1

ISLAMIC INSURANCE ISLAMIC INSURANCE

OR TAKAFULOR TAKAFUL

HISTORICAL BACKGROUND OF HISTORICAL BACKGROUND OF

WESTERN CONCEPT OF INSURANCEWESTERN CONCEPT OF INSURANCE

�� 1. Ottoman Empire1. Ottoman Empire-- First introduce western First introduce western

concept of insuranceconcept of insurance-- Maritime Code 1863.Maritime Code 1863.

�� 2. Ottoman Law of Insurance 18742. Ottoman Law of Insurance 1874--only life only life

insurance is insurance is haramharam or unlawfulor unlawful

�� Since then, western concept of insurance is Since then, western concept of insurance is

practiced almost in all countries in the worldpracticed almost in all countries in the world

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Fatwa on Conventional InsuranceFatwa on Conventional Insurance

�� In 1972 the Fatwa Committee declared the In 1972 the Fatwa Committee declared the

western concept of insurance was unlawful western concept of insurance was unlawful

because of because of gharargharar, , ribariba and and maisirmaisir

�� In 1982In 1982-- a committee set up by the a committee set up by the govtgovt to to

study the implementation of study the implementation of takafultakaful..

�� FiqhFiqh Academy of the Organization of Academy of the Organization of

Islamic Conference (OIC) at its gathering in Islamic Conference (OIC) at its gathering in

Jeddah in December 1985 resolved that no Jeddah in December 1985 resolved that no

form of insurance, be it life or general, had form of insurance, be it life or general, had

conformed to the Islamic principleconformed to the Islamic principle

FuqahaFuqaha Views on Life InsuranceViews on Life Insurance

�� 1. Opponents:1. Opponents:-- Sheikh Sheikh ShaukatShaukat, Abu , Abu

ZaharahZaharah and others.and others.

�� Reason:Reason:--

�� i. Insuring onei. Insuring one’’s lifes life

�� Ii. BettingIi. Betting

�� Iii. Element of Iii. Element of ribariba, , maisirmaisir, , gharargharar..

�� Iv. Supersede the will of AllahIv. Supersede the will of Allah

�� V. against the principle of V. against the principle of mirathmirath

�� Vi No direct authority to justify itVi No direct authority to justify it

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FuqahaFuqaha Views on Life InsuranceViews on Life Insurance

�� 2. Justification of life insurance but in different 2. Justification of life insurance but in different

form namely Family form namely Family TakafulTakaful..

�� i. mere financial transaction through mutual i. mere financial transaction through mutual

cooperation.cooperation.

�� Ii. No unlawful element.Ii. No unlawful element.

�� Iii. Implied model of Iii. Implied model of takafultakaful--aqilahaqilah and and

mudharabahmudharabah..

�� Iv. Mutual cooperation to protect the necessities.Iv. Mutual cooperation to protect the necessities.

�� V. Securing the offspring it does not supersede the V. Securing the offspring it does not supersede the

will of Allah.will of Allah.

2. Justification of life insurance but in 2. Justification of life insurance but in

different form namely Family different form namely Family TakafulTakaful

�� Vi. Security for poor.Vi. Security for poor.

�� Vii. Protection of unexpected difficulties.Vii. Protection of unexpected difficulties.

�� Viii. Self reliant society.Viii. Self reliant society.

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OBJECTION TO THE WESTERN OBJECTION TO THE WESTERN

CONCEPT OF INSURANCECONCEPT OF INSURANCE

�� 1. 1. RibaRiba..

�� Life insuranceLife insurance-- insurer undertakes to pay the insurer undertakes to pay the

insured. The sum is in excess of the total insured. The sum is in excess of the total

premium paid. Premium =Loanpremium paid. Premium =Loan

�� NonNon--Life insuranceLife insurance-- The insurance The insurance

companies invested the premium paid in companies invested the premium paid in

fixed interest earnings investment. fixed interest earnings investment.

2. 2. GhararGharar

�� Uncertainty= Risk, hazard or perilUncertainty= Risk, hazard or peril

�� Neither the insurer nor the insured knows Neither the insurer nor the insured knows
the nature and extent of their rights and the nature and extent of their rights and
obligation until after the occurrence of the obligation until after the occurrence of the
insured event.insured event.

�� Any transaction must free from excessive Any transaction must free from excessive
uncertaintyuncertainty

�� The insured is ignorant of the terms of the The insured is ignorant of the terms of the
insurance.insurance.-- Unacceptable reason.Unacceptable reason.

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How To Free From Excessive How To Free From Excessive GhararGharar

�� 1. Mutual and Cooperative basis1. Mutual and Cooperative basis

�� 2. The 2. The takafultakaful coverage must be genuinely coverage must be genuinely

required in order to safeguard interest required in order to safeguard interest

collectivelycollectively

�� 3.such coverage can only be safeguarded 3.such coverage can only be safeguarded

through the insurance mechanism.through the insurance mechanism.

�� 4. Type of contract is Unilateral Contract4. Type of contract is Unilateral Contract--

AlAl--TabarruatTabarruat..

3. 3. JuhalaJuhala

�� Uncertainty per seUncertainty per se-- all particulars of the all particulars of the

contract must be known to the parties at the contract must be known to the parties at the

time of the contract. Otherwisetime of the contract. Otherwise-- invalidinvalid

�� Life insuranceLife insurance-- The insured does not know The insured does not know ––

how long he will be paying the premiums.how long he will be paying the premiums.

�� Non life insuranceNon life insurance-- does not know how does not know how

much the insurer will pay him in the case of much the insurer will pay him in the case of

insured event takes placeinsured event takes place

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4. 4. MaisirMaisir

�� Prohibition of unearned gains.Prohibition of unearned gains.

�� To court unnecessary risk by entering into a To court unnecessary risk by entering into a
transaction with a hope of gain as well as transaction with a hope of gain as well as
fear of loss.fear of loss.

�� Undertaking a risk in the spirit of Undertaking a risk in the spirit of
speculationspeculation

�� Life insuranceLife insurance-- If dies earlyIf dies early--Lucky= Policy Lucky= Policy
money will be paid.money will be paid.

�� Non life insuranceNon life insurance-- if the insured event if the insured event
occursoccurs-- Lucky. If noLucky. If no-- gets nothinggets nothing

5. Violation of Islamic Law of 5. Violation of Islamic Law of

InheritanceInheritance

�� Law on NominationLaw on Nomination-- insurer can nominate insurer can nominate
to any person as beneficiaries.to any person as beneficiaries.

�� S 23S 23-- Hock HoeHock Hoe’’s Policy. Nominee enjoys s Policy. Nominee enjoys
full benefit of the insurance policy.full benefit of the insurance policy.

�� This objection is not relevant anymore. This objection is not relevant anymore.
Amendment to the Insurance Act and Amendment to the Insurance Act and
introduction of the introduction of the TakafulTakaful Act 1984.Act 1984.

�� In IslamIn Islam-- nomination is just a trustee. The nomination is just a trustee. The
policy money must be distributed policy money must be distributed ––faraidfaraid..

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6. Contravention of the Conception 6. Contravention of the Conception

of Preof Pre--Destination Destination

�� Concept of Concept of QadaQada and and QadarQadar-- The ultimate The ultimate
destiny is in the hands of Allah.destiny is in the hands of Allah.

�� IrrelevantIrrelevant-- Failure to appreciate the real Failure to appreciate the real
function of insurance.function of insurance.

�� The insurance does not prevent preThe insurance does not prevent pre--destined destined
events. It only reduces the pain and events. It only reduces the pain and
suffering resulting from the insured events.suffering resulting from the insured events.

�� This is in fact in line with the Islamic This is in fact in line with the Islamic
principle.principle.

7. Objection to forfeiture of 7. Objection to forfeiture of

PremiumsPremiums

�� Insurer may forfeit the premiums that have Insurer may forfeit the premiums that have

been paid in certain circumstances.been paid in certain circumstances.

�� May forfeit in the event of avoiding nonMay forfeit in the event of avoiding non--

disclosure or breach of warranty by the disclosure or breach of warranty by the

insured.insured.

�� Islam does not allow the forfeiture of the Islam does not allow the forfeiture of the

capital. capital.

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Differences of Family Differences of Family TakafulTakaful and Life and Life

InsuranceInsurance

Insurable interest is a Insurable interest is a

requirementrequirement
Insurable interestInsurable interest-- not not

relevantrelevant

Payment out of assured Payment out of assured

premiumpremium
Share of profitShare of profit

Insured money + interestInsured money + interestDividendDividend

NomineeNomineeTrusteeTrustee

LoanLoanMudharabahMudharabah

LILIFTFT

Origin of Origin of TakafulTakaful

�� 1. 1. AqilahAqilah-- Blood moneyBlood money

�� The tribe had to be ready to compensate the The tribe had to be ready to compensate the

heir of the victim.heir of the victim.

