All posts related to KL Conference on Islamic Wealth Management & Financial Planning 2018 - KLC-IWM-2018

Tuesday, 29 January 2013

Islamic finance success offsetting global gloom


(MENAFN - Arab News) The private sector in the Kingdom has been spurred into action, giving a major boost particularly to real estate, construction, health care, education, financial services and a host of other activities, thus offsetting some of the global economic gloom, according to Khaled Al-Aboodi, CEO of the Islamic Corporation for the Development of the Private Sector (ICD), the private sector arm of the Islamic Development Bank (IDB) Group.
"However, financing for small and medium enterprises (SMEs) is not yet developed in most of the member-countries," Al-Aboodi told Khalil Hanware of Arab News in an exclusive interview. "Even in GCC countries, there is lack of access to financing for SMEs," Al-Aboodi pointed out.

The following are excerpts from the interview:

How has ICD's performance been in 2011 and what are its major achievements in 2012?
The persistence of uncertainty in the global financial arena coupled with continued global economic downturn has increased both perceived market risks as well as cautious approach to business operations. While lack of access to finance by the private sector has opened new opportunities for ICD to support private sector development in a number of member-countries, a combination of factors such as social unrest in some member-countries, increased cost of funding and lingering effects of financial crisis has made it very difficult for ICD to operate as planned. However, recognizing the role of a strong private sector in inclusive growth, ICD strived to utilize and apply a package of targeted investments and wide advisory services to accomplish its mandate. Despite the negative effect of financial crisis and social unrest in the region, ICD managed to approve 18 new projects and capital incease for three existing equity projects totaling 372.26 million in 1432H/2011. This was 58 percent higher than the previous year (2010), which reflects ICD's continuing robust support to private sector development in the member-countries. Equity investments accounted for the bulk of ICD's 1432H/2011 approvals, representing 38 percent of the total, followed by the line of finance (35 percent), long-term financing (22 percent), and short-term murabaha (5 percent). In terms of sectoral distribution, the three main beneficiary sectors were finance, industry and real estate, jointly attracting 85 percent of the total approvals. The financial sector accounted for the biggest allocation, totaling 201.26 million, or 54 percent of the 1432H/2011 approvals. In terms of regional composition, 31 percent of ICD's approved projects during 1432H were allocated to the Middle East North Africa (MENA) region, followed by South Asia (23 percent), Sub-Saharan Africa (16 percent), East Asia and Pacific (14 percent), and Europe and Central Asia (10 percent). In terms of recipient countries, ICD approvals were extended to 13-member countries, including three new countries - Algeria, Gabon and Turkmenistan. Overall, country- and region-wise allocation was made on the basis of a number of factors, including member-countries' creditworthiness, strategic priorities and development agendas, and financial sustainability of the projects. In 1433H/2012, ICD approved 19 new investment projects and 6 capital increases totaling 375 million. As a result, total approvals since inception amounted to 2.582 billion. Region-wise, around 38 percent of ICD's approved projects during 1433H were allocated to Eastern Europe and Central Asia, 15 percent to MENA, followed by Asia and Sub-Saharan Africa 14 percent and 7 percent respectively. The regional projects covering multiple regions accounted for 25 percent of total approvals. As part of its new strategy, ICD's advisory services also gathered further momentum in 1433H. In the past year, ICD successfully closed the fund-raising for Tunisia and Saudi Arabia SME funds, and also for the Central Asia Renewable Energy Fund. Furthermore, ICD has approved establishment of a Food & Agriculture Fund and Fixed Income Fund, and successfully secured some mandates in Tunisia and Cameroon for capacity building and creation of Islamic windows within conventional banks.

In what projects/companies have you invested in the past 12 months?
ICD approved 19 new projects and six capital increases in existing equity projects. In line with its new strategy of promoting Islamic financial channels, ICD approved 167 million worth of projects in the Islamic financial sector in 1433H/2012, which accounts for 40 percent of its total approvals. The share of products in the approval of financial sector projects were also well-balanced and included equity stakes of 47 million in financial institutions, and line of financing extended to qualified financial institutions at an amount of 120 million. At the same time, the business plan of 1433H/2012 envisioned continuation of ICD's direct investment in real estate sector with a more focused and balanced allocation of its resources to priority sectors. In the past year, ICD achieved its target for approval in the real estate sector. The amount of approval and disbursement stood at 202 million and 50 million respectively in the real sector of member-countries.

What was ICD's contribution to the development of member-countries in 2011?
The Islamic Corporation for the Development of the Private Sector (ICD) was established to support the economic development of its member-countries by providing Shariah-compliant financing to private sector projects. The ICD offers advice to governments and private organizations to encourage the establishment, expansion and modernization of private enterprises, the development of capital markets, the adoption of best management practices, and enhancement of the role of the market economy. The ICD focuses on developmental projects, which contribute to the creation of employment opportunities, poverty reduction, raising the general standard of living, improved health and education, and the encouragement of exports. Generally speaking, ICD's role is to try to enhance the role of the private sector in these countries by providing not just finance but know-how as well to facilitate their growth.

How popular is Islamic finance in the region and how are you promoting it? Has the economic downturn increased its popularity?
Islamic finance is growing in popularity and already a majority of retail and corporate banking clients prefer the option of Islamic banking over conventional banking when available. Our operations and dealings are on the basis of Islamic banking principles and also support the establishment and finance of Islamic financial institutions not only in the region but also in the wider Asian and African spheres. ICD's mandate is to promote, in accordance with Shariah principles, the economic development of is member-countries by encouraging the establishment, expansion and modernization of private enterprises. To fulfill our mandate, we support the private sector through the following ways: First, we assist them alone or in collaboration with other financing institutions the establishment and expansion of enterprises. Second, we can make direct investment, through Islamic instruments, in the subscription and purchase of their share capital. We also promote with participation of other sources of financing, including the structuring of syndication deals, underwriting of securities, joint ventures and other forms of association. Moreover, we can get involved in issuing mudharba, leasing and istisna'a bonds and other financial instruments. At the top of these, private sector firms may benefit from our advisory services and technical assistance programs. Yes, the downturn has certainly increased the popularity of Islamic finance without a doubt.

How did you secure funding last year and what are your plans in the coming years to ensure you have adequate funds to achieve your objectives?
Normally, we secure funding via partnership and syndication. In fact, ICD actively engaged in building strong relationships with major international development institutions. ICD established new partnerships through the execution of memorandum of understanding (MoU) with a number of institutions, including Exim banks in Indonesia and Malaysia, Eurasian Development Bank in Kazakhstan, Kenyan Company for Habitat and Housing in Africa, and National Innovation Fund in Kazakhstan. For example, ICD became a signatory to the International Finance Corporation's (IFC's) Master Cooperation Agreement, which makes it easier for both institutions to collaborate on private sector investments in MENA and in emerging markets worldwide. All these MoUs aim at transferring knowledge, especially in Islamic finance, syndicating and co-financing activities, originating and structuring activities, and establishing new products.

What role does ICD play in promoting SMEs in member-countries?
The small and medium enterprises (SMEs) have a crucial role to play in a country's growth and development, and ICD has big plans for them. It is an important sector in all the member-countries, even the higher income ones. Yet, financing for SMEs is not developed in most of the member-countries. Even in GCC countries, there is lack of access to financing for SMEs. Now we are focusing on this sector by establishing ijara companies. We are also looking at direct financing of SMEs, and are now working to establish the first SME Fund with a capital of SR 1 billion. Also, during this year, ICD and the Caisse Des Depots Et Consignations (CDC) with support from KIPCO group and Albaraka Bank structured and launched the largest CMF regulated and first Tunisian SME Shariah Complaint Fund with the principal purpose to address the SMEs' funding gap by providing financial assistance in the form of growth capital to suitable SMEs that are poised for exponential growth. ICD has been working for a long time in developing special programs for development of the SME sector in IDB member-countries. It is clear that job creation has become a big issue that needs to be addressed. Recent events in the Middle East confirm that lack of jobs and unemployment cause people sometimes to be unhappy to the extent of almost overthrowing regimes. ICD has been developing SME programs to support governments' efforts in member-countries by providing ingredients for establishing a very good SME authority in each country because in many countries such an authority is either absent, with the result that there is no authority to take care of SMEs' affairs in terms of regulations and creating an environment ensuring their development or sometimes the authorities exist but they are not very well equipped or are bureaucratic.

How many projects has ICD financed so far and what is the total value of the projects?
ICD's accumulated approvals since it began operation reached 2.17 billion by the end of 1432H/2011, which has been allocated to 218 projects. The corporation approved about 60 percent of its investments through two main modes of finance - equity and murabaha. The cumulative gross approvals of ICD by mode of finance include 766.07 million of equity, 535.77 million of murabaha, 526.5 million of ijara, 223.13 million of installment sale, and 119.14 million of istisna'a.

What are ICD's investments in key sector projects in member-countries?
The sectoral composition of ICD's accumulated approvals underscores diversity and is spread over 16 sectors. The financial sector accounted for the largest share, amounting to 783.7 million, or 36 percent of the accumulated gross approvals since inception. The industrial sector had the second largest share with a total approved amount of 596.1 million, representing 27 percent of the gross approvals. This was followed by real estate, with a total approval of 276.2 million (13 percent). The remaining 514.6 million (24 percent) of the accumulated approvals was allocated to 13 different sectors.

Where do you see the Saudi economy heading in 2013, and with so many projects under way is Saudi Arabia on the threshold of another boom?
The Economist Intelligence Unit expects 4.3 percent growth of the Saudi economy in 2013, compared to 5.3 percent growth in 2012. The International Monetary Fund has forecast Saudi growth at 4.1 percent in 2013, compared to 6 percent in 2012 and 6.8 percent in 2011. The Saudi private sector has been spurred into action and a number of sectors such as real estate, construction, health care, education and financial services have received a major boost, offsetting some of the global economic gloom. According to the official records, more than 200 projects with a combined value of 1.23 trillion are expected to be completed by the end of 2013. This reflects the massive development under way in the Kingdom.

How important is the Kingdom's role in G20?
The Kingdom assumes a leadership position in both the Arab and broader Muslim worlds, representing a very diverse political constituency, and like other G20 countries it has been increasingly exposed to the challenges of globalization. In fact, the Saudi leadership will look to the G20 process to help make the international finance, the food commodities, and the oil and gas markets less volatile and easier to navigate. Moreover, the Kingdom will continue playing a systemic role in an ever-changing multi-polar world where the G20 is at its core.


(Menafn.Com / 28 Jan 2013)


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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic banking ‘can help meet capital rules’



WITH credit rating downgrades raising the interest rates that have to be paid on bonds, banks should look at Islamic financing to meet the added capital requirements of new regulations, professional services company Ernst & Young recommended in a report released last week.
According to Ernst & Young’s World Islamic Banking Competitiveness Report 2013, Islamic banking assets held by commercial banks worldwide are expected to exceed $1.8-trillion this year, a 38% increase compared with $1.3-trillion in 2011.
This was a sign that the need by clients to get sharia-compliant offerings was increasing.
Unlike other forms of lending, which attract interest on deposits or loans, Islamic finance operates under the principles of sharia law, which prohibits the charging of interest. For example, if an Islamic bank arranges financing for a home loan, it does not charge interest but buys the asset from the seller and then sells it to the buyer at a profit. The bank retains the asset until the debt is settled.
"Capital requirements are onerous and sukuks (Islamic bonds) are an opportunity for banks to raise capital," said Merisha Kassie, a director in financial services at Ernst & Young.
Islamic banking is relatively small in South Africa. Out of a population of 51.7-million, it is estimated that the South African Muslim community does not exceed 2%, Ms Kassie said.
However, she said that Islamic finance presented an attractive market in Africa as a whole, where the Muslim population numbers more than 400-million, with the majority unbanked.
Ernst & Young noted that South Africa had made progress in the inclusion of Islamic finance into tax legislation and there were some amendments expected this year.
South Africa’s largest unsecured lender, African Bank, said it did not offer Islamic banking products. But Markus Borner, the executive for balance sheet management, said: "We would, however, not discount the possibility of issuing listed or unlisted bonds that comply with certain requirements as set by Islamic investors should these bonds meet our funding requirements."
Capitec spokesman Charl Nel said the bank, for risk management reasons, was not a buyer of Islamic bonds. "Islamic banking in South Africa requires very specific processes, which would require significant investment in alternate systems, which is not part of our current strategy."
Last year, banking group Absa said it was looking to expand its Islamic banking franchise in South Africa and the rest of the continent, in countries such as Egypt, Tanzania, Uganda, Ghana and Zambia. Absa has also bought an Islamic insurance company (Takafol), which is a provider of sharia-compliant insurance products. It also launched a "sharia forward exchange" contract. The bank has appointed a new MD of Islamic banking, Afzal Seedat.
However, the Ernst & Young report noted that the profitability of Islamic banking lagged behind that of conventional banking, prompting institutions to initiate a number of transformation programmes.

(Business Day BD live / 28 Jan 2013)


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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Monday, 28 January 2013

Amãna Takaful presents annual plan


Amãna Takaful, one of Sri Lanka’s fastest growing composite insurers recently presented its annual plan cascade to its staff. Under the theme ‘We Are Winning’, all staff members were presented with the 2012 performance of the company highlighting the year and the milestones achieved above expectations on many fronts.
“We are winning. Our growth trajectory is promising and we have expanded to new markets in 2012. This year we are even more bullish to reach the homes and offices of more Sri Lankans to introduce them to the concept of Takaful through products of mutual value”, said Fazal Ghaffoor, Chief Executive Officer, Amana Takaful PLC, making a presentation to the audience that had converged from all branches.
The event was attended by almost the entire staff together with members from the Board of Directors. The respective Heads of Departments presented the highlights of 2012 and plans for the year 2013 focusing on its development and growth plans in its respective areas.

Amana Takaful reported an impressive growth of 26% for the 9 months to September 2012, well above the industry’s 12.2% and looks forward to releasing the results of the 4th quarter 2012.

The Company’s performance in terms of total Gross Written Premium (GWP) of Rs. 1,151.5m up to September 2012 compares with Rs. 913.6m in the same period of 2011. The General Insurance business accounted for Rs. 891.0m, growing significantly at 28.5% over the comparative period in 2011. The Life segment’s Gross Written Premium of Rs. 260.4m to September 2012, reflects a growth of 18.4% over the corresponding period last year. These results reflect a substantial upside against the industry performance of 18.3% and 4.4% on General and Life businesses respectively as at end September 2012.  

With branches in 21 locations island-wide, Amãna Takaful has been successful in its journey of more than a decade in establishing a strong position for the concept of Takaful amidst stiff competition with 20 other conventional industry players. The company has been able to deliver unique value, the Takaful way, to Corporates and individuals alike as a composite insurer.


(The Nation / 27 Jan 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

East outperforming West in Islamic finance


DUBAI, Jan. 27 (Xinhua) -- While lenders in the United States and Europe have downsized their exposure in banking in compliance with Islamic law, Islamic financial institutions in Southeast Asia and the Middle East and Africa (MEA) region are taking over the initiative.

According to global consultancy Ernst and Young, worldwide investments done in line with Islamic law, known as Shari'ah, will reach 1.8 trillion U.S. dollars globally in 2013.

There was a time when major Western banks like Citigroup, HSBC, UBS and Deutsche Bank set the pace for the developments in Islamic finance, while their much smaller counterparts in the Muslim world just followed. In recent years, this order has been almost completely shifted in favor of the East.

The shift occurred partly because the financial crisis forced U. S. and European lenders to get back to their roots by reducing their exposure in exotic fields like Islamic finance and by downsizing their investments in emerging markets. It is also because economies in Southeast Asia and the MEA region have outperformed the global economic growth since the start of the new millennium and upgraded their regulatory system to spur Islamic banking.

According to John Sandwick, founder and CEO of Islamic wealth manager Safa Investment in Riyadh and Geneva, "many banks in the West got it wrong when they thought they can reach Muslim investors halfheartedly, by launching a Shari'ah-compliant fund or two, but Islamic finance requires a complete investment and advisory service."

The industry, mostly designed to serve the financial needs of the 1.5 billion Muslims globally, is growing by 15 percent per year and will double every five years. Under Shari'ah, interest- based and speculative investment like short-selling or trading derivatives are banned, as well as stocks from firms which produce alcohol, weapons, entertainment or pork meat.

In 1996, Citibank as the first Western bank opened a branch in Manama, Bahrain. That was at that time the Arab world's major hub for global banking, fund managers and insurance. When British bank HSBC opened an "Islamic window" in 1998, it paved the way for London to become a beachhead of Islamic finance in Europe, a position it has maintained until today. As of today, there are five stand-alone Islamic banks in Britain, whilst 19 billion U.S. dollars in reported assets are managed in line with Shari'ah in London.

But HSBC suffered a blow in Qatar last year when the central bank in Doha banned conventional banks from running Islamic windows. Consequently, HSBC shut down Amanah services in Qatar, a blow to the British lender since Qatari economy got a boost after it won the right to host the 2022 World Cup games.

As an example of how powerful Islamic banks have become, Qatar' s biggest Islamic bank Masraf Al-Rayan launched a takeover bid for London's ailing Islamic Bank of Britain, known as IBB. Since its inception in 2004, IBB desperately tried to generate profits through Shari'ah-compliant retail banking. The deadline for the takeover was set at first for the end of 2012, but was eventually extended to Feb. 4, 2013.

Swiss private bank Sarasin, which operates in the Gulf Arab region in a joint venture with Alpen Capital, said it was not affected by the Qatari central bank's ban as it offers "advisory services" to ultra-rich individuals and financial institutions. " We neither develop standard Islamic financial products nor do we offer third-party products with a Shari'ah label," said Rohit Walia, executive vice chairman and CEO of Bank Sarasin-Alpen.

Nevertheless, Switzerland's star over Islamic banking has been on the decline since the country's biggest lender UBS shut down its Islamic subsidiary Noriba. In 2007, UBS integrated Noriba under its one-bank strategy into the group.

Switzerland's only stand-alone Islamic bank Faisal Private Bank in Geneva suffered heavy losses with real estate investments worth 1.8 billion dollars during the global financial crisis in 2008 and 2009. After Faisal's biggest shareholder Ithmaar Bank in Bahrain failed to sell the entire bank, it was consequently transformed into a family office on Nov. 1, 2012. With this move Switzerland's sole Islamic bank ceased to exist.

Other setbacks happened in Germany, whose biggest lender Deutsche Bank closed down half a dozen of its Islamic funds it launched under its subsidiary DWS due to a lack of capital inflows.

Meanwhile, global issuances for Islamic bonds, or sukuk, hit 121 billion dollars in 2012, registering a 43.36-percent increase over 2011. Malaysia accounted for over 60 percent of these issuances, while the Middle East and North Africa region accounted for 32 percent. The only noteworthy activity in the West was seen in Germany: Munich-based insurance firm FWU launched Islamic insurance, also called Takaful, in the early 2000s. On Dec. 12, FWU launched the first ever Islamic issuance from a German corporate firm. With a par value of 55 million dollars, it was also the largest European corporate sukuk ever issued.

Unlike conventional bonds, sukuk do not pay interest based on a coupon, but share profits of a specific, tangible asset (like a real estate or a commodity) with the investors. "Sukuk continues to be in the spotlight, especially after the global economic meltdown, where we learnt that carrying excessively risky debt on the books can lead to financial collapse during black swan events, " said Ashar Nazim, MENA Islamic Finance Services Leader at Ernst and Young in Dubai.

While Switzerland, which has no sukuk listed at the Swiss Exchange in Zurich, seems to be out of the race, London and Luxemburg are desperately struggling to keep their markets attractive for Islamic bond listings. The London Stock Exchange has 37 sukuk listings valued at a total of 20 billion dollars. At the Luxembourg Stock Exchange, 16 sukuk have been listed so far, totaling 7.3 billion dollars.

However, the government of Luxembourg put plans to launch a sovereign sukuk in 2011 on hold. And the aforementioned figures appear tiny compared to Islamic assets in Saudi Arabia (151 billion dollars), Malaysia (133 billion dollars) and the United Arab Emirates (94 billion dollars).

Meanwhile, the wheel for Islamic finance keeps spinning in the East. Post-turmoil Arab states like Egypt and Tunisia have started to implement law to spur Islamic finance. These moves show that Islamic finance will go it way mostly in the Middle East and Far East.

The first sovereign sukuk in 2013 was issued on Jan. 23 by the Dubai government, as part of a 1.25-billion-dollar dual-tranche sovereign bond. The issue was split into an Islamic bond (sukuk) with a par value of 750 million dollars and at a profit rate of 3. 875 percent, and a 30-year, 500-million-dollar conventional bond whose coupon was priced at 5.25 percent.

The issue attracted a whopping interest of 380 investors who placed orders of over 15 billion dollars. Half of the sukuk investors are based in the Middle East, while European and U.S. investors accounted for 38 percent of the conventional tranche.

Georges Elhedery, head of global market at bank HSBC, one of the joint lead runners of the sukuk, said in an e-mailed statement that the numbers were speaking for themselves. "The tight pricing, tenor and speed of execution demonstrate international investors' confidence in Dubai's credit."

On Jan. 9, ruler of Dubai Sheikh Mohammed Bin Rashid Al-Maktoum launched an initiative to promote Dubai as the center of global Islamic economy.

(Shanghai Daily.Com / 27 Jan 2013)


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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Saturday, 26 January 2013

Cost-plus Finance Allowed, Interest Prohibited in Islam



The argument that earning profit is like earning interest by lending money (where profit is fixed like the rate of interest on loan) is indeed an age-old debate which has also been pointed out 1,434 years ago in the holy Qur’an.
“Those who devour usury will not stand except as one whom the Evil one by his touch hath driven to madness. That is because they say: “Trade is like usury,” but Allah Hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (To Judge); but those who repeat (the offence) are companions of the Fire: They will abide therein (for ever).” (Al Qur’ān 2:275)
Money lenders have been trying to claim that earning through trade is like earning interest on loan, but ‘by permitting trade and prohibiting interest’ Islam clearly declined the disbeliever’s view that ‘trade is like usury’. Murabaha is basically a trade activity (quite different from lending money on interest) because under Murabaha the financier purchases and sells goods on credit after adding a margin of profit over the cost of purchase; whereas under interest based lending financier does not take part in any economic activity, but just lends money and gets back along with interest over principal amount after a set time.
There are around 10 Qur’ānic verses and 23 Hadith on prohibition of Interest (Riba) of different nature. According to Shariah, Riba technically refers to the “premium” that must be paid by the borrower along with the principal amount as a condition for the loan or for an extension in its maturity. So, Riba has the same meaning as interest in conventional banking in accordance with the consensus among all Islamic schools of thoughts. There are two major types of Riba in Shari’ah.  The first (Riba al Nasiah) describes prohibition of lending money on interest whereas the second (Riba al Fadl) prohibits all unfair commercial transactions that leads to exploitation. Since Murabaha does not fall under any category of Riba described in Hadith, it cannot be rated alike lending on interest. Furthermore, there are operational differences between lending money on interest and cost plus finance.

Lending Money on Interest
Cost Plus Finance (Murabaha)
Financier lends money to earn interest over principal amount without bearing risks associated with the borrower’s economic activity. Financier practically doing trade by purchasing and selling goods on credit at a price set after adding profit margin over cost of purchase. Money is considered a kind of asset and accumulation of monetary asset is made out of monetary asset without changing its form from money to goods. Money is treated as means to measure value of goods and medium of exchange. Value of goods may enhance only after selling the bought goods to customers. Financier has nothing to contribute towards Government revenue. Financier pays sales tax on trade volume to the Government. Financier does not interfere in business activity of the borrower and does nothing to help the borrower get competitive prices for sought goods or commodities. Financier bargains with the supplier to avail discount in price of goods so as to offer competitive prices of the goods to the customers. Financier has nothing to do with quality of the goods sought by its customer. Financier bears associated risks on quality of the goods sold to its customer. Through lending loan on interest the Financier increases customer’s demand force which may inflate the economy with limited resources for suppliers. Purchase and sale by financier boosts production process and flow of liquidity from the customers to the bank and reduces inflation by slicing purchasing power. Rate of interest on loan amount is related to time factor. There is no interest and the price value of sold goods is not related to time factor. Borrower needs to repay the instalment of interest and principal on due dates. Customer is supposed to repay part of total price value of goods on due dates. Financier does not allow the borrower to reschedule the instalment on due dates even in case of any genuine financial crisis. Penalty may be charged for that. In case of genuine financial crisis, the financier does allow the buyer to reschedule the due instalment dates without any penalty. Financier need not to get any registered sale tax number. Financier needs to obtain registered sales tax number. Financier has nothing to do in collection and submission of sales tax. Financier used to pay and charge sales tax; and submit to sales tax department. Financier need not to have any purchase officer with specialisation in trade. Financier does need to have purchase officer with specialisation in trade.      

Besides above operational differences, it is important to analyse and evaluate the impacts of interest based lending and cost plus finance on the economy. Interestingly, Cost Plus Finance has the potential to increase economic growth by pushing consumption, production and Government revenue with putting customers demand forces under control with flow of liquidity from customer to bank segment. 
We can evaluate the differential impact of interest based lending and cost plus finance by a hypothetical study. Suppose there are two types of banks in our economy. One is lending on interest and the other is offering cost plus finance. Both can offer same rate of returns to their depositors (e.g. 8% annual interest or dividend to the depositors) and charges 15% annual interest on loans or adds 15% profit margin (over cost of purchase) in case of cost plus finance. Since bank extending cost plus finance with intention to get competitive quote for the goods, bargains with the supplier and pass on the discounts to the buyer, it helps the customer pay less for availing required goods; and also provides more revenue for the Government.
The practice of cost plus finance by banks can help us to -
Increase in consumption (as the consumer takes goods from bank on credit) to increase potential for economic growth rate. Decrease in prices as purchase of goods by bank allows the supplier to produce more; and increase in productivity with constant demand would lead to fall in prices. Control in demand side inflation because the customer does not get liquidity rather would need to repay value of bought goods back to the bank; and the customer needs to transfer access of income over expenditure to repay cash to the bank.
We hope that the RBI would introduce cost plus finance under Para banking as an optional product with intention to keep inflation under control with increase in economic growth rate. Hopefully, money lenders would not argue again and again that trade is like lending on interest.


(Radiance Views Weekly / 25 Jan 2013)


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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Top 10 Halal Friendly Holiday Destinations for 2013



Halal Tourism has finally come of age. The tourism industry has finally woken up to  the potential that halal tourism industry holds, with 1.6 billion Muslims under it. The word halal refers to ‘Islamically permissible’. Halal tourism involves, serving  halal food, having separate swimming pools, spa and leisure activities for men and women, cafés, lounges and restaurants that serve non-alcoholic drinks etc. Some of them even have private beaches exclusively for women, and mixed beaches for families where women can wear the Islamic swimming dress code and hang out with their families. Countries that promote halal vacations,  makes the holiday experience for a Sharia abiding Muslim, a pleasant  and memorable one.
The management consultancy firm AT Kearney estimate that the global halal market to be around US $2 trillion, underpinned by one of the fastest growing religions in the world.
In a study by the Singapore based research company Dinar Standard, the Muslim tourists globally represent a major niche market worth $126.1 billion in 2011 growing at a higher 4.8% through 2020, compared to global average of 3.8%.
The Muslim tourism market (US $126.1 billion) is 12.3% of the total global outbound tourism market in 2011, estimated at US $1,034 billion by the U.N. World Trade Organization (UNWTO). The Middle East and North Africa markets represents 60% of total global Muslim tourist outbound expenditure in 2011, with Saudi Arabia topping the list, followed by Iran, UAE, Indonesia and Kuwait.
Singapore based Crescentrating Pte Ltd., a company focused on the development of the halal friendly travel market segment worldwide, has come out with its ranking of the Top Halal Friendly Holiday Destinations for 2013.
Some of the ranking criteria for being the top halal friendly destinations for 2013 were, the level of halal food availability, halal certified restaurants, prayer facilities, halal friendly accommodation, family recreation and entertainment centers, etc, at the main tourist spots of the destination.

MALAYSIA: 

Malaysia with its vibrant, bustling, multicultural/multiethnic population, its diverse culture, tradition of impeccable hospitality  and fusion of gastronomic creations, has made Malaysia a traveller’s delight. The lush green tropical landscape and stunning island resorts have made Malaysia one of the top rated destinations for holidays. It has also been rated as the No.1 on halal friendly destinations  in the world among 10 member states of Organization for Islamic Co-operation (OIC) for 2013. Because of its easy access to halal food and prayer facility no matter where they are, be it a shopping mall or an airport, has  made Malaysia the No.1 choice with an aggregate of 8.3 /10 points.

EGYPT: 

The rise of Islamists in Egypt had sceptics consider if the Tourism industry would be hit in Egypt. But halal friendly tourism has paved its way into Egypt. A survey conducted by Ogilvy Noor, an international Islamic branding company, found that the halal market was worth $2.1 trillion last year, with halal tourism worth $100 billion. Egypt expects its halal tourists turning to family oriented activities, halal food, dry hotels, separate female recreational facilities and hotel rooms with prayer directions. During the month of Ramadan, muslim travellers may ask for special facilities during Suhoor. Egypt is considered one of the top destinations for halal tourism.

UAE: 

Keeping in mind the sensitivities of muslim tourists, several hotel groups in UAE, have announced the development of hotel chains complying with Islamic law. The Almulla Hospitality has announced its plans to open 150 Halal Hotels by 2015, not only in the Middle East but also in Europe and North America. The Jawhara Chain has sets it target on 25% Sharia compliant hotels in Dubai in the near future. With UAE becoming the Middle East’s most preferred tourist destination, halal tourism, will only add to the appeal.

TURKEY: 

Turkey, a nation that’s a beautiful blend of the East and the West. Situated strategically between the Europe and Asia,Turkey has considerable influence in the region. Though an Islamic country, liberalism is mostly in practice. A country that was the melting pot of civilization, has a lot to offer to the Tourist in terms of Historical and Archaeological. With many open air historical sites, and sea side resorts, Turkey is ranked as the 6th most favoured tourist destination in the World. It ranks 4th in the recent Top 10 Halal Destinations in the world, due to availability of halal food and other facilities favourable to the Muslim traveller.

SAUDI ARABIA: 

Saudi Arabia’s tourism industry is estimated to be worth around 14.88 billion in 2012. Saudi Arabia is expected to welcome 15.8 million tourists by 2014, out of which business tourists and the hajj tourists will account for most of the tourism share, Saudi Arabia is still considered too conservative for western tourists. With  the growing number of muslim tourists favouring halal tourist destinations, and with  Saudi Arabia’s strict Islamic code of conduct and practices, the country is Top 5 on the preferred list.

INDONESIA: 

Indonesia is the largest archipelago in the world. It has 17,504 tropical islands with mesmerising white sandy beaches and crystal clear waters. Because of its location, geology and diverse landscape, the country boasts of fertile rice fields to  rain forests and snow capped peaks. It is this diverse landscape, along with historical & cultural diversity that makes Indonesia a favoured destination fort tourists. From Jakarta, Bali to Sumatra and Java, Indonesia truly is a nature lover’s  paradise. Being an Islamic nation, all cultural and food practices are centered around Islamic tradition. Indonesia ranks 6th on the Most Halal Friendly Holiday Destinations.

MOROCCO:

Morocco’s varied geography sets it apart from the rest of the African nations. Situated in the extreme north western tip of Africa, it’s amazing beaches, lush highlands, snow capped mountains, the expansive Sahara in a distance and haunting aura of the old cities, will capture a Traveller’s mind than any other. It’s a country “that travels within you“. What is striking about Moroccans is their tradition of hospitality, and their openness and willingness to share their culture. No matter where you are , in the mesmerising streets of Marrakesh, or the beautiful lanes of Casablanca, there are story tellers everywhere, willing to share the exoticism and mysticism that has long bound Morocco to the world. Along with a surge in Morocco’s tourism industry, Morocco’s predominantly Islamic culture and tradition makes it one of the most preferred among halal tourists as well.

JORDAN: 

Jordan, the land of mesmerizing beauty and diversity. The imposing Petra never leaves one mind, when one’s thoughts travel to this mystical land. From the amazing sand castles to the haunting Wadi Rum, Jordan is truly a land of superlatives. The Red Sea and the Dead Sea enthralls every visitor who longs to bathe in them and indulge in the myriad spa facilities that the resorts provide . The Dead Sea coastline with its  beautiful natural and spiritual  aura, attracts tourists from far and wide. Its  soothing,  high salt content and buoyancy makes it very easy to float for a swimmer. Jordan’s rich and varied history and remnants of ancient civilization has made it one of the most favoured destinations worldwide. No wonder then that it is placed No. 8 on Halal Holiday Destination.

BRUNEI: 

The Sultanate of Brunei is a very small but extremely wealthy nation thanks to its oil and gas reserves. A large part of the country is covered with lush rain forests. With both natural and cultural heritage to boast of, Brunei offers the best of luxury and relaxation. With its modern lifestyle and facilities, it is able to offer  natural and material world to the weary traveller. Brunei is an Islamic country. Sale of Alcohol is banned and selling meat that is not halal is also banned. No wonder then that Brunei too has made it to the top 10 halal friendly holiday destinations.

QATAR:

Qatar is one of the fastest growing economies in the world, thanks to large natural gas reserves & petroleum. In recent years it also has taken the center stage for tourism. It is a much preferred luxury travel destination, with many top brand hotels vying for space. Qatar Race & Equestrian Club attracts visitors from far and wide to watch races and show jumps. Being an Islamic country, Qatar has ,this year been rated No.10 on the halal holiday destination for 2013.

(Arabian Gazette / 25 Jan 2013)


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Pakistan: SBP streamlines disclosures of Islamic banks


KARACHI: In order to streamline and standardise disclosures of Islamic banks and Islamic banking branches, the State Bank of Pakistan (SBP) has decided to introduce some changes in the statement of financial position of the Islamic banking institutions, according to a circular issued on Tuesday.

The SBP has also directed banks that head financings used by Islamic banks in their balance-sheet and the related note should be renamed as “Islamic Financing and Related Assets”.

According to the circular, all financings, advances (against Murabaha, etc), inventories and any other related item(s) pertaining to Islamic modes of financing, presently being reported under other assets or any other head, would become part of the Islamic Financing and Related Assets.

“The break-up of Islamic Financing and Related Assets into Islamic modes of financing and their respective subdivision into financings, advances, inventories and any other related item(s) shall be reported in the notes to financial statements,” it said.

(The International News / 23 Jan 2013)


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Friday, 25 January 2013

12 Prophetic Methods of Education


It is reported in the biography of Prophet Muhammad (peace and blessings be upon him) that he sent messages to different kings and leaders in a way to spread the Word of Allah and disseminate the message of Islam. Among the then world leaders who received such noble messages was Caesar, the Roman Emperor.
In that message, the Prophet addressed him as, “The Great Man ofByzantine”. This tribute of honor given to him contained a recognetion of the emperor’s being great – though, for the Romans, not for the Prophet. He also quoted in his message the following words:
{O People of the Book, come to a word common between us and you that we worship none but Allah.} (Aal `Imran 3: 64)


Here, the Prophet (peace and blessings be upon him) did a number of things. Firstly, he honored the addressee and accorded him the due respect. Secondly, he mentioned in his message a common factor between the addressee and himself. 
The life of the Prophet (peace and blessings be upon him) is abundant in examples of this sort in which the Prophet knew how to approach the invitee, attract his attention, draw his heart nearer to him, and then start to invite him to Islam or to educate him if he was already a Muslim.
Marvelous are the techniques and methods that were adopted by the Prophet (peace and blessings be upon him). These methods are to be emulated by those who take the responsibility of following his honorable steps and task themselves with that great burden.
Among the methods that were adopted by the Prophet (peace and blessings be upon him) are the following:

1. Education by setting an example:
{O you who have believed, why do you say what you do not do. Grealy hateful in the sight of Allah is that you say what you do not do.} (As-Saff 61: 2-3)


The Prophet never preached anything that he himself does not perform and he taught all Muslims to do the same in obedience to the above Qur’anic ayah (i.e. verse) and many others as well. To recognize the importance of this method, we can cite one example from the Hudaibiyah Treaty: When the writing of the peace treaty was concluded, Allah’s Apostle said to his companions, ‘Get up and slaughter your sacrifices and get your head shaved.’ None of them got up, and the Prophet repeated his order thrice.
When none of them got up, he left them and went to Um Salamah and told her of the people’s attitudes towards him. Um Salamah said, ‘O the Prophet of Allah! Do you want your order to be carried out? Go out and don't say a word to anybody till you have slaughtered your sacrifice and call your barber to shave your head.’ So, the Prophet went out and did not talk to anyone of them till he did that, i.e. slaughtered the sacrifice and called his barber who shaved his head. Seeing that, the companions of the Prophet got up, slaughtered their sacrifices, and started shaving the heads of one another, and there was so much rush that there was a danger of killing each other.” (Al-Bukhari)

2. Education through Q & A:

 This can be attested to by recalling the famous hadith in which the Archangel Jibril came to the Prophet asking him about faith, Islam, ihsan (i.e., perfection), and the Hour; the Prophet answered him in full detail and further commented that the questioner was Jibril who came to teach the Companions – using this method in cooperation with the Prophet – the matters of their religion. (This hadith can be found in Muslim)

3. Giving speeches and sermons:
The Prophet used to constantly and regularly offer the Friday Sermon (khutbat al-Jumu`ah) in which he admonished the Companions and taught them about their religion. He earnestly addressed the needs of the then emerging Muslim community and the issues that would appear to them in their daily lives. He also paid great attention to the purification of their souls and getting their hearts attached to the hereafter.

4. Giving talks or sermons every now and then:
The Prophet (peace and blessings be upon him) used to give short talks every now and then in a way to draw the attention of Muslims to something important, or ward off something heinous. He did not do that regularly as he did not like to bore them by stuffing their minds with sermons and talks. The Companions themselves used to emulate this method of da`wah with their invitees as reported by Shaqiq who said: 
We were sitting at the door of `Abdullah (ibn Mas`ud) waiting for him (to come out and deliver a sermon to us). It was at this time that there happened to pass by us Yazid ibn Mu`awiyah an-Nakha`i. We said: Inform him (`Abdullah ib. Mas`ud) of our presence here. He went in and `Abdullah ibn Mas`ud lost no time in coming out to us and said: I was informed of your presence here but nothing hindered me to come out to you but the fact that I did not like to bore you as Allah’s Messenger (peace and blessings be upon him) did not deliver us sermon on certain days fearing that it might prove to be boring for us. (Muslim)

5. Giving short talks after Salah:
The Prophet (peace and blessings be upon him) used to give short talks immediately after Salah (i.e., prayer) in a way to clarify something to Muslims or comment on another. This can be attested to by various hadiths from the Prophetic Sunnah that go beyond the scope of this article.

