A serious confusion is created by the minister of finance (BD) over Islamic banking system. "Please Stop it" - a gentle reminder !

H.E. Mr Abul Mal Abdul Muheet, the minister of finance of Bangladesh (BD) has recently claimed in the Parliament on February 01, 2015 (Sunday) that, Islamic banking is a FRAUD, 'Riba' & today's 'Interest' are not same and practices of interest is on humanitarian ground.(Ref: bdnews24.com). 

It's neither justifiable nor acceptable if a minister with such an important authority claims or rules out some thing, which is in fact without knowledge, awareness, justification or understanding. Such act can simply be levelled as "irresponsibility" over own self, community, nation and world of humanity at large. Such irresponsibility may easily create a serious confusion in public with huge damage.

Islamic banking is not simply a traditional or religious issue, but it's a Divine integrated just system for all humanity with sustainable benefit & eco-protection as had been greatly appreciated, accepted & benefited not only by Muslim but also equally by non-Muslim across the world of the contemporary economic reality. (a paper from the World bank is linked here just for an idea: http://dspace.khazar.org/…/Islamic%20vs.%20Conventional%20B…).

Thus, it's a gentle reminder to all levels of authorities including H.E. the minister to kindly "READ, UNDERSTAND, STRATEGIZE & VISUALIZE" before any issue to be expressed or ruled out for the public interest, so to help every one from being confused carelessly & suffered for nor reason.

Evolution of Islamic Finance in the Modern eco-Environment

Preview
Today, the market segment of Islamic financial products and regulations are no longer confined within a limited territory, but are in the borderless world of the Web, having exposure to almost all groups of people worldwide. The market mechanisms adopted by the potential marketers include dynamic strategies and mechanisms of governance to match the applied global phenomena, where both Muslim and non-Muslim are equally participating to market Islamic financial products with promising results.

 The promising arena of Islamic corporate application and governance has caught the attention of both Muslims and non-Muslims, with equal participation in establishing and offering competitive and sound Islamic financial products. Resulting from this phenomenon, besides having almost 300 entities of full fledged Islamic financial providers in today’s world, almost all conventional potential players are also offering Islamic financial products through the establishment of segregated windows and divisions respectively, by adapting suitable mechanisms of Shari’ah compliance.

 Numerous options of Shari’ah justified instruments are in fact being applied by product specialists and technical experts in Islamic financial industries, who are developing competitive Islamic financial products with innovative cultural and dynamic corporate outcomes. As a result, these products for investors, customers and bankers are paving the way for Islamic financial industries. The products are designed not only to satisfy retail groups, but also corporate levels. If such dynamic product innovation continues, the growth rate of Islamic financial business, considering the historical rate, may reach to 40 to 50 percent by the year 2020.

But such an achievement certainly and rationally requires rediscovery of mechanisms for product innovation, culture of products review, review of professionalism, and improving the relevant policies, regulations and governing standard with ethical guidelines, as these shall not be denied in any sector of the Islamic industrial movement.

Strategic planning for every move of Islamic financial industry is of utmost importance to ensure smooth and successful growth of the industry. Strategic planning should be consolidated with dynamic actions. For this exercise, it is essential to ensure the presence of experts in: Shari’ah, decision-making, technical, operational or /and marketing avenues, along with proper professionalism and rightful performance justified by Shari’ah standard.

Resurgence of Islamic Finance in the Modern Reality

The modern growth of the Islamic financial industry began in Egypt and the Arab world, while Malaysia caught the wave in the early 80s and subsequently, we have seen a rapid gradual development through both the Muslim and non-Muslim world. Due to the present phenomena of development and dynamic offerings of applied Islamic financial products, Malaysia, Bahrain and UAE play the top-ranking roles in the global Islamic financial market.

 Applied Islamic financial sectors have developed into a global dimension, which is highly dynamic and growing rapidly with utmost appreciated by not only among 1.8 billion of Muslim, but also by non-Muslim across the today’s world, which leads the Halal industries and Islamic financial market to stand as an able alternative to the conventional ones with sustainable existence for all.

 The global Halal industries, Islamic financial market and Shari’ah compliant industries, activities and markets reach to a value of trillions in dollar.  There are almost 400 Islamic financial institutions worldwide. According to the Global Islamic Finance Report -2013 (GIFR) the global Islamic Finance Market value indicated at US$ 1.631 trillions, with its growth rate estimated to be around 20.4 %  p.a.

 Among the master players of Islamic finance in the contemporary world are the Middle East, Malaysia, Iran, Indonesia, Brunei, Singapore, North America, Pakistan, Bangladesh, South-West Africa and the U.K. The cliental of Islamic financial institutions are not confined to Muslim countries but are spread over Europe, the U.S.A, South Asia, South East Asia, Asia Pacific and the Far East. Providers are not confined to local institutions as global players increasingly playing major roles in the industry today by aiming the global appreciation from all regardless of the issue of one’s religion, color, culture or status.

Apart from the existing world players, the next wave of industrial growth can be predicted from the non-Muslim world with a reasonable participation. Among those countries may be Singapore, England, Hong Kong, Germany, Canada, Russia, Australia, China, Japan, and South Africa. It may be anticipated that, in the next 7 to 10 years, Islamic financial products with required Shari’ah regulatory frameworks may attract almost 60-65 percent of the total financial industries globally, offering Islamic financial products to both Muslims and non-Muslims with beneficial results.

It is widely accepted that the adaptation of the Shari’ah compliant financial paradigm is one of the fastest growing areas of the international banking and finance in reality. The forecasts predict that there will be significant growth in this sector over the next five to ten years. However, this growth is dependent on successful risk management, professionalism, product innovation, regulatory frameworks, marketing strategies, research and discovery and customer satisfaction that all professionals, regulators, practitioners, customers and participants of the banking -financial industry must attend to. All these can be achieved only through the appropriate knowledge, information and exercises.

