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Prize‐giving to the premium savings certificate holders A Shari'ah compliance review on the Bank Simpanan Nasional (National Savings Bank) in Malaysia

Prize‐giving to the premium savings certificate holders A Shari'ah compliance review on the Bank... Purpose – Considering the popularity of the premium savings certificate (PSC) of the National Savings Bank of Malaysia (Bank Simpanan Nasional (BSN)) the paper aims to justify the Shari'ah compliancy of this product by analyzing its underlying contracts and to propose a Shari'ah compliant savings certificate, if the current practice is invalid in the Shari'ah . Design/methodology/approach – Inductive methodology is first used to obtain a basic understanding of this product and the characteristics of Shari'ah approved contracts as well as the views of the jurists. Interviewing method is also used to acquire first‐hand information when the inductive method is not sufficient. Afterwards, an analytical approach is adopted to justify the validity of this contract with the Shari'ah principles. Finally, an innovative methodology is used to propose a Shari'ah compliant savings certificate. Findings – The paper argues that the underlying contract used in PSC violates the conditions of w adi'ah contract, as in wadi'ah, the bank is not allowed to spend the money for investment, but in practice, BSN uses the money for investment. Therefore, the underlying contract in PSC turns into qard (loan) contract. Since the scholars unanimously declare that giving any kind of benefit like prizes to the creditor is riba , then PSC is considered as invalid according to the Shari'ah . On the other hand, although PSC might seem like gambling, it is different from gambling as the prizes given to PSC are from a third party. The paper proposes implementing mudarabah contract in PSC where the bank is allowed to invest according to its interest and the depositors share the profit and loss but the huge fluctuation of profit and loss could be shrunk by a special fund method. Originality/value – In particular, it attracts the attention of BSN management to change their product's features. In general, it discovers a non‐ Shari'ah compliant feature of savings certificates and outlines the feature of a Shari'ah compliant saving certificate for the practitioners of Islamic banking all over the world. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Islamic and Middle Eastern Finance and Management Emerald Publishing

Prize‐giving to the premium savings certificate holders A Shari'ah compliance review on the Bank Simpanan Nasional (National Savings Bank) in Malaysia

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Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
1753-8394
DOI
10.1108/17538391111166485
Publisher site
See Article on Publisher Site

Abstract

Purpose – Considering the popularity of the premium savings certificate (PSC) of the National Savings Bank of Malaysia (Bank Simpanan Nasional (BSN)) the paper aims to justify the Shari'ah compliancy of this product by analyzing its underlying contracts and to propose a Shari'ah compliant savings certificate, if the current practice is invalid in the Shari'ah . Design/methodology/approach – Inductive methodology is first used to obtain a basic understanding of this product and the characteristics of Shari'ah approved contracts as well as the views of the jurists. Interviewing method is also used to acquire first‐hand information when the inductive method is not sufficient. Afterwards, an analytical approach is adopted to justify the validity of this contract with the Shari'ah principles. Finally, an innovative methodology is used to propose a Shari'ah compliant savings certificate. Findings – The paper argues that the underlying contract used in PSC violates the conditions of w adi'ah contract, as in wadi'ah, the bank is not allowed to spend the money for investment, but in practice, BSN uses the money for investment. Therefore, the underlying contract in PSC turns into qard (loan) contract. Since the scholars unanimously declare that giving any kind of benefit like prizes to the creditor is riba , then PSC is considered as invalid according to the Shari'ah . On the other hand, although PSC might seem like gambling, it is different from gambling as the prizes given to PSC are from a third party. The paper proposes implementing mudarabah contract in PSC where the bank is allowed to invest according to its interest and the depositors share the profit and loss but the huge fluctuation of profit and loss could be shrunk by a special fund method. Originality/value – In particular, it attracts the attention of BSN management to change their product's features. In general, it discovers a non‐ Shari'ah compliant feature of savings certificates and outlines the feature of a Shari'ah compliant saving certificate for the practitioners of Islamic banking all over the world.

Journal

International Journal of Islamic and Middle Eastern Finance and ManagementEmerald Publishing

Published: Aug 30, 2011

Keywords: Premium savings certificate; Shari'ah compliancy; Wadi'ah ; Qard ; Mudarabah ; Banking; Malaysia

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