1. INTRODUCTION TO SHARIAH

 

WHAT IS SHARIAH?

  • Shariah literally means among others means “the way” or “clear path to be followed
  • Technical meaning “Body of Islamic teaching and systems which were revealed to prophet Muhammad (Peace be upon him) through the revelation of Holy Quran and His deliberation and operationalisation of this revelation constitutes Sunnah. In a nutshell both Al-Quran and Sunnah become the main sources of the Shariah”

WHAT ARE THE PROHIBITED ELEMENTS IN ISLAMIC FINANCE?

2. SHARIAH CONTRACT FOR DEPOSIT

 

QARD CONTRACT

WHAT IS QARD?

Qard literally means loan. Qard refers to a contract of lending money by a lender to a borrower where the latter is bound to repay an equivalent replacement amount to the lender.

WHO ARE THE CONTRACTING PARTIES INVOLVED UNDER QARD CONTRACT?

  1. Depositor = Lender
  2. Bank = Borrower

WHAT ARE THE SHARIAH REQUIREMENTS ON QARD CONTRACT THAT MUST BE COMPLIED WITH?

Since the bank is borrowing money from the depositor under the Qard contract, the bank is not allowed to promise any benefits to the depositor as it is tantamount to riba’ (interest). The followings are the prohibitions with regard to Qard contract:

  • The bank is prohibited to promise any contractual benefit to the customer in the form of cash or in kind.
  • The bank must not disclose, promote or market the indicative rate or prospective rate to the customer.
  • The bank is only allowed to disclose historical information on the rate granted to the customer provided that such information shall not be construed as an indicative rate.

WHAT ARE THE DEPOSIT PRODUCTS THAT ARE BASED ON QARD CONTRACT?

  1. Saving Account-i
  2. Current Account-i

WHAT ARE THE DOCUMENTS THAT MUST BE EXECUTED UNDER QARD CONTRACT?

  • AIS E-form / Business Banking Application Form; and
  • Terms and Conditions for Islamic Deposit.

COMMODITY MURABAHAH CONTRACT

WHAT IS CM?

Commodity Murabahah (CM) refers to a sale of certain commodities on a cost plus markup

WHO ARE THE CONTRACTING PARTIES INVOLVED UNDER CM CONTRACT?

  1. Depositor=Principal
  2. Bank = Agent to the principal

WHAT ARE THE SHARIAH REQUIREMENTS OF CM CONTRACT THAT MUST BE COMPLIED WITH?

  1. The bank has to ensure that the Agency Agreement are signed by both contracting parties (i.e. depositor and bank) to enable the bank to perform the commodity trading on customer behalf.
  2. The bank has to ensure the commodity trading is conducted upon receiving money from customer. 

WHAT ARE THE DEPOSIT PRODUCTS THAT ARE BASED ON CM CONTRACT?

  1. Alliance Term Deposit-i (ATD-i)
  2. Junior Smart Term Deposit-i (JSTD-i)

WHAT ARE THE DOCUMENTS THAT MUST BE EXECUTED UNDER CM CONTRACT?

  1. Agency Agreement / Wakalah Agreement
3. SHARIAH RULINGS ON TAKING DEPOSIT

LIST OF SHARIAH NON-COMPLIANT BUSINESSES

4. SHARIAH NON-COMPLIANCE (SNC) EVENT

 

WHAT IS SNC EVENT?

SNC event refers to any issues/events which have breached Shariah requirements.

The following are the examples of SNC event:

  1. Granting Islamic facility to companies involved in Shariah non-compliant activities.
  2. Taking deposit from companies involved in Shariah non-compliant activities.
  3. Deposit brochures indicate the indicative rate for saving account-i

SOURCES OF SNC EVENT

IMPLICATION OF SNC EVENT

  • The existing transaction will be deemed as void as it was undertaken in a Shariah non-compliant manner. Hence, the income that the bank received cannot be recognized and it shall be purified.
  • KPI of the responsible unit will be affected.
  • For serious breach, the bank may be penalized by the regulators.
  • Expose our bank to reputational risk.
  • In extreme cases, customers will lose confidence and trust in our bank and subsequently withdraw their funds from and cancel their contracts with the bank, because a majority of Islamic banking customers use Shariah-compliant banking services as a matter of principle.
5. EPILOGUE

Shariah compliance is a consistent process which shall be maintained at all times. Therefore, it is incumbent upon bank staff to equip themselves with knowledge on Islamic products through training, conversant with the products SOPs and procedures.

If you have enquiries with regards to Islamic product, you may contact us at our Islamic Help Desk for clarity: