Islamic Wealth Management
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Islamic Wealth Management

Theory and Practice

Edited by Mohamed Ariff and Shamsher Mohamad

From an Islamic perspective, although the ownership of wealth is with God, humans are gifted with wealth to manage it with the objective of benefiting the human society. Such guidance means that wealth management is a process involving the accumulation, generation, purification, preservation and distribution of wealth, all to be conducted carefully in permissible ways. This book is the first to lay out a coherent framework on how wealth management should be conducted in compliance with guiding principles from edicts of a major world religion.
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Chapter 6: Property rights and shariah non-compliance risk

Saiful A. Rosly


The concept of trading/commerce (al-bay) as opposed to trading in money with usury (riba) requires Islamic banks to take ownership of goods it intends to sell on credit. However, doing so will result in higher capital charges and tax overheads that could adversely affect banking profitability. Due to these rigidities in the modern financial infrastructure, Islamic banks have avoided taking ownership risk in the credit sale transaction which can expose them to Shariah non-compliance risk. The landmark court judgement in 2008 was one critical milestone, where true sale bearing property rights by way of ownership transfer was found non-existent in a credit sale contract: a violation of Sale Agreement. Several pre-emptive actions were sought by regulators to contain the problem including the cancellation of the inter-conditionality clause in credit sales, the tightening of shariah governance process and imposition of monetary penalties for non-compliance transactions. With the introduction of an amendment in investment account rule in IFSA 2014, ownership risk from credit sale contracts become absorbed by the investment account holders, thus relieving Islamic banks from the unwarranted stress on capital.

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