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Religious Guidance in the Subscription of Singapore Savings Bonds by Muslims (Part 1)

16 November 2018 2:03 am // Written by Fazrihan Duriat; Suhaimi Zainul Abidin;

Singapore’s financial centre offers a broad range of financial services including banking, insurance, investment banking and treasury services. The Monetary Authority of Singapore launched the first Singapore Savings Bond back in 1 October 2015 and it will be issued to potential investors periodically.

The Financial Syariah Advisory Council (FSAC) by Pergas Investment Holdings (PIH) received numerous queries from the public as to whether Muslims can subscribe for Singapore Savings Bonds.

One of the roles of PIH is to contribute towards the development of the community by enabling, among other things, financial inclusion of the Muslim minority in Singapore. Hence, this statement is meant to provide guidance to the Muslim community in Singapore only.

Basics of Shariah

The application of Shariah in any country is derived from the Koran and Sunnah and supported by the majority of scholars around the world. Although the laws of Shariah can be either fixed and changeable [1], the maqasid as-Shariah (i.e. purpose of Shariah) are to realise the benefit [2] and interest of humans. Since most scholars have declared interest as riba and prohibited by Koran, scanty opinions of some scholars cannot contradict the position of the ummah [3] throughout the centuries. The same ruling applies for interest-paying bonds or bonds issued at a discount, whether it is issued by individuals, corporates or government bodies.

Shariah Assessment

Pergas has perused the following documents:

  • Singapore Savings Bonds issued by MAS (updated as at 20 July 2015)
  • Singapore Savings Bonds: Technical Specifications (updated as at 01 September 2015)
  • Singapore Savings Bonds FAQs (updated 20 September 2015)

 

The Singapore Savings Bonds (“SSB”) are bonds issued by the government of Singapore, specifically for subscription by Singaporeans. These bonds are issued for the purpose of providing Singaporeans an opportunity to invest their savings in a long-term fixed return instrument. Some of the key terms of SSB are as follows:

  • The issuer is the Government of Singapore (the “Issuer”).
  • Only Singaporean individuals may subscribe (“Subscribers / Investors”).
  • SSB pays a coupon to Investors, at 6-monthly intervals at a rate specified prior to issuance (stepped up over time), with repayment of principal at maturity.
  • Investors have the right to redeem the SSB at any time before maturity.
  • The SSB are non-transferable (i.e. cannot be traded).
  • Unlike Singapore government securities (“SGS”) which are issued only to financial institutions in Singapore, there is no bidding process to determine the coupon / interest rate. Instead, the Issuer will announce the interest payment rates for the entire 10-year tenure for each issuance – pegged to 10-year SGS.

 

In addition to the key terms set out above, the features of SSB include the following:

  • The bonds are backed by the Government of Singapore. Investors will therefore assume Singapore sovereign risk in their investment in SSB.
  • Long term: Investment can last up to 10 years with higher returns
  • Flexible redemption option: Investors can get their funds back within a month with no penalty.

 

Pergas’ stand is guided by the principle that everything in this world are halal (i.e. permissible) except for that which has been explicitly prohibited in the authentic text or via unanimous opinion of muktabar ulama (i.e. well-respected religious scholars). On this basis, the permissibility of subscribing to SSB will remain as it was until there is evidence to the contrary.

Pergas shall only declare something impermissible if there is supporting evidence for it. The four (4) factors below are discussed:

1. Riba

Investors in SSB receive interest payments at 6-monthly intervals, in addition to the return on capital upon maturity or upon redemption. The interest payments constitute an additional benefit over and above the principal qard amount, and therefore constitutes riba, analogous (i.e. qiyas) to a conventional fixed deposit.

Investors receive less interest at the start, but the interest amount “steps up” or increases over time so that the longer SSB is invested, the higher the effective interest rate will be. MAS will announce the interest rates as well as the returns over different holding periods when applications for each SSB issue open. The information will be published on the Savings Bonds website (www.sgs.gov.sg/savingsbonds) and in major newspapers.

2. Qiyas

SSB has a flexible redemption option where Investors can get their funds back within a month with no penalty. This is analogous to khiyar (i.e. choice) given to subscribers whether to continue or rescind the contract.

SSB are issued only to individuals, but otherwise largely mirror the structure and terms of SGS which may be subscribed by financial institutions. In 2009, the Monetary Authority of Singapore established an Islamic trust certificate (“MAS sukuk”) issuance programme structured based on ijarah, essentially for the purpose of enabling Islamic financial institutions in Singapore to meet their needs for risk-free assets in their liquid-asset portfolios. While there has not been any formal or written Shariah pronouncement on the Shariah permissibility of subscribing for SGS, the establishment of the MAS sukuk programme and the subsequent regular issuance of MAS sukuk would appear to suggest recognition by the MAS and Islamic financial institutions in Singapore of the need for a Shariah-equivalent to SGS. Accordingly, an argument could be made that a Shariah-equivalent to SSBs should also be made available to enable Muslim investors to subscribe to Shariah-compliant investment instruments.  

