The Shariah Advisory Council in the Malaysian Islamic financial institutions: features and legal issues

DSN-MUI uses trade transactions in Islamic financial institutions in order to avoid interest rate system. Moral and legal issues had became the important thing in the formulation of trade transaction in syariah banking, since the concern about the system of interest that still exist in syariah banking’s trade transaction. This means that the trade transaction on syariah banking according to fatwa DSN-MUI still contains usury (riba). This paper intends to explore the important things about the rules and practices of trade transaction on the syariah banking according to DSN-MUI. This study concluded that DSN-MUI performs ijtihād taṭbīqī to facilitate the concept of trade operations on syariah banking. DSN-MUI’s fatwa about trade transaction appears to correspond to a normative concept of fiqh. It's just that there is ambiguity in the salam and istithnā' contract and less attention to the philosophy of trade. The trade transactions were reduced as provision of funds for purchasing of goods, with multi contract institutions. The use of supporting contracts that are not true will potentially lead to morality inconsistencies in trade transactions.

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Moratorium in Islamic Hire Purchase Financing: A Shariah Perspective

The Journal of Muamalat and Islamic Finance Research ◽

10.33102/jmifr.v18i2.367 ◽

2021 ◽

pp. 13-29

Author(s):

Azmuddin Razali ◽

Mohammad Amir Wan Harun

Keyword(s):

Financial Institutions ◽

Financial Services ◽

Advisory Council ◽

Policy Document ◽

Banking And Finance ◽

Finance Industry ◽

Regulatory Perspective ◽

Islamic Financial Institutions ◽

Current Outbreak ◽

The Impact

This study examined the implementation of moratorium in the Islamic hire purchase financing based on Al-Ijarah Thumma Al-Bay’ (AITAB) from the Shariah perspective. The implementation of moratorium by Bank Negara Malaysia (BNM) is a new practice in the banking and finance industry in Malaysia. Implementing the moratorium causes several changes to the AITAB contract such as the extension in contract tenure and the increase in the total payment obligation due to the profit charged on the outstanding principal. This study analysed these changes from the Shariah perspective by using the al-takyif al-fiqhi methodology. The results of the analysis confirm the practice of moratorium by IFIs is in line with the Shariah requirements as long as it is agreed by the parties to the contract - which are the bank and the customer. Needless to say, both Ijarah Policy Document and Hire Purchase Act 1967 allow any forms of amendments including profit compounding when the AITAB contract is restructured, provided that such amendments are agreed between the contracting parties. Despite this permissibility, IFIs are still required to comply with the new ruling issued by SAC BNM that prohibits the practice of profit compounding during the COVID-19 crisis. Although, in principle, the ruling is based on the concept of ihsan (beneficence) which is not compulsory (wajib) but rather recommendation (istihbab) from the Shariah perspective; however, from the regulatory perspective the ruling is compulsory for IFIs to comply pursuant to section 28(1) and 28(2) of Islamic Financial Services Act 2013 (IFSA) that stated compliance with Shariah means compliance with any ruling of the Shariah Advisory Council. The moratorium is seen as a manifestation of the concept of ihsan (beneficence) towards the customers affected financially due to the COVID-19 pandemic. This commendable effort should be encouraged and continued by the Islamic financial institutions in upholding the Shariah principle of maslahah and lifting of difficulties (raf al-haraj), particularly in the current outbreak of COVID-19 and the impact of MCO.

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Late Payment Penalty: Ta’widh And Gharamah Imposed To Debtor From The Shariah Perspective

Yuridika ◽

10.20473/ydk.v35i1.15620 ◽

2019 ◽

Vol 35 (1) ◽

pp. 187

Author(s):

Zuhaira Nadiah Binti Zulkipli

Keyword(s):

Financial Institutions ◽

Advisory Council ◽

Islamic Banks ◽

Applicable Law ◽

Islamic Financial Institutions ◽

Conventional Banks ◽

Debt Payment

Islamic financial institutions had face problems and barriers such as the problem of delayed financing settlement (for any reason), where it is not possible to impose any interest due to the delay or the cessation of settlement which practiced in conventional banks due to riba’ prohibited (haram) in Shariah principles. This situation is more detrimental when some customers who purposely delay payment of their debts or purposely refuse to pay due to the absence of rules concerning penalty for late payment in Islamic banks. As a result, the Islamic banks had fail to achieve their targeted profits when the problem of debt payment occurs, the Islamic banks have to bear all the losses and finally face difficulties in achieving sustainability and lose out in their efforts to compete with the conventional banks which accept time-based interest for every default late payments of debts. This study aims to discuss the permissibility of late payment charges by way of ta’widh and gharamah from the Shariah perspective and to find the applicable law in Malaysia. Besides, the implementation of ta’widh and gharamah can be described as in the resolutions of the Shariah Advisory Council of Bank Negara Malaysia (SAC). Further, it will elaborate on how related this late payment charges with the concepts of Shariah, Maqasid of Shariah and Maslahah according to judgement of the fundamentals of the Islamic Jurispendence. Lastly, it will also discuss on how the imposition of ta’widh and gharamah is different from riba for deferred debts in Islamic financial institutions.

