Shari’ah Advisory Council makes new ruling

The Shari’ah Advisory Council (SAC) of Bank Negara Malaysia at its 213th meeting has ruled that the method to measure qard (interest-free loan) transaction between shareholders’ fund and takaful fund under MFRS 17 Insurance Contracts and MFRS 9 Financial Instruments requirements is allowed. This is because the total repayment of the qard amount will not increase even if the time value of money (TVM) principle is applied in the measurement method.

This ruling is subject to comprehensive disclosure in the notes to the financial statements: the requirement for takaful operator to provide qard from shareholders’ fund in the event a deficit occurs in the takaful fund; the nature of qard contract, the qard original amount that has been provided to the takaful fund and the expected repayment period for the qard upon availability of surplus in the takaful fund; and explanation on the accounting measurement in respect of TVM application to determine the present value and future value of qard and the impact to the original amount of qard and fair value adjustment required to achieve the original amount. The explanation should also cover the “rights of shareholders’ fund to receive the original qard amount” and the “obligation of takaful fund to repay the original qard amount,” of which the amount remains unchanged throughout the qard repayment period.