�� Compensation likes indemnity in insurance Compensation likes indemnity in insurance

policypolicy

�� 2. 2. S.UmarS.Umar-- AlAl--DawawinDawawin SystemSystem-- Ministry to Ministry to

contribute money for emergency or in need.contribute money for emergency or in need.

�� 3. 3. KhairatKhairat KematianKematian--

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Sources of Law Affecting Sources of Law Affecting TakafulTakaful

�� 1. Al1. Al--QuranQuran-- elements of mutual cooperation= elements of mutual cooperation=

AlmaidahAlmaidah: 5:2. Alleviation of hardship= 2:201: 5:2. Alleviation of hardship= 2:201

�� 2. 2. SunnahSunnah= Prophet said: Tie the camel first and = Prophet said: Tie the camel first and

then leave it to Allahthen leave it to Allah

�� 3. Practices of the companion3. Practices of the companion-- AlAl--DawawinDawawin

System by S. System by S. UmarUmar..

�� 4. Fatwa or 4. Fatwa or IjtihadIjtihad: : IbnuIbnu AbidinAbidin=Permissible =Permissible

insurance in trade for merchant known as insurance in trade for merchant known as SukraSukra..

�� Muhammad Muhammad AbduhAbduh, , ZarqaZarqa-- agreed to the agreed to the

validity of Islamic insurancevalidity of Islamic insurance

Sources of Law Affecting Sources of Law Affecting TakafulTakaful

�� 5. 5. MasalihMasalih MursalahMursalah= Life, necessity. A way = Life, necessity. A way
of providing material security.of providing material security.

�� 6. 6. UrfUrf-- Tribal Custom practice known as Tribal Custom practice known as
AqilahAqilah..

�� 7. Unanimous Decision of Muslim Scholars7. Unanimous Decision of Muslim Scholars--

�� Islamic Islamic FiqhFiqh Week Syria 1961, Muslim Week Syria 1961, Muslim
Scholars Conference 1965 Egypt and Islamic Scholars Conference 1965 Egypt and Islamic
Economic Conference Mecca 1976Economic Conference Mecca 1976-- Validity Validity
of insurance business except life insurance.of insurance business except life insurance.

�� International Islamic Insurance Dubai 1996 International Islamic Insurance Dubai 1996
and and LabuanLabuan 19971997-- Validity of Validity of TakafulTakaful. .

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TakafulTakaful

�� Mutual Guarantee= mutuality and cooperation.Mutual Guarantee= mutuality and cooperation.

�� TA 1984TA 1984--Scheme based on brotherhood, Scheme based on brotherhood,

solidarity, and mutual assistance which provides solidarity, and mutual assistance which provides

for mutual financial aid and assistance to the for mutual financial aid and assistance to the

participants in case of need whereby the participants in case of need whereby the

participants mutually agree to contribute for that participants mutually agree to contribute for that

purpose.purpose.

Concept of AlConcept of Al--TabarruTabarru’’

�� gift or donation, which given by one in favor gift or donation, which given by one in favor

of someone without seeking any of someone without seeking any

consideration. consideration.

�� A A tabarrutabarru’’ made based on the general made based on the general

principles of contract in which the person principles of contract in which the person

binds himself unilaterally by offering binds himself unilaterally by offering

something valuable for the noble cause of something valuable for the noble cause of

welfare of others welfare of others

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Concept of AlConcept of Al--TabarruTabarru’’

�� participantsparticipants’’ contributions credited mainly contributions credited mainly

into two accounts; participantinto two accounts; participant’’s account s account

(PA) and participants(PA) and participants’’ special account special account

(PSA). (PSA).

�� PAPA-- To be invested based on To be invested based on mudharabahmudharabah

�� The amount credited into the PSA is The amount credited into the PSA is

regarded asregarded as tabarrutabarru’’, which is managed by , which is managed by

the the takafultakaful operator to provide a security for operator to provide a security for

others who deserve others who deserve

TakafulTakaful ModelModel

�� 1. 1. MudharabahMudharabah contractcontract : : EgEg. Malaysia . Malaysia

�� TO as the entrepreneur will accept payment of the TO as the entrepreneur will accept payment of the
installments or contributions called installments or contributions called rara’’sulsul mal,mal,
from investors or provides of capital or fund, from investors or provides of capital or fund,
popularly known as popularly known as takafultakaful participants acting as participants acting as
sahibsahib--ulul mal.mal. the the takafultakaful operators as the operators as the
entrepreneur will accept payment of the entrepreneur will accept payment of the
installments or contributions called installments or contributions called rara’’sulsul mal,mal,
from investors or provides of capital or fund, from investors or provides of capital or fund,
popularly known as popularly known as takafultakaful participants acting as participants acting as
sahibsahib--ulul mal.mal.

