REVERSE SALAM AS AN INNOVATIVE INSTRUMENT FOR INVESTMENT ACCOUNTS

Currently the marketplace in Malaysia offers only two fixed deposit instruments based on mudārabah (profit sharing) and reverse commodity murabahah (tawarruq). Recent developments in the regulatory framework expressed in the Islamic Financial Services Act (IFSA) 2013 makes the use of mudārabah for structuring fixed deposit accounts difficult since in mudārabah the profit cannot be pre-determined and the losses should be transferred to the accountholders. Concurrently, reverse commodity murābahah in its organised form is criticised by scholars of the Middle East as representing a transaction that is not real, existing only on paper. In response to this challenge, this article proposes an alternative structure for fixed deposits that avoids inah and tawarruq altogether but employs hedging tools like options or forwards.

The article accordingly examines the possibility of using the salam (future commodity sale) contract as a fixed deposit instrument that will help Islamic banks in mobilising deposits on the liability side of their balance sheets. It highlights the features and structure of this product-called reverse salam-and discusses the use of hedging tools to make the product more efficient and useful.