Aug 26 (Reuters) - The Malaysian central bank's sharia advisers have outlawed the payment of a fee to support a pledge made in Islamic forward foreign currency transactions, saying such charges contravene the religion.
Islamic banks tend to levy a payment when a promise or "waad" is made to enter into a forward foreign currency hedging contract to reflect the parties' commitment to the transaction.
But Bank Negara's sharia advisory council, whose rulings are binding on Islamic banks in Malaysia, said such charges would render the promise a bilateral waad, which is not allowed by the sharia. "Islamic financial institutions are allowed to enter into forward foreign currency transaction for hedging purposes based on unilateral waad (promise) that carries binding effect on the promisor," Bank Negara's sharia advisers said in a statement.
"Nevertheless, no consideration (or fee) is allowed to be charged on the promisee in view that upfront cash payment for forward currency transaction would lead to a bilateral waad which is not allowed by sharia."
A bilateral waad is deemed a contract and some experts said in this context it could lead to an agreement without the present delivery of the price and subject matter of the transaction, giving rise to uncertainty which is prohibited by Islamic law.
"Realising the realities of the situation that they need to have sharia-compliant structures for forwards, banks would probably work out a way in which the fee is built into the structure itself," said Megat Hizaini Hassan, an Islamic banking lawyer at Zaid Ibrahim & Co. "If you deal with two institutions, probably they can work it out in such a way that the fee is built into the pricing and therefore payment of the fee is deferred as part of the pricing for the underlying transaction."
Bank Negara's 10-member sharia advisory council includes Mohd Daud Abu Bakar, Sheikh Ghazali Abdul Rahman, Mohamad Akram Laldin and Muhammad Syafii Antonio. (Reporting by Liau Y-Sing; Editing by Kim Coghill)
