Comments from a scholar and legal rulings in Malaysia on Islamic finance products wa'ad and BBA

A Malaysian Shari'ah scholar says that a promise (waad) made in an Islamic financial transaction is not legally enforceable but said that the other party may be entitled to compensation for the unfulfilled promise. Waad are used in the context of several different products like murabaha and istisnaa. The scholar, Abdulazeem Abozaid, also criticised the Malaysian stock exchange plans to allow Shari'ah-compliant short selling. He said, "First of all, you are selling things that you don't own. Secondly, you're borrowing shares and in return for borrowing, you will be charged some money so it's a conventional loan." A Malaysian appeals court also ruled that the controversial financing product bai bithaman ajil (BBA) is valid. The contract is widely used in Malaysia but is viewed as a disguised loan in many other regions.

Badlisyah Abdul Ghani, CEO of CIMB Islamic Bank, continues his call for increased regulation of the Islamic finance industry to protect it against further problems and deal with 'internal contradictions' caused by standards that vary widely across jurisdictions.

Other News

• The Sacramento Bee has an article about Islamic finance that is interesting although some of the claims that Islamic finance could prevent the recession are questionable, as I have described in previous posts.
  
• HSBC Amanah received approval from the Hong Kong Monetary Authority to issue sukuk.
  
• University Bank in Michigan received a cease-and-desist order from the FDIC relating to compliance issues at the bank that the bank says have already been addressed. None specifically mentioned the bank holding company's Islamic banking subsidiary.
  
• The Islamic Bank of Britain is attempting to broaden its client base outside of the group of clients who will be drawn by their faith by describing their product's price competitiveness. The commercial director at the IBB describes: "The bank is open to customers of all faiths, so my call to UK homebuyers and homeowners is to put any misapprehensions to one side and come and find out how a Home Purchase Plan from IBB can really make a difference to your pocket."
  
• Fitch cut its rating on Kuwait Finance House due to its exposure to other GCC investment banks. Other investment banks, including a few Islamic banks, have run into trouble in the economic crisis.
  
• The latest Central Bank of Bahrain al-salam sukuk was significantly oversubscribed.