SHARIAsource

This fatwa defines a 'state shari'a security' as a state security issued purusant to shari'a principles, as proof of partial ownership of a state shari'a security asset, both in Indonesian Rupiah and foreign currency. A 'state shari'a security asset' is defined as a state shari'a security and/or state-owned financial asset with economic value (land, property and/or other), which can underpin the issuance of a state shari'a security.

The fatwa states that following contracts can be used to issue a state shari'a security:

1. Ijarah;
2. Mudharabah;
3. Musyarakah;
4. Istishna'; and
5. other contracts that are not contrary to shari'a principles.

This decree states that when an agreement to conduct a currency exchange (wa'd (muwa'adah) li al-sharf) or an actual currency exchange (akad al-sharf) is made, uncertainty (gharar) as to the value of either relevant currency is impermissible. Indeed, such uncertainty renders the agreement illegitimate. The decree then stipulates further necessary measures and requirements to prevent uncertainty for such agreements.

This fatwa was drafted in response to an Indonesian government request for an explanation on flexibility in the publication and management of a government-sanctioned State Shari'a Security on Agency. It defines a State Shari'a Security on Agency (Surat Berharga Syariah Negara Wakalah) as a state shari'a security published in accordance with shari'a principles, as evidence of partial ownership of assets in an investment activity managed by a publishing company as an agent of the holder of the state shari'a security. The fatwa permits the government to publish a state shari'a security directly or via a publishing company. If a publishing company is elected, it must declare that it is acting as a representative of the holder of the state shari'a security, for the purposes of managing profits resulting from the publication of a state shari'a security. Publishing companies must also publish agency state shari'a securities and can guarantee investors.

This fatwa acknowledges a lack of means available to assist shari'a financial institutions (Lembaga Keuangan Syariah) that encounter liquidity problems because of gaps in time between funds accumulated in the short term, and funds distributed in the medium-long term.

The fatwa defines a shari'a security repurchase agreement (Repo SBS) as the sale of a shari'a security by a shari'a financial institution to another shari'a financial institution, or to a conventional institution, and vice-versa, on the condition that the seller will repurchase it (and the purchaser will resell it). It mandates that a Repo SBS transaction is to be executed in this way: as an al-bai' ma'a al-wa'd bi al-syira.

This fatwa acknowledges that society and shari'a financial institutions would benefit from an explanation on the transfer of murabahah financing (customer debts or accounts payable) between shari'a financial institutions. The fatwa outlines three contractual options for transferring murabahah financing debts:

1. Akad Hawalah bil Ujrah: a promissory note with a financial incentive for the party assuming the debt;
2. Akad Ijarah Muntahiyah bi Al-Tamlik: financing that uses a rental agreement accompanied by an undertaking to transfer ownership of a rental item to the party renting at the conclusion of the term of the rental agreement;
3. Akad Musyarakah Muntanaqishah: where the capital of one investor in a musyarakah financing agreement is inadequate because their portion has been purchased by another party incrementally.

In regards to a party seeking to transfer accounts payable pursuant to a murabahah agreement, a party may do so in exchange for an item of good value (tsaman), but not a good sum of money (tsaman) because this constitutes bai' al-dain al-mu'ajjal li ghair al-madin bi tsaman hall (selling accounts payable that are not yet due to someone other than the debtor for a cash price).

This fatwa acknowledges that certain conditions will dictate that customers will transfer or withdraw their funds from a shari'a financial institution as a result of a displaced commercial risk, necessitating shari'a banking policies that:

1. smooth over revenue without a profit equalisation reserve; and
2. smooth over revenue with a profit equalisation reserve.

Accordingly, shari'a financial institutions require a set of shari'a-based guidelines pursuant to which they can form a profit equalisation reserve, derived from their own profits, and which tells them when may draw upon it. The fatwa dictates that income smoothing may only be conducted on third party monies under a mudharabah agreement. It may not be conducted if its implementation will merely result in accruing interest for the bank.

In the case of income smoothing without accessing a profit equalisation reserve, where profits from an enterprise are lower than projected, a shari'a financial institution may relinquish its right to equalise financial incentives for customers in order to remain competitive.

This fatwa acknowledges that shari'a financial institutions accumulate funds through savings, deposits, and account transfers, pursuant to shari'a-friendly contracts. Moreover, that in order to attract the public's interest in their products, shari'a financial institutions offer their customers rewards as promotions, as well as for customer loyalty. The fatwa concludes that promotional rewards may be an item or a service, but not a sum of a money. That item or service must be halal. The shari'a financial institution may set conditions vis-a-vis receipt of the reward, provided those conditions are not interest-bearing. Should the recipient breach these conditions, they are required to return the reward. Rewards are also not permitted if they are for the personal gain of an employee of the relevant financial institution, have the potential to be deemed a bribe, and/or are covertly interest-bearing.

This fatwa acknowledges that undertakings often form part of a financial and business transaction, and that the shari'a financial industry, as well as society in general, would benefit from an explanation of contractual obligations in shari'a financial and business transactions.

The fatwa states that such undertakings are binding and enforceable, provided the following conditions are met:

1. The party making the undertaking (wa'id) has legal standing (ahliyyat al-wujub wa al-ada');
2. In the event an undertaking is made by a party without legal standing, the validity of the undertaking depends on the permission granted by their guardian; and
3. The wa'id must have the ability and authority to make an undertaking (mau'ud bih).