Rational Outlook of the Sustainable Growth of Islamic Finance

It is not simply a religious ground, but also socio-eco-cultural and other logistic, authentic and hypothetical reasons, which undeniably justify a sustainable growth of Islamic finance with promising track record. Thus, among the rational outlook of the growth of Islamic finance in the modern reality are pointed out by www.theborneopost.com as follows:

Mutual Cooperation with Risk Sharing Culture

Islamic finance is not a mere product, but a holistic integrated system for all mankind  based on the Divine principle of Mutual cooperation with risk sharing culture for the legitimate benefit of all, irrespective of one’s religious background, race, color, gender, status or nationality. (See al-Qur’an 5:2)

Green Financing Platform

Islamic finance offers the ideal platform to boost ‘green financing’ and promote SRI (social responsibility investment). As Shari’ah rules prohibit participation in businesses involving alcohol, pork, and gambling, Islamic banks only support businesses that adhere to ethical and moral nature values when it comes to investments.

Shari’ah-Compliant Products

Demand for Shari’ah-compliant products continues to rise alongside a growing Muslim population. Muslims predicted to account for more than 25 per cent of the world population in 2013, growing twice as fast as the world’s non-Muslim population. Islamic banks address this group’s need and natural inclination to prefer Shari’ah-compliant financial products.

Fast and Steady Growth

The Islamic financing industry is growing 50 per cent faster than conventional banking. As of 2011, the global asset value of the Islamic finance industry is estimated to be at US$1 trillion. The figure is expected to reach US$5 trillion over the next five years. Indeed, there is no stopping the fast growth of Islamic banking with Islamic banks setting up shop in countries under the Gulf Cooperation Council (GCC), Malaysia, the UK, and even in Africa along with many other regions.

Attracts Non-Muslim investors

Even non-Muslim investors see the potential for profit in Islamic banking. Islamic financial products, as a rule, carry lower risk investments while enabling them to earn a profit and at the same time diversify their portfolio to further reduce risk.

Global Indexing

Western investors can track the Islamic financing industry through international rating systems. When purchasing sukuk or Islamic bonds, they can easily assess the strengths, weaknesses, and risk of the bonds by simply referring to benchmarks that track the financial industry.

Oil-rich Countries Adopt Islamic Finance

Countries belonging to the GCC want Shari’ah-compliant products for investment. Those belonging to this group are some of the wealthiest countries in the world. As the economies of Europe and the US struggle to stabilize, GCC nations are well-funded and their needs well met by Islamic banks.

Effective Decision-Making

Islamic investors avoid choices that cause harm to people and the environment. Through a thoughtful decision-making process, investors are able to make socially responsible choices that encourage investments that are good for the long-term.

Streamlined and Simpler

Islamic financial products, though they might also come with their own set of complex rules, are far simpler to understand than their conventional counterparts. For one, they are stricter with contracts and as focused. Islamic financial institutions also have scholars that offer consumers guidance with every venture and proceeding. They follow strict principles that ensure every single transaction is carried out according to Syariah law.

‘No Crisis’ Zone

Islamic financing saw a 25 per cent increase in value of assets from 2007 to 2008, while most of the world’s economies battled the worst financial crisis. It is, thus, safe to say that investing in Islamic financing is a possible way to avert potential crises in the world economy.

Humanitarian Concern

It is not against Islamic laws to accumulate wealth but all investors need to exercise awareness and shared responsibility for poverty in the world. Through the concept of zakat, or giving a portion of wealth to charity, Islamic finance aims to reduce economic disparity across the globe.

Industrial Catching Up

Malaysia’s Islamic assets reached US$65 billion in the financial year 2012/ 2013, reports the Ministry of Finance. National Islamic banking assets registered an average growth rate of 18 per cent to 20 per cent annually to reach US$ 65.6 billion. The government just invested in the development of human resources for the Islamic financing industry so as to ensure it catches up to the industry’s phenomenal growth.

Literature Initiative to Support the Growth of the Industry

 Trade& Finance:

Despite this development, quality refereed materials on Islamic law of trade and finance do not suffice the need yet. Thus, literally “Applied Islamic Law of Trade and Finance” (Sweet & Maxwell) provides possible practical exposition of the current Islamic law of trade and finance. Comparison with civil law highlights the differences between the systems and greatly assists in the understanding of both systems. Regular quotation of Qur’anic verses and prophetic traditions, with English translation, sets out the religious foundation underlying the applicable Islamic law of trade and finance in practical reality.

 The above title covers topics such as commercial contracts, sale of goods, partnership, capital market, Islamic currency, Takaful and the institution of Zakat. Islamic finance practitioners, bankers, lawyers, business owners and their financial and legal advisers may gain valuable information on the Islamic law of trade and finance with practical solutions.

 Islamic finance has grown exponentially in the last few decades and has reached over 70 countries around the world. The Islamic financial system today comprises a sizeable asset base and there is evidence of sustained demand for Islamic financial products and services in the global market, with demand outstripping supply.

The forthcoming title Applied Islamic Finance: Law and Practice from a Global Perspective provides a new source of reference to aid the understanding of the laws and practices of Islamic finance from a global perspective. Besides providing an overview of the regulatory structure overseeing the Islamic financial system, the book discusses the sources of law and the applied principles of Shari’ah governing Islamic financial instruments, products and policies. An entire chapter is also devoted to surveying the laws of several countries in the Muslim world that govern Islamic financial institutions.

As Islamic finance involves a wide array of global players including borrowers, lenders and their bankers, policy makers as well as legal and financial advisers, harmonization and rationalization are important to foster an efficient and dynamic system. To that end, the book discusses the Shari’ah standard of contemporary financial business, the roles and functions of a Shari’ah advisory body and the impact of fatwa in Islamic financial practices.

This book may be regularly consulted by banking and finance practitioners, in-house legal counsel, business owners, policy makers, participants, players, researchers and persons responsible for the further development of the Islamic financial system globally.

