Islamic Home Finance in the Social Mirror
Shelter is one of the basic needs for human beings. Its availability for the people is an Islamic imperative. In view of the appalling living conditions of a substantial proportion of the population in most countries around the world, especially Muslim, Islamic banks have entered the field with various schemes for home financing. In this infant industry, this effort is understandably guided by the profit motive, but a social dimension has to surface in the course of time. Unfortunately, the models banks currently use for home financing remain under the juridical gaze, more so as the practice is not always found to be transparent. This paper looks at Islamic home financing models in a broader societal context. It evaluates the efficacy of the current financing structures practised and suggests a new approach. The proposed model is shown as superior to the existing ones. It meets the norms of equity, fair play and openness and does not, presumably, violate any other Islamic norm. Finally, the paper makes some policy suggestions to integrate Islamic home financing into the broader social goals of an Islamic economy.
Purchase Undertaking Issues in Musharakah Mutanaqisah Home Financing
Asmadi Mohamed Naim
This article aims to discuss the issues of purchase undertaking in musharakah mutanaqisah home financing as practised by Islamic banks in Malaysia. This aim can only be achieved by analysing and examining its features in order to determine its inclination either towards shirkat al-milk (co-ownership) or shirkat al-'uqud (contractual partnership). On closer examination, the study also examines the legitimacy of first and second promises (wa'd) by the customer to gradually purchase the bank’s portion, and to give rights to the bank in the event of default: either to sell the bank’s portion in credit to the customer or to purchase the customer’s portion. The study applies the qualitative research method comprising document analysis and interviews with practitioners. The study shows that the home financing is a shirkat al-milk in its initial stage, but it cannot be considered permanently as shirkat al-milk as it does not comply with all the features of shirkat al-milk. The study also found that scholars were in dispute as to whether firstly, to allow a pre-determined price of the bank’s portion or share in the house and secondly, to stipulate a second promise in the event of default.
The Islamic Gold Dinar – Myths and Reality
Recently, there have been an increasing number of publications and conferences on the re-introduction of the Islamic gold dinar, a coin with pure gold content. The phenomenon could even be construed as a campaign. The proponents of this idea, who are known as denarists and are particularly active in Malaysia, advocate that this country, as well as the whole Islamic world, “urgently” return to the Islamic gold dinar. Their call has gained considerable urgency in view of the latest crisis in the West. But what the denarists are doing is proposing an essentially historical system (coinage was the norm throughout history) without having studied how the system they are proposing actually functioned in history. The main purpose of this article is to fill this vacuum. Challenges the proponents of the idea that the Islamic world urgently needs to return to the Islamic gold dinar. The author believes that the proponents of the gold dinar are advocating an essentially historical system without having studied how that system actually functioned in history. The main purpose of this article is to fill this vacuum.
Value Co-Creation in Shari'ah-Compliant Banking: A Saudi Arabian Case Study
Robert A. Paton & Samer R. Jan & Khalid S. Al-Rajhi
This paper argues that Shari'ah-compliant Islamic banking is essentially a value co-creation business model that illustrates attributes associated with the emerging service-dominant logic paradigm. The underpinning Shari'ah philosophy of minimising ‘usage’ of one party by another results in the sharing of profit, losses, risk and the promotion of interest-free principles. Islamic banks that follow Shari'ah traditions endeavour to co-create value with their business and corporate customers in a manner that would resonate with the proponents of service-dominant logic. The authors argue that Shari'ah-compliant business models may be more appropriate for today’s volatile and socio-economic climate, evidencing their potential via business case examples. Shari'ah-compliant Islamic financing, such as sukuk (Islamic bonds), istisna' (construction finance), murabahah (commodity trade finance), mudarabah (finance trusteeship), musharakah (joint venture) and ijarah (Islamic leasing), is generally based on a business relationship and partnership approach. Such approaches are now gaining popularity and offer those engaged in service exchange the opportunity to co-create value or at least mutual benefit.
Musharakah Mutanaqisah and Legal Issues: Case Study of Malaysia
Rafe Haneef & Sherin Kunhibava & Edib Smolo
This paper explores home financing through musharakah mutanaqisah in Malaysia and possible legal issues. This paper explains that there are a few methods in the practice of implementing musharakah mutanaqisah legally. The first is where the customer is registered as the owner of the property and a charge is created in favour of the bank, and the second is where the bank is registered as the legal owner as the trustee for itself and the customer. As for the implementation of musharakah mutanaqisah in the event of default, it depends whether there is a wa'd or not. This paper also elucidates the issues facing musharakah mutanaqisah home financing for properties under construction and proposes an alternative model for solving the highlighted issues. Lastly this paper raises and analyses possible legal issues that may arise in enforcing a musharakah mutanaqisah home financing contract where a legal charge is created and where a trust is created.
Cost of Funds – Is It a Part of Actual Loss (Ta'wid)?
Shabana Hasan & Ashraf Hashim & Lokmanulhakim Hussain
The research aims to identify whether the cost of funds can be treated as actual loss that can be recognized as revenue of Islamic Financial Institutions (IFIs). At the outset, the research will show how the understanding of the cost of funds from both the conventional and the Islamic perspective differs significantly. The research will then elaborate on the importance of Shari’ah parameters of ta’wid in Islamic finance. The research will also provide further illustrations on the justifications of the industry players on the need to have the cost of funds treated as actual loss. This research will also consider elaborating on the various Shari’ah views on whether the cost of funds can be deemed as the IFIs’ actual loss. Finally, the research will take the approach that cost of funds cannot be treated as actual loss that can be recognized as revenue of IFIs. However the research affirms and agrees on the importance of cost of funds in bringing stability to IFIs, especially in handling the behavior of IFIs’ depositors. It is therefore important in view of the research to highlight the possible solutions for the IFIs under the context of maslahah.
Enhancing the Integrity of Islamic Financial Institutions in Malaysia: The Case for the Shari'ah Audit Framework
Abdul Rahim Abdul Rahman
Enhancing integrity is of prime importance for any business and it is especially more pressing in the case of Islamic Financial Institutions (IFIs) who claim that their business activities and operations are in compliance with the Shari’ah. In broad terms, Shari’ah audit is a process of accumulating and evaluating evidence to determine and report on the degree of correspondence between information and established criteria for Shari’ah compliance purposes. The objective of this paper is to provide an overview of a research and development initiative initiated by the International Shari’ah Research Academy in Islamic Finance (ISRA) and Bank Negara Malaysia (BNM) to produce the Shari’ah Audit Framework. The Framework aims to provide a guide for IFIs in Malaysia to conduct Shari’ah audit. The paper firstly explains the Shari’ah Governance Framework recently issued by BNM, which the Shari’ah Audit Framework will aim to complement. Secondly, the paper provides a discussion on the need for the Shari’ah Audit Framework. Thirdly, the paper presents some of the institutional arrangements and requirements that need to be considered to ensure that the IFIs will be able to effectively undertake a Shari’ah audit function.
Maqasid al-Shari'ah and Islamic Financial Products: A Framework for Assessment
Contemporary practice of Islamic finance has been criticised for not fulfilling the maqasid. The debate surrounding the practice of Islamic finance has led to the distinction between Shari'ah-compliant and Shari'ah-based Islamic products. However, there are no clear definitions as to what these terms entail. Whereas some scholars assert that Shari'ah-compliant and Shari'ah-based products are the same, there is a need to distinguish between different nuances of Islamic finance in terms of legal and social Shari'ah requirements. In this research note (note), an objective way of classifying categories of Islamic financial products is suggested. In particular, the legal and social Shari'ah requirements implied in the maqasid are used to classify Islamic financial products as Shari'ah-based, Shari'ah-compliant and pseudo-Islamic. The note also identifies the role of different stakeholders in choosing the types of products.
The Islamic View on Money and its Implication for Financial Instruments
Mohd Noor Omar
Money is a social convention and was invented based on the need to facilitate socio-economic activities. Progress in business has transformed money, and it has evolved from its original basic functions to sophisticated modern applications. Money is an integral part of the financial system and has a fundamental effect on the whole system. This research is intended to explore related questions concerning money and its implication for financial products and instruments from an Islamic point of view. In particular, this research is intended to investigate the questions:
- What is the theoretical foundation and implication of money in Islam?
- What are the features and applications of money in Islamic finance?
- What is the Shari'ah compliance that is fundamental to Islamic financial products and instruments?
- Does Islam provide appropriate methods and controls for accommodating money in economics?
The Obligation of Zakah upon a Legal Entity
Mohyi Aldin Abu Alhoul
Down through the ages zakah has constituted one of the most important products of Islamic civilization. It has left clear effects on the human heritage. However, this product, despite its great benefits and importance, has become far removed from our present reality. Its effects cannot be felt; in fact, we scarcely notice its presence. In order for its full benefits to be felt and its objective to be realized, we must develop a clear juristic understanding of its issues, devoid of controversies, that will bring us to a sound contemporary implementation. In this respect, the need for institutional effort to realize the anticipated objective of this obligation becomes apparent. In the context of Islamic banking and finance, it is noted that in the course of attempting to implement zakah payment, Islamic banks and financial institutions have faced certain fiqh questions and practical problems. This research attempts at addressing these questions. The study is primarily inductive with regard to suggested solutions - whether historical or contemporary – and provides analysis and discussion of these solutions.