The Shariah Advisory Council of Bank Negara Malaysia (the SAC) 160th Meeting

The Shariah Advisory Council of Bank Negara Malaysia (SAC) held its 160^th meeting on 30^th June 2015. The meeting discussed among others issues on rahn (collateral) of asset which comprised of both Shariah compliant and Shariah non-compliant assets (mixed asset), debt restructuring and application of muwa`adah (bilateral promise) in sarf (foreign exchange contract).

Collateral of Mixed Asset
On pledging of mixed assets as collateral, the SAC ruled the followings:

1. shares of companies with mixed asset may be accepted as collateral provided that the core business of the company is recognised as Shariah compliant; and
2. a mixed asset may be used as collateral provided that the Shariah compliant assets and Shariah non- compliant can be segregated. The value of the collateral is limited only to the portion of the assets that are Shariah compliant. In this respect:
   1. the collateral value of interest bearing debt based asset such as conventional fixed deposit certificate and conventional bonds is limited to the principal amount of the instrument; and
   2. the collateral value of Shariah non-compliant unit trust is limited to the value of the investor's initial and subsequent/additional investment.

Debt Restructuring
The SAC ruled that debt restructuring may be carried out through a new financing contract; in which the proceeds from the financing maybe be utilised to settle the existing debt. However, debt restructuring can only be carried out with customers who have been categorised by the Islamic financial institution as solvent.

Muwa`adah (Bilateral Promise)
The SAC ruled that currency exchange instrument such as currency option, swap or forward may be structured by applying concept of muwa`adah. Existing SAC rulings pertaining to such instruments will continue to be applicable as follows:

1. the instrument shall be used for hedging purposes only;
2. any of the promisor may provide a hamish jiddiyyah (security deposit) to secure the performance of the muwa`adah;
3. fee(s) shall not be imposed on the promise; and
4. the promisor who breaches his promise is liable to pay compensation based on actual loss suffered by the aggrieved promisee.

This article is also available in Arabic version