BNM Resolution Rahn Islamic Debt Securities as Collateralised Asset There was a proposal to introduce the concept of charge

in the Islamic money market to facilitate market participants to obtain funding by charging their Islamic debt securities to other market participants. These securities are in the form of scriptless whereby the financing receiver is only required to identify the charged securities in the system without the need to physically transfer the securities to the financier. The financing receiver will not make any transactions on the charged securities, either for sale or another charge to other party throughout the tenure. In this regard, the SAC was referred to on the issue as to whether Islamic debt securities may be used as collateralised asset in a rahn contract. Resolution The SAC, in its 30th meeting dated 28 October 2002, has resolved that the Islamic debt securities may be charged in a rahn contract. The financing receiver is also allowed to identify the respective securities to be charged in the system without physical transfer of the charged securities to the financier. Basis of the Ruling The concept of rahn, which has been long practised, is a type of loan security acceptable in Islam. Security under the rahn concept includes any tradable and acceptable asset between the financier and financing receiver. In this situation, since the Islamic debt securities are valuable and tradable in the market, the certificates have satisfied the required features of acceptable securities in rahn. The Syafii scholars allow the security to be taken and used by the chargor as long as consent of the chargee is obtained.1 The Maliki scholars, on the other hand, allow rahn rasmi/hiyazi which is the submission of security through official notes in the registry of relevant authority. This may sufficiently represent the actual submission.2 These views are clearly consistent with the view of contemporary scholars who allow the utilisation of debt securities and sukuk as securities for rahn. Therefore, scriptless Islamic debt securities used as securities are constructive in existence. This is because such securities fulfill the criteria of acceptable securities in rahn, which include being valuable, tradable and transferable. In addition, the securities are regulated by a reliable and trusted system that has integrity and is trustworthy with a highly disciplined and transparent market.

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Al-Zuhaili, Al-Fiqh al-Islami wa Adillatuh, Dar al-Fikr, 2002, v. 6, p. 243. Al-Zuhaili, Al-Fiqh al-Islami wa Adillatuh, Dar al-Fikr, 2002, v. 6, p. 4240