FIMM - Chapter 6

FIMM
CHAPTER 6
I oPERATIoNS oF SYARIAH,BASED UTS
LEARNING OBJECTIVES
At the end of this Chapter, you should:
' understand the significance of lslamic finance in Malaysia's Capital Market Masterplan
' know the key milestones in the development of the lslamic capital market in Malaysia
' know what a Syariah-based UTS is and how it differs from a conventional UTS
' understand the regulatory framework, the relationship between parties and other elements in relation
to Syariah-based UTS, including the Syariah Committee/ Syariah Adviser
' be aware of how the Syariah status of securities traded on Bursa Malaysia are determined by the
Syariah Advisory Council of the Securities Commission.
I sECTroN 6.1 ovERVrEw
The emergence of lslamic finance in Malaysia was catapulted by the establishment of Bank lslam Malaysia
Bhd in 1983. Since then, the development and growth of lslamic finance in the country has been very
encouraging, with double-digit growth each year. Together with the growing awareness and demand for
lslamic financial products, this has created a flourishing lslamic capital market, where the market activities
are confined to activities that are in compliance with Syariah requirements.
At present, the lslamic financial market operates side-by-side with the conventional financial market and
provides investors with alternative investment avenues that are Syariah-compliant.
I SECTIoN 6.2 CAPITAL MARKET MASTERPLAN
The lslamic capital market in Malaysia plays a significant role and functions as a segment within the broader
capital market industry for issuers and investors. lt also complements the other components of the lslamic
financial system, i.e. lslamic banking, takaful (lslamic insurance) and the money market sector. To further
strengthen and chart the development and groMh of the lslamic capital market, the SC has focused efforts
on two fronts, namely to establish the supporting infrastructure and widen the lslamic capital market product
range.
One of the most developed segments of the domestic lslamic capital market is the equity market. The
number of securities classified as Syariah-compliant has increased from 544 in 1999 to 857 as at 20 October
2005. This development has provided a platform for the growth of lslamic fund management as well as the
stockbroking industry in Malaysia.
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The SC has also encouraged market players to create new and innovative lslamic bond structures to spur
the development of the lslamic bond market and eventually create a wider investment base for investors.
The Malaysian government as well as large corporations in the country have issued numerous medium to
long-term lslamic bonds.
The steady growth and positive development of the lslamic capital market in this country will add to the
breadth and diversity of the overall capital market industry. ln addition, it will also support and provide a
major contribution to the overall growth of the financial services industry in Malaysia.
Similar to the conventional market, continuous development efforts must adopt a comprehensive and multipronged
approach to enhance the international competitive position of Malaysia's lslamic capital market.
To further develop the lslamic capital market, several strategic initiatives have been identified and need to
be undertaken, namely:
. Facilitating the development of a wide range of innovative and competitive products and services
related to the lslamic capital market . Creating a viable market for the effective mobilisation of lslamic funds . Ensuring that there are appropriate and comprehensive accounting, tax and regulatory frameworks
for the lslamic capital market . Enhancing the value recognition of the Malaysian lslamic capital market internationally . lncreasing the poolof lslamic capital market expertise.
ln 2001, the Capital Market Masterplan was introduced to chart and plan the growth of the Malaysian
capital market as a whole. ln the Masterplan, a section is allocated to the development of the lslamic capital
market. Several recommendations have been stipulated to achieve the above objectives and specific areas
have been identified and explained in greater details in regard to the strategic initiatives. A summary of the
recommendations are:
Efforts to introduce more competitive and innovative lslamic financial
products and services will be actively pursued.
Efforts to introduce and promote a wider range of lslamic collective
investment schemes will be facilitated.
Recommendation 67
lnvestment restrictions on the takaful industry should be further
liberalised to facilitate greater mobilisation of takaful funds into the
lslamic capital market.
Efforts to mobilise untapped lslamic assets through securitisation
should be pursued.
Efforts to increase the pool of lslamic capital market expertise through
training and education will be enhanced.
A single Syariah Advisory Council should be established for the
lslamic financial sector.
A facilitative tax and legal framework should be established for the
lslamic capital market.
