The challenges posed by both neo-modern and postmodern society and their secular cultures are very far reaching. The impact can be felt in every facet of life be it religious, political, social and economical. Following the rapid and strangulating development of the economy of the super other western powers, the insurance sector inclusive, most developing economies especially in the Muslim world feel a pressing need to re adjust their economies in order to meet up with the rapid development and high rate economic growth taking place in these developing economies.
The Muslim world among others is in need of access to large and open markets among the different Muslim countries in order to have a high rate economic growth too. A survey of recent Muslim scholarship on western theories and epistemologies reveals an attempt to understand western legacy on modern society so as to liberate Muslim societies from secular and foreign control. This is to ensure that political, economic and other preoccupations of Muslims do not become mere distractions of the world from their care and development for the hereafter. Islam is concerned both with material and spiritual advancement.
The Islamic worldview can therefore never be compared to any other worldview. It is against this background that current Muslim scholarship in the field of finance and economics in general should be viewed. It is an attempt at the total Islamization of the banking and financial sector so as to free the Muslim world from the dominant Western civilizational and ideological value-laden economic, financial and banking principles. Presently, most of the Muslim world like third world countries has under-developed economies suffering enormously under the claws and yokes of western economic and financial interest-based system. One of such key areas of modern financing where the Muslim world need a kind of economic co-operation in order to confront the challenges posed by western interest based financial system is Re-takaful Business.
It is sad that in spite of the abundance of human and natural resources in the Muslim world, the Takaful and Re-takaful Business and the entire Muslim world economic sector can still not compete with conglomerate companies like the American Insurance Group and the likes. Though the insurance business in principle was accepted by Islam right from the time of the Prophet when he instituted what can be regarded as ma’qil al-ijtima’ or social insurance between the Muhajirun (Muslims who migrated from Mecca) and the Ansar (Muslims who welcomed the emigrants in Medina), yet the insurance business has undergone a lot of developments and innovations since the time of the Prophet.
In view of the Islamic acceptance of insurance in principle as well as the necessity of the insurance scheme in our complex society, there is need to examine for a continuous research into the modern concept of insurance in its entirety so as to bring it in harmony with the rulings and requirements of the Shari’ah. The need to abide by Islamic teachings, guided by Muslim historical heritage and current global insurance and reinsurance indexes cannot be over emphasized. This work therefore is an attempt to examine an aspect of the insurance system in Islam known as the re-takaful business.
What is Re-takaful?
The term Retakaful refers to the Islamic form of reinsurance. The Retakaful business is based on the principles of Takaful in Islam. As stated before Takaful implies a group of people coming together to be jointly responsible for someone or something. ReTakaful therefore means a joint guarantee or pact among clients or cedants who are all the operators of this important work of Takaful based on mutual agreement to jointly indemnify themselves from part of the losses and risks that may happen to any of them. It also may also accrue from the policies they underwrite.
It is therefore an attempt by a group of people who are Takaful operators to pool resources together so as to share among themselves any loss or damage that befalls any of them. The Retakaful business is based on the same human attempt to make provision or protection against any future loss. Just as individuals are motivated to insure themselves with a direct insurer, so also is the insurer also desirous of reinsuring himself against any future loss or damage with a reinsurer. It is this need for reinsurance that brings about Retakaful.
As stated above, the Retakaful business is based on the principles of Takaful in Islam. It can be traced to the early days of Islam when the Prophet himself instituted what can be regarded as ma’qil al-ijtima’ or social insurance between the Muhajirun (Muslims who migrated from Mecca) and the Ansar (Muslims who welcomed the emigrants in Medina). By that act, he laid the foundation of Takaful. This ma’qil al-ijtima’ or the system of ‘aqil is similar to what obtained among the Arabs in the Jahil or pre-Islamic period during which a group of Arabs undertook to alleviate the burden of any member of the group that was liable to pay any form of compensation.
Though the insurance as well as the reinsurance business has undergone a lot of developments and innovations since the time of the Holy Prophet (saw), it can still be brought into harmony with the rulings and requirements of the Shari’ah as explained by Muslim jurists. Unless this harmony is effected, the insurance as well as the reinsurance business will be found wanting in respect of many of its operations in modern society.
Need for Re-takaful?
Just as the Prophet recognized the need for ma’qil al-ijtima’ or the system of ‘aqil to protect Muslims against any future loss or damage, so also is there the need to protect the operators of this important work of Takaful from part of the losses and risks that may accrue from the policies they underwrite. This will help to spread the losses and risks involved in the Takaful business as well as lighten the financial impact of such risks and losses on Takaful operators and the financial industry at large.
It is clear that no one is immune from losses and damages against property, business venture and even life itself including Takaful operators themselves, hence the need to offer double securities against them. RETAKAFUL is therefore part of the general precautions than can be taken against damages, risks and losses. Islam is not opposed to taking such precautions as long as it does not contradict with any Islamic contractual law.
Monday, February 20, 2012
Saturday, February 18, 2012
NO! TO RIBA (Usury) IN ECONOMIC PROSPERITY?
The term of Riba (Usury / Fixed Interest) can be understood in many ways by different sources. All these definitions are based on the concentration of incremental value of the transaction between the two persons (lenders and borrowers, bankers and customers.) Riba is not only cover in one area but it can be in different field in economic. For example, in daily life also incur riba. The meaning of Riba can be defined and understood as the lending of money at illegal high rate of interest. But in Islam Riba is different meaning.
Riba technically prefers to the premium that must be paid by the borrower to the lender along the amount principal (amount as a condition for the loan) with increment amount. This can know as an extra amount in one of two homogeneous equivalents being exchanged without the increase by return for time. It is the lending of money on interest. It is the cause of any risk, independence of any labor or effort. Allah has strictly forbidden Riba. However, the world today, including the Muslim world, is influenced with Riba. The Prophet Muhammad has confirmed this teaching in Hadith reported from Abu Hurairah;
“Their will come a time, he said, when you will not be able to find a single person in the world who will not be consuming Riba. And if any claim that he is not consuming Riba then surely the rapor of Riba will reach him”.
Riba is considered as a grave sin in Islam. The Hadith above implied that no one could escape from Riba. The true believers must wage the greatest possible struggle to keep himself and his family free from Riba, to guard himself from Riba. If he does not fight himself from Riba and does not respond to oppression in the world where caused by Riba then his faith is empty.
Riba is forbidden irrespective of business nature, it prohibits in all form whether in the form of consumption or production. Any payment relates for a loan and it’s compensating of time for a high rate of return value is considered as Riba.
Riba in Arabic comes from the roof word “raba” mean to cut or to prosper and in the Qur’an had mentioned the meaning of riba. There are certain views of jurists about riba. Some of them are unanimous with the loan transaction such as Malaki held the view that the lenders or borrower can pay or receipt profit of the loan which is contradict by Allah but Shari'ah and Hambali schools are not agree in this transaction. What the amount of interest value can consider as Riba? The amount receive from the riba is prohibited event it is as small rate or high rate (from 1%-25%) It does not mean that the amount of interest as 50-100% wills the case of Riba. Riba never defines as undue profit.
“O ye who believe! Devour not usury, doubled and multiplied; but fear Allah; that ye may (really) prosper”. (al-Qur'an).
Formation of Riba: Islamic law prohibits Riba as a predetermine payment on borrowed funds irrespective of the purpose for which the funds are used. According to the purpose of used, Muslim jusrists classify Riba into two forms: Riba al nasiah and Riba al- fald.
Riba al-Nasi’ah: (Usury of credit):
This term in Arabic known as to “postpone” Muslim identifies this Riba in loan as giving to the lender a fixed increment after interval of time over the fixed period and increase of credit over the principal. On the other hand riba al nasi’ah prefer to the repayment in the period which instrumental in earning for the lenders a fixed increment rather than delays in repayment. This was common practice in the pre- Islamic and in the early Islamic era. This form of riba established in all credit transaction where loan was advanced to person on the payment of monthly interest over the principal. In case the debtor unable to repay the principal and accumulate surplus, he will receive an extension of time to pay the loan but at the same time the sum of payment has increased double. In this sense of practice, the Qur’an has prohibited it in surah al-Baqarah verse 276-278.
This forbidden was not limit the transaction even this is in the consumption or product loans transaction. In legal terminology of the Shari'ah, Riba is defined as surplus, profit or increase in loan and sale and it spreads in all economic sectors, in trades commerce and credit for no equivalent return. Therefore, the practice of riba is unlawful for Islamic because the greater benefit is given to the rich who becomes richer whilst the poor and weak suffers. And from this is will creates different socio- economic classes in society. Ulama' have come to a outcome regarding the Riba in banks. In one of the legal compendiums, they declared:
"An interest transaction in banks is classified as Riba al-Nasi'ah. This can occur in two ways, when someone deposits their valuable or when someone borrows money (al-Qard) for a period of time and incurs interest either way. Therefore its unlawfulness is the same as the prohibition of Riba and this sin is the same as the sin of involving in Riba."
Riba al-fadl:
It describes as excess over and above the quantity of the commodity advance by the lender to borrower. This is known as exchange of something with different amount of quantity. And this also considers as riba which has been prohibited in Qur’an and Sunnah.
Riba and investments in Shares:
Regarding shares and stock market investments, Ulama' have classified this under the category of Awraq al-Naqdiyyah. Basically this is something, which is allowed, with certain conditions and it is also subjected to Zakah payment, provided that it fulfils the Nisab and Hawl and its Nisbah is 2.5% of its value.
"Shares is defined as, one of the equal parts into which the capital of a company is divided, entitling the holder of the share to a proportion of the profits. Dealing in shares is permissible in the Shari'ah."
