INCEIF University Journals
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Maqāṣid al-Sharīʿah and Stipulation of Conditions (Shurūṭ) in Contracts
No full textOne of the maqāṣid al-Sharīʿah (objectives of the Sharīʿah) with regard to wealth is ensuring that it circulates smoothly in society. Among the means that the Sharīʿah uses to achieve that objective is its strong encouragement of undertaking necessary types of commercial activities and its legislation of various types of contracts in order to ensure orderly transfers of wealth on the basis of mutual consent
Qarḍ Ḥasan Financing in Islamic Banks
No full textQarḍ ḥasan—commonly defined as an interest-free loan—is a benevolent economic behaviour, an outlet for the placement of savings, an instrument of finance and an institution for bona fide lending. Having such versatile attributes, it is distinguishable from other charitable financial activities such as waqf (endowments) and infāq (spending in the way of Allah) as well as other modes of finance used in Islamic financial institutions. The purpose of this paper is to present the alternative prospects of this Islamic instrument and to provide an explanation for each form of its application. Applying Tobin’s (1958) Portfolio Theorem, the paper explains why people extend loans to others without the expectation of return and position this bona fide loan among the other recommended financial activities in Islam. Furthermore, the paper investigates why Islamic banks continue to make use of this financial instrument despite the fact that they gain no financial return from it. Data on Islamic banks’ application of qarḍ ḥasan financing and its share compared to other banks’ assets portfolio are presented. It is further argued that qarḍ ḥasan is an act of worship and benevolence and should be distinguished from the qarḍ (loan) contract, which is simply a permissible type of exchange and a mode of saving deposits in Islamic banks. The paper concludes with recommendations to the financial community for more extensive and effective use of this interest-free loan
Islamic Home Financing and Ownership Transfer to the Customer: Models Compared
No full textIn my latest article on Islamic home financing models, which was published in the ISRA International Journal of Islamic Finance (June, 2013), I showed that the Zubair Diminishing Balance Model (ZDBM) is free of return compounding and that the transfer of ownership to the customer perfectly matches the payment rate—the two norms Islamic models must meet. It is satisfying to note that AlMaghrebi (2013), in the same issue of the Journal, took up these issues in a comprehensive and tightly argued conceptual paper and convincingly vindicated my position on the compounding issue
Application of Hibah Muʿallaqah for Retirement Annuity Plan
No full textIt is widely understood that conventional insurance, despite its noble objective of providing a risk management instrument and offering “peace of mind”, is prohibited by the Sharīʿah as it is an exchange contract that contains substantial uncertainty (gharar) as well as features of gambling and ribā (interest). On the other hand, the Islamic alternative to conventional insurance, known as takāful, is established on the notion of mutual assistance (taʿāwun), mutual security and guarantee (taḍāmun) and mutual protection and assurance (takāful) between participants on the basis of brotherhood, deeply rooted in the concept of tabarruʿ, which tolerates the presence of jahālah (ignorance) and gharar (uncertainty) (Khorshid, 2004; Kasim, 2012; Bekkin, 2007)
Islamic Banking Legislation and Regulation in New Jurisdictions: Issues and Recommendations
No full textIslamic banking is continuously making headway on the global financial arena. Today, Islamic banking institutions are spread over 75 countries, with a number of new jurisdictions planning to enter the promising industry that has grown at an impressive 20.4% in the past quinquennium and amassed assets estimated to reach US$ 1.5 trillion by the end of 2013 (KFH Research, 2013). Countries interested in the value proposition offered by Islamic banking through its formal implementation include China, India, Luxembourg, Russia and Uzbekistan, among many other both Muslim-majority and Muslimminority countries
Wasiyyah (Islamic Will) Writing Service in Malaysia: An Investigation of the Supply Channel
No full textIslamic estate planning has not been given much attention in Islamic finance until recently. This paper attempts to shed light on the wasiyyah (Islamic will) writing service in Malaysia―the main instrument for Islamic estate planning―within the context of wealth management and financial planning in general. The paper seeks to obtain direct information from the supply side regarding the operational structure and product detail of the wasiyyah writing service in Malaysia. The paper discusses the nature and operation of the wasiyyah writing providers, their qualifications, and how wasiyyah writing services vary across providers in terms of their structure, cost and the name given for the product. It is an explorative and qualitative research which employs semi-structured interviews with a purposive sampling of 11 wasiyyah writing providers from Kuala Lumpur and Selangor. The narrative approach, with thematic analysis, was used to analyze the data. It argues that, firstly, having a wasiyyah cannot resolve estate problems. Secondly, wasiyyah has been used as a means to avoid fara’id (Islamic law of inheritance) ―whereby testators have been misinformed by wasiyyah writing providers that they can provide instructions through a wasiyyah on how they wish to distribute their estates and that such instructions would overrule fara’id. Thirdly, it has been found that the wasiyyah writing service has become profit oriented while the delivery of accurate information is of secondary importance. This study suggests that some technical aspects of the wasiyyah writing service should be upgraded; notably, the setting of minimum qualifications for wasiyyah writing providers; encouraging product innovation; imposition of a measurement of quality control; and education of clients. The paper argues for these mechanisms to be implemented in order to provide a conducive environment for the industry to grow