 Takaful& Re-takaful:

 The understanding of takaful (Islamic insurance) and modern insurance will be greatly enhanced by reading “Applied Takaful and Modern Insurance” with regulatory and practical consideration (Sweet & Maxwell). This book makes available in clear and succinct language the principles and practices of takaful and modern insurance with comparative treatment. The comparison of these two systems brings up the differences between and coincidence of both systems to facilitate better appreciation of the systems, which run in parallel to cover the various risks faced in life and reality today.

 The topics covered in this book include subject matter at risk, insurable interest, good faith, insurance contracts, risk management, insurance intermediaries, nomination, beneficiaries, claims, distribution and legal formalities. The contemporary experience in takaful operation is also discussed and recommendations are given for the future development of the industry in the contemporary world of advance economy.

The book has been useful for takaful, re-takaful and insurance practitioners, business owners, in-house Shari’ah and legal counsel, takaful or insurance advisors and persons responsible for risk management.

e-Commerce:

The increasing volume of Shari’ah-compliant business transactions backed by Islamic financial arrangements and the widespread use of the Internet and information technology (IT) make a good understanding of Islamic e-commerce law and practices very important. Being a developing area, good literature is not in abundance and it is the aim of a latest book, “Applied Islamic e-Commerce” (Sweet & Maxwell), may meet the need.

This book gives a practical and enlightening account of Islamic law comparing modern principles as they apply to the field of e-commerce with comparative treatment. Part I of the book sets out the general principles of e-commerce law, which include ethics in e-commerce and the sources of e-commerce law. Part II discusses the Shari’ah perspective comparing modern practical matters such as Internet marketing and advertising, virtual stores and payment systems as well as personal rights and the protection of privacy.

The practices of e-commerce law under Shari’ah compared with modern principles are explored in Part III. These include the components of an e-contract, the principles governing data protection and the concept and practical application of digital signatures. Part IV surveys offences and liabilities in e-commerce, particularly the problem with hackers and torts in e-commerce dealings under Shari’ah compared with modern principles.

Applied Islamic e-Commerce: Laws and Practice is an illuminating text and provides valuable guidance from the Islamic law standpoint compared with modern principles on practical issues which arise in the conduct of e-commerce. This is certainly a first book produced by considering Shari’ah standard comparing with modern principles and should not be missed by corporate lawyers, finance and business advisors, business owners, in-house legal counsel, marketers, IT professionals and those involve in e-commerce activities in business across the world.

 Strategies Ahead

Indeed, in the past Islamic financial industry had grown with hardship strategies, while the present movement is being achieved through dynamic strategic and smart applications with the potential to be an alternative component to the global conventional players. If such a phenomenon continues, the Islamic banking and financial platform may undoubtedly secure a sustainable place in the world’s growing financial picture.

For this to occur, due professionalism, public awareness, review exercises and product innovations must strictly be observed. Furthermore, dynamic mechanisms should be continuously researched to provide tools for risk management at all levels of Islamic financial industry. In addition, there must be adequate applications of relevant information technology (IT) to facilitate the smooth running of hi-tech Islamic financial activities. This will help meet the objective of providing the best and most competitive offerings for the present and the future.

Comment on "Cooperative Micro-bond (Sukuk)"

Bismillahir Rahmanir Rahim.

Firstly thanks for the delightful insight on the potential application of Sukuk Micro-Bond towards  financing the co-operatives operation. It had been my personal opinion, that with regard to the Islamic Microfinance, co-operatives can provide vital framework compare to bank, towards the success of Shariah compliant financing for the benefit of it's members and surrounding communities.

The inception of ANY co-operatives were based on mutual trust and consent among the majority members towards generating profitable ventures for the benefit of the shareholder. Only recently, especially in Malaysia, the word TRUST had been dropped from the co-operative name. But, in terms of spirit and objectivities, such term remains the binding force that ensure the co-operatives survival. Hence, with TRUST also being the cornerstone of success among any Sukuk Structures, the co-operatives Micro-Bond Sukuk implementation would be the next financial landscape to be observe.

Nevertheless, hereby in Malaysia and throughout the world, it's a sad note to observe that Sukuk financing were only restricted and limited to Corporate and Goverment entities. The ruling on the needs of Rating and Listing had constrict the beauty of Sukuk financing from the majority Islamic population. Thus, as in case of Malaysia, most of the co-operatives members were Muslim, such official ruling were tantamount in denying the right of Muslim masses to enjoy the benefit of Anti-Riba total financing solution.

As a prolific writer, speaker and distinguish scholar, you might have limited time to embark on new journey. Nevertheless, as an uneducated person in Islamic financing, I seek your precious advices and guidance, so that the first Sukuk implementation by a co-operative can be realized as the reference point for more successful case studies.

InSha'Allah. Wassalam.

Sallehuddin Sa'ad

Kota Bharu, Kelantan, Malaysia.
Reference Link :
http://cooperativemicrobank.blogspot.com/2012/09/cooperative-micro-bond-debt-free-3rd.html

 

Interview by Global Islamic Finance Magazine

INTERVIEW of Prof. Dr. Mohd. Ma'sum Billah
by:
Global Islamic Finance Magazine 
(Leading Islamic Finance Intelligence Since 2007).

The issue of Franchising of Islamic Financial Products & Services with Global Approach.

The detail of the interview can be browsed through the following link:
 http://www.globalislamicfinancemagazine.com/?com=news_list&nid=2152

Steps for the Establishment of 'Takaful Operation'

The establishment of any "Takaful Operation" in any Jurisdiction, the following steps may be followed:

Pre-licensing Steps:
1. Project paper.2. Funding (Confirmation).
3. Project Plan.
4. Training Manual (to train a management team before the license is obtained).
5. Policies & Guidelines (Shari'ah Standard of Takaful).
6. Corporate Manual.
7. Workshop (to train the management team).
8. National Conference (for Public awareness).

Post-licensing Steps:
1. System (Software).
2. Forms & Procedures.
3. Website.
4. Marketing Plan
5. Business Plan. (5 Years)
6. Products.
7. Office.
8. Recruitment.
9. Launching.
10. Commencement of Operation.