Shaikh Syed Mutawalli ad-Darsh mentioned that:
"Money in Islam has a role to play. It should not be kept away, hoarded in a vault or safe but should circulate to allow people to make use of its benefits. That is why the books of Fiqh say that the guardian of an orphan must invest that inheritance in a good manner so that Zakah would not deplete the wealth of the child”.
One may buy shares in any company, which is offering good services to the community, and companies, which do not pursue unlawful trade. For example, we are not allowed to buy into the banking sector because it is ridden with interest. We are not allowed to buy shares into breweries because they are producing something, which is Haram. We are not permitted to buy shares in chemical companies, which produce products, which damage people and the environment. But companies, which are good, pose no problem.
Riba in the Qur’an:
Riba has been mentioned in 12 verses in four surah in the qur’anic: these entire sources represent Riba as a opposite of positive activities of trade daily activities. These Qur’anic verses were the 1st to prohibit Riba among Muslim believers such as Surah al-Nisa verses 160-161.
“For the iniquity of the Jews We made unlawful for them certain (foods) good and wholesome which had been lawful for them; in that they hindered many from Allah’s Way” And “That they took usury, though they were forbidden; and that they devoured men’s substance wrongfully; we have prepared for those among them who reject faith a grievous punishment.”
These verses remind Mankind about Riba, which regarded to the practice of Jewish and it was prohibited between Jews. Riba has been the first mentioned in the Qur’an. It has prohibited for the Muslim Ummah. In the verse 130 of Surah al-Imran, Qur’an has been mentioned any person involve in any transaction that double or multiplied the value are in the case of Riba.
“O ye who believe! Devour not usury, doubled and multiplied; but fear Allah; that ye may (really) prosper”.
The nature of Riba is under the entire tribes sign the indebtedness to the lender. This practice was common in the pre-Islamic usurers, the repayments amount was double of the original loan .It was prohibited compound usury.
Surah al-Baqurah 2:275-281 says to the effect: that whose involve in Riba will accompanies by a treat of the hereafter. “Those who devour usury will not stand except as stand one whom……but who repeat the ( offence) are companions of the five, they a hide there in (for ever)" (2:275-281).
The meaning of Riba and interpretation of the verse (30:39) was confirmed the subject in which Allah, the most high commended among the acts of the Jews in taking Riba and it had been prohibited for them. Riba in the Qur’an has mentioned as a system of economic injustice and it will lead to evil. Riba comes from exploitation and oppression that is sometime canceled in ultimate disguised .It is essentially the lending of money on interest and the influence of Riba was directed toward the realization and preservation of social justice and unity of society. Riba is the most powerful and most dangerous attaches upon mankind.
In the early era, Riba has been described as ‘ increase in capital at the expense of wealth of other’ it can be understood as Riba is the loss of one the power become poor and the gain of other (the rich become richer) .It is not fair for the Muslim ummah . Allah (swt) does not allow us to do this. This business transaction does not the good attribute of the business, rather than it is the opposite of business of religious. Allah, Almighty allows only the permissible transaction (Halal) and Riba is forbidden (haram). In Islam, all aspect of business transaction should be done in mutual consent and each of the parties should gain the satisfaction among themselves in the business transaction. This was stated in Surah al Nisa 4.29:
“O ye who believe! Eat not up your property among yourselves in vanities: But let there be amongst you Traffic and trade by mutual good-will: Nor kill (or destroy) yourselves: for verily Allah hath been to you Most Merciful.”
The first teaching of Islam spreaded to mankind in the Qur’an regarding the matter of Riba. It was specifically related to the case of lending and borrowing. Lending should be use only for the purpose of helping those are in need and it is humanitarian institution, the lenders and borrowers have bond close relationship of spiritualized. And this relationship ought to be a human, fraternal. When the lenders do not involve in any Riba (give higher rate (interest) to the user) lender will become predator. On the other hand, lenders’ wealth will become witnessed in destroying at fraternity and destabilizing the social order. Riba will be the case of destroying the concept of society as family where formerly the community was the insurance, which insured individuals against losses; now individuals have to find for themselves such as in the insurance case. This type of transaction is closely inter-linked with Riba. There is evil life for those were engaged in Riba for the purpose of seeking the wealth of mankind. The Qur’an has stated that
“Those who engaged in Riba and never give up his action then he will take note of war from Allah (swt) and His messenger"
Riba, which has been existed in the Prophet Muhammad (saw)lifetime and it practice until modern day.
Case of Riba:
If RM.100 000 were lent at a compound rate of 10% per annum for two years, the borrower would be called upon to repay RM 121 000 at the end of the contract. The lender can achieve the same goal by offering RM.100 000 at the simple rate of 21%. What would be the grounds for distinguishing between the two arrangements? Likewise, the term "exorbitant rate of interest" is also arbitrary. A 10% rate of interest may be exorbitant for one person while 21% may be normal for another depending on their respective financial positions and prospective uses of funds.
Riba in Hadith:
There are several hadiths suggest the divine prohibition of riba. The Prophet (saw) had explained the various injunctions against riba to his companion. There are two hadith relevant to the concern of riba, which has been the most influential in shaping the fiqh conception of riba:
“Every loan that attracts a benefit is riba”. Gold for gold.., if it is hand to hand”.
The Hadith on riba in sale:
The actual concept of this riba is going beyond compensation for lending money. This is no interest in loan but it is a sale of excess or delay in exchange of certain type of property such as foodstuffs and currency. Therefore, we need to consider riba in sale to has a full meaning of its. And this type of exchange was fully mentioned in the hadith that we can be used in this practice as long as the exchange with equal amount. There is no excess or increase value in delay. Due to the first form of riba, the Prophet advises conducting such exchange through the medium of money that mean one selling his good for cash and then buying other’s good with cash. Such this transaction is applicable in Islam.
The Sunnah on Riba in loan:
The second hadith is related to common practice in the modern economic life. Profit on loan is banned without regard to whether the fungible subject matters of the loan. In the Hadith of Prophet Muhammad (saw) said:
“ …a man would sleep and honesty would be taken from his heart and only it trace will remain in his heart…” Bukhari.
This is a sign for those who conduct any transaction of Riba in the last Day of Judgment. Riba has blinded Muslim, Riba has destroyed value, and corrupted mankind and non-can be trusted.
Riba in Qiyas and Ijma:
In the book of Imran Hussein, he had taken one example about Riba has practiced or has been fulfilled in miserable lifetime. He mentions, “One man from othaman Khalifa had borrowed money on interest from Europe. This amount of interest is over his effort, at the end, this man submits to European financial black mail…” He has mentioned about the financial imperialism. This is common practice in the Muslim world nowadays. This action is not mentioned in the Qur’an. In the world to day Riba can be many other forms, which are readily identifiable by businessmen. Some of businessmen will glue new form of Riba. Muslim must make them aware of the different form of Riba, and must exercise the greatest care to avoid them. Some forms of buying and selling money today take the form of borrowing from a bank on interest. It is a form of Riba and is strictly prohibited. The Prophet had taught that when the two things are bought and exchanged not the same in nature or equal money value is invalid such as gold for silver.
Riba technically prefers to the premium that must be paid by the borrower to the lender along the amount principal (amount as a condition for the loan) with increment amount. This can know as an extra amount in one of two homogeneous equivalents being exchanged without the increase by return for time. It is the lending of money on interest. It is the cause of any risk, independence of any labor or effort. Allah has strictly forbidden Riba. However, the world today, including the Muslim world, is influenced with Riba. The Prophet Muhammad has confirmed this teaching in Hadith reported from Abu Hurairah;
“Their will come a time, he said, when you will not be able to find a single person in the world who will not be consuming Riba. And if any claim that he is not consuming Riba then surely the rapor of Riba will reach him”.
Riba is considered as a grave sin in Islam. The Hadith above implied that no one could escape from Riba. The true believers must wage the greatest possible struggle to keep himself and his family free from Riba, to guard himself from Riba. If he does not fight himself from Riba and does not respond to oppression in the world where caused by Riba then his faith is empty.
Riba is forbidden irrespective of business nature, it prohibits in all form whether in the form of consumption or production. Any payment relates for a loan and it’s compensating of time for a high rate of return value is considered as Riba.
Riba in Arabic comes from the roof word “raba” mean to cut or to prosper and in the Qur’an had mentioned the meaning of riba. There are certain views of jurists about riba. Some of them are unanimous with the loan transaction such as Malaki held the view that the lenders or borrower can pay or receipt profit of the loan which is contradict by Allah but Shari'ah and Hambali schools are not agree in this transaction. What the amount of interest value can consider as Riba? The amount receive from the riba is prohibited event it is as small rate or high rate (from 1%-25%) It does not mean that the amount of interest as 50-100% wills the case of Riba. Riba never defines as undue profit.
“O ye who believe! Devour not usury, doubled and multiplied; but fear Allah; that ye may (really) prosper”. (al-Qur'an).
Formation of Riba: Islamic law prohibits Riba as a predetermine payment on borrowed funds irrespective of the purpose for which the funds are used. According to the purpose of used, Muslim jusrists classify Riba into two forms: Riba al nasiah and Riba al- fald.
Riba al-Nasi’ah: (Usury of credit):
This term in Arabic known as to “postpone” Muslim identifies this Riba in loan as giving to the lender a fixed increment after interval of time over the fixed period and increase of credit over the principal. On the other hand riba al nasi’ah prefer to the repayment in the period which instrumental in earning for the lenders a fixed increment rather than delays in repayment. This was common practice in the pre- Islamic and in the early Islamic era. This form of riba established in all credit transaction where loan was advanced to person on the payment of monthly interest over the principal. In case the debtor unable to repay the principal and accumulate surplus, he will receive an extension of time to pay the loan but at the same time the sum of payment has increased double. In this sense of practice, the Qur’an has prohibited it in surah al-Baqarah verse 276-278.
