Shariah Advisory Council Resolutions
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Questions and Answers

What is the purpose of SAC resolutions on ta`widh in ICM?

  • To introduce a new concept in Islamic finance
  • To ban the practice of ta`widh in Islamic financing
  • To regulate the use of ta`widh in Islamic banking
  • To address the issue of late repayment in sukuk issuance (correct)

    • Is the imposition of ta`widh on the late repayment of Islamic financing permissible?

    True

    What is ta`widh in the context of Islamic financing?

  • A method of calculating profit
  • A compensation for actual loss
  • An imposition on non-judgment debt
  • A penalty for late payment by debtor (correct)

    • Ta`widh can be imposed on a sukuk issuer for failure to pay the expected profit.

    <p>False</p> Signup and view all the answers

    What is the maximum combined rate of ta`widh and gharamah for default payment after maturity date?

    <p>10%</p> Signup and view all the answers

    Bai inah involves sale and purchase between two contracting parties where the owner sells the asset to the buyer on cash basis and then buys back the asset at a deferred price which is higher than the cash sale. This transaction is known as ________.

    <p>bai<code> </code>inah</p> Signup and view all the answers

    Match the following principles of bai inah with their corresponding conditions:

    <p>Execution of sale and purchase contracts via two clear and separate contracts = Both sale and purchase contracts shall be executed at different times Sale and purchase without conditions for repurchase or resale of asset = Sale and purchase of asset shall not have the conditions for repurchase or resale of asset Execution of sale and purchase contracts at different times = Sequence of execution for each sale and purchase contract shall be based on proper sequence</p> Signup and view all the answers

    According to the Resolutions of the Shariah Advisory Council of the Securities Commission Malaysia, what is required for the sale or purchase of an asset?

    <p>Selling party signs the agreement first followed by the purchasing party</p> Signup and view all the answers

    True or False: Possession or holding of an asset (qabdh) must occur physically according to Shariah and customary business practice.

    <p>True</p> Signup and view all the answers

    What does 'Ibra' refer to in the Islamic Capital Market?

    <p>an act of releasing absolutely or conditionally one’s rights and claims on any obligation against another party</p> Signup and view all the answers

    Explain the concept of 'Wa'd' based on the Resolutions of the Shariah Advisory Council.

    <p>Wa'd is a promise by a person or a party to perform certain task in the future.</p> Signup and view all the answers

    According to the SAC resolution, how many individual Shariah advisers must be appointed to form a Shariah Committee for an Islamic business trust?

    <p>Three</p> Signup and view all the answers

    Islamic Exchange-Traded Fund based on gold and silver units represent the unitholders' ownership of the gold and silver based on a proportionate basis.

    <p>True</p> Signup and view all the answers

    What type of securities are described as stapled securities?

    <p>Shares</p> Signup and view all the answers

    RCUIDS holders are considered as the company's ____________ rather than shareholders.

    <p>creditors</p> Signup and view all the answers

    What is the definition of Tawarruq?

    <p>Purchasing a commodity or asset on deferred price and subsequently selling it to a third party at a lower price than the purchase price on cash basis.</p> Signup and view all the answers

    What did the Shariah Advisory Council resolve about Tawarruq in the Islamic capital market?

    <p>Tawarruq is permissible.</p> Signup and view all the answers

    According to the SAC, shares are assets classified as ________.

    <p>mal mithli</p> Signup and view all the answers

    True or False: Single Stock Futures (SSFs) contract is permissible in Shariah.

    <p>True</p> Signup and view all the answers

    What is the main feature of Business Trusts?

    <p>There is no restriction on the type of assets a business trust may hold.</p> Signup and view all the answers

    What must be done with the excess amount of Shariah Non-Compliant Rental if the Islamic REIT is unable to reduce it to less than the 5% Threshold?

    <p>channelled to baitulmal or charitable bodies</p> Signup and view all the answers

    What is required for an Islamic REIT to convert from a conventional REIT?

    <p>All of the above</p> Signup and view all the answers

    Islamic REITs may use conventional derivatives for hedging if Islamic derivatives are not available.

    <p>False</p> Signup and view all the answers

    According to the content, what are some of the permissible investments other than real estate for Islamic REITs?

    <p>Conventional banking and lending</p> Signup and view all the answers

    Islamic REITs may use conventional derivatives if Islamic derivatives are not available or commercially viable.

    <p>True</p> Signup and view all the answers

    What is the Shariah principle applied in Shariah-compliant preference shares (PS)?

    <p>musharakah</p> Signup and view all the answers

    PS with zero dividend feature refers to PS that do not distribute any dividend to its holders. However, such PS may offer certain incentives to attract investors, as long as these incentives do not include capital and/or profit ______ by the contracting parties.

