Background of the Resolutions of the Shariah Advisory Council of the Securities Commission Malaysia, 31 December 2023
In the updated resolutions of the Shariah Advisory Council of the Securities Commission Malaysia (SAC), 31 December 2023, there are several new SAC resolutions and enhancement of the existing SAC resolutions which are incorporated as follows:
(A) NEW SAC RESOLUTIONS
(B) ENHANCEMENT OF THE EXISTING SAC RESOLUTIONS
Kafalah in Sukuk Structuring |
Included the resolution related to the amount that cannot be guaranteed by wakil or sub-wakil under `aqd wakalah bi al-istithmar. |
Shariah Screening Methodology for Unlisted Micro, Small and Medium Enterprises (MSMEs) |
Amendment to include the extension of applicability of the benchmark for the total debt over total assets ratio of less than 49%. |
Latar Belakang Keputusan Majlis Penasihat Syariah Suruhanjaya Sekuriti Malaysia, 31 Disember 2023
Dalam kemaskini keputusan Majlis Penasihat Syariah Suruhanjaya Sekuriti Malaysia (MPS), 31 Disember 2023, terdapat beberapa keputusan baharu MPS dan penambahbaikan keputusan sedia ada MPS sebagaimana berikut:
(A) KEPUTUSAN BAHARU MPS
(B) PENAMBAHBAIKAN KEPUTUSAN SEDIA ADA MPS
Kafalah dalam Penstrukturan Sukuk |
Memasukkan keputusan berkaitan amaun yang tidak boleh dijamin oleh wakil atau sub-wakil di bawah `aqd wakalah bi al-istithmar. |
Metodologi Penyaringan Syariah Bagi Perusahaan Mikro, Kecil dan Sederhana (PMKS) Tidak Tersenarai |
Penukaran bagi memasukkan lanjutan pemakaian tanda aras bagi nisbah jumlah hutang ke atas jumlah aset iaitu kurang daripada 49%. |
Revision of Quantitative Approach in Shariah Screening Methodology
Burning of Digital Currency Backed by Technology Without Any Underlying from the Shariah Perspective
Issuance of Shariah-Compliant Preference Shares via Bonus Issue by a Listed Company
The Shariah Advisory Council of the Securities Commission Malaysia (SAC) had, in its 272nd meeting held on 14 September 2023 resolved on the permissibility of the following issues in relation to the issuance of Shariah-compliant preference shares via bonus issue: (1) Retained earnings as a musharakah capital contribution by the preference shareholders in the existing musharakah; and (2) Application of principle of ibra’ to reflect the waiver of rights for preferential dividends (which was declared but is unpaid or cannot be paid) in Shariah-compliant preference shares. |
Extension of the Applicability of the Debt Ratio in the Resolution on Shariah Screening Methodology for Unlisted Micro, Small and Medium Enterprises (MSMEs)
Sukuk Wakalah bi al-Istithmar and Its Tradability
The Shariah Advisory Council of the Securities Commission Malaysia (SAC) had, in its 266th meeting held on 16 March 2023 resolved on the minimum percentage for non-debt investment assets in a Shariah-compliant wakalah investment portfolio (Wakalah Portfolio) which comprises a combination of non-debt investment assets and debt investment assets in sukuk wakalah bi al-istithmar (Sukuk Wakalah) and the tradability of the Sukuk Wakalah on the secondary market. |
Shariah-Compliant Preference Shares
The Shariah Advisory Council of the Securities Commission Malaysia (SAC) had, in its 261st meeting held on 17 October 2022 resolved on the features of preference shares and its related Shariah issues which are applicable for the issuance of Shariah-compliant preference shares by companies listed on Bursa Malaysia. |
1. Restructuring of Sukuk Musharakah: Existing Sukuk Musharakah as Capital Contribution in New Sukuk Musharakah
The Shariah Advisory Council of the Securities Commission Malaysia (SAC) had, in its 251st meeting held on 13 December 2021 resolved on the issue of restructuring of sukuk musharakah where the existing sukuk musharakah was used as the capital contribution in-kind for a new sukuk musharakah. |
Revised Resolution on Utilisation of Sukuk Proceeds for General Business
Background The Shariah Advisory Council (SAC) of the Securities Commission Malaysia (SC) had deliberated on the issue in relation to the utilisation of sukuk proceeds for general business. The SAC had resolved at the 190th and 216th meetings held on 27 October 2016 and 31 January 2019 respectively, that the sukuk proceeds may be utilised for general business of the issuer and the issuer’s group of companies including for general corporate purposes, working capital requirements and capital expenditures provided that the principal activities of the issuer and the issuer’s group of companies are Shariah compliant based on the following business activity benchmarks:
Issue The issue in deliberation was on the determination of the Shariah status of the issuer and/or the issuer’s group of companies that will utilise the sukuk proceeds for their general business as follows:
Resolution The SAC had, at its 250th meeting held on 15th November 2021, resolved that the sukuk proceeds may be utilised for general business of the issuer and/or the issuer’s group of companies including for general corporate purposes, working capital requirements and capital expenditures provided that the principal activities of the issuer and/or the issuer’s group of companies are Shariah compliant based on the following business activity benchmarks:
For the purpose of screening the Shariah status of the issuer and/or the issuer’s group of companies, the Shariah adviser may rely on the audited financial statement or other financial statements (whichever acceptable by the Shariah adviser) of the respective entity(ies) which will be utilising the sukuk proceeds for its general business. The aforementioned benchmarks must be determined at the point of each issuance of the sukuk every time the relevant entity(ies) intends to utilise the sukuk proceeds for its general business.