This forbidden was not limit the transaction even this is in the consumption or product loans transaction. In legal terminology of the Shari'ah, Riba is defined as surplus, profit or increase in loan and sale and it spreads in all economic sectors, in trades commerce and credit for no equivalent return. Therefore, the practice of riba is unlawful for Islamic because the greater benefit is given to the rich who becomes richer whilst the poor and weak suffers. And from this is will creates different socio- economic classes in society. Ulama' have come to a outcome regarding the Riba in banks. In one of the legal compendiums, they declared:
"An interest transaction in banks is classified as Riba al-Nasi'ah. This can occur in two ways, when someone deposits their valuable or when someone borrows money (al-Qard) for a period of time and incurs interest either way. Therefore its unlawfulness is the same as the prohibition of Riba and this sin is the same as the sin of involving in Riba."
Riba al-fadl:
It describes as excess over and above the quantity of the commodity advance by the lender to borrower. This is known as exchange of something with different amount of quantity. And this also considers as riba which has been prohibited in Qur’an and Sunnah.
Riba and investments in Shares:
Regarding shares and stock market investments, Ulama' have classified this under the category of Awraq al-Naqdiyyah. Basically this is something, which is allowed, with certain conditions and it is also subjected to Zakah payment, provided that it fulfils the Nisab and Hawl and its Nisbah is 2.5% of its value.
"Shares is defined as, one of the equal parts into which the capital of a company is divided, entitling the holder of the share to a proportion of the profits. Dealing in shares is permissible in the Shari'ah."
Shaikh Syed Mutawalli ad-Darsh mentioned that:
"Money in Islam has a role to play. It should not be kept away, hoarded in a vault or safe but should circulate to allow people to make use of its benefits. That is why the books of Fiqh say that the guardian of an orphan must invest that inheritance in a good manner so that Zakah would not deplete the wealth of the child”.
One may buy shares in any company, which is offering good services to the community, and companies, which do not pursue unlawful trade. For example, we are not allowed to buy into the banking sector because it is ridden with interest. We are not allowed to buy shares into breweries because they are producing something, which is Haram. We are not permitted to buy shares in chemical companies, which produce products, which damage people and the environment. But companies, which are good, pose no problem.
Riba in the Qur’an:
Riba has been mentioned in 12 verses in four surah in the qur’anic: these entire sources represent Riba as a opposite of positive activities of trade daily activities. These Qur’anic verses were the 1st to prohibit Riba among Muslim believers such as Surah al-Nisa verses 160-161.
“For the iniquity of the Jews We made unlawful for them certain (foods) good and wholesome which had been lawful for them; in that they hindered many from Allah’s Way” And “That they took usury, though they were forbidden; and that they devoured men’s substance wrongfully; we have prepared for those among them who reject faith a grievous punishment.”
These verses remind Mankind about Riba, which regarded to the practice of Jewish and it was prohibited between Jews. Riba has been the first mentioned in the Qur’an. It has prohibited for the Muslim Ummah. In the verse 130 of Surah al-Imran, Qur’an has been mentioned any person involve in any transaction that double or multiplied the value are in the case of Riba.
“O ye who believe! Devour not usury, doubled and multiplied; but fear Allah; that ye may (really) prosper”.
The nature of Riba is under the entire tribes sign the indebtedness to the lender. This practice was common in the pre-Islamic usurers, the repayments amount was double of the original loan .It was prohibited compound usury.
Surah al-Baqurah 2:275-281 says to the effect: that whose involve in Riba will accompanies by a treat of the hereafter. “Those who devour usury will not stand except as stand one whom……but who repeat the ( offence) are companions of the five, they a hide there in (for ever)" (2:275-281).
The meaning of Riba and interpretation of the verse (30:39) was confirmed the subject in which Allah, the most high commended among the acts of the Jews in taking Riba and it had been prohibited for them. Riba in the Qur’an has mentioned as a system of economic injustice and it will lead to evil. Riba comes from exploitation and oppression that is sometime canceled in ultimate disguised .It is essentially the lending of money on interest and the influence of Riba was directed toward the realization and preservation of social justice and unity of society. Riba is the most powerful and most dangerous attaches upon mankind.
In the early era, Riba has been described as ‘ increase in capital at the expense of wealth of other’ it can be understood as Riba is the loss of one the power become poor and the gain of other (the rich become richer) .It is not fair for the Muslim ummah . Allah (swt) does not allow us to do this. This business transaction does not the good attribute of the business, rather than it is the opposite of business of religious. Allah, Almighty allows only the permissible transaction (Halal) and Riba is forbidden (haram). In Islam, all aspect of business transaction should be done in mutual consent and each of the parties should gain the satisfaction among themselves in the business transaction. This was stated in Surah al Nisa 4.29:
“O ye who believe! Eat not up your property among yourselves in vanities: But let there be amongst you Traffic and trade by mutual good-will: Nor kill (or destroy) yourselves: for verily Allah hath been to you Most Merciful.”
The first teaching of Islam spreaded to mankind in the Qur’an regarding the matter of Riba. It was specifically related to the case of lending and borrowing. Lending should be use only for the purpose of helping those are in need and it is humanitarian institution, the lenders and borrowers have bond close relationship of spiritualized. And this relationship ought to be a human, fraternal. When the lenders do not involve in any Riba (give higher rate (interest) to the user) lender will become predator. On the other hand, lenders’ wealth will become witnessed in destroying at fraternity and destabilizing the social order. Riba will be the case of destroying the concept of society as family where formerly the community was the insurance, which insured individuals against losses; now individuals have to find for themselves such as in the insurance case. This type of transaction is closely inter-linked with Riba. There is evil life for those were engaged in Riba for the purpose of seeking the wealth of mankind. The Qur’an has stated that
“Those who engaged in Riba and never give up his action then he will take note of war from Allah (swt) and His messenger"
Riba, which has been existed in the Prophet Muhammad (saw)lifetime and it practice until modern day.
Case of Riba:
If RM.100 000 were lent at a compound rate of 10% per annum for two years, the borrower would be called upon to repay RM 121 000 at the end of the contract. The lender can achieve the same goal by offering RM.100 000 at the simple rate of 21%. What would be the grounds for distinguishing between the two arrangements? Likewise, the term "exorbitant rate of interest" is also arbitrary. A 10% rate of interest may be exorbitant for one person while 21% may be normal for another depending on their respective financial positions and prospective uses of funds.
Riba in Hadith:
There are several hadiths suggest the divine prohibition of riba. The Prophet (saw) had explained the various injunctions against riba to his companion. There are two hadith relevant to the concern of riba, which has been the most influential in shaping the fiqh conception of riba:
“Every loan that attracts a benefit is riba”. Gold for gold.., if it is hand to hand”.
The Hadith on riba in sale:
The actual concept of this riba is going beyond compensation for lending money. This is no interest in loan but it is a sale of excess or delay in exchange of certain type of property such as foodstuffs and currency. Therefore, we need to consider riba in sale to has a full meaning of its. And this type of exchange was fully mentioned in the hadith that we can be used in this practice as long as the exchange with equal amount. There is no excess or increase value in delay. Due to the first form of riba, the Prophet advises conducting such exchange through the medium of money that mean one selling his good for cash and then buying other’s good with cash. Such this transaction is applicable in Islam.
The Sunnah on Riba in loan:
The second hadith is related to common practice in the modern economic life. Profit on loan is banned without regard to whether the fungible subject matters of the loan. In the Hadith of Prophet Muhammad (saw) said:
“ …a man would sleep and honesty would be taken from his heart and only it trace will remain in his heart…” Bukhari.
This is a sign for those who conduct any transaction of Riba in the last Day of Judgment. Riba has blinded Muslim, Riba has destroyed value, and corrupted mankind and non-can be trusted.
Riba in Qiyas and Ijma:
In the book of Imran Hussein, he had taken one example about Riba has practiced or has been fulfilled in miserable lifetime. He mentions, “One man from othaman Khalifa had borrowed money on interest from Europe. This amount of interest is over his effort, at the end, this man submits to European financial black mail…” He has mentioned about the financial imperialism. This is common practice in the Muslim world nowadays. This action is not mentioned in the Qur’an. In the world to day Riba can be many other forms, which are readily identifiable by businessmen. Some of businessmen will glue new form of Riba. Muslim must make them aware of the different form of Riba, and must exercise the greatest care to avoid them. Some forms of buying and selling money today take the form of borrowing from a bank on interest. It is a form of Riba and is strictly prohibited. The Prophet had taught that when the two things are bought and exchanged not the same in nature or equal money value is invalid such as gold for silver.
Tuesday, January 24, 2012
CORPORATE PERSONALITY? the Shari’ah Directive…
FREEDOM OF ECONOMIC PURSUIT
One can’t think of the possibility of trade and legal transactions unless the right of the individuals as well as groups to own and alienate any property freely and without coercion is recognized. The holy Qur’an recognizes this right of individuals and groups. Especially in this 21st century where online transactions and financial becoming more and more popular, question arises of where does the Islamic and Shari’ah stand on this matter, because al-Qur’an doesn’t state clearly on how to conduct businesses online,
The answer and solution is, although al-Qur’an doesn’t state specifically on how to behave in the cyberspace, it gives the basic foundation of approved business conducts which suitable for everybody at anytime, whether it was during the of the Prophet or at this 21st century, where many businesses are turning to a cyberspace, not a brick-and-mortar superstores. al-Qur’an does recognize the rights of individuals and groups.
