Preference shares: analysis of Sharīʿah issues

Purpose - The purpose of this paper is to analyze the different features of preference shares from accounting and Sharīʿah perspectives. It also aims to study Sharīʿah issues arising from preference shares and to subsequently propose solutions for identified issues that will help in structuring Islamic preference shares. Design/methodology/approach - The paper uses a qualitative method by analyzing relevant documents and literature to understand the subject matter and Sharīʿah-related issues. Findings - The paper finds that several features of conventional preference shares, such as capital guarantee, loss sharing disproportionate to capital contribution, fixed profit, profit guarantee and waiver of rights before realization of profit, make them a Sharīʿah non-compliant instrument. Research limitations/implications - The paper is conceptual in nature; however, it provides directions for future empirical research. Originality/value - The paper provides a practicable solution to structure Sharīʿah-compliant preference shares

ORIGINAL ARTICLE Critical Appraisal of Rahn-based Islamic Microcredit Facility From Shari'ah Perspective

ABSTRACT The rahn-based Islamic microcredit facility is currently popular among Islamic financial institutions in Malaysia, essentially because of its commercial features, which make it attractive and competitive with conventional pawnbroking. However, the substance of this product triggers some Shari`ah issues, which are mainly centred on the safekeeping fee the bank charges the customer under the principle of ijarah al-hifz (safekeeping fee) and wadi`ah yad al-damanah (guaranteed safe custody). This paper is primarily intended to examine the key Shari`ah issues associated with the structure that is widely accepted at present. It undertakes a case study of two selected Islamic banks that offer a rahn-based Islamic microcredit facility to their clients. The product manual of each bank has been examined to understand the structure flow of the product, payment of the safekeeping fee and other relevant operational aspects of the product. Interviews have also been conducted to gather data related to the operation of this product that was not available in the product manuals of the two selected Islamic banks. It is proposed that the alternative structure must comply with the Shari`ah and meets most of the distinctive commercial features of the rahn-based Islamic microcredit facility to maintain its commercial viability in the industry

Issues of Letter of Credit in Malaysian Islamic Banks

This paper discussed the prevailing issues currently faced by Islamic banks on the offering of Letter of Credit (LC), originally brought forward by the International Chamber of Commerce, using Shariah contracts and puts forth recommendations on practical solutions to solve the issues. The study adopted a qualitative method where the information on the issues of Islamic LCs was gathered throughout interviews with different bankers closely involved in LC issuance from 12 Islamic banks in Malaysia. The results indicate that there are three vital issues related to LCs offered by Islamic banks which lead to Shariah non-compliance issues. The issues revolve around the conversion of LC Wakalah (agency) to LC Murabahah (cost-plus), the existence of a sale contract between the customer and exporter and lastly the title of goods stated in the bill of lading. The findings recommend several solutions in relation to LCs within the underlying Shariah contracts to ensure that their operation complies with the Shariah requirements and Malaysian laws, standards and regulations. This paper highlights the issues of Islamic LC yet to be discussed thoroughly based on the views of a panel of experts and Islamic bankers