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BAI’-AL-INAH MENURUT MUAMALAT- ANALISIS DARI PERSPEKTIF PERISIAN APLIKASI (BAI'-AL-INAH: AN ANALYSIS FROM SOFTWARE APPLICATION PERSPECTIVE)

UMRAN - International Journal of Islamic and Civilizational Studies ◽

10.11113/umran2017.4n2.105 ◽

2017 ◽

Vol 4 (2) ◽

Author(s):

Nurshuhadak Hehsan ◽

Hussin Salamon

Keyword(s):

Financial Institutions ◽

Muslim World ◽

Advisory Council ◽

Islamic Banking ◽

Software Application ◽

The People ◽

Adoption And Implementation ◽

Islamic Financial Institutions ◽

Banking Institutions ◽

Paper Work

The concept of Bai 'Al-Inah is one kind of Islamic banking loan products adopted by several Islamic financial institutions in Malaysia. Bai 'Al-Inah terms and in the context of Islamic banking is selling to raise cash immediately (immediate cash-facility). However, it is a scheme application status is still disputed by the ulama’ salaf among modern Muslim world. Research should be viewed from the aspect of both the extent to which differences of view and to what extent the adoption and implementation of these concepts are implemented according to the principles of Muamalah Fiqh. In this study, the author is looking at the performance in terms of technical (software Bai 'Al-Inah) that have been adopted so far by Islamic financial institutions in Malaysia. Selection of the concept of Bai’ Al-Inah chosen for being the highest services offered by Islamic banking institutions and is the main service subscribed by the people of Malaysia. Although the Shariah Advisory Council of Central Bank of Malaysia (BNM) has been to try and make sure to constantly keep all that felt inappropriate to claim Muamalah Fiqh. However, this does not mean that Islamic financial institutions in Malaysia are now complete for the study authors on some of the existing terms and conditions in this service is still exist some practices that conflict with the claims Muamalah Fiqh. Finally, the paper work to see the constraints that exist and make recommendations and suggestions for improvement and the reference to be updated in the future for the development of Islamic banking in Malaysia in particular and the Muslim world in general.

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Shariah Disclosure Practices in Malaysian Islamic Banks using the Shariah Disclosure Index

International Journal of Islamic Economics and Finance (IJIEF) ◽

10.18196/ijief.v4i0.9953 ◽

2021 ◽

Vol 4 (SI) ◽

Author(s):

Noraini Mohd Ariffin ◽

Fatima Abdul Hamid ◽

Nur Afiqah Md Amin

Keyword(s):

Financial Institutions ◽

Financial Services ◽

Financial Institution ◽

Advisory Council ◽

Annual Reports ◽

Islamic Banks ◽

High Compliance ◽

Financial Products ◽

Full Compliance ◽

Islamic Financial Institutions

Islamic banks are required to ensure their operations and activities comply with the Shariah principles. According to Islamic Financial Services Act (2013) in Malaysia, all operations and activities of Islamic financial institutions including Islamic banks have to comply with decisions made by the Shariah Advisory Council (SAC) of Bank Negara Malaysia (BNM) and the Shariah Committee (SC) of the Islamic financial institution to ensure Shariah compliance. In practice, Shariah compliance is considered a crucial factor by bank stakeholders, especially Muslim customers in their decision to use Islamic financial products. Thus, one of the ways for Islamic banks to convey their Shariah-compliance to their stakeholders is through annual reports. This study examines the level of compliance on Shariah disclosure in the annual reports of Malaysian Islamic banks. A Shariah disclosure index, comprising mandatory and voluntary items, was developed from Bank Negara Malaysia (BNM) guidelines and Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards. Shariah disclosure data were collected from the annual reports for the year 2016 of the 16 Islamic banks in Malaysia. Based on Institutional Theory, this study hypothesised high compliance, however the results revealed that none of the banks had full compliance to the mandatory items. Nevertheless, some of these banks disclosed voluntary items. The findings provide useful insights to the regulators and stakeholders on Islamic banks’ compliance on Shariah disclosure. The study also reveals the importance of disclosing additional items in the annual reports of Islamic banks.

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[ALMUSHARAKAH AL-MUTANAQISAH AND APPLICATION IN MALAYSIA] AL-MUSHARAKAH AL-MUTANAQISAH WA TATBIQATUHA FI MALIZIYA

Malaysian Journal Of Islamic Studies (MJIS) ◽

10.37231/mjis.2021.5.1.158 ◽

2021 ◽

Vol 5 (1) ◽

pp. 142-152

Author(s):

Abada Tawfik Ahmed Bahnasy

Keyword(s):

Central Bank ◽

Financial Institutions ◽

Historical Background ◽

Advisory Council ◽

Islamic Finance ◽

Islamic Banks ◽

Practical Application ◽

Modern Methods ◽

Islamic Financial Institutions ◽

The Common

This paper aims to introduce one of the common contracts in the field of Islamic finance, which is the diminishing musharakah contract or the diminishing musharakah ending with ownership. Which is considered one of the modern methods that Islamic banks deal with, and it is a new investment method that was not known to the oldest jurists, and it is one of the Shariah financing formulas to counter interest-based dealings with interest-based banks. This paper demonstrate this contract after the introduction with historical background on it. Then explain its reality in theory and how to apply it in Islamic banks or traditional banks that offer Islamic products. This paper did not address the discussion of shariah issues in detail - due to the large number of jurisprudential differences in them - as well as the limited space for the paper. This paper focused on the practical application of this contract in Malaysian Islamic banks. Then the research concluded with the conclusion that this contract is considered one of the most suitable contracts that Islamic financial institutions can offer as a product in which the operational problems and Shariah problems are reduced. Especially after the decision of the Sharia advisory council of the Central Bank of Malaysia (SAC - BNM) at its 56th session on February 6, 2006, where it decided that "Musharakah Mutanaqisah (MM) financing is a form of contract recognized in the Islamic financial system".

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Problems in the Status of Object Ownership of Ijarah Muntahiyah Bittamlik Financing Contract in Sharia Banking Law

Journal of Private and Commercial Law ◽

10.15294/jpcl.v3i1.18766 ◽

2019 ◽

Vol 3 (1) ◽

pp. 20-25

Author(s):

Nurul Hikmah

Keyword(s):

Economic Crisis ◽

Financial Institutions ◽

Legal Issues ◽

The Public ◽

Ownership Status ◽

Crisis Of Faith ◽

The Status ◽

Islamic Financial Institutions ◽

Economic Needs ◽

The Right

The crisis of faith and economic crisis accompanied by an increase in economic needs encourages one to find the right way, as well as the efforts made by producers and industry in marketing products without seeing the halal and haram provisions of a product. These reasons cause a variety of mu'amalah through financing agreements began to emerge, such as lease agreements known to the public with the term leasing introduced by Islamic financial institutions under the name Ijarah Muntahiyah Bittamlik, so this study aims determine the ownership status of the object of the Ijarah Muntahiyah Bittamlik financing contract. The author believes that the ownership status of the contract object on the financing of Ijarah Muntahiyah Bittamlik raises legal issues because of the unification of the contract between the lease and the sale and purchase which depends on the repayment of all the value of the goods.

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The need for Islamic accounting standards: the Malaysian Islamic financial institutions experience

Journal of Islamic Accounting and Business Research ◽

10.1108/jiabr-12-2015-0059 ◽

2019 ◽

Vol 10 (1) ◽

pp. 115-133 ◽

Cited By ~ 4

Author(s):

Nor Farizal Mohammed ◽

Fadzlina Mohd Fahmi ◽

Asyaari Elmiza Ahmad

Keyword(s):

