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Wednesday, April 17, 2013
Prof. Dr. Muhammad Yunus, the Pride of BD & of the Muslim World today
PROF. DR. MUHAMMAD YUNUS, the Pride of BD & of the Muslim World today for Proving to be a Banker to Poor in view of "Socio-economic justice"
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Tuesday, April 9, 2013
Rejection of Usury (Riba') is a Primary Step to Socio-economic Justice
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.
Re-takaful? a need to face the socio-economic catastrophe
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.
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.
Online Financial Services with Holistic Humanitarian Concern
The emergence of Internet had changed our life, either directly or indirectly. This is also true with the corporate and business world nowadays. Companies and organizations no longer regard the Internet only as a tool or reminder to the public to show who they are or what are they doing. Today, Internet has become a very important tool to do business. Among the earliest and important examples of how Internet has changed the ways companies fully utilized the benefits of Internet are Amazon.com, e-Buy and others.
Banking and financial institutions have also realized the true potentials and benefits of the internet. Right now, their websites are no longer just another advertisement to show that they are still alive and kicking, but also offer various type of products and services to the customers. The services are no longer just to show what is the amount of money in the accounts of their customers, but also offers various products and services such as online banking, bill payment, mortgage, loans, insurance and so on. These terms are what we are now calling ‘online financial services’.
Basically, commercial banks performed two functions: money transfer services (including all current account operations) and money lending. In general, the former does not involve any interest. On the other side of the balance sheet, we have two types of deposits: current account (demand) deposits and savings deposits. Here too, the former generally does not involve any interest. Therefore current account operations and money transfer operations are free of riba on both sides of the balance sheet. As such all commercial banks are interest-free banks with respect to these operations.
The problem, then, arises only in respect of savings deposits on the one side and loans on the other, because both incur interest. Thus, the questions of lending and accepting savings deposits, without dealing in interest (riba) arise.
Interest-Free Commercial Banking
A real Muslim does wish to avoid dealing in interest in order to comply with their religious belief, and limits itself to finding a simple, logical and easily executable methodology of achieving this objective. It does not concern itself with providing a justification or philosophy for the prohibition nor with the subtle differences and related discussions regarding the correct definition of riba. It simply accepts the commonly understood meaning of it that, any money demanded or received by the lender in addition to his original capital is riba and proceeds from there. The resulting system, therefore, is practicable irrespective of why one wishes to avoid dealing in interest. For there are also people who are convinced for various reasons that demanding or receiving interest is bad.
The approach adopted is to “first take a closer look at modern banking practices and find out whether and where the prohibited riba (interest) occurred and then to see whether it could be eliminated from the existing practices and then to check if the resulting system was still viable.”
On the deposit side, what the depositor receives in addition to his capital is the interest. This is riba (pure interest) by definition. If a Muslim refuses this interest because it is prohibited by his religion, then this side of the balance sheet is free of riba. On the other side of the balance sheet, we have the “interest” collected by the bank from the borrower. Ideally, the bank uses the funds it receives from depositors to grant loans to clients. But the “interest” it charges the borrowers is more than the interest it pays the depositors. This is because the former should also cover, besides the interest paid to the depositor, the costs the bank incurs in collecting and disbursing the funds as well as in accounting, administration, safekeeping, etc.
A model is constructed where the “interest” charged by the bank is split into several components. Then each of these components is studied to see if it contained the prohibited riba. The idea is that if any one component contained such riba then to see if it could be removed. If some components are free of riba, and others containing riba can be removed, then we have an “interest” which is free of riba. If this can be achieved and if the resulting system is viable, then we have a riba-free system that is also viable. And, since it was originally derived from the conventional model it should also be compatible with it.
This “interest” collected by the bank from the borrower is a cost to the borrower, of obtaining this amount of financing. Therefore, it is named the Cost of Borrowing (CoB) and is considered as consisting of six components: interest (paid to the depositor), services cost, overheads cost, risk premium, profit, and compensation for the value erosion of capital due to inflation. It is shown that only the first component falls under the definition of riba and all others are free of it.
Muslims are prohibited by to deal in interest (riba) in any way. Giving and receiving as well as witnessing are all prohibited. Thus an Islamic banking system cannot pay any interest to its depositors; neither can it demand or receive any interest from the borrowers nor could the banks witness or keep accounts of these transactions. But the lender is entitled to the return of his capital in full. This is a Qur’anic injunction. The proposed system complies with these fundamental Islamic requirements.
A basic tenet of commercial banking is capital guarantee. The capital entrusted to the bank by a depositor must be returned to him in full. The proposed system fully complies with this requirement. Islamic banking as practised today does not provide capital guarantee in all its deposit accounts. In many countries, this is one of the two main objections to permitting the establishment of Islamic banks. There is no objection to paying zero interest on deposits.
Thus, by paying zero interest and guaranteeing capital, the proposed system satisfies both the riba-prohibition rule of Islam and the capital guarantee requirement of conventional banking acts. This enables it to obtain permission to set up and operate as a deposit bank in all countries of the world, while obeying the riba-prohibition rule and qualifying to be an “Islamic” bank. This is of paramount importance to Muslim minorities living in non-Muslim countries. Furthermore, the existence of interest-free banks in all countries will also remove the many difficulties faced today by Islamic banks in transacting international business. Like any other human being, Muslims also need and desire a secure dwelling for themselves and their families. For example, in the past, owning a home was an unthinkable proposition for practicing Muslims, because Islam prohibits usury. The Qur'an (2:276) says: " Allah has permitted trade and forbidden usury," and in 2:278 reminds the Muslims: "O ye who believe, keep your duty to Allah and relinquish what remains (due) from interest, if you are believers."
The Prophet (p.b.u.h) forbade usury. One of the better-known Hadith, narrated by Ibn Mas'ud, quotes the Messenger of Allah (p.b.u.h), saying, "Allah has cursed the receiver, the giver of the interest and also the witness and the scribe of the interest- bearing transaction; they are alike." (Muslim, Tirmidhi).
The concept of interest-free housing finance is still unknown in the West, thus the term "mortgage" is used here in the sense of collateral and as having the title of the property in the names of those who provide the funds. The cooperative housing programs help those Muslims who need financial help to purchase a home, while helping to generate income for the investors from the rent and shares in the appreciation of the property's value.
Practicality:
Islamic investment equity funds market is one of the fastest growing sectors within the Islamic financial system. Currently there are approximately 100 Islamic equity funds worldwide. The total assets managed through these funds currently exceed US$5 billion and is growing by 12-15% per annum. With the continuous interest in the Islamic financial system, there are positive signs that more funds will be launched. Some western majors have just joined the fray or are thinking of launching similar Islamic equity products.
Despite these successes, this market has seen a record of poor marketing as emphasis is on products and not on addressing the needs of investors. Over the last few years, quite a number of funds have closed down. Most of the funds tend to target high net worth individuals and corporate institutions, minimum investments ranging from US$50,000 to as high as US$1,000,000.
Target markets for Islamic funds vary, some cater for their local markets e.g. Malaysia and Gulf based investment funds. Others clearly target the Middle East and Gulf regions, neglecting local markets and have been accused of failing to serve Muslim communities.
Since the launch of Islamic equity funds in the early 90's, we have seen the establishment of credible equity benchmarks by Dow Jones Islamic market index and the FTSE Global Islamic Index Series. The website failaka.com monitors the performance of Islamic equity funds and provide a comprehensive list of the Islamic funds worldwide.
Al-Taslif Credit Card (AmBank Group, formerly known as Arab Malaysian Banking Group):
Based on Shari’ah Principle:
The AmBank Al-Taslif Credit Card has been formulated based on the Shari'ah principle of Bai' Al Inah (Buy back sale), which govern installment payments over a fixed period. One can use the Al-Taslif Credit Card with the assurance that it has been tailored with one's spending needs in mind, and without compromising Islamic values.
Low Banking Cost of 15% p.a.:
Customer will only be charged a low banking cost of 1.25% per month or 15% per annum on our outstanding balance. What's more, if we decide to settle only the minimum amount each month, customers will not be subjected to additional banking cost. It's free of Interest!
Annual Fee Waiver & Charity:
With AmBonus, there is more than providing customers with savings on card annual fees! It also allows customers to do a bit for charity. For every RM100 spend on retail transactions, we will receive AmBonus worth RM1 which can be set off against the annual card fees. What's more, the excess will be donated on our behalf to charitable organizations.
More Cash Rebates For Our Loyalty:
With AmTransfer, one can use up to our available card limit to consolidate customers' outstanding balances from our other credit or charge cards at 15% p.a. until full settlements.
AmProtector:
For only RM0.03 on every RM 100 outstanding balance, we and our family will enjoy peace of mind as our outstanding balances are covered up to maximum of RM50, 000 in the event of any mishap.
Instance Acceptance and Cash Worldwide:
The card is welcomed at more than 22 million establishments worldwide. However, in keeping with Shari’ah principle, card members are advised not to use the card in establishments that contradicts Islamic values e.g. casino, massage parlors, dating and escort services, bars etc. We'll also have instant access to more than 600,000 MasterCard/CIRRUS and VISA/PLUS ATMs or affiliated banks and financial institutions worldwide.
Automatic Travel Accident Plan Charge:
Travel tickets to our Gold card and we will enjoy automatic free travel accident insurance of up to RM500, 000. We will also enjoy additional coverage for travel inconveniences.
AmDirect Phone Banking and Online Banking Service:
One may easily access the card account anytime for a host of financial services and enquiries. We can simply enjoy your personal banking service by calling AmDirect Call Center at 03-2612 6888 or login to http://www.ambg.com.my.
No Joining Fees:
No fee is required for securing a Card (membership) of AmBank.
Zakat payment:
For the convenience, AmBank has made provision for Al-Taslif card members to make our zakat (tithe) payments directly through the card. This facility is currently available with Pusat Pungutan Zakat Wilayah Persekutuan.
0% Interest Easy Payment Plan:
With interest-free installment payment, we can select from a range of products and services from AmBank’s partnering establishment.
MasterCard Global Service:
Provides emergency 24-hour travel assistant service and worldwide emergency assistant for lost and stolen reporting, emergency card replacement, emergency cash advance, ATM network location information, and issuer directory assistance.
MasterAssist Travel Assistant Service for Gold card members:
Provides 24-hour travel assistance service and worldwide emergency assistance, pre-trip information, traveling assistance, legal referrals and bail bond assistance.
VISA 24-hour Global Customer Assitance Service(GCAS):
Provides medical referrals, monitoring, assistance and follow-up, transportation assistance, legal assistance, pre-trip assistance, interpreter assistance as well as lost/valuable document delivery.
Flexible Payment Options:
We have a worldwide choice of payment method on how we want to make our monthly card payment, either in full or the minimum repayment of 5% or RM50 whichever is higher.
ATM Services:
AmBank’s Extensive AmBank Group ATM network and CIRRUS/PLUS ATM, which covers a wide range of automated services allows us access our card account 24 hours a day.
Recommendations:
Because the online financial service is still a new phenomenon worldwide, it does have benefits to everyone. But if we take the Shari’ah principles into consideration, some extra works must be done in order to make sure that it is accordance with Islamic principles as mentioned before. Just for a note, usually, Shari’ah based online financial system is still based on ‘off-line’ financial services provided by financial institutions, only now, instead of physical building, there will be a cyberspace!
First, financial institutions must provide a clear picture to the customers of how does the shari’ah based online financial services works. It is not only shown some figures but also explanation like which company that they are going to invest, what principles that they take, how does the profit is distributed and so on. If possible, they should also provide the list of the companies that they are invested and also the member of the Shari’ah panel board in their financial institutions. It will make customers feel secure because they know that their deposits is legally invested and supervised by Islamic scholars.
Then, for the customers, they should put aside the stigma in their mind that just because some financial institutions’ name is not sound like Islam, they do not follow accordingly with Islamic rules and regulations. For instance, there are an interview with Malay/Muslim customers on why don’t they invest in one financial institution, which they reply that that financial institution is not sound like Islam at all! This perception must be discarded from our mind to ensure that Shari’ah based financial system will be better accepted worldwide.
Banking and financial institutions have also realized the true potentials and benefits of the internet. Right now, their websites are no longer just another advertisement to show that they are still alive and kicking, but also offer various type of products and services to the customers. The services are no longer just to show what is the amount of money in the accounts of their customers, but also offers various products and services such as online banking, bill payment, mortgage, loans, insurance and so on. These terms are what we are now calling ‘online financial services’.
Basically, commercial banks performed two functions: money transfer services (including all current account operations) and money lending. In general, the former does not involve any interest. On the other side of the balance sheet, we have two types of deposits: current account (demand) deposits and savings deposits. Here too, the former generally does not involve any interest. Therefore current account operations and money transfer operations are free of riba on both sides of the balance sheet. As such all commercial banks are interest-free banks with respect to these operations.
The problem, then, arises only in respect of savings deposits on the one side and loans on the other, because both incur interest. Thus, the questions of lending and accepting savings deposits, without dealing in interest (riba) arise.
Interest-Free Commercial Banking
A real Muslim does wish to avoid dealing in interest in order to comply with their religious belief, and limits itself to finding a simple, logical and easily executable methodology of achieving this objective. It does not concern itself with providing a justification or philosophy for the prohibition nor with the subtle differences and related discussions regarding the correct definition of riba. It simply accepts the commonly understood meaning of it that, any money demanded or received by the lender in addition to his original capital is riba and proceeds from there. The resulting system, therefore, is practicable irrespective of why one wishes to avoid dealing in interest. For there are also people who are convinced for various reasons that demanding or receiving interest is bad.
The approach adopted is to “first take a closer look at modern banking practices and find out whether and where the prohibited riba (interest) occurred and then to see whether it could be eliminated from the existing practices and then to check if the resulting system was still viable.”
On the deposit side, what the depositor receives in addition to his capital is the interest. This is riba (pure interest) by definition. If a Muslim refuses this interest because it is prohibited by his religion, then this side of the balance sheet is free of riba. On the other side of the balance sheet, we have the “interest” collected by the bank from the borrower. Ideally, the bank uses the funds it receives from depositors to grant loans to clients. But the “interest” it charges the borrowers is more than the interest it pays the depositors. This is because the former should also cover, besides the interest paid to the depositor, the costs the bank incurs in collecting and disbursing the funds as well as in accounting, administration, safekeeping, etc.
