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Shariah Contracts in International Islamic Banking Transaction
MUHAMMAD RIDHWAN BIN AB. AZIZ1
Abstrak
Artikel ini membincangkan berkenaan akad-akad Shariah yang diguna pakai
dalam transaksi perbankan antarabangsa Islam. Metodologi kajian yang
digunakan dalam artikel ini adalah berdasarkan metodologi penyelidikan
dokumen dalam menghuraikan setiap akad tersebut dengan terperinci
berdasarkan pandangan ulama’ Islam. Dalam pada itu, penyelidikan lapangan
melalui temubual dengan beberapa orang pegawai bank Islam yang menawarkan
produk pembiayaan bagi transaksi perbankan antarbangsa Islam juga telah
dilakukan. Artikel ini dibahagikan kepada dua bahagian iaitu bahagian pertama
memperincikan semua akad yang digunakan oleh institusi perbankan Islam dalam
pembiayaan perbankan antarabangsa mereka dan bahagian kedua,
menghuraikan tentang instrumen-instrumen yang telah diparaktikan oleh institusi
ini dalam menyediakan produk pembiayaan perbankan antarabangsa kepada
pelanggan.
Kata Kunci: Al-Wakalah, al-Kafalah, Bay’ al-Dayn.
Abstract
This article tries to explore the Shariah contracts applied in international Islamic
banking transaction. The methodology of research in this article is through
document analysis in examining all Shariah contracts in international Islamic
banking transaction based on Muslim scholar’ opinions. In addition, this article also
uses the interview method with relevant Islamic banks officers that offer Islamic
banking products with respect of international banking transaction in their
respective banks. This article will be divided into two section namely section one
discusses all the Shariah contracts involve in the international Islamic banking
transaction, and section two examines Islamic banking instruments provided by
Islamic banking institutions in giving financing to their customers.
Keywords: Al-Wakalah, al-Kafalah, Bay’ al-Dayn.
1
Senior Lecturer at Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia (USIM), emel:
[email protected].
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Shariah Contracts in International Islamic Banking Transaction
Muhammad Ridhwan Bin Ab. Aziz
Introduction
Islam as an all-encompassing way of life has a unique system in dealing with international
banking transaction between two nations or two individuals from different companies or
countries. Although international banking transaction is seen more global and wider in its
application, but the similar concepts and principles of domestic dealing and transactions are also
applied in this kind of business. This is because, all the concepts and principles for both types of
transactions are derived from the same sources namely al-Qur’an, al-Hadith, consensus of jurists
(Ijma’) and Ijtihad.
The main problem here is what are the Shariah contracts applied for international
banking transaction and are these contracts suitable and valid to be used in the Islamic banking
industry? This article tries to solve these issues by discussing all the Shariah contracts practiced
in the international Islamic banking transaction as well as examining all the instruments provided
by local Islamic banks for international transaction.
1. Shariah Contracts in International Islamic Banking Transaction.
There are three Shariah contracts that directly involve in the financing arrangement in the
transaction for international Islamic banking namely al-Wakalah (Representative), al-Kafalah
(Guarantee) and Bay’ al-Dayn (Sale of Debt) as follows:
a. Al-Wakalah (Representative).
Generally, the contract of al-Wakalah2 can be divided into two categories namely specific
representative and general representative. Specific representative is when the agency or Wakil
carry out specific task for example, an agency for purchasing import goods from specific
country. This kind of representative is bounded upon what has been assigned to, whereby the
person is required to carry out his obligation as wished 3.
In contrast, general representative is a kind of representative where the agency is allowed
to do all relevant jobs for instance, when A says to B, “You are my agency in all matters”. In this
case, the agency has full power to carry out his task in his own way. The agency can represent
the representative in all matters except in the matter that can cause harm to the agency or to the
person who gives the agency4.
