Industry Article

There are numbers of things one should consider to better understand project financing from an Islamic perspective. Most are interested in examining the nature and structure of Islamic instruments used to mobilise the capital needed by a project company. Structuring an Islamic bond (sukuk) is becoming more challenging among investment bankers. Most popular are the Al-bai bithaman ajil bonds (BAIDS) and murabaha notes issuance facility (MuNif)

Deemed as a better alternative to bay bithaman ajil (BBA - sale of goods on a deferred payment basis) a study on the issues of musharakah mutanaqisah (MM) is timely for a more equity-oriented and Islamic universal banking philosophy. Some may view diversification of product space to fulfil the expectation of Shari'ah compliance as driving factors behind the offering of MM. However, one seldom comes across roses without thorns. And, the worrisome thorn in the side of Islamic finance is the limited use of MM, notwithstanding its appeal as a Shari'ah-based innovation.

Islamic financial institutions (IFIs), which comprise a range of financial institutions including banks, non-bank finance companies, venture capital firms, insurance companies and mutual funds, have shown tremendous growth and financial performance over the last decade. IFIs were founded on certain basic principles that differentiated them from conventional financial services industry,i.e. ethics and socio-economic objectives in line with the ‘Maqasid Al-Shariah’ or objectives of the Shariah (herein refered to as the Maqasid). However, the use of conventional financial reporting and the dominant capitalist system in which the IFIs operate has resulted in the use of conventional accounting performance measurement tools, and the extent to which these institutions achieve their fundamental objectives is therefore not clear. This article proposes and tests a model of performance analysis which can evaluate whether the tremendous financial growth of this sector has been in line with the Maqasid.

Over the past few decades, a consensus has emerged that expansion of credit and debt is detrimental to the stability of developing economies. For example, the IMF has advised its developing country members that in order to mitigate the risk of instability, such as occurred in the emerging markets in 1997, they should: Avoid debt-creating flows. 2. Rely mostly on foreign direct investment as external financing. 3. If they must borrow, ensure that their external debt is never larger than 25% of GDP and that their debt obligations are not bunched toward the short end of maturities. 4. Ensure that their economy is producing large enough primary surpluses to meet their debt obligations. 5. Ensure that their sovereign bonds incorporate clauses (such as majority action,initiation and engagement clauses) to make debt workouts and restructurings easier - that is, to ensure that there exist better risk-sharing mechanisms associated with their debt obligations to avoid moral hazard. 6. Ensure that domestic corporations have transparent balance sheets, follow mark-to-market accounting, and have financial structures that are biased more heavily toward equity and internal funding and are not heavily leveraged. 7. Ensure that their domestic financial institutions are regulated and supervised efficiently, are not highly leveraged, follow prudent credit policy and are highly transparent.

The concept of Islamic or Shariah financial planning is based on the incorporation of Shariah (Islamic law) rules and elements into the process of financial planning. Shariah rules and principles are positioned as the core of the application of financial planning, with Shariah rules and principles being observed and enforced throughout the process. Shariah financial planning may be defined as “a process of assisting clients in determining their financial goals and priorities and the resources to meet them optimally within the parameters of the Shariah.” Another definition is “the process of meeting life goals through the management of finances in accordance with the Shariah.”

As the appetite for family takaful grows, its underwriting principles and conventions are facing closer scrutiny. Mr Ezamshah Ismail and Dr Ahcene Lahsasna, both council members of the Shariah Advisory Council of the RGA Global Reinsurance Co Ltd Labuan Branch Retakaful Window, examine family takaful’s strengths, and how it can serve its core market while continuing to evolve to serve a broader constituency.

The institution of waqf, or an Islamic foundation, has played a significant role throughout Islamic history, from the time of the Prophet (pbuh) to the present time. Although this institution existed before the coming of Islam, Islam was the first religion to develop its legal system and to regulate it. It became the main device created by Muslims to facilitate most social services such as education, health care, national security, transportation facilities, basic infrastructure, etc., without any cost to the government. Recently, the creation of new waqf has concentrated mainly on movable waqf, i.e., cash waqf.

The objective of these institutions is to achieve social justice. Important among their functions is reduction in uncertainty for members of society in order to allow them to overcome the obstacles to decision making caused by paucity of information. Rules specify what kind of conduct is most appropriate to achieving just results when individuals face alternative choices and must take action. They impose restrictions on what society's members can do without upsetting the social order on whose existence all members count in deciding on their own actions and forming their expectations of others' responses and actions.

From a mere glance at Muslim countries today, we realize that they are classified as third world countries even though they are adopting a secular system. The recent statistical data of 2009 shows that the majority of people who live below poverty are found in Muslim countries such as; Afghanistan 53%, Eritrea 50%, Yemen 45%, Bangladesh 45%, Sudan 40%, Pakistan 24%, Algeria 23%, Egypt 20%, Turkey 20%, and Indonesia 18%. Some scholars related this fact to the oppression, humiliation and the bad policies which had been imposed to almost all Muslim countries during colonization and which continued up to the present time. Others related this to the incompetence and the corruption on the part of their governments. We cannot deny the above mentioned reasons as the catalyst for the spread of poverty in the Islamic world and the recent uprisings.

The practice of Islamic banking has become a fast growing and widespread phenomenon, not only in the Muslim countries, but also in non-Muslim countries as well, such as the UK, US, Switzerland, and Singapore. The transformation from a conventional form of banking to a banking system based on interest-free finance has generated a great deal of interest in terms of calling for human capital development in the field to ensure sustainability and good performance in the Islamic financial industry. With its announcement as a leading international and regional hub for Islamic finance, Malaysia has become one of the Muslim countries which had placed strong focus on human capital development in Islamic Finance by developing many training and educational centers, such as the Securities Industry Development Corporation (SIDC); the Islamic Banking & Finance Institute Malaysia (IBFIM); the International Centre for Leadership in Finance (ICLIF); the International Centre for Education in Islamic Finance (INCEIF) and the International Shari'ah Research Academy for Islamic Finance (ISRA). The main objective of this paper is to provide a tracer study of INCEIF-CIFP first graduates and to determine their employability in the field of Islamic finance, locally and internationally

Ethics and ethical judgments are often referred to in day-to-day conversations but rarely unmistakably understood in terms of how they support our position when making decisions or choices that usually involve conflicting interests, benefits and the rights or well-being of others. Professionals have to consider their clients and leaders have to deal with the direction of the organization and the often conflicting claims of shareholders and stakeholders. We as citizens have to be guided by the law so that our self interests do not go against that of others and cause hardship or harm in the process. Ethics are relevant in social or interpersonal interactions. We can't escape having to deal with doing the right thing in the societal, business and social roles that we play. And we have to deal with these issues in the proper way given that we are not the only ones to judge the rightness or wrongness of our actions. What is perceived by us as good may be evaluated negatively by others perhaps due to the different criteria used to determine the worth of the action. To do the right thing requires that we know the basis of what is right and acceptable or praiseworthy, and what is wrong and therefore not acceptable. In other words, we have to be aware that our decisions or actions meet the standards or norms of right conduct or good behaviour. Just being a good and well intentioned person is therefore no guarantee that the action is ethical. Well intentioned incompetence is as bad as dishonesty.

Continuation of a debt-based financing regime will not necessarily allow the benefits of emerging multipolarity to accrue to the world economy. The new system can be more effective with a new regime of financing. Indications are that almost all emerging countries in Asia are actively considering risk sharing via Islamic finance as a possible alternative.

Islamic finance provides financial products, which comply with Islamic law (Shariah), largerly to Muslim investors and some Islamic products have even attracted conventional investors and borrowers. Despite growing interest in Islamic finance, a full-fledged Islamic financial system has yet to be established and demonstrated as the viable financial system in even a single country ...

Financial instability has been a recurrent phenomenon in contemporary economic history, affecting countries with varying intensity and resulting in massive unemployment and lost economic output. The financial crisis that broke out in August 2007 crippled the financial system of many advanced countries, and claimed as victims long-established banking and investment banking institutions that were deemed “too big too fail.” Capital markets were frozen, leading to stock market crashes worldwide, wiping out trillions of dollars in share values and in retirement investment accounts, and resulting in massive and persistent unemployment.

Historically speaking the institution of waqf, which is a non-governmental organization (NGOs), has played a significant role throughout Islamic history, from the time of the Prophet (pbuh) to the beginning of the 19th century. Although this institution existed before the coming of Islam, yet, Islam was the first religion to develop its legal framework and regulate it. Thus, it became one of the devices created by Muslims to fulfill many services that are financed by the state or the government today, such as education, healthcare, national security, transportation facilities, basic infrastructure, food, shelter, and jobs for many. It acted like a network, penetrating many service sectors whenever it found a need to promote a particular sector. We cannot deny the role of this institution in the development of Islamic civilization before its destruction towards the end of the 19th century. With the recent revival of some of the Islamic institutions in the 21st century, the waqf found its way back with a new dimension focusing mainly on the creation of movable waqf in different countries. Waqf-share is one of the movable waqf which has been practiced in many Muslim and Muslim minority countries today. With the current financial crisis and the urgent need for capital to continue providing services needed by the different societies, the introduction of waqf-shares as a fundraising effort was totally accepted. The main objective for introducing waqf-shares is not only for capital accumulation but also to facilitate the process of creating waqf by the different sects of people in any society, regardless of whether they are rich or not, with the minimum amount of money they can afford in order to participate in developing their societies. This paper will address the current practice of waqf-shares in four different countries.

Simply stated, epistemology deals with the question of what we know about a phenomenon and how do we know it. The practitioners use the term Islamic finance industry (IFI) to refer to their activities in designing and trading “Shari’ah-compliant” ways and means of financing. Taxonomically, industries in an economy belong to a sector and sectors belong to subsystems which in turn belong to a larger system. For example, a bank belongs to a banking industry which belongs to the financial sector which belongs to the financial subsystem which belongs to the larger economic system which, finally, belongs to an overall socio-political-economic system. Before the current inception of IFI, there was what could be called a “market failure” in the conventional financial system. There was substantial unmet demand for Shari’ah-compliant financial products. IFI grew out of the conventional finance to meet this demand. Muslim scholars writing mostly since the 1970s about Islamic finance focused on development of an Islamic finance system; they not only emphasised elimination of riba contracts but urged their replacement with risk-sharing contracts. The practitioners, most of whom had been operating in the conventional finance, were however interested in developing ways and means of finance that, while Shari’ah-compatible, would be familiar to and accepted by market players in the conventional finance. The former emphasised Profit-Loss Sharing (PLS), the latter focused on traditional methods of conventional finance centred on risk transfer and risk shifting. This article argues that there are two ideal financial systems based on risk sharing, conventional and Islamic, and one actual conventional system focused on risk transfer. There are two industries within the actual system; conventional and Islamic finance industry. The paper then proceeds to discuss the epistemology and the main characteristics of each of the two ideal systems.

Islamic finance is still at the nascent stage in the Maldives. The country has only recently seen the inception and development of Islamic finance. The first form of Islamic finance that came to the country was takaful with the establishment of Amana Takaful Maldives in 2003. Islamic banking came to the country in 2011 when the only Islamic bank in the country, Maldives Islamic Bank, began operations. The two biggest service providers of Islamic finance in the country are these two entities, which are endeavoring to show the practicality of Islamic banking to the 100% Muslim citizens of the Maldives, constituting a population of about 300,000.

The Housing Development Finance Corporation (HDFC) of the Maldives has launched an Islamic window offering Islamic home financing facilities, registered as HDFC Amna. The establishment of an Islamic window by HDFC is an achievement for the promotion of Islamic finance in the Maldives as it is the first of its kind. Mohamed Shaheem Ali Saeed, the minister for Islamic affairs, stated that it was a remarkable day in the history of Maldives as the creation of HDFC Amna was initiated with the assistance of local experts in the field of Islamic finance.

The last three decades have witnessed the emergence of many programs for ending poverty: including microfinance and poverty eradication programs. Yet according to the World Bank, poverty has been reduced only by around 10% since 1981, (excluding China, which accounts for nearly all the world’s poverty reduction), as seen in Chart 1. Moreover, the recent economic and financial crises have worsened the situation. According to the latest statistics in 2012, almost half the world (over 3 billion people) live on less than US$2.50 a day; 640 million live without adequate shelter and 925 million people suffer from hunger. This highlights the main objective of the millennium development goals for eradicating extreme poverty and hunger by 2015.

The Maldives has embarked on the huge task of developing Islamic finance parallel to its existing conventional finance market. After establishing its very first Islamic bank in March 2011, the country also witnessed the issuance of its first Islamic equity in 2011. The first company in Maldives that was listed as a company issuing Shariah compliant equity was Amana Takaful Maldives. The country is subsequently moving towards the development of a sukuk market.

The Maldives is a country with limited resources. The lifeline of the economy is fishing and the golden goose of the country is tourism. The country also heavily depends on importation of goods. The financial system of the Maldives is based on conventional rules and laws. The financial and the economic system of the country are based on conventional economics and financial principles.