Research Monograph

In Islam, a loan (qard) is considered a gratuitous contract, and providing a loan to a person in need is a recommended (mandub) act for which a lender is rewarded. The gratuitous nature of the loan contract is emphasised in various hadiths which also prohibit the lender from deriving any stipulated benefit from the loan he has provided. Loans that generate conditional benefit to the lender are considered usurious. The practice of usury (riba) is inextricably tied to the loan and debt where a lender charges the borrower an additional amount. The main focus of this research paper is to provide a critical discussion on the ruling that prohibits the lender from deriving conditional benefit from the loan, and its related issues. We have examined, in the light of juristic opinions, the status of different types of stipulations that would entitle the lender to various types of pecuniary and non-pecuniary benefits. Regarding the stipulation that a borrower should compensate the lender for inflation, we have argued that a creditor is entitled to the return of his money based on the original purchasing power of the currency at the time when the loan was provided. However, this should be resorted to only in cases of hyperinflation when the value of the currency is drastically depreciated.

The concept of the time value of money (TVM) has been well accepted and widely applied in the conventional financial system for a very long time. However, Islamic scholars hold differing views regarding its conceptual and practical foundation in the Islamic financial system. The opponents of TVM have argued that recognizing it will lead to acceptance of riba, against which Islam is at war. This may, however, be a hasty judgment. Islam does not reject any concept that aligns with its teaching, promotes justice among people and secures their interests, particularly in financial transactions. The concept of TVM establishes that time can be given a counter-value in association with real commercial activities. Therefore, Islamic acceptance of TVM should not be disregarded, particularly in financial transactions, such as deferred sales and loan contracts, in order to uphold justice. However, the concept of TVM must be applied in accord with specific Shari'ah parameters because applying it without complete adherence to its Shari'ah parameters may lead to actual riba. In contrast, if the Shari'ah parameters are completely complied with, the application of TVM may result in removal of riba and achievement of fair economic effects in financial transactions. Hence, this study aims to examine the legal status of the time value of money in Islam and then formulate the Shari'ah parameters for its application in Islamic finance. The study employed the library method to collect information, which was analysed using comparative, deductive and inductive methods. The study establishes that Islam recognizes the legitimacy of the time value of money arising from deferment (ajal), but its application must be in conformity with the Shari'ah parameters in order to avoid riba.

The need for sustainable funding of institutions of higher learning led the Government of Malaysia to formulate its Universities Transformation Programme 2015-2025. This transformation agenda came out as the Purple Book which highlighted the need to address the funding gap that may occur in the education sector in the event of unexpected budget cuts. It called for the enhancement of income generation, endowments and waqf to achieve self-sustainability for higher learning institutions (Ministry of Higher Education Malaysia, 2016). Based on the above premise, this research explores the viability of corporate waqf via initial public offering (IPO) as an instrument to raise funds and sustain Malaysia's higher learning institutions. Corporate waqf, as defined by the Securities Commission Malaysia, refers to: A type of corporate [financial] instrument where liquid-asset-like shares or securities [are] endowed as waqf assets and [sic] thus enabling the waqf institutions to benefit from the dividend that can finance any welfare project or initiative (Securities Commission Malaysia 2014, p. 17).

Shari'ah has specific rules for dealing in each class of assets and activities; i.e., cash, debt, goods, usufruct, and those classified as either halal (permissible) or haram (impermissible). These rulings can be easily applied when such an asset or activity is an independent subject matter of a transaction. However, the issue becomes complicated when an asset or activity is mixed with others and the combination is represented as a single subject matter. A fine example of this situation is shares of a joint stock company. A company share represents all the activities and underlying assets of that company. Some of the activities and assets of that company may be Shari'ah non-compliant while some may be Shari'ah compliant. Such assets can be in any form; i.e., cash, debt, goods, usufruct or rights. There are two main issues that need to be dealt with in considering a company's shares: (1) when it represents a mixture of halal and haram activities and assets, and (2) when it represents a mixture of ribawi and non-ribawi assets.