    <p>guarantee</p> Signup and view all the answers

    What are some of the incentives allowed for preference shares? Provide two examples.

    <p>Determination of certain redemption method and offering of detachable company warrants.</p> Signup and view all the answers

    PS holders are not entitled to participate in the surplus profit earned by the company. Is this statement true or false?

    <p>True</p> Signup and view all the answers

    What are the three categories of participating preference shares based on the surplus profit distribution?

    <p>Fully-participating</p> Signup and view all the answers

    Convertible preference shares entitle holders the right or option to convert to ______.

    <p>ordinary shares</p> Signup and view all the answers

    Match the following conversion methods with their descriptions:

    <p>Conversion ratio = Determines the rate at which preference shares can be converted to ordinary shares Conversion ratio and conversion price = Specifies both the rate and price for converting preference shares to ordinary shares Cash paid for the difference between the PS surrendered and the conversion ratio = Involves payment to cover the difference when converting preference shares</p> Signup and view all the answers

    What may be applicable if the RCUIDS has been converted into new shares of the issuer and the issuer's securities have been reclassified from Shariah-compliant to Shariah non-compliant by the SAC?

    <p>Guidance on Disposal of Non-Shariah Compliant Securities</p> Signup and view all the answers

    Islamic Securities Selling and Buying-Negotiated Transaction (iSSB-NT) Model is an alternative to the conventional Securities Borrowing and Lending-Negotiated Transaction (SBL-NT) Model.

    <p>True</p> Signup and view all the answers

    What type of option is Khiyar al-shart?

    <p>option to cancel a previous agreed sale within a specific number of days</p> Signup and view all the answers

    Islamic Real Estate Investment Trusts (Islamic REIT) comply with ______ principles.

    <p>Shariah</p> Signup and view all the answers

    Match the following thresholds regarding Shariah Non-Compliant Rental with the correct descriptions:

    <p>20% Threshold = Percentage limit of total turnover for Shariah Non-Compliant Rental 5% Threshold = Percentage limit of total turnover for Shariah Non-Compliant Rental after 10th financial year</p> Signup and view all the answers

    Study Notes

    Here are the study notes:

    Principles and Concepts of Muamalat in the Islamic Capital Market

    Ta`widh

    • Ta`widh is applied in sukuk structuring and refers to compensation agreed by contracting parties that can be claimed by the creditor when the debtor fails or delays to perform their obligation to repay debt.
    • The Shariah Advisory Council (SAC) resolved that ta`widh is permissible under certain conditions:
      • For late repayment of Islamic financing
      • For arrears and failure to pay after the due date
      • Limited to failure to pay realized profit in `uqud ishtirak (musharakah or mudharabah contracts)
      • Under sukuk wakalah bi al-istithmar if the sukuk issuer/wakil breaches their fiduciary duty or delays payment to investors
    • Rate of ta`widh:
      • Late payment charge on judgment debt may be imposed by the court at a rate provided by the court rules
      • Ta`widh refers to the compensation on actual loss, which is based on the daily overnight Islamic Interbank rate
      • Gharamah refers to the penalty imposed as prevention for late payment and is the excess of late payment charge over ta`widh

    Bai Inah

    • Bai inah refers to sale and purchase between two contracting parties where the owner sells the asset to the buyer on cash basis and then buys back the asset at a deferred price which is higher than the cash sale.
    • The SAC resolved that bai inah is a principle which is permissible in the Islamic Capital Market in Malaysia.

    Let me know if you want me to clarify anything!### Bai`inah

    • The SAC updated its resolution on Bai`inah, which must conform to the following conditions:
      • Sale and purchase of asset must be executed via two clear and separate contracts.
      • Both contracts must comply with Shariah requirements for valid sale and purchase.
      • Transaction documents may be in written or verbal form.
      • Two separate sets of documents must be prepared for sale and purchase of asset.
    • Conditions for repurchase or resale of asset are not allowed in Bai`inah contracts.
    • All documents related to Bai`inah transactions are inter-related and must not be separated.
    • Pre-signing of legal documents for Bai`inah transactions is not allowed.

    Implementation of Bai`inah Resolution in Sukuk Structuring

    • The SAC resolved that the new Bai`inah resolution is applicable:
      • For sukuk proposals submitted on or after 1 October 2014.
      • For revision to the terms of sukuk issued based on the previous Bai`inah resolution, unless the revision is not considered a new submission.
      • For upsizing of an existing sukuk programme, depending on the presence of a provision for upsizing in the Principal Terms and Conditions.

    Ibra'

    • Ibra' refers to the act of releasing one's rights and claims on any obligation against another party.
    • Ibra' may be applied in uqud muawadhat, including Murabahah and Musawamah.
    • Ibra' may be applied in ICM transactions, including early redemption and other events.

