Bai` Dayn
The SAC has agreed to accept the principle of bai` dayn i.e. debt trading as one of the concepts for developing Islamic capital market instruments. This was based on the views of some Islamic jurists who allowed this concept subject to certain conditions which can be met when there is a transparent regulatory system safeguarding the maslahah (interests) of market participants.

Islamic Benchmark Bond
Islamic benchmark bond, also known as Khazanah Bond is Shariah compliant. It is structured based on murabahah principles.

Mudharabah Bonds by Securitising Al-Ijarah Thumma al-Bai` (AITAB)
The SAC has approved the concept and mechanism applied in issuing Islamic bonds based on mudharabah principle through securitisation of Islamic Hire Purchase Debt (AITAB). The purchasing of Islamic hire purchase debt is based on the Shariah concept of bai` al-dayn (debt trading).

Ittifaq Dhimniy Principle
The SAC has approved the ittifaq dhimniy principle in structuring Islamic bonds. Ittifaq dhimniy refers to an understanding that exists before a contract is sealed. The seller and buyer have made a prior agreement to sell the asset at a specific price and to buy back at a specific price. The principal dealer (PD) who succeeds in securing the tender will buy the assets. This refers to the understanding in a sale and purchase transaction, in accordance with muzayadah trading. It is likely that in the context of the formation of an Islamic benchmark bond, there can be more than one PD successfully buying the assets as partners in accordance to their respective allotments.

Dha` Wa Ta’ajjal
The SAC has agreed to accept the use of the dha` wa ta’ajjal principle in promoting an Islamic capital market instrument. Dha` wa ta’ajjal is the action of a creditor forfeiting part of the debt when the debtor settles the balance of his debt earlier than scheduled.

Third-party Guarantee on the Capital
Issuers of Islamic bonds are allowed to apply third-party guarantee on the capital invested under the principles of muqaradhah/mudharabah. It was also agreed that a fee (ujrah) is allowed to be paid to the guarantor on the condition that the guarantee should not be on a recourse basis. This means that the investors cannot claim compensation for losses against issuers in the event of a business failure if the transaction is guaranteed by a third party. The investors are also allowed to ask for collaterals from issuers in view of possible gross negligence by issuers.

Concession rights are accepted as an approved underlying asset for structuring Islamic bonds. It is also agreed to recognise the contract for the supply of goods and maintenance that is made with the government as an approved underlying asset for structuring Islamic bonds. Both decisions are based on iqta’ principle of Islamic jurisprudence in which the qiyas (analogy) methodology is applied. The SAC has also made a decision that the iqta` principle can be applied to contracts awarded by the government, government agencies and government-related companies.

Compensation and rebate
Investors in Islamic bonds are also allowed to impose a compensation (ta`widh) on late and defaulted payment by issuers. Ta’widh can be imposed after it is found that mumathil (deliberate delay in payment) is present on the part of the issuer to settle payment of the principal or profit. The rate of ta’widh on late payment of profit is 1% per annum of the arrears and it cannot be compounded. While the ta’widh rate on failure to settle the payment of the principal is based on the current market rate in the Islamic interbank money market, it too cannot be compounded.

In addition, upon request by the issuers of Islamic bonds for an early settlement, rebates (ibra’) to investors are allowed.

Ibra’ (rebate)
The SAC has resolved that the ibra’ (rebate) clause for an early settlement can be inserted in the primary legal document of an Islamic bond transaction. The resolution is provided on the basis of ‘uruf (custom), maslahah (public interest) principles and to avoid gharar (uncertainty). The ibra’ clause in the primary legal document is considered as syart (condition) that is complied with muqtadha al-`aqd (purpose of contract). The SAC has advised that the ibra’ clause is to be separated from the pricing section in the primary document, and alternatively proposed that the clause be inserted in the payment and settlement section.

“When Issued” (WI)
“When Issued” (WI) process for the issuance of bonds in the primary market is recognised as Shariah compliant. The ruling was made on the basis that there are no elements of riba (usury) and gharar (uncertainty) in the WI process.

Asset Securitisation
The SAC has resolved that asset securitisation is permissible if the underlying asset to the instrument is Shariah compliant. If the underlying asset is debt in nature, the securitisation can be structured under the Shariah principle of mudharabah and msyarakah.