�� income to the operator as income to the operator as mudharibmudharib is calculated is calculated
at the end of the contract under the at the end of the contract under the alal--mudharabahmudharabah
model model

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�� (Mr. Ahmad) buys Fire (Mr. Ahmad) buys Fire TakafulTakaful Policy. He pays Policy. He pays
the contribution for RM 1000 for a year. the contribution for RM 1000 for a year. TakafulTakaful
Operator invests the contribution paid by Mr. Operator invests the contribution paid by Mr.
Ahmad in the investment company (Ahmad in the investment company (HalalHalal
Investment Counter) according to principle of AlInvestment Counter) according to principle of Al--
MudharabahMudharabah. . TakafulTakaful Operator get 10 % profit.Operator get 10 % profit.

�� So at the end the So at the end the TakafulTakaful Operator will get RM Operator will get RM
1100 (Principle + Profit).1100 (Principle + Profit).

�� Then the amount of RM 1100 (In the General Then the amount of RM 1100 (In the General
TakafulTakaful Fund) will be deducted for allowed cost Fund) will be deducted for allowed cost
such as such as RetakafulRetakaful, Claims, and Reserves., Claims, and Reserves.

�� If there is a surplus (Profit) after deduction for If there is a surplus (Profit) after deduction for
allowed cost, then the sharing of surplus will be allowed cost, then the sharing of surplus will be
distributed to both distributed to both TakafulTakaful Operator and Operator and
Participant 60%: 40% respectively (Based on the Participant 60%: 40% respectively (Based on the
agreement in the contract). agreement in the contract).

TakafulTakaful ModelModel

�� 2. 2. WakalahWakalah ModelModel-- MsiaMsia= Bahrain, Saudi Arabia= Bahrain, Saudi Arabia

�� a contract of agency in which a person delegates a contract of agency in which a person delegates

his business to another and substitutes the other in his business to another and substitutes the other in

his place. The person delegated called his place. The person delegated called wakilwakil
(agent) whose fundamental obligation is to provide (agent) whose fundamental obligation is to provide

his skill towards the betterment of assigned job. his skill towards the betterment of assigned job.

Thus, both the principal and the agent equally Thus, both the principal and the agent equally

bound by each other under contract of bound by each other under contract of alal--wakalahwakalah..

�� the practice of the althe practice of the al--wakalahwakalah allow the operator to allow the operator to
charge fees as income upfront or at the point the charge fees as income upfront or at the point the
contract is incepted.contract is incepted.

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WakalahWakalah ModelModel

�� Consists of contribution (Consists of contribution (IIshtirakshtirak) by ) by
Participants (Participants (mushtarikmushtarik) that includes ) that includes
payments of fees and charges and a portion payments of fees and charges and a portion
for donation (for donation (tabarrutabarru) to a community ) to a community
takafultakaful fund. All risks are borne by the fund. All risks are borne by the
takafultakaful fund and the annual operating fund and the annual operating
results (Surplus/Loss) belong solely to the results (Surplus/Loss) belong solely to the
Participants. The Participants. The takafultakaful operator (operator (wakeelwakeel) )
does not share directly in the risk, deficit or does not share directly in the risk, deficit or
surplus. surplus.

WakalahWakalah ModelModel

�� Participants agree to pay specified direct expenses Participants agree to pay specified direct expenses
and to pay the and to pay the takafultakaful operator a set fee (operator a set fee (wakalawakala
fees) to manage the operations on their behalf, fees) to manage the operations on their behalf,
which may include a performance fee as incentive which may include a performance fee as incentive
that is charged to the surplus, if any. that is charged to the surplus, if any.

�� If the If the takafultakaful Operator is to generate a profit from Operator is to generate a profit from
its efforts, it must manage the operations its efforts, it must manage the operations
(including salaries, overhead, selling commissions, (including salaries, overhead, selling commissions,
sales and marketing expenses, etc.) entirely within sales and marketing expenses, etc.) entirely within
the disclosed the disclosed wakalawakala fees. fees.