Re-Introducing Gold: An Islamic Finance Approach
No full textThis paper presents a practical strategy for implementing the gold standard, from an Islamic perspective, in an economy that wishes to return to the gold standard. The strategy seeks to introduce Islamic finance as prerequisite for a lasting gold standard. Islamic finance shuns interest-based debt contracts; establishes 100-percent reserve money; and promotes a risk-sharing equity-based investment banking system. Monetized fiscal deficits, labor unions and vested-interest financial groups that require inflation as a means for appropriating resources have to be precluded. The paper argues that a return to the gold standard is a political decision and is technically simple to implement. There are no conditions on the amount of gold required for an economy to operate a gold standard. The country has to assimilate foreign exchange to gold; it has to lift all restrictions on gold trade; stabilize its exchange rate in relation to gold; allow the circulation of gold coins defined in terms of weights and fineness; and secure a 100-percent gold reserve for further currency emission
The Concept of Value: Towards a Consistent Valuation Method for Islamic Financial Engineering
No full textIslamic finance is continuously growing in order to challenge the conventional interest-based financial system, with increasingly advanced regulatory implementations and corresponding contract engineering. However, to a large extent, the valuation methods applied in order to determine the value of assets and contracts are commonly taken from conventional finance, and this has been practically unquestioned until recently. Therefore, the purpose of this paper is to develop and propose a concept of real economic value (rather than a nominal one) and corresponding valuation methods which are more suitable for Islamic financial engineering and risk management. In this paper, valuation methods are derived rather directly from an asset-based concept of value with certain key commodities as the preferred benchmarks. First, arguments are provided to support that certain Islamic principles such as the avoidance of ribā (interest) and gharar (ambiguity in contracts) should be applied with respect to real economic value rather than to monetary value in terms of conventional currency. Second, motivated in particular by the desired sustainability of the monetary system, a multilevel currency is proposed on the basis of a basket of economic key assets, in particular, commodities. A suitable real economy value-reference and a corresponding asset-linked currency are proposed as a suitable num raire for an asset-based valuation, the latter being recommended in the context of Islamic financial engineering. Third, conventional and Islamic financial engineering are compared methodically, highlighting their differences. The former is based on bank accounts and zero-bond num raires computed from fixed-income forward contracts. The latter is proposed on the basis of certain asset-based num raires. The latter should be chosen such that they reflect real economic value. It is argued that this approach helps to identify and disable synthetic rib . Fourth, the valuations of bayʿ al-salam (forward sale) and forward contracts are compared, in particular from the mathematical point of view. Fifth, the mutual dependency of valuation measure and riskprofile is briefly discussed, and a possible construction of reference rates from asset-return related to ṣukūk is described. As an underlying result, most of the existing mathematical methods, such as martingale-measures and relative prices with suitable numeracies can still be employed for the alternative valuation concept presented in this paper for the purpose of Islamic finance. However, they are employed here in a different manner, as the selection of an admissible num raire within the context of Islamic financial engineering becomes more restricted. The latter excludes, for instance, any reference to conventionally used zero-bonds
Fiqh Adaptation (Takyīf Fiqhī) for the Concept of a Performance Fee in Takāful
No full textPerformance fees are a common feature of most alternative investment funds and are a fundamental part of the remuneration of many hedge fund investment managers. Such fees are often also referred to as incentive fees. A performance fee is defined as a payment made to a fund manager for generating positive returns. It represents an additional fee that investors are required to pay in addition to an annual fee for the manager. The basic rationale for performance fees is that they align the interests of fund managers and their investors and represent an incentive for fund managers to generate positive returns
The Potential Use of Qarḍ Ḥasan in Islamic Microfinance
No full textMicrofinance is an important tool in alleviating poverty from society. A microfinance institution will be considered successful if there is development in the society as a result of the services provided by the institution. There are generally two main schools of thought with regard to the objectives of microfinance institutions, namely “Institutionist” and “Welfarist”. According to the “Institutionist” School, a microfinance institution should aim to increase its business and operation size. The bigger it grows, the greater will be its access to the poor. It should ensure the recovery of the loans advanced to borrowers through the use of collaterals. The growth, profitability, and sustainability of the microfinance institution are considered the key indicators of success and achievement of the objectives