Recommendation 72
Efforts to develop an appropriate financial reporting framework for the
lslamic capital market in collaboration with the Malaysian Accounting
Standard Board (MASB) will be pursued.
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Recommendation 73
lncreased efforts to enhance the awareness of Malaysia's lslamic
capital market at the domestic and international levels will be
pursued.
Strategic alliances between Malaysia and other lslamic capital
markets should be established.
The government and government-related entities should consider
issuing lslamic debt securities in the global market.
The listing of Malaysian lslamic equity funds in international markets
should be pursued.
Recommendation 77
lncentives to encourage the entry of foreign intermediaries and
professionals with expertise in lslamic capital market-related
businesses should be provided.
I SECTION 6.3 DEVELOPMENT ANID KEY MILESTONES
OF TTIE ISLAMIC CAPITAL MARKET IN MALAYSIA
The first lslamic bond was issued by Shell MDS Sdn Bhd.
The first Syariah-based unit trust fund, Arab-Malaysian Tabung lttikal, was introduced
and launched byAmlnvestment Services Bhd (previously known asArab-Malaysian Unit
Trust Bhd).
The establishment of the first full-fledged Syariah-based stockbroking firm by BIMB
Holdings, i.e. BIMB Securities Sdn Bhd.
The lslamic Capital Market Unit was established by the SC.
The Syariah Advisory Council (SAC) was established by the SC. The members of the
SAC comprised individuals from different backgrounds, such as Muftis, lslamic scholars,
academicians and lslamic finance experts. The SAC advises the SC on all matters
related to lslamic capital market activities to ensure Syariah-compliance.
Rashid Hussain Bhd launched the first lslamic equity index, which comprised Syariahcompliant
securities listed on Bursa Malaysia.
The SC introduced an official list of Syariah-compliant securities that are traded on Bursa
Malaysia. These Syariah-compliant securities are reviewed and identified by the SAC
and re-classified accordingly twice a year. An updated list is announced by the SC on the
last Friday in the months of April and October each year.
Khazanah Nasional Berhad launched the Khazanah Murabahah Bond, a zeto coupon
bond, which is based on the Syariah contracts of Murabaha and BaiAl Dayn.
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6.4 wHAr rs A SYARrAH-BASED
Generally, a UTS is a collective investment scheme, which pools the savings of investors with similar
objectives in a specialfund managed by professionalfund managers. The pooled monies in the UTS willthen
be invested in a diversified portfolio of securities and other assets in accordance with the UTS investment
objectives and as permitted under the SC's guidelines and regulations.
The second Syariah equity index was introduced by Bursa Malaysia, known as the Kuala
Lumpur Syariah lndex (KLSI). The composition of the KLSI comprises Syariah-compliant
securities listed on the Main Board. The KLSI provides a benchmark for the performance
of these Syariah-compliant securities.
The SC imposed the requirement for issuers of lslamic bonds to appoint independent
Syariah Advisers. This requirement is stipulated in the Guidelines on the Offering of
Private Debt Securities.
The first lslamic bond fund was introduced by RHB Unit Trust Management Berhad.
The Capital Market Masterplan (CMM) was launched by the Minister of Finance. The
CMM stipulates strategic initiatives to further develop the capital market industry, one of
which is to establish Malaysia as an international lslamic capital market centre.
The first global corporate bond was issued by Kumpulan Guthrie Bhd and it was listed
on the Labuan lnternational Financial Exchange.
The first sovereign lslamic bond, Sukuk ljarah, was launched by the Malaysian
government. Malaysia was the first country in the world to issue a global sovereign
lslamic bond.
All Syariah Advisers / individuals of Syariah-based unit trusts are required to register
with the SC.
The first Syariah index fund was launched by MBf Unit Trust Management Bhd.
The "Guidelines on the Offering of lslamic Securities (lS Guidelines)" were issued by
the SC. This framework aims to facilitate the development of a more innovative and
sophisticated lslamic capital market in the country.
The first domestic corporate lslamic bond was issued by lngress Corporation Bhd.
The World Bank's private arm, i.e. lnternational Finance Corporation, issued the first
Ringgit-denominated lslamic bond.
