The trading of foreign exchange (forex) has grabbed the spotlight in Malaysia following a ruling by the National Fatwa Council that the practice is haram.
Bank Negara Malaysia (BNM), the central bank, has since issued a statement on the matter, saying that the buying and selling of foreign currency in Malaysia is only allowed with licensed commercial banks, Islamic banks, investment banks and international Islamic banks as provided for under the Exchange Control Act 1953; and with licensed money changers as provided for under the Money Business Act 2011.
“In addition, Shariah compliant financial products, including foreign exchange related transactions, offered and transacted by licensed Islamic financial institutions are approved by the Shariah committee of the respective financial institutions with endorsement from the Shariah Advisory council of BNM,” it said.
According to Dr Abdul Shukor Husin, the chairman of the National Fatwa Council, a study by the committee found that forex trading involves currency speculation, which contradicts Islamic law.
Speaking to Islamic Finance news, Dr Asyraf Wajdi Dusuki, the head of research affairs at the International Shari’ah Research Academy for Islamic Finance, who has written a commentary substantiating the ruling, clarified that the decree only applies to forex trading executed online by individuals.
According to Asyraf, the practice invokes several Shariah issues including leveraging, where individuals trading forex on online are allowed to provide only part of the amount being invested; with the remainder put up by the forex broker. Not only does this allow over-leveraging of up to 100%, but also results in a combination of two contracts; namely the sale and purchase of currency and the provision of credit, which is prohibited by Islamic law.
He added that the sale and purchase of currency, in itself, is subject to its own rules in accordance to Shariah, including that it is limited to spot transactions. Other illegalities include the absence of currencies in-hand when transactions are executed and the emergence of prohibited, as opposed to permissible, risk.
Asyraf also pointed out that at the very base of it, online forex trading platforms have not been authorized or licensed by BNM, making them illegal and hence, in violation of Shariah.
source: Islamic Finance News