The outbreak of the coronavirus epidemic (COVID-19), classified by the World Health Organization as a pandemic, has led to the emergence of many challenges. It started as a health crisis and then turned into a global economic crisis that most countries could not manage or control as a result of lockdown policies and restrictions on movement and travel. This is not to mention the forms of damage that have affected the contractual obligations and rights of various contracting parties at the level of financial institutions such as banks, takaful companies and others. The challenges imposed by the coronavirus pandemic have led to a reexamination of the fiqh treatment of catastrophes. The role of Islamic economic experts and the Islamic financial industry has had to be clarified in addressing its effects on contractual relations and future obligations in distressed financing contracts. The theory of catastrophes (jawa'ih) is one of the most important jurisprudential theories in Islamic fiqh. It comprises a set of principles and provisions that deal with the harmful effects upon one of the parties bound by a contract as a result of damage to what the party is obliged to deliver, or failure to obtain the intended benefit from the obligation. It is based on achieving justice in the practical application of financial transaction contracts, removing difficulty, taking into account arising circumstances, and preventing abuse in the exercise of rights and the freedom to contract. It thus regulates the rights of people related to the exchange of properties and usufructs.

Higher education plays an important role in the human capital development of a country. Investment in higher education generally rises every year, and sustaining the financing of public institutions involved in higher education is becoming economically burdensome upon the state.While the cost for sustaining higher education is rising, the allotment for it in the government budget is eroding. In light of this, governments around the world, including Malaysia, are exploring measures to financially maintain higher education institutions without shifting the burden of ever-increasing university fees onto students and their families. In 2015, the Malaysian Ministry of Higher Education launched the Malaysia Education Blueprint 2015-2025 (Higher Education), which underlined initiatives for Malaysia's higher education. One of the initiatives relates to the long-term financial sustainability of public higher education institutions. The vision and aspiration of the government is to drive Malaysian universities towards becoming financially self-sustaining. Under the University Transformation Programme, the Purple Book on Enhancing University Income Generation, Endowment & Waqf was launched in September 2016. It proposes four key initiatives for universities to enhance their income generation, namely, enhancing commercial activities, endowment, waqf and philanthropic income.

Recent calls for risk-sharing - as expounded in the 2012 Kuala Lumpur Declaration, the 2014 Jeddah Declaration and the 2014 International Monetary Fund statement - elucidate the present situation of Islamic banking and finance: an acknowledgement that risk sharing is a "salient characteristic" of Islamic financial transactions on the one hand and that it is "not deeply embedded" on the other. The objective of this practical evidence-based research paper is to address this schism between prescription and practice. It recapitulates the principles underpinning risk sharing and the reasons why it is integral to the Shar??ah and why (as stated in the Declaration) risk transfer and risk shifting violate a Shari'ah principle. he paper presents preliminary research utilizing empirical data from Malaysian Islamic banks and the Malaysian stock market as a proxy for the real economy. It considers newly enacted Malaysian legislation, the Islamic Financial Services Act 2013 (IFSA), from the perspective of its aim to more clearly define the products and activities of Islamic banks.

The aim of this report is to assess the state of Islamic banking in North Africa, examine why it has failed to take-off and consider its future potential and how it can contribute to the economic development.

This report is the last part of a four-part thought leadership series delivered by the International Shari'ah Research Academy for Islamic Finance (ISRA) in partnership with the Islamic Finance Council UK (UKIFC). The series is intended to inspire IFIs to embrace the SDGs and demonstrate to the world that consideration for people, planet and purpose can coexist with profit and form the heart of the next generation of Islamic financial products. This part will mainly document the current level of knowledge, understanding and perspectives on the SDGs amongst key IF industry stakeholders, primarily Shariah scholars. The concept of sustainable development was articulated for the first time in the Brundtland Report, also called "Our Common Future", published in 1987 by the World Commission on Environment and Development (WCED) and supported by the UN. According to the Report, sustainable development is defined as "development that meets the needs of the present without compromising the ability of future generations to meet their own needs".

In managing liquidity, conventional banks resort to investing in treasury bills, overdrafts, placements with the central bank or with other conventional banks in order to gain interest, even if the placement is only overnight. However, it is not possible for Islamic banks to use the same instruments because of the numerous Shari'ah violations in them. Furthermore, Islamic banks have alternative financial products that are derived from Islamic jurisprudence. They can use various contracts such as qard hasan (benevolent loan), mudarabah (profit sharing between a capital provider and an entrepreneur who contributes only his labor and expertise), murabahah (mark-up sale), or other Shari'ah-compliant contracts. In their capacity as financial intermediaries, Islamic banks need instruments that will allow them to utilize their surplus liquidity in a temporary form and for short periods or to receive help from other financial institutions using their available liquidity to cover their own short-term liquidity needs. Thus, they are in need of contracts that will help them to manage liquidity in surplus as well as deficit situations.