(i) Recognition of and Regard for Personal Property.
Although the real and absolute Owner of all wealth is Allah the legitimacy of man’s ownership over his property is not ruled out. al-Qur’an recognizes the delegated authority of man over that wealth that is legally possessed by him. It grants him full freedom to make any transactions he wants, enjoining him, however, to observe the limits prescribed by the Shari’ah. Wealth is regarded as inviolable, and therefore, respects for a man’s right to his life, honor and property are enjoined as a religious duty. al- Qur’an prohibits any unlawful interference with the property of others. A Muslim is not allowed to make use of anything that belongs to someone else except with the express permission of the owner. The holy Prophet (saw), during his Last Sermon at al-‘Arafat, declared the inviolability of property to be at par with that of life and honor:
“Like this day of this month in this territory, sacred and inviolable, God has made the life and property and honor of each you unto the other, until you meet your Lord”.
(ii) Legality of Trade
The recognition of man’s ownership over his property is an acknowledgement of his exclusive right to make important decisions regarding his property. He can use, sell or exchange it for another property. al-Qur’an declares that trade is lawful. The legality of trade implies that a Muslim is free to make any kind of approved transaction al-Qur’an envisages complete freedom of trade, be it internal or external. Open competition based on the natural law of demand and supply is encouraged. Islam encourages the owner of the capital to invest his capital and earn profit through a lawful business.
(iii) Mutual Consent
Complete mutual consent of the parties concerned is regarded as a pre-condition for the legality of any transaction. Unless this condition is duly met, consumption of the transacted property amounts to akl bi al-batil (i.e. a consumption which is unjust and illegal). A business transaction cannot be said to have taken place with complete consent (tijaratan ‘an taradin minkum) if either pressure, fraud or misstatement have been used by any party.
JUSTICE / EQUITY
It is no exaggeration to say that justice forms the core of the Qur’anic injunctions. al-Qur’an itself asserts that the purpose of its revelation is to establish justice and equity. After citing several unique instances of Islamic justice, Sayyid Abu 'Ala Mawdudi remarks that only Islam presents a system of real and perfect social justice. The Qur’anic teachings pertaining to justice in the realm of business may be categorized under two heads, namely the imperatives and the safeguards.
(i) The Imperatives
This category consists of commands and recommendations regarding conduct in business. These are discussed separately below.
(a) Fulfillment of Promises, Pacts and Contracts
One of the most important teachings of the holy Qur’an about business conduct is to fulfill promises and contracts. al-Qur’an demands that all contracts and promises be honored and all obligations fulfilled. Also, it warns that everyone will be questioned regarding the contracts and covenants made by him / her. It commands the believers not to violate their concluded contracts even there be a genuine reason to believe that the other party is intent upon its violation. Under such circumstances it instructs them to inform the other party about their (the believers’) decision regarding the formal dissolution of the pact so that they are left on an equal footing. al-Qur’an, moreover, enjoins upon the believers to guard their oaths; this means they should be serious about fulfilling them. It has also prescribed a penalty for violation of one’s oath. Guarding of oath also implies that one should be careful not to take an unlawful oath, since elsewhere al-Qur’an has instructed the believers to defy their unlawful oaths and expiate for the sin of violation.
(b) Exactness in Weight and Measures.
It goes without saying that the confidence of the customers plays a vital role in the advancement of any business concern. That’s why all big businesses make every effort to build up their reputation and maintain it. By the same token, the importance of accuracy in terms of weights, measures or any promised specifications cannot be overemphasized. al-Qur’an has laid enormous stress on this matter. It has repeatedly commanded the believers to weigh and measure in full without the slightest diminution, warning that those who did not do it will suffer dire consequences. The Qur’anic emphasis on justice in general and maintenance of straight balance in particular is evident from its forceful and oft-repeated injunctions.
(c) Truthfulness, Sincerity and Honesty
al-Qur’an commands people to be honest, sincere and truthful in all walks of life. This is especially required in the realm of business. While lying and cheating are condemned and forbidden and even approximated with the negation of faith, the quality of truthfulness is not only commanded but has been made an absolute requirement.
(d) Investigations and Verifications
Investigations and verifications are essential because they constitute a prelude to right and ethical conduct. al-Qur’an instructs Muslims to probe and verify any given statement or information before making decision or taking any action. Also, it advises them to investigate about the commodity before purchasing it. This must be done even if there be no other reason, in order to ascertain whether the commodity is halal or haram.
(ii) The Safeguard
(a) Writing of a Contract
A business contract should be put in black and white. This is specially recommended in the case of credit transactions whether large or small. Needless to say, the act of writing down of the terms of transactions is an effective safeguard against any false claims made by either party subsequently. The contemporary business practice of issuing a customer’s receipt or cash-memo is a convenient way of achieving the same objective.
(b) Witnesses
al- Qur’an also recommends that credit transactions should be witnessed by two reliable adult males, or if two men are not available, then one man and two women. The presence of two reliable witnesses at the time of making a credit transaction is, undoubtedly, an added safeguard against any sort of foul play, whether deliberate or otherwise, by other of the contracting parties.
(c) Rahn
Another safeguard, in case of a credit transaction, is the act of taking into possession by the creditor of a real property belonging to the debtor, as pawn or mortgage until the loan is repaid.
(d) The Principle of Individual Responsibility
According to al-Qur’an, in a business transaction as in any other sphere of life, the principle of individual responsibility is of prime importance. Everyone is held personally responsible for any undertaking or transaction made by him. No one is given the privilege of immunity from facing the consequences of one’s deeds. In this Qur’nic principle, there is a dependable deterrent against any irresponsible behaviors. Everyone is answerable both in this world and in the Hereafter.
Sunday, January 15, 2012
Life with Respirator? the Reality & the rights under Shari'ah
There may be a question arising, for instance, if a person is admitted to a hospital with an unconscious life threatening condition at 9:00 a.m. The doctor in charge confirms an hour later at 10:00 a.m that, the patient may no longer survive naturally with heart and breathing functions, unless a respirator (life support machine) is administered to the patient. 15 minutes later, the respirator is set up, which subsequently prolongs the heart and breathing functions of the patient. Upon knowing the patient’s critical condition, one of his (the patient) heirs goes to visit him and on the way he meets an accident at 11:00 a.m, and dies on the spot, while the patient is still breathing with the life support machine.
The issue here, the patient in the said- example, could have naturally died (according to the doctor’s presumption) between 10:00 a.m and 10:15 a.m, but because of the life support machine the patient’s heart and breathing functions were sustained for a longer period. If we consider the death of the patient a natural one, then it could be concluded that, the actual death of the patient took place earlier than the death (at 11:00 a.m) of his heir and therefore, the heir shall hold a property right or insurable interest over the deceased’s wealth, since the heir was alive at the time of the death of the patient. But, if we consider the heart and breathing functions of the patient sustained through the artificial method (respirator), then we may conclude in the above example that, the death of the heir took place during the life time of the patient, since the patient was still breathing when the heir died in the accident and, therefore the heir may not have beneficial interest over the deceased’s wealth, since the heir was not alive during the lifetime of the patient. What could be the solution to the conflict of methods (in the above example) in determining the actual moment of death of both the deceased and his heir?
It was a classical understanding that, one’s death could be confirmed only when his / her breathing and heart functions ceased. The death of the brain is the final test of one’s death. Because of rapid advancement of technology, one’s brain alive with heart and breathing functions, may be sustained artificially through a ventilator or respirator (life support machine), which enables a patient remains alive (with breathing and heart functions only) for a longer period than what might otherwise occur naturally.
It is, therefore submitted that, the presumption of one’s death would take effect only when the death of one’s brain (without breathing and heart functions is confirmed, regardless of whether one’s brain death occurs naturally or its (death) occurrence is delayed due to the aid of a respirator.
This is because, the life and death of the creature are in the hands of almighty Allah (s.w.t.), who is the most powerful and knowledgeable as to the soul's functions of his creatures. Even though a respirator assists a patient to sustain the heart and breathing functions a longer period, it is a mere mediating cause, which has no power to guarantee one’s actual life. This is indicated in the words of Allah (s.w.t.):
إن الله عنده علم الساعة وينزل الغيث ويعلم ما في الأرحام وما تدري نفس ما ذا تكسب غدا وما تدري نفس بأي أرض تموت إن الله عليم خبير
“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 anyone know what it is that he will earn on tomorrow; nor does anyone know in what land he is to die. Verily with Allah is full knowledge and He is acquainted with all things.”
Relying on this analysis it may be remarked that, one’s life would be presumed during the time his / her brain is alive (with breathing and heart functions), regardless of whether one is able to maintain these two elements (breathing and heart functions) naturally or through an artificial method (respirator).
Therefore, the determination of the property right or insurable interest of a heir in the above example depends on the moment when the brain death (without breathing and heart functions) of the deceased has actually occurred. If, therefore, the brain death of the deceased occurs earlier than the death of the heir, then the heir in such a situation, may have beneficial interest, but if the heir's death occurs earlier than the deceased’s brain death, the heir may lose the right of beneficial interest over the deceased wealth, in which situation, the benefits over the wealth would be distributed among the existing beneficiaries accordingly (Faraidh).
