Wa`d - Shariah Requirements and Optional Practices

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1. 5 of 25 Wa `d PART B S S SHARIAH REQUIREMENTS AND OPTIONAL PRACTICES 7. Compliance with Part B 7.1 An IFI which uses wa`d for its products and services must ensure that such products and services are in compliance with Part B of this policy document. 8. Definition 8.1 Wa`d is a unilateral promise which refers to an expression of commitment given by one party to another to perform certain action(s) in the future. 9. Nature S 9.1 Wa`d is a unilateral promise and it is not a contract. S 9.2 A wa`d attached to a condition, time, price, conduct or event shall be binding on the promisor. S 9.3 In relation to paragraph 9.1, the wa`d shall be binding from the date the promisor makes the wa`d. 10. Parties S 10.1 The parties involved in wa`d are the promisor (wa`id) and the promisee (maw`ud lahu). S 10.2 The promisor shall be a natural person or a legal entity that must have the legal capacity1 to execute the subject matter of wa`d. Manner of expression S 10.3 The promisor shall express a commitment to perform certain actions in the future to effect wa`d. G 10.4 In relation to paragraph 10.3, the promisor’s expression of commitment may be expressed orally, in writing or by any other method recognized by Shariah. 1 Legal capacity of a person, from Shariah perspective, is defined as the capacity to assume rights and responsibilities and capacity to give legal effect to his action. Among the important conditions are that the person must possess sound mind and the capacity to distinguish between what is harmful or beneficial to one’s interests. Legal capacity of a legal entity is defined as eligibility of an entity to acquire rights and assume responsibilities. In Malaysia, this legal capacity is subject to the Contracts Act 1950 and the Age of Majority Act 1971. Issued on: 2 February 2017
2. 6 of 25 Wa `d 11. Subject matter S 11.1 The subject matter of wa`d shall be a commitment to perform specific action(s) at a specified time in the future. S 11.2 The subject matter of wa`d must be Shariah compliant. G 11.3 At the inception of wa`d, the promisor and promisee may agree that the promisor may be granted an extension of time to execute wa`d, subject to any agreed conditions. S 11.4 In respect of paragraph 11.3, if both parties involved agree for the extension of time to execute wa`d, the promisor shall be bound to fulfil wa`d at the new specified time. S 11.5 Wa`d shall not be provided in exchange for a counter value such as a fee to the promisor. 12. Implication of a binding wa`d S 12.1 The promisor shall not unilaterally revoke his wa`d. S 12.2 The promisor shall fulfil his wa`d in accordance with the specified condition. S 12.3 The promisee has a right to claim compensation for any actual loss suffered due to the failure of the promisor to fulfil his wa`d. S 12.4 In relation to paragraph 12.3, the promisee’s actual loss shall be determined either by: (a) an authoritative body; or (b) a methodology accepted as customary market practice (`urf tijari). 13. Arrangement of wa`d with other contracts or concepts Arrangement of wa`d with a security deposit (hamish jiddiyah) G 13.1 A promisor may provide the promisee a security deposit to secure the performance of wa`d. The security deposit may be used to compensate the promisee against actual losses incurred in the event the promisor fails to fulfil his wa`d. S 13.2 Any excess of the security deposit less compensation to the promisee for actual loss shall be returned to the promisor. S 13.3 Any shortage of the security deposit arising from the actual loss incurred shall be paid by the promisor upon a claim by the promisee. Issued on: 2 February 2017
3. Wa `d 7 of 25 Wa`d in relation to transfer of ownership G 13.4 The promisor may enter into wa`d to transfer the ownership of an asset or usufruct which is yet to be owned by him through an exchange contract such as sale and purchase contract or charitable contract such as hibah. Wa`d and forward currency exchange G 13.5 A forward currency exchange transaction may be arranged based on wa`d. S 13.6 In connection with paragraph ‎13.5, the arrangement of wa`d in a transaction involving currency exchange is permissible provided that it is structured for the purpose of hedging. Wa`d and musyarakah, mudarabah and ijarah G 13.7 Contracting parties in musyarakah, mudarabah or ijarah arrangement may enter into wa`d, to purchase the underlying asset of the respective arrangement upon maturity, dissolution or in the event of a default. Wa`d and rahn G 13.8 In a rahn contract, a pledgor may give wa`d to use an existing asset as collateral (marhun) for any future debt obligation. G 13.9 A promisor may give wa`d to use any future asset as collateral for any debt obligation. Wa`d and hibah G 13.10 Subject to paragraph ‎13.11, a promisor may provide wa`d to give hibah to another party. S 13.11 A borrower in a qard contract shall not provide wa`d to give hibah to the lender. Wa`d and kafalah G 13.12 A promisor may give wa`d to enter into a kafalah contract on a future date. G 13.13 A third party may provide a guarantee on the performance of wa`d by the promisor. Issued on: 2 February 2017
4. 8 of 25 Wa `d FULFILMENT AND REVOCATION OF WA`D 14. Fulfilment and revocation of wa`d S 14.1 Wa`d shall be fulfilled when the promisor or his guarantor has performed the wa`d obligation(s) in accordance with the agreed conditions. S 14.2 Wa`d to perform a specific contract shall not be fulfilled unless such contract is executed as promised. S 14.3 Wa`d shall be revoked under any of the following circumstances: (a) the promisee agrees to the promisor’s revocation of the binding wa`d; or (b) the promisee does not invoke wa`d. S 14.4 Upon fulfilment or revocation of wa`d, the promisor shall be free from any obligations under wa`d. MUWA`ADAH (BILATERAL WA`D) 15. Muwa`adah Definition S 15.1 Muwa`adah is a bilateral promise which refers to an expression of commitment given by two parties to each other to perform certain action(s) in the future based on the same subject matter and condition(s). Nature S 15.2 Muwa`adah2 shall be binding and enforceable on the promisor. Applicability S 15.3 All requirements specified under this policy document on wa`d shall be applicable to muwa`adah. Arrangement of muwa`adah with other contract or concept G 15.4 Muwa`adah may be arranged to structure transaction involving currency exchange. S 15.5 In connection with paragraph ‎15.4, arrangement of muwa`adah in transaction involving currency exchange shall only be structured for the purpose of hedging. 2 The muwa`adah is not a contract. Issued on: 2 February 2017