Islamic banks provide similar trade finance facilities to those of conventional banks. They intermediate between buyers (i.e., importers) and sellers (i.e., exporters), act as a custodian of documents, and provide means to reduce payment risks via different payment terms (e.g., open account, documentary collection and letter of credit (LC)). They also provide financing - as need be - to help with working capital tied to the trade transactions. This research focuses only on financing by Islamic banks to importers that involve LCs. Different underlying Shari'ah contracts are used for import financing facilities under LC, the most common being the murabahah contract. At the time of sale, the existence of the subject matter and its ownership by the seller are the key requirements for the validity of a murabahah contract. In the absence of either of these requirements, the contract is considered null and void.

The establishment of the Takaful and Insurance Benefits Protection System (TIPS) in Malaysia is a statutory requirement. TIPS aims to ensure financial stability, soundness and public confidence. Perbadanan Insurans Deposit Malaysia (PIDM), known internationally as the Malaysia Deposit Insurance Corporation, is the sole regulatory body entrusted with the mandate to regulate deposit insurance across the country. At the outset, its mandate was confined to banking institutions. Since 2010, however, PIDM’s role has been extended to include takaful and conventional insurance institutions. With regard to takaful, the operation of the Takaful Benefits Protection System (TBPS) and the relationship between PIDM and its takaful members pose major concerns that have been raised by the industry in Malaysia. The concerns are related to contractual relationships, sources of premiums, the subject matter of the contract, and the services and guarantee that PIDM provides for takaful participants. This research aims to provide critical Shari'ah analysis and evaluation of the current model of Takaful benefits protection system. It examines the existing model to ascertain to what extent it accomplishes the statury mandate and to what extent it meets Shari'ah requirements. Adherence to regulatory requirements is a must. The takaful industry faces some major challenges in trying to realise the interests of the takaful participants and its shareholders while satisfying the regulators. Thus, it is imperative to conduct an investigation that resolves these thorny issues in a win-win manner.

Sukuk in its contemporary form as a financial instrument has gained prominence only over the last one to two decades. Like a share, a sukuk is defined as an instrument representing undivided ownership over the underlying assets. Naturally, the question arises whether sukuk are subject to the same zakat rulings as shares. Accordingly, this research has identified the similarities between shares and Sukuk. The zakat rulings applicable to shares are also identified, and the research has made an attempt to apply those rulings in the context of sukuk. However, the research has identified the peculiarities of sukuk as it is currently practiced in the global market and provided fresh insights on how these may impact the applicability of zakat to sukuk. While the research includes theoretical Shari'ah analysis and discussion on various relevant zakat matters, it also reviews today's practices. Accordingly, relevant Shari'ah standards and requirements of various jurisdictions are identified, and several sukuk prospect uses are examined in relation to zakat calculation and disclosures. By this the research aims at enabling a coherent understanding of the theory and practice.

The issue of unearned wakalah fees (UWF) arises due to the statutory requirements in the Islamic Financial Services Act (IFSA 2013) that mandate takaful operators to refund any undue contribution with the corresponding wakaah fee in the event of surrender or termination of a takaful certificate. The relevant statutory provisions and Bank Negara Malaysia (BNM) guidelines on the valuation basis for liabilities of family and general takaful are open to more than one interpretation, and the exact definition and components of money not due are not clear. The implementation of the statutory provisions and regulatory guidelines on the refund of UWF has raised the following issues for the Malaysian takaful industry: 1. How to determine UWF and its components from money not due that must be refunded as stated in the statutory provisions and BNM guidelines? 2. What are the Shari'ah justifications, if any, to support the requirements for refund in the event of surrender? 3. How to resolve any Shari'ah and technical issues pertaining to the implementation of the refund of UWF due to lack of clarity regarding its definition and components? Accordingly, this paper delineates the concept and components of the wakalah contract, its salient features, contractual relationship, subject matter, including the wakalah fee, and juristic deliberations regarding it. It also examines the background and means of identifying UWF by explaining its subject and components, differences between earned and unearned wakalah fee, and the treatment of UWF. Further, it studies Shari'ah and technical issues related to recognition, calculation and refund of UWF and other surrender values.