A model is constructed where the “interest” charged by the bank is split into several components. Then each of these components is studied to see if it contained the prohibited riba. The idea is that if any one component contained such riba then to see if it could be removed. If some components are free of riba, and others containing riba can be removed, then we have an “interest” which is free of riba. If this can be achieved and if the resulting system is viable, then we have a riba-free system that is also viable. And, since it was originally derived from the conventional model it should also be compatible with it.
This “interest” collected by the bank from the borrower is a cost to the borrower, of obtaining this amount of financing. Therefore, it is named the Cost of Borrowing (CoB) and is considered as consisting of six components: interest (paid to the depositor), services cost, overheads cost, risk premium, profit, and compensation for the value erosion of capital due to inflation. It is shown that only the first component falls under the definition of riba and all others are free of it.
Muslims are prohibited by to deal in interest (riba) in any way. Giving and receiving as well as witnessing are all prohibited. Thus an Islamic banking system cannot pay any interest to its depositors; neither can it demand or receive any interest from the borrowers nor could the banks witness or keep accounts of these transactions. But the lender is entitled to the return of his capital in full. This is a Qur’anic injunction. The proposed system complies with these fundamental Islamic requirements.
A basic tenet of commercial banking is capital guarantee. The capital entrusted to the bank by a depositor must be returned to him in full. The proposed system fully complies with this requirement. Islamic banking as practised today does not provide capital guarantee in all its deposit accounts. In many countries, this is one of the two main objections to permitting the establishment of Islamic banks. There is no objection to paying zero interest on deposits.
Thus, by paying zero interest and guaranteeing capital, the proposed system satisfies both the riba-prohibition rule of Islam and the capital guarantee requirement of conventional banking acts. This enables it to obtain permission to set up and operate as a deposit bank in all countries of the world, while obeying the riba-prohibition rule and qualifying to be an “Islamic” bank. This is of paramount importance to Muslim minorities living in non-Muslim countries. Furthermore, the existence of interest-free banks in all countries will also remove the many difficulties faced today by Islamic banks in transacting international business. Like any other human being, Muslims also need and desire a secure dwelling for themselves and their families. For example, in the past, owning a home was an unthinkable proposition for practicing Muslims, because Islam prohibits usury. The Qur'an (2:276) says: " Allah has permitted trade and forbidden usury," and in 2:278 reminds the Muslims: "O ye who believe, keep your duty to Allah and relinquish what remains (due) from interest, if you are believers."
The Prophet (p.b.u.h) forbade usury. One of the better-known Hadith, narrated by Ibn Mas'ud, quotes the Messenger of Allah (p.b.u.h), saying, "Allah has cursed the receiver, the giver of the interest and also the witness and the scribe of the interest- bearing transaction; they are alike." (Muslim, Tirmidhi).
The concept of interest-free housing finance is still unknown in the West, thus the term "mortgage" is used here in the sense of collateral and as having the title of the property in the names of those who provide the funds. The cooperative housing programs help those Muslims who need financial help to purchase a home, while helping to generate income for the investors from the rent and shares in the appreciation of the property's value.
Practicality:
Islamic investment equity funds market is one of the fastest growing sectors within the Islamic financial system. Currently there are approximately 100 Islamic equity funds worldwide. The total assets managed through these funds currently exceed US$5 billion and is growing by 12-15% per annum. With the continuous interest in the Islamic financial system, there are positive signs that more funds will be launched. Some western majors have just joined the fray or are thinking of launching similar Islamic equity products.
Despite these successes, this market has seen a record of poor marketing as emphasis is on products and not on addressing the needs of investors. Over the last few years, quite a number of funds have closed down. Most of the funds tend to target high net worth individuals and corporate institutions, minimum investments ranging from US$50,000 to as high as US$1,000,000.
Target markets for Islamic funds vary, some cater for their local markets e.g. Malaysia and Gulf based investment funds. Others clearly target the Middle East and Gulf regions, neglecting local markets and have been accused of failing to serve Muslim communities.
Since the launch of Islamic equity funds in the early 90's, we have seen the establishment of credible equity benchmarks by Dow Jones Islamic market index and the FTSE Global Islamic Index Series. The website failaka.com monitors the performance of Islamic equity funds and provide a comprehensive list of the Islamic funds worldwide.
Al-Taslif Credit Card (AmBank Group, formerly known as Arab Malaysian Banking Group):
Based on Shari’ah Principle:
The AmBank Al-Taslif Credit Card has been formulated based on the Shari'ah principle of Bai' Al Inah (Buy back sale), which govern installment payments over a fixed period. One can use the Al-Taslif Credit Card with the assurance that it has been tailored with one's spending needs in mind, and without compromising Islamic values.
Low Banking Cost of 15% p.a.:
Customer will only be charged a low banking cost of 1.25% per month or 15% per annum on our outstanding balance. What's more, if we decide to settle only the minimum amount each month, customers will not be subjected to additional banking cost. It's free of Interest!
Annual Fee Waiver & Charity:
With AmBonus, there is more than providing customers with savings on card annual fees! It also allows customers to do a bit for charity. For every RM100 spend on retail transactions, we will receive AmBonus worth RM1 which can be set off against the annual card fees. What's more, the excess will be donated on our behalf to charitable organizations.
More Cash Rebates For Our Loyalty:
With AmTransfer, one can use up to our available card limit to consolidate customers' outstanding balances from our other credit or charge cards at 15% p.a. until full settlements.
AmProtector:
For only RM0.03 on every RM 100 outstanding balance, we and our family will enjoy peace of mind as our outstanding balances are covered up to maximum of RM50, 000 in the event of any mishap.
Instance Acceptance and Cash Worldwide:
The card is welcomed at more than 22 million establishments worldwide. However, in keeping with Shari’ah principle, card members are advised not to use the card in establishments that contradicts Islamic values e.g. casino, massage parlors, dating and escort services, bars etc. We'll also have instant access to more than 600,000 MasterCard/CIRRUS and VISA/PLUS ATMs or affiliated banks and financial institutions worldwide.
Automatic Travel Accident Plan Charge:
Travel tickets to our Gold card and we will enjoy automatic free travel accident insurance of up to RM500, 000. We will also enjoy additional coverage for travel inconveniences.
AmDirect Phone Banking and Online Banking Service:
One may easily access the card account anytime for a host of financial services and enquiries. We can simply enjoy your personal banking service by calling AmDirect Call Center at 03-2612 6888 or login to http://www.ambg.com.my.
No Joining Fees:
No fee is required for securing a Card (membership) of AmBank.
Zakat payment:
For the convenience, AmBank has made provision for Al-Taslif card members to make our zakat (tithe) payments directly through the card. This facility is currently available with Pusat Pungutan Zakat Wilayah Persekutuan.
0% Interest Easy Payment Plan:
With interest-free installment payment, we can select from a range of products and services from AmBank’s partnering establishment.
MasterCard Global Service:
Provides emergency 24-hour travel assistant service and worldwide emergency assistant for lost and stolen reporting, emergency card replacement, emergency cash advance, ATM network location information, and issuer directory assistance.
MasterAssist Travel Assistant Service for Gold card members:
Provides 24-hour travel assistance service and worldwide emergency assistance, pre-trip information, traveling assistance, legal referrals and bail bond assistance.
VISA 24-hour Global Customer Assitance Service(GCAS):
Provides medical referrals, monitoring, assistance and follow-up, transportation assistance, legal assistance, pre-trip assistance, interpreter assistance as well as lost/valuable document delivery.
Flexible Payment Options:
We have a worldwide choice of payment method on how we want to make our monthly card payment, either in full or the minimum repayment of 5% or RM50 whichever is higher.
ATM Services:
AmBank’s Extensive AmBank Group ATM network and CIRRUS/PLUS ATM, which covers a wide range of automated services allows us access our card account 24 hours a day.
Recommendations:
Because the online financial service is still a new phenomenon worldwide, it does have benefits to everyone. But if we take the Shari’ah principles into consideration, some extra works must be done in order to make sure that it is accordance with Islamic principles as mentioned before. Just for a note, usually, Shari’ah based online financial system is still based on ‘off-line’ financial services provided by financial institutions, only now, instead of physical building, there will be a cyberspace!
First, financial institutions must provide a clear picture to the customers of how does the shari’ah based online financial services works. It is not only shown some figures but also explanation like which company that they are going to invest, what principles that they take, how does the profit is distributed and so on. If possible, they should also provide the list of the companies that they are invested and also the member of the Shari’ah panel board in their financial institutions. It will make customers feel secure because they know that their deposits is legally invested and supervised by Islamic scholars.
Then, for the customers, they should put aside the stigma in their mind that just because some financial institutions’ name is not sound like Islam, they do not follow accordingly with Islamic rules and regulations. For instance, there are an interview with Malay/Muslim customers on why don’t they invest in one financial institution, which they reply that that financial institution is not sound like Islam at all! This perception must be discarded from our mind to ensure that Shari’ah based financial system will be better accepted worldwide.
Financial Reform with eco-Democratic Concern for All
Financial Democratic Reform & the New World Order............?
Oxford Dictionary defines ‘Poverty’ as being poor, great lack of money or resources, scarcity or inferiority. Others define it as disadvantaged, low income, poor or less developed. These conventional definitions do not seem to differ or vary from that defined by Al- Ghazali who gave meaning to poverty as a state of not being able to satisfy one’s needs which are basic in nature.
Poverty nowadays is no longer viewed only as economic issue but also is a complex social and political concern that is yet to be successfully solved universally. The concept of poverty is viewed in the context of society as a whole where it persisted in every community around the world but the extent or degree in which it affected human race varies from one society to another.
Even though it is prevailing throughout the world, poverty has always been ignored and is closely associated with disbelieve (kufr). As said by Prophet Muhammad SAW: “Poverty might lead a person to disbelief”, further clarifies the intensity of this situation. Thus, the Holy Quran cannot emphasis more on the poor and needy as commanded by Allah in Surah An-Nisaa:8:
واذا حضر القسمة أولوا القربى واليتامى والمساكين فارزقوهم منه وقولوا لهم
قولا معروفا
“But if at the time of the division, other relatives, or orphans, or poor are present, feed them out of the (property), And speak to them words of kindness and justice”.
A report states: "Poverty is a multidimensional phenomenon, encompassing inability to satisfy basic needs, lack of control over resources, lack of education and skills, poor health, malnutrition, lack of shelter, poor access to water and sanitation, vulnerability to shocks, violence and crime, lack of political freedom and voice. The numbers show little progress in reducing income poverty over the last decade--impressive gains were made in East Asia before the crisis hit, but have been partly reversed, and little if any progress took place elsewhere--and a large majority of poor people said they were worse off now, have fewer economic opportunities, and live with greater insecurity than in the past."
Classification of Poor & Insufficiency of Income
Poverty in Islam is concerned with insufficiency of income and the inability in fulfilling basic human needs. One is considered poor if he does not possess sufficient necessities to fulfill his basic needs. Therefore, poverty can be interrelated to two basic classifications of poor, which are faqir who are the needy, and miskin who are the poor, as identified and understood in Islam. Faqir is defined as someone who can only satisfy less than half of his basic necessities while miskin is a poor man who can satisfy half or more of his basic necessities, but is still below the minimum requirement of basic necessities required.
Prophet SAW said (about those defined as miskin):
“He who does not get enough to satisfy himself, and he is not considered so, so that charity may be given to him, and he does not beg anything from people”.
There are no distinct techniques to measure poverty, as it is always associated with some level of income required to provide for the basic human needs. This human needs refer to the right of food, clothes and shelter as pronounced by the Prophet SAW that are to be identified and met in order to sustain a minimum standard of living. The poverty line or income level, which serves as an indicator to identify whether a person is poor, is useful where a person is considered poor if his income is below poverty line income.
Factors Causing Poverty
The Nature of Man
Man is the essential element in any society thus; any problem related to the society must have something to do with individual because it is his actions on the ethical aspects that affect others as a whole. One of the many reasons poverty persists in any one community is because of the widespread existence of income inequality and unjust wealth distribution. It is due to man’s narrow-mindedness and selfishness as well as ignorance for a collective life has made man a slave to things, which are material in essence. In fact, poverty is caused by man’s deviation from divine teachings in which he practices unlawful things and the man-made problems such as injustice, laziness, selfishness, dictatorship, fraud, cheating, monopoly practices, speculative hoarding and oppression that with each passing day, making the poor getting poorer and the rich getting richer.
ان الله يأمر بالعدل والإحسان وايتاىء ذى القربى وينهى عن الفحشاء والمنكر والبغى يعظكم لعلكم تذكرون
“Allah (swt) commands justice, the doing of good, and liberation to kith and kin, and He forbids all shameful deeds, and injustice and rebellion: He instructs you, that ye may receive admonition”. (16:90).
Mismanagement and misallocation of funds happening today as a result of so much power in the hands of the elite, who maintain the status quo at national levels is the rationale for the existence of an income gap between the poor and the non-poor. There are also corruptions and bribery, or the misuse of public power and resource for private benefit and profit by officials such as politicians and policy makers in which they enrich themselves through the misuse of power entrusted to them. Negative attitude, easy access to money as well as deficiency in democratic government initiates corruption and provides an ideal condition for corruption to prevail. Accumulation of wealth by the rich people will therefore hurt the common people as they are left out and the public interest is further disturbed.
Islam promotes just distribution and ethics in everything we do. Those practicing corruption should be penalized for their inefficiency and those who are efficient should be reward for their creditability.
Function of the Government & the Market Failure
The government is established as a protector for the public interest. It means that government will only see to it if there exist to be a market failure in the economic activity. However, there seem to be an interruption in the economic balance when the government is no longer protecting the public and is applying free trade thus causing massive competition to develop. Government especially in the third world countries tends to borrow from international donor organization such as the IMF, which in turn requires the debtor country to export their production instead of for local circulation. This will have a severe impact when the prices go up, food subsidies are eliminated, basic services cost such as electricity increased and health and educational funds vanish.
In addition to the said government’s failure, inadequate access to employment, lack of physical assets such as land and capital to be owned by the poor, lack of means of supporting rural development in poor region, inadequate access to markets where the poor can make trade, low endowment of human capital and the destruction of natural resources leading to environmental deprivation as well as reduced productivity are merely some of the causes of poverty in light of the function of the government.
Consequently, poor governance and market failure are two aspects, which should be properly addressed to attain justice in the economic activities, which will help in poverty eradication.
Poverty Eradication Strategies in Islam
Being a mankind, we are to approach poverty like any other problems faced by our society, in accordance with the Islamic teachings and way of life. It is the concern for the poor, which leads us to address their needs through many approaches, instruments and government policies.
Element of Poverty Alleviation
It is identified earlier that poverty is a result of diverse factors and therefore has different dimensions in which it would be implemented. These elements are the individual and society’s role in eradicating poverty as well as the government’s role.
Role of Individual & Society
As the creature of Allah (swt) on this Earth, we are to live a moderate lifestyle in such a way that we fulfill our material and spiritual needs simultaneously. Islam recognizes differences in individual human potentials because each is endowed with different types and levels of abilities.
Therefore, man is to earn his living according to his capacity and ability as that enshrined by Allah (swt) in the Holy Qur'an (al- Jumu’a: 10).
It is therefore, the public duty of individuals and society to focus on integrating the Islamic principles, moral and ethical aspect in our daily life, as well as the response from the society about poverty, regardless of involvement of the Government. In other words, the strategy to combat poverty is through harmonious equilibrium in development and Islamic ethical values. There should also be fundamental changes at both the management and policy level, and change in individual character to be more inspired, efficient and selfless individuals in any society. The Prophet also mentioned the importance of earning an honest living in his many hadith. One of them is reported by Al- Miqdam, who quoted the Prophet (saw) as saying:
“Nobody has ever eaten a better meal than that which one has earned by working with one’s own hands”.
Role of State in Economic Reform to Realize its Grand Impact: An Islamic Direction.
Creed and Islamic Economics The basic creed that promotes Islamic economic behaviour evolves from the Islamic concept of God, Allah, with attributes ascribed to Him – Al-Malik (the absolute Owner of All), Al-Rahim (who gives blessings and prosperity, particularly to whom use these gifts as he has permitted), Al-Muhaymin (watches over and protects all things), Al-Wahhab (donates all things to His creatures, even to non-believers), Al-Fattah (opens the solutions to all problems and eliminates obstacles), Al-Razzaq (the Provider of all things that are beneficial to His creatures) and so on.
The Divine attributes do not only have metaphysical significance; a firm belief in them acts as a powerful source of inspiration and guidance in economic pursuits and planning.
These attributes have been described through the Quranic verses and Hadith to construct a mind and guides individual behaviour in a direction, which truly reflects firm belief in Allah’s Unity, Tawhid. Without this firm belief the Islamic economic system and the whole life, falls prey to inconsistency and discord. How do beliefs in this attribute influence economic attitude?
A firm belief in the divine attribute of the Provider eliminates insatiable lust for amassing wealth through unlawful means and cools down impatience. It dissuades from unhealthy competition and egotism. It relieves tension and anxiety and unhealthy reaction in the event of poor for one’s effort. A firm belief in the divine assurance:
‘Whosoever fears Allah, Allah will appoint a way out for him and will provide for him from (a quarter) whence he has no expectation’ (65:2, 3).
It is not only discourages one from becoming avaricious and resorting to unlawful earning but also plays an important role in guiding policy-makers and planner to cast off the capricious fears of loss due to abolition of unlawful institutions and undesirable policies and programmed.
A firm belief in his attribute, Al-Razzaq, as expressed in the verse:
‘Slay not your children, fearing a fall to poverty, We shall provide for them and for you. Lo! The slaying of them is a great sin’ (17:31),
It would inspire the policy-makers to be restrained, barring exceptional cases, in launching on economic grounds a country-wide campaign for birth-control, which often provides a refuge for the morally corrupt. Similarly, belief in the Divine Wisdom of unequal distribution of wealth (4:32) shuns class antagonism and persuades the well-to-do to share their fortune to the poor, thus reducing the distance between the haves and haves-nots.
To conclude, firm belief in divine attributes not only has a far-reaching influence on the general attitude of the individual, it also touches economic enterprises, policy-making and planning. Without such firm belief practicing the Islamic injunctions poses formidable difficulties and leads one to impracticable compromises, which result in dualism and hypocrisy.
The Role of the Government towards Poverty Alleviation
Poverty, Employment and Growth The economic resources of this world belong to Allah who gave them to mankind to benefit from them. So, the duty of man is to properly utilize them for the welfare of society. This world entails:
(i) the full and efficient employment of all human and natural resources,
(ii) the alleviation of poverty and fulfillment of basic needs, and
(iii) the optimum rate of economic growth.
The objective of the alleviation of poverty, the full employment of resources and optimum rate of growth can only be achieved by the active participation of government. The Islamic government should not leave the allocation of resources only to the blind market forces because; being an impersonal entity, the market may not take care of the total welfare, especially of the poor, of the society.
The Government should play a positive role in the economy through pragmatic planning and by providing necessary physical and social infrastructure. The government must invest in this sector since private entrepreneurs may not find enough incentive to invest because of the heavy investment requirement and small monetary return realized over a long period time. In this case, government investment should be channeled into the improvement of highways, dams, bridges, the construction of irrigation networks, airports, telecommunication services and the provision of other facilities, which would bring about external economies to the different sectors of the economy.
So, An Islamic government has a great responsibility to eradicate poverty, fulfill basic needs and improve the living standard of the people. If it fails to do so, the Prophet’s (s.a.w) warning should remind them:
“Whom Allah has made administrator over the affairs of Muslims but remain indifferent to their needs and poverty, Allah will also be indifferent to his needs and poverty.”
Establishment of Equitable Distribution of Income and Wealth The establishment of an equitable distribution system calls for certain governmental functions, such as:
(i) the provision of training and rendering assistance for gainful employment to the public. A variety of technical training programs may be launched to assist the unskilled labour force of the less developed countries. (ii) the government should enforce a just remuneration system so as to fairly distribute the generated income among the factors of production.
(iii) the arrangement of a social security system based on zakat and other charitable revenues.
They would serve as insurance to the unemployed, handicapped, divorcees and other needy members of society. As basic necessities are provided, the national wealth circulates among the members of the community. This is why Islam makes it obligatory for the government to guarantee the provision of basic needs to all. If the existing fund is not sufficient, government has the right to pull resources from the rich in addition to the obligatory dues to guarantee basic needs to each and every one in the society. Ibn Hazm calls for the extra levies on the rich to fulfill the basic needs of the destitute of a society.
He says: “The rich of every locality are obliged to manage the basic needs of the destitute living in it. If the wealth, stored in Baitul-Mal, is not adequate to meets the wants of the indigents, the head of the state may compel the rich to contribute by imposing extra levies on them.”
The Government should play a great role through monetary and fiscal policies in reducing the disparity between the haves and have-nots. These policies should be geared towards the benefit of the poor. It is also one of the responsibilities of an Islamic government to differentiate between the deserving and undeserving of the national help.
In this case, the government should invest in the social overhead capital such as education, healthy and other infrastructural development so that the poor may benefit more than the rich.
Islam strongly encourages the rich to spend for people in the lower income group over and above compulsory payments so that wealth trickle-down among the various classes of society. In this context, the principle is that the more one has, the more responsible towards providing the poor one is. Allah says:
.ويسألونك ماذا ينفقون قل العفو...
“And they ask you how much they are to spend; say: what is beyond your needs.”
There are compulsory measures of distribution which also heavily contribute to the reduction of inequality among the people. The institutions of Zakat, tithe, sadaqatul fitr, inheritance, bequest etc. come under this category. In these cases, one has to dispose one’s wealth to one’s fellow-beings whereby have-nots become better off. Mutual gifts, endowments and other optional charities, on which Islam places a heavy emphasis, also reduce the disparity between the haves and the have-nots of society.
Taxation in an Islamic Economy
The classical Islamic scholars also gave justifications for taxation as a major of sources of government revenue in an Islamic state. This has been supported by Imam Malik:
“If there were no funds in the treasury or the need of the army increased above the capacity of the treasury, the state has the right to levy taxes on the rich up to the level that satisfies the need immediately and until the revenues of the treasury appear.”
Islamic government should make sure that the imposition of taxes does not the kill work incentives of the tax payers. It must carry out some research to find out which particular rates and types of taxation are the most suitable to maximize government revenue in the economy.
There should not be any injustice involved with taxation policy in an Islamic state. Although Islamic state has the right to impose taxes on the poor it should try to minimize their tax burden in general. The bulk of tax revenue should come from the rich of the society because, they are economically more capable to contribute towards revenue collection than the poor.
This is why suggestion has been made that the Islamic state should minimize indirect taxes, which are normally borne by the poor and concentrate on the direct taxes, which are usually collected from the rich.
Islamic Financial Institutions
Manadatory Tax (Zakat)
Zakat can be the source of sizeable financial resources for an Islamic state. It is collected from a full one-year possession of wealth, which reaches to the Nisab. The coverage of the zakat is very wide encompassing cattle, horses, sheep, gold, silver, merchandise, cash and securities. It should be kept in mind that zakat revenues couldn’t serve all the fiscal needs of an Islamic state since the avenues of this revenue have explicitly been mentioned in the Qur'an.
The expenditure of zakat proceeds must strictly be directed to the defined heads otherwise, the socio-economic objectives of the institution of Zakat may not be realized in a given society. The Zakat proceeds should be collected centrally by the Islamic government. It should establish a zakat department and employ efficient mechanisms, which will draw and disburse zakat revenue under the close supervision of the government. The overall efficiency of zakat collecting machinery must be maintained so that high operational costs and other administrative weaknesses may not jeopardize the objectives of the institution of Zakat as an instrument to alleviate poverty, redistribute income and act as a stabilizing device of an Islamic economy.
Tax on Land (Kharaj)
Agricultural land tax, Kharaj, is a rental fee on the land that becomes of the property of an Islamic government as a result of its liberation by Muslim troops. It is the consensus of the Muslim jurists that such lands be kept as public property and be taxed so that the future Muslim generations may benefit from these lands. Umar, the second caliph, did not distribute the large tract of Syrian, Egyptian and Iraqi fertile lands among the troops. Instead, he kept them with the public treasury as a state property. He left the land with their original owners and levied taxes on them.
The Islamic government would fix a rate for land tax depending on the qualities of the land such as the level of fertility, irrigation requirements and so on. The tax rates should be fixed on the basis of equity so that no injustice is done to farmers in case of over charging as well as to the state in case of under charging.
Jizyah
Islamic government may obtain a good amount of monetary resources from Jiziyyah. It is the Poll-tax on all non-Muslim male adults living in an Islamic state.
Since Islamic government provides security to their lives and properties ensures all other social rights, they obliged to pay a Poll-tax to the Islamic government. The Qur’an states:
...حتى يعطوا الجزية عن يد وهم صغرون
“Until they pay the Jiziyyah with willing submission and feeling themselves subdued.”
There is no fixed rate for the Poll-tax in Islam but it should not be below the rate of zakat on Muslims. In fact, the rate of jiziyyah would very much depend on the size of the share of national income enjoyed by the non-Muslims. This is to enable Islamic government to adequately finance the public expenditure of the country.
Charitable Trusts or Endowments (Al-Awqaf)
Charitable trusts transfer wealth from private ownership to beneficial, social, collective ownership. Islam does not make this practice obligatory but has strongly encouraged it and left it to voluntary initiatives of individuals. In spite of this, the Muslims accepted it wholeheartedly even in periods of economic decline and created charitable trusts, since the period of the Prophet (s.a.w) for important social and economic functions.
These trusts have successfully brought a changes and well improvement in the welfare of the needy.
Gifts (Al-Maniha)
Al-Maniha or Al-Minha are special kinds of gifts. The Prophet (s.a.w) in his various traditions used this method to provide some assistance to the early Muslim migrants from Mecca to Madinah who were in real need of some help. Al-Maniha means the granting of the usufruct of a productive asset to a needy person for a specific period. These gifts can be in term of money (cash), riding animals, dairy animals, agricultural land, fruits and other productive assets such as cars, ships etc.
Al-Fay’
Al-Fay’ is the wealth that Muslims acquire from the enemy without actual fighting. The recipients of fay’ are the Prophet (s.a.w), his family, the orphans, the needy and the wayfarer. This is also suggestive of the simple fact that the common man’s welfare does not depend on increase in items of ownership but also on increase in the benefits accruing to him without directly owning many of them. Besides, there are properties whose utility can be retained and protected only under government administration and ownership.
Treasure (Rikaz)
Rikaz is buried wealth found in land, which has no owner. The finder will have to pay 20% or one-fifth of the wealth. The opinions of the jurists on the recipients of this one-fifth of the wealth are divided. Some are the opinion that it should be distributed to the recipients of the fay’. Some others opine that it should be distributed as zakah. Whichever way it is distributed, it is still an important source of the needy.
Poverty Alleviation Strategy: a case study.
Amanah Raya Ikhtiar Malaysia (AIM) is a Non-Government Organization (NGO) has been established in order to create; out of the hard-core poor households, highly motivated individuals who would be committed to earn an honest living and eventually move out of the poverty trap. Instead of providing those grants or subsidies, they were given interest free loans to undertake income-generating projects of their choice. The loan was to be repaid on a weekly basis. They were entitled to another bigger loan whenever they have cleared the first loan.
This process goes on as long as they need the loan. The first loan is normally restricted to $500, the second $1000, continued with $1500, and $2000. If they have proven to be very successful, they could apply for much bigger loans of $5000 or even $15000.
It is also to noted that from the start these loans were given without any security, guarantor, or court action. If the beneficiaries pass away, the loans were be written off. Apart from the high rate of payback, the impact of this small loan scheme has been very commendable. About 55% of the beneficiaries would be out of poverty after taking three loans. This percentage would increase after the fourth and successive loans. Overall, not less than 80% of the beneficiaries will eventually out of the poverty.
This success of AIM has been widely publicized. AIM is actually not only Islamic in terms of the employing the developmental approach, but it is also Islamic in terms of loans extended which are completely free from riba. Although AIM insists on good pay back record all the time, but when the time comes to extend benevolence all debts due are written off. The group that has been extended the loans is those who belong to the destitute category, rather than poor, which is also Islamic.