Moreover, that:

1. the undertaking (wa'd) must be in writing in a contractual agreement;
2. the undertaking must be related to something that must be met or implemented by the person to whom the undertaking is made (mau'ud);
3. the thing promised (mau'ud bih) may not conflict with shari'a;
4. the contents of point 2 may also not conflict with shari'a; and
5. the mau'ud must already have met or implemented the condition in point 2.

This fatwa acknowledges that within society and shari'a financial institutions there has emerged a need to trade in commodities in a shari'a-friendly manner.

The fatwa dictates that commodities must be halal, legitimate, physically transferrable, be in the possession of the trader or their agent, and that all dealings must be executed pursuant to the agreement between the trader and purchaser. The fatwa also requires the Jakarta Futures Exchange to create shari'a-friendly commodities trading mechanisms, as well as facility for physical trades to be made.

This fatwa acknowledges the reality that shari'a financial institutions may need to request advance payments from customers to assure themselves during the execution of a murabahah financial agreement. The fatwa states that in order to prevent loss on the part of one of the parties, as well as to ensure shari'a-compliance, a set of guidelines for shari'a financial institutions are required.

More specifically, the fatwa permits a shari'a financial institution to receive an advance payment from a customer, on the condition that the parties agree to the sum of money. The monies can then be used in the event the customer terminates the agreement or the shari'a financial institution incurs some other form of financial damages.

This fatwa acknowledges shari'a bank account financing (Pembiayaan Rekening Koran Syariah - PRKS) as a form of financing based on shari'a principles. It acknowledges the partnership involved in creating such an agreement, as well as how profits and losses are borne by the parties to the agreement, pursuant to an agreed-upon ratio. In the event of a dispute, and assuming initial deliberative measures prove unsuccessful, the parties to such an agreement are to resolve that dispute before a religious court or the Shari'a Arbitration Body (Badan Arbitrasi Syariah).

This fatwa mandates that a party seeking to execute an al-Ijarah al-Muntahiah bi al-Tamlik agreement must first execute an Ijarah agreement, noting that an agreement to transfer ownership, either via a sale-purchase agreement or a gift, can only be executed after the Ijarah term has come to an end.

This fatwa permits and defines shari'a multi-benefit vouchers as commercial vouchers offered to consumers to obtain access to shari'a-friendly multimedia education and entertainment (edutainment), as well as other benefits, such as:

1. long-term investment savings to encourage consumers to retain shari'a financial services;
2. discounted halal products; and
3. raffled bonus rewards.

This fatwa permits the payment of shari'a-friendly retirement/pension annuities.

This fatwa defines the shari'a-friendly inter-bank financial market (Pasar Uang Antarbank berdasarkan prinsip Syariah - PUAS) as involving short-term financial transactions based on shari'a principles. PUAS participants in the primary market are defined as shari'a banks in their capacity as issuers of PUAS instruments, or funds-owners, and conventional banks as funds-owners. PUAS participants in the secondary market are defined as shari'a banks as sellers or purchasers of PUAS instruments, and conventional banks as sellers and purchasers of PUAS instruments. The fatwa also states that a PUAS certificate can be issued via mudharabah or musyarakah agreement.

This fatwa acknowledges that network marketing and multi-level marketing are sales methods already adopted by society. Accordingly, in order to prevent such modes of sale from causing societal damage, a shari'a-friendly mode of multi-level marketing is necessary. The fatwa defines shari'a multi-level direct sales as a mode of selling goods or services via a marketing network from individuals and corporations to other individuals and corporations. Among the many conditions it sets, the fatwa mandates that goods and services sold via multi-level marketing must be real, may not be haram (forbidden), or used for a haram purpose, may not be subject to excessive mark-ups and interest.

This fatwa concerns sale and lease back ijarah state shari'a securities. It defines a state shari'a security as a state security issued pursuant to shari'a principles, as proof of partial ownership of a state shari'a security asset. It also defines sale and lease back as the sale and purchase of an asset which the purchaser then leases to the vendor.

This fatwa defines a sale and lease back as the sale and purchase of an asset, followed by the purchaser then leasing the asset to the vendor. It also states that such an arrangement is permissble at law.

This fatwa applies to those shari'a banking customers who default on contractual repayments. It notes that customers who default because of a force majeure may not be sanctioned, however, those who default for other reasons within their control may incur a financial sanction. The fatwa states that such sanctions are based on the principle of ta'zir, that being a sanction with the intent of ensuring the customer is more disciplined in executing their contractual obligations.

This fatwa borrows the definition of 'mutual fund' (reksa dana) from Law No. 8 of 1995 on Capital Market, defining it as:

'... a container used to collect funds from society financiers to be reinvested in a securities portfolio by an Investment Manager.'

The fatwa qualifies that there are many components of a conventional mutual fund that contravene Islamic shari'a, from a contractual perspective, as well as from investment and profit-distribution perspectives.

Among other points, the fatwa stipulates that mutual funds may not be used to invest in non-halal investments, such as gambling enterprises, conventional financial institutes that rely on interest-bearing banking activities, non-halal food and beverage distributors and producers, and insider trading. Profits must also be divided proportionally to financiers.