Muzakarah Muamalat Kewangan Islam – A Commentary

(a) Session 1 – Risiko Kebergantungan Berlebihan Kepada Tawarruq (Risk of Excessive Dependence on Tawarruq)

The first two presentations were delivered by lawyers Dr. Syed Adam Al-Habshi and Nakhaie Ishak, who raised concerns regarding the legality of transactions involving commodities in Tawarruq, such as palm oil, plastic resin, and rubber. They argued that individuals must be licensed to legally conduct these transactions; for instance, palm oil transactions require licensing from the Malaysian Palm Oil Board (MPOB), while rubber transactions necessitate licensing from the Malaysian Rubber Board. This issue has not yet been contested in court.

In my view, based on the trends observed in how judges have adjudicated Islamic finance cases, it appears that courts may prioritize the issue of indebtedness over the specifics of the Islamic transactions themselves.

One discussant mentioned that during a closed-door session with Bursa Suq al-Sila', a commodity trading platform provider, indicated that MPOB has granted an exemption, allowing Islamic Financial Institutions (IFIs) to transact in palm oil without a license. This exemption can be regarded as an escape clause. However, there has been no clarification regarding other commodities, such as rubber and plastic resin.

Additionally, there was no information shared about whether other commodity trading platforms, such as Ableace Raakin, DD&Co, Sedania, and Eiger, have received similar exemptions. The lack of transparency raises questions about whether this non-disclosure is due to trade secrets. Furthermore, what about the customers involved in Tawarruq transactions? Are they exempt from licensing requirements, whether they are retail clients or companies? This information was also not provided.

I was also hoping for a more comprehensive presentation addressing why there appears to be no economic impact from these commodities, especially considering the billions, if not millions, of ringgit transacted daily through Tawarruq. There seems to be no observable effect on commodity prices, as if the supply and demand dynamics have no influence on palm oil prices, which may directly affect the cost of cooking oil and the export and import of palm oil. Is this oversight due to a lack of consideration in economic analyses? What is evident is that the platforms are generating millions in brokerage fees daily, creating a lucrative business model with minimal economic impact. Perhaps economists can provide further insights on this matter.

(b) Bai al-Manfaah bil-Shira as an Alternative to Tawarruq

The second session focused on a proposal presented by Ustaz Fazli Masri, the Head of Shariah at Coop Bank Pertama. From his presentation, I gathered that Bai al-Manfaah is designed for consumer and retail customers, allowing them to articulate their personal financing objectives. The Shariah principle underlying this transaction utilizes the service, or the customer’s objective, as the underlying asset. For instance, if a customer wishes to renovate their home, the interior design package offered by contractors or designers serves as the underlying asset for the sale. Similarly, travel packages, such as Umrah, provided by travel agencies can be utilized in this context.

In this model, it is the customer’s responsibility to identify their financing needs and submit them to the bank for due diligence on the service provider or perhaps in the future, the Banks may have their panels for customer to choose from. This approach effectively addresses the needs of one customer segment—consumers and retail clients. However, there were no examples provided regarding its application for SMEs and commercial customers requiring cash, such as for working capital financing. Perhaps this topic can be explored in future discussions.

Short Feedback: During the sessions, two microphones were available for audience questions and feedback, but both sessions were dominated by comments from the discussants. It may be beneficial to streamline the presentations to allow more opportunities for audience participation and diverse perspectives.