Such situation represents a mani` syarie, hence, Pergas is of the opinion that the current SSB is unlikely to be Shariah compliant until there is a Shariah version similar like how SGS has.

It should be noted however, that unlike SGS, the MAS sukuk is only available on a reverse enquiry basis, for subscription by Islamic financial institutions in Singapore.

     3. Use of Funds

Pursuant to the Government Securities Act, the proceeds from SGS and SSBs are paid into a Government Securities Fund, and outward payments from this fund are generally limited to the paying of interest and repayment of principal associated with SGS and SSB issuances. Accordingly, unlike other governments, the Singapore Government does not issue government securities (including SSBs) to raise funds to finance its expenditure. The proceeds paid into the Government Securities Fund are instead utilised for the following purposes:

  • Purchase of trustee stocks or any of any other stocks, funds, securities or investments, as mentioned in the Financial Procedure Act

Surpluses from the Government Securities Fund may be transferred to the Consolidated Fund, which may in turn be utilised for the following purposes:

  • Invested on deposit in any bank, in gold or other bullion, in securities of, or guaranteed by, any government or international financial institutions, in any stocks, funds, securities or investments;
  • Repayment of principal sums or interest payable on any government securities, where the monies in the Government Securities Fund are insufficient; and
  • Otherwise authorised by law

Such usage of funds may not fulfil the usual requirements under Siyasah Syar’iyyah, where the funds would typically be used for national development and/or infrastructural building for the benefit of the ummah. Accordingly, SSB may not fulfil maslahah as part of maqasid of Shariah.

     4. Fiqh Adaptation

In the absence of comprehensive resources on Islamic finance Shariah rulings in Singapore context, the next source of reference (i.e. maraji’) for Pergas is the Islamic Financial Act 2013 (“IFSA 2013”).

IFSA 2013 specifically defines a deposit as a sum of money accepted or paid in accordance with Shariah, to be repaid in full, with or without any gains, return or any other consideration in money or money’s worth, either on demand or at a time or in circumstances agreed by or on behalf of person making the payment and person accepting it.  Therefore, any deposit product must be principal guaranteed.

IFSA 2013 segregates Islamic deposits from investment accounts and explains the difference to customers. Deposits guarantee customers their principal, while investment accounts do not.

(Part 2)

Note: This article is produced/issued by the Financial Syariah Advisory Council Team FSAC.


References :

[1] See qawaid fiqhiyyah (i.e. legal maxim) stating “Evolution of Shariah rulings [based on custom and ijtihad] due to changing times is not to be denied (1:47)”. The changeable aspect of Shariah consists of laws upon adah (i.e. customs of the people) as people’s needs change over time. Changeable laws are sometimes linked to an I’llah (i.e. effective cause) which is missing at that situation (e.g. the visiting of graves used to be forbidden but when the Muslims have understood and abandoned their old abhorred pre-Islamic beliefs and customs, that prohibition was later lifted). However, Shariah rulings based on detailed, authentic textual evidence (instead of customary practice) will remain unchanged regardless of changing times. For example, the payment of zakah (i.e. obligatory tithe) will remain obligatory even though people are now paying taxes to the government.

[2] According to Imam Abu Hamid al-Ghazali, the critical preservation of human well-being is through safeguarding these five (5) areas, namely, (1) faith / religion (deen), (2) lives (nafs), intellect (aql), (4) lineage / posterity (nasb) and wealth (mal)). (5). Wealth (mal)

[3] “My Ummah will not unite upon error.” [Reported by at-Tirmidhī and Hākim – Sahīh]

[4] This is based on the famous legal maxim “Ibahah (i.e. permissibility) is the basic norm in all things unless there be evidence to establish a prohibition” written by a well-known scholar Jalaluddin As-Suyuti in his book Al-Ashbah Wa Al-Nazair .

[5] This is different from an Islamic fixed deposit which are based on Shariah-compliant structures such as murabahah (cost plus sale) where a mark-up during a sale transaction materialises as profit (i.e. an underlying transaction took place in line with muamallat).

[6] E.g. part of government funds (for repayment of loans) or Contingencies Fund for payment of costs and expenditure.

[7] This is the basis and approach taken by the government for the interest of the nation and the people which is in to be line with Shariah principles or maqasid.

[8] Takyif fiqhi. In this case, it describes how fiqh and muamalat can harmonise with the application of banking operations.

ISLAMIC PERSPECTIVE MUSLIM LIFE SOCIETY ISLAMIC FINANCE HALAL SAVINGS BONDS SINGAPORE


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