The issue here, the patient in the said- example, could have naturally died (according to the doctor’s presumption) between 10:00 a.m and 10:15 a.m, but because of the life support machine the patient’s heart and breathing functions were sustained for a longer period. If we consider the death of the patient a natural one, then it could be concluded that, the actual death of the patient took place earlier than the death (at 11:00 a.m) of his heir and therefore, the heir shall hold a property right or insurable interest over the deceased’s wealth, since the heir was alive at the time of the death of the patient. But, if we consider the heart and breathing functions of the patient sustained through the artificial method (respirator), then we may conclude in the above example that, the death of the heir took place during the life time of the patient, since the patient was still breathing when the heir died in the accident and, therefore the heir may not have beneficial interest over the deceased’s wealth, since the heir was not alive during the lifetime of the patient. What could be the solution to the conflict of methods (in the above example) in determining the actual moment of death of both the deceased and his heir?
It was a classical understanding that, one’s death could be confirmed only when his / her breathing and heart functions ceased. The death of the brain is the final test of one’s death. Because of rapid advancement of technology, one’s brain alive with heart and breathing functions, may be sustained artificially through a ventilator or respirator (life support machine), which enables a patient remains alive (with breathing and heart functions only) for a longer period than what might otherwise occur naturally.
It is, therefore submitted that, the presumption of one’s death would take effect only when the death of one’s brain (without breathing and heart functions is confirmed, regardless of whether one’s brain death occurs naturally or its (death) occurrence is delayed due to the aid of a respirator.
This is because, the life and death of the creature are in the hands of almighty Allah (s.w.t.), who is the most powerful and knowledgeable as to the soul's functions of his creatures. Even though a respirator assists a patient to sustain the heart and breathing functions a longer period, it is a mere mediating cause, which has no power to guarantee one’s actual life. This is indicated in the words of Allah (s.w.t.):
إن الله عنده علم الساعة وينزل الغيث ويعلم ما في الأرحام وما تدري نفس ما ذا تكسب غدا وما تدري نفس بأي أرض تموت إن الله عليم خبير
“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 anyone know what it is that he will earn on tomorrow; nor does anyone know in what land he is to die. Verily with Allah is full knowledge and He is acquainted with all things.”
Relying on this analysis it may be remarked that, one’s life would be presumed during the time his / her brain is alive (with breathing and heart functions), regardless of whether one is able to maintain these two elements (breathing and heart functions) naturally or through an artificial method (respirator).
Therefore, the determination of the property right or insurable interest of a heir in the above example depends on the moment when the brain death (without breathing and heart functions) of the deceased has actually occurred. If, therefore, the brain death of the deceased occurs earlier than the death of the heir, then the heir in such a situation, may have beneficial interest, but if the heir's death occurs earlier than the deceased’s brain death, the heir may lose the right of beneficial interest over the deceased wealth, in which situation, the benefits over the wealth would be distributed among the existing beneficiaries accordingly (Faraidh).
Islamic Capital Market? a Halal Paradigm.....
Halal Capital Market Paradigm:
Any activity be one is a stock, trade, manufacturing or service in view of Halal gain or income generation, shall be in total compliance with the integrated Divine principles of Shari’ah and that is; law, morality and cooperation with utmost care, share and concern with holistic universal character for the common benefit of all humanity by waiving the issue of one’s religion, race, colour, gender, status or nationality. An unfair gain through dishonesty, misappropriation, oppression, illegality and appreciating advantage at the expense of others, is totally opposed by the concept and spirit of Halal.
Money managements involving usury and gambling, manufacturing and / or selling of forbidden products (for example, liquor, pork and pornography related materials), engaging in operations evolved by the elements of uncertainty and cheating, are forbidden by the Shari’ah. These activities are considered as un-Islamic (non-Halal) in nature, as regulated by the Shari’ah frameworks. Thus, neither capital market, stock market nor other related money matters are also governed by the Shari’ah principles with no exception per se. Therefore, the stocks and shares of companies involving in the above-mentioned practices are deemed non-halal. But, what if the core business of a company is halal in nature, while a smaller portion of the business activities are not align with the Shari’ah principles. Can such a company or its activities be regarded Halal? Or is it Halal to invest or participate in the above nature of companies or their activities? Or what are the Shari’ah screening mechanisms to determine one is Halal?
Muslims cannot afford to ignore the capital market because the private sector, which holds a nation’s power are made up of entities that are naturally controlled by the shareholders, and ignoring the capital market implies ignoring the economic power of private sector and its attendant power of wealth creation, employment and training opportunities, control of economic knowledge and technology, and global economic relations.
The global Shari’ah compliant movement and strategies attempted to develop Islamic capital markets to cater for the demands from local as well as foreign investors who seek to invest in securities based on Shari’ah principles. The Kuala Lumpur Stock Exchange Shari’ah Index (KLSE SI) and the Dow Jones Islamic Market Indexes are examples of such attempt. However, there remain issues on stock trading practises in which Islamic scholars are still not unanimous as to the validity of such practises. Examples are the contra and margin trading and options on stocks. Despite the ongoing debates, in Malaysia, the Islamic scholars do permit these practices, but with some modifications (for example replacing interest-based elements with Mudarabah principles) to meet the terms of Shari’ah principles.
With the foreseeable future of globalisation, Muslims should take advantage of the potential benefits arising from the involvement in capital markets; this is to prevent the Muslims from being left behind to the non-Muslims. However, it should be in the mind of the Muslim investors that whatever actions or activities they partake in the capital market, they must be in accordance with the guidelines and rules stated under the Shari’ah principles.
Any activity be one is a stock, trade, manufacturing or service in view of Halal gain or income generation, shall be in total compliance with the integrated Divine principles of Shari’ah and that is; law, morality and cooperation with utmost care, share and concern with holistic universal character for the common benefit of all humanity by waiving the issue of one’s religion, race, colour, gender, status or nationality. An unfair gain through dishonesty, misappropriation, oppression, illegality and appreciating advantage at the expense of others, is totally opposed by the concept and spirit of Halal.
Money managements involving usury and gambling, manufacturing and / or selling of forbidden products (for example, liquor, pork and pornography related materials), engaging in operations evolved by the elements of uncertainty and cheating, are forbidden by the Shari’ah. These activities are considered as un-Islamic (non-Halal) in nature, as regulated by the Shari’ah frameworks. Thus, neither capital market, stock market nor other related money matters are also governed by the Shari’ah principles with no exception per se. Therefore, the stocks and shares of companies involving in the above-mentioned practices are deemed non-halal. But, what if the core business of a company is halal in nature, while a smaller portion of the business activities are not align with the Shari’ah principles. Can such a company or its activities be regarded Halal? Or is it Halal to invest or participate in the above nature of companies or their activities? Or what are the Shari’ah screening mechanisms to determine one is Halal?
Muslims cannot afford to ignore the capital market because the private sector, which holds a nation’s power are made up of entities that are naturally controlled by the shareholders, and ignoring the capital market implies ignoring the economic power of private sector and its attendant power of wealth creation, employment and training opportunities, control of economic knowledge and technology, and global economic relations.
The global Shari’ah compliant movement and strategies attempted to develop Islamic capital markets to cater for the demands from local as well as foreign investors who seek to invest in securities based on Shari’ah principles. The Kuala Lumpur Stock Exchange Shari’ah Index (KLSE SI) and the Dow Jones Islamic Market Indexes are examples of such attempt. However, there remain issues on stock trading practises in which Islamic scholars are still not unanimous as to the validity of such practises. Examples are the contra and margin trading and options on stocks. Despite the ongoing debates, in Malaysia, the Islamic scholars do permit these practices, but with some modifications (for example replacing interest-based elements with Mudarabah principles) to meet the terms of Shari’ah principles.
With the foreseeable future of globalisation, Muslims should take advantage of the potential benefits arising from the involvement in capital markets; this is to prevent the Muslims from being left behind to the non-Muslims. However, it should be in the mind of the Muslim investors that whatever actions or activities they partake in the capital market, they must be in accordance with the guidelines and rules stated under the Shari’ah principles.
Islamic Credit Card? a Corporate Paradigm...
Credit Card is known as ‘plastic money’, is an essential mode of payments in today’s society. People own credit card for various reasons such as to obtain credit facility, cash advance, easy payment, charge card and prestige. It has becoming way of life in the society nowadays that different types of credit card such as Master and Visa and category gold and platinum, represent the wealth status of a person. Undoubtedly the role of a credit card is more than that. Its important role in e-commerce transaction is undisputable.
However,
Credit Card- the Shari'ah Paradigm
It is often the case that the battle between Islamic and conventional credit cards is on product features. The impact of the competition in this lead the consumer’s preference to ask:
However one should ask, are these the selling point for Islamic credit card? It is sad to see that many marketing strategies for Islamic credit cards talked about product features rather than selling the ethical values and concept underneath to the consumers. The equation that always in the mind of consumer about Islamic financial product is cheap. Meaning to say that, in any Islamic debt-financing facilities, the rate of return to the financier should be at the lowest point of the profitability quadrant. Why such discriminations exist?
Islam permits the use of credit card so long it does not involve the element of usury. As an example if the withdrawing cash advance from the credit facility will result payment of an interest, it is prohibited. Similarly if there is an additional interest charge due to delay in payment, it is prohibited also. Therefore, if the credit card serves as a charge card, where you only pay the principle amount that you use plus the service charges, it is permitted. Dr Monzer Kahf in Live Fatwa on Islam on line dated August 8, 2001 responded:
“Signing a credit card contract and using it in a way that generated payable interest is haram. It is then borrowing on interest. Signing the contract, using it, and making the payments within the grace period and making no cash withdrawals (whenever cash withdrawals generate interest), is permissible because it amounts to a contract that gives you a choice to deal or not to deal with interest”.
Islamic vs Conventional Credit Card
Shari'ah recognizes the role of credit card as a medium of payment as it does not contravene with principle of Shari'ah and under the doctrine of Masalih al-Mursalah it give comfortable life to Muslim community in term of socio economy and practicality of bai Al Inah in the modern environment. Indeed the justification in deriving that secondary source harmonizes with Qur'an and Sunnah. The underlying principles required by Shari'ah in the functionality of credit card is validated under Masalih Al-Mursalah, even though the used of doctrine Bai al-'Inah is debated among the Muslim scholar.
