Capital Guarantee and Protection

Transcription

1. Wan  Abdul  Rahim  Kamil   Consultant  ,  Islamic  Capital  Markets   Securities  Commission  Malaysia     rahim@seccom.com.my;  wark06@gmail.com    
2. Capital  Guarantee  &  Capital  Protec1on   —  Capital  Guarantee  is  derived  from  a  separate  third  party   Guarantees  in  the  form  of  a  financial  instrument  (such  as  bank   guarantee),  corporate  guarantees  or  other  collaterals  to  ensure   that  the  investor    will  not  suffer  any  loss  at  all  on  the  amount  of   the  invested  capital  even  if  the  underlying  investment  did  not   perform  well.     —  Capital  Protection    is  the  feature  of  a  specific  structured   product  wherein  is  embedded  a  derivative  securities,  that  have   the  capability  to  ensure  that  the  investor  will  get  back  at   maturity  a  part  or  the  totality  of  the  money  he  has  invested  in   the  purchase  of  the  product  on  day  one.        
3. Why  Capital  Guarantee  is  disallowed  in   Contracts  of  Musharakah  or  Mudharabah   —  Contracts  of  participations  such  as  Musharakah  or   Mudharabah  demands  risk  participations  by  way  of:   —  Profit  &  loss  sharing  (Musharakah),  or   —  Profit  sharing  (Mudharabah)   —  In  both  cases  guarantees  are  only  allowed  on  the  capital   for  recovering  losses  from  misconducts  by  the  managing   musharik  or  the  mudharib   —  Guarantee  on  performances  are  disallowed   —  As  an  investment  strategy,  structured  products  invest  in   low-­‐risk  securities  such  as  Shariah  compliant  Government   Securities  or  ‘zero-­‐coupon’  Sukuk  
4. Shariah  Rulings  :     AAOIFI  (  Shari’ah  Standard  No.13)   —  The  capital  provider  is  permitted  to  obtain  guarantees  from  the  mudharib  that  are   adequate  and  enforceable.  This  is  circumscribed  with  a  condition  that  the  capital   provider  will  not  enforce  these  guarantees  except  in  cases  of  misconduct,  negligence  or   breach  of  contract  on  the  part  of  mudharib.  [6/0]   Dallah  Al  Baraka     •  It  is  not  permissible  for  an  investor  to  demand  from  the  entrepreneur  (mudharib)  to  pay   him  a  fixed  percentage  of  the  value  of  the  contract,  besides  the  capital  sum,  irrespective   of  the  amount  of  investment  involved  or  whether  the  project  is  profitable  or  in  loss.   Such  a  contract  is  unlawful  because  it  involves  a  guarantee  from  the  entrepreneur   respecting  the  capital  sum,  whereas  a  mudharib  is  a  trustee  and  cannot  be  held   responsible  for  the  capital  sum  except  in  cases  of  transgression  or  negligence.  [  al-­‐ Baraka  first  symposium,  Fatwa  No.2]         Majelis  Ulama  Indonesia   —  In  principle,  the  capital  should  not  be  guarantees  unless  the  loss  of  capital  is  caused  by   the  negligence  of  the  entrepreneur.  [Fatwa  No  :  07/DSN-­‐MUI/IV/2000]            
5. Capital  Guarantee  on  Various  Sukuk  Structures     Capital  Guarantee  on  sukuk  can  be  seen  in  light  of  the  purchase  undertaking    of   sukuk  by  the  issuer.     This  kind  of  purchase  undertaking  is  considered  as  capital  guarantee  to  the   investors.     Therefore,  the  purchase  undertaking    at  face  value    is  not  permitted    in  the   investments  sukuk  such    as  sukuk  Musharakah  and  sukuk  Mudharabah  as  this   impermissibility  is  in  line  with    Hadith  Rasullullah:       ‫ﺃأﻥن ﺍاﻝلﺥخﺭرﺍاﺝج ﺏبﺍاﻝلﺽضﻡمﺍاﻥن‬ “We  have  to  face  the  risks    in  order    to    get  the  profit  from  investments”     Sukuk  Al-­‐Ijarah:     AAOIFI  resolution  in  2008,  purchase  undertaking  at  face  value  is  permitted  under   sukuk    Ijarah.      
6. Example  of  Capital  Protec1on   —  The  most  common  capital  protected  fund  under  Shariah  compliant   structured  products  structure  is  whereby:   —   the  fund  invest  a  portion  of  their  assets  in  fixed  income  Shariah   compliant  securities  likened  in  feature  to  a  ‘zero-­‐coupon  ‘Sukuk  or   Shariah  Compliant  (SC)  Government  Securities  designed  to  pay  out   the  total  amount  invested  at  a  fixed  maturity  date.  This  date  is   naturally  dependent  on  the  prevailing  profit  rate  environment  and  the   amount  of  capital  the  fund  can  set  aside  for  this  purpose  without   hampering  performance.     —  For  example  a  USD  100  portfolio  could  purchase    for  example  USD  60   worth  of  ‘zero-­‐coupon’  Sukuk  in  the  expectation  that  in  10  years  the   value  of  those  sukuk  would  be  USD  100.  The  remaining  USD  40  would   then  be  invested  in  other  investments  that  have  more  attractive   returns  or  in  profit  locked-­‐in  products  such  as  in  Tawarruq  contracts.    
7. CAPITAL  PROTECTION  STRUCTURED  PRODUCTS:  Strategy  1   Tawarruq  Contracts     with  locked-­‐in  profits   Initial   Investment   USD100   USD  40   USD  60   ‘Zero  Coupon  Sukuk’  or     SC  Government  Securities     INVESTMENT  LIFE  OF  THE  PRODUCT   Profit  Locked  in   feature  to  ensure   more  returns  to   investor   100%  Capital     Protection  
8. CAPITAL  PROTECTION  STRUCTURED  PRODUCTS:  Strategy  2   Profit  Locked  in   feature  to  ensure   additional  returns   to  investor   Once  the  Capital  Protected  component  has  matured,  the   portion  is  reinvested  in  other  profit  locked-­‐in  feature   investments  e.g.  Tawarruq.   USD  60   Initial   Investment   USD100   Tawarruq  Contracts     with  locked-­‐in  profits   USD  40   USD  60   ‘Zero  Coupon  Sukuk’  or     SC  Government  Securities     Profit  Locked  in   feature  to  ensure   more  returns  to   investor   100%  Capital     Protection   INVESTMENT  LIFE  OF  THE  PRODUCT   In this alternative, the capital protection matures before the life of the product. To enhance earnings the USD60 is reinvested in other profit locked in investments. Derived profits will ensure additional income to investors
9. rahim @seccom.com.my  wark06@gmail.com