History has it that about 99-100 years after the establishment of the Islamic State in Madinah, during the reign of Sayyidina Umar ibn Abdul Aziz, it was very difficult for the State to find someone who wanted to receive the Zakah allocated to the destitute and the poor.
Final Remarks
The socio-economic system of Islam has, from the very outset, addressed the problem of poverty, in a comprehensive and pragmatic way. Islam rightly distinguishes between the destitute and the poor to set the right approach and priority to alleviate them. Islam also establishes the obligatory sources of funds and assistance to the needy.
It is indeed unique to Islam to include zakah payment as the pillar of Islam and make the first two of the eight beneficiaries of zakah, the destitute and the poor, in that order. This clearly shows the commitment Islam has to combat poverty. Islam also establishes many other institutions, which are voluntary, for the needy.
This is indeed remarkable in the sense that is not only the obligation of the State to provide the minimum level of living for each citizen, but Islam makes it the business of every citizen to participate in this battle. This is a very significant approach because by so doing we are making the whole society aware of the need to give a helping hand. It also provides the checks and balances between the government and society.
A very significant contribution by the Islamic economic system is its approach to the alleviation of poverty. Whilst it provides transfers from the rich to the poor, it is only to those poor who cannot work, that are eligible to receive such transfers. These transfers, which come mainly from the public treasury, are enough for the whole year. Annual allocations are being made for these needy until their demise.
Secondly, the able-bodied are not encouraged depending their livelihood on the society and State. They are taught to earn an honest and honorable living, which is known as developmental approach that has long-term effects.
Thirdly, Islam through the zakah collection and disbursements, have always identified the needy and ensure that they receive their dues directly. In other words, Islam zeros in the individual or household instead of tackling them on group or regional basis.
This approach, coupled with the well-defined two distinct groups of destitute and poor, made it possible to narrow the scope and concentrate on alleviating the destitute first.
Oxford Dictionary defines ‘Poverty’ as being poor, great lack of money or resources, scarcity or inferiority. Others define it as disadvantaged, low income, poor or less developed. These conventional definitions do not seem to differ or vary from that defined by Al- Ghazali who gave meaning to poverty as a state of not being able to satisfy one’s needs which are basic in nature.
Poverty nowadays is no longer viewed only as economic issue but also is a complex social and political concern that is yet to be successfully solved universally. The concept of poverty is viewed in the context of society as a whole where it persisted in every community around the world but the extent or degree in which it affected human race varies from one society to another.
Even though it is prevailing throughout the world, poverty has always been ignored and is closely associated with disbelieve (kufr). As said by Prophet Muhammad SAW: “Poverty might lead a person to disbelief”, further clarifies the intensity of this situation. Thus, the Holy Quran cannot emphasis more on the poor and needy as commanded by Allah in Surah An-Nisaa:8:
واذا حضر القسمة أولوا القربى واليتامى والمساكين فارزقوهم منه وقولوا لهم
قولا معروفا
“But if at the time of the division, other relatives, or orphans, or poor are present, feed them out of the (property), And speak to them words of kindness and justice”.
A report states: "Poverty is a multidimensional phenomenon, encompassing inability to satisfy basic needs, lack of control over resources, lack of education and skills, poor health, malnutrition, lack of shelter, poor access to water and sanitation, vulnerability to shocks, violence and crime, lack of political freedom and voice. The numbers show little progress in reducing income poverty over the last decade--impressive gains were made in East Asia before the crisis hit, but have been partly reversed, and little if any progress took place elsewhere--and a large majority of poor people said they were worse off now, have fewer economic opportunities, and live with greater insecurity than in the past."
Classification of Poor & Insufficiency of Income
Poverty in Islam is concerned with insufficiency of income and the inability in fulfilling basic human needs. One is considered poor if he does not possess sufficient necessities to fulfill his basic needs. Therefore, poverty can be interrelated to two basic classifications of poor, which are faqir who are the needy, and miskin who are the poor, as identified and understood in Islam. Faqir is defined as someone who can only satisfy less than half of his basic necessities while miskin is a poor man who can satisfy half or more of his basic necessities, but is still below the minimum requirement of basic necessities required.
Prophet SAW said (about those defined as miskin):
“He who does not get enough to satisfy himself, and he is not considered so, so that charity may be given to him, and he does not beg anything from people”.
There are no distinct techniques to measure poverty, as it is always associated with some level of income required to provide for the basic human needs. This human needs refer to the right of food, clothes and shelter as pronounced by the Prophet SAW that are to be identified and met in order to sustain a minimum standard of living. The poverty line or income level, which serves as an indicator to identify whether a person is poor, is useful where a person is considered poor if his income is below poverty line income.
Factors Causing Poverty
The Nature of Man
Man is the essential element in any society thus; any problem related to the society must have something to do with individual because it is his actions on the ethical aspects that affect others as a whole. One of the many reasons poverty persists in any one community is because of the widespread existence of income inequality and unjust wealth distribution. It is due to man’s narrow-mindedness and selfishness as well as ignorance for a collective life has made man a slave to things, which are material in essence. In fact, poverty is caused by man’s deviation from divine teachings in which he practices unlawful things and the man-made problems such as injustice, laziness, selfishness, dictatorship, fraud, cheating, monopoly practices, speculative hoarding and oppression that with each passing day, making the poor getting poorer and the rich getting richer.
ان الله يأمر بالعدل والإحسان وايتاىء ذى القربى وينهى عن الفحشاء والمنكر والبغى يعظكم لعلكم تذكرون
“Allah (swt) commands justice, the doing of good, and liberation to kith and kin, and He forbids all shameful deeds, and injustice and rebellion: He instructs you, that ye may receive admonition”. (16:90).
Mismanagement and misallocation of funds happening today as a result of so much power in the hands of the elite, who maintain the status quo at national levels is the rationale for the existence of an income gap between the poor and the non-poor. There are also corruptions and bribery, or the misuse of public power and resource for private benefit and profit by officials such as politicians and policy makers in which they enrich themselves through the misuse of power entrusted to them. Negative attitude, easy access to money as well as deficiency in democratic government initiates corruption and provides an ideal condition for corruption to prevail. Accumulation of wealth by the rich people will therefore hurt the common people as they are left out and the public interest is further disturbed.
Islam promotes just distribution and ethics in everything we do. Those practicing corruption should be penalized for their inefficiency and those who are efficient should be reward for their creditability.
Function of the Government & the Market Failure
The government is established as a protector for the public interest. It means that government will only see to it if there exist to be a market failure in the economic activity. However, there seem to be an interruption in the economic balance when the government is no longer protecting the public and is applying free trade thus causing massive competition to develop. Government especially in the third world countries tends to borrow from international donor organization such as the IMF, which in turn requires the debtor country to export their production instead of for local circulation. This will have a severe impact when the prices go up, food subsidies are eliminated, basic services cost such as electricity increased and health and educational funds vanish.
In addition to the said government’s failure, inadequate access to employment, lack of physical assets such as land and capital to be owned by the poor, lack of means of supporting rural development in poor region, inadequate access to markets where the poor can make trade, low endowment of human capital and the destruction of natural resources leading to environmental deprivation as well as reduced productivity are merely some of the causes of poverty in light of the function of the government.
Consequently, poor governance and market failure are two aspects, which should be properly addressed to attain justice in the economic activities, which will help in poverty eradication.
Poverty Eradication Strategies in Islam
Being a mankind, we are to approach poverty like any other problems faced by our society, in accordance with the Islamic teachings and way of life. It is the concern for the poor, which leads us to address their needs through many approaches, instruments and government policies.
Element of Poverty Alleviation
It is identified earlier that poverty is a result of diverse factors and therefore has different dimensions in which it would be implemented. These elements are the individual and society’s role in eradicating poverty as well as the government’s role.
Role of Individual & Society
As the creature of Allah (swt) on this Earth, we are to live a moderate lifestyle in such a way that we fulfill our material and spiritual needs simultaneously. Islam recognizes differences in individual human potentials because each is endowed with different types and levels of abilities.
Therefore, man is to earn his living according to his capacity and ability as that enshrined by Allah (swt) in the Holy Qur'an (al- Jumu’a: 10).
It is therefore, the public duty of individuals and society to focus on integrating the Islamic principles, moral and ethical aspect in our daily life, as well as the response from the society about poverty, regardless of involvement of the Government. In other words, the strategy to combat poverty is through harmonious equilibrium in development and Islamic ethical values. There should also be fundamental changes at both the management and policy level, and change in individual character to be more inspired, efficient and selfless individuals in any society. The Prophet also mentioned the importance of earning an honest living in his many hadith. One of them is reported by Al- Miqdam, who quoted the Prophet (saw) as saying:
“Nobody has ever eaten a better meal than that which one has earned by working with one’s own hands”.
Role of State in Economic Reform to Realize its Grand Impact: An Islamic Direction.
Creed and Islamic Economics The basic creed that promotes Islamic economic behaviour evolves from the Islamic concept of God, Allah, with attributes ascribed to Him – Al-Malik (the absolute Owner of All), Al-Rahim (who gives blessings and prosperity, particularly to whom use these gifts as he has permitted), Al-Muhaymin (watches over and protects all things), Al-Wahhab (donates all things to His creatures, even to non-believers), Al-Fattah (opens the solutions to all problems and eliminates obstacles), Al-Razzaq (the Provider of all things that are beneficial to His creatures) and so on.
The Divine attributes do not only have metaphysical significance; a firm belief in them acts as a powerful source of inspiration and guidance in economic pursuits and planning.
These attributes have been described through the Quranic verses and Hadith to construct a mind and guides individual behaviour in a direction, which truly reflects firm belief in Allah’s Unity, Tawhid. Without this firm belief the Islamic economic system and the whole life, falls prey to inconsistency and discord. How do beliefs in this attribute influence economic attitude?
A firm belief in the divine attribute of the Provider eliminates insatiable lust for amassing wealth through unlawful means and cools down impatience. It dissuades from unhealthy competition and egotism. It relieves tension and anxiety and unhealthy reaction in the event of poor for one’s effort. A firm belief in the divine assurance:
‘Whosoever fears Allah, Allah will appoint a way out for him and will provide for him from (a quarter) whence he has no expectation’ (65:2, 3).
It is not only discourages one from becoming avaricious and resorting to unlawful earning but also plays an important role in guiding policy-makers and planner to cast off the capricious fears of loss due to abolition of unlawful institutions and undesirable policies and programmed.
A firm belief in his attribute, Al-Razzaq, as expressed in the verse:
‘Slay not your children, fearing a fall to poverty, We shall provide for them and for you. Lo! The slaying of them is a great sin’ (17:31),
It would inspire the policy-makers to be restrained, barring exceptional cases, in launching on economic grounds a country-wide campaign for birth-control, which often provides a refuge for the morally corrupt. Similarly, belief in the Divine Wisdom of unequal distribution of wealth (4:32) shuns class antagonism and persuades the well-to-do to share their fortune to the poor, thus reducing the distance between the haves and haves-nots.
To conclude, firm belief in divine attributes not only has a far-reaching influence on the general attitude of the individual, it also touches economic enterprises, policy-making and planning. Without such firm belief practicing the Islamic injunctions poses formidable difficulties and leads one to impracticable compromises, which result in dualism and hypocrisy.
The Role of the Government towards Poverty Alleviation
Poverty, Employment and Growth The economic resources of this world belong to Allah who gave them to mankind to benefit from them. So, the duty of man is to properly utilize them for the welfare of society. This world entails:
(i) the full and efficient employment of all human and natural resources,
(ii) the alleviation of poverty and fulfillment of basic needs, and
(iii) the optimum rate of economic growth.
The objective of the alleviation of poverty, the full employment of resources and optimum rate of growth can only be achieved by the active participation of government. The Islamic government should not leave the allocation of resources only to the blind market forces because; being an impersonal entity, the market may not take care of the total welfare, especially of the poor, of the society.
The Government should play a positive role in the economy through pragmatic planning and by providing necessary physical and social infrastructure. The government must invest in this sector since private entrepreneurs may not find enough incentive to invest because of the heavy investment requirement and small monetary return realized over a long period time. In this case, government investment should be channeled into the improvement of highways, dams, bridges, the construction of irrigation networks, airports, telecommunication services and the provision of other facilities, which would bring about external economies to the different sectors of the economy.
So, An Islamic government has a great responsibility to eradicate poverty, fulfill basic needs and improve the living standard of the people. If it fails to do so, the Prophet’s (s.a.w) warning should remind them:
“Whom Allah has made administrator over the affairs of Muslims but remain indifferent to their needs and poverty, Allah will also be indifferent to his needs and poverty.”
Establishment of Equitable Distribution of Income and Wealth The establishment of an equitable distribution system calls for certain governmental functions, such as:
(i) the provision of training and rendering assistance for gainful employment to the public. A variety of technical training programs may be launched to assist the unskilled labour force of the less developed countries. (ii) the government should enforce a just remuneration system so as to fairly distribute the generated income among the factors of production.
(iii) the arrangement of a social security system based on zakat and other charitable revenues.
They would serve as insurance to the unemployed, handicapped, divorcees and other needy members of society. As basic necessities are provided, the national wealth circulates among the members of the community. This is why Islam makes it obligatory for the government to guarantee the provision of basic needs to all. If the existing fund is not sufficient, government has the right to pull resources from the rich in addition to the obligatory dues to guarantee basic needs to each and every one in the society. Ibn Hazm calls for the extra levies on the rich to fulfill the basic needs of the destitute of a society.
He says: “The rich of every locality are obliged to manage the basic needs of the destitute living in it. If the wealth, stored in Baitul-Mal, is not adequate to meets the wants of the indigents, the head of the state may compel the rich to contribute by imposing extra levies on them.”
The Government should play a great role through monetary and fiscal policies in reducing the disparity between the haves and have-nots. These policies should be geared towards the benefit of the poor. It is also one of the responsibilities of an Islamic government to differentiate between the deserving and undeserving of the national help.
In this case, the government should invest in the social overhead capital such as education, healthy and other infrastructural development so that the poor may benefit more than the rich.
Islam strongly encourages the rich to spend for people in the lower income group over and above compulsory payments so that wealth trickle-down among the various classes of society. In this context, the principle is that the more one has, the more responsible towards providing the poor one is. Allah says:
.ويسألونك ماذا ينفقون قل العفو...
“And they ask you how much they are to spend; say: what is beyond your needs.”
There are compulsory measures of distribution which also heavily contribute to the reduction of inequality among the people. The institutions of Zakat, tithe, sadaqatul fitr, inheritance, bequest etc. come under this category. In these cases, one has to dispose one’s wealth to one’s fellow-beings whereby have-nots become better off. Mutual gifts, endowments and other optional charities, on which Islam places a heavy emphasis, also reduce the disparity between the haves and the have-nots of society.
Taxation in an Islamic Economy
The classical Islamic scholars also gave justifications for taxation as a major of sources of government revenue in an Islamic state. This has been supported by Imam Malik:
“If there were no funds in the treasury or the need of the army increased above the capacity of the treasury, the state has the right to levy taxes on the rich up to the level that satisfies the need immediately and until the revenues of the treasury appear.”
Islamic government should make sure that the imposition of taxes does not the kill work incentives of the tax payers. It must carry out some research to find out which particular rates and types of taxation are the most suitable to maximize government revenue in the economy.
There should not be any injustice involved with taxation policy in an Islamic state. Although Islamic state has the right to impose taxes on the poor it should try to minimize their tax burden in general. The bulk of tax revenue should come from the rich of the society because, they are economically more capable to contribute towards revenue collection than the poor.
This is why suggestion has been made that the Islamic state should minimize indirect taxes, which are normally borne by the poor and concentrate on the direct taxes, which are usually collected from the rich.
Islamic Financial Institutions
Manadatory Tax (Zakat)
Zakat can be the source of sizeable financial resources for an Islamic state. It is collected from a full one-year possession of wealth, which reaches to the Nisab. The coverage of the zakat is very wide encompassing cattle, horses, sheep, gold, silver, merchandise, cash and securities. It should be kept in mind that zakat revenues couldn’t serve all the fiscal needs of an Islamic state since the avenues of this revenue have explicitly been mentioned in the Qur'an.
The expenditure of zakat proceeds must strictly be directed to the defined heads otherwise, the socio-economic objectives of the institution of Zakat may not be realized in a given society. The Zakat proceeds should be collected centrally by the Islamic government. It should establish a zakat department and employ efficient mechanisms, which will draw and disburse zakat revenue under the close supervision of the government. The overall efficiency of zakat collecting machinery must be maintained so that high operational costs and other administrative weaknesses may not jeopardize the objectives of the institution of Zakat as an instrument to alleviate poverty, redistribute income and act as a stabilizing device of an Islamic economy.
Tax on Land (Kharaj)
Agricultural land tax, Kharaj, is a rental fee on the land that becomes of the property of an Islamic government as a result of its liberation by Muslim troops. It is the consensus of the Muslim jurists that such lands be kept as public property and be taxed so that the future Muslim generations may benefit from these lands. Umar, the second caliph, did not distribute the large tract of Syrian, Egyptian and Iraqi fertile lands among the troops. Instead, he kept them with the public treasury as a state property. He left the land with their original owners and levied taxes on them.
The Islamic government would fix a rate for land tax depending on the qualities of the land such as the level of fertility, irrigation requirements and so on. The tax rates should be fixed on the basis of equity so that no injustice is done to farmers in case of over charging as well as to the state in case of under charging.
Jizyah
Islamic government may obtain a good amount of monetary resources from Jiziyyah. It is the Poll-tax on all non-Muslim male adults living in an Islamic state.
Since Islamic government provides security to their lives and properties ensures all other social rights, they obliged to pay a Poll-tax to the Islamic government. The Qur’an states:
...حتى يعطوا الجزية عن يد وهم صغرون
“Until they pay the Jiziyyah with willing submission and feeling themselves subdued.”
There is no fixed rate for the Poll-tax in Islam but it should not be below the rate of zakat on Muslims. In fact, the rate of jiziyyah would very much depend on the size of the share of national income enjoyed by the non-Muslims. This is to enable Islamic government to adequately finance the public expenditure of the country.
Charitable Trusts or Endowments (Al-Awqaf)
Charitable trusts transfer wealth from private ownership to beneficial, social, collective ownership. Islam does not make this practice obligatory but has strongly encouraged it and left it to voluntary initiatives of individuals. In spite of this, the Muslims accepted it wholeheartedly even in periods of economic decline and created charitable trusts, since the period of the Prophet (s.a.w) for important social and economic functions.
These trusts have successfully brought a changes and well improvement in the welfare of the needy.
Gifts (Al-Maniha)
Al-Maniha or Al-Minha are special kinds of gifts. The Prophet (s.a.w) in his various traditions used this method to provide some assistance to the early Muslim migrants from Mecca to Madinah who were in real need of some help. Al-Maniha means the granting of the usufruct of a productive asset to a needy person for a specific period. These gifts can be in term of money (cash), riding animals, dairy animals, agricultural land, fruits and other productive assets such as cars, ships etc.
Al-Fay’
Al-Fay’ is the wealth that Muslims acquire from the enemy without actual fighting. The recipients of fay’ are the Prophet (s.a.w), his family, the orphans, the needy and the wayfarer. This is also suggestive of the simple fact that the common man’s welfare does not depend on increase in items of ownership but also on increase in the benefits accruing to him without directly owning many of them. Besides, there are properties whose utility can be retained and protected only under government administration and ownership.
Treasure (Rikaz)
Rikaz is buried wealth found in land, which has no owner. The finder will have to pay 20% or one-fifth of the wealth. The opinions of the jurists on the recipients of this one-fifth of the wealth are divided. Some are the opinion that it should be distributed to the recipients of the fay’. Some others opine that it should be distributed as zakah. Whichever way it is distributed, it is still an important source of the needy.
Poverty Alleviation Strategy: a case study.
Amanah Raya Ikhtiar Malaysia (AIM) is a Non-Government Organization (NGO) has been established in order to create; out of the hard-core poor households, highly motivated individuals who would be committed to earn an honest living and eventually move out of the poverty trap. Instead of providing those grants or subsidies, they were given interest free loans to undertake income-generating projects of their choice. The loan was to be repaid on a weekly basis. They were entitled to another bigger loan whenever they have cleared the first loan.
This process goes on as long as they need the loan. The first loan is normally restricted to $500, the second $1000, continued with $1500, and $2000. If they have proven to be very successful, they could apply for much bigger loans of $5000 or even $15000.
It is also to noted that from the start these loans were given without any security, guarantor, or court action. If the beneficiaries pass away, the loans were be written off. Apart from the high rate of payback, the impact of this small loan scheme has been very commendable. About 55% of the beneficiaries would be out of poverty after taking three loans. This percentage would increase after the fourth and successive loans. Overall, not less than 80% of the beneficiaries will eventually out of the poverty.
This success of AIM has been widely publicized. AIM is actually not only Islamic in terms of the employing the developmental approach, but it is also Islamic in terms of loans extended which are completely free from riba. Although AIM insists on good pay back record all the time, but when the time comes to extend benevolence all debts due are written off. The group that has been extended the loans is those who belong to the destitute category, rather than poor, which is also Islamic.
History has it that about 99-100 years after the establishment of the Islamic State in Madinah, during the reign of Sayyidina Umar ibn Abdul Aziz, it was very difficult for the State to find someone who wanted to receive the Zakah allocated to the destitute and the poor.
Final Remarks
The socio-economic system of Islam has, from the very outset, addressed the problem of poverty, in a comprehensive and pragmatic way. Islam rightly distinguishes between the destitute and the poor to set the right approach and priority to alleviate them. Islam also establishes the obligatory sources of funds and assistance to the needy.
It is indeed unique to Islam to include zakah payment as the pillar of Islam and make the first two of the eight beneficiaries of zakah, the destitute and the poor, in that order. This clearly shows the commitment Islam has to combat poverty. Islam also establishes many other institutions, which are voluntary, for the needy.
This is indeed remarkable in the sense that is not only the obligation of the State to provide the minimum level of living for each citizen, but Islam makes it the business of every citizen to participate in this battle. This is a very significant approach because by so doing we are making the whole society aware of the need to give a helping hand. It also provides the checks and balances between the government and society.
A very significant contribution by the Islamic economic system is its approach to the alleviation of poverty. Whilst it provides transfers from the rich to the poor, it is only to those poor who cannot work, that are eligible to receive such transfers. These transfers, which come mainly from the public treasury, are enough for the whole year. Annual allocations are being made for these needy until their demise.
Secondly, the able-bodied are not encouraged depending their livelihood on the society and State. They are taught to earn an honest and honorable living, which is known as developmental approach that has long-term effects.
Thirdly, Islam through the zakah collection and disbursements, have always identified the needy and ensure that they receive their dues directly. In other words, Islam zeros in the individual or household instead of tackling them on group or regional basis.
This approach, coupled with the well-defined two distinct groups of destitute and poor, made it possible to narrow the scope and concentrate on alleviating the destitute first.
Islamic Financial Planning to Create a Self-reliant Nation
Islamic Financial Planning is an emerged-model in today's global socio-economic reality to facilitate in creating an economically matured and self-reliant nation.
It has a relationship with the idea of Islamic Financial Marketing, viewed by Ibnu Abu Yusuf & Ibnu Taimiyyah and Ibnu Khaldun. They defined it as the creation, developing and delivery of unique customer satisfying competitive products and services at a profit to organization and customer in the lights of Islamic values and principles. In contrast, conventionally it is defined as the process whereby an individual's personal and financial goals are achieved through the development and implementation of a comprehensive financial plan.
In Islam, financial planning is not just merely a process of acquisition and accumulating wealth but it has a broad definition which relates to the concept of vicegerent (kalifah).
According to the Holy Qur’an, God created man as his vicegerent (or ambassador) on earth. Allah (swt) says in Al-Qur'an:
Behold, thy Lord said to the angels: "I will create a vicegerent on earth." They said:” Wilt Thou place therein one who will make mischief therein and shed blood? - Whilst we do celebrate Thy praises and glorify Thy holy (name)?" He said: "I know what ye know not." (Surah Al-Baqarah:30).
‘He it is who created for you all that is on earth. Then He rose over (Istawa) towards the heaven and made them seven heavens and He is the All-Knower of everything.’(Surah Al-Baqarah, verse 29).
The duty of man as Allah’s khalifah is to make use of all the blessings of Allah (swt) on earth to his own benefit. For this, man is given freedom, that is, freedom of choice and action (also within limits). It is because of man’s special faculties and his freedom that he becomes the best of Allah’s creatures. Financial Planning is basically a discipline of wealth management that applies to the unique needs and concerns of respective individual.
As a Muslim even though a person does not possesses any form of wealth, he still has to commit with financial planning process because either he would leaves debt or children to the trusted one. In the following discussion, we would like to focus on the comprehensive aspects of financial planning whereby an individual should has a balanced approached in order to achieved the dynamic goal.
In Islam, every one is confined with the concept of Allah’s bounty or sustenance. This concept means that Allah is the sole giver of “bounty” to every living creature on this world. Allah blesses His bounty on those who earn and spend it in compliance with His covenants. He does not bestow His blessing or mercy on those who earn it illegitimately and spend it irresponsibly. Allah affirms:
‘For Allah is He Who Gives (all) sustenance……’(Al-Dhariyat 51:58)
It has a relationship with the idea of Islamic Financial Marketing, viewed by Ibnu Abu Yusuf & Ibnu Taimiyyah and Ibnu Khaldun. They defined it as the creation, developing and delivery of unique customer satisfying competitive products and services at a profit to organization and customer in the lights of Islamic values and principles. In contrast, conventionally it is defined as the process whereby an individual's personal and financial goals are achieved through the development and implementation of a comprehensive financial plan.
Islam is a comprehensive, integrated and holistic system that, governs all aspects of life, major and minor, personal and social, spiritual and materialistic while relates this worldly life to the Hereafter. Thus, the compliance of total spirit of Islam is essential in every socio-economic and business activities in view of achiving the result accordingly. Muslim are encouraged in planning for their life and put efforts to achieve the goal setting then ask help from Allah (swt). The final stage is tawakal for what the result and takes it as the destiny bestowed by Allah (swt).
The holy Prophet Muhammad (saw) used to supplicate Allah (swt):
‘My Lord, help me and do not give help against me, grant me a victory, and do not grant victory over me, plan on my behalf and do not plan against me, guide me and made my right guidance easy for me, grant me victory over those who act wrongfully towards me….’(Narrated by Abu Daud.).
In Islam, financial planning is not just merely a process of acquisition and accumulating wealth but it has a broad definition which relates to the concept of vicegerent (kalifah).
According to the Holy Qur’an, God created man as his vicegerent (or ambassador) on earth. Allah (swt) says in Al-Qur'an:
Behold, thy Lord said to the angels: "I will create a vicegerent on earth." They said:” Wilt Thou place therein one who will make mischief therein and shed blood? - Whilst we do celebrate Thy praises and glorify Thy holy (name)?" He said: "I know what ye know not." (Surah Al-Baqarah:30).
From the above verse, and others like it, we understand that as the khalifah or vicegerent of God on earth, man is gifted with certain powers, which other creatures of God do not possess. For example, he possesses (within limits of course) intellectual faculties. We also read that God created all things on earth for man.
‘He it is who created for you all that is on earth. Then He rose over (Istawa) towards the heaven and made them seven heavens and He is the All-Knower of everything.’(Surah Al-Baqarah, verse 29).
The duty of man as Allah’s khalifah is to make use of all the blessings of Allah (swt) on earth to his own benefit. For this, man is given freedom, that is, freedom of choice and action (also within limits). It is because of man’s special faculties and his freedom that he becomes the best of Allah’s creatures. Financial Planning is basically a discipline of wealth management that applies to the unique needs and concerns of respective individual.
As a Muslim even though a person does not possesses any form of wealth, he still has to commit with financial planning process because either he would leaves debt or children to the trusted one. In the following discussion, we would like to focus on the comprehensive aspects of financial planning whereby an individual should has a balanced approached in order to achieved the dynamic goal.
