Murabahah

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DRAFT OF SHARIAH PARAMETERS: MURABAHAH PARAMETER

TABLE OF CONTENTS
Page

Overview: Challenge in Implementation of Shariah Rulings ....………………….... 1 Shariah Parameters Initiative………………………………………………………….. 2 Shariah Parameter Methodology……………………………………………………… 3 Notes to Users of Shariah Parameters……………………………………………….. 3 Applicability……………………………………………………………………………… 4

Appendix………………………………………………………………………….. ……….5

BANK NEGARA MALAYSIA

CONCEPT PAPER OF SHARIAH PARAMETER

1. Overview: Challenge in Implementation of Shariah Rulings 1.1 In response to the need for a conducive, sound and stable Islamic financial environment, local and global Shariah governing bodies have formulated Shariah rulings and expressed Shariah opinions in the form of fatwas, resolutions and policies to be adopted by the Islamic financial industry.

1.2 An equivocal approach in formulating Shariah rulings for a particular product or financial service that has a wide implication across industry and across sovereignty calls for a more systematic Shariah ruling formulation. This is important if consistent Shariah opinions are to be adopted within or across sovereignty that allows comparison of Shariah rulings.

1.3 In implementing Shariah rulings, it is observed that the Islamic financial industry is faced with a number of challenges as follows:-

a. lack of familiarity and ability to understand Islamic finance concepts; b. lack of published references on how to operationalise Shariah approved contracts from Shariah authorities; and c. lack of publicly available document on fatwa and Shariah resolutions as a source of reference.

1.4 It is also observed that implementation of Shariah rulings is limited to product approval and not comprehensive across product development and product life cycle comprising product idea generation, monitoring and supervision.

1

BANK NEGARA MALAYSIA

CONCEPT PAPER OF SHARIAH PARAMETER

2. Shariah Parameters Initiative

2.1

Bank Negara Malaysia is developing a set of standard guidance document on application of Shariah contracts in Islamic finance operation, referred as Shariah Parameters. The initiative is based on the need to outline the essential features of Islamic financial product based on the underlying Shariah contracts that are endorsed by Shariah boards and adopted by the Islamic financial institutions.

2.2

The Shariah Parameters as standard guidance documents would provide a more comprehensive understanding of the principles and basis of adopting Shariah contracts for Islamic financial products, as well as enabling harmonization of the Islamic financial practices.

2.3

The development of Shariah Parameters is aimed at achieving the following objectives:a. To clarify concepts, principles and conditions of Shariah contracts; b. To provide focus on features of Shariah contracts that form the basis of Islamic financial product; c. To provide basis for decisions on matters relating to conditions, mechanism and implementation of Shariah contracts; d. To facilitate Islamic finance professionals and practitioners to design and develop Islamic financial products;and e. To facilitate formulation of policies and guidelines on contracts adopted by Islamic financial service industry

2.4

The Shariah Parameters set out the Shariah requirements for the contracts of Murabahah, Istisna, Ijarah, Mudharabah, Musharakah and Wadiah. A concept paper on the parameters for each of these Shariah contracts will be issued for feedback and comment.

2

BANK NEGARA MALAYSIA

CONCEPT PAPER OF SHARIAH PARAMETER

2.5

The concept paper on Shariah Parameters: Murabahah Contract set out the Shariah requirements for the application of Murabahah contract.

3. Shariah Parameter Methodology

3.1

In preparing the Shariah parameters, the following considerations have been made to institute a methodology to develop the parameters:a. Primary sources were given priority over secondary sources in...
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