Islamic Wealth Management

Wealth plays an important role in human life. It is the subject matter of trade and other business transactions such as sales. Wealth can be in many forms. It can be in the form of money to some people and to other it can be in the form of property like houses, cars and lands. In order for men to obtain this wealth he has to work hard because it does not come like that, even though some times it can be inherited.

In Islam wealth is known as “mal”. In Islam something can be recognized as mal or wealth only when it satisfies the following conditions that are only when you possessed, secured it or stored it. For example, the birds in the sky, the minerals underground and the fish in the river are not recognized as wealth in the Islamic perspective. Only when you have possessed, secured and stored these things can they be recognized as wealth. It is different from the conventional point if view which wealth is recognized even if it has not been possessed secured and stored.

In conventional perspective wealth is totally owned by man. Man can use the wealth in any way he feels like using it. They utilize their wealth only for this world purposes without concerning about the Hereafter. This way of thinking is totally contrast with what Islam thought. It is stated in the Holy Quran that wealth in all its forms is a thing created by Almighty Allah as a trust for man. Thus, man only have right to uses the wealth only according to the shariah. Allah s.w.t said in the Holy Qur'an:

“Give to them from the property of Allah which he has bestowed upon you” (24:33)

At this point we can bring in the management. Wealth management is an important aspect in Islam. Since we are not the absolute owners of the wealth in this world, we have the duty or responsibility to manage it in the best way we can. Absolute ownership is to the Almighty Allah. We have only been entrusted upon this wealth. As I said above, our responsibility is to manage it accordance to shariah. By managing wealth according to the shariah, we also can seek our reward in hereafter, for example paying zakat.

Management of wealth is quite complicated because you have to look at someone intentions, how the wealth is earned, how it’s grown, how it’s spent and the right of the poor and needy. As we know, in Islam money is not an end in itself, it is a means to higher values. These means that if it is earned, invested and spend in the right way, it brings rewards or ‘barakah’ to not only the individual but also his family and the ummah as a whole.

With that thinking in mind, we now can safely say that in Islam, any human undertaking of which wealth management is one is guided by certain beliefs. These beliefs are described as philosophic foundations in an Islamic society. According to Kurshid Ahmad, they include the following:

1. Tawhid – belief in the oneness of Allah

2. Rubbubiyah – divine guidelines for striving towards all is good

3. Khalifah – the role of man as the vicegerent of God

4. Tazkiyah – achieving purity and growth

5. Accountability – the belief that man will be answerable for his actions in this world on the Judgments Day.

From the above beliefs, an economics agent in Islam learns that the existence in this world is not from without, and thus, he has to conduct himself and administer his wealth in line with divine arrangement. Being God’s vicegerent on earth is an opportunity to function normally – and direct his activities for the betterment of his life and of those around him.

Wealth management in Islam can be looked from different perspectives. These include the zakat management, inheritance, wills and testaments, estate planning, managing cash and saving, managing of tax and state duty, and different business transactions. In this paper we will discuss some of the above scope of Islamic wealth management.

CENTRAL IDEA

This project is centered upon gaining an understanding of how wealth is managed from an Islamic frame, work together with the worldview of Islam. While the former looks at the human behavior actions undertaken in dealing with the problem choose, the latter looks at the different stages of human existence in Islamic in addition to the concept of God, religion and prophet hood.

The consideration of the worldview in Islamic in our discussion helped outline a clear distinction between managing wealth from Islamic perspective and a conventional perspective. Take a capabilities notion for instance, ownership of resources is absolute, and can be utilized in any manner deemed right in one’s own good and best interest in this world. This is not so in Islamic perspective where ownership is regarded as a trust from God, and thus, can be used with the intention of obtaining the pleasure of God. Knowing that the concept of ownership is limited in Islam, human behavior thus directed at seeking prosperity in this world and in the Hereafter. This entails the maximum utilization of natural resources and human capabilities leading to higher productivity, which in turn brings about success, happiness and growth to the individual and the society at large.

The project paper is designed to discuss shariah rulings and the framework that governs wealth management in Islam. Among other issues, these rulings touch on the utilization and administration in different circumstances pertaining to the question of ‘how to utilize the wealth?’ and ‘who is capable of administrating the wealth?’ These shariah rulings act as a benchmark against which efforts at managing wealth are measured, and thus, ascertain that those involved in managing wealth do so in line with the Quran and Sunnah.

In order to have a clear picture of the topic, we have included practical assertion applicable in different situations of wealth management in Islam. Following thus is a plan to provide room for further improvement through research on the practicalities of managing wealth, and recommendations. We hope that this paper is beneficial to all of us and that it is an avenue towards a better tomorrow where wealth management is concerned.

SHARI'AH RULINGS

Shari'ah rulings provide a basic upon which guidelines and instructions of a course of action or undertaking are formulated and implemented. Despite cleat rulings on the use and management of wealth, the Quran is not devoid of hypotheses in general about wealth and its consequences, how man views wealth, and words of wisdoms for man with regards to wealth. The following are some of the example:

“Fair in the eyes of men is the love of things they covet: woman and sons; heaped – up hoards of gold and silver; horses branded (for blood and excellence); and (wealth of) cattle and well – tilled land. Such are the possessions of this world’s life; bit in nearness to Allah is the best of the goals (to return to)” (3:14)

“And violent is he in his love of wealth” (100:8)

The above verses indicate man’s desire for wealth in different forms – gold and silver, horses, cattle and lands, which vary, includes all kinds of machines in our contemporary world.

“If I had knowledge of the unseen, I should have multiplied all goods, and no evil should have touch me” (7:188)

“Nor does anyone know what it is that he will earn on the morrow.” (31:34)

These two verses indicate among other things, the uncertainty in the future pertaining to out present doings. ‘No man knows what the morrow may bring forth’. This is another distinction between the conventional and Islamic point of view in the sense that the former answer ‘perfect foresight’ in some theories.

