Part-time currency traders, beware: You might be violating Muslim law, at least in Malaysia.
An Islamic body last week warned Muslims that participating in individual spot foreign exchange trading through electronic platforms is in conflict with Islamic laws. The National Fatwa Council, which comes under the nation’s Department of Islamic Development (the main agency handling Islamic affairs at the federal level), said that a study by a committee found that such trading involves currency speculation, which is against Islamic laws. It is therefore “haram,” or forbidden, for Muslims, it said.
Council Chairperson Abdul Shukor Husin stressed in a statement that the ruling applied only to non-licensed individuals who were executing spot foreign exchange transactions through electronic platforms. The ruling does not involve foreign exchange conducted through licensed money exchanges and licensed commercial banks, he said.
The bottom line: Traders at licensed banks can keep trading, and individuals who change cash at licensed exchange shops are also in the clear. But everyday individuals who try to do sophisticated forex trading and speculating utilizing electronic exchanges are likely crossing the line.
Islam is the official religion of Malaysia, and Muslims make up about 60% of the total population of 27.5 million people. Although the National Fatwa Council doesn’t make law in Malaysia and can’t by itself enforce a fatwa, its views are influential in some Malaysian circles, especially among those who want to be fully compliant with Islamic law.
A day after local media carried reports of the Fatwa Council ruling, Malaysia’s central bank – which officially regulates currency trading – issued a statement re-iterating that buying and selling of foreign currency in Malaysia is only allowed with licensed commercial banks, Islamic banks, investment banks and international Islamic banks, as well as licensed money changers.
That said, it appears unlikely anyone will be punished if they violate the fatwa, with no official penalties at the moment.
“It is hard to implement,” admitted an official at the National Fatwa Council. “Still we are educating the public through the official radio and television stations,” the official said. With no officially proscribed punishments, “you just know you have sinned” upon violating the rule, the official said.
Malaysia has long been known as one of the world’s leading Islamic finance centers, with investors from the Middle East and elsewhere flocking to the country in part because of its reputation for more innovative interpretations of Quranic law – which restricts receiving or paying interest. Those interpretations have permitted a wider variety of financial transactions than are available in some other countries. But more conservative elements in Malaysia have resisted some of the more aggressive financial activities, and Islamic leaders have made clear they won’t support transactions they feel go too far.
The Fatwa Council’s latest ruling “will further strengthen the reputation and image of Malaysia as having a robust and effective Shariah governance to ensure Islamic financial institutions are compliant with Shariah principles,” said Asyraf Wadji Dusuki, head of the research affairs department at the International Shariah Research Academy for Islamic Finance, a group that researches Islamic finance in Kuala Lumpur.