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Shariah Screening Methodology for Unlisted Micro, Small and Medium Enterprises (MSMEs)
Background Securities Commission Malaysia (SC) acknowledges the importance of MSMEs to the development of Malaysian economy as it contributes more than a third to the local Gross Domestic Product (GDP). Hence, as part of the efforts to develop this segment, the Shariah Advisory Council (SAC) has introduced a new Shariah screening methodology for unlisted MSMEs. It will be adopted in the Shariah Screening Assessment Toolkit for unlisted MSMEs issued by SC. Issue The issue in deliberation was on how to determine the Shariah status of the MSMEs by taking into account the current situation and limitation that the MSMEs are facing. Resolution The SAC had, at its 244th meeting held on 20 May 2021, resolved that the Shariah screening methodology for unlisted MSMEs should adopt a two-tier quantitative approach in determining the Shariah status of unlisted MSMEs. The quantitative approach is as follows:
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Interest income and dividends from Shariah non-compliant investments should be compared against the revenue.
Interest income and dividends from Shariah non-compliant investments should be compared against the revenue.
Removal of Condom Business and Its Related Business Activities Benchmark in Shariah Screening Methodology for Listed Securities
The Shariah Advisory Council of the Securities Commission Malaysia (SAC) had, in its 240th meeting held on 25 January 2021, resolved on the removal of condom business and its related business activities benchmark in the Shariah screening methodology for listed securities. |
Background Digital assets as regulated under the jurisdiction of Securities Commission Malaysia (SC) consist of digital currency1 and digital token (Digital Assets). The definition and scope of digital currency and digital token which were defined as securities are as prescribed under the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019.2 Several issues from Shariah perspective in relation to Digital Assets were presented to the Shariah Advisory Council of SC (SAC). Issue Since there are Digital Assets which are categorised as capital market instruments, the SAC had discussed the following issues from Shariah perspective:
Resolution SAC in a series of its meetings had discussed issues in relation to Digital Assets from Shariah perspective. The discussions on Digital Assets in the SAC meetings are limited to Digital Assets that are regulated by the SC. The SAC had, at its 233rd meeting held on 29 June 2020 and its 234th meeting held on 20 July 2020, resolved the following: |
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(A) | Digital Currency |
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Digital currency is recognised as mal from Shariah perspective. The SAC had viewed digital currency from two scopes, as follows: | |||
(1) |
Digital currency that is based on technology without any underlying | ||
Digital currency in this form is categorised as `urudh and it is not a currency from Shariah perspective. Such digital currency is not categorised as ribawi items. Therefore, the trading of such digital currency is not subject to the principle of bai` al-sarf (currency exchange). | |||
(2) | Digital currency that is backed by ribawi items |
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i. | Digital currency that is backed by gold, silver and currency |
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If a digital currency is backed by ribawi items comprising gold, silver and currency, it is categorised as a currency from Shariah perspective. Hence, the trading of such digital currency is subject to the principle of bai` al-sarf. | |||
ii. | Digital currency that is backed by ribawi items other than gold, silver and currency |
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If a digital currency is backed by ribawi items other than gold, silver and currency, it is categorised as amwal ribawiyyah (ribawi items). Therefore, the trading of such digital currency is subject to the Shariah requirements of ribawi items. |
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(B) | Digital Token |
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Digital token is recognised as mal under the category of `urudh from Shariah perspective. In determining the Shariah status of a digital token, the following matters must be fulfilled: |
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i. | The proceeds raised from the issuance of the digital token must be utilised for Shariah-compliant purposes; |
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ii. | The rights and benefits attached to the digital token must be Shariah-compliant; and |
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iii. | In the event that the utilisation of proceeds under item (i) and the entitlement of rights and benefits under item (ii) above are for mixed activities of Shariah compliant and Shariah non-compliant purposes, the existing SAC resolution on utilisation of sukuk proceeds and the business activities benchmark under the Shariah screening methodology for listed companies on Bursa Malaysia are applicable. |
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If a digital token is backed by ribawi items, the trading of such digital token is subject to the Shariah requirements for trading of ribawi items. |