According to jurists from Shafi’i, Hanbali and Maliki schools of Islamic jurisprudence,
the Wakil is bounded upon the customary practices of certain places and society. If the Wakil acts
2
Lexically, al-Wakalah means “to safeguard”. See for instance, Ibn Manzur. 1994. Lisan al-Arab. Beirut: Dar alSadir. Vol. 11. p.734. Scholars from Hanafi school define al-Wakalah as assigning someone to carry out his job in
matters permissible by Shariah. See al-Kasani. 1998. al-Bada’i’ al-Sana’i’. Vol. 6. p.19. Yet, Shafi’i’s jurists define
representative as representing somebody in carrying out his work. See al-Sharbini al-Khatib. 1994. Mughni alMuhtaj. Beirut: Dar al-Kutub al-Ilmiyyah. Vol. 2. p.217. The legality of al-Wakalah contract is mentioned in alQur’an in Surah al-Tawbah verse 10, Surah Yusuf verse 55 and Surah An-Nisa’ verse 35.
3
Ibn Abidin. 1979. Hashiyah Radd al-Muhtar. Beirut: Dar al-Fikr. Vol. 4. p.416; Ibn Rushd. 1995. Bidayah alMujtahid wa Nihayah al-Muqtasid. Beirut: Dar al-Fikr. Vol. 2. p.297.
4
Ibid.
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differently from the custom, he actually has transgressed others’ entitlement without consent. For
example, he cannot buy goods with unused currency of that place 5.
The majority of fiqh scholars agreed that Wakil, which has been given full power to carry
out his job is bounded with what is normally practiced by the people. As such, he cannot sell
goods except by using the usual currency in use and sell lower than the normal market price,
which may result any loss to the transaction. In the case of Wakil for purchasing goods, the Wakil
is treated in similar way as for the Wakil in selling goods in terms of the conditions decided by
the person who gives the representative in matters of price, type and character of the buying
goods. The Wakil is permitted to buy for himself since the Wakil is regarded as buying for
himself6.
b. Al-Kafalah (Guarantee).
The contract of al-Kafalah7 is also directly connected with the international Islamic Banking
transaction. The contract of al-Kafalah has two essences namely proposal (Ijab) by the guarantor
and acceptance (Qabul) by the debtor8. Conversely, according to the majority of Muslim jurists,
the essence for guarantee is only one namely proposal by the guarantor. This is because the
contract of guarantee from the perspective of Shariah is a form of debt claimant and it is
adequate by the proposal given by the guarantor only 9.
Meanwhile, there are four conditions for the validity of the contract of al-Kafalah, as
follows:
i. Condition for Guarantor.
Guarantor must has sound mind and puberty (Baligh), whereby the contract of guarantee
is not valid when it is involved child and insane since guarantee is a kind of charity contract.
Charity contract is a contract involves with property then, person who is not eligible to give
charity cannot participate in the contract of guarantee10.
5
Al-Shirazi. 1976. Al-Muhadhdhab. Misr: Mustaffa al-Babi al-Halabi. Vol. 1. p. 353; Al-Sharbini al-Khatib. op.cit.
Vol. 2. pp.223-229; Ibn Rushd. op.cit. Vol. 2. p.298.
6
This view is shared among all the jurists. See Al-Kasani. op.cit. Vol. 6. p.29; Al-Sarakhsi. 1989. al-Mabsut. Beirut:
Dar al-Ma’rifah. Vol. 19. p.39; Ibn al-Hummam. 1995. Fath al-Qadir. Beirut: Dar al-Fikr. Vol. 6. p.57; Al-Sharbini
al-Khatib. op.cit. Vol. 2. p.229; Al-Shirazi. op.cit. Vol. 1. p.354; Ibn Rushd. op.cit. Vol. 2. p.298; Ibn Qudamah.
1992. al-Mughni. Beirut: Dar al-Fikr. Vol. 5. p.107.
7
Scholars from Maliki, Shafi’i and Hanbali define guarantee as a combination of obligation between guarantor and
guarantee in matter of debt. See Ibn Qudamah. op.cit. Vol. 4. p.534; Al-Sharbini al-Khatib. op.cit. Vol. 2. p.198.
