Tutorial Week 4 MFA3053

Group Members (KME3)

1. Syaza Nur Anati Binti Abd Khalik (1180800)

2. Nur Anis Insyirah Binti Abu Bakar (1180803)
3. Siti Najihah Binti Shamsulbahari (1180798)
4. Noraisyaamira Binti Mohd Madzlan (1180796)
5. Syazana Athirah Binti Mohd Sazeri (1180806)

1. Shariah Issues in Islamic Capital Market

Investment Sukuk, according to AAOIFI's Shariah Standards, are certificates of equal

value that denote undivided shares of possession of real properties, usufructs, and facilities,
project assets, or special investment operations. Sukuk, by this definition, is not a traditional
bond in any way. Sukuk should not be referred to as an Islamic bond in any conditions. While
it is set up to function as one by existing procedures that could be prohibited by Shariah or
disagreed upon by jurists, it would be debated separately. Imposition of a late payment tax on
a Sukuk issuer in the event of default and possession of properties of asset-based Sukuk are
two shariah questions in the Islamic Capital Market.

The imposition of a late payment tax on a Sukuk issuer in the event of default is the first
problem in the Islamic Capital Market. In Malaysia, issuers of Islamic shares, such as Sukuk,
are expected to refund holders with a late payment penalty that is stipulated in advance in the
funding agreements. However, at its 12th meeting on 14 July 1999, the Securities
Commission's Shariah Advisory Council ("SAC") decided to approve the enforcement of
tawidh (compensation) on delayed repayment of Islamic financing. When it is discovered that
the issuer is using mumathil (deliberate delay of payment) to make the payment of the
principal or interest, tawidh may be levied. The tawidh premium on late benefit payments is
1% per annum of the arrears, and it cannot be multiplied. While the tawidh premium on failed
principal payments is dependent on the existing market rate in the Islamic interbank money
market, it, too, cannot be multiplied.
 Furthermore, wealth control of asset-based Sukuk is a Shariah problem that has arisen in
the Islamic Capital Market. Jurists have debated the topic of qabd for buying and selling
contracts in particular, as well as other contracts in general, since ancient times. For various
products, such as real estate and goods sold by measurement, as well as other portable goods
like clothing, livestock, and the like, there have been differing opinions about what
constitutes qabd. Is it appropriate for the goods to be acknowledged by the buyer's side, or is
it adequate to give the buyer unrestricted access to the goods? At its 8th meeting on January
25, 1996, the Islamic Instrument Study Group (“IISG”) decided that the local urf be used as
the basis and guidance for determining the qabadh status in any transaction. Following that,
whatever the urf accepts as qabadh can be used as a guideline for transactions in the
Malaysian capital market.

2. How the role of Shariah Compliance and Shariah Committee is important.

Shariah Committee

 Shariah committee is important as it gives advice and also provides a decision on the
application of SAC ruling and BNM standards on Shariah matters.
 Moreover, Shariah committee implements the decision on the matters which need to
require a reference to be made by the SAC.
 Furthermore, Shariah committee is important because it endorses the rectification
measures for Shariah's non-compliant event which can be helpful to advise in the
matters that may trigger Shariah's non-compliant event.
 Besides, Shariah committee can decide the business direction in the line with
overarching SAC decisions. This means that the Shariah committee is influential in
the Islamic banking industry.
 In decision making, the BNM allows Shariah Committee the challenge if the banks
deem the decisions have not taken into considerations the practical and business sense
and more focus on the decisions stricter than the SAC.

Shariah Compliance

The role of shariah compliance in Islamic capital market is to ensure that it is free
from riba which is prohibited in Islam also including gharar (uncertainty) and maysir
(gambling). This is to differentiate with the conventional capital market. In decision making
process, they need to promote the Islamic moral values and there is also Hisbah is a system of
ordering what is just and right and forbidding what is unjust and indecent. On the other hand,
shariah compliance is to avoid the transaction that has exploitation of any party and that can
give harmful to the society.

Next, shariah compliance in banking also very important especially in avoiding

interest. It stated in surah al Baqarah where Allah forbade interest and stated in the Quran
about halal on trading and haram on interest (2:275)

Meaning: Those who consume interest cannot stand [on the Day of Resurrection]
except as one stands who is being beaten by Satan into insanity. That is because they say,
"Trade is [just] like interest." But Allah has permitted trade and has forbidden interest. So,
whoever has received an admonition from his Lord and desists may have what is past, and his
affair rests with Allah. But whoever returns to [dealing in interest or usury] - those are the
companions of the Fire; they will abide eternally therein.

Therefore, by avoiding interest we can show that it is a sign of belief (iman) and taqwa (allah
fearing) on Allah.