However,
- How does Islam accept the role of credit card as a medium of payment?
- What are the underlying principles required by Shari'ah in the functionality of credit card?
- What would be the possible legal issues and how Islam addresses theses issues?
- What are the differentiation factors in the Islamic credit cards?
Credit Card- the Shari'ah Paradigm
It is often the case that the battle between Islamic and conventional credit cards is on product features. The impact of the competition in this lead the consumer’s preference to ask:
- Which one offers more value for money?
- Which one offers low penalty rate?
- Which one offers free bonus points more?
- Which one looks fancier?
- Which one gives annual fee waiver?
However one should ask, are these the selling point for Islamic credit card? It is sad to see that many marketing strategies for Islamic credit cards talked about product features rather than selling the ethical values and concept underneath to the consumers. The equation that always in the mind of consumer about Islamic financial product is cheap. Meaning to say that, in any Islamic debt-financing facilities, the rate of return to the financier should be at the lowest point of the profitability quadrant. Why such discriminations exist?
Islam permits the use of credit card so long it does not involve the element of usury. As an example if the withdrawing cash advance from the credit facility will result payment of an interest, it is prohibited. Similarly if there is an additional interest charge due to delay in payment, it is prohibited also. Therefore, if the credit card serves as a charge card, where you only pay the principle amount that you use plus the service charges, it is permitted. Dr Monzer Kahf in Live Fatwa on Islam on line dated August 8, 2001 responded:
“Signing a credit card contract and using it in a way that generated payable interest is haram. It is then borrowing on interest. Signing the contract, using it, and making the payments within the grace period and making no cash withdrawals (whenever cash withdrawals generate interest), is permissible because it amounts to a contract that gives you a choice to deal or not to deal with interest”.
Islamic vs Conventional Credit Card
- No money lending. Since the transaction of credit card is based on trade (Bai’), the element of usury will be eliminated from the loan transaction that is applied in the conventional money lending.
- None compounding of profit. Profit margin for the cardholders is fixed for the whole tenure (between three and five years) and the actual profit is charged based on the remaining balance. The monthly profit is calculated on a monthly basis, based on outstanding due or total transactions made for that particular month.
- Control on transactions/merchants. Users are allowed to carry out only halal, or Islamically permissible transactions. The bank will decline transactions for six categories of non-halal related activities, including bars, discos, night clubs, purchase of beers, escort and massage services and gambling.
- Islamic credit card can attract non-Muslim customers due to the attractive features offered. There will be no compounding factor for cardholders and the financing charges are on par with other credit cards offers.
- Some credit card issuer like Bank Islam Malaysia Berhad also offers free Group Personal Accident Takaful coverage and “Burial Services” for the first 50,000 successful applicants for the first year and free Group Family Takaful Coverage and “Burial Services” for the first 10,000 successful Gold Card applicants.
Shari'ah recognizes the role of credit card as a medium of payment as it does not contravene with principle of Shari'ah and under the doctrine of Masalih al-Mursalah it give comfortable life to Muslim community in term of socio economy and practicality of bai Al Inah in the modern environment. Indeed the justification in deriving that secondary source harmonizes with Qur'an and Sunnah. The underlying principles required by Shari'ah in the functionality of credit card is validated under Masalih Al-Mursalah, even though the used of doctrine Bai al-'Inah is debated among the Muslim scholar.
Saturday, January 14, 2012
Distribution of Wealth? an Islamic Direction....
The goal is defined as attainment of the distribution justice and fairness with regard to the society’s programs to the redistribution of income and wealth. So that every individual is guaranteed a standard of living in the dignity of man in his role as Allah’s vicegerent on earth. Such a distribution will be based on equity instead of equality since Islam recognizes that men are not equal in their character, abilities and contributions to the society.
Besides of responsibility to maintain the dignity of man in the society, this goal accrues from the given commitment of Islam to the humanity with the holistic spirit of brotherhood, philanthropy and socio-economics justice.
Hence, gross in equitabilities of income and wealth can only be repugnant to such a split and destroy instead of foster the feelings the philanthropy that Islam wishes to create.
History has proven time and again that more often than not, dissensions leading to civil strife resulted from the distribution function over the widening gap between the lower and upper income level. It is this that both welfare state capitalism and socialism seek to avoid although both ideologies approach the issue in controlling the money.
As implied in the notion earlier, Islam does tolerate some inequalities in income. Not all men are equal in character, ability, effort and willingness to sacrifice to the society. Hence, the Islamic concept is equity in the distribution the income and wealth does not require to reward to everyone irrespective of his contribution to the society.
This brings into the discussion a maxim in Islamic economics, that is no work should be left without reward and no reward should be distributed without work. Productive work is imperative according to Qur’anic injunction and to reward it is only a law to existence.
Fair and just reward in one which is commensurate with the work done and not with the misuse the wealth endowed upon men. For example, being guaranteed, a fixed return on capital even before this capital is utilized for production.
Besides of responsibility to maintain the dignity of man in the society, this goal accrues from the given commitment of Islam to the humanity with the holistic spirit of brotherhood, philanthropy and socio-economics justice.
Hence, gross in equitabilities of income and wealth can only be repugnant to such a split and destroy instead of foster the feelings the philanthropy that Islam wishes to create.
History has proven time and again that more often than not, dissensions leading to civil strife resulted from the distribution function over the widening gap between the lower and upper income level. It is this that both welfare state capitalism and socialism seek to avoid although both ideologies approach the issue in controlling the money.
As implied in the notion earlier, Islam does tolerate some inequalities in income. Not all men are equal in character, ability, effort and willingness to sacrifice to the society. Hence, the Islamic concept is equity in the distribution the income and wealth does not require to reward to everyone irrespective of his contribution to the society.
This brings into the discussion a maxim in Islamic economics, that is no work should be left without reward and no reward should be distributed without work. Productive work is imperative according to Qur’anic injunction and to reward it is only a law to existence.
Fair and just reward in one which is commensurate with the work done and not with the misuse the wealth endowed upon men. For example, being guaranteed, a fixed return on capital even before this capital is utilized for production.
Consumption Behaviour in Islam
A common question pertaining to consumption is ‘how much to consume now and the plan to save for the future consumption?’ Conventional theory believes that the values of savings will grow as per the period and the rate of interest. In contrast, Islam rules out the expected return is more effective motivation rather than the rate of interest.
To explain the concept from the Islamic value patent, which urges Muslim to help the needy. It is a noble act with great rewardings. Hence, the more a Muslim can earn, the more he can save and the more he will be able to help the needy. Another interesting principle of Islam is to allow savings for the future consumption. The Holy Prophet (s.a.w) enshrined:
‘it is better for one to leave after death some resources for his family than to leave them destitute asking others for help.’
THE PATTERN OF CONSUMPTION
Majority of the consumers give priority to their own consumption than to share with others. However, when the consumer set the expenditure for himself / herself and his / her family, it may be that at this level, he / she is more willing to be generous.
He is willing to give that he includes more of others’ consumption in his function even though this will help others. Only when the level of his own expenditure on himself and his family is low, he is close to the level of necessities, he is not willing to make the same scarifies before.
RELATED ISSUES
Consumption incurred when there is want or need from the consumers. Basically wants and needs vary from individual perspective. Islam however wants the Muslim to distinguish the importance of the needs so they can give priority to the most till the least.
Need is a value loaded a concept as the want and is determined by the concept of maslahah (public interest). Want on the other hand is determined by the concept of utility. These are the 5 elements that have maslahah (public interest) for human beings;
There are 3 levels of need:
(i) Where the above 5 elements are barely protected.
(ii) The level where the protection of above 5 elements is complemented to reinforce their protection.
(iii) The level where the above 5 elements simply get ameliorated or beautified.
It is interesting to see the property has higher position than the faith or religion. Property here may refer to possession of wealth, political power or physical assets. Muslims need these properties in order to have better life in general. The property can enable the Muslims to practice the religion in comfortable environment. Lots of money is required to build a mosque so people can have congregational prayer or gathering on 'Aidilfitri (Festival).
The political power may ensure the position of the religion in a country or an organization. Muslim top leaders could protect and realized the need of the religion as well as the Muslim community.
DIFFERENT PERCEPTION OF NEED
As mentioned before, 2 persons may find different opinion over certain needs. A may see a car is important to him but not to B. The car helps A to go to office to seek ‘rezeki’ (sustenance), which is compulsory to Muslims. Let’s say he takes any public transport and getting tired easily. This could affect his productivity of work or perhaps he could miss the prayer due to the tiredness.
Need depends on desirability where the desirability is determined by the maslahah (public interest). Another example is marriage where it binds the two with love. Allah (swt) has created the creature in pair. So a guy needs to marry a girl as the marriage prevents further from ma’siyat (wrong doings) and has many hidden good causes.
The couple may have a wedding ceremony to publicise and celebrate their status to the relatives. However, it is not necessary for them to have a big bashing wedding ceremony. Consumer basically has various needs in one’s life. However, a Muslim’s consumption must follow the Islamic norms. He must be wise in making decision so he could avoid any wastage in future.
To explain the concept from the Islamic value patent, which urges Muslim to help the needy. It is a noble act with great rewardings. Hence, the more a Muslim can earn, the more he can save and the more he will be able to help the needy. Another interesting principle of Islam is to allow savings for the future consumption. The Holy Prophet (s.a.w) enshrined:
‘it is better for one to leave after death some resources for his family than to leave them destitute asking others for help.’