Contract of al-Kafalah can be divided into two types namely al-Kafalah Bi al-Nafs or guarantee for oneself and alKafalah Bi al-Dayn guarantee for debt. See Ibn Rushd. op.cit. Vol. 2. p.296. Once in the life time of the Prophet
Muhammad (s.a.w.), he refused to pray (praying for dead body) for a companion who has a debt of only two
dirhams. But, when one of his companion willingly and guaranteed to pay for the debt, he (s.a.w.) then agreed to
pray for the companion. This event is a legal basis for the permissibility of al-Kafalah contract in Islam. See alShafi’i. 1968. al-Umm. Misr: Kitab Sha’ab. Vol. 1. p.227.
8
This view is given by Abu Hanifah. See for instance Ibn al-Hummam. op.cit. Vol. 5. p.390; Al-Kasani. op.cit. Vol.
6. p.2.
9
Al-Sharbini al-Khatib. op.cit. Vol. 2. p.200; Al-Shirazi. op.cit. Vol. 1. p.340; Ibn Qudamah. op.cit. Vol. 5. p.535.
10
Al-Kasani. op.cit. Vol. 6. p.5; Al-Sarakhsi. op.cit. Vol. 20. p.8; Al-Sharbini al-Khatib. op.cit. Vol. 2. p.198.
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ii. Condition for Debtor.
There are two conditions for debtor namely he must able to give the guarantee by himself
or via his representative. As such, guarantee given by dead and bankrupted person are not valid
because the persons do not leave their properties for debt repayment. Secondly, the guarantor
should understand the contract of guarantee fully although the person is not there or in
imprisonment11.
iii. Condition for Creditor.
Creditor should be well recognized and his name can be stated clearly. Moreover,
creditor should present in the session of contract (Majlis al-‘Aqd) and if the creditor is not
present at that time then later, he is informed and agreed upon the contract, this contract of
guarantee is not valid because acceptance of the proposal was not made in the session of
contract. Guarantee means transfer of entitlement and the contract cannot happen unless there are
offer and acceptance12.
iv. Condition for Guarantee.
Guarantee should be in the form of debt, goods, oneself or action. Trust goods such as
property belonging to partnership or selling goods not yet be delivered are not valid to be
guaranteed13.
In addition, the contract of al-Kafalah may be terminated in either case as below:
i. Termination of Guarantee for Property.
This kind of guarantee will be terminated when payment of debt was settled or goods has
been delivered to the creditor. This settlement can be done by any party either by the guarantor
or by the person under guarantee. This is because entitlement is a form of settlement therefore,
when the settlement was made then the objective of the guarantee is accomplished so, the
contract will be resolved 14.
Similarly, when the creditor settled down his debt towards guarantor either by way of
Hibah (gift) or similar action then, the contract of al-Kafalah is terminated. This contract is also
resolved by transferring the guarantor’s obligation towards other person and he accepted15.
ii. Termination of Guarantee by Personal Appearance.
Termination of guarantee happens when the person under guarantee appeared in a place
that the judge can put him on trial. This contract is terminated because the guarantor has
completed his responsibility namely by bringing the person under guarantee on the trial.
11
Ibn Rushd. op.cit. Vol. 2. p.294; al-Kasani. op.cit. Vol. 6. p.6; Ibn al-Hummam. op.cit. Vol. 5. p.419.
Al-Kasani. op.cit. Vol. 6. p.6; Ibn al-Hummam. op.cit. Vol. 5. p.417; al-Sarakhsi. op.cit. Vol. 20. p.9.
13
Al-Kasani. op.cit. Vol. 6. p.7; Ibn al-Hummam. op.cit. Vol. 5. p.402.
14
Al-Kasani. op.cit. Vol. 6. p.11.
15
Ibid.
12
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Similarly, in the case when the person died therefore, the guarantor can get off from the
obligation since it is considered as matter of external incapability to bring the person16.
c. Bay’ al-Dayn (Sale of Debt)17.
Debt here is included to the debt of the price of selling goods, loan replacement, fee for certain
benefits, penalty payment and indemnity. This type of sale may happen either for person who has
debt or person who has no debt. Majority of jurists agreed that sale of debt for debt is not valid
either the sale is made by person who has debt or person who has no debt 18.
