The Shariah Advisory Council of Bank Negara Malaysia (the SAC) 166th Meeting

Shariah Guidelines on Combination of Several Contracts in a Master Agreement
 
Shariah Advisory Council of Bank Negara Malaysia (the SAC) in its 166th meeting on 23 February 2016 has discussed the issue of combination of several contracts in a master agreement.

SAC has noted that such combination may occur under the following scenarios:

1. Combination without element of contingent between the contracts; or
2. Combination with element of contingent between the contracts.

For the first scenario, the SAC has decided that the combination does not trigger any Shariah issues since the contracts are not contingent upon each other.

While for the second scenario, the SAC has decided that the combination between the contracts that are contingent upon each other is permissible, provided that it fulfils the following conditions:

1. The arrangement does not lead to the element of riba, uncertainty (gharar) and/or gambling (maysir);
2. The arrangement does not result in any contradiction between the objectives of each contract (muqtada `aqd); and/or
3. The arrangement does not lead to any element prohibited by the Shariah.

 The aforesaid SAC ruling is based on the considerations as follows:

1. Generally, combination of several contracts in a master agreement is permissible based on the legal maxim;

   

   "According to the original method of ruling, mu`amalah is permissible, except when there is a provision prohibiting it."

2. Combination of contracts that does not result in the contract being contingent upon each other is allowed as the original features of each contract remain intact and preserved.
3. It is permissible for the contracts to be contingent upon one another, provided such combination achieves the objectives of each contract and that the contracts are mutually supportive in achieving the main purpose of the arrangement.

This SAC ruling provides guidance on the structuring of financial products that comprises a combination of several contracts, as to preserve the objectives of each contract and mitigate the risk of non-Shariah compliance.