ISLAMIC EMBEDDED OPTIONS IN STRUCTURED PRODUCTS OF MALAYSIA: ISSUES AND CHALLENGES

Structured Products could be defined as savings or investment products in which the return is linked to an underlying asset with pre-defined features such as the maturity date, coupon date, capital protection level (SMR Wealth Management). Islamic structured products are essentially Shariah-compliant structured products. They bear similarities to conventional products in terms of purpose, economic benefits and basic structural features. The difference being that Islamic structured products adhere to Shariah principles by avoiding riba (usury), gharar (uncertainty), zulm (injustice), and operate holistically in a Shariah-compliant manner. This includes utilizing Shariah contracts approved by the Shariah Advisory Council of the Central Bank of Malaysia to structure the investment and contains underlying assets that are permissible by Shariah. Despite having been introduced into the industry since its establishment, implementing Islamic structured products have many Shariah issues. Using in-depth analyses of both the literature and several case studies for structured products in Islamic banks in Malaysia, this paper analyzes and assesses the most important Shariah issues surrounding Islamic structured products in Malaysia. Our findings confirm that the current implementation of Malaysian structured products continues to possess a number of Shariah issues, which need to be corrected by both the banks and the industry in order to have fully Shariah-compliant structured products to be operational in the market.