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A Syariah-based UTS is quite similar to the above definition, EXCEPT that all the 6bove activities must
comply with Syariah requirements. The main differences between a conventional UTS and a Syariah-based
UTS exist in the following areas:
. Objectives of the fund . lnvestment strategy . Operations and management of the fund . Documentation . lnvestment avenues and activities . Accounts and reporting.
The objective of a particular type of fund is normally to maximise returns that are usually composed of both
capital and income growth. Achieving this objective would depend on, among others, the fund size, period
of investment, investment strategy as well as the type of instruments that are invested in, and the ability to
manage risk. Accordingly, the objective of a particular Syariah-based UTS is to achieve both capital and
income growth within the scope of Syariah. Hence, the investment strategy would also need to be aligned
with the objective of a Syariah-based fund.
As for the operations and management of a Syariah-based UTS, UTMC are to ensure that the excess funds,
such as liquid assets and cash, are placed/invested in Syariah-based instruments. At the end of the day, the
compliance manager/officer has to ensure that all daily operations comply with all the requirements of the
SC as well as Syariah. To assist the compliance manager/officer in ensuring that funds are managed and
administered in accordance with Syariah requirements, UTMC offering Syariah-based UTS are required by
the SC's Guidelines on Unit Trusts to appoint a Syariah Committee i Syariah Adviser. The main function of the
Syariah Committee/ Syariah Adviser is to supervise and provide necessary advice to ensure that the Syariahbased
UTS offered to the public is managed and administered in accordance with Syariah requirements.
Syariah Committees / Syariah Advisers are registered with the SC and renewable every three years, subject
to the SC's approval. As at October 2005, there are 26 individuals and four institutions eligible and registered
as Syariah Committee or Syariah Adviser. The complete list is available on the SC's website (www.sc.com.
mv).
ln terms of accounting and reporting, similar to conventional funds, UTMC are required to publish and
distribute half-yearly / interim reports as well as annual reports of the fund. The additional information that
appears in these two reports for the Syariah-based UTS is the Syariah Committee / Syariah Adviser's report.
This report would confirm that the Syariah-based fund is administered and managed in accordance with
Syariah requirements. An example of a Syariah Adviser's report is enclosed as Appendix 1.
Syariah-based fund's deed and prospectus must be drafted in accordance with Syariah requirements.
Terminologies used in conventional deed and prospectus which are not in line with Syariah such as interestbased
instruments and interest income must be avoided. These words could project and imply different
connotations to the readers and would eventually create a negative image of the Syariah-based fund.
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I sECTIoN 6.5 THE REGULAToRv FRAMEwoRK
lndependent of each other €-f
(unless approved by the
Secunlies Commission)
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I sncnoN 6.6 RELATToNSHTn BETwEEN rARTTES rN
I A SYARIAH.BASED UTS
Generally, the relationships between parties in a Syariah-based UTS are based on certain Syariah contracts.
These Syariah contracts reflect the type of obligation and responsibilities of the parties. Four Syariah contracts
are applied in a Syariah-based UTS, which are elaborated in the following table:
Musyarakah contract exists between the investors (Unitholders) to deal with
specified investments, with the view that the profit derived would be shared among
them according to capital contribution or any other agreed profit-sharing ratio.
As there is no direct relationship (and due responsibility) between both parties,
therefore no contract exists between them. However, both are agents of the
Unitholders.
Unitholders and
UTMC
'1. Wakalah (agency)
The UTMC is acting for and on behalf of Unitholders to invest and manage
the UTS.
2. Bai
Contract of sale and purchase executed between the unitholders and the
UTMC, which is usually on cash payment basis.
3. Wadiah Yad-Dhamanah (guaranteed custody) . Prior to the creation of units . The owners of the units are the Unitholders; the custodian is the
UTMC. . The contract will take place when the UTMC receives payment for the
investment.
Unitholders and
Trustee
1. Wakalah (agency)
Where the trustee is acting for and on behalf of Unitholders to be the
custodian of the trust funds and to safeguard the interests of unitholders.
