Appendix OM-1
Set out below are examples of Shariah requirements that are to be complied with by the banks in respect of the financing contracts. The list is for guidance purposes and not conclusive and may vary according to the views of the various Shariah Supervisory Board (SSB):
(a) Murabahah and Ijarah contracts
• The asset is in existence at the time of sale or lease or, in case of Ijarah, the lease contract should be preceded by acquisition of the usufruct of the asset except if the asset was agreed upon based on a general specification.
• The asset is legally owned by the bank when it is offered for sale.
• The asset is intended to be used by the buyer/ lessee for activities or businesses permissible by Shariah; if the asset is leased back to its owner in the first lease period, it should not lead to contract of ‘inah, by varying the rent or the duration.
• There is no late payment, penalty fee or increase in price in exchange for extending or rescheduling the date of payment of accounts receivable or lease receivable, irrespective of whether the debtor is solvent or insolvent.
(b) Salam and Istisna’ contracts
• A sale and purchase contract cannot be inter-dependent and inter-conditional on each other, such as Salam and Parallel Salam; Istisna’ and Parallel Istisna’.
• It is not allowed to stipulate a penalty clause in respect of delay in delivery of a commodity that is purchased under Salam contract, however it is allowed under Istisna’ or Parallel Istisna’.
• The subject-matter of an Istisna’ contract may not physically exist upon entering into the contract.
(c) Musharakah and Mudarabah contracts
• The capital of the bank is to be invested in Shariah compliant investments or business activities.
• A partner in Musharakah cannot guarantee the capital of another partner or a Midrib guarantees the capital of the Mudarabah.
• The purchase price of other partner’s share in a Musharakah with a binding promise to purchase can only be set as per the market value or as per the agreement at the date of buying. It is not permissible, however, to stipulate that the share be acquired at its face value.
Added: April 08