For instance, sale of debt for person who has debt happens when he says: “I purchase
from you 10 kilogram of wheat at price of RM 15.00, with condition that the delivery is made
after one month”. When the time is due, the seller was not able to settle his debt (unable to
deliver the goods) and then says to the buyer: “Sell the debt to me with condition that you extent
the time and I will add extra quantity of goods”. As such, the buyer sells the debt to the seller,
but the delivery of the goods was not happened. This kind of sale is considered as riba and it is
unlawful from the Shariah perspective19.
Sale of debt to person who has no debt happens when the person says: “I sell to you my
10 kilograms of sugar, in the hand of A at price of RM 15.00 and you need to pay it after one
month”. This type of sale is also not valid to be practiced 20.
Meanwhile, scholars of different views regarding sale of debt in cash. Majority of
fuqaha’ validated this sale when the sale is for person who has debt. This is because matter that
will nullify the legitimacy of sale of debt for debt is when a person sells an item that he cannot
afford to deliver it since in reality the goods itself is not belonging to him 21.
Nonetheless, the debt here does not need for delivery (buyer does not receive the item
from the seller) for example, the debtor sells the debt to person who has debt with a replacement
of other type of debt. In this case, the sale of debt is nullified and he is forced to replace with the
second debt. Nevertheless, scholars from Zahiri school of the opinion that sale of debt to a
person who has debt is not valid since there is an element of Gharar (uncertainty) and sale of
Gharar is void22.
In the case of sale of debt to person who has no debt in cash, scholars from Hanafi and
Zahiri of the views that the sale is not valid because of the selling of undelivered item. Therefore,
the contract of sale of debt to person who has no debt is not legitimate since debt cannot be
delivered to person who has debt23.
16
Al-Kasani. op.cit. Vol. 6. p.12; Al-Sarakhsi. op.cit. Vol. 19. p.166; Ibn al-Hummam. op.cit. Vol. 5. p.393.
Bay’ al-Dayn or sale of debt is a sale transaction upon debt. See Hashim Kamali. 2000. Islamic Law in Malaysia:
Issues and Development. Kuala Lumpur: Ilmiah Publisher. p.250. This type of sale can be in the form of cash or
delay transaction. See Wahbah al-Zuhayli. 1984. Al-Fiqh al-Islami wa Adillatuh. Damshiq: Dar al-Fikr. Vol.4.
p.432.
18
Mustaffa al-Khinn et.al. 1998. Fiqh al-Manhaji. Damshiq: Dar al-Qalam. Vol. 3. pp.38-39.
19
Al-San’ani. 1979. Subul al-Salam. Beirut: Dar al-Fikr. Vol. 3. p.45; Al-Shirazi. op.cit. Vol. 1. p.262. Nevertheless,
there is no specific proof to confirm that this kind of sale is valid from the perspective of Shariah and there is also
no specific proof to invalidate it. According to Ibn Qayyim, this type of sale is lawful since there is no proof from
al-Qur’an and al-Hadith and also consensus of ‘ulama. See Wahbah al-Zuhayli. op.cit. Vol.4. p.434.
20
Al-San’ani. op.cit. Vol. 3. p.45; Al-Shirazi. op.cit. Vol. 1. p.262.
21
Al-Kasani. op.cit. Vol. 5. p.148; Ibn Qudamah. op.cit. Vol. 4. p.120; Mustaffa al-Khinn et.al. op.cit. Vol.3. p.39.
22
Ibn Hazm. 1970. Al-Muhalla. Qahirah: Matba’ah al-Jumhuriyyah. Vol. 9. p.7.
23
Al-Kasani. op.cit. Vol. 5. p.158.
17
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In this regard, seller is unable to deliver the selling item to person who has debt. This
kind of sale is not valid because among the conditions in a sale contract is that the item should be
delivered to the buyer. When this condition is not fulfilled, the sale of debt is also nullified 24.
According to a view from Shafi’i school of fiqh, it is permissible to sell fix debt that can
be easily converted to cash term since this kind of debt can be delivered without any obstacle
such as payment for indemnity. Besides, according to Hanbali, it is valid to sell fix debt that can
be converted to cash term to person who has debt, but he invalidated to sell it to person who has
no debt25.
For Maliki, sale of debt to person who has no debt is valid with two conditions. Firstly,
the sale is not involve with any element that not permissible by Shariah law such as riba and
gharar. Thus, the debt becomes a permissible item and can be sold such as loan or debt not in the
category of food stuffs26.
If replacement for debt is happened then, the price of the debt should be equal in order to
avoid riba and the debt cannot be paid in gold currency/money if the debt is in the silver
currency/money to avoid cash sale for deferment price. Secondly, person who has debt should
affirm that debtor will able to settle the debt when the time is due and he should attend in the
session of contract for the confession27.
2. Instruments in Islamic Banking.
There are various types of Islamic instrument for international Islamic banking transaction
offered by Islamic banking institutions in Malaysia. Amongst the instruments are as follows:
a. Bank Guarantee-i (BG-i).
Bank Guarantee-i is an irrevocable written obligation issued under contract of Kafalah by
the Bank to assure payment in case of demand by beneficiary. The Bank in essence, acts as a
guarantor. In this guarantee, the bank will responsible on behalf of his client when there is a
default in payment or breaking of agreement contract as been agreed by both parties (client and
third party)28.
This facility is a combination of two Islamic contracts in Islam namely al-Kafalah and alWadi’ah. Therefore, BG-i is a contract made between bank and another party, which states the
bank’s agreement to carry out the liability or obligation towards bank’s client in the case when
the client fails to fulfill his promise 29.
24
Ibid.
Al-Shirazi. op.cit. Vol. 1. p.262; Ibn Qudamah. op.cit. Vol. 4. p.120.
26
Ibn Rushd. op.cit. Vol. 2. p.146; Al-Dardir. op.cit. Vol. 3. p.63.
27
Ibid.
28
Bank Islam Malaysia Berhad; http://www.bankislam.com.my/en/Pages/BankGuarantee-i.aspx?tabs=1
Accessed on 16th June 2014. See also Sudin Haron and Bala Shanmugan. 1997. Islamic Banking System: Concepts
& Applications. Petaling Jaya: Pelanduk Publications. p.138. This concept also refers to the guarantee given by one
party to the owner of the goods. This facility is a contract of guarantee by Islamic banks towards third party where
client is responsible to fulfill his obligation to the third party. See Ab. Mumin Ab. Ghani. 1999. Sistem Kewangan
Islam Dan Pelaksanaannya di Malaysia. Kuala Lumpur: Jabatan Kemajuan Islam Malaysia. p.276.
29
Ab. Mumin Ab. Ghani. op.cit. p.276.
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In practice, Bank Islam Malaysia Berhad (BIMB) 30 offers BG-i for its client in carrying
out project, completing project under construction or other type of guarantee that conform to the
Shariah requirements31. BIMB will help its client to convince the third party that the client will
obey all obligations pertaining to the settlement of his debt or in completing his project or other
kind of requirement 32. The features of BG-i facility offered by BIMB are as below:
i.
BG-i is issued under the principle of al-Kafalah.
ii.
This facility is issued to assist client for completing certain jobs, settlement of
debt or other needs. This facility is given normally for the tender guarantee,
performance guarantee, sub-contractor guarantee, safe-deposit guarantee, custom
free duty guarantee and custom bond.
iii.
The bank will ask the client to deposit certain amount of money in the bank under
the principle of al-Wadi’ah in order to obtain this facility33.
For CIMB Islamic Bank Berhad 34, the similar facility is also called Bank Guarantee-i,
based on al-Kafalah concept. Through this facility, the bank is responsible to pay for the
beneficiary or seller certain amount if the bank’s client fails to fulfill his obligation based upon
the agreement with the seller 35. A Bank Guarantee-i (BG-i) is a guarantee issued by a Bank at the
request and for account of the applicant whereby the Bank undertakes to pay the beneficiary up
to the guaranteed sum in the event of a valid claim received by the Bank under the BG-i. This
BG-i is based on the Kafalah concept which refers to a contract of guarantee or surety given by
one party to discharge the liability of a third party in the case of default 36.
30
BIMB is one of the fully Islamic bank in Malaysia. BIMB was established under Company Act 1965 on 1 st March
1983 and began its operation on July 1983. The establishment of BIMB is a positive sign for the formation of dual
banking system in Malaysia. The objective of BIMB is to be an alternative for the conventional banking system
based on interest system. See Wong Choo Sum. 1995. “Bank Islam Malaysia: Performance Evaluation 1983-1993”.
Leading Issues in Islamic Banking and Finance. Petaling Jaya: Pelanduk Publications. p.84.
31
Islamic Banking Practice: From the Practitioner’s Perspective. 1994. BIMB, pp.99-100; Bank Islam Malaysia
Berhad. http://www.bankislam.com.my. 16th December 2010.
32
Muhammad Kamal Azhari. 1993. Bank Islam: Teori Dan Praktik. Pustaka Fajar. p.156.
33
Interview carried out with Rahemi Bin Jusoh, Credit Officer, Bank Islam Malaysia Berhad, Machang, Kelantan on
25th June 2007 at 9.35 a.m.; Islamic Banking Practice: From The Practitioner’s Perspective. 1994. BIMB. p.100.
34
CIMB Islamic Bank Berhad was officially established after a merger with Commerce Tijari on 6th June 2005.
Currently, this bank has become a global bank that offers Islamic commercial products and services in its 233
branches throughout Malaysia. This bank also operating in Brunei and Bahrain. Among the Islamic products
provided by CIMB is investment products, consumer products and asset management that can cater different need of
customers personally and commercially. See CIMB Islamic Bank Berhad. http://www.cimbislamic.com. 6th October
2010.
35
Interview carried out with Mustapa Bin Kamal, Bank Officer, International Financing Unit, CIMB Islamic Bank
Berhad, Kota Bharu, Kelantan on 7th October 2007 at 4.00 p.m.; CIMB Islamic Bank Berhad.
http://www.cimbislamic.com. 6th October 2010.
36
CIMB
Islamic
Bank
Berhad;
http://cb.cimbislamic.com.my/index.php?ch=ci_biz_tr&pg=ci_biz_tr_tra&ac=28&tpt=cimb_ibiz# Accessed on 16th
June 2014.
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b. Letter of Credit-i (LC-i).
The facility of LC-i as being offered by BIMB based on two Shariah principles namely
al-Wakalah and al-Murabahah37. LC-i based on principle of al-Wakalah is a situation in which
one party named another party to be his representative. This type of LC-i needs advance payment
from the client according to the value of the buying item. The client is required to deposit certain
amount of money in BIMB account based on the price of the goods38.
BIMB as an agent for the client in payment of goods will issue LC-i based upon the valid
conditions of sale from the Shariah perspective. Then, BIMB will make payment using the
deposited cash of the client from his account. BIMB will charge fee and commission to the client
for all services it rendered to the client based on the principle of al-Ajr wa al-‘Umulah (base on
certain fee)39.
After application has been made, BIMB will examine and process the application and if
the bank satisfied, the bank will issue LC-i to the client. The client will sign an agreement with
the bank and the bank will issue the LC-i after all relevant documents have been checked and
approved by the officer 40.
By using this facility, exporter can avoid any default of payment by the importer since
guarantee has been given by the bank. The importer also will feel safe and comfort to make a
deal because payment of the transaction can only be made after the delivery of the goods and be
confirmed by the bank 41.
c. Islamic Accepted Bill (AB-i).
This facility is an Islamic financial product for international Islamic banking transaction,
which is somewhat similar to the Bankers Acceptance in the conventional banking system. This
facility uses the principle of al-Murabahah and Bay’ al-Dayn 42 . There are two methods of
financing under this facility, as follows:
i. AB-i (Purchase).
This type of Islamic Accepted Bill uses the principle of al-Murabahah. This financing
begins when client asks the bank to provide financing facility for him in purchasing certain
goods, but not related to the fix asset or property. The bank will appoint the client as his agent
for buying the desired goods on behalf of the bank. The bank then, will pay the price of the
37
Sudin Haron. 1996. Prinsip dan Operasi Perbankan Islam. Kuala Lumpur: Berita Publishing Sdn. Bhd. pp.115118. For the purpose of this article, only LC under al-Wakalah principle will be explained in order to tally and make
comparison with LC provided by CIMB Islamic Berhad.
38
Ibrahim Shahbudin. 2001. “Trade Finance Facilities”. Seminar Paper on Islamic Banking and Finance Lectures
Series, Hotel Sheraton & Tower, Kuala Lumpur. 19th -20th September 2001. pp.10-11.
39
Islamic Banking Practice: From the Practitioner’s Perspective. 1994. BIMB. p.101.
40
Interview carried out with Rahemi Bin Jusoh, Credit Officer, Bank Islam Malaysia Berhad, Machang, Kelantan on
25th June 2007 at 9.35 a.m.; Bank Islam Malaysia Berhad. http://www.bankislam.com.my. 16th December 2010.
41
Ibid.
42
Islamic Banking Practice: From The Practitioner’s Perspective. 1994. BIMB. pp.104-105; Sudin Haron. op.cit.
p.251.
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goods using the bank’s fund and sell the goods to the client at price which consists of buying
price plus profit margin43.
The client is allowed to pay in installment until the date of maturity. The client will
submit all relevant documents to the bank before the bill can be issued. The debt in this facility
can be securitized (can be traded in the second board of Bursa Malaysia) using the principle of
Bay’ al-Dayn in the form of Bill of Exchange 44.
ii. AB-i (Sales).
This facility uses the principle of Bay’ al-Dayn. For this type of facility, the bank will
purchase client’s debt, which usually be securitized under the Bill of Exchange. In this facility,
the exporter will provide exports documents as required under the contract of sale or LC. The
client will submit the documents to the bank in order to be purchased by the bank. Since the
export document needs to be sent to the importer, the bank will ask exporter to issue a new bill of
exchange as a replacement under the principle of Bay’ al-Dayn, which has certain duration of
maturity date45.
d. Export Credit Refinancing-i (ICR-i).
This facility offers financing to the direct and non-direct exporter46 with no interest basis.
This scheme is introduced to expand the export trading for Malaysia products, which is
controlled by the Central Bank of Malaysia. This scheme uses Shariah principle of alMurabahah and Bay’ al-Dayn47, which can be divided into two categories, as below:
i. ECR-i Pre-Shipment.
This facility is provided to exporter for purchasing of raw material or finished goods for
the purpose of exporting. Exporter who wishes to obtain this facility needs to be an agent for the
merchant bank in order to purchase the raw material for production under the principle of alMurabahah. When the goods has been delivered, the bank will pay to the supplier according to
price stated in invoice and bank as the owner of the goods will sell it to the exporter in credit at
agreed price consisting of the cost of the goods plus profit margin48.
43
Bank Islam Malaysia Berhad; http://www.bankislam.com.my/en/Pages/AcceptedBills-i.aspx?tabs=1
Accessed on 16th June 2014. See also Islamic Banking Practice: From The Practitioner’s Perspective. 1994. BIMB.
pp.104-105; Ab. Mumin Ab Ghani. op.cit. pp.273-274.
44
Ibid.
45
Ibid.
46
Non Direct Exporter is person who supplies domestic materials to the exporter. See Nor Mohamed Yakcop. 1996.
Teori, Amalan dan Prospek Sistem Kewangan Islam Di Malaysia. Kuala Lumpur: Utusan Publications &
Distributors Sdn. Bhd. p.83.
47
Nor Mohamed Yakcop. op.cit. pp.83-84.
48
Ibid.; Ab. Mumin Ab Ghani. op.cit. pp.274-276.
