Sunday, May 28, 2006
Bankers: Islamic vs. Conventional
We find evidence of what can be broadly described as banking activity as early as the era of the Companions. It is recorded that Sayyiduna Zubair ibn al-Awwam (ra) would advise his depositors that it is better for them to consider what they give him for safe-keeping as loans instead of deposits in order for him to provide them with a guarantee of their funds. (al-Bukhari, Vol. 4, Pg. 52)
The modern banker, in contrast, survives on the back of avarice, exploitation, self-worship and arrogance - traits everyone likes to disassociate oneself with. Here is a rather amusing depiction of how bankers think and work (if you have 10 minutes to spare!).
So until the IFIs are not able to train their personnel in the spirit of Islamic Economics, as opposed to its principles, the world will not realize its true potential as the only viable alternative to the current economic order.
Wednesday, May 24, 2006
The fund has a 5-year maturity, and capital protection at maturity through Sharia compliant structure. For greater flexibility, investors can redeem their capital up to twice a month.
Capital protection on investments is generally, and almost unanimously, seen as alien to Islamic Investment ethics. In fiqhi terms, the ability to earn a profit on an investment (which inevitably has to be equity-backed in Islamic Finance) is solely due to exposure to market volatility, and subsequently, will be subject to the same. Therefore, this new Fund will raise some doubts in the minds of the informed reader.
Sadly, there is no detailed fatwa available on IDB's website. They have sufficed to state that the promised capitaal protection 'is a consequence of a complex technique employed by the Investment Manager and approved by the leading Islamic finance scholars.'
We are told, "Conformity with Sharia principles is ensured through issuance of fatwas from five of the world's top Sharia scholars, including Dr. Hussain Hamed Hassan, the Chairman of Dubai Islamic Bank's Fatwa & Sharia Supervisory Board."
I would definitely like to get hold of a script of their fatwa.
Meanwhile, the IDB has recently received a series of 'Best Islamic Bank' and 'New Product Innovation' awards nationally and internationally.
Saturday, May 20, 2006
"What worries me in Islamic banking today," he said, "is that there are not many bankers or academics that understand the spirit and philosophy of fiqh al-muamalat. Our scholars tend to find tools in traditional banking. We think we are excellent. But what we want is to design instruments according to our Shariah and not the other way round."
Getting to the heart of the problem can be easy; daring to publicly admit it cannot. Especially if the problem is at the heart of what you are standing upon. And that precisely is what makes the difference!
"Those who started the Islamic banking movement did not try to train the traditional bankers in the spirit and philosophy of Islamic finance." Very well said, indeed!
At a practical level, cynics will, no doubt, be waiting for him to suggest his alternative strategies in order to determine how significantly different they are from the current market practice.
However, a majority of the scholars would express their reservation on his alleged suggestion that the Zakah fund may be 'harnessed for adding value in education, training and tourism.' I hope his position is studied in detail before a fatwa is issued.
It helps because it paves the way for better understanding what Islamic Finance is all about.
In one of my experiences with an individual who saw the Islamic Finance industry merely as an obsession of Muslims with their belief when, according to him there was nothing ethically wrong with a large number of conventional finance solutions, I had to resort to explain 'Zakah' as a global fund created to abolish poverty from the world, which would require all individuals with annual savings of above a ceratin threshold to contribute 2.5% of their excess savings. Obviously, I wasn't trying to explain Zakah entirely; I only wanted to give a vague idea.
I don't know what his background or qualifications were, but he did some quick calculations and startled me by saying that if successful, this scheme could end world poverty in just 6.5 years.
So we agreed that while Islamic Economics also dealt with ethical concerns in individual transactions of the lender and borrower; the prime quality of this system was the perfectly balanced distribution of wealth among all humans.
Obviously, we only agreed on the obvious.
A talent war for financially-literate Islamic scholars has erupted as Western investment bankers rush to sell their services to devout Muslims, reveals Gillian Tett of the FT.
So its now official: FT admits it. And furthermore, Dar Al Istithmar shariah consultancy is (supposedly) launching the world’s first dedicated training programme to create financially qualfied Islamic scholars.
In reality, various training programmes of this nature have been organised previously. This blog was an outcome of one such 7-day course held last March. For those who excelled in that programme, arrangements are in place for a 3-month visit to the CIE, Pakistan.
However, this is enough impetus for those 'Ulama who have time and resources at hand to indulge deeper into this field, even only for the sake of preventing foreign ideals and ideologies creeping under the banner of 'Islamic Banking & Finance', which, sadly are becoming increasingly apparent in some recent Shari'ah-modelled instruments.
As they say, it is enough for falsehood to proliferate that the proponents of truth do nothing.
(I just realized I am lecturing! Apologies!!)
Monday, May 15, 2006
Looks like the 'market forces' themselves will provide the impetus for the transition from the current instruments to ideal Islamic financing options - Musharakah & Mudarabah, says Prof. Saiful Azhar Rosly - director of research with the Malaysian Institute of Economic Research (MIER)
"THE banking sector is poised to face new challenges from high interest rates environment in the coming years. With higher cost of borrowing, the public may postpone their purchases. Not only that, current concerns with inflation are making many banks worried about interest-rate risk. "
"Floating rate loans can easily absorb any increase in the overnight policy rate but fixed-rate loans such as car loans may not. The same applies to Islamic banks. Those offering fixed al-bai-bithaman ajil and al-ijarah thuma al-bay may soon face difficulties, unless they have a floating-rate option to work with... "
"...If an Islamic bank can take the economy to another level, it must come from musyarakah financing, a profit-sharing contract where parties contribute capital into the business. It is new to banking but not to general business. "
Malaysia approves first Islamic REIT
"Islamic REITs will allow foreign investors, in particular Middle East investors, to invest in Malaysia's property market without the hassle and responsibilities associated with the direct ownership of company," he says, adding that there is a large pool of capital for investment in the Middle East totalling some $1 trillion.
The Al-’Aqar KPJ REIT, launched by KPJ Healthcare Bhd, will have an initial size of 205 million units and will focus on hospitals. The REIT will buy the buildings from the Johor Corp group for RM300.2 million. KPJ is the healthcare arm of JCorp, a diversified group owned by the state government. KPJ, in a statement to the stock exchange yesterday, said the SC had approved the REIT with an initial fund size of 205 million units.
"Notwithstanding this, and due to high demand for KPJ REIT from Islamic funds, KPJ plans to increase the size of the REIT and will submit relevant application to the SC on this matter soon," the statement said. Earlier this month Dr. Ting Kien Hwa told a property conference that the introduction of an Islamic REIT in the country would give Malaysia the chance to expand its market capitalization and the sizes of its REITs. He added that Malaysia’s REIT market was capitalized at US$543 million.