    Wad and Muwaadah

    • Wa`d is a promise by a person or party to perform a certain task in the future.
    • Wa`d is mulzim (unilaterally binding) if attached to a particular action, time, or situation.
    • Wad mulzim is permissible, and the promisor who breaches their promise is liable to pay tawidh.
    • Muwa`adah is a bilateral promise between two persons or parties to enter into a contract in the future.
    • Muwa`adah is mulzimah (bilaterally binding) if attached to a particular action, time, or situation.
    • Muwaadah mulzimah is permissible, and the promisor who breaches their promise is liable to pay tawidh.

    Tawarruq

    • Tawarruq is permissible in Islamic capital markets.
    • Tawarruq refers to purchasing a commodity or asset on a deferred price and selling it to a third party at a lower price on a cash basis.

    `Aqd al-Tawrid

    • `Aqd al-Tawrid is a modern trade contract that is permissible in Islamic capital markets.
    • `Aqd al-Tawrid features include:
      • Supply of goods or services with specified features.
      • Delivery and payment of goods or services on a certain period and price.
    • Ta'jil al-badalain (delayed exchange of counter-values) is permissible in `Aqd al-Tawrid subject to specific terms.
    • Guarantee of payment by customer is permissible based on kafalah principle.
    • In the event of delay or default in payment, the supplier/seller can impose ta`widh on the customer.
    • In the event of delay or failure in delivery, both parties can agree on a new delivery date or cancel the contract.### Shariah Principles in Islamic Capital Market
    • The Shariah Advisory Council (SAC) of the Securities Commission Malaysia has resolved on various Shariah principles and concepts in Islamic capital market products.
    • The principles and concepts are applicable to various Islamic capital market products, including contracts, shares, futures, business trusts, and exchange-traded funds.

    Delivery of Goods or Services and Payment

    • In a contract, the supplier/seller and customer/purchaser may agree to include a clause to impose a charge for delay or failure in delivery of goods or services (syart jaza'i).
    • The charge can be imposed upon the execution of 'aqd al-tawrid or throughout the contract, provided there has not been any delay or failure in delivery of goods or services by the supplier/seller on the mutually agreed date.

    Nature of Shares

    • Shares are units of ownership interest of shareholders in a corporation or financial asset that provide for an equal distribution in any profits, if any are declared, in the form of dividends.
    • The two main types of shares are ordinary shares and preference shares.
    • The SAC has resolved that shares are assets that can be categorized as mal mithli, representing the right of ownership of shareholders in the company.
    • Shares do not resemble currency, debt, and 'ayn of the company.

    Crude Palm Kernel Oil Futures Contract

    • The SAC has resolved that the Crude Palm Kernel Oil Futures Contract (FPKO) is permissible because it complies with Shariah principles.

    Single Stock Futures Contract

    • The SAC has resolved that the Single Stock Futures Contract (SSFs) is in line with Shariah, subject to certain conditions, including:
      • The underlying assets for the SSFs contract are Shariah-compliant shares as approved by the SAC.
      • Investors are given the option to make a final settlement for the SSFs contract either through cash settlement or physical delivery of the underlying assets.

    Islamic Business Trust

    • The SAC has resolved on the requirements for the Islamic business trust, including:
      • It must be structured based on approved Shariah principles and concepts.
      • At least three individual Shariah advisers must be appointed to form a Shariah Committee.
      • The businesses or assets must be Shariah-compliant as determined by the Shariah adviser.

    Islamic Exchange-Traded Fund Based on Gold and Silver

    • The SAC has resolved that gold and silver (such as gold and silver bullions/bars) may be used as underlying assets for Islamic ETF.
    • The Islamic ETF units represent the unitholders' ownership of the gold and silver on a pro-rata basis.
    • The concept of Islamic ETF based on gold and silver is acceptable by Shariah, subject to certain conditions.

    Stapled Securities

    • The SAC has resolved that in general, for any stapled securities to be classified as Shariah-compliant, each of the securities stapled must be Shariah-compliant.

    Redeemable Convertible Unsecured Islamic Debt Securities (RCUIDS)

    • The SAC has resolved on the issuance of RCUIDS with free detachable warrants based on the Shariah principle of murabahah (via tawarruq arrangement).
    • The features of RCUIDS include redeemability, convertibility, and unsecured securities issued by a company in exchange for financing by investors.
    • The RCUIDS holders are deemed as the company's creditors rather than shareholders.

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    Related Documents

    Resolutions of the Shariah Advisory Council of the Securities Commission Malaysia (2022) PDF

    Description

    Resolutions of the Shariah Advisory Council of the Securities Commission Malaysia, dated 31 December 2022. The document outlines the council's decisions and guidelines related to Islamic finance and securities.

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