, recommendations are suggested to overcome the legal issues raised
Tazkiah Banks: A Future Model for the Establishment of Endowment-Based Business Start-Ups
No full textThis paper offers a model for a cash waqf bank, called a tazkiah bank―based on crowdfunding, endowment, and the global mobilisation of business through savings and investments―that reinforces societal values and stimulates civil society at the grassroots level. A tazkiah bank is defined as an independent institution that collects funds from donors or endowment contributors (whether institutions or individuals), then routes them to viable, productive, for-profit investments that contribute to economic development and encourage social responsibility. Web-based technology related to social networking would play a key role in the development of tazkiah banks as they would take advantage of feedback and readily available knowledge from various communities in order to gain diverse information that determines which or how projects receive funding and the size of the funds needed. This model aims to promote sustainable economic development by incorporating features that can overcome the shortcomings of traditional Islamic banks and endowment institutions. The success of the tazkiah bank model requires long-term strategies. This paper seeks to explore alternatives by applying Causal Layered Analysis (CLA) methodology to this model in order to delve beneath the superficial signs of issues to explore underpinning systems, structures, and worldviews. To do so, it moves through the four levels of CLA from the most visible (the empirical litany) to the least visible (the realm of myths and metaphors)