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Malaysian Shariah Financial Authority Endorses Bitcoin

Malaysia

Shariah authority council in Malaysia has praised digital assets and their potential as possible investment vehicles.

A Great Investment Vehicle

Earlier this week, The Malaysian Reserve noted that Dr. Modh Daud Bakar, the chairman of the Shariah Advisory Council at the Securities Commission Malaysia, had praised cryptocurrencies as having great potential as an investment. Speaking at the SCxSC Fintech Conference 2020 in Kuala Lumpur, Bakar explained that while there is a lot to do before adoption can improve, Malaysians have a lot to gain from the asset class.

In his speech, Bakar reportedly pointed out that only two percent of Malaysians know about cryptocurrencies and clearly understand how they work. He also weighed in on their possible legal classification, explaining that they could be viewed as commodities. However, it would be essential to ensure that other “ribawi items” don’t back them. Ribawi items are assets like gold and silver, which are sold by weights and measures).

By distinguishing assets backed by ribawi items, Bakar appeared to have decried the existence of certain asset-backed stablecoins. There aren’t many prominent examples of such stablecoins, but any company looking to issue one could have challenges in countries like Malaysia.

Bakar reiterated that digital assets are a medium of exchange, and it won’t be possible to stop people from using them. He added:

“[The acceptance of digital assets] can open up so many interesting areas in Malaysia, in which crypto can be deemed as investment assets where people can buy and hold for trading. The potential of this currency is as great as it comes with a growing digital economy of the world.”

Crypto Investments in a Shariah-Driven Economy 

The Shariah Advisory Council is a significant authority. It governs the implementation of Shariah law in the Islamic financial system. Islam is currently Malaysia’s official religion, with about three-fifths of the country’s people reportedly being Muslim. If these people follow Shariah law when making financial decisions, it would undoubtedly help that the law has a favorable outlook on crypto.  

Thankfully, the Council appears to be okay with cryptocurrencies and their role in the country’s financial space. Back in July, it ruled that people could engage in digital asset trading. In an official announcement, Securities Commission chairman Datuk Syed Zaid Albar confirmed that digital asset trading was permissible under Shariah law, and that people could engage in the activity however they pleased. 

The move appears to be in line with Malaysia’s mission to join several other Southeast Asian countries as possible hubs for financial innovation an activity going forward. It could also serve as a blueprint for other Muslim countries that would like to spur financial innovation and still stay compliant with Shariah law. 

Despite the acceptance, however, some challenges still loom. For one, Shariah-compliant digital assets can only be used as investments in companies and sectors that are Shariah-compliant. Users will also not be able to use traditional financing to access leverage and invest in companies. Along with the requirement for a Shariah board to oversee investment activities, these requirements could still hamper Muslim countries’ adoption.

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      Jimmy has been following the development of blockchain for several years, and he is optimistic about its potential to democratize the financial system.

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