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This resolution is not applicable to any Digital Assets which are outside the jurisdiction of SC. The SAC has also resolved that investment and trading of Digital Assets that fulfil the above requirements and which are traded on Digital Asset Exchange (DAX) registered with SC are permissible. |
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Background Several industry proposals relating to convertible sukuk structured based on the Shariah principles of ijarah and wakalah bi al-istithmar and redeemable convertible unsecured Islamic debt securities (RCUIDS) structured based on the Shariah principle of murabahah were presented to the Shariah Advisory Council (SAC) of the Securities Commission Malaysia (SC). The main Shariah issue discussed in those proposals was related to the conversion of sukuk and RCUIDS into new ordinary shares of the issuer (Conversion Shares). Issue Several issues in relation to the conversion of convertible sukuk and RCUIDS into the Conversion Shares were discussed as follows: |
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1. | Convertible sukuk structured based on the Shariah principle of ijarah (Convertible Sukuk Ijarah) |
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(a) | Whether the conversion of the Convertible Sukuk Ijarah into the Conversion Shares is permissible and whether a leased asset could be considered as capital contribution in-kind by the sukukholders into the business of the issuer for the purpose of such conversion? and |
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(b) | Is there any specific Shariah mechanism that should be applied to convert the Convertible Sukuk Ijarah into the Conversion Shares? | ||
2. | Convertible sukuk structured based on the Shariah principle of wakalah bi al-istithmar (Convertible Sukuk Wakalah) |
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(a) | Whether the conversion of the Convertible Sukuk Wakalah into the Conversion Shares is permissible if the ratio of non-debt investment assets is less than 33% of the aggregate value of the total wakalah investments portfolio (“Wakalah Portfolio”), which is applicable at the point of initial investment of the Convertible Sukuk Wakalah? |
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(b) | Whether the conversion of the Convertible Sukuk Wakalah into the Conversion Shares is considered as capital contribution in the form of debt by the sukukholders if the ratio of non-debt investment assets is less than 33% of the Wakalah Portfolio? and |
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(c) | Is there any specific Shariah mechanism that should be applied to convert the Convertible Sukuk Wakalah into the Conversion Shares? | ||
3. | Redeemable convertible unsecured Islamic debt securities structured based on the Shariah principle of murabahah (RCUIDS Murabahah) |
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(a) | Whether the conversion of the RCUIDS Murabahah into the Conversion Shares is permissible since RCUIDS represent debt and whether debt could be used by the RCUIDS holders as capital contribution into the business of the issuer? and |
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(b) | Is there any specific Shariah mechanism that should be applied to convert the RCUIDSMurabahah into the Conversion Shares? |
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Resolution The SAC had, at its 229th meeting held on 24 February 2020 resolved as follows: |
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1. | Convertible Sukuk Ijarah |
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(a) | The conversion of the Convertible Sukuk Ijarah into the Conversion Shares is permissible. In this regard, a leased asset can be considered as capital contribution in-kind by the sukukholders into the business of the issuer. |
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(b) | The conversion of the Convertible Sukuk Ijarah into the Conversion Shares is effected by: |
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(i) | giving notice of conversion; and |
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(ii) | a conversion arrangement, | ||
as agreed by the contracting parties. |
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2. | Convertible Sukuk Wakalah |
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(a) | The conversion of the Convertible Sukuk Wakalah into the Conversion Shares is permissible even though the ratio of non-debt investment assets is less than 33% of the Wakalah Portfolio. |
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(b) | The conversion of the Convertible Sukuk Wakalah would not be considered as capital contribution in the form of debt by the sukukholders into the business of the issuer since the Convertible Sukuk Wakalah represents ownership in the Wakalah Portfolio provided that the non-debt investment assets must at all time be a component of the Wakalah Portfolio. |
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(c) | The conversion of the Convertible Sukuk Wakalah into the Conversion Shares is effected by: | ||
(i) | giving notice of conversion; and | ||
(ii) | a conversion arrangement, | ||
as agreed by the contracting parties. | |||
3. | RCUIDS Murabahah |