THE PATTERN OF CONSUMPTION
Majority of the consumers give priority to their own consumption than to share with others. However, when the consumer set the expenditure for himself / herself and his / her family, it may be that at this level, he / she is more willing to be generous.
He is willing to give that he includes more of others’ consumption in his function even though this will help others. Only when the level of his own expenditure on himself and his family is low, he is close to the level of necessities, he is not willing to make the same scarifies before.
RELATED ISSUES
Consumption incurred when there is want or need from the consumers. Basically wants and needs vary from individual perspective. Islam however wants the Muslim to distinguish the importance of the needs so they can give priority to the most till the least.
Need is a value loaded a concept as the want and is determined by the concept of maslahah (public interest). Want on the other hand is determined by the concept of utility. These are the 5 elements that have maslahah (public interest) for human beings;
- Life.
- Property.
- Faith.
- Intellect.
- Posterity.
There are 3 levels of need:
(i) Where the above 5 elements are barely protected.
(ii) The level where the protection of above 5 elements is complemented to reinforce their protection.
(iii) The level where the above 5 elements simply get ameliorated or beautified.
It is interesting to see the property has higher position than the faith or religion. Property here may refer to possession of wealth, political power or physical assets. Muslims need these properties in order to have better life in general. The property can enable the Muslims to practice the religion in comfortable environment. Lots of money is required to build a mosque so people can have congregational prayer or gathering on 'Aidilfitri (Festival).
The political power may ensure the position of the religion in a country or an organization. Muslim top leaders could protect and realized the need of the religion as well as the Muslim community.
DIFFERENT PERCEPTION OF NEED
As mentioned before, 2 persons may find different opinion over certain needs. A may see a car is important to him but not to B. The car helps A to go to office to seek ‘rezeki’ (sustenance), which is compulsory to Muslims. Let’s say he takes any public transport and getting tired easily. This could affect his productivity of work or perhaps he could miss the prayer due to the tiredness.
Need depends on desirability where the desirability is determined by the maslahah (public interest). Another example is marriage where it binds the two with love. Allah (swt) has created the creature in pair. So a guy needs to marry a girl as the marriage prevents further from ma’siyat (wrong doings) and has many hidden good causes.
The couple may have a wedding ceremony to publicise and celebrate their status to the relatives. However, it is not necessary for them to have a big bashing wedding ceremony. Consumer basically has various needs in one’s life. However, a Muslim’s consumption must follow the Islamic norms. He must be wise in making decision so he could avoid any wastage in future.
Audit Standard Under Shari'ah? a corporate reality...
Islam is a complete and comprehensive system of life with integrated package. It provides guidance in all aspects of life including economics, social, political and cultural. Accounting and auditing are parts of economy, which are professions that are required by Shari’ah as Fard al-kifayah. Both accounting and auditing provide the concept of fairness as they show where the resources have been allocated. The realization of this concept is closely related to the code of ethics for accountant in performing their professional duties and responsibilities.
From the Islamic view point, the ethics of accountants and auditors depend primarily on the principles of Islamic faith and Shari’ah. As ethics are integral part of Shari’ah, therefore, Islam strongly emphasizes on that and considers them as one of the objectives of legislation. In short, Islamic Shari’ah provides some foundations of auditors and accountants’ ethics.
AUDIT Professionalism:
Auditing is one of the branches of accounting. It is associated with examination of accounting data. It is a professional service which people put high reliability on. Hence, audit needs to be performed in the most ethical manner since the auditors provide reasonable assurance to the company’s stakeholders. Therefore, based on the ethical principles highlighted in the Qur’an and Sunnah, the following ethical principles for accountant and auditors are derived:
Trustworthiness : Accountants and auditors should be trustworthy and honest in conducting their professional duties. However, they are said to be trustworthy by conducting their responsibilities with high degree of integrity and honesty. One way to show their integrity is by protecting client’s interest, which is related to the confidentiality of the information of the clients. For example; they cannot use such confidential information for their personal gain and third party. Besides that, the auditors have to present and provide factual and truthful report so that others can rely on the information while making judgment and decision.
Legitimacy: Besides being truthful and honest, auditors also have to comply with certain legal requirements and procedures including the Shari’ah rules and principles. They have to act and conduct according to the guidelines of Shari’ah principle. Moreover, they also have to comply with standards provided by professional bodies such as MASB.
Objectivity: In conducting an audit work, auditors have to be objective. They have to perform their professional duties in fair, impartial and unbiased ways. They also have to be free from any conflict of interest in order to ensure their independence. Since independence is a fundamental characteristic and key point of auditing profession, auditors should be independent both mind and appearance. If the auditor is a member of the board of directors of the audited company, then, he should not perform or conduct any audit work for that company. This is because he could be involved in providing bias information, as now he is no longer an independent party.
Professional competence and diligence: Since auditing is a professional service, it should be conducted in professional ways. Therefore, auditors should show their credibility in realizing these duties. To ensure work are done in proper manner, they should be professionally competent and well- equipped in carrying out the task assigned. Hence, professional competence can be achieved or obtained through ways like formal education, training, experience and professional education. Besides that, they have to be due diligent in discharging their responsibilities as they are not only responsible to the stakeholders but ultimately also to Allah the Al-Mighty.
Faith-driven conduct: Auditors should behave and conduct his duties in line with the faith values derived from Shari’ah principles.
Lately, critics have charged that the current audit has failed to meet user expectations. It is important for the profession to reflect to the nature and ethics of auditing in hope that by practicing ethically this will restore the confidence of the public. In order to uphold the integrity of auditors, a separate body should govern ethical principles governing the auditor’s professional responsibilities. Therefore, the best solution is to form the Shari'ah Supervisory Board to govern the ethics of auditors. The ethical principles that should be included are:
The question of complying with professional ethics depends on the principle of religious legitimacy. Responsibility towards God should be put as the priority in one’s consideration. Commitment towards Allah (swt) generates good ethical appearance, diligent and proper work with high quality, which complies with Shari’ah rules and principles.
The emphasis on Shari’ah adherence provides good audit work through the sincerity while performing professional duties. Seeking Allah’s satisfaction becomes a due to good job fulfillment by way of being conscious to the accountability before Allah (swt) and the Day of Judgment. Annual audit is mandatory for every company, regardless of size, that is registered under the Malaysia Companies Act, 1965.
An auditing plays an important role in this process by providing objective and independent reports on the reliability of information.
Traditionally, the essence of auditing is to provide financial control and risk management. Auditor is deemed to work on the interest of shareholders, by which he/she need to carry out a systematic process with the objective of accumulating and evaluating evidences regarding the management assertions contained in the financial statements.
However, there’s an increase in audit need since the corporate sector expanded in parallel to the changes in business activity. Thus, audit provides not only control on financial aspects but furnishes top management with analysis, appraisals, recommendations and advices regarding the company‘s performance and profitability as well. Thus, complying to general accounting and auditing standards in Malaysia as well as rulings issued by Shari’ah Supervisory Board while expressing a reasonable assurance to the financial statements become the most important objective of an audit.
This is to ensure that the activities carried out are not in breach of the Shari’ah requirements. Ultimately, an audit on financial statements enhances the reliability of management assertions and enables auditor to communicate his true and fair opinion on the financial statement to the interested users or parties. To maintain the perception that auditors are credibly reliable in their profession, they should observe ethical values in their duty apart from providing the highest level of trustworthiness, integrity and truthfulness
From the Islamic view point, the ethics of accountants and auditors depend primarily on the principles of Islamic faith and Shari’ah. As ethics are integral part of Shari’ah, therefore, Islam strongly emphasizes on that and considers them as one of the objectives of legislation. In short, Islamic Shari’ah provides some foundations of auditors and accountants’ ethics.
AUDIT Professionalism:
Auditing is one of the branches of accounting. It is associated with examination of accounting data. It is a professional service which people put high reliability on. Hence, audit needs to be performed in the most ethical manner since the auditors provide reasonable assurance to the company’s stakeholders. Therefore, based on the ethical principles highlighted in the Qur’an and Sunnah, the following ethical principles for accountant and auditors are derived:
Trustworthiness : Accountants and auditors should be trustworthy and honest in conducting their professional duties. However, they are said to be trustworthy by conducting their responsibilities with high degree of integrity and honesty. One way to show their integrity is by protecting client’s interest, which is related to the confidentiality of the information of the clients. For example; they cannot use such confidential information for their personal gain and third party. Besides that, the auditors have to present and provide factual and truthful report so that others can rely on the information while making judgment and decision.
Legitimacy: Besides being truthful and honest, auditors also have to comply with certain legal requirements and procedures including the Shari’ah rules and principles. They have to act and conduct according to the guidelines of Shari’ah principle. Moreover, they also have to comply with standards provided by professional bodies such as MASB.
Objectivity: In conducting an audit work, auditors have to be objective. They have to perform their professional duties in fair, impartial and unbiased ways. They also have to be free from any conflict of interest in order to ensure their independence. Since independence is a fundamental characteristic and key point of auditing profession, auditors should be independent both mind and appearance. If the auditor is a member of the board of directors of the audited company, then, he should not perform or conduct any audit work for that company. This is because he could be involved in providing bias information, as now he is no longer an independent party.
Professional competence and diligence: Since auditing is a professional service, it should be conducted in professional ways. Therefore, auditors should show their credibility in realizing these duties. To ensure work are done in proper manner, they should be professionally competent and well- equipped in carrying out the task assigned. Hence, professional competence can be achieved or obtained through ways like formal education, training, experience and professional education. Besides that, they have to be due diligent in discharging their responsibilities as they are not only responsible to the stakeholders but ultimately also to Allah the Al-Mighty.