2. Wadiah Yad-Dhamanah (After the units are created) . The owners of the units are the Unitholders, the custodian is the trustee
and the units are all the assets of the fund in the form of monies and
other forms of investments. . The contract exists once the Unitholders purchase the units and the
depositing of investments by the UTMC with the trustee.
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! srcuoN 6.2 TNVESTMENT poRTFoLro
A Syariah-based UTS can only invest in instruments that comply with Syariah requirements, subject to
approval from the Syariah Advisory Council of the SC and/or the Syariah Committee / Syariah Adviser and
in accordance with the fund's objectives. These instruments are as follows:
' Syariah-compliant securities traded on Bursa Malaysia and/or any other market considered as an
eligible market . Syariah-based units / shares of other collective investment schemes
' Warrants and options issued by companies classified as Syariah-compliant . Government lnvestment lssues . lslamicAcceptedBills . Bank Negara Negotiable Notes . lslamic Commercial Papers . Negotiable lslamic Debt Certificates (NIDC) . lslamic Negotiable lnstruments of Deposits (lNlD) . Cagamas Mudharabah Bonds and Notes . lslamic Securities and Corporate lslamic Bonds
Syariah-based deposit instruments . lslamic money market products . Syariah-compliant foreign securities
' Futures contracts that are in compliance with Syariah requirements, e.g. Crude Palm Oil (CPO) and
Crude Palm Kernel Oil (CPKO)
' Any other investment instruments as approved by the Syariah Advisory Council of the SC and/or the
Syariah Committee/ Syariah Adviser.
Any excess cash and / or liquid assets are to be kept / invested in Syariah-based instruments, i.e. lslamic
current account or investment account.
As far as the equity market is concerned, as at 20 October 2005, Syariah-compliant securities accounted for
84.77o/o, or 857 Syariah-compliant securities, from the total 1 ,011 securities listed on Bursa Malaysia. The
following diagram compares the percentage of Syariah-compliant securities against total listed securities
and the breakdown by sectors.
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**as at 20 October 2005
**as at 20 October 2005
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I SECTION 6.8 PoTENTIAL RISKS
All types of investments carry some degree of risk, which can be reduced through diversification of one's
investment portfolio. A UTS facilitates the diversification process as it provides investors with an avenue to
pool their savings for purchasing a diversified portfolio of investments.
The role of an investment manager in a Syariah-based UTS is to select assets that would minimise the risk
as much as possible while working to achieve the fund's objective. There are different types of risks that
can affect an investment and, similar to the conventional fund, these risks would have an impact regardless
whether it is a Syariah-based fund or otherwise. These risks are:
returns are not guaranteed
manager's / management risk
financing / loan/borrowing risk
risk of non-compliance
currency risk
country risk
market risk
liquidi$ risk
credit / default risk
inflation risk
interest rate riskl
ln addition to the above, a Syariah-based UTS is also exposed to "Syariah non-compliance risk" or "syariah
specific risk". This type of risk specifically occurs when a Syariah-compliant security is reclassified as
a Syariah-non compliant security. This reclassification normally occurs when a crmpany undertakes a
corporate restructuring, such as a merger or acquisition; when there are changes in the nature of business
or diversifications; or when a substantial composition of the income generated is derived from Syariah-non
compliant activities.
This reclassification of the status may affect the performance of the fund as the fund manager has to
'cleanse" and/or "purify" the fund by disposing all such investments that have been reclassified as Syariahnon
compliant securities. ln the process of "cleansing" and/or "purifying", the fund may make a lower return
or a loss. This would eventually affect the total NAV of a Syariah-based UTS.
The general interest rate of the country may afiect the value of an investment even if the fund does not invest in interest bearing
instruments. lt is a general economic indicator that will have an impact on the management of any UTS regardless of whether it is
a Syariah-based UTS or othenivise
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I sncuoN 6.e APPoTNTMENT oF THE
I SYARIAH COMMITTEE / SYARIAH ADVISER
Where a fund is expressed to be managed and administered in accordance with specific principles (i.e.
Syariah principles), a Syariah Committee / Syariah Adviser must be appointed.
The Syariah Committee Members /Adviser must: . (where a Syariah Committee is appointed), consist of at least three members who are individuals . be independent of the management company . be registered with the SC.
