The Shariah Advisory Council of Bank Negara Malaysia (the SAC) 170th Meeting

Shariah Advisory Council of Bank Negara Malaysia (SAC) in its 170th meeting on 30 August 2016 discussed among others issues arising from the Shariah Standard on Rahn (Pledge).

Recapitalisation of interest in conventional fixed deposit to be used as collateral asset (marhun)

The SAC had decided that Islamic financial institutions (IFIs) are allowed to accept the whole principal amount of conventional fixed deposit although such principal amount contains previous interest portion which has been recapitalised by the conventional fixed deposit certificate holder. This ruling is in line with previous SAC rulings which allow the principal amount of the conventional fixed deposit to be used as collateral and SAC rulings that allow IFIs to accept funds from customer without ascertaining its source.

Utilisation of collateral by pledgor (rahin)

The SAC had decided that the pledgor which also the asset owner may utilise and gain benefits from the collateral with the consent of the pledgee (murtahin).

Utilisation of collateral by pledgee

The SAC had decided that pledgee must not utilise and gain benefits from the collateral except with the consent from the pledgor. In the event that the obligation arises from a loan (qard) contract, the utilisation of collateral shall not be made conditional to the loan contract.

Cost of safekeeping, documentation and liquidation of the collateral

The SAC had decided that in principle, all cost related to safekeeping, documentation and liquidation of collateral must be borne by the pledgor. However, both contracting parties may mutually agree that the cost may be borne by any of the contracting parties.

Imposition of charge to pledgor in rahn contract with relation to loan contract

The SAC had decided that pledgee must not impose any charge or payment to pledgor which may grant profit to pledgee if the rahn contract is based on loan contract. This is to avert riba where the creditor in loan contract may earn benefit from the debtor either direct or indirect. However, the pledgee (creditor) may claim from the collateral direct cost of safekeeping and maintainance of the collateral.

This SAC statement is to inform the ruling of 170th SAC meeting and its related discussions. The effective date of this ruling is subject to the effective date of Policy Document on Rahn which is expected to be issued in Q3 2017.