“If Allah were to enlarge the provisions for His Servants, they would transgress beyond all bounds through the earth. But He sends (it) down in due measures as the please. For He is with His servants well – acquainted, watchful” (42:27)

“Nay, but man does transgress all bounds, in the looks upon himself as self – sufficient” (96: 6 – 7)

In the above verse God indicates the consequences of increased wealth on man. This verses as a warning to those with bestowed with wealth looking beyond the riches of the world.

While God has subjected all that is in the earth for the use of man as His vicegerent on earth, He has bestowed His favors more freely on some, than on others. In these are tests from God. In the Quran man is advised to seek his sustenance and remember God so that he attains success in this world and in the Hereafter. Allah s.w.t says:

“And when the prayer is finished, then may ye disperse through the land, and seek the bounty of Allah: and celebrate the Praise of God often (and without stint): that ye may prosper.” (62:10)

One of the ways by which wealth is managed in Islam is trade. This helps transfer of goods and services from one to another to satisfy different wants. In addition, it helps minimize, if not eliminate the possibility of excessive wealth remaining in the hands of selected few. In the regards, the Quran says:

“In order that it may not (merely) make a circuit between wealthy among you” (59:7)

Moderation in expenditures is commended in Islam, and excesses, waste and extravagances denounced. The Quran equates such doings to the works of the devil, as in the following:

“Verily spendthrifts are brothers of the Evil Ones and the Evil Ones to his Lord (Himself) ungrateful” (17:27)

“… eat and drinks: but waste not by excess, for Allah loves not the wasters” (7:31)

Aside prohibiting extravagance and spendthrift ness, Islam too has no place for meanness and stinginess. If recommends striking a balance, and to this effect, the Quran says:

“Make not thy hand tied (like a niggard’s) to they neck, nor stretch it forth to its utmost reach, so that thou become blameworthy and distillate” (17:29)

“Those who, when they spend, are not extravagant and not niggardly, but hold a just (balance) between those (extreme)” (25:67)

“For Allah loves not arrogant, the vainglorious; - (nor) those who are niggardly, or enjoin niggardliness on others, or hide the bounties which Allah has bestowed on them….” (4: 36 – 37)

Another example by which wealth is managed in Islam is through zakat and sadaqat, commonly referred to as almsgiving. The donor may give the latter directly to the recipient or through the state government collectively. The former is usually administered through the treasury, knows as Baitul Mal. Here is what the Quran says in this regard:

“So give what is due to kindred, the needy, and the wayfarer. That is the best for those who seek the countenance of Allah, and it is they who will prosper” (30:38)

“And in their wealth and possessions (was remembered) the right of the (needy), him who asked, and him who (some reasons) was prevented (from asking)” (51:19)

In order to wind up the discussions in shariah rulings – though we primarily looked at the Quran injunctions here, we will consider both the Quran and the Sunnah as we talk about practical scenarios of individual cases of wealth management – let us look at the following verse of Quran:

“But seek, with the (wealth) which Allah has bestowed on thee, the home of the Hereafter, nor forget thy portion in this world: but do thou good, as Allah has been good to thee, and seek not (occasions for) mischief in the land: fro Allah loves not those who mischief” (28:77)

In the above verse are many implications concerning wealth and its management in Islam. These can be outlined as in the following sense:

1. Wealth is entrusted upon man by Allah
2. The management of this wealth should be directed at seeking the pleasure of God in other world (Hereafter).
3. Being a trust from God, wealth need be used and exploited in accordance to God’s commandments.
4. Being the owner of wealth, God has the right command on man to use wealth for the good of other as He has done well on him, and prohibit man using wealth in a manner that is likely to cause harm on earth.

From these implications of the verse, we see a distinction between the Islamic point of view and the socialist and capitalist point of view. While capitalism propagates ‘an absolute and unconditional right to private property and socialism totally denies the right to private property’, Islam poses a balance by allowing the right to private property but from that angle of it being a trust.

PRACTICAL SCENARIOS AND APPLICATIONS

ZAKAT PLANNING

Another important issue that can be brought about in the management of wealth in Islam is the paying of Zakat. Every Muslim who has the ability to pay the Zakat is obliged to do so. It is one of the five pillars of Islam. So now, you can see the great importance of paying the Zakat. Mostly in Islam Zakat is paid by the wealthy Muslims. Allah made the paying of Zakat compulsory for a reason. This was in order to help the poor and the needy Muslims or the Muslims who are completely unable to support themselves. I say paying the Zakat is a form of wealth management because the wealthy Muslims will be able to deliver some of there wealth to other needy Muslims. Therefore, in doing so the wealthier will not become more and more wealthy, but moderate. This is why God (Allah) made some people in this world rich and some poor. Wealth can be a very dangerous element because once a human being becomes possessed with this wealth. He will forget about his religion and God altogether. In order to get rid of this, Allah made compulsory for every Muslim to pay the Zakat.

However if you look at the conventional or the capitalist advocates, you will discover that most people have became inclined to their wealth that they do not have or follow any religion. In short they have become pagans. They also do not believe in the hereafter. This is so, because there is no form of wealth management such as paying the Zakat to the needy people around the world. This is why, the capitalist always concentrate on material satisfaction and not spiritual. They only seek material satisfaction and think of maximizing there wealth through all the means available, weather the right or wrong way. They also have this misconception of saying that their scarce resources and unlimited needs in the world. It is like saying that God did not know what he was doing. Because God created this world and made sure that people would be satisfied with whatever there is available.” The imposition of Zakat is to purify oneself as well as one’s own property.”“Islam believes if a wealthy person is accustomed to paying Zakat, his infatuation for wealth will be softened and it will be a source of advantage to him and the society in the end.”

“Alms are for the poor and the needy and those employed to administer the (funds); for those whose hearts have been (recently) reconciled (to the truth); for those in bandage and indebt; in the cause of Allah; and for the wayfarer: (thus is it) ordained by Allah and Allah in full of knowledge and wisdom”. (9: 60)

Prophet Muhammad (PBUH) is reported to have said, “Zakat is not permissible for someone who is not in need except in five cases; someone fighting in the way of Allah, someone who collects Zakat, someone who has suffered (financial) loss (at the hands of debtors), someone who buys it with his own money, and someone who has a poor neighbor who receives some Zakat and gives some as a present to the one who is not in need.”

