Jan 18 2010
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Bank Negara pressing ahead with Shariah parameters
In fact, BNM in December 2009 published its latest draft concept paper -- a Shariah Parameter Reference 3 (SPRC 3) -- on the Mudarabah contract. The paper has been sent to various market players in the Islamic finance industry for feedback. This follows the publishing in October 2009 of "Concept Paper -- Guidelines on Takaful Operational Framework" which outlines the parameters governing the operational processes of the Takaful business.
The latter guidelines will serve as guidance for Takaful operators in conducting their operations to ensure business activities and innovations are within their risk management capacity and do not compromise long-term sustainability of the business. The guidelines also aim to promote operational efficiency and best practices that would safeguard the interests of stakeholders and in particular participants.
Bank Negara has already issued consultative concept papers for Ijarah (SPRC 2) and Murabahah (SPRC 1) in July and August 2009 respectively and is finalizing work on the development, consultation and launching of further Shariah parameters on Musharaka (partnerships), Istisna (construction financing) and Wadiah (current accounts), whose primary aim is to promote harmonization of the Islamic finance market practice in Malaysia. Malaysia has championed the development of a modern scientific and systemic approach to the Shariah governance process in the Islamic finance industry. Scholars such as Mohamed Elgari of Saudi Arabia has beseeched the industry and fellow Shariah scholars to adopt such a modern scientific methodology in Shariah advisory, compliance and governance in Islamic finance.
The development of Shariah parameters or guidance references is the latest manifestation of this essential process, which is based on the need to outline the essential features of Islamic financial products based on the underlying Shariah contracts that are endorsed by Shariah boards and adopted by the Islamic financial institutions (IFIs).
However, Bank Negara Malaysia recognizes that there are challenges facing the implementation of Shariah rulings in the global Islamic finance industry. Indeed, in response to the need for a conducive, sound and stable Islamic financial environment, local and international Shariah governing bodies have formulated Shariah rulings and passed fatwas, resolutions and policies to be adopted by the Islamic financial industry.
An equivocal approach in formulating Shariah rulings for a particular product or financial service that has a wide implication across industry and sovereignty, says Bank Negara Malaysia in the consultation document, calls for a more systematic Shariah ruling formulation process. This is important if consistent Shariah opinions are to be adopted within or across jurisdictions that allows comparison of Shariah rulings.
The specific purpose of this SPRC 3 (Mudarabah) is to provide a reference on the nature and features of the contract to the Islamic financial services industry and the Shariah requirements for the application of the Mudarabah contract. Following the public consultation, BNM will publish the final Shariah Parameter Reference 3 (SPRC 3) following its approval and endorsement by the Shariah Advisory Council of BNM.
The consultation document titled "Draft of Shariah Parameter Reference 3: Mudarabah Contract (SPR3)" is comprehensive and deals with the definition and various features and applications of the Mudarabah contract. SPRC 3 also takes into consideration relevant mechanisms and contracts such as Wa'd, Wakalah, Kafalah and Rahn were applicable or proposed as secondary features to the Mudarabah contract.
Mudarabah is defined as a form of partnership between one who contributes capital (rabb al-mal/capital provider) and the other who contributes efforts in the form of managerial skills (mudarib/manager).
Muqaradah and Qirad are also synonymous with Mudarabah. Profit from the outcome of the venture is shared between the capital provider and manager according to mutually agreed profit sharing ratio whilst losses are borne solely by the capital provider, provided such loss is not due to the manager's negligence or violation of specified conditions. In the context of business and trade, it means a joint enterprise in which all the partners share the profit according to a mutually agreed profit sharing ratio but loss is borne solely by the capital provider/investor. Bank Negara stresses that the features described in SPRC 3 are extracted from the text of Fatwas issued by Shariah boards or committees of financial authorities and financial institutions. Bank Negara also advises that the application of the parameter is confined to the Mudarabah contract as endorsed by the Shariah Advisory Council of BNM and adopted by the Islamic financial institutions regulated by it.
By Mushtak Parker
© Arab News 2010
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