Shariah Issues and Legal Framework of Commodity Murabahah Practices in Malaysia

Abstract

Prior to the introduction of Commodity Murabahah in Islamic banking products and services in Malaysia, the concept of Bay’ ‘Inah had become the main underlying contract for most deposit and financing products. However, its application has led to disagreement among Shariah scholars regarding its permissibility. To resolve this, the Commodity Murabahah was introduced as an alternative. Therefore, the main purpose of this study is to discuss and analyse the Shariah issues and legal framework governing the Commodity Murabahah practices in the Islamic banking system in Malaysia. This concept paper reviewed relevant literature and documents to comprehend the Shariah issues and legal framework of Commodity Murabahah in Malaysia. The discussion is confined to only the Commodity Murabahah practices in Islamic Banking products in Malaysia and does not cover the Interbank Money Market and Islamic Capital Market. This study found that the practice of Commodity Murabahah is well-supported by a robust legal framework to overcome any disputes related to Commodity Murabahah practices. Moreover, the establishment of Bursa Suq AlSila (BSAS) is aimed at facilitating the liquidity management of the Islamic as well as enhancing the transparency and efficiency of the Commodity Murabahah transactions. The finding also highlights the importance of a sound governance framework to support the growth and diversification of Islamic finance products and to provide better Shariah scrutiny.