KUALA LUMPUR, 16 Feb 2012: Bank Negara Malaysia said today that only licensed financial institutions and money changers are allowed to conduct foreign currency trading.
This statement came about after the National Fatwa Council's ruling on Wednesday that forex trading is forbidden for Muslims.
The Council's statement on it being permissible among banks and money changers was not prominently mentioned in the media, which created some confusion among the public.
BNM said licensed commercial banks, Islamic banks, investment banks and international Islamic banks are allowed to buy and sell foreign currency in Malaysia, as provided under the Exchange Control Act 1953.
And under the Money Services Business Act 2011, so too are licensed money services business providers or money changers.
"In addition, Shariah-compliant financial products, including foreign exchange related transactions, offered and transacted by licensed Islamic financial institutions are approved by Shariah Committee of the respective financial institutions with endorsement from the Shariah Advisory Council of BNM," said the central bank.
International Shariah Research Academy for Islamic Finance (ISRA) head of Research Affairs, Dr Asyraf Wadji Dusuki when contacted, said he lauded the National Fatwa Council's decision as it is targeted at Muslim individuals who engage in forex trading via the Internet.
He said ISRA research on online forex trading raised a few concerns such as the leverage, rollover interest, the issues of qabd and qabl (status of ownership), and the element of gambling.
Asyraf said it is common from brokers to offer a loan in the form of leverage, which is against Islamic practice.
"For example, when an investor wants to have an open position worth US$1,000, the individual only needs to provide a capital of US$10 while the balance is offered by the broker in the form of a loan," he said.
This practice, he said, can lead to riba (interest), whereby the broker will profit through what is known as spread - the differences between the bid and ask prices where the broker sells the currency to the trader at a high price and buying it at a low price.
Dr Asyraf added that according to ISRA's study, almost all forex online platforms are operating without valid licences.
Meanwhile, National Fatwa Council chairman Professor Emeritus Tan Sri Dr Abdul Shukor Husin clarified yesterday that not all the foreign exchange trading (forex trading) is forbidden to Muslims.
In a statement, he said the decision by the council on Wednesday was misreported in several media and explained that it was only referring to foreign currency scheme by individual spot forex through electronic platform.
He said the decision was taken as there were many doubts about the individual spot forex and it involves the trader to use the Internet, with uncertain outcomes.
“Such trading are against the Syarak laws and the Malaysian law,” he said in the statement.
However, he said the decision did not apply to other forms of trading in foreign currencies, such as by licensed money changers or between banks.
He said such trading are permissible as they do not involve currency speculation or uncertain outcomes.
Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia: