The escalating prominence of digital assets globally has sparked significant discussions among regulatory bodies and Islamic scholars, initiating crucial debates on their alignment with Islamic finance principles.
In Malaysia, the Syariah Advisory Council (SAC) of the Securities Commission (SC) has undertaken a series of comprehensive meetings aimed at meticulously examining digital assets through the lens of Syariah.
At the core of these deliberations lies the intricate differentiation between digital assets and digital currency.
As per the SC, “digital currency” represents a digital form of value primarily intended for exchange, whereas “digital tokens” reside within distributed digital ledgers but are not predominantly utilised for transactional purposes.
Understanding these definitions is paramount in navigating the intricate landscape of digital finance and its multifaceted components.
The SAC’s exhaustive discussions have culminated in categorisations hinged on Syariah compliance, notably distinguishing digital currencies with and without underlying assets.
Digital assets supported by ‘ribawi’ items, such as gold or silver, adhere to the principles of ‘bai al-sarf’.
The principles of ‘bai al-sarf’ governs transactions involving these specific items, ensuring equality in the amounts exchanged and immediate possession.
In other words, in Syariah-guided dealings, the exchange must happen immediately and without any delay, and both parties should receive their money without any additional amount (interest) being added.
Conversely, digital tokens fall under the category of ‘urudh’ in Syariah, a classification indicating their eligibility for trade or exchange within the purview of Islamic jurisprudence.
‘Urudh’, within Islamic principles, encompasses various tradable items that meet specific conditions ensuring their compliance with Syariah guidelines.
For digital tokens to be considered permissible within this category, their usage must conform to Syariah-compliant objectives, such as facilitating legitimate exchanges, or serving as representations of assets permissible in Islam.
This delineation underscores the adherence to ethical and permissible standards, aligning with the core principles of Islamic finance that prioritise transparency, fairness, and compliance with Syariah principles in all financial dealings.
The resolutions set forth by the SAC exclusively apply to digital assets within the SC’s jurisdiction.
In addition, the decision to acknowledge the potential economic growth associated with digital assets resonates profoundly with the Maqasid Syariah’s principle of ‘maslahah’ (public interest).
In Syariah, ‘maslahah’ denotes the pursuit of public interest and the greater good for society. It emphasises societal welfare as a fundamental objective, allowing for flexibility in legal rulings to ensure benefits for individuals and communities.
Similarly, Maqasid Syariah, or the objectives of Islamic law, emphasise the overarching aims of preserving religion, life, intellect, lineage, and property. This principle underscores the promotion of societal wellbeing and the pursuit of benefits while considering the broader welfare of individuals and communities within the framework of Islamic teachings.
Furthermore, such decisions exemplify the principle of ‘ijtihad’, which signifies the process of independent reasoning and adaptability within Syariah.
By acknowledging the economic prospects of digital assets, this decision showcases the adaptability of Islamic jurisprudence to evolving economic circumstances. It illustrates how Islamic principles can be interpreted and applied to new contexts in response to changing socio-economic landscapes.
Malaysia’s forward-looking regulatory approach toward digital assets reflects its willingness to integrate innovative technologies within a Syariah-compliant framework.
Regulatory measures mandate the registration of digital asset exchanges with the authorities, ensuring stringent adherence to anti-money laundering and counter-terrorism financing regulations.
The SAC’s endorsement of digital assets stems from their perceived benefits to the public sector’s economic interests in an increasingly digital world.
Malaysia’s proactive economic policies and aspirations to establish itself as a financial hub underline the government’s enthusiasm for technological innovation and entrepreneurship. The endorsement of cryptocurrencies by the government is founded upon their potential to enhance financial inclusivity and stimulate economic growth.
The SC’s implementation of a regulatory framework for digital assets in 2019 aimed to strike a balance between safeguarding investor interests and nurturing innovation in the burgeoning digital asset sector.
Companies offering digital asset exchanges or initial coin offerings (ICOs) are mandated to undergo registration, comply with operational requisites, and rigorously adhere to anti-money laundering protocols.
Malaysia’s robust financial sector and well-developed capital markets significantly contribute to the acceptance of cryptocurrencies.
The exploration of blockchain technology by financial institutions has been pivotal in attracting numerous blockchain-based start-ups to Malaysia, furthering its emergence as a thriving innovation hub.
Additionally, Malaysia’s heterogeneous and inclusive society has fostered an environment conducive to the adoption of cryptocurrencies, avoiding strict religious or cultural restrictions.
In conclusion, Malaysia’s embrace of cryptocurrency resonates harmoniously with the principles of ‘maslahah’ and ‘ijtihad’ within the Maqasid Syariah. The government’s acknowledgment of the potential economic and societal benefits is bolstered by a regulatory framework ensuring adherence to Syariah law.
Dr Ashurov Sharofiddin is an Associate Professor at the IIUM Institute of Islamic Banking and Finance, International Islamic University Malaysia, while Dr Mohd Zaidi Md Zabri is a senior lecturer at the Department of Finance, Faculty of Business and Economics, Universiti Malaya.
The views expressed here are the personal opinion of the writer and do not necessarily represent that of Twentytwo13.
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