6. Education through raising questions:

Sometimes, the Prophet used to raise questions in a way to raise the people’s interest in the matter at hand or to draw their attention to the importance of something he intended to handle. In addition, he often used this way to revisit the terminology adopted by people and to incorporate new meanings in old terms. Abu Hurairah reported Allah's Messenger (peace and blessings be upon him) as saying,
"Do you know who is the bankrupt?’ They (the Companions) said, ‘A bankrupt man amongst us is one who has neither dirham with him nor wealth.’ He said, ‘The bankrupt of my Ummah would be he who would come on the Day of Resurrection with prayers and fasts and Zakah but (he would find himself bankrupt on that day as he would have exhausted his funds of virtues) since he hurled abuses upon others, brought calumny against others and unlawfully consumed the wealth of others and shed the blood of others and beat others, and his virtues would be credited to the account of one (who suffered at his hand). And if his good deeds fall short to clear the account, then sins would be transfered (from the abused accounts') and entered in (his account) and he would be thrown in the Hell-Fire.”(Muslim)

7. Education through story telling:
The Prophet used to tell stories of the past Prophets and their nations and sometimes of some individuals of such nations in certain contexts in a way to teach Muslims through using interesting stories from which they can derive lessons and admonition. This can be clarified by referring the reader to the story of the People of the Ditch, the Magician, the Monk and the slave (boy) as mentioned in Sahih Muslim.

8. Education through setting parables:
The Prophet (peace and blessings be upon him) used to set parables for the Companions to teach them and draw abstract concepts nearer to their minds on his way of getting them from the darkness of ignorance into the light of faith and belief. The following famous hadith narrated by Abu Hurairah can be cited here as a good example on this. Allah’s Apostle said,
“My similitude in comparison with the other prophets before me, is that of a man who has built a house nicely and beautifully, except for a place of one brick in a corner. The people go about it and wonder at its beauty, but say, ‘Would that this brick be put in its place!’ So I am that brick, and I am the last of the Prophets.” (Al-Bukhari)

9. Education through practical application:
This can be shown in the story of the Bedouin who came to the Prophet (peace and blessings be upon him) asking about the time of Salah and the following hadith shows how the Prophet (peace and blessings be upon him) responded. Sulaiman b. Buraidah narrated on the authority of his father that a person asked the Apostle of Allah (peace and blessings be upon him) about the time of prayer. Upon this he said, “Pray with us these two, meaning two days." When the sun passed the meridian, he gave command to Bilal who uttered the call to prayer.
Then he commanded him and pronounced Iqama for noon prayer (Then at the time of the afternoon prayer) he again commanded and Iqama for the afternoon prayer was pronounced when the sun was high, white and clear. He then commanded and Iqamafor the evening prayer was pronounced, when the sun had set. He then commanded him and the Iqama for the night prayer was pronounced when the twilight had disappeared. He then commanded him and the Iqama for the morning prayer was pronounced, when the dawn had appeared.
When it was the next day, he commanded him to delay the noon prayer till the extreme heat had passed and he did so, and he allowed it to be delayed till the extreme heat had passed. He observed the afternoon prayer when the sun was high, delaying it beyond the time he had previously observed it. He observed the evening prayer before the twilight had vanished; he observed the night prayer when a third of the night had passed; and he observed the dawn prayer when there was clear daylight. He (the Prophet) then said, ‘Where is the man who inquired about the time of prayer?’ He (the inquirer) said, ‘Messenger of Allah! Here I am.’ He (the Prophet) said,
"The time for your prayer is within the limits of what you have seen.”(Muslim)

10. Education through applied lessoning:
This can be seen in the following hadith that is narrated by Abu Hurairah. “Allah’s Apostle entered the mosque and a person followed him. The man prayed and went to the Prophet and greeted him. The Prophet returned the greeting and said to him, ‘Go back and pray, for you have not prayed.’ The man went back and prayed in the same way as before, returned and greeted the Prophet who said, ‘Go back and pray, for you have not prayed.
This happened thrice. The man said, ‘By Him Who sent you with the Truth, I cannot offer the prayer in a better way than this. Please, teach me how to pray.’ The Prophet said, ‘When you stand for Prayer say Takbir and then recite from the Qur'an (of what you know by heart) and then bow till you feel at ease. Then raise your head and stand up straight, then prostrate till you feel at ease during your prostration, then sit with calmness till you feel at ease (do not hurry) and do the same in all your prayers.’” (Al-Bukhari)

11. Education through accompanying the educator for some time:

It was the habit of the Prophet that when he marched for battle all Muslims capable of fighting would accompany him and no one was ever allowed to be left behind except with the Prophet’s permission. Moreover, when he dispatched military expeditions, he would command a group of Muslims to remain with him to witness the revelation of the Qur’an in order for them to convey these revealed parts and teach them to those who set out for jihad upon their return. So they learn from them what Allah revealed to His Prophet in their absence, while the Prophet sent some other men into military expeditions. This is understood from Allah’s saying,
{And it is not (proper) for the believers to go out to fight (Jihad) all together. Of every troop of them, a party only should go forth, that they (who are left behind) may get instructions in (Islamic) religion, and that they may warn their people when they return to them, so that they may beware (of evil).} (Al-Tawbah 9: 122)

12. Education without embarrassing the addressee:
The Prophet used to say in his public addresses, “What has happened to people that they do so?” Naturally, the person who was supposed to hear it did hear it, was ashamed in his heart and went about getting rid of that shortcoming. Certainly,da`wah (Islamic preaching) means to call someone to come closer to the da`iyahand, definitely, not to enumerate the person’s shortcomings or drawbacks!
Finally, these were some of the techniques and methods of da`wah adopted and applied by the Prophet (peace and blessings be upon him) by which he earned the hearts of almost all those he invited to Islam. Unfortunately, in our present time, we suffer from lack of da`iyahs who take care of their addressees in such a noble manner and thus draw them nearer to Allah and His straight path. Rather, some of those who are deemed as da`iyahs and who see themselves as doing a great service to Islam, they do nothing but making people scared of the religion of monotheism, mercy and peace.

(Onislam / 23 Jan 2013)

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