Financial Planning quantifies and manages individual’s success in four financial pillars; wealth protection, wealth accumulation, wealth preservation and wealth distribution. Each of these different components is meant to play a different role in addressing unique issues and the objective must in line with the Islamic Shari'ah principle.
In Islam, every one is confined with the concept of Allah’s bounty or sustenance. This concept means that Allah is the sole giver of “bounty” to every living creature on this world. Allah blesses His bounty on those who earn and spend it in compliance with His covenants. He does not bestow His blessing or mercy on those who earn it illegitimately and spend it irresponsibly. Allah affirms:
‘For Allah is He Who Gives (all) sustenance……’(Al-Dhariyat 51:58)
The concept of Allah’s bounty is considered very important in Islam as a good Muslim is required to have a proper balanced between the fulfillment of his spiritual and worldly obligations. The Prophet (saw) advised;
‘A Muslim should prepare himself for the next world as if he is going to die tomorrow, but at the same time work hard to improve all his worldly comforts as if he is going to live forever.(Narrated by Al-Dailami).
Islam covers the extremes of zuhd (abstinence) and bulk (avarice). A Muslim should not forego wealth. Neither should he be avaricious in the pursuit of wealth. Zuhd is not amounting to rejection of pleasure but rather leading a pious life by his ability to life moderate and within his mean.
This is why Islam encourages reasonableness and moderation. As a Muslim we are not discourage from acquiring wealth but we must know how to earn and spend it in accordance with the Islamic principles. Wealth should not be abused or misused as Allah SWT has laid down very clear injunctions on how wealth is to be acquired and spent.
Indeed, wealth is a form of trial by Allah SWT towards His servants whether they follow His injunctions regarding wealth acquisition and disposal and as such the owners are to be fully accountable on the Day of Judgment for what they do with their wealth. In Islamic financial planning, an individual must understand the discipline of how to protect, to accumulate, to preserve and to distribute the wealth according to the Islamic Shari'ah.
PTPTN (Malaysian edu-Fund) with a Just Socio-economic Treatment
PTPTN is a "Holistic Fund" because of:
1. It facilitates the national human capital development scheme through acquiring knowledge (‘Ilmu) and its development for the noble causes of the nation.
2. It helps the parents to be enabled to educate their children in achieving their true legitimate goals for own-self, family, community, society, nation and the Ummah.
3. It facilitates the government to create a nation with skill & due professionalism.
4. It helps the nation to be proud of its children with knowledge, skill, maturity & right professionalism.
5. To sum up that, PTPTN is a fund that supports in seeking knowledge (‘Ilmu) and building up the children with true skill and dynamism towards greater benefits of the country and the Ummah in general.
Thus, it (PTPTN) shall not be subject to an unnecessary political debate, rather it shall be respected by all in discovering possible result oriented avenues towards furtherance dynamism of the scheme (PTPTN) and advantages for the students leading to national benefits.
However, PTPTN may view its furtherance bright future by Shari'ah based structuring its Fund by affiliating with SUKUK, SECURITIZATION by QIRADH, TAKAFUL & ZAKAT.
Among the common safe-guards through such structure are:
1. Students may be rescued from future Debt-liability.
2. Protection of the Fund from being Deficit with gradual effect.
3. The Government with gradual effect may be able to reduce its liability from injecting additional figures in to the fund.
4. This may eventually with a strict time-frame result a zero-contribution needed from the government.
5. A situation may one day arrive when students need not to be tied up with the loan, but only liability-free financial aids or scholarship with a simple condition that, students shall serve the nation full heartedly as a national & ummatic obligation.
1. It facilitates the national human capital development scheme through acquiring knowledge (‘Ilmu) and its development for the noble causes of the nation.
2. It helps the parents to be enabled to educate their children in achieving their true legitimate goals for own-self, family, community, society, nation and the Ummah.
3. It facilitates the government to create a nation with skill & due professionalism.
4. It helps the nation to be proud of its children with knowledge, skill, maturity & right professionalism.
5. To sum up that, PTPTN is a fund that supports in seeking knowledge (‘Ilmu) and building up the children with true skill and dynamism towards greater benefits of the country and the Ummah in general.
Thus, it (PTPTN) shall not be subject to an unnecessary political debate, rather it shall be respected by all in discovering possible result oriented avenues towards furtherance dynamism of the scheme (PTPTN) and advantages for the students leading to national benefits.
However, PTPTN may view its furtherance bright future by Shari'ah based structuring its Fund by affiliating with SUKUK, SECURITIZATION by QIRADH, TAKAFUL & ZAKAT.
Among the common safe-guards through such structure are:
1. Students may be rescued from future Debt-liability.
2. Protection of the Fund from being Deficit with gradual effect.
3. The Government with gradual effect may be able to reduce its liability from injecting additional figures in to the fund.
4. This may eventually with a strict time-frame result a zero-contribution needed from the government.
5. A situation may one day arrive when students need not to be tied up with the loan, but only liability-free financial aids or scholarship with a simple condition that, students shall serve the nation full heartedly as a national & ummatic obligation.
Wealth Management with Socio-economic Justice for All
Wealth plays an important role in human life. It is the subject matter of trade and other business transactions such as sales. Wealth can be in many forms. It can be in the form of money to some people and to other it can be in the form of property like houses, cars and lands. In order for men to obtain this wealth he has to work hard because it does not come like that, even though some times it can be inherited.
In Islam wealth is known as “mal”. In Islam something can be recognized as mal or wealth only when it satisfies the following conditions that are only when you possessed, secured it or stored it. For example, the birds in the sky, the minerals underground and the fish in the river are not recognized as wealth in the Islamic perspective. Only when you have possessed, secured and stored these things can they be recognized as wealth. It is different from the conventional point if view which wealth is recognized even if it has not been possessed secured and stored.
In conventional perspective wealth is totally owned by man. Man can use the wealth in any way he feels like using it. They utilize their wealth only for this world purposes without concerning about the Hereafter. This way of thinking is totally contrast with what Islam thought. It is stated in the Holy Quran that wealth in all its forms is a thing created by Almighty Allah as a trust for man. Thus, man only have right to uses the wealth only according to the shariah. Allah s.w.t said in the Holy Qur'an:
At this point we can bring in the management. Wealth management is an important aspect in Islam. Since we are not the absolute owners of the wealth in this world, we have the duty or responsibility to manage it in the best way we can. Absolute ownership is to the Almighty Allah. We have only been entrusted upon this wealth. As I said above, our responsibility is to manage it accordance to shariah. By managing wealth according to the shariah, we also can seek our reward in hereafter, for example paying zakat.
Management of wealth is quite complicated because you have to look at someone intentions, how the wealth is earned, how it’s grown, how it’s spent and the right of the poor and needy. As we know, in Islam money is not an end in itself, it is a means to higher values. These means that if it is earned, invested and spend in the right way, it brings rewards or ‘barakah’ to not only the individual but also his family and the ummah as a whole.
SHARI'AH RULINGS
Shari'ah rulings provide a basic upon which guidelines and instructions of a course of action or undertaking are formulated and implemented. Despite cleat rulings on the use and management of wealth, the Quran is not devoid of hypotheses in general about wealth and its consequences, how man views wealth, and words of wisdoms for man with regards to wealth. The following are some of the example:
“And violent is he in his love of wealth” (100:8)
The above verses indicate man’s desire for wealth in different forms – gold and silver, horses, cattle and lands, which vary, includes all kinds of machines in our contemporary world.
“Nay, but man does transgress all bounds, in the looks upon himself as self – sufficient” (96: 6 – 7)
“In order that it may not (merely) make a circuit between wealthy among you” (59:7)
Moderation in expenditures is commended in Islam, and excesses, waste and extravagances denounced. The Quran equates such doings to the works of the devil, as in the following:
“Those who, when they spend, are not extravagant and not niggardly, but hold a just (balance) between those (extreme)” (25:67)
“For Allah loves not arrogant, the vainglorious; - (nor) those who are niggardly, or enjoin niggardliness on others, or hide the bounties which Allah has bestowed on them….” (4: 36 – 37)
PRACTICAL SCENARIOS AND APPLICATIONS
However if you look at the conventional or the capitalist advocates, you will discover that most people have became inclined to their wealth that they do not have or follow any religion. In short they have become pagans. They also do not believe in the hereafter. This is so, because there is no form of wealth management such as paying the Zakat to the needy people around the world. This is why, the capitalist always concentrate on material satisfaction and not spiritual. They only seek material satisfaction and think of maximizing there wealth through all the means available, weather the right or wrong way. They also have this misconception of saying that their scarce resources and unlimited needs in the world. It is like saying that God did not know what he was doing. Because God created this world and made sure that people would be satisfied with whatever there is available.” The imposition of Zakat is to purify oneself as well as one’s own property.”“Islam believes if a wealthy person is accustomed to paying Zakat, his infatuation for wealth will be softened and it will be a source of advantage to him and the society in the end.”
Islam on the other hand, has clear guidelines as to what should be given out as Zakat, who should give out Zakat and how much he should give out (see Zakat at a glance). Zakat is obligatory on every eligible Muslim male or female, and is given for the pleasure of god and to earn his grace. On the things liable for Zakat, the prophet (PBUH) is reported to have said,
And in another Hadith, the prophet (PBUH) is reported to have said,
ZAKAT ON SEEDS AND OLIVES
This presents a scenario of the application of Zakat as to what are the Zakatable items, how much is Zakatable and when it is Zakatable. This clearly illustrates the management of wealth in Islam not prevalent in the conventional approach. Malik said,” The tenth that is taken from olives is taken after they have been pressed and the olives must come to a minimum amount of five awsaq and there must be at least five awsaq of olives. If there are less than five awsaq of olives, no Zakat has to be paid. Olive trees are like date palms in so far as there is a tenth on whatever is watered by rain or springs or any natural means, and a twentieth on whatever is irrigated. However, olives are not estimated while on the tree. The sunna with us as far as grains and seeds which people store and eat is concerned is that a tenth is taken from whatever has been watered by rain or springs or any natural means, and a twentieth from whatever has been irrigated, that is, as long as the amount comes from five awsaq or more using the aforementioned Sa’, that is the Sa’ of the prophet, may Allah bless him and grant him peace. Zakat must be paid on anything above five awsaq according to the amount involved.”
Business transactions in an Islamic framework come in various ways and cater to different parties or groups of people in various circumstances and situations. This might involve a Mudarabah agreement, where one party, say a bank, provides capital and another entrepreneurship; a Mudarabah transaction, which briefly can be described as a partnership between investors and borrowers in a profit-sharing agreement involving re-sales; Al-ijarah contract, which is literally, a contract of letting; and Qirad, which is wealth entrusted upon an agent by an investor for commercial use. All of these transactions indicate how wealth in its various forms is used or managed from an Islamic point of view. Here is a look at the application of some of the above.
MUDARABAH AND MUSHARAKAH MODE OF FINANCING
Let as for example the Mudarabah mode of financing. As we know Mudarabah involves two or more parties coming together and agreeing upon, one party contributing labor and the party contributing the wealth (capital) to carry out a business. So through this definition you will discover or find out that there is sharing of wealth, effort and responsibility. If one party or person has the effort but not the means, he can go to the bank and obtain Al-qard-hasanah and start a business, which at the end of the day will involve the sharing of profits.
Therefore, banks indirectly manage wealth by giving Al-qard-hasanah to the needy people who have the ability but not the means to carry out the business without funds.
Unlike the conventional banks, were they give loans and charge interest (Riba) upon the borrower. This is not called managing wealth or helping the needy, but it is called exploiting the borrower. The borrower has to pay on top of the money that he/she has got a fixed amount of interest, in which Islam has forbid this. That’s why is Islam it is stated that absolute ownership of wealth is towards the almighty Allah and we are merely entrusted upon it. Therefore man cannot do whatever pleases him
As you can see the above manner in which wealth is distributed is a form of wealth of management. This is because the needy or the have-nots are assisted by providing them with the needed funds to start a business. Firstly, money or wealth is not left lying idle and secondly the wealthier people do not become more and more wealth. They share their wealth with the have-nots. The same goes with the other form or mode of financing which is Musharakah. Where two or more people come together to carry out a business and the profits are shared in equal proportions at the end of the day.
For example a person is interested in starting a business of selling books. That business needs a capital of RM 200,000. This person interested in that business has not that kind of money. He has RM 100,000 which not sufficient enough to start that business. So he goes and sees his fellow friend asks him if he is interested in that type of business. Let’s say the friend’s response to the request is positive. So he tells the friend that he has only RM 100,000 and needs another RM 100,000 to get started with the business. So the other friend would provide the other hundred to start the business. In this way they of formed what we call a partnership in conventional terms and Musharakah in Islam. But in Islam Musharakah can be made between Banks, institutions and other normal businessmen.
Unlike in the conventional were it can be done between institutions only and between businessmen and not a mixture of both. This is a mode of financing and a form of wealth management.
AL-IJARAH FACILITY
Al-ijarah, also known as Al-kira’ refers to rent, lease or usage. In an Islamic financial system, Al-ijarah is a contract of selling of benefits or use or service for a fixed price or rent. Technically, Al-ijarah in fiqh is used “to express the sale (Bay’) of a known benefit in return for its known equivalent” (The Majelle Art.405). Being a contract like that of sale, Al-ijarah is concluded with offer and acceptance.
CONCEPT
With the Ijarah facility, the main idea behind the contract is the transfer of usage or benefit and not ownership. For this contract to be legally operational, the following guiding principles are required:
1) The usage/benefit must be clarified with regards to the period of lease and the types of usage.
Al-ijarah facility can only be valid if it meets the following conditions from an Islamic perspective.
1) The owner of the asset or lesser
EARTURES
1) Al-ijarah financing extends from short to medium financing in equipment, motor vehicles, machines, computers, and consumer goods among other things.
The banks manner of financing Al-ijarah contract generally follows the following procedures:
1) Determination of the needs of the customer where the equipment and the lease period is concerned under the shariah principles.
As mentioned earlier, the purpose of this kind of contract is the transfer of usage or benefit, but the bank retains the ownership of the asset. In the event the customer dishonors the agreement, the Bank can repossess the equipment immediately. For instance, if a horse is hired to be ridden by someone and it happens that someone else other than the person who hired the horse rides it, this can invalidate the contract. However, the lesser can also not rescind the contract anytime he wishes to. The Mejelle (Art. 441) says, “After a contract has been completed which is a lawful letting, if another person offers additional rent, however much it may be, the lesser cannot for this alone annul the letting.”