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(a) | Direct conversion of RCUIDS Murabahah into the Conversion Shares is not permissible since RCUIDS Murabahah represents debt. However, the conversion of RCUIDS Murabahah into the Conversion Shares is permissible via specific Shariah mechanism in accordance with the requirements as set out in item 3(b) below. |
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(b) | The requirements for the conversion of the RCUIDS Murabahah into the Conversion Shares are as follows: |
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(i) | The issuer should exchange the RCUIDS Murabahah held by the RCUIDS holders with non-debt assets (the value must be known); |
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(ii) | The RCUIDS holders shall subsequently contribute the non-debt assets as their capital contribution in-kind into the business of the issuer; and |
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(iii) | The issuer shall thereafter issue the Conversion Shares to the RCUIDS holders. |
1) | Guarantee of Profit by a Third Party, Sister Company and Associate Company of the Sukuk Issuer in Sukuk based on `Uqud Ishtirak and `Aqd Wakalah bi al-Istithmar | ||
Background The Shariah Advisory Council (SAC) of the Securities Commission Malaysia (SC) had, in series of its meetings, deliberated on the following issues: in sukuk based on`uqud ishtirak and `aqd wakalah bi al-istithmar. |
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(i) | guarantee of profit by a third party, sister company and associate company of the sukuk issuer; and | ||
(ii) | imposition of ujrah (fee) on such guarantee, | ||
Issue | |||
The issue in deliberation was on whether a third party, sister company and associate company of the sukuk issuer may guarantee profit and impose ujrah on such guarantee in sukuk based on `uqud ishtira and `aqd wakalah bi al-istithmar. | |||
Resolution | |||
The SAC had, at its 219th meeting held on 25 April 2019, resolved that it is permissible for a third party, sister company and associate company of the sukuk issuer: |
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(i) | to provide guarantee on profit; and | ||
(ii) | to impose ujrah on such guarantee, | ||
in sukuk based on`uqud ishtirak and ` aqd wakalah bi al-istithmar. |
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2) | Collateral Assets in Islamic Capital Market Products |
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Background |
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The Shariah Advisory Council (SAC) of the Securities Commission Malaysia (SC) had, in its 219th meeting held on 25 April 2019, deliberated on the issue of collateral assets in Islamic capital market (ICM) products, among others, are physical assets and financial assets. |
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Issue |
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The issue in deliberation was on whether an asset that can be used as collateral is limited to Shariah-compliant asset only or it can also involve Shariah non-compliant asset. | |||
Resolution | |||
The SAC resolved the following: | |||
(1) | Asset which is valuable and recognised by Shariah may be used as collateral in ICM products. These assets include: | ||
(i) | A physical asset that is used to carry out activities which are Shariah compliant and/or Shariah non-compliant. | ||
(ii) | A financial asset that is Shariah compliant and/or Shariah non-compliant. | ||
(2) | In the case where Shariah non-compliant financial asset is used as collateral, the SAC resolved as follows: | ||
(i) | Ordinary Shares and Preference Shares | ||
(a) | Shariah non-compliant ordinary shares and preference shares of companies listed on Bursa Malaysia; and | ||
(b) | Shariah non-compliant ordinary shares and preference shares of unlisted companies, | ||
may be accepted as collateral provided that the core business of the companies is Shariah compliant based on the confirmation by the Shariah advisers registered with SC. The total value of the Shariah non-compliant ordinary shares and preference shares may be accepted as the collateral value. | |||
(ii) | Shariah Non-Compliant Financial Asset other than Ordinary Shares and Preference Shares | ||
Shariah non-compliant financial asset other than the ordinary shares and preference shares as stated in item (2)(i)(a) and (b) above may be accepted as collateral provided that the value of the collateral is limited to the Shariah compliant portion only. In this regard: | |||
(a) | The collateral value of the Shariah non-compliant financial asset which is based on interest such as conventional fixed deposit certificate and conventional bond is limited to the principal amount of such instruments; and | ||
(b) | The collateral value of the Shariah non-compliant unit trust fund is limited to the initial investment and any additional investment by the investors. |
In determining the Shariah status of the SEHC that involved in Activities Beyond Control and Activities Within Control, what is the most appropriate Shariah screening methodology to be applied.
Resolution
The SAC had resolved that due to the nature of the SEHC as a national exchange that undertakes Activities Beyond Control and Activities Within Control, a specific two-tier business activities benchmark would be applicable in determining its Shariah status as follows:
The financial ratio benchmark will continue to be applicable to the SEHC.