Zakat is obligatory on all Muslims capable of paying it. Capability is referred to as nisab, a taxable minimum. It is used for specific purpose and paid to specific groups of people or individuals. The Quran lists eight (8) recipients as in the above verse. The role that Zakat plays in the distribution of wealth and income is, without doubt, very important. It reduces the gap between the haves and the have-nots, and induces saving and consumption behaviors in addition to the fact that it helps mobilize income for redistribution.

Islam discourages funds to remain idle, simply because there is no interest, as compared to the conventional system which makes up for earned income with no effort involved. If we look at the saving decision, we notice that idle savings in Islam are penalized because a Muslim is expected to pay Zakat. At the end of the day he remains worse off because for every RM100 that he saves, he loses RM2.50 (2.5% Zakat ratio). Hence, his rational option would be to incorporate investment expectations into his savings decisions. Assuming he sees no light in the direction of investment expectations, he might cut savings and increase consumption in the process, which does not go along with the poor investment expectations. Thus, inclusion of these expectations in the savings decision paves way for a balanced system. Zakat allows a minimum living standard for all residents in an Islamic society, unlike in the capitalist system where the savings of the haves double and multiply through interest, and the have-nots have no social insurance because there is no Zakat.

In a capitalist system an individual might give out part of his wealth if and only when he denies to do so with out clear guidelines as to what, how, and how much he should give, because there is a possession kind of ownership. In an Islamic framework, Zakat illustrates a utilization kind of ownership and not that of a possession kind. The former kind of ownership accrues when wealth is utilized for its purpose and benefits derived from that wealth, else, the right of ownership is withdrawn, more especially in the case of land ownership.

Islam on the other hand, has clear guidelines as to what should be given out as Zakat, who should give out Zakat and how much he should give out (see Zakat at a glance). Zakat is obligatory on every eligible Muslim male or female, and is given for the pleasure of god and to earn his grace. On the things liable for Zakat, the prophet (PBUH) is reported to have said,

“There is no Zakat on less than five Awsaq of dates, there is no Zakat on less than five awsaq’ of silver and there is no Zakat on less than five camels.”

And in another Hadith, the prophet (PBUH) is reported to have said,

“On’ land that is watered by rain or springs or any natural means there is (Zakat to pay of) a tenth. On irrigated land, there is (Zakat of) a twentieth (to pay).”

ZAKAT IN CASE TWO PERIODS ARE ASSESSED TOGETHER

Assuming one capable of paying Zakat does not pay in one period until the next period when the calculation of Zakat will involve two periods, it is a procedure that the assessment of Zakat is based on what the person is currently capable of paying regardless of his previous condition of wealth. If, for example, after the assessment of Zakat on his wealth he is unable to pay in the event his wealth is reduced below nisab (the minimum requirement), he is not liable to pay Zakat for the period that has passed.

As reported by Yahya, Malik said, “The position with us concerning a man who has Zakat to pay on one hundred camels but then the Zakat collector does not come to him until Zakat is due for a second time and by that time all his camels have died except five, is that the Zakat collector assesses the two amounts of Zakat that are due from the owner of the animals from the five camels, which in this case is only two sheep, one for each year. This is because the only Zakat which an owner of livestock has to pay is what is due from him on the day that the Zakat is (actually) assessed. His livestock may have died or it may have increased, and the Zakat collector only assesses the Zakat on what he (actually) finds in his possession, and if his livestock has died, or several payments of Zakat are due from him and nothing is taken until all his livestock has died, or has been reduced to an amount below that on which he has to pay Zakat, then he does not have to pay any zakat, and there is no liability (on him) for what has died or for the years that have passed.”

ZAKAT ON SEEDS AND OLIVES

This presents a scenario of the application of Zakat as to what are the Zakatable items, how much is Zakatable and when it is Zakatable. This clearly illustrates the management of wealth in Islam not prevalent in the conventional approach. Malik said,” The tenth that is taken from olives is taken after they have been pressed and the olives must come to a minimum amount of five awsaq and there must be at least five awsaq of olives. If there are less than five awsaq of olives, no Zakat has to be paid. Olive trees are like date palms in so far as there is a tenth on whatever is watered by rain or springs or any natural means, and a twentieth on whatever is irrigated. However, olives are not estimated while on the tree. The sunna with us as far as grains and seeds which people store and eat is concerned is that a tenth is taken from whatever has been watered by rain or springs or any natural means, and a twentieth from whatever has been irrigated, that is, as long as the amount comes from five awsaq or more using the aforementioned Sa’, that is the Sa’ of the prophet, may Allah bless him and grant him peace. Zakat must be paid on anything above five awsaq according to the amount involved.”

BUSINESS TRANSACTIONS

Business transactions in an Islamic framework come in various ways and cater to different parties or groups of people in various circumstances and situations. This might involve a Mudarabah agreement, where one party, say a bank, provides capital and another entrepreneurship; a Mudarabah transaction, which briefly can be described as a partnership between investors and borrowers in a profit-sharing agreement involving re-sales; Al-ijarah contract, which is literally, a contract of letting; and Qirad, which is wealth entrusted upon an agent by an investor for commercial use. All of these transactions indicate how wealth in its various forms is used or managed from an Islamic point of view. Here is a look at the application of some of the above.

MUDARABAH AND MUSHARAKAH MODE OF FINANCING

Banking institutions have a unique way of managing wealth. Banks manage wealth through their various modes of financing such as Mudarabah, Musharakah, and Murabaha e.t.c.

Let as for example the Mudarabah mode of financing. As we know Mudarabah involves two or more parties coming together and agreeing upon, one party contributing labor and the party contributing the wealth (capital) to carry out a business. So through this definition you will discover or find out that there is sharing of wealth, effort and responsibility. If one party or person has the effort but not the means, he can go to the bank and obtain Al-qard-hasanah and start a business, which at the end of the day will involve the sharing of profits.