6.9.1 IIEMBERS OF THE SYARIAH COi'MITTEE
Members of the Syariah Committee must: (a) be of good repute and character (b) possess the necessary qualifications, expertise and experience, particularly in fiqh muamalah
and lslamic jurisprudence
ln particular, members of the Syariah Committee must not have been involved in any unethical and/or
inappropriate practices. Among others, a member could be subject to a disqualification in any of the
following events: (a) A petition under bankruptcy laws filed against him or he has been declared a bankrupt (b) A criminal proceeding in which he was convicted for fraud, dishonesty or any other offence
punishable with imprisonment of one year or more, anywhere in the world (c) Any inquiry / investigation carried out by any governmental / statutory authority or body against
him, in which an adverse finding was found (d) Any unethical practices and activities which would render him unfit to be a member of the
Syariah Committee.
Where a Syariah Adviser is appointed, the company must have in its employment, a minimum of one
full-time officer designated to be responsible for Syariah matters relating to the fund and who meets
the eligibility criteria under subclause 6.05(1) stipulated in the Guidelines of Unit Trust Funds. ln
addition, the company should not have breached any securities or banking laws since the date of its
incorporation or have a winding-up order passed against it.
The appointment of a member of the Syariah Committee / Syariah Adviser must be approved by the
SC. The application must also be accompanied by a resolution of the management company's Board
of Directors, including details of dissenting opinions (if any).
(a) The management company must assess the abilities of the candid ate / company to carry out the
duties and responsibilities required of a member of the Syariah Committee / Syariah Adviser. (b) ln the case of the establishment of a new management company, it is the responsibility of
the holding company and/or promoter and its Board of Directors to assess the abilities of the
candidate / company.
The management company should notify the SC of any resignation of a member of the Syariah
Committee / Syariah Adviset other than under sub-clause 6.05(6) of the above Guidelines, within
two weeks of the resignation.
(1)
(2)
(3)
(4)
(s)
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(6) Where a member of the Syariah Committee / designated officer of the Syariah Adviser becomes
subject to any disqualification or becomes otherwise unfit to hold office, the management company
should ensure that the member vacates the position immediately. The management company must
inform the sc of the disqualification and vacation of the post forthwith.
(7) A member of the Syariah Committee / designated officer of the Syariah Adviser should not hold
office as a member of the investment committee of funds managed and administered by the same
management company.
6.9.2 ROLES, POWERS AND DUTIES OF THE SYARIAH COMMITTEE I SYARIAH ADVISER
(1) The role of the Syariah Committee / Syariah Adviser is to ensure that the fund is managed and
administered in accordance with Syariah principles.
(2) The Syariah Committee / Syariah Adviser should provide expertise and guidance in all matters relating
to Syariah principles, including on the fund's deed and prospectus, its structure and investment process,
and other operational and administrative matters.
(3) Where there is any ambiguity or uncertainty as to an investment, instrument, system, procedure and/or
process, the Syariah Committee / Syariah Adviser must consult the SC.
(4) The Syariah Committee / Syariah Adviser should act with due care, skill and diligence in carrying out
its duties and responsibilities.
(5) The Syariah Commiftee / Syariah Adviser is responsible for scrutinising the fund's compliance report as
provided by the compliance officer, and investment transaction reports provided by, or duly approved
by, the trustee to ensure that the fund's investments are in line with Syariah principles.
(6) The Syariah Committee / Syariah Adviser must prepare a report to be included in the fund's interim
and annual reports certifying whether the fund has been managed and administered in accordance
with Syariah principles for the period concerned.
ln a nutshell, the Syariah Committee / Syariah Adviser is responsible for checking the following items to
ensure that the management of the Syariah-based UTS complies with Syariah requirements:
. UTF reports, transactions, cash placements, etc. on a monthly basis . annualand interim reports
' deed, one time only (during the formation of the Syariah-based UTS) or any subsequent supplemental
deed
.' prospectus, on yearly basis or when there is a need to publish any supplemental prospectus promotionalmaterials.
