The Shariah Advisory Council of Bank Negara Malaysia (the SAC) 167th Meeting

Shariah Advisory Council of Bank Negara Malaysia (the SAC) in its 167^th meeting on 30 March 2016 discussed the Shariah issues concerning permissibility of incorporating contractual benefit to the lender in a qard contract, disclosure of historical hibah rate and acceptance of fund from Shariah non-compliant sources.
 
Contractual benefit to the lender in a qard contract

The SAC has decided that in general, any contractual benefit to the lender which is dependent on the qard contract or derived based on the qard amount is not allowed. However, a contractual benefit to the lender is permissible if the benefit is given on general terms and not exclusive to the lender, provided that it is not stipulated in the terms of the qard contract.

This ruling has considered the following:

1. Contractual benefit which is dependent on the qard contract or derived based on the qard amount is prohibited because it will lead to riba (usury) as unanimously agreed by Muslim Scholars.
2. The contractual benefit which is given on general terms and not exclusive to the lender is permissible because it is given to all eligible customers of IFIs and is not due to the qard contract.

This clarity on Shariah ruling regarding the permissibility of incorporating contractual benefits in a qard contract will be the basis for the formulation of relevant policies relating to requirements on qard.

Disclosure of historical hibah rate

The SAC has decided that in relation to qard contract, IFI in its role as a borrower may disclose information on historical hibah rate, provided that the disclosure is accompanied by a clear disclaimer that the disclosed historical hibah rate shall not be construed as an indicative hibah rate, or interpreted as an obligation on IFI to provide such hibah to the customer (who is the lender).

By having this disclaimer, it will negate any legal obligation or binding promise by the borrower to give hibah in the qard contract.
 
Acceptance of fund from Shariah non-compliant sources

The SAC has decided that in principle, it is permissible for an IFI to accept fund from Shariah non-compliant sources. However, the IFI is required to establish an internal policy in managing Shariah reputational risk and to ensure that it will not be involved in any Shariah non-compliant activities related to the source of the fund.

This ruling has considered the following:

1. The duty and role of IFI as a mere financial intermediary. At the same time, IFI is responsible to ensure that it does not involve in any Shariah non-compliant activities. However, fund belongs to a third party that is generated from Shariah non-compliant activities is considered beyond the IFI responsibility and its control.
2. The requirement to establish an internal policy is to ensure that IFI is not involved in unrighteous activities (wala ta`awanu `alal ithmi wal `udwaan) and to manage the possible reputational risk to IFI.
3. The above ruling is also in line with the view of a number of contemporary scholars and fatwas that permitted acceptance of funds from Shariah non-compliant sources.