Possession of Currency Prior to Sale: A Fiqhī and Practical Analysis of Spot FX-i in Malaysia

Abstract

This research draws upon a study conducted in 2013 by the Specialist Risk Unit (SRU) of Bank Negara Malaysia (BNM) on the foreign currency (FX) trading practices adopted by Islamic financial institutions (IFIs) in Malaysia. The SRU studied the practice of FX spot trading of five IFIs. Assessment was made on the structure of the products, operational practices, legal documentation and Sharīʿah governance processes. The study found a potential Sharīʿah issue in the practice of FX spot trading in that the IFIs do not have in their possession sufficient currency at the time of selling the currency. Accordingly, this research attempts to get a better understanding of FX spot trading by IFIs in Malaysia and the associated Sharīʿah issues that arise therefrom. II.