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I sECTIoN 6.10 svARIAH coMpLIANcE REVIEw
ln classifying the Syariah status of securities traded on Bursa Malaysia and/or any other market considered
as an eligible market, the Syariah Advisory Council of the SC receives input and support from the SC. The
Commission gathers information on the companies from various sources, such as company annualfinancial
reports, company responses to survey forms and through inquiries made to the respective company's
management. The SC, through its Syariah Advisory Council, continuously monitors the activities of all
companies listed on Bursa Malaysia to determine their status from the Syariah perspective.
The SC publishes on a six-monthly basis, i.e. on the last Friday in the months of April and Octobereach
year, a booklet on "List of Syariah-compliant Securities by the Syariah Advisory Council of the Securities
Commission". The book highlights the following areas:
. Newly-classified Syariah-compliant securities . Newly-classifiedSyariah-noncompliantsecurities . The benchmark applied in determining the Syariah status for mixed contribution of incpme in a particular
company . Disposal treatment of:
(a) Syariah-compliant securities subsequently considered Syariah-non compliant
(b) Syariah-non compliantsecurities (investment)
. Syariah status on new securities resulting from corporate restructuring
. List of all Syariah-compliant securities segregated into sectors (main board, second board and
MESDAO) and category (consumer, industrial, etc').
The Syariah Advisory Council of the SC applies a standard criterion in focusing on the activities of the
companies listed on Bursa Malaysia. As such, subject to certain conditions, companies whose activities are
not contrary to Syariah principles will be classified as compliant securities. On the other hand, companies
will be classifled as non-compliant securities if they are involved in the following core activities:
. Financial services based on riba (interest)
. Gambling . Manufacture or sale of non-halal products or related products
. Conventional insurance . Entertainment activities that are non-permissible according to the Syariah
. Manufacture or sale of tobacco-based products or related products
. Stockbroking or share trading in Syariah-non compliant securities
. Other activities deemed non-permissible according to the Syariah.
The Syariah Advisory Council of the SC also takes into account the level of contribution of interest income
received by the company from conventional fixed deposits or other interest-bearing financial instruments.
ln addition, dividends received from investments in Syariah-non compliant securities are also considered in
the analysis carried out by the Syariah Advisory Council of the SC.
For companies with activities comprising both permissible and non-permissible elements, the SyariahAdvisory
Council of the SC considers two additional oiteria:
The public perception or image of the company must be good
The core activities of the company are important and considered maslahah ("benefit" in general) to the
Muslim ummah (nation) and the country, and the non-permissible element is very smalland involves
matters such as umum balwa (common plight and difficult to avoid), uruf (custom) and the rights of
the non-Muslim community, which are accepted by lslam.
(1)
(2)
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To determine the tolerable level of mixed contributions from permissible and non-permissible activities towards
turnover and profit before tax of a company, the Syariah Advisory Council of the SC has established several
benchmarks based on ijtihad (reasoning from the source of Syariah by qualified Syariah scholars). lf the
contributions from non-permissible activities exceed the benchmark, the securities of the company will be
classified as Syariah-non compliant.
Compliant securities include ordinary shares, warrants and transferable subscription rights (TSR). This
means that warrants and TSR are classified as compliant securities from the Syariah perspective, provided
the underlying shares are also compliant. On the other hand, loan stocks and bonds are non-compliant
securities unless they are issued based on Syariah principles.
I sncuoN 6.Lr pRocEDURES FoR DISposAL oF
I svnRrAH.NoN coMpLIANT sECURTTIES
As a guide to investors, the Syariah Advisory Council of the SC advises investors on the timing for the
disposal of securities that have been classified as Syariah-non compliant.
6.11.1 "COMPLIANT SECURITIES'' WHICH ARE SUBSEQUENTLY CONSIDERED "NONCOMPLANT'
This refers to those securities earlier classified as compliant securities but due to certain reasons, such as
changes in the companies' operations, are subsequently considered non-compliant. ln this regard, if the
value of the securities held exceeds the original investment cost, investors who hold such non-compliant
securities must liquidate them.
Any capital gains arising from the disposal of the non-compliant securities made at the time of the
announcement can be kept by the investors. However, any excess capital gains derived from the disposal
after the announcement day at a market price that is higher than the closing price on the announcement
day should be channelled to charitable bodies.
On the other hand, investors are allowed to hold their investments in the non-compliant securities if the
market price of the said securities is below the original investment cost. lt is also permissible for investors
to keep the dividends received during the holding period until such time when the total amount of dividends
received and the market value of the non-compliant securities held equal the original investment cost. At
this stage, they are advised to dispose of their holding.
ln addition, during the holding period, investors are allowed to subscribe to:
(1) any issue of new securities by a company whose non-compliant securities are held by investors, for
example, rights issues, bonus issues, special issues and warrants [excluding securities whose nature
is non-compliant, e.g. irredeemable convertible unsecured loan stock (ICULS)I; and
(2) securities of other companies offered by the company whose non-compliant securities are held by
the investors;
on condition that they expedite the disposal of the non-compliant securities. For securities of other companies
[as stated in (2) above], they must be Syariah-compliant securities.
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6.11 2 NON€OIIIPLIANT SECURITIES
The SyariahAdvisory Council of the SC advises investors who invest based on Syariah principles to dispose
of any non-compliant securities that they cunently hold, within a month of knowing the status of the securities.
Any gain made in the form of capital gain or dividend received during or after the disposal of the securities has
to be channelled to charitable bodies. The investor has a right to retain only the original investment cost.
*Note: Oiginal investment cost may include brokerage cost or other related transaction cost.
I sECTIoN 6.12 suMMARY
lslamic finance in Malaysia began to develop with the establishment of Bank lslam Malaysia Berhad. lts
growth is also attributable to the growing awareness and demand for lslamic financial products. Today, the
lslamic financial market operates side-by-side with the conventional financial market, providing investors
with Syariah-compliant investment avenues. The continued development of the lslamic capital market is a
key thrust in the Capital Market Masterplan.
A Syariah-based UTS is similar to a conventional UTS in its investment objective, except that its portfolio
of securities and other assets must comply with Syariah requirements. A regulatory framework is in place
to monitor Syariah-based UTSs, which must appoint a Syariah Commiftee / Syariah Adviser approved by
the SC.
The Syariah Advisory Council of the SC undertakes the classification of the Syariah status of securities traded
on Bursa Malaysia and/or any other markets considered as eligible markets according to certain criteria. lt
publishes a booklet on the list of compliant securities on a six-monthly basis.
o Ftilu5
$nrr.Tnsr QursrroNs ox CHeprrn 6
1. List the differences between a conventional UTS and a Syariah-based UTS.
2. What are the composition and function of the Syariah Committee?
3. How are Syariah-based UTSs operated and managed?
4. Describe the four types of Syariah contracts that are used in Syariah-based funds.
5. Name some of the investment instruments that comply with Syariah requirements.
6. Briefly explain the term 'syariah specific risk'or'syariah non-compliance risk'.
7. ln rnanaging Syariah-based funds, what are the documents or items that would have to comply with
Syariah requirements?
8. What are some of the companies'activities that will result in its securities being classified as'syariah
non-compliant' by the Syariah Advisory Council?
9. What criteria does the Syariah Advisory Council use to classify securities of companies that undertake
activities comprising both permissible and non-permissible elements?
10. When was the first Syariah-based UTS introduced in Malaysia and what was its name?
APPENDIX 1:
FIIUIM
(Date) are in accordance
(Name of Unit Trust Company) has managed
(Name of fund) in accordance with Syariah
SYARIAH ADVISER'S REPORT
To the Unitholders of
procedures and processes employed by
Trust Company) and that the provisions of the Deed dated
with Syariah principles.
In ouropinion,
and administered
We,
of
(Name of fund)
(Name of Syariah Adviser), have acted as the Syariah Adviser
(Name of fund). Our responsibility is to ensure that the
(Name of Unit
principles and complied with applicable guidelines, rulings or decisions issued by the Securities Commission
pertaining to Syariah matters for the period ended (Date).
(Name of Syariah Adviser)
(Name of the Designated Percon Responsible for the Fund)
(Designation)
Kuala Lumpur
Date: