tag:blogger.com,1999:blog-12684644443749498242024-03-08T09:49:09.626-08:00Islamic Finance in MalaysiaInformation of Islamic Finance, Islamic Banking, Islamic Economics and Takafulizalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.comBlogger28125tag:blogger.com,1999:blog-1268464444374949824.post-44704187224323092902008-03-16T07:53:00.000-07:002008-03-16T07:57:54.173-07:00Islamic Banking and Finance Institute Malaysia Sdn Bhd<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.islamic-banking.com/assets/takaful/IBFIM_logo.jpg"><img style="margin: 0px auto 10px; display: block; text-align: center; cursor: pointer; width: 200px;" src="http://www.islamic-banking.com/assets/takaful/IBFIM_logo.jpg" alt="" border="0" /></a><br /><div style="text-align: justify;"><span style="font-weight: bold;">Islamic Banking and Finance Institute Malaysia Sdn. Bhd. (IBFIM)</span> was officially launched on 19 February 2001 by the then Finance Minister, Tun Daim Zainuddin. IBFIM is an institute dedicated to produce well-trained, high calibre individuals and management teams with the required expertise in the Islamic finance industry.<br /><br />IBFIM’s strength lies in the holistic approach of ensuring that our customers’ strategic goals are achieved through our result-oriented services. Based on the industry’s demands and customers’ needs, we provide complete A-to-Z assistance to our clients through a wide spectrum of inter-related services: training and education, advisory and consultancy, and research and development in Islamic finance.<br /><br />Our close relationship with the industry gives us the opportunity to share knowledge and resources. We also enjoy a strong network with local and international authorities and financial institutions. Having assisted numerous governments, financial institutions, and other organisations in this arena, we are propelled to serve the need for further enhancement and development of the industry in years to come.<br /><br />More info at <a href="http://www.ibfim.com">http://ibfim.com</a><br /></div>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-42488059988797662112008-02-09T13:53:00.000-08:002008-02-09T13:59:52.401-08:00FOREX in IslamISLAMIC FOREX TRADING<br /><div style="text-align: justify;"><br />By<br /><br /><a href="http://vlib.unitarklj1.edu.my/htm/DEFAULT.HTM">Dr Mohammed Obaidullah</a><br /><br /><span style="font-weight: bold;">1. The Basic Exchange Contracts</span><br /><br />There is a general consensus among Islamic jurists on the view that currencies of different countries can be exchanged on a spot basis at a rate different from unity, since currencies of different countries are distinct entities with different values or intrinsic worth, and purchasing power. There also seems to be a general agreement among a majority of scholars on the view that currency exchange on a forward basis is not permissible, that is, when the rights and obligations of both parties relate to a future date. However, there is considerable difference of opinion among jurists when the rights of either one of the parties, which is same as obligation of the counterparty, is deferred to a future date.<br /><br />Every Ustaz who wants to give any Fatwa on FOREX must understand this article line by line.To elaborate, let us consider the example of two individuals A and B who belong to two different countries, India and US respectively. A intends to sell Indian rupees and buy U.S dollars. The converse is true for B. The rupee-dollar exchange rate agreed upon is 1:20 and the transaction involves buying and selling of $50. The first situation is that A makes a spot payment of Rs1000 to B and accepts payment of $50 from B. The transaction is settled on a spot basis from both ends. Such transactions are valid and Islamically permissible. There are no two opinions about the same. The second possibility is that settlement of the transaction from both ends is deferred to a future date, say after six months from now. This implies that both A and B would make and accept payment of Rs1000 or $50, as the case may be, after six months. The predominant view is that such a contract is not Islamically permissible. A minority view considers it permissible. The third scenario is that the transaction is partly settled from one end only. For example, A makes a payment of Rs1000 now to B in lieu of a promise by B to pay $50 to him after six months. Alternatively, A accepts $50 now from B and promises to pay Rs1000 to him after six months. There are diametrically opposite views on the permissibility of such contracts which amount to bai-salam in currencies. The purpose of this paper is to present a comprehensive analysis of various arguments in support and against the permissibility of these basic contracts involving currencies. The first form of contracting involving exchange of countervalues on a spot basis is beyond any kind of controversy. Permissibility or otherwise of the second type of contract in which delivery of one of the countervalues is deferred to a future date, is generally discussed in the framework of riba prohibition. Accordingly we discuss this contract in detail in section 2 dealing with the issue of prohibition of riba. Permissibility of the third form of contract in which delivery of both the countervalues is deferred, is generally discussed within the framework of reducing risk and uncertainty or gharar involved in such contracts. This, therefore, is the central theme of section 3 which deals with the issue of gharar. Section 4 attempts a holistic view of the Sharia relates issues as also the economic significance of the basic forms of contracting in the currency market.<br /><span style="font-weight: bold;"><br />2. The Issue of Riba Prohibition</span><br /><br />The divergence of views1 on the permissibility or otherwise of exchange contracts in currencies can be traced primarily to the issue of riba prohibition.<br /><br />The need to eliminate riba in all forms of exchange contracts is of utmost importance. Riba in its Sharia context is generally defined2 as an unlawful gain derived from the quantitative inequality of the countervalues in any transaction purporting to effect the exchange of two or more species (anwa), which belong to the same genus (jins) and are governed by the same efficient cause (illa). Riba is generally classified into riba al-fadl (excess) and riba al-nasia (deferment) which denote an unlawful advantage by way of excess or deferment respectively. Prohibition of the former is achieved by a stipulation that the rate of exchange between the objects is unity and no gain is permissible to either party. The latter kind of riba is prohibited by disallowing deferred settlement and ensuring that the transaction is settled on the spot by both the parties. Another form of riba is called riba al-jahiliyya or pre-Islamic riba which surfaces when the lender asks the borrower on the maturity date if the latter would settle the debt or increase the same. Increase is accompanied by charging interest on the amount initially borrowed.<br /><br />The prohibition of riba in the exchange of currencies belonging to different countries requires a process of analogy (qiyas). And in any such exercise involving analogy (qiyas), efficient cause (illa) plays an extremely important role. It is a common efficient cause (illa), which connects the object of the analogy with its subject, in the exercise of analogical reasoning. The appropriate efficient cause (illa) in case of exchange contracts has been variously defined by the major schools of Fiqh. This difference is reflected in the analogous reasoning for paper currencies belonging to different countries.<br /><br />A question of considerable significance in the process of analogous reasoning relates to the comparison between paper currencies with gold and silver. In the early days of Islam, gold and silver performed all the functions of money (thaman). Currencies were made of gold and silver with a known intrinsic value (quantum of gold or silver contained in them). Such currencies are described as thaman haqiqi, or naqdain in Fiqh literature. These were universally acceptable as principal means of exchange, accounting for a large chunk of transactions. Many other commodities, such as, various inferior metals also served as means of exchange, but with limited acceptability. These are described as fals in Fiqh literature. These are also known as thaman istalahi because of the fact that their acceptability stems not from their intrinsic worth, but due to the status accorded by the society during a particular period of time. The above two forms of currencies have been treated very differently by early Islamic jurists from the standpoint of permissibility of contracts involving them. The issue that needs to be resolved is whether the present age paper currencies fall under the former category or the latter. One view is that these should be treated at par with thaman haqiqi or gold and silver, since these serve as the principal means of exchange and unit of account like the latter. Hence, by analogous reasoning, all the Sharia-related norms and injunctions applicable to thaman haqiqi should also be applicable to paper currency. Exchange of thaman haqiqi is known as bai-sarf, and hence, the transactions in paper currencies should be governed by the Sharia rules relevant for bai-sarf. The contrary view asserts that paper currencies should be treated in a manner similar to fals or thaman istalahi because of the fact that their face value is different from their intrinsic worth. Their acceptability stems from their legal status within the domestic country or global economic importance (as in case of US dollars, for instance).<br /><br /><span style="font-weight: bold;">2.1. A Synthesis of Alternative Views</span><br /><br /><span style="font-weight: bold;">2.1.1. Analogical Reasoning (Qiyas) for Riba Prohibition</span><br /><br />The prohibition of riba is based on the tradition that the holy prophet (peace be upon him) said, "Sell gold for gold, silver for silver, wheat for wheat, barley for barley, date for date, salt for salt, in same quantities on the spot; and when the commodities are different, sell as it suits you, but on the spot." Thus, the prohibition of riba applies primarily to the two precious metals (gold and silver) and four other commodities (wheat, barley, dates and salt). It also applies, by analogy (qiyas) to all species which are governed by the same efficient cause (illa) or which belong to any one of the genera of the six objects cited in the tradition. However, there is no general agreement among the various schools of Fiqh and even scholars belonging to the same school on the definition and identification of efficient cause (illa) of riba.<br /><br />For the Hanafis, efficient cause (illa) of riba has two dimensions: the exchanged articles belong to the same genus (jins); these possess weight (wazan) or measurability (kiliyya). If in a given exchange, both the elements of efficient cause (illa) are present, that is, the exchanged countervalues belong to the same genus (jins) and are all weighable or all measurable, then no gain is permissible (the exchange rate must be equal to unity) and the exchange must be on a spot basis. In case of gold and silver, the two elements of efficient cause (illa) are: unity of genus (jins) and weighability. This is also the Hanbali view according to one version3. (A different version is similar to the Shafii and Maliki view, as discussed below.) Thus, when gold is exchanged for gold, or silver is exchanged for silver, only spot transactions without any gain are permissible. It is also possible that in a given exchange, one of the two elements of efficient cause (illa) is present and the other is absent. For example, if the exchanged articles are all weighable or measurable but belong to different genus (jins) or, if the exchanged articles belong to same genus (jins) but neither is weighable nor measurable, then exchange with gain (at a rate different from unity) is permissible, but the exchange must be on a spot basis. Thus, when gold is exchanged for silver, the rate can be different from unity but no deferred settlement is permissible. If none of the two elements of efficient cause (illa) of riba are present in a given exchange, then none of the injunctions for riba prohibition apply. Exchange can take place with or without gain and both on a spot or deferred basis.<br /><br />Considering the case of exchange involving paper currencies belonging to different countries, riba prohibition would require a search for efficient cause (illa). Currencies belonging to different countries are clearly distinct entities; these are legal tender within specific geographical boundaries with different intrinsic worth or purchasing power. Hence, a large majority of scholars perhaps rightly assert that there is no unity of genus (jins). Additionally, these are neither weighable nor measurable. This leads to a direct conclusion that none of the two elements of efficient cause (illa) of riba exist in such exchange. Hence, the exchange can take place free from any injunction regarding the rate of exchange and the manner of settlement. The logic underlying this position is not difficult to comprehend. The intrinsic worth of paper currencies belonging to different countries differ as these have different purchasing power. Additionally, the intrinsic value or worth of paper currencies cannot be identified or assessed unlike gold and silver which can be weighed. Hence, neither the presence of riba al-fadl (by excess), nor riba al-nasia (by deferment) can be established.<br /><br />The Shafii school of Fiqh considers the efficient cause (illa) in case of gold and silver to be their property of being currency (thamaniyya) or the medium of exchange, unit of account and store of value . This is also the Maliki view. According to one version of this view, even if paper or leather is made the medium of exchange and is given the status of currency, then all the rules pertaining to naqdain, or gold and silver apply to them. Thus, according to this version, exchange involving currencies of different countries at a rate different from unity is permissible, but must be settled on a spot basis. Another version of the above two schools of thought is that the above cited efficient cause (illa) of being currency (thamaniyya) is specific to gold and silver, and cannot be generalized. That is, any other object, if used as a medium of exchange, cannot be included in their category. Hence, according to this version, the Sharia injunctions for riba prohibition are not applicable to paper currencies. Currencies belonging to different countries can be exchanged with or without gain and both on a spot or deferred basis.<br /><br />Proponents of the earlier version cite the case of exchange of paper currencies belonging to the same country in defense of their version. The consensus opinion of jurists in this case is that such exchange must be without any gain or at a rate equal to unity and must be settled on a spot basis. What is the rationale underlying the above decision? If one considers the Hanafi and the first version of Hanbali position then, in this case, only one dimension of the efficient cause (illa) is present, that is, they belong to the same genus (jins). But paper currencies are neither weighable nor measurable. Hence, Hanafi law would apparently permit exchange of different quantities of the same currency on a spot basis. Similarly if the efficient cause of being currency (thamaniyya) is specific only to gold and silver, then Shafii and Maliki law would also permit the same. Needless to say, this amounts to permitting riba-based borrowing and lending. This shows that, it is the first version of the Shafii and Maliki thought which underlies the consensus decision of prohibition of gain and deferred settlement in case of exchange of currencies belonging to the same country. According to the proponents, extending this logic to exchange of currencies of different countries would imply that exchange with gain or at a rate different from unity is permissible (since there no unity of jins), but settlement must be on a spot basis.<br /><br /><span style="font-weight: bold;">2.1.2 Comparison between Currency Exchange and Bai-Sarf</span><br /><br />Bai-sarf is defined in Fiqh literature as an exchange involving thaman haqiqi, defined as gold and silver, which served as the principal medium of exchange for almost all major transactions.<br /><br />Proponents of the view that any exchange of currencies of different countries is same as bai-sarf argue that in the present age paper currencies have effectively and completely replaced gold and silver as the medium of exchange. Hence, by analogy, exchange involving such currencies should be governed by the same Sharia rules and injunctions as bai-sarf. It is also argued that if deferred settlement by either parties to the contract is permitted, this would open the possibilities of riba-al nasia.<br /><br />Opponents of categorization of currency exchange with bai-sarf however point out that the exchange of all forms of currency (thaman) cannot be termed as bai-sarf. According to this view bai-sarf implies exchange of currencies made of gold and silver (thaman haqiqi or naqdain) alone and not of money pronounced as such by the state authorities (thaman istalahi). The present age currencies are examples of the latter kind. These scholars find support in those writings which assert that if the commodities of exchange are not gold or silver, (even if one of these is gold or silver) then, the exchange cannot be termed as bai-sarf. Nor would the stipulations regarding bai-sarf be applicable to such exchanges. According to Imam Sarakhsi4 "when an individual purchases fals or coins made out of inferior metals, such as, copper (thaman istalahi) for dirhams (thaman haqiqi) and makes a spot payment of the latter, but the seller does not have fals at that moment, then such exchange is permissible........ taking possession of commodities exchanged by both parties is not a precondition" (while in case of bai-sarf, it is.) A number of similar references exist which indicate that jurists do not classify an exchange of fals (thaman istalahi) for another fals (thaman istalahi) or gold or silver (thaman haqiqi), as bai-sarf.<br /><br />Hence, the exchanges of currencies of two different countries which can only qualify as thaman istalahi can not be categorized as bai-sarf. Nor can the constraint regarding spot settlement be imposed on such transactions. It should be noted here that the definition of bai-sarf is provided Fiqh literature and there is no mention of the same in the holy traditions. The traditions mention about riba, and the sale and purchase of gold and silver (naqdain) which may be a major source of riba, is described as bai-sarf by the Islamic jurists. It should also be noted that in Fiqh literature, bai-sarf implies exchange of gold or silver only; whether these are currently being used as medium of exchange or not. Exchange involving dinars and gold ornaments, both quality as bai-sarf. Various jurists have sought to clarify this point and have defined sarf as that exchange in which both the commodities exchanged are in the nature of thaman, not necessarily thaman themselves. Hence, even when one of the commodities is processed gold (say, ornaments), such exchange is called bai-sarf.<br /><br />Proponents of the view that currency exchange should be treated in a manner similar to bai-sarf also derive support from writings of eminent Islamic jurists. According to Imam Ibn Taimiya "anything that performs the functions of medium of exchange, unit of account, and store of value is called thaman, (not necessarily limited to gold & silver). Similar references are available in the writings of Imam Ghazzali5 As far as the views of Imam Sarakhshi is concerned regarding exchange involving fals, according to them, some additional points need to be taken note of. In the early days of Islam, dinars and dirhams made of gold and silver were mostly used as medium of exchange in all major transactions. Only the minor ones were settled with fals. In other words, fals did not possess the characteristics of money or thamaniyya in full and was hardly used as store of value or unit of account and was more in the nature of commodity. Hence there was no restriction on purchase of the same for gold and silver on a deferred basis. The present day currencies have all the features of thaman and are meant to be thaman only. The exchange involving currencies of different countries is same as bai-sarf with difference of jins and hence, deferred settlement would lead to riba al-nasia.<br /><br />Dr Mohamed Nejatullah Siddiqui illustrates this possibility with an example6. He writes "In a given moment in time when the market rate of exchange between dollar and rupee is 1:20, if an individual purchases $50 at the rate of 1:22 (settlement of his obligation in rupees deferred to a future date), then it is highly probable that he is , in fact, borrowing Rs. 1000 now in lieu of a promise to repay Rs. 1100 on a specified later date. (Since, he can obtain Rs 1000 now, exchanging the $50 purchased on credit at spot rate)" Thus, sarf can be converted into interest-based borrowing & lending.<br /><br /><span style="font-weight: bold;">2.1.3 Defining Thamaniyya is the Key ?</span><br /><br />It appears from the above synthesis of alternative views that the key issue seems to be a correct definition of thamaniyya. For instance, a fundamental question that leads to divergent positions on permissibility relates to whether thamaniyya is specific to gold and silver, or can be associated with anything that performs the functions of money. We raise some issues below which may be taken into account in any exercise in reconsideration of alternative positions.<br /><br />It should be appreciated that thamaniyya may not be absolute and may vary in degrees. It is true that paper currencies have completely replaced gold and silver as medium of exchange, unit of account and store of value. In this sense, paper currencies can be said to possess thamaniyya. However, this is true for domestic currencies only and may not be true for foreign currencies. In other words, Indian rupees possess thamaniyya within the geographical boundaries of India only, and do not have any acceptability in US. These cannot be said to possess thamaniyya in US unless a US citizen can use Indian rupees as a medium of exchange, or unit of account, or store of value. In most cases such a possibility is remote. This possibility is also a function of the exchange rate mechanism in place, such as, convertibility of Indian rupees into US dollars, and whether a fixed or floating exchange rate system is in place. For example, assuming free convertibility of Indian rupees into US dollars and vice versa, and a fixed exchange rate system in which the rupee-dollar exchange rate is not expected to increase or decrease in the foreseeable future, thamaniyya of rupee in US is considerably improved. The example cited by Dr Nejatullah Siddiqui also appears quite robust under the circumstances. Permission to exchange rupees for dollars on a deferred basis (from one end, of course) at a rate different from the spot rate (official rate which is likely to remain fixed till the date of settlement) would be a clear case of interest-based borrowing and lending. However, if the assumption of fixed exchange rate is relaxed and the present system of fluctuating and volatile exchange rates is assumed to be the case, then it can be shown that the case of riba al-nasia breaks down. We rewrite his example: "In a given moment in time when the market rate of exchange between dollar and rupee is 1:20, if an individual purchases $50 at the rate of 1:22 (settlement of his obligation in rupees deferred to a future date), then it is highly probable that he is , in fact, borrowing Rs. 1000 now in lieu of a promise to repay Rs. 1100 on a specified later date. (Since, he can obtain Rs 1000 now, exchanging the $50 purchased on credit at spot rate)" This would be so, only if the currency risk is non-existent (exchange rate remains at 1:20), or is borne by the seller of dollars (buyer repays in rupees and not in dollars). If the former is true, then the seller of the dollars (lender) receives a predetermined return of ten percent when he converts Rs1100 received on the maturity date into $55 (at an exchange rate of 1:20). However, if the latter is true, then the return to the seller (or the lender) is not predetermined. It need not even be positive. For example, if the rupee-dollar exchange rate increases to 1:25, then the seller of dollar would receive only $44 (Rs 1100 converted into dollars) for his investment of $50.<br /><br />Here two points are worth noting. First, when one assumes a fixed exchange rate regime, the distinction between currencies of different countries gets diluted. The situation becomes similar to exchanging pounds with sterlings (currencies belonging to the same country) at a fixed rate. Second, when one assumes a volatile exchange rate system, then just as one can visualize lending through the foreign currency market (mechanism suggested in the above example), one can also visualize lending through any other organized market (such as, for commodities or stocks.) If one replaces dollars for stocks in the above example, it would read as: "In a given moment in time when the market price of stock X is Rs 20, if an individual purchases 50 stocks at the rate of Rs 22 (settlement of his obligation in rupees deferred to a future date), then it is highly probable that he is , in fact, borrowing Rs. 1000 now in lieu of a promise to repay Rs. 1100 on a specified later date. (Since, he can obtain Rs 1000 now, exchanging the 50 stocks purchased on credit at current price)" In this case too as in the earlier example, returns to the seller of stocks may be negative if stock price rises to Rs 25 on the settlement date. Hence, just as returns in the stock market or commodity market are Islamically acceptable because of the price risk, so are returns in the currency market because of fluctuations in the prices of currencies.<br /><br />A unique feature of thaman haqiqi or gold and silver is that the intrinsic worth of the currency is equal to its face value. Thus, the question of different geographical boundaries within which a given currency, such as, dinar or dirham circulates, is completely irrelevant. Gold is gold whether in country A or country B. Thus, when currency of country A made of gold is exchanged for currency of country B, also made of gold, then any deviation of the exchange rate from unity or deferment of settlement by either party cannot be permitted as it would clearly involve riba al-fadl and also riba al-nasia. However, when paper currencies of country A is exchanged for paper currency of country B, the case may be entirely different. The price risk (exchange rate risk), if positive, would eliminate any possibility of riba al-nasia in the exchange with deferred settlement. However, if price risk (exchange rate risk) is zero, then such exchange could be a source of riba al-nasia if deferred settlement is permitted7.<br /><br />Another point that merits serious consideration is the possibility that certain currencies may possess thamaniyya, that is, used as a medium of exchange, unit of account, or store of value globally, within the domestic as well as foreign countries. For instance, US dollar is legal tender within US; it is also acceptable as a medium of exchange or unit of account for a large volume of transactions across the globe. Thus, this specific currency may be said to possesses thamaniyya globally, in which case, jurists may impose the relevant injunctions on exchanges involving this specific currency to prevent riba al-nasia. The fact is that when a currency possesses thamaniyya globally, then economic units using this global currency as the medium of exchange, unit of account or store of value may not be concerned about risk arising from volatility of inter-country exchange rates. At the same time, it should be recognized that a large majority of currencies do not perform the functions of money except within their national boundaries where these are legal tender.<br /><br />Riba and risk cannot coexist in the same contract. The former connotes a possibility of returns with zero risk and cannot be earned through a market with positive price risk. As has been discussed above, the possibility of riba al-fadl or riba al-nasia may arise in exchange when gold or silver function as thaman; or when the exchange involves paper currencies belonging to the same country; or when the exchange involves currencies of different countries following a fixed exchange rate system. The last possibility is perhaps unIslamic8 since price or exchange rate of currencies should be allowed to fluctuate freely in line with changes in demand and supply and also because prices should reflect the intrinsic worth or purchasing power of currencies. The foreign currency markets of today are characterised by volatile exchange rates. The gains or losses made on any transaction in currencies of different countries, are justified by the risk borne by the parties to the contract.<br /><br /><span style="font-weight: bold;">2.1.4. Possibility of Riba with Futures and Forwards</span><br /><br />So far, we have discussed views on the permissibility of bai salam in currencies, that is, when the obligation of only one of the parties to the exchange is deferred. What are the views of scholars on deferment of obligations of both parties ? Typical example of such contracts are forwards and futures9. According to a large majority of scholars, this is not permissible on various grounds, the most important being the element of risk and uncertainty (gharar) and the possibility of speculation of a kind which is not permissible. This is discussed in section 3. However, another ground for rejecting such contracts may be riba prohibition. In the preceding paragraph we have discussed that bai salam in currencies with fluctuating exchange rates can not be used to earn riba because of the presence of currency risk. It is possible to demonstrate that currency risk can be hedged or reduced to zero with another forward contract transacted simultaneously. And once risk is eliminated, the gain clearly would be riba.<br /><br />We modify and rewrite the same example: "In a given moment in time when the market rate of exchange between dollar and rupee is 1:20, an individual purchases $50 at the rate of 1:22 (settlement of his obligation in rupees deferred to a future date), and the seller of dollars also hedges his position by entering into a forward contract to sell Rs1100 to be received on the future date at a rate of 1:20, then it is highly probable that he is , in fact, borrowing Rs. 1000 now in lieu of a promise to repay Rs. 1100 on a specified later date. (Since, he can obtain Rs 1000 now, exchanging the 50 dollars purchased on credit at spot rate)" The seller of the dollars (lender) receives a predetermined return of ten percent when he converts Rs1100 received on the maturity date into 55 dollars (at an exchange rate of 1:20) for his investment of 50 dollars irrespective of the market rate of exchange prevailing on the date of maturity.<br /><br />Another simple possible way to earn riba may even involve a spot transaction and a simultaneous forward transaction. For example, the individual in the above example purchases $50 on a spot basis at the rate of 1:20 and simultaneously enters into a forward contract with the same party to sell $50 at the rate of 1:21 after one month. In effect this implies that he is lending Rs1000 now to the seller of dollars for one month and earns an interest of Rs50 (he receives Rs1050 after one month. This is a typical buy-back or repo (repurchase) transaction so common in conventional banking.10<br /><span style="font-weight: bold;"><br />3. The Issue of Freedom from Gharar</span><br /><br /><span style="font-weight: bold;">3.1 Defining Gharar</span><br /><br />Gharar, unlike riba, does not have a consensus definition. In broad terms, it connotes risk and uncertainty. It is useful to view gharar as a continuum of risk and uncertainty wherein the extreme point of zero risk is the only point that is well-defined. Beyond this point, gharar becomes a variable and the gharar involved in a real life contract would lie somewhere on this continuum. Beyond a point on this continuum, risk and uncertainty or gharar becomes unacceptable11. Jurists have attempted to identify such situations involving forbidden gharar. A major factor that contributes to gharar is inadequate information (jahl) which increases uncertainty. This is when the terms of exchange, such as, price, objects of exchange, time of settlement etc. are not well-defined. Gharar is also defined in terms of settlement risk or the uncertainty surrounding delivery of the exchanged articles.<br /><br />Islamic scholars have identified the conditions which make a contract uncertain to the extent that it is forbidden. Each party to the contract must be clear as to the quantity, specification, price, time, and place of delivery of the contract. A contract, say, to sell fish in the river involves uncertainty about the subject of exchange, about its delivery, and hence, not Islamically permissible. The need to eliminate any element of uncertainty inherent in a contract is underscored by a number of traditions.12<br /><br />An outcome of excessive gharar or uncertainty is that it leads to the possibility of speculation of a variety which is forbidden. Speculation in its worst form, is gambling. The holy Quran and the traditions of the holy prophet explicitly prohibit gains made from games of chance which involve unearned income. The term used for gambling is maisir which literally means getting something too easily, getting a profit without working for it. Apart from pure games of chance, the holy prophet also forbade actions which generated unearned incomes without much productive efforts.13<br /><br />Here it may be noted that the term speculation has different connotations. It always involves an attempt to predict the future outcome of an event. But the process may or may not be backed by collection, analysis and interpretation of relevant information. The former case is very much in conformity with Islamic rationality. An Islamic economic unit is required to assume risk after making a proper assessment of risk with the help of information. All business decisions involve speculation in this sense. It is only in the absence of information or under conditions of excessive gharar or uncertainty that speculation is akin to a game of chance and is reprehensible.<br /><br /><span style="font-weight: bold;">3.2 Gharar & Speculation with of Futures & Forwards</span><br /><br />Considering the case of the basic exchange contracts highlighted in section 1, it may be noted that the third type of contract where settlement by both the parties is deferred to a future date is forbidden, according to a large majority of jurists on grounds of excessive gharar. Futures and forwards in currencies are examples of such contracts under which two parties become obliged to exchange currencies of two different countries at a known rate at the end of a known time period. For example, individuals A and B commit to exchange US dollars and Indian rupees at the rate of 1: 22 after one month. If the amount involved is $50 and A is the buyer of dollars then, the obligations of A and B are to make a payments of Rs1100 and $50 respectively at the end of one month. The contract is settled when both the parties honour their obligations on the future date.<br /><br />Traditionally, an overwhelming majority of Sharia scholars have disapproved such contracts on several grounds. The prohibition applies to all such contracts where the obligations of both parties are deferred to a future date, including contracts involving exchange of currencies. An important objection is that such a contract involves sale of a non-existent object or of an object not in the possession of the seller. This objection is based on several traditions of the holy prophet.14 There is difference of opinion on whether the prohibition in the said traditions apply to foodstuffs, or perishable commodities or to all objects of sale. There is, however, a general agreement on the view that the efficient cause (illa) of the prohibition of sale of an object which the seller does not own or of sale prior to taking possession is gharar, or the possible failure to deliver the goods purchased.<br /><br />Is this efficient cause (illa) present in an exchange involving future contracts in currencies of different countries ? In a market with full and free convertibility or no constraints on the supply of currencies, the probability of failure to deliver the same on the maturity date should be no cause for concern. Further, the standardized nature of futures contracts and transparent operating procedures on the organized futures markets15 is believed to minimize this probability. Some recent scholars have opined in the light of the above that futures, in general, should be permissible. According to them, the efficient cause (illa), that is, the probability of failure to deliver was quite relevant in a simple, primitive and unorganized market. It is no longer relevant in the organized futures markets of today16. Such contention, however, continues to be rejected by the majority of scholars. They underscore the fact that futures contracts almost never involve delivery by both parties. On the contrary, parties to the contract reverse the transaction and the contract is settled in price difference only. For example, in the above example, if the currency exchange rate changes to 1: 23 on the maturity date, the reverse transaction for individual A would mean selling $50 at the rate of 1:23 to individual B. This would imply A making a gain of Rs50 (the difference between Rs1150 and Rs1100). This is exactly what B would lose. It may so happen that the exchange rate would change to 1:21 in which case A would lose Rs50 which is what B would gain. This obviously is a zero-sum game in which the gain of one party is exactly equal to the loss of the other. This possibility of gains or losses (which theoretically can touch infinity) encourages economic units to speculate on the future direction of exchange rates. Since exchange rates fluctuate randomly, gains and losses are random too and the game is reduced to a game of chance. There is a vast body of literature on the forecastability of exchange rates and a large majority of empirical studies have provided supporting evidence on the futility of any attempt to make short-run predictions. Exchange rates are volatile and remain unpredictable at least for the large majority of market participants. Needless to say, any attempt to speculate in the hope of the theoretically infinite gains is, in all likelihood, a game of chance for such participants. While the gains, if they materialize, are in the nature of maisir or unearned gains, the possibility of equally massive losses do indicate a possibility of default by the loser and hence, gharar.<br /><br /><span style="font-weight: bold;">3.3. Risk Management in Volatile Markets</span><br /><br />Hedging or risk reduction adds to planning and managerial efficiency. The economic justification of futures and forwards is in term of their role as a device for hedging. In the context of currency markets which are characterized by volatile rates, such contracts are believed to enable the parties to transfer and eliminate risk arising out of such fluctuations. For example, modifying the earlier example, assume that individual A is an exporter from India to US who has already sold some commodities to B, the US importer and anticipates a cashflow of $50 (which at the current market rate of 1:22 mean Rs 1100 to him) after one month. There is a possibility that US dollar may depreciate against Indian rupee during these one month, in which case A would realize less amount of rupees for his $50 ( if the new rate is 1:21, A would realize only Rs1050 ). Hence, A may enter into a forward or future contract to sell $50 at the rate of 1:21.5 at the end of one month (and thereby, realize Rs1075) with any counterparty which, in all probability, would have diametrically opposite expectations regarding future direction of exchange rates. In this case, A is able to hedge his position and at the same time, forgoes the opportunity of making a gain if his expectations do not materialize and US dollar appreciates against Indian rupee (say, to 1:23 which implies that he would have realized Rs1150, and not Rs1075 which he would realize now.) While hedging tools always improve planning and hence, performance, it should be noted that the intention of the contracting party - whether to hedge or to speculate, can never be ascertained.<br /><br />It may be noted that hedging can also be accomplished with bai salam in currencies. As in the above example, exporter A anticipating a cash inflow of $50 after one month and expecting a depreciation of dollar may go for a salam sale of $50 (with his obligation to pay $50 deferred by one month.) Since he is expecting a dollar depreciation, he may agree to sell $50 at the rate of 1: 21.5. There would be an immediate cash inflow in Rs 1075 for him. The question may be, why should the counterparty pay him rupees now in lieu of a promise to be repaid in dollars after one month. As in the case of futures, the counterparty would do so for profit, if its expectations are diametrically opposite, that is, it expects dollar to appreciate. For example, if dollar appreciates to 1: 23 during the one month period, then it would receive Rs1150 for Rs 1075 it invested in the purchase of $50. Thus, while A is able to hedge its position, the counterparty is able to earn a profit on trading of currencies. The difference from the earlier scenario is that the counterparty would be more restrained in trading because of the investment required, and such trading is unlikely to take the shape of rampant speculation.<br />4. Summary & Conclusion<br /><br />Currency markets of today are characterized by volatile exchange rates. This fact should be taken note of in any analysis of the three basic types of contracts in which the basis of distinction is the possibility of deferment of obligations to future. We have attempted an assessment of these forms of contracting in terms of the overwhelming need to eliminate any possibility of riba, minimize gharar, jahl and the possibility of speculation of a kind akin to games of chance. In a volatile market, the participants are exposed to currency risk and Islamic rationality requires that such risk should be minimized in the interest of efficiency if not reduced to zero.<br /><br />It is obvious that spot settlement of the obligations of both parties would completely prohibit riba, and gharar, and minimize the possibility of speculation. However, this would also imply the absence of any technique of risk management and may involve some practical problems for the participants.<br /><br />At the other extreme, if the obligations of both the parties are deferred to a future date, then such contracting, in all likelihood, would open up the possibility of infinite unearned gains and losses from what may be rightly termed for the majority of participants as games of chance. Of course, these would also enable the participants to manage risk through complete risk transfer to others and reduce risk to zero. It is this possibility of risk reduction to zero which may enable a participant to earn riba. Future is not a new form of contract. Rather the justification for proscribing it is new. If in a simple primitive economy, it was prevention of gharar relating to delivery of the exchanged article, in todays' complex financial system and organized exchanges, it is prevention of speculation of kind which is unIslamic and which is possible under excessive gharar involved in forecasting highly volatile exchange rates. Such speculation is not just a possibility, but a reality. The precise motive of an economic unit entering into a future contract - speculation or hedging may not ascertainable ( regulators may monitor end use, but such regulation may not be very practical, nor effective in a free market). Empirical evidence at a macro level, however, indicates the former to be the dominant motive.<br /><br />The second type of contracting with deferment of obligations of one of the parties to a future date falls between the two extremes. While Sharia scholars have divergent views about its permissibility, our analysis reveals that there is no possibility of earning riba with this kind of contracting. The requirement of spot settlement of obligations of atleast one party imposes a natural curb on speculation, though the room for speculation is greater than under the first form of contracting. The requirement amounts to imposition of a hundred percent margin which, in all probability, would drive away the uninformed speculator from the market. This should force the speculator to be a little more sure of his expectations by being more informed. When speculation is based on information it is not only permissible, but desirable too. Bai salam would also enable the participants to manage risk. At the same time, the requirement of settlement from one end would dampen the tendency of many participants to seek a complete transfer of perceived risk and encourage them to make a realistic assessment of the actual risk. .<br />Notes & References<br /><br />1. These diverse views are reflected in the papers presented at the Fourth Fiqh Seminar organized by the Islamic Fiqh Academy, India in 1991 which were subsequently published in Majalla Fiqh Islami, part 4 by the Academy. The discussion on riba prohibition draws on these views.<br /><br />2. Nabil Saleh, Unlawful gain and Legitimate Profit in Islamic Law, Graham and Trotman, London, 1992, p.16<br /><br />3. Ibn Qudama, al-Mughni, vol.4, pp.5-9<br /><br />4. Shams al Din al Sarakhsi, al-Mabsut, vol 14, pp 24-25<br /><br />5. Paper presented by Abdul Azim Islahi at the Fourth Fiqh Seminar organized by Islamic Fiqh Academy, India in 1991.<br /><br />6. Paper by Dr M N Siddiqui highlighting the issue was circulated among all leading Fiqh scholars by the Islamic Fiqh Academy, India for their views and was the main theme of deliberations during the session on Currency Exchange at the Fourth Fiqh Seminar held in 1991.<br /><br />7. It is contended by some that the above example may be modified to show the possibility of riba with spot settlement too. "In a given moment in time when the market rate of exchange between dollar and rupee is 1:20, if an individual purchases $50 at the rate of 1:22 (settlement of his obligation also on a spot basis), then it amounts to the seller of dollars exchanging $50 with $55 on a spot basis (Since, he can obtain Rs 1100 now, exchange them for $55 at spot rate of 1:20)" Thus, spot settlement can also be a clear source of riba. Does this imply that spot settlement should be proscribed too ? The fallacy in the above and earlier examples is that there is no single contract but multiple contracts of exchange occurring at different points in time (true even in the above case). Riba can be earned only when the spot rate of 1:20 is fixed during the time interval between the transactions. This assumption is, needless to say, unrealistic and if imposed artificially, perhaps unIslamic.<br /><br />8. Islam envisages a free market where prices are determined by forces of demand and supply. There should be no interference in the price formation process even by the regulators. While price control and fixation is generally accepted as unIslamic, some scholars, such as, Ibn Taimiya do admit of its permissibility. However, such permissibility is subject to the condition that price fixation is intended to combat cases of market anomalies caused by impairing the conditions of free competition. If market conditions are normal, forces of demand and supply should be allowed a free play in determination of prices.<br /><br />9. Some Islamic scholars use the term forward to connote a salam sale. However, we use this term in the conventional sense where the obligations of both parties are deferred to a future date and hence, are similar to futures in this sense. The latter however, are standardized contracts and are traded on an organized Futures Exchange while the former are specific to the requirements of the buyer and seller.<br /><br />10. This is known as bai al inah which is considered forbidden by almost all scholars with the exception of Imam Shafii. Followers of the same school, such as Al Nawawi do not consider it Islamically permissible.<br /><br />11. It should be noted that modern finance theories also distinguish between conditions of risk and uncertainty and assert that rational decision making is possible only under conditions of risk and not under conditions of uncertainty. Conditions of risk refer to a situation where it is possible with the help of available data to estimate all possible outcomes and their corresponding probabilities, or develop the ex-ante probability distribution. Under conditions of uncertainty, no such exercise is possible. The definition of gharar, Real-life situations, of course, fall somewhere in the continuum of risk and uncertainty.<br /><br />12. The following traditions underscore the need to avoid contracts involving uncertainty.<br /><br />Ibn Abbas reported that when Allah's prophet (pbuh) came to Medina, they were paying one and two years advance for fruits, so he said: "Those who pay in advance for any thing must do so for a specified weight and for a definite time".<br /><br />It is reported on the authority of Ibn Umar that the Messenger of Allah (pbuh) forbade the transaction called habal al-habala whereby a man bought a she-camel which was to be the off-spring of a she-camel and which was still in its mother's womb.<br /><br />13. According to a tradition reported by Abu Huraira, Allah's Messenger (pbuh) forbade a transaction determined by throwing stones, and the type which involves some uncertainty.<br /><br />The form of gambling most popular to Arabs was gambling by casting lots by means of arrows, on the principle of lottery, for division of carcass of slaughtered animals. The carcass was divided into unequal parts and marked arrows were drawn from a bag. One received a large or small share depending on the mark on the arrow drawn. Obviously it was a pure game of chance.<br /><br />14. The holy prophet is reported to have said " Do not sell what is not with you"<br /><br />Ibn Abbas reported that the prophet said: "He who buys foodstuff should not sell it until he has taken possession of it." Ibn Abbas said: "I think it applies to all other things as well".<br /><br />15. The Futures Exchange performs an important function of providing a guarantee for delivery by all parties to the contract. It serves as the counterparty in the exchange for both, that is, as the buyer for the sale and as the seller for the purchase.<br /><br />16. M Hashim Kamali "Islamic Commercial Law: An Analysis of Futures", The American Journal of Islamic Social Sciences, vol.13, no.2, 1996<br /><br />Send Your Comments to: Dr Mohammed Obaidullah, Xavier Institute of Management, Bhubaneswar 751 013, India<br />Mail to: obeid@ximb.stpbh.soft.net</div>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-42513627914039362442008-02-09T13:50:00.000-08:002008-02-09T13:52:06.804-08:00How Islamic Banks Complying With The Shariah Requirements<div style="text-align: justify;"><p> </p><span style=";font-family:trebuchet ms,geneva;font-size:100%;" >By : Ust Hj Zaharuddin Hj Abd Rahman</span><span style=";font-family:trebuchet ms,geneva;font-size:100%;" ><br />( this article was published in NST Business Times on 19th July 2006 ) </span><p> </p>Islam teaches Muslims how to conduct every aspect of their lives including financial and economic affairs. The Holy Qur'an makes it clear that entering into transactions that involve riba (or interest) is Haraam (or forbidden). The Qur'an states: "O you who believe! Fear Allah (God) and give up what remains of your demand for interest, if you are indeed a believer." (Qur'an 2:278). One Hadith states: From Jabir (peace be upon him) - the Prophet (peace and blessings of Allah be upon him) cursed the receiver and payer of interest, the one who records it and the two witnesses to the transaction and said: "They are all alike in guilt". (reported in Muslim, Tirmidhi and Ahmad)<br /><br />Therefore, generally we all know that, the main difference between Islamic Bank and conventional is the sources of law which governing these banks. The functions and operating modes of conventional banks are based on fully manmade principles, while Islamic Banks are based on the Shariah Principles.<br /><br />The credibility of the Islamic banking activities is highly dependent on the credibility of the Shariah advisers (A. Banaga, External Audit & Corporate Governance in Islamic Banks, 1994); the credibility of Shariah advisers may also depend on the perceptions and confidence of the bank managers in their role. In order to ensure the modern application of banking system is in line with Shariah requirements, it is strongly stressesed that the objectives of the establishment of Islamic Bank are to achieve Falaah (the success in the world and in the hereafter). The objectives of Islamic banks may therefore differ greatly from the conventional bank's objectives. (Abdul Rahim, Corporate Governance: An Islamic Paradigm, pg 20).<br /><br />There should be a Shariah Supervisory Board for any institutional Islamic investment body, and that Board should consist of trustworthy scholars who are highly qualified to issue fatawa (religious rulings) on financial transactions. In addition, they ought to have considerable experience with knowledge of modern dealings and transactions. The Articles of Association, prospectuses, or statutes (depending on the type of activity) should provide for the existence of a Shariah board, whose fatawa (Shariah judgment ) and resolutions should be binding upon the financial institution's management. It should be independent and free to give opinions on proposed contracts and transactions. The role of the Shariah supervisory board should be concurrent with that of the financial institution itself in the sense that it should be formed from the moment the financial institution is incorporated, and that it should provide continued supervision and permanent checking of contracts, transactions, and procedures. This should be expressly provided for in the Articles of Association or the prospectus. (Nizam Yaquby, http://www.islamic-banking.com/)<br /><br />At present, every Islamic banks and windows have their own Shariah Boards; however a survey of the members of these boards would reveal that practical banking and product knowledge is very limited, thus there is a strong need for training. This puts a serious constraint on the ability of Shariah scholars to issue well-informed rulings on financial products and activities. The Shariah scholars themselves conscious of these difficulties. They are using a number of ways to acquire the necessary background information before issuing a fatwa (Shariah judgment). One way is to discuss an issue in meetings/workshops attended by both Shariah scholars and financial experts or experienced Bankers. (Munawar Iqbal, Thirthy Years of Islamic Banking, pg 108)<br /><br />As an Islamic Bank, we are demanded to be clearly clean form any kind of Riba (Usury), Zulm (oppression) and Gharar (uncertainty). The expertise to identify these three prohibited elements in today's wide range of developed banking and financial transaction is indeed, a difficult task. No new product can be adopted until it is cleared by Shariah scholars. Even after a new product is put into use, Shariah auditing of the operations of financial institutions is very important to ensure that the actual practice complies with the requirements of Shariah. This is important not only for religious reasons but also for purely business considerations because some of the Islamic Banks' clients might not have their confidence in their operations unless Shariah scholars approved their activities.<br /><br />As said before, the task, not only focus on the Shariah aspects but also includes business aspect, market scenario and operations. We can easily discover a product, which is purely Shariah compliant but it is hardly marketable or its structure turns to be very complex to understand and promote. On the other hand we also may find a very marketable product but is prohibited by the Shariah. Thus, all Islamic bank in the world especially Malaysia has to think on ways to produce more Shariah experts whom are also knowledgeable in the financial environment and its operation. The existing bankers and practitioners also must be educated thoughtfully with the Shariah knowledge and principle, so they can easily understand and could implement it in daily operations in a manner, which is explained by the Shariah scholars.<br /><br />Shariah advisory roles are vital in Islamic Banks. They are very different from conventional Bank. In a conventional Bank they might have their legal adviser or business adviser; however these advisers are dissimilar from Islamic Banks' Shariah Advisers. It is because, the management of the conventional bank is not bound whether to take any advice given by their legal and business adviser or not; whereas Islamic Banks' management are obligated to adhere with the decision made by their Shariah Advisers when the product proposed or any operational issues defined contradicts with the Shariah principle.<br /><br />Another area is in the development of more Shariah based banking practitioners where going forward there is a vital need for active and continued participation from these Shariah practitioners in bridging the gap between the Shariah scholars and the banking practitioners. The key aim here is to reduce the gap between Shariah and the business world thus reducing the possibility of misinterpretation in the application of the Shariah code. Our moral and ethical standards far transcend that of conventional with the active participation from the Shariah Scholars in overseeing the activities of the Islamic bankers (which is not present in conventional banks), which is a priceless difference.<br /><br />For readers information, from our experience and knowledge, the normal process that Islamic banks or the Islamic windows of Conventional banks (Conventional banking which offering Islamic products) need to undergo in order to ensure that their products and operations are Shariah compliant can be simplified as below :-<br /><br />1. In-house Shariah officers or advisers (who are supposed to acquire the official Shariah expertise background) will make an early inspection into the products. They will check on whether the pillars and concepts of the products are fully implemented according to Shariah. They will also ensure that the process flow of the products is in line with Shariah. All standard contracts should be reviewed thoroughly where a need to discuss them with lawyers may arise to determine that all the crucial Shariah requirements can be fitted in the standard contracts and at the same time abide by the provision of Malaysia laws.<br /><br />If the result is unsuccessful, alternatives or solutions shall be explored to fulfill the Shariah obligations and the Malaysia Civil Laws. Thus, the determination, alertness and Shariah qualification of an internal Shariah officer is a vital factor in ensuring the clean operations of an Islamic bank. <br /><br />2. The outcome of the reviewed done and the suggestions by the In-House Shariah officers together with other Bankers will be tabled in the official meeting with the Shariah Committees (External and Independent Shariah Advisers approved by Bank Negara Malaysia). A thorough, comprehensive presentation on the review will be carried out during the meeting. The contract's contents, forms, process flow, transactions, and others will be deal with in details. This process requires the credibility and honesty of bank officers to disclose all the operational and technical part of Islamic Bank operations. Thus, the In-house Shariah officers should well acknowledge, understand and ensure that all presentations are truthful and thoroughly done because all of these will be made accountable to them in front of Allah s.w.t in the hereafter. <br /><br />Normally, the Shariah Committees members are dependent on the information given to them by the internal officers. Therefore, any mistake, or misunderstanding on the information given will result in a wrong fatawa.<br /><br />3. If a new product has not yet been inserted in the list of approved products' by the Bank Negara Malaysia (BNM) Shariah Advisory Board, it has to be first brought forward to the Bank Negara Malaysia for the approval by Shariah Advisory Board of BNM. The Shariah screening will again be carried out firstly by Shariah Officers in Jabatan Perbankan Islam & Takaful, BNM anda after that each product will be tabled in the BNM, Shariah Advisory Board for deliberation.<br /><br />4. After been approved, a training session will be conducted to explain on the concepts and the implementation part of the product for bank officers especially for those involve in the marketing and who have to deal directly with consumers.<br /><br />The process looks simple, but indeed it is very much complicated because most of the bank officers come from conventional background where they acquire limited knowledge on the Shariah concepts. Therefore, it is not surprising when people claims that Islamic banks are indeed not Islamic, because sometimes the bank officers that have been appointed to meet customers are those who do not understand the Shariah concepts laid down for the products, and consequently given the wrong explanations on the products.<br /><br />www.zaharuddin.net </div>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-3385022675697349792008-02-09T13:46:00.001-08:002008-02-09T13:49:04.149-08:00Relationship Between Corporate Leaders and Islamic Banks<div style="text-align: justify;">( This article was published by NST , Malaysia , 2nd August 2006)<br /><br />By : Ust Hj Zaharuddin Hj Abd Rahman *<br /><br />A Muslim must know the rulings of Islam pertaining to the obligations and teachings he has to adhere to in his life. He must know the rulings related to purification of the body, the prescribed five daily prayers, and Friday prayer. He has to know the basics in Islam such as the five pillar of Islam and know the implementation, it is known as Fardhu ‘ain (Individual obligation). However, he is not required to go into the details and complex questions which concern scholars more.<br /><br />The same goes for fasting, zakah, and Hajj. A Muslim should learn the rulings he is to abide by to perform these obligations. As for zakah, if a Muslim has sufficient wealth (which is stipulated in the Shari`ah), he is to know the amount of zakah he must pay in relation to the kind of wealth he possesses.<br /><br />If he is a merchant or businessman, for example, he is to study the zakah on trade, way to execute correct and valid sale, trading and also to understand the elements of Riba which could be present especially in order to get the business's working capital through loans from any conventional financial institution, it might also be present in the investment and placing company's monies in conventional deposit accounts. All Muslim entrepreneurs must realize that there is no more excuse such as ‘common needs' to justify any subscription to conventional financial and banking products claiming that there is no Islamic products available in the market. It is vital in Shariah, to make sure that all of our business transaction, investment and their sources and users of fund are Shariah compliant or otherwise there will be no ‘Barakah' (blessing from Allah) or the outcome might be worse. Today where there are Islamic Banks and Islamic Financial institutions which has their long list of Islamic products which can be utilized accordingly as well as it offers a lot more benefit for the customer.<br /><br />The leader or top management of the companies and organization should understand that their responsibility is not just to create wealth for the company but they have also a social ethical responsibility ensuring all of their Muslim staffs or employees are being facilitated with Islamic Financial facilities. In the event that the company is big enough in offering some benefits to their staffs with either a car or home financing etc and if they are already conventional loan given from the management to their employees, there is still a way out and that is by way of refinance all staff's loan with an Islamic product. At this juncture, Islamic banks are able to provide the facility as well as facilitate in the conversion of conventional facility to Islamic. The prophet Muhammad (peace be upon him) has said narrated by At-Tirmidzi "Leave doubt towards undoubted one"<br /><br />No defense could be used to rationalize the apathy in not providing and facilitating Islamic scheme to the staffs, employees and workers, especially when they themselves prefer and in search for Islamic products to get away from Riba and other prohibited elements in their daily life. Ibn `Umar (May Allah be pleased with them) reported: I heard Messenger of Allah (PBUH) saying, "All of you are guardians and are responsible for your wards. The ruler is a guardian and responsible for his subjects; the man is a guardian and responsible for his family; the woman is a guardian and is responsible for her husbands house and his offspring; and so all of you are guardians and are responsible for your wards.''(al-Bukhari & Muslim)<br /><br />A leader in any organization, companies and country, must also know what is lawful and unlawful regarding matters of daily working life like how to generate their employees trustworthiness in delivering tasks, understanding the concept of bribery, the do's and don'ts in claiming amount of money from the company, the Shariah rules in doing overtime, truthfulness in utilizing working period etc. Concerning ethics, a Muslim must learn the kind of behavior that he should adhere to. One must not to deviate from the orders that Almighty Allah has ordained, nor is to commit any prohibition. A Muslim is to abide by virtue and shun vice.<br /><br />However, I would say that, when the management and the employee are involved with Riba and neglected these kinds of ethical concerns, it would go very difficult to manage the above said problems. Allah has said in surah al-Baqarah; 278, meaning: " Allâh will destroy Ribâ and will give increase for Sadaqât (deeds of charity, alms). And Allâh likes not the disbelievers, sinners"<br /><br />From this verse, a prominent Shariah Scholar, Imam Ibn Hajar al-Haithami explained: "when Allah destroy riba as said in the above verse, that means Allah will destroy anyone and any wealth created from Riba transaction, and the result will be; whoever involves in it will feel very comfortable with doing sins, and feel very encouraging to do it. On the other hand, their hatred to good deeds will increasing from day to day" . ( Az-Zawajir ‘an Iqtiraf al-Kabair). Therefore, a company or organization with this sort of employees will suffer various kinds of problems until it go down to the drain. Good deed but if contrary to Shariah's rule cannot be said as pious deed.<br /><br />Thus, every Muslim must learn the rulings relevant to his roles in life: a leader must know the rulings regarding leadership, a merchant has to learn the rulings pertaining to trade, a doctor must know the rulings related to medicine, spouses and parents have to learn the rulings concerning their duties and rights, and so on. The prophet Muhammad (peace be upon him) has said narrated by At-Tabrani : " Verily, Allah loves one who does his work with itqan (in order targeted, and certain as well as complete)"<br /><br />In conclusion, I would say that, Islamic banks and other Islamic Financial institution are now very well prepared to discuss, and ready to engage in constructive dialogue, offer Islamic financial solutions to all of the top corporate leaders to provide their company needs and their employees with various Islamic products including consultation services on how to structure business model which is in line with the Shariah requirement. Only then, Malaysia would be an International Islamic Banking and Finance hub.<br /><br />* The writer was a Senior Manager, Shariah Coordinator, ASIAN FINANCE ISLAMIC Bank Berhad, Malaysia </div>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-49146171124321350402008-02-09T13:42:00.000-08:002008-02-09T13:45:54.222-08:004 Major Forbidden Elements In Islamic Finance<div style="text-align: justify;"><span style="font-weight: bold;">1. Riba</span><br /> <br />An Arabic word meaning: "increase" or "excess"<br /><br />Tech: an 'increase' which in a loan transaction or in exchange of a commodity accrues to the owner (lender) without giving an equivalent counter-value or recompense ('iwad) in return to the other party; every 'increase' which is without an 'iwad or equal counter-value.<br /><br />Detailed technical definition:<br /><br />1) Riba is the contractual difference in the value of 2 or more items of the same type, quality and value when they are exchanged (irrespective of the time-period involved or the type, magnitude or form of the difference)<br /><br />For instance: when, 1kg of grapes are exchanged for 1.5kg of grapes that are of the same type, quality and value - then the 0.5kg is riba. A more relevant example is: if $100 is exchanged for $110 - then the extra $10 is riba [in these examples; the nature of the exchange is what defines it as a sale, loan, etc. The first type of exchange results in a barter and the second results in a lending/borrowing transaction, the $10 being the 'interest'].<br /><br />Regarding time-periods; an exchange can be simultaneous or deferred - either way, if the items are the same then any differences in their exchange value is riba.<br /><br />2) However, a contractual difference in the value of 2 or more items of different (dissimilar) type, quality and value when they are exchanged is not riba (irrespective of the time-frame or the type, magnitude or form of the difference) - if the contractual difference is fixed at the point of the transaction.<br /><br />For instance: when, 1kg of grapes are exchanged for 1.5kg of apples - then the 0.5kg (of apples) is not riba. Again, a more relevant example is: if 100 pens (value = $1 each) are exchanged for $110 - then the $10 is not riba [it is legitimate profit - i.e. mark-up]. Here, the second type of exchange results in a sale transaction.<br /><br />3) However, if the agreed difference is changed post-transaction, then the amount of the 'change' is riba.<br /><br />That is...if the 0.5kg of apples or the $10 is forcibly increased post-transaction to say, 0.8kg or $11, then this 'increase' becomes riba.<br /><br />4) Classic (jahiliyah) riba is normally that which was charged by the lender for 'extra time to pay' or 'missed payments' when the borrower could not pay the loan within the original time period or within the agreed payment mode. This was expanded by the messenger of God, Mohammed (pbuh) later to include the above definitions - and further expanded by the scholars (fuqu'ha) to include what is known as Riba An-Nasi'ah (differences in time) - which is:<br /><br /><br />...forced delays in simultaneous exchanges of 2 or more items of the same (similar) type, quality and value - post-transaction (irrespective of the magnitude of the delay).<br /><br />This is where say, an agreement is reached between 2 parties whereby 1kg of grapes of a particular type, quality and value owned by party A, are to be simultaneously exchanged for 1kg of grapes of the same type, quality and value owned by party B - but rather than carrying out the exchange in real-time (spot), one party unjustifiably delays the exchange (which could potentially put the other party at a disadvantage).<br /><br />There is no real proof (from the Qur'an or sahih hadith that the above 'differences in time' is actually riba - just that the messenger of God, Mohammed (pbuh) stated that 'like for like' exchanges are to be carried out (and be paid for) in real-time.<br /><br />"Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, and salt by salt - like for like, equal for equal, payment being made on the spot. If the species differ, sell as you wish provided that payment is made on the spot" - Sahih Muslim<br /><br />In conclusion: riba is not solely applicable to monetary exchanges or loans as it (under specific circumstances) is also applicable to barter/trade transactions as well. If there is a difference between traditional understanding of the English word "interest" and Riba - then it is here...as normally, 'interest' is almost always applicable in monetary exchanges, whereas of course, riba is not. In other words - interest is riba, but riba is not restricted to just 'interest'.<br /><br />Definition of the English word 'interest' in relation to financial transactions and riba:<br /><br />The English word 'interest' (in financial transactions) refers to a surcharge on the repayment of debt (borrowed money), rent paid for the use of money, the fee charged by a lender to a borrower for the use of borrowed money, etc.<br /><br />Thus, interest is:<br /><br />A monetary charge applied for the use of money<br /><br />...and since this charge is an 'increase' in a like for like exchange (money for money) - it is riba and thus forbidden in Islamic law (Shari'ah)<br /><br /><br /><span style="font-weight: bold;">2. Gharar</span><br /> <br />The Arabic word gharar does not have a universally accepted defintion. However, its general meaning is: unqualified & unquantified uncertainty, hazard, deceit, chance or risk (khatar).<br /><br />Tech: the element of risk that is unpredictable and has no measurable probability; sale of a thing which is not present at hand; or the sale of a thing whose aqibah (consequence, outcome) is not known; or a sale involving risk or hazard in which one does not know whether it will come to be or not, such as a fish in the water or a bird in the air.<br /><br />In modern terms - it can refer to a sale of an item on purposefully unclear and ambiguous terms (e.g. sale of a house without giving full details of its structural integrity, how many rooms it has, the size of its boundary, etc).<br /><br />While the prohibition of riba is absolute, some degree of gharar or uncertainty is acceptable in the Islamic framework. Only conditions of excessive gharar need be avoided<br /><br /><br /><span style="font-weight: bold;">3. Maysir</span><br /> <br />An ancient Arabian game of chance played with arrows without heads and feathering, for stakes of slaughtered and quartered camels.<br /><br />Tech: it came to be identified for all types of games of chance - i.e. gambling (the Islamic definition of which is: a game of chance where there is a material loss for the loser )<br /><br />Also referred to as Qimar<br /><br /><br /><span style="font-weight: bold;">4. Zulm</span><br /> <br />A comprehensive Arabic term used to refer to all forms of inequity, injustice, exploitation, oppression and wrong doing, whereby a person either deprives others of their rights or does not fulfil his obligations towards them.<br /><br />Also refers to trading in items the use of which is prohibited in Islamic law (Shari'ah) such as intoxicants (e.g. alcoholic drinks & illegal recreational drugs), pork, etc<br /><br />Source : <a href="http://zaharuddin.net/index.php?option=com_content&task=view&id=160&Itemid=72">www.zaharuddin.net</a><br /></div>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-57828806188631865202008-01-02T10:50:00.000-08:002008-01-02T10:52:12.441-08:00Exam for Takaful Agents<div style="text-align: justify;">Association, Institute To Introduce Exam For Takaful Agents<br /><br />KUALA LUMPUR, Nov 22 (Bernama) -- The Malaysian Takaful Association (MTA) and the Islamic Banking and Finance Institute of Malaysia today signed a memorandum of understanding (MOU) to jointly develop and introduce the takaful basic examination (TBE).<br /><br />The TBE is an entry qualification for takaful agents and executives in the financial services industry promoting takaful products and services.<br /><br />"It is a compulsory qualification. We believe it will enhance the efficiency as well as professionalism of takaful marketing representatives," MTA chairman, Md Azmi Abu Bakar, told reporters after the signing of MOU here Wednesday.<br /><br />Upon completion of the TBE programme, candidates are expected to be conversant with the takaful concepts, operations of family (life) takaful and general (non-life) takaful, Syariah issues on takaful, takaful products and ethical practices in takaful business.<br /><br />Meanwhile, the International Centre for Education in Islamic Finance (INCEIF) has signed a MOU with takaful operators on Certified Islamic Finance Professional (CIFP) programme for takaful senior executives.<br /><br />INCEIF's chief executive officer, Agil Natt, said the objective of the CIFP programme was to ensure that all senior managers of takaful operators had the knowledge not only in takaful industry but also in Islamic banking and finance.<br /><br />"The programme will enable takaful professionals to better serve the industry and eventually lead to the growth of takaful industry," Agil said.<br /><br />-- BERNAMA</div>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-27585164660643705162008-01-02T10:11:00.003-08:002008-01-02T10:14:34.553-08:00Overview of Islamic Banking in Malaysia<div style="text-align: justify;">Although the Islamic banking phenomenon in Malaysia practically emerged in the 1960s, its philosophies and principles are however, not new, having been outlined in the Holy Qur'an and the <i>Sunnah</i> of Prophet Muhammad (p.b.u.h.) more than 1,400 years ago. Fundamentally, the emergence of Islamic banking is often related to the revival of Islam and the desire of the Muslims to live all aspects of their live in accordance with the teachings of Islamic law or Shariah.<br /></div><p style="text-align: justify;">The birth of Islamic banking in Malaysia was influenced by both external and internal factors. The external factors include the establishment of Islamic banks in the Middle East in the mid-1970s coupled with the establishment of the Islamic Development Bank in Saudi Arabia. On the other hand, internal developments including the establishment of the Pilgrims Fund Board in 1963 and the calls from Malaysian Muslims for the need to establish an Islamic bank have prompted the government to respond accordingly.</p><div style="text-align: justify;">In Malaysia, separate Islamic legislation and banking regulations exist side-by-side with those for the conventional banking system. The legal basis for the establishment of Islamic banks was the Islamic Banking Act (IBA) which came into effect on 7 April 1983. The IBA provides BNM with powers to supervise and regulate Islamic banks, similar to the case of other licensed banks. The Government Investment Act 1983 was also enacted at the same time to empower the Government of Malaysia to issue <a href="http://www.bnm.gov.my/index.php?ch=174&pg=467&ac=373">Government Investment Issue</a> (GII), which are government securities issued based on Syariah principles. As the GII are regarded as liquid assets, the Islamic banks could invest in the GII to meet the prescribed liquidity requirements as well as to invest their surplus funds.<br /></div><p style="text-align: justify;">The first Islamic bank established in the country was Bank Islam Malaysia Berhad (BIMB) which commenced operations on 1 July 1983. In line with its objectives, the banking activities of the bank are based on Shariah principles. After more than a decade in operations, BIMB has proven that Islamic banking has a way forward with its activity expanding rapidly throughout the country. The bank was listed on the Main Board of the Kuala Lumpur Stock Exchange on 17 January 1992.</p><div style="text-align: justify;">The long-term objective of BNM is to create an efficient, progressive and comprehensive Islamic financial system that contributes significantly to the effectiveness and efficiency of the Malaysian financial sector. However, similar to any banking system, an Islamic banking system requires three vital elements to qualify as a strong and resilient system, i.e.:-<br /></div><ul style="text-align: justify;"><li>a large number of global players;<br /></li><li>a broad variety of instruments; and<br /></li><li>a comprehensive financial infrastructure. </li><br /></ul><div style="text-align: justify;"> </div><p style="text-align: justify;">In addition, the foundations of an Islamic banking system must also reflect the socio-economic justice and values in Islam, as well as must be Islamic in both substance and form. </p><div style="text-align: justify;">Recognising the above, BNM adopted a step-by-step approach to achieve the above objectives. The first step to spread the virtues of Islamic banking was to disseminate Islamic banking on a nation-wide basis, with as many players as possible and to be able to reach all Malaysians. After a careful consideration of various factors, BNM decided to allow the existing banking institutions to offer Islamic banking services utilising their existing infrastructure and branches. The option was seen as the most effective and efficient mode of increasing the number of institutions offering Islamic banking services at the lowest cost and within the shortest time frame. Following from the above, on 4 March 1993 BNM introduced a scheme known as <i>"Skim Perbankan Islam"</i> (Islamic Banking Scheme) or SPI in short.<br /></div><p style="text-align: justify;">In terms of products and services, there are more than 100 Islamic financial products and services which are currently offered by the banks using various Islamic concepts such as <i>Mudharabah, Musyarakah, Murabahah, Bai' Bithaman Ajil (Bai' Muajjal), Ijarah, Qard, Istisna'</i> and <i>Ijarah Thumma Bai'</i>. As a short-term intermediary to bridge between the Islamic banks and SPI institutions and their instruments, the <a href="http://www.bnm.gov.my/index.php?ch=174&pg=467&ac=374">Islamic Interbank Money Market</a> (IIMM) was introduced on 4 January 1994.</p><div style="text-align: justify;">In October 1996, BNM issued a model financial statement for the banking institutions participating in the SPI requiring the banks to disclose the Islamic banking operations (balance sheet and profit and loss account) as an additional item under the Notes to the Accounts.<br /></div><p style="text-align: justify;">As part of the effort to streamline and harmonise the Shariah interpretations among the Islamic banks and takaful companies, BNM established the <a href="http://www.bnm.gov.my/%3C%21--%5Barticle%20print=%27$link%27%20code=%27371%27%5D--%3E">Shariah Advisory Council for Islamic Banking and Takaful (SAC)</a> on 1 May 1997. The Shariah Advisory Council set up at (BNM) is the highest Shariah authority on Islamic banking and takaful set up to provide advice on all Shariah matters pertaining to Islamic banking and takaful in Malaysia.</p><div style="text-align: justify;">On 1 October 1999, the second Islamic bank, Bank Muamalat Malaysia Berhad (BMMB) commenced operations. The establishment BMMB was the effect of the spin-off following the merger between Bank Bumiputra Malaysia Berhad (BBMB) and Bank of Commerce (Malaysia) Berhad (BOCB). Under the merger arrangement, the Islamic banking assets and liabilities of BBMB, BOCB and BBMB Kewangan Berhad (BBMBK) were transferred to BMMB, while the conventional operations of BBMB, BOCB and BBMBK were transferred to BOCB accordingly.<br /></div><p style="text-align: justify;">Today, there are eleven Islamic banks under the Islamic Banking Act 1983 and eight IBS banks offering Islamic banking products and services in Malaysia.</p><p style="text-align: justify;">Source of Article : <a href="http://www.bnm.gov.my/index.php?ch=174&pg=467&ac=367">Bank Negara Malaysia</a><br /></p>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-43103508071189109932008-01-02T10:02:00.000-08:002008-01-02T10:10:49.819-08:00The History of Islamic Banking in Malaysia<div style="text-align: justify;">Before the re-emergence of the Islamic financial system, the Muslims throughout the world has only conventional financial system to fulfill their financial needs. The Islamic resurgence in the late 1960's and 1970's has initiated the call for a financial system that allows Muslim to transact in a system that is in line with their religious beliefs. The Islamic banking system involves a social implication which is necessarily connected with the Islamic order itself, and represents a special characteristic that distinguished Islamic banks from other banks based on other philosophies. In exercising all its banking or developmental activities, the Islamic bank takes into prime consideration the social implications that may be brought by any decision or action taken by the bank. Profitability, despite its importance and priority, is not the sole criterion or the prime element in evaluating the performance of Islamic bank, since they have to match both the material and social objectives that would serve the interests of the community as a whole and help achieve their role in the sphere of social mutual guarantee. Social goals are understood to form an inseparable element of the Islamic financial system that cannot be dispensed with or neglected.<br /></div><br /><div style="text-align: justify;">As the need to have an Islamic financial system was vital and immediate, Muslim scholars had taken the effort to embark on the development of Islamic financial system. This had led to the establishment of Islamic Development Bank in 1974 followed by the Islamic Bank of Dubai, the first Islamic commercial bank in 1975. In the following years, a number of Islamic banks were established, concentrated mainly in the Middle East such as the Islamic Bank of Faisal in Egypt (1977), the Islamic Bank of Faisal in Jordan (1978), Bank of Islamic Finance and Investment in Jordan (1978), Islamic Investment Company Ltd.in UAE (1979) and others.<br /><br />In Malaysia, Islamic finance traces its root back to 1963, with the establishment of the Pilgrims Fund Board or Lembaga Tabung Haji (LTH). This was a savings mechanism under which devout Malaysian Muslim set aside regular funds to cover the costs of performing the annual pilgrimage. These funds were in turn invested in productive sectors of the economy, aimed at yielding return uncontaminated by riba'.<br /><br />As a country which population is dominated by Muslims, Malaysia was also affected by the resurgence that had taken place in the Middle East. Many parties were calling for the establishment for an Islamic bank in Malaysia. For example, in 1980, the Bumiputera Economic Congress had proposed to the Malaysian Government to allow the setting up of an Islamic bank in the country. Another effort was the setting up of the National Steering Committee in 1981 to undertake a study and make recommendations to the Government on all aspects of the setting up and operations of Islamic bank in Malaysia, including the legal, religious and operational aspects. The study concluded that the establishment of an Islamic bank in Malaysia would be a viable project from the operation and profits points of view. The conclusion marked the establishment of the first Islamic bank in Malaysia, Bank Islam Malaysia Berhad (BIMB) in July 1983, with an initial paid up capital of RM80 million. The establishment of BIMB also marked a new milestone for the development of the Islamic financial system in Malaysia. BIMB carries out banking business similar to other commercial banks, but along the principles of Syari'ah. The bank offers deposit-taking products such as current and savings deposit under the concept of Al-Wadiah Yad Dhamanah (guaranteed custody) and investment deposits under the concept of Al-Mudharabah (profit-sharing). The bank grants financing facilities such as working capital financing under Al-Murabahah (cost-plus), house financing under Bai' Bithaman Ajil (deferred payment sale), leasing under Al-Ijarah (leasing) and project financing under Al-Musyarakah (profit and loss sharing). BIMB had grown tremendously since its inception. It was listed on the Main Board of the Kuala Lumpur Stock Exchange on 17 January 1992. BIMB's total assets rose from RM325.5 million in 1984 to RM10.12 billion in 2000. Presently, the bank's services can be obtained from its 82 branches throughout the country.<br /><br />It has been the aspiration of the Government to create a vibrant and comprehensive Islamic banking and finance system operating side-by-side with the conventional system. A single Islamic bank does not fit the definition of a system. An Islamic banking and finance system requires a large number of dynamic and pro-active players, a wide range of products and innovative instruments, and a vibrant Islamic money market. The first step in realizing the vision was to disseminate Islamic banking on a nationwide basis with as many players as possible and within the shortest period possible. This was achieved through the introduction of Skim Perbankan Islam (SPI) in March 1993. SPI allows conventional banking institutions to offer Islamic banking products and services using their existing infrastructure, including staff and branches. The scheme was launched on 4 March 1993 on a pilot basis involving three banks. Following the successful implementation of the pilot-run, Bank Negara Malaysia allowed other commercial banks, finance companies and merchant banks to operate the scheme in July 1993 subject to the specific guidelines issued by the central bank. From only three banks in March 1993, the number of Islamic financial institutions have increased to 36, comprising 14 commercial banks (of which 4 are foreign banks), 10 finance companies, 5 merchant banks and 7 discount houses. On 1 October 1999, the second Islamic bank, Bank Muamalat Malaysia Berhad, was established.<br /><br />Today, Malaysia has succeeded in implementing a dual banking system and has emerged as the first nation to have a full-fledged Islamic system operating side-by side with the conventional banking system. The aspiration to establish a comprehensive Islamic banking and finance system has created a spill-over effect to the non-bank Islamic financial intermediaries which started to offer Islamic financial products and services. Such institutions include the takaful companies, the savings institutions (i.e. Bank Simpanan Nasional & Bank Rakyat) and the developmental financial institutions (i.e. Bank Pembangunan dan Infrastruktur Malaysia and Bank Pertanian).<br /><br />Source of Article : <a href="http://www.bnm.gov.my/index.php?ch=174&pg=469&ac=382">Bank Negara Malaysia</a></div>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-60088263744960191742007-12-03T16:29:00.000-08:002007-12-03T16:31:26.229-08:00Loan CalculatorThis loan calculator provided by Bank Islam Malaysia Berhad Website. Click <a href="http://www.bankislam.com.my/Calculators.aspx">here</a>.izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-42633446940187018542007-12-01T05:04:00.000-08:002007-12-01T05:09:07.694-08:00Islamic Pawn Broking: Al-Rahnu<div style="text-align: justify;"> </div><p style="text-align: justify;"><span style="font-size:100%;">Pawn-broking is a source of short-term financing generally used by the lower income group to alleviate their cash flow problems. It is also employed by petty traders as a mean to obtain working capital for their business. To cater for the demand of non-interest bearing pawn-broking services by the lower income group, a few Islamic pawn-broking institutions were established in the early 1990’s. The first Islamic pawn-broking institution, Mu'assasah Gadaian Islam Terengganu (MGIT), was set up by the Majlis Agama Islam dan Adat Istiadat Terengganu in January 1992. In March 1992, Kedai Al-Rahn (KAR), a subsidiary of Permodalan Kelantan Berhad commenced its operations. On 21 August 1993, the Minister of Finance announced the introduction of a scheme, known as Skim Al-Rahnu (SAR) through the collaboration of three institutions namely Bank Negara Malaysia, Yayasan Pembangunan Ekonomi Islam Malaysia and Bank Kerjasama Rakyat Malaysia Berhad. Later, on 27 October 1993 the first phase of SAR was launched at six branches of Bank Rakyat. </span></p><div style="text-align: justify;"><span style="font-size:100%;"><br /></span> </div><p style="text-align: justify;"><span style="font-size:100%;"><i>Al-Rahnu</i> or pawn-broking is an activity whereby a valuable item is collateralised to a debt which may be utilised as payment should the debt is not repaid within the agreed period. In the event the debtor is not able to repay the debt, the pawned asset will be sold off to settle the outstanding debt and any surplus will be given back to the owner of the asset. However, if the owner of the asset could not be traced, it is the responsibility of the Islamic pawn-broker to place the fund in the Baitulmal account for future savings should any claims be made for the surplus by the owner or his heir. </span></p><div style="text-align: justify;"><span style="font-size:100%;"><br /></span> </div><p style="text-align: justify;"><span style="font-size:100%;">A combination of three concepts is applied for the short-term financing under Islamic pawn-broking, i.e. <i>Qardhul Hasan</i> (benevolent loan), <i>Al-Rahnu</i> and <i>Al-Wadiah</i> (custodian). </span></p><div style="text-align: justify;"><span style="font-size:100%;"><br /></span> </div><p style="text-align: justify;"><span style="font-size:100%;"><b>(a) <i>Qardhul Hasan</i> </b></span></p><div style="text-align: justify;"><span style="font-size:100%;"><br /></span> <blockquote><span style="font-size:100%;"><br /></span> <p><span style="font-size:100%;">A bank will grant a benevolent loan to the applicant who wishes to pawn his valuable item. The loan will be issued under the concept of Qardhul Hasan, whereby the customer is only required to pay the amount borrowed; </span></p></blockquote><span style="font-size:100%;"><br /></span> </div><p style="text-align: justify;"><span style="font-size:100%;"><b>(b) <i>Al-Rahnu</i> </b></span></p><div style="text-align: justify;"><span style="font-size:100%;"><br /></span> <blockquote><span style="font-size:100%;"><br /></span> <p><span style="font-size:100%;">Prior to disbursment of cash to the applicant, the applicant is required to place a valuable asset as collateral for the loan extended by the bank; </span></p></blockquote><span style="font-size:100%;"><br /></span> </div><p style="text-align: justify;"><span style="font-size:100%;"><b>(c) <i>Al-Wadiah</i> </b></span></p><div style="text-align: justify;"><span style="font-size:100%;"><br /></span> <blockquote><span style="font-size:100%;"><br /></span> <p><span style="font-size:100%;">The bank accepts custody of the valuable asset on a Wadiah concept whereby the bank promises to keep the valuable asset in a safe place. The bank will need to take precautionary measure such as providing security and insurance to ensure its safe returns once the customer pays his debt. Under the Wadiah concept, the bank will charge the customer for the services rendered in keeping the valuable asset. </span></p></blockquote><span style="font-size:100%;"><br /></span> </div><h1 style="text-align: justify;"><span style="font-size:100%;">Islamic Hire Purchase</span> </h1><div style="text-align: justify;"><span style="font-size:100%;"><br /></span> </div><p style="text-align: justify;"><span style="font-size:100%;">The concept used for Islamic hire purchase is <i>Al-Ijarah Thumma Al-Bai'</i> (AITAB). The concept consists of a contract of leasing or hiring followed by the purchase of the leased or hired asset. The concept is widely used for the purchase of passenger vehicle by finance companies. In this concept, the finance companies will purchase the passenger vehicle and lease it for a specified period of time. Subsequently the finance company and lessee agrees to enter into a contract for the lessee to purchase the passenger vehicle at the end of the lease period. The criteria for AITAB contract commonly used in Malaysia is as follows: </span></p><div style="text-align: justify;"><span style="font-size:100%;"><br /></span> </div><ol style="text-align: justify;" type="i"><span style="font-size:100%;"><br /></span><li><span style="font-size:100%;"><br /></span> <p><span style="font-size:100%;">AITAB consists of two separate contracts, i.e. leasing or hiring contract and sales contract at the end of the leasing/hiring period or at an agreed time; </span></p><span style="font-size:100%;"><br /></span> </li><li><span style="font-size:100%;"><br /></span> <p><span style="font-size:100%;">The AITAB contract contains the clause to apply the provisions of the Hire Purchase Act 1967 that does not contradict <i>Syari'ah</i>; </span></p><span style="font-size:100%;"><br /></span> </li><li><span style="font-size:100%;"><br /></span> <p><span style="font-size:100%;">Deposits paid by the customer to the vehicle dealer will be construed as the advanced payment by the finance company and will be taken into consideration in determining the monthly rental; </span></p><span style="font-size:100%;"><br /></span> </li><li><span style="font-size:100%;"><br /></span> <p><span style="font-size:100%;">The AITAB documents must include the clause “to sell the vehicle” by the finance company and the clause “to purchase the vehicle” by the lessee or hirer at the end of the leasing and hiring period as well as the redemption clause by the hirer for early settlement; </span></p><span style="font-size:100%;"><br /></span> </li><li><span style="font-size:100%;"><br /></span> <p><span style="font-size:100%;">The AITAB contract may also contain the repossession clause and the storage of vehicle cost clause for cases of delinquent customers; </span></p><span style="font-size:100%;"><br /></span> </li><li><span style="font-size:100%;"><br /></span> <p><span style="font-size:100%;">The <i>Ijarah</i> principle underlines that the finance company as the rightful owner of the asset will bear a reasonable risk. Nevertheless, the finance company is entitled to compensation as a result of negligence by the hirer in maintaining the vehicle; </span></p><span style="font-size:100%;"><br /></span> </li><li><span style="font-size:100%;"><br /></span> <p><span style="font-size:100%;">In cases where the customer no longer desires to continue with the lease arrangement, he may surrender or sell his rights to another customer to continue with the lease and subsequently purchase the vehicle.</span></p></li></ol>Source : <a href="http://www.bnm.gov.my/index.php?ch=174&pg=469&ac=387">Bank Negara Malaysia</a>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-8262790329463165412007-11-30T20:46:00.000-08:002007-11-30T20:47:48.669-08:00Bank Islam Malaysia Berhad : The First Islamic Bank in Malaysia<p style="text-align: justify;">Bank Islam started operations in July 1983 as Malaysia’s first financial institution to operate based on Shariah compliant principles. Since then, Bank Islam has become synonymous with Islamic banking in Malaysia. As the flag-bearer for the country’s Islamic financial services industry, its vision is to be “<strong>The Global Leader in Islamic Banking</strong>”. </p><p style="text-align: justify;">With an initial authorized capital of RM500 million and a paid-up of RM80 million, the bank embraced the huge challenge of breaking new ground. Its authorized and paid-up capital was increased to RM2 billion and RM563 million respectively, over time, to accommodate the growth of its assets and the expansion and growth of its operations. </p><p style="text-align: justify;">With a network of 90 branches nationwide, the bank parades a comprehensive list of more than 50 innovative and sophisticated Islamic banking products and services, comparable to those offered by its conventional counterparts. </p><p style="text-align: justify;">The Shariah-compliant banking products and services also expanded from the traditional savings and investment types to include leasing, stock broking, unit trust management and treasury related products, catering to the personal and commercial needs of Muslims and non-Muslims alike. </p><p style="text-align: justify;">Being a pioneer, Bank Islam played a leading role in promoting the expansion of Malaysia’s brand of Islamic financial services to markets in the region. As a result, the Bank Islam has become a well-established and well-received brand.</p>Read more at <a href="http://www.bankislam.com.my/How_it_all_began.aspx">www.bankislam.com.my</a>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-57567226552692837592007-11-30T20:43:00.000-08:002007-11-30T20:45:19.931-08:00Bank Islam Card : The First Islamic 'Credit Card' in Malaysia<div style="padding-top: 15px; color: rgb(0, 0, 0);"> <b> About Bank Islam Card</b> </div> <img alt="" src="http://www.bankislam.com.my/images/articles/products/bankislam-card.gif" /><br /><br /><table align="center" border="0" cellpadding="0" cellspacing="0" width="70%"> <tbody> <tr align="center" valign="center"> <td><img alt="" src="http://www.bankislam.com.my/images/articles/cardsilver.jpg" /></td> <td><img alt="" src="http://www.bankislam.com.my/images/articles/cardgold.jpg" /></td></tr> <tr align="center" valign="center"> <td width="50%"> <p align="center"> <img alt="" src="http://www.bankislam.com.my/images/articles/SILVER01.jpg" /></p></td> <td width="50%"><img alt="" src="http://www.bankislam.com.my/images/articles/GOLD01.jpg" /></td></tr></tbody></table> <p align="justify">Bank Islam Card (BIC) is the first credit card, which is purely based on Shariah contract, to be offered to Muslims and non-Muslims. BIC is completely free from any "riba" or "gharar".</p> <p align="justify">"Riba" is usually translated as "interest" which means an extra amount charged in transactions dealing with silver, gold or money. "Gharar" is defined as uncertainty or ambiguity, which has been removed from BIC since the maximum profit earned has been declared upfront.</p> <p align="justify">BIC is also the first credit card in Malaysia using the SMART chip technology which adopts high security level in a credit card. </p> <p align="justify">In the operations of BIC, there are 3 main Shariah contracts being used, namely:</p> <ul><li> <div align="justify"><em>Bai Inah </em></div></li><li> <div align="justify"><em>Wadiah </em></div></li><li> <div align="justify"><em>Qardhul Hassan</em> </div></li></ul> <p align="justify"><em>Bai Inah</em> comprises of two agreements (<em>akad</em>). In the first agreement, the bank sells a piece of land to the customer at an agreed price. While in the second agreement, the Bank re-purchases the land from the customer at a lower price. The difference in the price is therefore the Bank's maximum profit, which is determined in advance, unlike the conventional credit card whereby the interest charged is undetermined and it may further increase. </p> <p align="justify">The Bank will then disburse the cash proceeds of the second agreement into the customer's <em>Wadiah</em> BIC account created and maintained by the bank. Then after, the customer can use his/her BIC for retail purchases and cash withdrawals just like the conventional credit card, except that each transaction will be backed by the cash held in his/her <em>Wadiah</em> BIC account. </p> <p align="justify"><em>Qardhul Hassan</em> is a facility granted during emergency situation, which allows the cardholder to utilize above the available financing limit upon approval. The <em>Qardhul Hasan</em> amount would not be levied with any charges or fees, where the sum needs to be settled in full within a specified period.</p> <p align="justify"><strong>Achievements</strong></p> <ol><li> <div align="justify">Awarded the Platinum Award for Best E-Commerce Related Initiative under MasterCard Asia/Pacific Marketing Leadership Award 2006</div></li><li> <div align="justify">Awarded as the First Islamic Platinum MasterCard issued in Southeast Asia (2006)</div></li><li> <div align="justify">Awarded as the First Card Issuer & Acquirer in Southeast Asia to implement MasterCard SecureCode (2005)</div></li><li> <div align="justify">Awarded as the First Islamic Visa SmartChip Credit Card in Asia Pacific (2003)</div></li><li> <div align="justify">Awarded as the First Card issuer to implement the Global Clearing Management System (2002)</div></li><li> <div align="justify">Awarded as the First Card that is EMV 2000 compliant by MasterCard International (2002) </div></li></ol> <p align="justify">Bank Islam Card Centre (BICC) is proud to introduce multiple payment channels and various types of services to its cardholders. Cardholders can now make payment via;</p> <ul><li> <div align="justify">Auto-Debit from Bank Islam’s savings / current account</div></li><li> <div align="justify">Internet Banking Facilities via our website <a href="http://www.bankislam.biz/"><span style="color:#000099;">www.bankislam.biz</span></a></div></li><li> <div align="justify">Payment via SMS Banking</div></li><li> <div align="justify">Cash Deposit Machine at Bank Islam's branches nationwide</div></li><li> <div align="justify">Mail your cheque to Bank Islam Card Centre</div></li><li> <div align="justify">Cash or cheque at Bank Islam Malaysia Berhad branches</div></li><li> <div align="justify">Interbank GIRO facilities through other banks’ deposits accounts</div></li></ul> <p align="justify">Cardholders can now enjoy tranquility and peacefulness of mind with the FREE Group Family Takaful Coverage Plan and Benevolence. This coverage guarantees settlement of outstanding debts and also relieves your next of kin from any financial burden. Bank Islam card is perfect choice that leads you to a balance life.</p> <p align="justify">Furthermore, Bank Islam card offers you the advantages, benefits as well as competitive charges as compared to other conventional credit cards.</p>Read more at : <a href="http://www.bankislam.com.my/About_Bank_Islam_Card.aspx">www.bankislam.com.my</a>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-3995529823956060522007-11-30T20:40:00.000-08:002007-11-30T20:42:07.416-08:00IFSB to Hold First Islamic Financial Services Forum in Europe<p style="text-align: justify;"> <span class="contentBody"> <p><span style="font-family:arial, helvetica, sans-serif;">The Islamic Financial Services Board (IFSB) is organising the Islamic Financial Services Forum: The European Challenge, which will be hosted by the Banque Centrale Du Luxembourg (Central Bank of Luxembourg). </span> </p><p><span style="font-family:arial, helvetica, sans-serif;">The forum will be held on Nov 8–9, 2005 in Luxembourg. IFSB is an international-standard setting body of regulatory and supervisory agencies for the Islamic financial services industry.</span> </p><p><span style="font-family:arial, helvetica, sans-serif;">In a statement on Sept 19, IFSB said the two-day forum, which will be the first to be held in Europe by the IFSB, would focus on the current prudential issues and potential risks, and challenges through comprehensive discussions and working papers delivered by industry renowned regulators, practitioners and academics. </span> </p><p><span style="font-family:arial, helvetica, sans-serif;">IFSC secretary-general Prof Rifaat Ahmed Abdel Karim, said: “The IFSB is proud to organise this first issue-driven forum in Europe with the Central Bank of Luxembourg. </span> </p><p><span style="font-family:arial, helvetica, sans-serif;">"The Forum is aimed at providing participants with an opportunity to discuss the challenges that they will face when Islamic financial services are widely offered in Europe.”</span> </p><p><span style="font-family:arial, helvetica, sans-serif;">It is designed to cater for regulators, finance officers, financial analysts, compliance officers, actuaries, accountants, auditors, retail and private bankers, fund managers, investment advisors, lawyers and academics. </span> </p><p><span style="font-family:arial, helvetica, sans-serif;">The topics to be addressed include adapting BASEL II capital adequacy and risk management to Islamic finance, issues in corporate governance in Islamic finance and enhancing financial reporting and transparency in institutions offering Islamic banking services.</span> </p><p><span style="font-family:arial, helvetica, sans-serif;">“The end result of this forum will hopefully act as a catalyst for the Islamic financial industry to make a quantum leap into the highly competitive market of Europe which holds significant potentials for the growth of Islamic finance,” said Prof Rifaat.</span> </p><p><span style="font-family:arial, helvetica, sans-serif;">For more information, log on to </span><a href="http://www.ifsb.org/luxembourg"><span style="font-family:arial, helvetica, sans-serif;">http://www.ifsb.org/luxembourg</span></a> </p></span> </p>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-73750885149828074352007-11-29T15:56:00.001-08:002007-11-29T15:56:55.994-08:00Overview of Takaful in Malaysia<div style="text-align: justify;"> The concept of takaful (Islamic insurance) was first introduced in Malaysia in 1985 when the first takaful operator was established to fulfil the need of the general public to be protected based on the Islamic principles. The legal basis for the establishment of takaful operators was the Takaful Act which came into effect in 1984. </div><p style="text-align: justify;">Insurance as a concept does not contradict the practices and requirements of Shariah. In essence, insurance is synonymous to a system of mutual help. However, Muslim jurists are of the opinion that the operation of conventional insurance does not conform to the rules and requirements of Shariah as it involves the elements of uncertainty (Gharar) in the contract of insurance, gambling (Maisir) as the consequences of the presence of uncertainty and interest (riba) in its investment activities.</p><div style="text-align: justify;"> </div><p style="text-align: justify;">Takaful is an insurance concept in Shariah whereby a group of participants mutually agree among themselves to guarantee each other against a defined loss or damage that may inflict upon any of them by contributing as tabarru’ or donation in the takaful funds. It emphasizes unity and co-operation among participants. Takaful is not a new concept as it had been practised by the Muhajirin of Mecca and the Ansar of Medina following the hijra of the Prophet over 1400 years ago. </p><div style="text-align: justify;"> </div><p style="text-align: justify;">Tabarru’ is the agreement by a participant to relinquish as donation, a certain proportion of the takaful contribution that he agrees or undertakes to pay, thus enabling him to fulfil his obligation of mutual help and joint guarantee should any of his fellow participants suffer a defined loss. The concept of tabarru’ eliminates the element of uncertainty in the takaful contract. The sharing of profit or surplus that may emerge from the operations of takaful is made only after the obligation of assisting the fellow participants has been fulfilled. Thus, the operation of takaful may be envisaged as a profit sharing business venture between the takaful operator and the individual members of a group of participants.</p><div style="text-align: justify;"> </div><p style="text-align: justify;">Takaful operations are regulated and supervised by BNM since 1988 with the appointment of the BNM Governor as the Director-General of Takaful. In October 1995, the ASEAN Takaful Group (ATG), a grouping of takaful operators in Brunei, Indonesia, Malaysia and Singapore was formed to enhance mutual co-operation and to facilitate the exchange of business among takaful operators in ASEAN. In 1997, the Malaysian takaful industry took a leap forward with the formation of ASEAN Retakaful International (L) Ltd. (ARIL) as an offshore retakaful company in Labuan. The establishment of ARIL was to create a vehicle for more dynamic retakaful exchanges among ATG members and provides additional retakaful capacity to further reduce their dependence on conventional reinsurance.</p><div style="text-align: justify;"> </div><p style="text-align: justify;"><strong>TYPES OF BUSINESS</strong></p><div style="text-align: justify;"> </div><p style="text-align: justify;">The takaful businesses carried on by the Malaysian takaful operators are broadly divided into family takaful business (Islamic "life" insurance) and general takaful business (Islamic general insurance).</p><div style="text-align: justify;"> </div><p style="text-align: justify;"><strong><em>Family Takaful Business</em></strong></p><div style="text-align: justify;"> </div><p style="text-align: justify;">In general, a family takaful plan is a combination of long-term investment and mutual financial assistance scheme. The objectives of this plan are: -</p><div style="text-align: justify;"> </div><ul style="text-align: justify;"><li> <p>to save regularly over a fixed period of time;</p> </li><li> <p>to earn investment returns in accordance with Islamic principles; and</p> </li><li> <p>to obtain coverage in the event of death prior to maturity from a mutual aid scheme. </p> </li></ul><div style="text-align: justify;"> </div><p style="text-align: justify;">Each contribution paid by the participant is divided and credited into two separate accounts, namely: -</p><div style="text-align: justify;"> </div><ul style="text-align: justify;"><li><u>The Participants' Special Account (PSA)</u><br />A certain proportion of the contribution is credited into the PSA on the basis of tabarru'. The amount depends on the age of the participant and the cover period.<br /> </li><li><u>The Participants' Account (PA)</u><br /> The balance goes into the PA which is meant for savings and investments only.</li></ul><div style="text-align: justify;"> </div><p style="text-align: justify;">Examples of covers available under family takaful business are as follows: -</p><div style="text-align: justify;"> </div><ul style="text-align: justify;"><li>Individual family takaful plans; </li><li>Takaful mortgage plans; </li><li>Takaful plans for education; </li><li>Group takaful plans; and </li><li>Health/Medical takaful. </li></ul><div style="text-align: justify;"> </div><p style="text-align: justify;"><strong>General Takaful Business</strong></p><div style="text-align: justify;"> </div><p style="text-align: justify;">The general takaful scheme is purely for mutual financial help on a short-term basis, usually 12 months to compensate its participants for any material loss, damage or destruction that any of them might suffer arising from a misfortune that might inflict upon his properties or belongings. The contribution that a participant pays into the general takaful fund is wholly on the basis of tabarru'. If at the end of the period of takaful, there is a net surplus in the general takaful fund, the same shall be shared between the participant and the operator in accordance with the principle of al-Mudharabah, provided that the participant has not incurred any claim and/or not received any benefits under the general takaful certificate.</p><div style="text-align: justify;"> </div><p style="text-align: justify;">The various types of general takaful scheme provided by the takaful operators include: -</p><div style="text-align: justify;"> </div><ul style="text-align: justify;"><li> Fire Takaful Scheme; </li><li>Motor Takaful Scheme; </li><li>Accident/Miscellaneous Takaful Scheme; </li><li>Marine Takaful Scheme; and </li><li>Engineering Takaful Scheme. </li></ul><div style="text-align: justify;"> </div><p style="text-align: justify;"><strong> </strong> <strong>Family takaful:</strong></p><div style="text-align: justify;"> </div><table style="text-align: left; margin-left: 0px; margin-right: 0px;" border="1" cellpadding="0" cellspacing="0" width="60%"> <tbody><tr> <td valign="top">Individual plan</td> <td><p>Mortgage<br /> Health<br /> Education<br /> Travel<br /> Family plan<br /> Waqaf<br /> </p> </td> </tr> <tr> <td valign="top">Group plan</td> <td>Group family<br /> Group medical </td> </tr> <tr> <td valign="top">Annuity</td> <td>Employees Provident Fund<br /> Retirement </td> </tr> </tbody></table><div style="text-align: justify;"> </div><p style="text-align: justify;"><strong>General takaful:</strong></p><div style="text-align: justify;"> </div><table style="text-align: left; margin-left: 0px; margin-right: 0px;" border="1" cellpadding="0" cellspacing="0" width="60%"><tbody><tr> <td valign="top">Motor </td> <td> </td> </tr> <tr> <td valign="top">Fire </td> <td> </td> </tr> <tr> <td valign="top">Marine, aviation and transit </td> <td> </td> </tr> <tr> <td valign="top">Miscellaneous</td> <td>Includes:Personal accident<br /> Workmen corporation<br /> Liability<br /> Engineering<br /> House owners</td></tr></tbody></table><div style="text-align: justify;"><br />Source : BANK NEGARA MALAYSIA<br /></div>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-1080622504576105112007-11-29T15:52:00.000-08:002007-11-29T15:53:18.418-08:00The Shariah Advisory Council of Bank Negara Malaysia (SAC)<p>The Shariah Advisory Council of Bank Negara Malaysia (SAC) was established on 1 May 1997 as the authority for the ascertainment of Islamic law for the purposes of Islamic banking business, takaful business, Islamic financial business, Islamic development financial business, or any other business which is based on Shariah principles and is supervised and regulated by Bank Negara Malaysia.</p><br /><h2>SAC Members</h2><br /><p>The SAC members are appointed by the Minister of Finance pursuant to Section 16B of the Central Bank of Malaysia Act 1958.</p><br /><h3>Session 2007-2008</h3><br /><ul><li>Dr. Mohd Daud Bakar - Chairman <br /> </li><li>Assoc. Prof. Dr. Abdul Halim Muhammad - Deputy Chairman <br /> </li><li>Y.A.A. Datuk Sheikh Ghazali Abdul Rahman <br /> </li><li>Y.A. Dato' Abdul Hamid Haji Mohamad <br /> </li><li>S.S. Dato' Haji Hassan Haji Ahmad <br /> </li><li>Y. Bhg. Datuk Haji Md. Hashim Haji Yahaya <br /> </li><li>Y. Bhg. Dato' Dr. Abdul Halim Ismail <br /> </li><li>Assoc. Prof. Dr. Engku Rabiah Adawiah Engku Ali <br /> </li><li>Dr. Mohd Parid Sheikh Ahmad <br /> </li><li>Dr. Aznan Hasan <br /> </li><li>Dr. Muhammad Syafii Antonio<br /></li></ul> <h3>Session 2004-2006</h3><br /><ul><li>Y.A.A. Datuk Sheikh Ghazali Abdul Rahman (Pengerusi) <br /> </li><li>Dr. Mohd Daud Bakar (Timbalan Pengerusi) <br /> </li><li>Y. Bhg. Datuk Haji Md. Hashim Haji Yahaya <br /> </li><li>Y. Bhg. Datuk Dr. Abdul Monir Yaacob <br /> </li><li>Y. Bhg. Dato’ Dr. Abdul Halim Haji Ismail <br /> </li><li>S. Samahah Dato’ Haji Hassan Haji Ahmad <br /> </li><li>Y.A. Dato’ Abdul Hamid Haji Mohamad <br /> </li><li>Prof. Madya Dr. Abdul Halim Muhammad <br /> </li><li>Dr. Mohd Ali Haji Baharum <br /> </li><li>Dr. Mohd Parid Sheikh Ahmad<br /></li></ul> <h3>Session 2001-2003 </h3><br /><ul><li>Dato' Md. Hashim Haji Yahaya (Chairman)<br /> </li><li>Dato' Sheikh Ghazali Abdul Rahman<br /> </li><li>Dato' Hassan Ahmad<br /> </li><li>Dato' Dr. Abdul Halim Ismail<br /> </li><li>Dato' Dr. Abdul Monir Yaacob<br /> </li><li>Dr. Mohd Daud Bakar<br /> </li><li>Dr. Joni Tamkin Borhan </li><br /></ul> <h3>Session 1999-2001 </h3><br /><ul><li>Dato' Md. Hashim Haji Yahaya (Chairman)<br /></li><li>Dato' Sheikh Ghazali Abdul Rahman<br /></li><li>Dato' Hassan Ahmad<br /></li><li>Dato' Dr. Abdul Halim Ismail<br /></li><li>Dato' Dr. Abdul Monir Yaacob<br /></li><li>Dr. Mohd Daud Bakar<br /></li><li>Dr. Joni Tamkin Borhan </li></ul> <h3>Session 1997-1999 </h3><br /><ul><li>Prof. Dato' Dr. Hj. Othman Hj. Ishak (Chairman)<br /></li><li>Prof. Emeritus Tan Sri Datuk Ahmad Ibrahim<br /></li><li>Dato' Sheikh Azmi Ahmad<br /></li><li>Dato' Md. Hashim Hj. Yahaya<br /></li><li>Dato' Hassan Ahmad<br /></li><li>Dato' Dr. Haron Din<br /></li><li>Dato' Dr. Abdul Halim Hj Ismail<br /></li><li>Dr. Abdullah Hj. Ibrahim<br /></li><li>Dr. Mohd Daud Bakar<br /></li><li>Dr. Ahmed Ali Abdalla </li></ul>Source : Bank Negara Malaysiaizalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-77846296090139069242007-11-29T15:47:00.000-08:002007-11-29T15:49:58.272-08:00List of Financial Institutions Offering Islamic Banking Services in Malaysia as at July 2007<div style="text-align: justify;"> </div><p style="text-align: justify;">The Islamic banks are not the only financial institutions involved in Islamic banking. Other financial institutions also offer Islamic banking services through the "Islamic Banking Scheme". </p><div style="text-align: justify;"> </div><h2 style="text-align: justify;">Full-fledge Islamic Banks</h2><div style="text-align: justify;"> </div><ol style="text-align: justify;" type="1"><li>Affin Islamic Bank Berhad </li><li>Al Rajhi Banking & Investment Corporation (Malaysia) Berhad </li><li>AmIslamic Bank Berhad </li><li>Asian Finance Bank Berhad </li><li>Bank Islam Malaysia Berhad </li><li>Bank Muamalat Malaysia Berhad </li><li>CIMB Islamic Bank Berhad </li><li>EONCAP Islamic Bank Berhad </li><li>Hong Leong Islamic Bank Berhad </li><li>Kuwait Finance House (Malaysia) Berhad </li><li>RHB ISLAMIC Bank Berhad </li></ol><div style="text-align: justify;"> </div><h2 style="text-align: justify;">Participating banks in the Islamic Banking Scheme<br />Commercial Banks</h2><div style="text-align: justify;"> </div><ol style="text-align: justify;" type="1"><li>ABN Amro Bank Berhad </li><li>Alliance Bank Malaysia Berhad </li><li>Citibank Berhad </li><li>HSBC Bank Malaysia Berhad </li><li>Malayan Banking Berhad </li><li>OCBC Bank (Malaysia) Berhad </li><li>Public Bank Berhad </li><li>Standard Chartered Bank Malaysia Berhad </li></ol><div style="text-align: justify;"> </div><h2 style="text-align: justify;">Investment Banks</h2><div style="text-align: justify;"> </div><ol style="text-align: justify;" type="1"><li>Affin Investment Bank Berhad </li><li>Alliance Investment Bank Berhad </li><li>AmInvestment Bank Berhad </li><li>CIMB Investment Bank Berhad </li></ol><div style="text-align: justify;"> </div><h2 style="text-align: justify;">Development Financial Institutions Offering Islamic Banking Services</h2><div style="text-align: justify;"> </div><ol style="text-align: justify;" type="1"><li> Bank Perusahaan Kecil dan Sederhana Malaysia Berhad </li><li> Bank Kerjasama Rakyat Malaysia Berhad </li><li> Export-Import Bank of Malaysia Berhad </li><li> Bank Pertanian Malaysia </li><li> Bank Simpanan Nasional Berhad </li></ol><div style="text-align: justify;"> </div><p style="text-align: justify;">As at July 2007</p><p style="text-align: justify;">Sourse : <a href="http://www.bnm.gov.my/index.php?ch=174&pg=467&ac=369">Bank Negara Malaysia</a><br /></p>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-87431411417283743612007-11-29T15:41:00.000-08:002007-11-29T15:45:42.353-08:00Islamic Banking Concepts<b><i>Bai’ al-Dayn</i> (debt trading)</b><br /><br /><b> </b><br /><div style="text-align: justify;">Refers to the buying and selling in the secondary markets of debt certificates, securities, trade documents and papers which are Shariah compliance. Only documents evidencing real debts arising from <i>bona fide</i> merchant transactions can be traded.<br /></div><p style="text-align: justify;"><b><i><br /></i></b></p><p style="text-align: justify;"><b><i>Bai’ al-Inah<span class="txtTitle02"> (sell and buy back)</span></i></b></p><div style="text-align: justify;">It refers to a contract which involves sell and buy back transactions of an asset by a seller to the customer. The seller will sell the asset on cash basis but the customer will buy back the asset on deferred payment at a price higher than the cash price.<br /></div><p style="text-align: justify;"><b><i><br /></i></b></p><p style="text-align: justify;"><b><i>Ijarah Thumma al-Bai’</i> (leasing and subsequently purchase) </b></p><div style="text-align: justify;">Refers to an Ijarah (leasing/renting) contract to be followed by Bai' (purchase) contract. Under the first contract, the hirer leases the goods from the owner at an agreed rental over a specified period. Upon expiry of the leasing period, the hirer enters into a second contract to purchase the goods from the owner at an agreed price.<br /></div><p style="text-align: justify;"><b><i><br /></i></b></p><p style="text-align: justify;"><b><i>Ijarah</i> (leasing) </b></p><div style="text-align: justify;">Refers to an arrangement under which the lessor leases equipment, building or other facilities to a client at an agreed rental fees or charges, as agreed by both parties.<br /></div><p style="text-align: justify;"><b><i><br /></i></b></p><p style="text-align: justify;"><b><i>Qard (interest-free loan</i><i>) </i></b></p><div style="text-align: justify;">A loan extended on a goodwill basis and the borrower is only required to repay the principal amount borrowed. However, he may pay an extra amount at his absolute discretion, as a token of appreciation.<br /></div><p style="text-align: justify;"><b><i><br /></i></b></p><p style="text-align: justify;"><b><i>Bai’ Salam</i> (future delivery) </b></p><div style="text-align: justify;">Refers to an agreement whereby payment is made in advance for delivery of specified goods in the future.<br /></div><p style="text-align: justify;"><b><i><br /></i></b></p><p style="text-align: justify;"><b><i>Bai’ Istijrar</i> (supply contract) </b></p><div style="text-align: justify;">Refers to an agreement between the client and the supplier, whereby the supplier agrees to supply a particular product on an on going basis, for example monthly, at an agreed price and on the basis of an agreed mode of payment.<br /></div><p style="text-align: justify;"><b><i><br /></i></b></p><p style="text-align: justify;"><b><i>Kafalah</i> (guarantee) </b></p><div style="text-align: justify;">Refers to a contract of guarantee by the contracting party or any third party to guarantee the performance of the contract terms by contracting parties.<br /></div><p style="text-align: justify;"><b><i><br /></i></b></p><p style="text-align: justify;"><b><i>Rahnu</i> (collateralised borrowing) </b></p><div style="text-align: justify;">Refers to an arrangement whereby a valuable asset is placed as collateral for debt or right of claim. The collateral may be disposed in the event of default.<br /></div><p style="text-align: justify;"><b><i><br /></i></b></p><p style="text-align: justify;"><b><i>Wakalah</i> (nominating another person to act) </b></p><div style="text-align: justify;">Refers to a situation, where a person nominates another person to act on his behalf.<br /></div><p style="text-align: justify;"><b><i><br /></i></b></p><p style="text-align: justify;"><b><i>Hiwalah</i> (remittance) </b></p><div style="text-align: justify;">Refers to a transfer of funds/debt from the depositor's/debtor's account to the receiver's/ creditor's account whereby a commission may be charged for such service.<br /></div><p style="text-align: justify;"><b><i><br /></i></b></p><p style="text-align: justify;"><b><i>Sarf</i> (foreign exchange) </b></p><div style="text-align: justify;">Refers to the buying and selling of foreign currencies.<br /></div><p style="text-align: justify;"><b><i><br /></i></b></p><p style="text-align: justify;"><b><i>Ujr</i> (fee) </b></p><div style="text-align: justify;">Refers to commissions or fees charged for services.<br /></div><p style="text-align: justify;"><b><i><br /></i></b></p><p style="text-align: justify;"><b><i>Hibah</i> (gift)</b><br /></p><p style="text-align: justify;">Refers to gifts award voluntarily in return for any transactions given or provided.</p><p style="text-align: justify;">Source : <a href="http://www.bnm.gov.my/index.php?ch=174&pg=467&ac=368">Bank Negara Malaysia</a><br /></p>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-55015540039449472362007-11-29T15:33:00.000-08:002007-11-29T15:50:43.222-08:00Islamic Banking Concepts<div style="text-align: justify;"><b><i>Wadiah Yad Dhamanah</i> (savings with guarantee) </b><br /><br />Refers to goods or deposits, which have been deposited with another person, who is not the owner, for safekeeping. As wadiah is a trust, the depository becomes the guarantor and, therefore guarantees repayment of the whole amount of the deposits, or any part thereof, outstanding in the account of depositors, when demanded. The depositors are not entitled to any share of the profits but the depository may provide returns to the depositors as a token of appreciation.<br /><br /><b><i>Mudharabah</i> (profit-sharing) </b><br /><br />Refers to an agreement made between a capital provider and another party who acts as the entrepreneur. This arrangement will enable the entrepreneur to carry out business projects and profits are distributed based on a pre-agreed profit sharing ratio. In the case of losses, the losses are borne by the provider of the funds.<b><i><br /><br />Musyarakah</i> (joint venture) </b></div><div style="text-align: justify;"><br />Refers to a partnership or joint venture for a specific business, whereby the distribution of profits will be apportioned according to an agreed ratio. In the event of losses, both parties will share the losses on the basis of their equity participation.<br /></div><p style="text-align: justify;"><b><i><br /></i></b></p><p style="text-align: justify;"><b><i>Murabahah</i> (cost plus) </b></p><div style="text-align: justify;">Refers to the sale of goods at a price, which includes a profit margin as agreed to by both parties. Such sales contract is valid on the condition that the price, other costs and the profit margin of the seller are stated at the time of the agreement of sale.<br /></div><p style="text-align: justify;"><b><i><br /></i></b></p><p style="text-align: justify;"><b><i>Bai’ Bithaman Ajil</i> (deferred payment sale) </b></p><div style="text-align: justify;">Refers to the sale of goods on a deferred payment basis at a price, which includes a profit margin agreed to by both parties.<br /></div><br />Source : <a href="http://www.bnm.gov.my/index.php?ch=174&pg=467&ac=368">Bank Negara Malaysia</a>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-54602812847814076622007-11-29T15:29:00.000-08:002007-11-29T15:32:26.946-08:00The History of Islamic Banking in Malaysia<div style="text-align: justify;">Before the re-emergence of the Islamic financial system, the Muslims throughout the world has only conventional financial system to fulfill their financial needs. The Islamic resurgence in the late 1960's and 1970's has initiated the call for a financial system that allows Muslim to transact in a system that is in line with their religious beliefs. The Islamic banking system involves a social implication which is necessarily connected with the Islamic order itself, and represents a special characteristic that distinguished Islamic banks from other banks based on other philosophies. In exercising all its banking or developmental activities, the Islamic bank takes into prime consideration the social implications that may be brought by any decision or action taken by the bank. Profitability, despite its importance and priority, is not the sole criterion or the prime element in evaluating the performance of Islamic bank, since they have to match both the material and social objectives that would serve the interests of the community as a whole and help achieve their role in the sphere of social mutual guarantee. Social goals are understood to form an inseparable element of the Islamic financial system that cannot be dispensed with or neglected.<br /></div><p style="text-align: justify;">As the need to have an Islamic financial system was vital and immediate, Muslim scholars had taken the effort to embark on the development of Islamic financial system. This had led to the establishment of Islamic Development Bank in 1974 followed by the Islamic Bank of Dubai, the first Islamic commercial bank in 1975. In the following years, a number of Islamic banks were established, concentrated mainly in the Middle East such as the Islamic Bank of Faisal in Egypt (1977), the Islamic Bank of Faisal in Jordan (1978), Bank of Islamic Finance and Investment in Jordan (1978), Islamic Investment Company Ltd.in UAE (1979) and others. </p><p style="text-align: justify;">In Malaysia, Islamic finance traces its root back to 1963, with the establishment of the Pilgrims Fund Board or Lembaga Tabung Haji (LTH). This was a savings mechanism under which devout Malaysian Muslim set aside regular funds to cover the costs of performing the annual pilgrimage. These funds were in turn invested in productive sectors of the economy, aimed at yielding return uncontaminated by <i>riba'</i>. </p><p style="text-align: justify;">As a country which population is dominated by Muslims, Malaysia was also affected by the resurgence that had taken place in the Middle East. Many parties were calling for the establishment for an Islamic bank in Malaysia. For example, in 1980, the Bumiputera Economic Congress had proposed to the Malaysian Government to allow the setting up of an Islamic bank in the country. Another effort was the setting up of the National Steering Committee in 1981 to undertake a study and make recommendations to the Government on all aspects of the setting up and operations of Islamic bank in Malaysia, including the legal, religious and operational aspects. The study concluded that the establishment of an Islamic bank in Malaysia would be a viable project from the operation and profits points of view. The conclusion marked the establishment of the first Islamic bank in Malaysia, Bank Islam Malaysia Berhad (BIMB) in July 1983, with an initial paid up capital of RM80 million. The establishment of BIMB also marked a new milestone for the development of the Islamic financial system in Malaysia. BIMB carries out banking business similar to other commercial banks, but along the principles of <i>Syari'ah</i>. The bank offers deposit-taking products such as current and savings deposit under the concept of <i>Al-Wadiah Yad Dhamanah</i> (guaranteed custody) and investment deposits under the concept of <i>Al-Mudharabah</i> (profit-sharing). The bank grants financing facilities such as working capital financing under <i>Al-Murabahah</i> (cost-plus), house financing under <i>Bai' Bithaman Ajil</i> (deferred payment sale), leasing under <i>Al-Ijarah</i> (leasing) and project financing under <i>Al-Musyarakah</i> (profit and loss sharing). BIMB had grown tremendously since its inception. It was listed on the Main Board of the Kuala Lumpur Stock Exchange on 17 January 1992. BIMB's total assets rose from RM325.5 million in 1984 to RM10.12 billion in 2000. Presently, the bank's services can be obtained from its 82 branches throughout the country. </p><p style="text-align: justify;">It has been the aspiration of the Government to create a vibrant and comprehensive Islamic banking and finance system operating side-by-side with the conventional system. A single Islamic bank does not fit the definition of a system. An Islamic banking and finance system requires a large number of dynamic and pro-active players, a wide range of products and innovative instruments, and a vibrant Islamic money market. The first step in realizing the vision was to disseminate Islamic banking on a nationwide basis with as many players as possible and within the shortest period possible. This was achieved through the introduction of <i>Skim Perbankan Islam</i> (SPI) in March 1993. SPI allows conventional banking institutions to offer Islamic banking products and services using their existing infrastructure, including staff and branches. The scheme was launched on 4 March 1993 on a pilot basis involving three banks. Following the successful implementation of the pilot-run, Bank Negara Malaysia allowed other commercial banks, finance companies and merchant banks to operate the scheme in July 1993 subject to the specific guidelines issued by the central bank. From only three banks in March 1993, the number of Islamic financial institutions have increased to 36, comprising 14 commercial banks (of which 4 are foreign banks), 10 finance companies, 5 merchant banks and 7 discount houses. On 1 October 1999, the second Islamic bank, Bank Muamalat Malaysia Berhad, was established. </p><p style="text-align: justify;">Today, Malaysia has succeeded in implementing a dual banking system and has emerged as the first nation to have a full-fledged Islamic system operating side-by side with the conventional banking system. The aspiration to establish a comprehensive Islamic banking and finance system has created a spill-over effect to the non-bank Islamic financial intermediaries which started to offer Islamic financial products and services. Such institutions include the takaful companies, the savings institutions (i.e. Bank Simpanan Nasional & Bank Rakyat) and the developmental financial institutions (i.e. Bank Pembangunan dan Infrastruktur Malaysia and Bank Pertanian).</p><p style="text-align: justify;">Source: <a href="http://www.bnm.gov.my/index.php?ch=174">Bank Negara Malaysia</a> </p>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-23594677811273125322007-11-29T06:39:00.000-08:002007-11-29T06:55:48.296-08:00What is Al-Mudharabah?<p style="text-align: justify;"><span style="color: rgb(0, 64, 64);font-size:100%;" ><b><i>Al-Mudharabah</i></b></span><span style="font-size:100%;"> is the commercial profit-sharing contract between the provider or providers of funds for a business venture and the entrepreneur who actually conducts the business. The operation of takaful may thus be envisaged as the profit-sharing business venture between the takaful operator and the individual members of a group of participants who desire to reciprocally guarantee each other against a certain loss or damage that may be inflicted upon any one of them.</span></p><div style="text-align: justify;"> </div><p style="text-align: justify;"><span style="font-size:100%;">Thus it is necessary to emphasise at the outset that the takaful business as practiced in Malaysia is of the kind of cooperative takaful (al-takaful al-taawuni) participated by a group of members of the public for their own cause within the domain of the private sector.</span></p>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-79855984175695611462007-11-25T07:48:00.000-08:002007-11-25T07:49:16.867-08:00What is Takaful?<div style="text-align: justify;"> Takaful (arab. - mutual guarantee).<br /><br /> Most Islamic scholars regard conventional insurance as not complying with Shariah for it contains element of gharar (uncertainty) and riba (usury). The element of gharar in insurance contract prevails the degree permissible from the point of view of Shariah. The thing is there is uncertainty about the terms of the contract (those about term and subject-matter) at least for the insurer. Moreover, the insurer is not sure whether the money he paid as installments will be used in operations that are permitted by Shariah or not. The element of riba occurs when an interest provided by certain types of insurance is being paid. It can also appear when the premium amount is used in operations connected with collection or payment of interest, or in other operations impermissible from the point of view of Shariah. The main parties to takaful contract are the participant and the operator. The following theses underlie the concept of Islamic insurance.<br /> 1) Takaful has no contact with excessive gharar (al-gharar al-kathir) since the part of installments paid by each participant is considered to be a donation or voluntary contribution that is directed to a special fund. Should an insured accident occur, this fund is used to provide the compensation. In addition to paying the money necessary to cover the sum of the damage the participant can be sure he will be paid the income from the other part of installments on basis of the PLS (profit and loss sharing) system regardless of occurrence of insurance accident. The operator is aware of the amount of his share that the terms of a contract provide a certain amount of the share agreed upon by the parties to a contract. The amount of income depends exclusively on the operations carried out by insurance company and does not appear to be a fixed interest that does not depend on income. Life, health and property of a man is believed to be in the possession of Allah, so it is quite natural from the point of Islam that there is uncertainty about what is going to happen to them:<br /> <br /> "Verily the knowledge of the Hour is with Allah (alone). It is He who sends down rain, and He Who knows what is in the wombs. Nor does any one know what it is that he will earn on the morrow" (surat Lukman, 34);<br /> <br /> 2) The installments or a part of them paid by the participant can be used in operations on condition that those operations do not contradict with Shariah. In case an operation of a takaful company contains the elements, prohibited under Shariah it will be acknowledged void and null. Articles and memorandum of agreement of every takaful company provide that investment activity of a company is to be in compliance with Shariah principles;<br /> 3) The main purpose of Islamic insurance is to guarantee or cover participants’ risks. Parties to a contract of Islamic insurance (takaful) can be either a warrantor or a warrantee;<br /> 4) Takaful business is based on a very special mechanism of profit and loss sharing called mudarhabah. This mechanism helps to avoid the element of riba as it is, which is inherent to conventional insurance;<br /> 5) Shariah Supervisory Board is to supervise business activity of takaful companies. The main goal of Shariah Supervisory Board is to decide whether company’s new products and operations comply with Shariah or not;<br /> 6) All parties to a contract must conduct in accordance to the utmost good faith principle;<br /> 7) Insurers are entitled to offer their representatives for positions in the Board of Directors;<br /> 8) Takaful unlike conventional insurance prevents from violating the terms of inheritance prescribed by Shariah.<br /> <br /> To who are the services of takaful companies can be addressed?<br /> <br /> Faithful Russians who follow provisions prescribed by their religions concerning economical relations have no opportunity to realize their skills and knowledge in the economy of modern Russia. At the same time as the Gallup polls show labor qualities of this very people are below the average.<br /> We should not excogitate new mechanism to help faithful people to realize themselves in modern economy. We should resort to the ones already existing that are of a good account in different countries in the world.<br /> As a result the faithful will become active participants of modern economic life, and the economy itself will acquire new means that has not been used before for moral and ethic reasons.<br /> The conception of Islamic insurance (takaful) does not contradict but in fact respond to what representatives of different confessions think of ethic conduct in the sphere of economy.<br /> For this reason most clients of certain Islamic insurance companies in the world are non-Muslims.<br /> <br /> Bekkin R.I., Ph. D. in Law,<br /> Moscow State University of International Relations,<br /> Ministry of Foreign Affairs of Russian Federation </div>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-47545648773696173692007-11-25T07:44:00.000-08:002007-11-25T13:01:02.683-08:00Bank Islam Aims to Disburse Major Portion of RM1 billion Overseas Project Fund by Bank Negara<div style="text-align: justify;"><strong>KUALA LUMPUR: Tuesday [30 October, 2007] </strong> – Bank Islam Malaysia Berhad (Bank Islam) aims to disburse a significant portion of Bank Negara Malaysia’s RM1.0 billion Overseas Project Fund under its financing activities to support its customers’ expansion overseas. </div><p style="text-align: justify;">For the current financial year, Bank Islam hopes to receive applications worth RM250 million from Malaysian companies, especially small and medium sized enterprises, who are pursuing opportunities overseas.</p><div style="text-align: justify;"> </div><p style="text-align: justify;">The agreement which enables Bank Islam to play this role was signed today between the Bank and the Export-Import Bank of Malaysia Berhad (EXIM Bank), which is managing the Overseas Project Fund. </p><div style="text-align: justify;"> </div><p style="text-align: justify;">Under the EXIM Overseas Guarantee Facility (EOGF) agreement, EXIM Bank will provide guarantees up to 80% of the financing extended by Bank Islam to eligible customers. </p><div style="text-align: justify;"> </div><p style="text-align: justify;">Bank Islam’s Managing Director Dato’ Zukri Samat signed for the Bank while EXIM Bank was represented by its Managing Director and Chief Executive Officer, Dato’ Kamal Mohd Ali.</p><div style="text-align: justify;"> </div><p style="text-align: justify;">Speaking at the ceremony, Dato’ Zukri said: “Through the EOGF, we will be one of the agents to help spur corporate Malaysia’s increased participation in the global market, in particular export of Malaysian professional services in technology, project consultancy as well as the engineering services sectors.</p><div style="text-align: justify;"> </div><p style="text-align: justify;">“This facility fills a gap in the Bank’s existing range of products and services. We will play a more effective role in supporting the growth of our customers, be they entrepreneurs or corporations,” he added.</p><div style="text-align: justify;"> </div><p style="text-align: justify;">He said Bank Islam as Malaysia’s pioneer Islamic financial institution had initially concentrated on catering to Shariah compliant financing needs of individuals. This was subsequently expanded to meet the needs of businesses by providing Shariah-based and Shariah-compliant financing products mostly to meet domestic business activities.</p><div style="text-align: justify;"> </div><p style="text-align: justify;">“However, many of our customers are now pursuing opportunities in an increasingly globalised economy. We also see many Malaysian companies exporting their products and expertise. As a leader in Islamic banking and financial services, Bank Islam must continue to play our role to support and facilitate the growth of our current and new customers as they move into the global arena. This EOGF is therefore, most timely,” he added. </p><div style="text-align: justify;"> </div><p style="text-align: justify;">With the EOGF in place, Bank Islam is ready to finance up to 90 per cent of the contract value in Ringgit and major currencies such as the US Dollar, Pound Sterling, EURO and Japanese Yen with a tenure of up to 10 years. The maximum financing per application is RM100 million or equivalent. The financing rate is competitive, at effective cost of funds plus a maximum spread of 1.0% per annum. </p><div style="text-align: justify;"> </div><p style="text-align: justify;">The EOGF will be available to all Malaysian owned or controlled companies, which are negotiating, bidding or have secured contracts or projects overseas. The facility is open to all economic sectors except privatisation and concession type of contracts.</p><div style="text-align: justify;"> </div><p style="text-align: justify;">Interested parties may contact the Bank or its 90 branches nationwide for further information regarding this latest financing product. Details of the EOGF will also be available on the Bank’s website <a href="http://www.bankislam.com.my/">www.bankislam.com.my</a>.</p><div style="text-align: justify;"> </div><p style="text-align: justify;">The EOGF is also in line with the Bank’s recent re-branding exercise to add a global dimension to Bank Islam’s brand equity and to enhance the Bank’s visibility domestically and abroad.</p><div style="text-align: justify;"> </div><p style="text-align: justify;">About a month ago, Bank Islam signed a strategic collaboration with the European Islamic Investment Bank (EIIB) to jointly develop a range of new Islamic-based products and to share technical expertise and knowledge.<br /><br />The collaboration with EIIB will give Bank Islam a brand presence in the UK and Europe immediately, translating the Bank’s “go global” strategy into reality. </p>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-4208385070922869072007-11-25T07:42:00.000-08:002007-11-25T13:01:27.673-08:00What is Al-Kafalah<div style="text-align: justify;">Islamic banks use Al Kafalah to issue Bank and Shipping guarantees. Al Kafalah is a contract made between the Bank and another party whereby the Bank agrees to discharge the liability of a third party in the case of default by the third party. As a surety, the third party will give the bank some form of collateral and pay a small fee for the services. </div><p style="text-align: justify;">Under the Kafalah Shipping Guarantee, the Bank gives a surety to the owner of the shipping vessel, to discharge goods to the importer pending receipt of the original bill of lading. </p><div style="text-align: justify;"> </div><p style="text-align: justify;">Under the Kafalah Bank Guarantee, the bank guarantees the company's standing to facilitate any business endeavours that may require such guarantees. </p>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-25556573886532224332007-11-25T07:41:00.001-08:002007-11-25T07:41:59.774-08:00What is Al-Ijarah?<p>Al Ijarah means leasing. As in a normal lease transaction, a lessor who owns the leased asset will lease it to the lessee in exchange for rental. The lessee will get the full benefit of using the lease asset within the specified period for as long as he adheres to the lease terms and conditions. At the end of the lease period, the leased asset will be returned to the lessor. </p> <p>There are some other variants of leasing which incorporate the transfer or option to transfer ownership of the leased asset from the lessor to the lessee at the end of the lease period.</p> <p>These are referred to as;</p> <p>Al Ijarah Thumma Al Bai - Lease Agreement Incorporating Sale of Leased Asset at the end of the lease tenure.</p> <p>Al Ijarah Muntahiya Bil Tamlik - Lease Agreement with option to Own Leased Asset at the end of the lease tenure</p> <p>Al Ijarah Wal Iktina - Lease Agreement with option to Acquire Leased Asset at the end of the lease tenure</p>izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0tag:blogger.com,1999:blog-1268464444374949824.post-32065290883512606342007-11-25T07:40:00.001-08:002007-11-25T07:40:56.714-08:00Al Bai Bithaman Ajil (BBA)Al Bai Bithaman Ajil means a "deferred payment sale". It is a mode of Islamic financing used for property, vehicle, as well as financing of other consumer goods. Technically, this financing facility is based on the activities of buying and selling. The furnitures that you wish to purchase for example, are bought by the bank and sold to you at an agreed to price, after the bank and you determine the tenure and the manner of the instalments. The price at which the bank sells you the funitures will include the actual cost of the furnitures and will also incorporate the bank's profit margin. There is no interest charged and the extra price compensates the bank for its profit. Instalments remain fixed over the period of the contract and no adjustment is made if interest rates fluctuate. The fixed monthly instalments are determined by the selling price, repayment period and the percentage margin of financing.izalihttp://www.blogger.com/profile/09196286969783549537noreply@blogger.com0