AL-IJARAH OPERATION
In Islam wealth is known as “mal”. In Islam something can be recognized as mal or wealth only when it satisfies the following conditions that are only when you possessed, secured it or stored it. For example, the birds in the sky, the minerals underground and the fish in the river are not recognized as wealth in the Islamic perspective. Only when you have possessed, secured and stored these things can they be recognized as wealth. It is different from the conventional point if view which wealth is recognized even if it has not been possessed secured and stored.
In conventional perspective wealth is totally owned by man. Man can use the wealth in any way he feels like using it. They utilize their wealth only for this world purposes without concerning about the Hereafter. This way of thinking is totally contrast with what Islam thought. It is stated in the Holy Quran that wealth in all its forms is a thing created by Almighty Allah as a trust for man. Thus, man only have right to uses the wealth only according to the shariah. Allah s.w.t said in the Holy Qur'an:
At this point we can bring in the management. Wealth management is an important aspect in Islam. Since we are not the absolute owners of the wealth in this world, we have the duty or responsibility to manage it in the best way we can. Absolute ownership is to the Almighty Allah. We have only been entrusted upon this wealth. As I said above, our responsibility is to manage it accordance to shariah. By managing wealth according to the shariah, we also can seek our reward in hereafter, for example paying zakat.
Management of wealth is quite complicated because you have to look at someone intentions, how the wealth is earned, how it’s grown, how it’s spent and the right of the poor and needy. As we know, in Islam money is not an end in itself, it is a means to higher values. These means that if it is earned, invested and spend in the right way, it brings rewards or ‘barakah’ to not only the individual but also his family and the ummah as a whole.
With that thinking in mind, we now can safely say that in Islam, any human undertaking of which wealth management is one is guided by certain beliefs. These beliefs are described as philosophic foundations in an Islamic society. According to Kurshid Ahmad, they include the following:
1. Tawhid – belief in the oneness of Allah
2. Rubbubiyah – divine guidelines for striving towards all is good
3. Khalifah – the role of man as the vicegerent of God
4. Tazkiyah – achieving purity and growth
5. Accountability – the belief that man will be answerable for his actions in this world on the Judgments Day.
From the above beliefs, an economics agent in Islam learns that the existence in this world is not from without, and thus, he has to conduct himself and administer his wealth in line with divine arrangement. Being God’s vicegerent on earth is an opportunity to function normally – and direct his activities for the betterment of his life and of those around him.
Wealth management in Islam can be looked from different perspectives. These include the zakat management, inheritance, wills and testaments, estate planning, managing cash and saving, managing of tax and state duty, and different business transactions. In this paper we will discuss some of the above scope of Islamic wealth management.
This project is centered upon gaining an understanding of how wealth is managed from an Islamic frame, work together with the worldview of Islam. While the former looks at the human behavior actions undertaken in dealing with the problem choose, the latter looks at the different stages of human existence in Islamic in addition to the concept of God, religion and prophet hood.
The consideration of the worldview in Islamic in our discussion helped outline a clear distinction between managing wealth from Islamic perspective and a conventional perspective. Take a capabilities notion for instance, ownership of resources is absolute, and can be utilized in any manner deemed right in one’s own good and best interest in this world. This is not so in Islamic perspective where ownership is regarded as a trust from God, and thus, can be used with the intention of obtaining the pleasure of God. Knowing that the concept of ownership is limited in Islam, human behavior thus directed at seeking prosperity in this world and in the Hereafter. This entails the maximum utilization of natural resources and human capabilities leading to higher productivity, which in turn brings about success, happiness and growth to the individual and the society at large.
The project paper is designed to discuss shariah rulings and the framework that governs wealth management in Islam. Among other issues, these rulings touch on the utilization and administration in different circumstances pertaining to the question of ‘how to utilize the wealth?’ and ‘who is capable of administrating the wealth?’ These shariah rulings act as a benchmark against which efforts at managing wealth are measured, and thus, ascertain that those involved in managing wealth do so in line with the Quran and Sunnah.
In order to have a clear picture of the topic, we have included practical assertion applicable in different situations of wealth management in Islam. Following thus is a plan to provide room for further improvement through research on the practicalities of managing wealth, and recommendations. We hope that this paper is beneficial to all of us and that it is an avenue towards a better tomorrow where wealth management is concerned.
The consideration of the worldview in Islamic in our discussion helped outline a clear distinction between managing wealth from Islamic perspective and a conventional perspective. Take a capabilities notion for instance, ownership of resources is absolute, and can be utilized in any manner deemed right in one’s own good and best interest in this world. This is not so in Islamic perspective where ownership is regarded as a trust from God, and thus, can be used with the intention of obtaining the pleasure of God. Knowing that the concept of ownership is limited in Islam, human behavior thus directed at seeking prosperity in this world and in the Hereafter. This entails the maximum utilization of natural resources and human capabilities leading to higher productivity, which in turn brings about success, happiness and growth to the individual and the society at large.
The project paper is designed to discuss shariah rulings and the framework that governs wealth management in Islam. Among other issues, these rulings touch on the utilization and administration in different circumstances pertaining to the question of ‘how to utilize the wealth?’ and ‘who is capable of administrating the wealth?’ These shariah rulings act as a benchmark against which efforts at managing wealth are measured, and thus, ascertain that those involved in managing wealth do so in line with the Quran and Sunnah.
In order to have a clear picture of the topic, we have included practical assertion applicable in different situations of wealth management in Islam. Following thus is a plan to provide room for further improvement through research on the practicalities of managing wealth, and recommendations. We hope that this paper is beneficial to all of us and that it is an avenue towards a better tomorrow where wealth management is concerned.
Shari'ah rulings provide a basic upon which guidelines and instructions of a course of action or undertaking are formulated and implemented. Despite cleat rulings on the use and management of wealth, the Quran is not devoid of hypotheses in general about wealth and its consequences, how man views wealth, and words of wisdoms for man with regards to wealth. The following are some of the example:
“Fair in the eyes of men is the love of things they covet: woman and sons; heaped – up hoards of gold and silver; horses branded (for blood and excellence); and (wealth of) cattle and well – tilled land. Such are the possessions of this world’s life; bit in nearness to Allah is the best of the goals (to return to)” (3:14 )
The above verses indicate man’s desire for wealth in different forms – gold and silver, horses, cattle and lands, which vary, includes all kinds of machines in our contemporary world.
“Nor does anyone know what it is that he will earn on the morrow.” (31:34)
“If Allah were to enlarge the provisions for His Servants, they would transgress beyond all bounds through the earth. But He sends (it) down in due measures as the please. For He is with His servants well – acquainted, watchful” (42:27)
In the above verse God indicates the consequences of increased wealth on man. This verses as a warning to those with bestowed with wealth looking beyond the riches of the world.
While God has subjected all that is in the earth for the use of man as His vicegerent on earth, He has bestowed His favors more freely on some, than on others. In these are tests from God. In the Quran man is advised to seek his sustenance and remember God so that he attains success in this world and in the Hereafter. Allah s.w.t says:
“And when the prayer is finished, then may ye disperse through the land, and seek the bounty of Allah: and celebrate the Praise of God often (and without stint): that ye may prosper.” (62:10)
One of the ways by which wealth is managed in Islam is trade. This helps transfer of goods and services from one to another to satisfy different wants. In addition, it helps minimize, if not eliminate the possibility of excessive wealth remaining in the hands of selected few. In the regards, the Quran says:
“Verily spendthrifts are brothers of the Evil Ones and the Evil Ones to his Lord (Himself) ungrateful” (17:27 )
“… eat and drinks: but waste not by excess, for Allah loves not the wasters” (7:31 )
Aside prohibiting extravagance and spendthrift ness, Islam too has no place for meanness and stinginess. If recommends striking a balance, and to this effect, the Quran says:
“Make not thy hand tied (like a niggard’s) to they neck, nor stretch it forth to its utmost reach, so that thou become blameworthy and distillate” (17:29 )
Another example by which wealth is managed in Islam is through zakat and sadaqat, commonly referred to as almsgiving. The donor may give the latter directly to the recipient or through the state government collectively. The former is usually administered through the treasury, knows as Baitul Mal. Here is what the Quran says in this regard:
“So give what is due to kindred, the needy, and the wayfarer. That is the best for those who seek the countenance of Allah, and it is they who will prosper” (30:38)
“And in their wealth and possessions (was remembered) the right of the (needy), him who asked, and him who (some reasons) was prevented (from asking)” (51:19)
In order to wind up the discussions in shariah rulings – though we primarily looked at the Quran injunctions here, we will consider both the Quran and the Sunnah as we talk about practical scenarios of individual cases of wealth management – let us look at the following verse of Quran:
“But seek, with the (wealth) which Allah has bestowed on thee, the home of the Hereafter, nor forget thy portion in this world: but do thou good, as Allah has been good to thee, and seek not (occasions for) mischief in the land: fro Allah loves not those who mischief” (28:77)
In the above verse are many implications concerning wealth and its management in Islam. These can be outlined as in the following sense:
- Wealth is entrusted upon man by Allah
- The management of this wealth should be directed at seeking the pleasure of God in other world (Hereafter).
- Being a trust from God, wealth need be used and exploited in accordance to God’s commandments.
- Being the owner of wealth, God has the right command on man to use wealth for the good of other as He has done well on him, and prohibit man using wealth in a manner that is likely to cause harm on earth.
From these implications of the verse, we see a distinction between the Islamic point of view and the socialist and capitalist point of view. While capitalism propagates ‘an absolute and unconditional right to private property and socialism totally denies the right to private property’, Islam poses a balance by allowing the right to private property but from that angle of it being a trust.
ZAKAT PLANNING
However if you look at the conventional or the capitalist advocates, you will discover that most people have became inclined to their wealth that they do not have or follow any religion. In short they have become pagans. They also do not believe in the hereafter. This is so, because there is no form of wealth management such as paying the Zakat to the needy people around the world. This is why, the capitalist always concentrate on material satisfaction and not spiritual. They only seek material satisfaction and think of maximizing there wealth through all the means available, weather the right or wrong way. They also have this misconception of saying that their scarce resources and unlimited needs in the world. It is like saying that God did not know what he was doing. Because God created this world and made sure that people would be satisfied with whatever there is available.” The imposition of Zakat is to purify oneself as well as one’s own property.”“Islam believes if a wealthy person is accustomed to paying Zakat, his infatuation for wealth will be softened and it will be a source of advantage to him and the society in the end.”
“Alms are for the poor and the needy and those employed to administer the (funds); for those whose hearts have been (recently) reconciled (to the truth); for those in bandage and indebt; in the cause of Allah; and for the wayfarer: (thus is it) ordained by Allah and Allah in full of knowledge and wisdom”. (9: 60)
Prophet Muhammad (PBUH) is reported to have said, “Zakat is not permissible for someone who is not in need except in five cases; someone fighting in the way of Allah, someone who collects Zakat, someone who has suffered (financial) loss (at the hands of debtors), someone who buys it with his own money, and someone who has a poor neighbor who receives some Zakat and gives some as a present to the one who is not in need.”
Zakat is obligatory on all Muslims capable of paying it. Capability is referred to as nisab, a taxable minimum. It is used for specific purpose and paid to specific groups of people or individuals. The Quran lists eight (8) recipients as in the above verse. The role that Zakat plays in the distribution of wealth and income is, without doubt, very important. It reduces the gap between the haves and the have-nots, and induces saving and consumption behaviors in addition to the fact that it helps mobilize income for redistribution.
Islam discourages funds to remain idle, simply because there is no interest, as compared to the conventional system which makes up for earned income with no effort involved. If we look at the saving decision, we notice that idle savings in Islam are penalized because a Muslim is expected to pay Zakat. At the end of the day he remains worse off because for every RM100 that he saves, he loses RM2.50 (2.5% Zakat ratio). Hence, his rational option would be to incorporate investment expectations into his savings decisions. Assuming he sees no light in the direction of investment expectations, he might cut savings and increase consumption in the process, which does not go along with the poor investment expectations. Thus, inclusion of these expectations in the savings decision paves way for a balanced system. Zakat allows a minimum living standard for all residents in an Islamic society, unlike in the capitalist system where the savings of the haves double and multiply through interest, and the have-nots have no social insurance because there is no Zakat.
In a capitalist system an individual might give out part of his wealth if and only when he denies to do so with out clear guidelines as to what, how, and how much he should give, because there is a possession kind of ownership. In an Islamic framework, Zakat illustrates a utilization kind of ownership and not that of a possession kind. The former kind of ownership accrues when wealth is utilized for its purpose and benefits derived from that wealth, else, the right of ownership is withdrawn, more especially in the case of land ownership.
Zakat is obligatory on all Muslims capable of paying it. Capability is referred to as nisab, a taxable minimum. It is used for specific purpose and paid to specific groups of people or individuals. The Quran lists eight (8) recipients as in the above verse. The role that Zakat plays in the distribution of wealth and income is, without doubt, very important. It reduces the gap between the haves and the have-nots, and induces saving and consumption behaviors in addition to the fact that it helps mobilize income for redistribution.
Islam discourages funds to remain idle, simply because there is no interest, as compared to the conventional system which makes up for earned income with no effort involved. If we look at the saving decision, we notice that idle savings in Islam are penalized because a Muslim is expected to pay Zakat. At the end of the day he remains worse off because for every RM100 that he saves, he loses RM2.50 (2.5% Zakat ratio). Hence, his rational option would be to incorporate investment expectations into his savings decisions. Assuming he sees no light in the direction of investment expectations, he might cut savings and increase consumption in the process, which does not go along with the poor investment expectations. Thus, inclusion of these expectations in the savings decision paves way for a balanced system. Zakat allows a minimum living standard for all residents in an Islamic society, unlike in the capitalist system where the savings of the haves double and multiply through interest, and the have-nots have no social insurance because there is no Zakat.
In a capitalist system an individual might give out part of his wealth if and only when he denies to do so with out clear guidelines as to what, how, and how much he should give, because there is a possession kind of ownership. In an Islamic framework, Zakat illustrates a utilization kind of ownership and not that of a possession kind. The former kind of ownership accrues when wealth is utilized for its purpose and benefits derived from that wealth, else, the right of ownership is withdrawn, more especially in the case of land ownership.