Financial Institutions ◽

Accounting Standards ◽

Financial Statements ◽

Advisory Council ◽

Main Concern ◽

Structured Interviews ◽

Accounting Standard ◽

Content Type ◽

Body Of Knowledge ◽

Islamic Financial Institutions

Purpose The purpose of this paper is to examine views of financial statements preparers with regard to the practices in reporting Islamic Financial Institutions (IFIs), thereby contributing to answer whether there is indeed a need for a separate set of Islamic accounting standards for IFIs. Design/methodology/approach Drawing upon seven in-depth semi-structured interviews conducted with IFIs’ leading officers who are highly involved in preparing financial statements in Malaysia, the paper offers evidence on the current stance of reporting the operation of IFIs, the influence of AAOIFI accounting standards and the feasible application of IFRSs in reporting IFIs. Findings While it is shown that most of the interviewees admit the feasibility of IFRSs in reporting IFIs, many interviewees placed greater emphasis on the spirit of Islam based on Islamic contract. In that case, the findings show that to convince the public that they offer Shariah compliance products approved by Shariah Advisory Council, there is a need for specificity guidelines or standards for IFIs within the IFRS framework. The main concern raised in the paper is that separate Islamic accounting standard is not needed, instead the option needs to be within the IFRS framework with the collaboration work of Accounting and Auditing for Islamic Financial Institutions (AAOIFI) and the International Accounting Standard Board (IASB). Originality/value With the recent rapid growth of IFIs, this paper contributes regarding the inconclusive stance on the need for specificity accounting standards for IFIs such as the ones issued by AAOIFI. It adds to the current body of knowledge by highlighting the collaboration of the AAOIFI and the IASB for the intended specific guidelines for IFIs to be accepted globally.

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THE CONCEPT AND APPLICATION OF HIBAH AS A FINANCIAL INSTRUMENT FROM THE MALAYSIAN LEGAL PERSPECTIVE: AN ANALYSIS

IIUM Law Journal ◽

10.31436/iiumlj.v28i1.498 ◽

2020 ◽

Vol 28 (1) ◽

pp. 227-252

Author(s):

Rusni Hassan ◽

Nor Azdilah Mohamad Zaizi

Keyword(s):

Financial Institutions ◽

Islamic Law ◽

Legal Issues ◽

Islamic Banking ◽

Financial Instrument ◽

Banking And Finance ◽

Wealth Management ◽

Legal Perspective ◽

Islamic Financial Institutions ◽

Popular Subject

The principle of hibah (gift) is a popular subject in the Islamic law of administration, relating to wealth management. Hibah is a solution to deliver wealth to non-heirs apart from the wasiyyah (bequest) or faraid (succession) systems. However, in the broader context of wealth management in Malaysia, hibah has also been used as a financial instrument in the Islamic financial institutions’ products and services. Based on that, the legality and enforcement of hibah with regards to the related applicable laws in the Malaysian legal system might be affected in two different situations. First, the conflict of jurisdiction may be arising from the fact that the matter of the classical hibah concept will be under the jurisdiction of the classical hibah concept will be under the jurisdiction of the States, whilst the commercial hibah which has been structured with the Islamic banking and takaful products and services established by the Islamic financial institutions, will be under the Federal government. The scarcity of literatures discussing hibah from the perspective of Islamic banking and finance contributes to the limited understanding and awareness among the society on this matter. In view of that, this study explores and analyse the concept and application of hibah as the financial instrument in the Islamic banking and takaful products and services. This study also analyzes some relevant Shari’ah and legal issues on the application of hibah in the Islamic banking and takaful products and services, which are currently practiced by the Malaysian Islamic financial institutions. This is done by assessing relevant statutes and decided cases. This article finally provides recommendations to improve and enhance the application of hibah as an Islamic banking and takaful products and services in Malaysia.

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The Innovations of Hibahasan Instrument of Islamic Finance and Islamic Estate Management in MalaysiaAhmad Khilmy Abdul Rahim

Webology ◽

10.14704/web/v18si03/web18023 ◽

2021 ◽

Vol 18 (SI03) ◽

pp. 112-126

Author(s):

Ahmad Khilmy Abdul Rahim ◽

Azizi Abu Bakar ◽

Mohd Murshidi Mohd Nor

Keyword(s):

Financial Institutions ◽

Advisory Council ◽

Islamic Finance ◽

Islamic Banking ◽

Islamic Banks ◽

Muslim Community ◽

Saving Account ◽

Financial Framework ◽

Islamic Financial Institutions ◽

Estate Management

The application of hibah as an instrument in estate management is gaining popularity among the Muslim community in Malaysia. “Hibah is a unilateral contract” that elevate welfare and charity. The Islamic financial institutions in Malaysia, including Islamic banks as well as Islamic wealth institutions apply varities of hibah instruments in the products accessible by them. Hibah is a cooperating shariah contract in the Malaysia‟s Islamic banking and financial framework. The aim is to incentivize clients for storing their cash into the institution as well as remunerate for clients to pay their financing by agreeing planned. The use of hibah is based on the stated fundamentals and objectives of the “Shariah Advisory Council (SAC) of Bank Negara Malaysia”. Nowadays, hibah instrument has been applied in various forms using Islamic financial institutions especially in Malaysia. This article discusses and analyzes in general the application of contemporary forms of hibah such as Trust Hibah (Hibah Amanah), Conditional Hibah (Hibah Mu'allaqah), Hibah with discussion (Hibah Bi al-Thawab), hibah in saving account (Wadiah) and rental (al-Ijarah) accounts and hibah in Takaful benefit.

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