Shariah compliance still a concern for cryptocurrency investors

Muslim faithful can engage in trade and investments of cryptocurrencies since it is backed by “ribawi items” like gold and silver.

By · Oct 9, 2020 . 7min read

Shariah compliance in Malaysia crypto news

As cryptocurrency continues its push for mass adoption, one seemingly unpopular hurdle it still has to cross is Shariah compliance, especially for the Muslim dominated countries. This point was reiterated by the Dr Daud Bakar, the chairman for the Shariah Advisory Council for Malaysia’s watchdog Securities Commission Malaysia (SC).

Dr Daud Bakar brought this up SCxSC Fintech Virtual Conference 2020 which held yesterday. His position hinges on the fact that though regulators do not classify cryptocurrency as a legal tender. However, he opines that any Muslim faithful can engage in its trade and investments since it is backed by “ribawi items” like gold and silver. In Islam, faithful use “ribawi items” as currency to measure the value of items for sale and purchase.

While speaking in the conference, Dr Daud Bakar reiterated the Council’s position on cryptocurrencies per the Malaysian Reserve publication.

“It is a medium of exchange, and we cannot stop people to use commodities as medium of exchange. It is as good as buying an e-ticket or commodities in the market,”

The Southeast Asian country started regulating cryptocurrencies and digital assets in 2019. Securities Commission Malaysia issued Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019.

Malaysia is one of the 50 Muslim dominated countries in the world. It has also been somewhat active in the regulation of cryptocurrencies or any affiliate digital asset. One may say the nation relied on several pieces of research that conclude that bitcoin/cryptocurrency trading and shariah compliance are not divergent.

Malaysia still conservative in licensing cryptocurrency exchanges within its jurisdiction

As at today, Malaysia has only licensed three cryptocurrency exchanges to operate within its borders. These are Luno Malaysia, Sinegy Technologies and Tokenize Malaysia. Cryptodose Media had earlier reported that Securities Commission Malaysia added Binance to investors alert list in July. It placed the giant cryptocurrency exchange among a list of companies operating without proper regulatory approval within its jurisdiction. Binance, on the other hand, had activated Malaysia’s ringgit in its P2P trading platform for users.

Nonetheless, the nation is opening up to cryptocurrency innovations. As Dr Daud Bakar said, SC has also made it possible for companies to issue bitcoin as a method of capital shares in the company. However, the Shariah Advisory Council subjects the companies to certain restrictions through fatwa resolution. Hence Shariah compliance for investments in cryptocurrency comes easy.

For a religiously conservative nation like Malaysia, this is a good step in the right direction. As Shariah Advisory Council acts as a think tank for Malaysia’s regulators, Dr Bakar even proposed a Malaysia stablecoin. In his words,

We can even develop our own stable coin quite easily without any difficulty by the government and respective jurisdiction

A proposal is what it is and no official position yet from the government of Malaysia. Although with CBDC making waves among governments lately, who knows if Malaysia will be exploring that path.

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