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Shariah Contracts in International Islamic Banking Transaction
Muhammad Ridhwan Bin Ab. Aziz
ii. ECR-i Post-Shipment.
This facility is offered to exporter who exports his goods by credit. Exporter who sends
his goods to importer becomes the owner of the export bill and he appoints trading bank as the
collection agent for collecting the payment from the overseas importer. Since payment can only
be claimed at future date, exporter who needs fund will sell the bill to the trading bank based on
Shariah principle of Bay’ al-Dayn49.
The bank will buy the export bill with an agreed price (face value of the bill minus bank’s
profit). This means that bank will advance the payment to exporter before it receives the payment
from the importer. Afterwards, the bank will sell the bill to the Central Bank and when the expiry
date is due, the Central Bank will sell it back to the trading bank based on the face value of the
bill50.
e. Collection Bills.
This service is based on al-Wakalah principle and provided to exporter. For this kind of
facility, the bank will represent the client for collecting the sale revenue based upon bill of
exchange and send all the relevant documents to his agent in oversea. The similar service is also
provided by the bank when the bank acts as a representative bank in oversea to collect sale
revenue of foreign traders51.
f. Money Transfer.
Money transfer involves the transfer of fund from A to B as required by the customer.
Bank acts as the agent on behalf of the customer (based on Shariah principle of al-Wakalah) will
transfer the fund as requested by the customer through application draft, consignment transfer or
telegraphic transfer. The bank will use branch service bank or its agent located at nearest to the
B. Usually, the bank will retain one account with the agent for smooth process 52.
The fund transfer through application draft and transfer by order begin when the bank
directs its agent to pay to specific party by asking its agent to debit his account when the
transmitted process is done. In case when the transfer involves the exchanging of foreign
currency, the bank will sell the foreign currency to its customer. The bank usually imposes
minimum service charge for this kind of services rendered to the customer 53. Below is the brief
objective/purpose and contracts applied for all of the above mentioned instruments:
49
Nor Mohamed Yakcop. op.cit. pp.83-84.
Ibid.; Ab. Mumin Ab Ghani. op.cit. p.276.
51
Sudin Haron. op.cit. pp.250-251; Islamic Banking Practice: From The Practitioner’s Perspective. 1994. BIMB.
p.106.
52
Islamic Banking Practice: From The Practitioner’s Perspective. 1994. BIMB. pp.105-106.
53
Ibid.
50
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e-ISSN : 1823-7126
Table 1.1: Selected Facilities of Islamic Trade Financing
Facility
Shariah Contract
Objective/Purpose
Bank Guarantee-i Kafalah
Payment guarantee
(BG-i)
Letter of Credit-i al-Wakalah and al- Trade Settlement
(LC-i)
Murabahah
Islamic
Accepted al-Murabahah and Import Purchase and
Bill (AB-i)
Bay’ al-Dayn
Export Sales
Export
Credit al-Murabahah and Export Refinancing
Refinancing-i (ICR- Bay’ al-Dayn
i)
Collection Bills
al-Wakalah
Obtain payment and
deliver document
Money Transfer
al-Wakalah
Payment transfer
Source:
Bank
Islam
Malaysia
Berhad;
http://www.bankislam.com.my/en/Pages/ShariahContractsConceptsforTradeServices.aspx?tabs=
1;
CIMB
Islamic
Bank
Berhad;
http://cb.cimbislamic.com.my/index.php?ch=ci_biz_tr&pg=ci_biz_tr_tra&tpt=cimb_ibiz;
Accessed on 16th June 2014.
Conclusion.
This article has discussed three main contracts of Shariah that are applied in international
Islamic banking transaction. It can be concluded that most of the instruments in international
Islamic banking transaction use these three contracts of Shariah.
In this article, explanation also has been done in terms of all facilities and instruments of
international Islamic banking transaction that practiced by the local Islamic banks. Indeed, these
instruments can be a better alternative for all Muslim’s importer and exporter in trading
internationally since all these instruments are based on valid Shariah contracts in Islam.
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