Therefore, banks indirectly manage wealth by giving Al-qard-hasanah to the needy people who have the ability but not the means to carry out the business without funds.

Unlike the conventional banks, were they give loans and charge interest (Riba) upon the borrower. This is not called managing wealth or helping the needy, but it is called exploiting the borrower. The borrower has to pay on top of the money that he/she has got a fixed amount of interest, in which Islam has forbid this. That’s why is Islam it is stated that absolute ownership of wealth is towards the almighty Allah and we are merely entrusted upon it. Therefore man cannot do whatever pleases him

As you can see the above manner in which wealth is distributed is a form of wealth of management. This is because the needy or the have-nots are assisted by providing them with the needed funds to start a business. Firstly, money or wealth is not left lying idle and secondly the wealthier people do not become more and more wealth. They share their wealth with the have-nots. The same goes with the other form or mode of financing which is Musharakah. Where two or more people come together to carry out a business and the profits are shared in equal proportions at the end of the day.

Let me provide with an example, so that you can get a clear picture of how Musharakah is a form of wealth management element.

For example a person is interested in starting a business of selling books. That business needs a capital of RM 200,000. This person interested in that business has not that kind of money. He has RM 100,000 which not sufficient enough to start that business. So he goes and sees his fellow friend asks him if he is interested in that type of business. Let’s say the friend’s response to the request is positive. So he tells the friend that he has only RM 100,000 and needs another RM 100,000 to get started with the business. So the other friend would provide the other hundred to start the business. In this way they of formed what we call a partnership in conventional terms and Musharakah in Islam. But in Islam Musharakah can be made between Banks, institutions and other normal businessmen.

Unlike in the conventional were it can be done between institutions only and between businessmen and not a mixture of both. This is a mode of financing and a form of wealth management.

AL-IJARAH FACILITY

Al-ijarah, also known as Al-kira’ refers to rent, lease or usage. In an Islamic financial system, Al-ijarah is a contract of selling of benefits or use or service for a fixed price or rent. Technically, Al-ijarah in fiqh is used “to express the sale (Bay’) of a known benefit in return for its known equivalent” (The Majelle Art.405). Being a contract like that of sale, Al-ijarah is concluded with offer and acceptance.

CONCEPT

With the Ijarah facility, the main idea behind the contract is the transfer of usage or benefit and not ownership. For this contract to be legally operational, the following guiding principles are required:

1) The usage/benefit must be clarified with regards to the period of lease and the types of usage.

2) The lessee is capable of utilizing the benefit of the lease fully.

CONDITIONS

Al-ijarah facility can only be valid if it meets the following conditions from an Islamic perspective.

1) The owner of the asset or lesser

2) The user or holder of the asset or lessee

3) The asset/equipment

4) Benefit/service

5) The rent/price

6) Offer and acceptance

Have all been stated clearly in the contract of Al-ijarah.

EARTURES

1) Al-ijarah financing extends from short to medium financing in equipment, motor vehicles, machines, computers, and consumer goods among other things.

2) The usage of the asset should not contain any elements of Haram (forbidden).

3) A consideration of the used industrial equipment markets, second hand value and capital allowance when extending Al-ijarah financing to the customer

MODE OF OPERATION

The banks manner of financing Al-ijarah contract generally follows the following procedures:

1) Determination of the needs of the customer where the equipment and the lease period is concerned under the shariah principles.

2) Purchasing the required equipment by the Bank.

3) Leasing the equipment to the customer at an agreed price and period. The total lease rental of the Bank is a combination of the cost of the equipment and the margins of profit for the Banks.

As mentioned earlier, the purpose of this kind of contract is the transfer of usage or benefit, but the bank retains the ownership of the asset. In the event the customer dishonors the agreement, the Bank can repossess the equipment immediately. For instance, if a horse is hired to be ridden by someone and it happens that someone else other than the person who hired the horse rides it, this can invalidate the contract. However, the lesser can also not rescind the contract anytime he wishes to. The Mejelle (Art. 441) says, “After a contract has been completed which is a lawful letting, if another person offers additional rent, however much it may be, the lesser cannot for this alone annul the letting.”

AL-IJARAH OPERATION

EXAMPLE

Assuming the Banks purchases equipment for RM 30,000 and leases it to a customer for a period of 5years at 8% rate of profit per annum; we can calculate the following:

Total Lease Rentals (TLR) = CF + (CF * I * n), where

CF = Cost of Financing

I = Rate of Return per Annum

(Flat)

n = Period of financing in years

Hence, TLR = 30,000 + (30,000* 8% * 5)

= RM 42,000

Monthly Lease Rental = RM 42,000/ (5 * 12)

= RM 42,000/ 60

= RM 700

Amount of Profit = RM 42,000 – RM 30,000

= RM 12,000

TERMINATION

(1) Being a finance lease, Al-ijarah contract is non-cancelable. In the event this happens, say due to the involuntary of the asset, the lesser will have to be compensated.

(2) According to the Income Tax Act 1967 schedule 3 para 71 , there is no allowance for plant and machinery if held for less than 2years.

(3) Early termination of the lease is classified into 2:

(a) Within 24months from the commencement of the lease date.

(b) After 24 months from the start of the lease date.

(4) The Income Tax Act 1967 under para 71 provides indemnity for the lesser by the lessee against any balancing charge incurred by the lesser if the lease contract is terminated within 2 years.

(5) The rate of tax indemnity is at 33% per annum.

UNIT TRUST

Unit trust is investment instruments in which many investors who share similar investment objectives pool their resources together which are then invested by specified fund managers in specified or authorized securities. There is no profit sharing between the fund manager and the investors but a fee known as ujrah is incurred by the investor for the professional services under Al-wakalah contract.

In the Islamic unit trust, there is usually a shariah panel (shariah supervisory board) which decides which share to fund by using the Activity or Structure Method. Aside al – Wakalah agreement, Islamic unit trust also involves on indirect Musharakah system (equal to unequal share partnership) between investor and companies trading stocks or bonds. Capital gains and dividends are for investor but every purchase or sale of units, the company (fund manager) receives a fee. Any losses incurred due to adverse market conditions do not affect the shareholders wealth.

There is a sharii and tabii dimension to the Islamic unit trust. The former inculcates akhlaq (ethic) in the agreement following the concept of Tawhid. This helps weigh actions from the reasoning point of view as well as spiritual values. The latter is a brainchild of natural and common sense. For the fact that the management receive a fee, if it is incumbent on the conduct research and use fundamental and technical analysis in the stock selection; so that the element of gharar (uncertainty) and maisir (gambling), among others are eliminated. Fund managers are expected to follow price changes as caused by company performances so that losses are minimized and capital gains achieved.

Another way or means by which Islam manages wealth on a small scale is by inheritance. We say on a small scale because this is done at the family level. As you know inheritance is the acquiring of the wealth or property left by the deceased parent. This wealth is to be divided among immediate family members in an appropriate manner stated in the Quran and Sunnah. Allah s.w.t has already stated the shares that are to be given to the immediate family members. Allah knows if He hadn’t done so there would be lot problems that would have come up. Some people would have been treated unfairly by giving or offering them a little or none of the wealth they deserve to get.

In the conventional there is no proper laid down manner in which the wealth is to be inherited. Although the deceased leaves behind a will to who suppose the wealth goes, but it still some weaknesses or injustice occurred. The weakness is that it has no room for the distribution of income sometime. For example, if the rich only marry the rich and the poor also marry the poor, the wealth will just circulate among the rich and the poor will remain poorer. Therefore it has no room for the distribution of income or wealth. But if this looked into and across manages take place like the rich marry the poor then this would be a better way to distribute wealth among the people.

The Holy Quran has given a line out on how the wealth should be managed in the verse 10 – 12 surah An – Nisa. Allah s.w.t says:

“Those who unjustly eat up the property of orphans, eat up a fire into their own bodies: They will soon be enduring a blazing fire. (10)

God (thus) directs you as regard your children’s (inheritance): to the male, a portion equal to that of two females: if only daughters, two or more, their share is two-thirds of the inheritance; if only one, her share is a half. For parents, a sixth share of the inheritance to each, if deceased left children; if no children, and the parents are (only) heirs, the mother has a third; if the deceased left brothers (or sister) the mother has sixth. (The distribution in all cases) after the payment of legacies and debts. You know not whether your parents or your children are nearest to you in benefit. These are settled portions ordained by God; and God is All – Knowing and All – Wise. (11)

In what your wines leave, your share is half, if they left a child, you got fourth; after payment of legacies and debts. In what you leave, its share is a fourth, if you leave no child; but if you leave a child, they get an eighth; after payment of legacies and debts. If the man or woman whose inheritance is in question, has left neither ascendants nor descendants, but has left a brother or a sister, each one of the two gets sixth; but if more that two, they share in a third; after payment of legacies and debts; so that no loss is caused (to any one). Thus is it ordained by God; and God is All – Knowing, Most Forbearing. (12)”

RECOMMENDATIONS

If goes beyond the reasonable doubt that zakat clearly illustrates the manner of wealth managements in Islamic framework. What is required then is proper vehicle through which zakat funds can be channeled. This involves knowing not only by the nature of zakat, the criteria of zakat, but also the zakatable items in our modern day Muslim societies, minding the changing circumstances. Kahf (1989) suggest a reconsideration of the fiqh views where the actual implementation of zakat is concerned. He however places much emphasis on the social and economics justice together with its impact on development. Hence, we are tempted to suggest further research on the administration of zakat and what actually constitutes the elements of zakat in our contemporary Muslim societies, which may not have been suggested in the period of Prophet Muhammad s.a.w.

Since Malaysian’s system of government is secular in nature, the zakat system has not been seriously taken into consideration. In short it has fallen on deft ears and got no response. As paying zakat is one of the five pillars of Islam, it is of great important that the government Malaysia has to look into it. It is not only an individual responsibility but also a nationwide responsibility to see to it that zakat is paid by the able Muslim.

Therefore, here is some recommendation that could put in place an effect zakat system in Malaysia:

1. Is to educate the massage of people in Malaysia both publicly and privately about the important of paying zakat. In order for this effective, we should start from those people who are at the top. This can be done holding seminars and regular talks on zakat.
2. They should also try to incorporate the zakat system into the countries fiscal policy. If the paying of government taxes by the people to the federal and state government is effectively working, why can’t the payment of zakat be imposed as a law by the government? Through this, we think that more people will be well informed of the zakat payment.
3. The government should also put in place a centralized zakat institution where people can get information and pay zakat. Try to avoid any differences among the states in terms of implementation of zakat. By this, we can prevent any misunderstanding and confusion between people.

CONCLUSION

Wealth management from an Islamic perspective follows proper guidance principle of shariah, which, to a large extent, take a different route from the conventional point of view. Throughout the paper, there was an intention to show that distinction. Any shortcomings on that purposes is owing to the technical know – how on the part of authors. However, the paper sought to convey that owning wealth in Islam does not make anybody the absolute owner of that wealth. Wealth is merely entrusted upon us by God and thus, it has to be used and arranged in accordance with God’s approval as stated in shariah rulings. Ownership can be acquired through many ways as in a sale contract or gift; making someone the successor of another as in inheritance, and the acquiring of a thing which free for the public use. In all of these circumstances, Islam has a way in managing wealth.

Man as the vicegerent on this world is expected to seek this wealth and use it in manner that will help him obtain the pleasure of God in this world and hereafter. With that, the paper provided some practical scenarios as to how wealth can be used in Islam for this purposes. It was therefore illustrated in zakat planning, al – Ijarah financing and Islamic unit trust. The main purpose is to show the approach to wealth management in Islam not prevalent in the conventional way. Then the paper looked at some recommendations as a vehicle for further improvement, particularly on zakat activities.