Faith-driven conduct: Auditors should behave and conduct his duties in line with the faith values derived from Shari’ah principles.
Lately, critics have charged that the current audit has failed to meet user expectations. It is important for the profession to reflect to the nature and ethics of auditing in hope that by practicing ethically this will restore the confidence of the public. In order to uphold the integrity of auditors, a separate body should govern ethical principles governing the auditor’s professional responsibilities. Therefore, the best solution is to form the Shari'ah Supervisory Board to govern the ethics of auditors. The ethical principles that should be included are:
- Integrity.
- Trustworthiness.
- Confidentiality.
- Professional behavior.
- Honesty.
- Righteousness.
- Fairness.
- Objectivity.
- Professional competence.
- Due care.
- Independency etc.
The question of complying with professional ethics depends on the principle of religious legitimacy. Responsibility towards God should be put as the priority in one’s consideration. Commitment towards Allah (swt) generates good ethical appearance, diligent and proper work with high quality, which complies with Shari’ah rules and principles.
The emphasis on Shari’ah adherence provides good audit work through the sincerity while performing professional duties. Seeking Allah’s satisfaction becomes a due to good job fulfillment by way of being conscious to the accountability before Allah (swt) and the Day of Judgment. Annual audit is mandatory for every company, regardless of size, that is registered under the Malaysia Companies Act, 1965.
An auditing plays an important role in this process by providing objective and independent reports on the reliability of information.
Traditionally, the essence of auditing is to provide financial control and risk management. Auditor is deemed to work on the interest of shareholders, by which he/she need to carry out a systematic process with the objective of accumulating and evaluating evidences regarding the management assertions contained in the financial statements.
However, there’s an increase in audit need since the corporate sector expanded in parallel to the changes in business activity. Thus, audit provides not only control on financial aspects but furnishes top management with analysis, appraisals, recommendations and advices regarding the company‘s performance and profitability as well. Thus, complying to general accounting and auditing standards in Malaysia as well as rulings issued by Shari’ah Supervisory Board while expressing a reasonable assurance to the financial statements become the most important objective of an audit.
This is to ensure that the activities carried out are not in breach of the Shari’ah requirements. Ultimately, an audit on financial statements enhances the reliability of management assertions and enables auditor to communicate his true and fair opinion on the financial statement to the interested users or parties. To maintain the perception that auditors are credibly reliable in their profession, they should observe ethical values in their duty apart from providing the highest level of trustworthiness, integrity and truthfulness
Islamic Accepted Bill in the Global Trade?
Islamic Accepted Bill is one of the instruments traded on Islamic Inter-bank Money Market (IIMM) and based on the concept of al-Murabahah /Bai’ al-Dayn. Islamic Accepted Bills is an order to a bank by its customer obliging it to pay a certain amount of money to the holder of the acceptances bill. The bank makes payment in lump sum for the goods purchased by its customer on its behalf and sells those goods to the customer on the deferred payment basis. These due payments represent profit for the holders of the Islamic Accepted Bills that are traded in the secondary market to another party. It attracts a very attractive price because it is a negotiable instrument. The customer is, therefore, financed at a very attractive rate.
Islamic Accepted Bill is similar to Bankers Acceptance. Bankers Acceptance is a bill with a certain face value issued by a bank to the customer at a discount. The discounted value of the bill is credited to the customer’s account while the customer pays back the face value at the maturity date. For example a Bankers Acceptance Bill might have a face value of USD 2 millions, while the amount of money credited to the customer’s account is USD 1.9 millions.
The difference between the face value and the discounted value (the amount of money credited to the customer’s account) represent interest payment. Bankers Acceptances are used for project financing and traded on the secondary market. The Islamic Accepted Bill is introduced as an alternative to Bankers Acceptance in view of the need to provide customers an Islamic alternative. The difference between the Bankers Acceptance and Islamic Accepted Bill is the absence of interest payments in the case of Islamic Accepted Bill. Interest is not allowed in Islam and, therefore, the profit in Islamic Accepted Bill is said to be derived from trading which is permissible. The profit by trading is derived through the contracts of Murabahah. Murabahah refers to the sale of a good at a price based on cost-plus profit margin agreed by the both parties. Here the Islamic bank appoints a customer as agent to purchase the goods at cost. The bank guarantees the payment to the supplier. Then, the bank sells the goods to the customer where credit to be settled in say, 90 days. The selling price includes cost and profit which is called a mark-up price. The bank then draws a bill on the customer who accepts the bill at the mark-up price. The holder of the bill, i.e. the bank can sell the bill to the third party at a price not less than the cost. Such sale is based on the bay’ al dayn contract. Bay’ al dayn refers to the sale of a debt arising from a trade transaction with a deferred payment.
Islamic Accepted Bills are widely used in financing imports and exports. It is an alternative to the Bankers Acceptance Bill that is used to finance purchases and sales by conventional banks. Islamic Accepted Bill, however, is used only in transactions involving halal goods and services. Examples of using Islamic Accepted Bills in imports and exports are as follows:
Islamic Accepted Bill-Imports (al-Murabahah / al-Bai’ al-Dayn).
The customer can approach the bank to provide financing for his working capital requirements to import inventories or raw materials. The bank purchases the required goods and settles the purchase price from its own funds. Then, the bank sells the goods to the customer at an agreed price comprising its purchase price and a profit margin and allows the customer to settle this sale price on a deferred term of 30 days, 60 days or 90 days. Lastly, on the due date the customer pays the Bank the agreed sale price on maturity date of the financing. The sale of goods by the bank on deferred payment term constitutes the creation of debt. This debt is securitized in the form of a bill of exchange drawn by the bank on the customer for the full amount of the bank’s selling price payable at the maturity. Islamic Accepted Bills are traded in the secondary market based on bay’ al dayn concept. This makes them an attractive financing instrument with low cost.
Islamic Accepted Bill – Exports or Sales ( al-Bai’ al-Dayn).
The bank finances exports and sales under the principle of al- Bai al-Dayn. Under this bill, an exporter who wishes to avail himself of this facility, prepares export documents as required under the sale of contract or letter of credit. He represents these documents to the Bank to be purchased. As the export documents have to be sent to the buyer overseas, the exporter is requests by the bank to draw another Bill of Exchange drawn on the bank. This bill is known as Islamic Accepted Bill-Exports (IAB-Exports). The IAB-Exports can be traded in secondary market.
Islamic Accepted Bill is similar to Bankers Acceptance. Bankers Acceptance is a bill with a certain face value issued by a bank to the customer at a discount. The discounted value of the bill is credited to the customer’s account while the customer pays back the face value at the maturity date. For example a Bankers Acceptance Bill might have a face value of USD 2 millions, while the amount of money credited to the customer’s account is USD 1.9 millions.
The difference between the face value and the discounted value (the amount of money credited to the customer’s account) represent interest payment. Bankers Acceptances are used for project financing and traded on the secondary market. The Islamic Accepted Bill is introduced as an alternative to Bankers Acceptance in view of the need to provide customers an Islamic alternative. The difference between the Bankers Acceptance and Islamic Accepted Bill is the absence of interest payments in the case of Islamic Accepted Bill. Interest is not allowed in Islam and, therefore, the profit in Islamic Accepted Bill is said to be derived from trading which is permissible. The profit by trading is derived through the contracts of Murabahah. Murabahah refers to the sale of a good at a price based on cost-plus profit margin agreed by the both parties. Here the Islamic bank appoints a customer as agent to purchase the goods at cost. The bank guarantees the payment to the supplier. Then, the bank sells the goods to the customer where credit to be settled in say, 90 days. The selling price includes cost and profit which is called a mark-up price. The bank then draws a bill on the customer who accepts the bill at the mark-up price. The holder of the bill, i.e. the bank can sell the bill to the third party at a price not less than the cost. Such sale is based on the bay’ al dayn contract. Bay’ al dayn refers to the sale of a debt arising from a trade transaction with a deferred payment.
Islamic Accepted Bills are widely used in financing imports and exports. It is an alternative to the Bankers Acceptance Bill that is used to finance purchases and sales by conventional banks. Islamic Accepted Bill, however, is used only in transactions involving halal goods and services. Examples of using Islamic Accepted Bills in imports and exports are as follows:
Islamic Accepted Bill-Imports (al-Murabahah / al-Bai’ al-Dayn).
The customer can approach the bank to provide financing for his working capital requirements to import inventories or raw materials. The bank purchases the required goods and settles the purchase price from its own funds. Then, the bank sells the goods to the customer at an agreed price comprising its purchase price and a profit margin and allows the customer to settle this sale price on a deferred term of 30 days, 60 days or 90 days. Lastly, on the due date the customer pays the Bank the agreed sale price on maturity date of the financing. The sale of goods by the bank on deferred payment term constitutes the creation of debt. This debt is securitized in the form of a bill of exchange drawn by the bank on the customer for the full amount of the bank’s selling price payable at the maturity. Islamic Accepted Bills are traded in the secondary market based on bay’ al dayn concept. This makes them an attractive financing instrument with low cost.
Islamic Accepted Bill – Exports or Sales ( al-Bai’ al-Dayn).
The bank finances exports and sales under the principle of al- Bai al-Dayn. Under this bill, an exporter who wishes to avail himself of this facility, prepares export documents as required under the sale of contract or letter of credit. He represents these documents to the Bank to be purchased. As the export documents have to be sent to the buyer overseas, the exporter is requests by the bank to draw another Bill of Exchange drawn on the bank. This bill is known as Islamic Accepted Bill-Exports (IAB-Exports). The IAB-Exports can be traded in secondary market.
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