“There is no Zakat on less than five Awsaq of dates, there is no Zakat on less than five awsaq’ of silver and there is no Zakat on less than five camels.”
And in another Hadith, the prophet (PBUH) is reported to have said,
“On’ land that is watered by rain or springs or any natural means there is (Zakat to pay of) a tenth. On irrigated land, there is (Zakat of) a twentieth (to pay).”
Assuming one capable of paying Zakat does not pay in one period until the next period when the calculation of Zakat will involve two periods, it is a procedure that the assessment of Zakat is based on what the person is currently capable of paying regardless of his previous condition of wealth. If, for example, after the assessment of Zakat on his wealth he is unable to pay in the event his wealth is reduced below nisab (the minimum requirement), he is not liable to pay Zakat for the period that has passed.
As reported by Yahya, Malik said, “The position with us concerning a man who has Zakat to pay on one hundred camels but then the Zakat collector does not come to him until Zakat is due for a second time and by that time all his camels have died except five, is that the Zakat collector assesses the two amounts of Zakat that are due from the owner of the animals from the five camels, which in this case is only two sheep, one for each year. This is because the only Zakat which an owner of livestock has to pay is what is due from him on the day that the Zakat is (actually) assessed. His livestock may have died or it may have increased, and the Zakat collector only assesses the Zakat on what he (actually) finds in his possession, and if his livestock has died, or several payments of Zakat are due from him and nothing is taken until all his livestock has died, or has been reduced to an amount below that on which he has to pay Zakat, then he does not have to pay any zakat, and there is no liability (on him) for what has died or for the years that have passed.”
ZAKAT ON SEEDS AND OLIVES
BUSINESS TRANSACTIONS
Banking institutions have a unique way of managing wealth. Banks manage wealth through their various modes of financing such as Mudarabah, Musharakah, and Murabaha e.t.c.
Let as for example the Mudarabah mode of financing. As we know Mudarabah involves two or more parties coming together and agreeing upon, one party contributing labor and the party contributing the wealth (capital) to carry out a business. So through this definition you will discover or find out that there is sharing of wealth, effort and responsibility. If one party or person has the effort but not the means, he can go to the bank and obtain Al-qard-hasanah and start a business, which at the end of the day will involve the sharing of profits.
Therefore, banks indirectly manage wealth by giving Al-qard-hasanah to the needy people who have the ability but not the means to carry out the business without funds.
Unlike the conventional banks, were they give loans and charge interest (Riba) upon the borrower. This is not called managing wealth or helping the needy, but it is called exploiting the borrower. The borrower has to pay on top of the money that he/she has got a fixed amount of interest, in which Islam has forbid this. That’s why is Islam it is stated that absolute ownership of wealth is towards the almighty Allah and we are merely entrusted upon it. Therefore man cannot do whatever pleases him
As you can see the above manner in which wealth is distributed is a form of wealth of management. This is because the needy or the have-nots are assisted by providing them with the needed funds to start a business. Firstly, money or wealth is not left lying idle and secondly the wealthier people do not become more and more wealth. They share their wealth with the have-nots. The same goes with the other form or mode of financing which is Musharakah. Where two or more people come together to carry out a business and the profits are shared in equal proportions at the end of the day.
Let me provide with an example, so that you can get a clear picture of how Musharakah is a form of wealth management element.
Unlike in the conventional were it can be done between institutions only and between businessmen and not a mixture of both. This is a mode of financing and a form of wealth management.
With the Ijarah facility, the main idea behind the contract is the transfer of usage or benefit and not ownership. For this contract to be legally operational, the following guiding principles are required:
2) The lessee is capable of utilizing the benefit of the lease fully.
CONDITIONS
CONDITIONS
2) The user or holder of the asset or lessee
3) The asset/equipment
4) Benefit/service
5) The rent/price
6) Offer and acceptance
Have all been stated clearly in the contract of Al-ijarah.
2) The usage of the asset should not contain any elements of Haram (forbidden).
3) A consideration of the used industrial equipment markets, second hand value and capital allowance when extending Al-ijarah financing to the customer
MODE OF OPERATION
MODE OF OPERATION
2) Purchasing the required equipment by the Bank.
3) Leasing the equipment to the customer at an agreed price and period. The total lease rental of the Bank is a combination of the cost of the equipment and the margins of profit for the Banks.
As mentioned earlier, the purpose of this kind of contract is the transfer of usage or benefit, but the bank retains the ownership of the asset. In the event the customer dishonors the agreement, the Bank can repossess the equipment immediately. For instance, if a horse is hired to be ridden by someone and it happens that someone else other than the person who hired the horse rides it, this can invalidate the contract. However, the lesser can also not rescind the contract anytime he wishes to. The Mejelle (Art. 441) says, “After a contract has been completed which is a lawful letting, if another person offers additional rent, however much it may be, the lesser cannot for this alone annul the letting.”
EXAMPLE
Total Lease Rentals (TLR) = CF + (CF * I * n), where
Hence, TLR = 30,000 + (30,000* 8% * 5)
Monthly Lease Rental = RM 42,000/ (5 * 12)
= RM 12,000
(1) Being a finance lease, Al-ijarah contract is non-cancelable. In the event this happens, say due to the involuntary of the asset, the lesser will have to be compensated.
Unit trust is investment instruments in which many investors who share similar investment objectives pool their resources together which are then invested by specified fund managers in specified or authorized securities. There is no profit sharing between the fund manager and the investors but a fee known as ujrah is incurred by the investor for the professional services under Al-wakalah contract.
In the Islamic unit trust, there is usually a shariah panel (shariah supervisory board) which decides which share to fund by using the Activity or Structure Method. Aside al – Wakalah agreement, Islamic unit trust also involves on indirect Musharakah system (equal to unequal share partnership) between investor and companies trading stocks or bonds. Capital gains and dividends are for investor but every purchase or sale of units, the company (fund manager) receives a fee. Any losses incurred due to adverse market conditions do not affect the shareholders wealth.
There is a sharii and tabii dimension to the Islamic unit trust. The former inculcates akhlaq (ethic) in the agreement following the concept of Tawhid. This helps weigh actions from the reasoning point of view as well as spiritual values. The latter is a brainchild of natural and common sense. For the fact that the management receive a fee, if it is incumbent on the conduct research and use fundamental and technical analysis in the stock selection; so that the element of gharar (uncertainty) and maisir (gambling), among others are eliminated. Fund managers are expected to follow price changes as caused by company performances so that losses are minimized and capital gains achieved.
In the conventional there is no proper laid down manner in which the wealth is to be inherited. Although the deceased leaves behind a will to who suppose the wealth goes, but it still some weaknesses or injustice occurred. The weakness is that it has no room for the distribution of income sometime. For example, if the rich only marry the rich and the poor also marry the poor, the wealth will just circulate among the rich and the poor will remain poorer. Therefore it has no room for the distribution of income or wealth. But if this looked into and across manages take place like the rich marry the poor then this would be a better way to distribute wealth among the people.
“Those who unjustly eat up the property of orphans, eat up a fire into their own bodies: They will soon be enduring a blazing fire. (10)
God (thus) directs you as regard your children’s (inheritance): to the male, a portion equal to that of two females: if only daughters, two or more, their share is two-thirds of the inheritance; if only one, her share is a half. For parents, a sixth share of the inheritance to each, if deceased left children; if no children, and the parents are (only) heirs, the mother has a third; if the deceased left brothers (or sister) the mother has sixth. (The distribution in all cases) after the payment of legacies and debts. You know not whether your parents or your children are nearest to you in benefit. These are settled portions ordained by God; and God is All – Knowing and All – Wise. (11)
In what your wines leave, your share is half, if they left a child, you got fourth; after payment of legacies and debts. In what you leave, its share is a fourth, if you leave no child; but if you leave a child, they get an eighth; after payment of legacies and debts. If the man or woman whose inheritance is in question, has left neither ascendants nor descendants, but has left a brother or a sister, each one of the two gets sixth; but if more that two, they share in a third; after payment of legacies and debts; so that no loss is caused (to any one). Thus is it ordained by God; and God is All – Knowing, Most Forbearing. (12)”
If goes beyond the reasonable doubt that zakat clearly illustrates the manner of wealth managements in Islamic framework. What is required then is proper vehicle through which zakat funds can be channeled. This involves knowing not only by the nature of zakat, the criteria of zakat, but also the zakatable items in our modern day Muslim societies, minding the changing circumstances. Kahf (1989) suggest a reconsideration of the fiqh views where the actual implementation of zakat is concerned. He however places much emphasis on the social and economics justice together with its impact on development. Hence, we are tempted to suggest further research on the administration of zakat and what actually constitutes the elements of zakat in our contemporary Muslim societies, which may not have been suggested in the period of Prophet Muhammad s.a.w.
Since Malaysian’s system of government is secular in nature, the zakat system has not been seriously taken into consideration. In short it has fallen on deft ears and got no response. As paying zakat is one of the five pillars of Islam, it is of great important that the governmentMalaysia
Therefore, here is some recommendation that could put in place an effect zakat system inMalaysia
1. Is to educate the massage of people inMalaysia
2. They should also try to incorporate the zakat system into the countries fiscal policy. If the paying of government taxes by the people to the federal and state government is effectively working, why can’t the payment of zakat be imposed as a law by the government? Through this, we think that more people will be well informed of the zakat payment.
3. The government should also put in place a centralized zakat institution where people can get information and pay zakat. Try to avoid any differences among the states in terms of implementation of zakat. By this, we can prevent any misunderstanding and confusion between people.
CONCLUSION
Wealth management from an Islamic perspective follows proper guidance principle of shariah, which, to a large extent, take a different route from the conventional point of view. Throughout the paper, there was an intention to show that distinction. Any shortcomings on that purposes is owing to the technical know – how on the part of authors. However, the paper sought to convey that owning wealth in Islam does not make anybody the absolute owner of that wealth. Wealth is merely entrusted upon us by God and thus, it has to be used and arranged in accordance with God’s approval as stated in shariah rulings. Ownership can be acquired through many ways as in a sale contract or gift; making someone the successor of another as in inheritance, and the acquiring of a thing which free for the public use. In all of these circumstances, Islam has a way in managing wealth.
Man as the vicegerent on this world is expected to seek this wealth and use it in manner that will help him obtain the pleasure of God in this world and hereafter. With that, the paper provided some practical scenarios as to how wealth can be used in Islam for this purposes. It was therefore illustrated in zakat planning, al – Ijarah financing and Islamic unit trust. The main purpose is to show the approach to wealth management in Islam not prevalent in the conventional way. Then the paper looked at some recommendations as a vehicle for further improvement, particularly on zakat activities.
Assuming the Banks purchases equipment for RM 30,000 and leases it to a customer for a period of 5years at 8% rate of profit per annum; we can calculate the following:
CF = Cost of Financing
I = Rate of Return per Annum
(Flat)
n = Period of financing in years
= RM 42,000
= RM 42,000/ 60
= RM 700
Amount of Profit = RM 42,000 – RM 30,000
TERMINATION
(2) According to the Income Tax Act 1967 schedule 3 para 71 , there is no allowance for plant and machinery if held for less than 2years.
(3) Early termination of the lease is classified into 2:
(a) Within 24months from the commencement of the lease date.
(b) After 24 months from the start of the lease date.
(4) The Income Tax Act 1967 under para 71 provides indemnity for the lesser by the lessee against any balancing charge incurred by the lesser if the lease contract is terminated within 2 years.
(5) The rate of tax indemnity is at 33% per annum.
UNIT TRUST
There is a sharii and tabii dimension to the Islamic unit trust. The former inculcates akhlaq (ethic) in the agreement following the concept of Tawhid. This helps weigh actions from the reasoning point of view as well as spiritual values. The latter is a brainchild of natural and common sense. For the fact that the management receive a fee, if it is incumbent on the conduct research and use fundamental and technical analysis in the stock selection; so that the element of gharar (uncertainty) and maisir (gambling), among others are eliminated. Fund managers are expected to follow price changes as caused by company performances so that losses are minimized and capital gains achieved.
Another way or means by which Islam manages wealth on a small scale is by inheritance. We say on a small scale because this is done at the family level. As you know inheritance is the acquiring of the wealth or property left by the deceased parent. This wealth is to be divided among immediate family members in an appropriate manner stated in the Quran and Sunnah. Allah s.w.t has already stated the shares that are to be given to the immediate family members. Allah knows if He hadn’t done so there would be lot problems that would have come up. Some people would have been treated unfairly by giving or offering them a little or none of the wealth they deserve to get.
The Holy Quran has given a line out on how the wealth should be managed in the verse 10 – 12 surah An – Nisa. Allah s.w.t says:
RECOMMENDATIONS
If goes beyond the reasonable doubt that zakat clearly illustrates the manner of wealth managements in Islamic framework. What is required then is proper vehicle through which zakat funds can be channeled. This involves knowing not only by the nature of zakat, the criteria of zakat, but also the zakatable items in our modern day Muslim societies, minding the changing circumstances. Kahf (1989) suggest a reconsideration of the fiqh views where the actual implementation of zakat is concerned. He however places much emphasis on the social and economics justice together with its impact on development. Hence, we are tempted to suggest further research on the administration of zakat and what actually constitutes the elements of zakat in our contemporary Muslim societies, which may not have been suggested in the period of Prophet Muhammad s.a.w.
Since Malaysian’s system of government is secular in nature, the zakat system has not been seriously taken into consideration. In short it has fallen on deft ears and got no response. As paying zakat is one of the five pillars of Islam, it is of great important that the government
Therefore, here is some recommendation that could put in place an effect zakat system in
1. Is to educate the massage of people in
2. They should also try to incorporate the zakat system into the countries fiscal policy. If the paying of government taxes by the people to the federal and state government is effectively working, why can’t the payment of zakat be imposed as a law by the government? Through this, we think that more people will be well informed of the zakat payment.
3. The government should also put in place a centralized zakat institution where people can get information and pay zakat. Try to avoid any differences among the states in terms of implementation of zakat. By this, we can prevent any misunderstanding and confusion between people.
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