�� TheThe alal--wakalawakala model can be viewed as transparent model can be viewed as transparent
as fees are clearly related to operator's operational as fees are clearly related to operator's operational
costs.costs.

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Characteristics of Characteristics of TakafulTakaful

�� 1. Mutual Help1. Mutual Help

�� 2. Mutual Responsibility2. Mutual Responsibility

�� 3. Mutual Protection3. Mutual Protection

�� Mutual insure one another.Mutual insure one another.

�� RelationshipRelationship-- not as an insurer and insured not as an insurer and insured
but participants and manager of the but participants and manager of the
contribution money.contribution money.

�� 4. Free from any element of 4. Free from any element of ribariba, , maisirmaisir, ,
juhalajuhala, excessive , excessive gharargharar..

TakafulTakaful Conditions (Mutual Conditions (Mutual

Assistance and Cooperation)Assistance and Cooperation)

�� 1. 1. SpecialitySpeciality ConditionCondition

�� Compliance with the Islamic cooperative Compliance with the Islamic cooperative

principlesprinciples

�� 2. Partnership Condition2. Partnership Condition= =

�� ParticipantsParticipants-- right t entitlement of surplus right t entitlement of surplus

profit and render liable to cover losses.profit and render liable to cover losses.

�� Surplus may be paid= pro rata basis.Surplus may be paid= pro rata basis.

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TakafulTakaful Conditions (Mutual Conditions (Mutual

Assistance and Cooperation)Assistance and Cooperation)

�� 3. Investment Condition3. Investment Condition= =

�� To invest in To invest in halalhalal sectors.sectors.

�� 4. Management Condition4. Management Condition= =

�� Policy to have adequate representation on Policy to have adequate representation on

the board of directors of the company to the board of directors of the company to

scrutinisescrutinise its accountsits accounts

Legal IssuesLegal Issues

�� 1. 1. TakafulTakaful Act 1984:Act 1984:--

�� Regulatory in nature and not a statutory Regulatory in nature and not a statutory

source of the substantive law.source of the substantive law.

�� S2 S2 TakafulTakaful business= a business of business= a business of takafultakaful

whose aims and operations do not involve whose aims and operations do not involve

elements opposed by the elements opposed by the shariahshariah..

�� S 8 (5) the DG shall refuse to register  S 8 (5) the DG shall refuse to register

takafultakaful business unless he is satisfied that business unless he is satisfied that

the aim and operation will not involve any the aim and operation will not involve any

element which is not approved by element which is not approved by syariahsyariah

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2. Substantive Law Applicable 2. Substantive Law Applicable

�� The TA does not specify what is to be done if The TA does not specify what is to be done if

there is a lacuna in law. there is a lacuna in law.

�� Conventional insuranceConventional insurance-- CLA 1956.CLA 1956.

�� The TA does not mention Islamic law as a The TA does not mention Islamic law as a

source of substantive law for source of substantive law for takafultakaful..

3. 3. TakafulTakaful ContractContract

�� TakafulTakaful contract based on contract based on mudharabahmudharabah. .

Each terms and conditions must be made Each terms and conditions must be made

known to the participants.known to the participants.

�� S 64S 64-- below 18 have no capacity to enter into below 18 have no capacity to enter into

a contract of a contract of takafultakaful. Insurance Act. Insurance Act-- above above

10 and below 1610 and below 16--can enter into contract + can enter into contract +

written consent of parent.written consent of parent.

�� In Islam 18 is not an age of majority. Need In Islam 18 is not an age of majority. Need

to depart from the strict Islamic concept.to depart from the strict Islamic concept.

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4. Non4. Non--disclosure and Frauddisclosure and Fraud

�� There is no requirement of doctrine of There is no requirement of doctrine of

utmost good faith under the TA. utmost good faith under the TA.

�� Insurance ContractInsurance Contract-- There must be There must be ““utmost utmost

good faithgood faith””. Hence impose the same duty of . Hence impose the same duty of

disclosure upon parties to contract.disclosure upon parties to contract.

�� In Islam contract of In Islam contract of mudharabahmudharabah requires requires

parties to be truthful, honest and sincere.parties to be truthful, honest and sincere.

5. Warranties, Conditions and Basis5. Warranties, Conditions and Basis

�� The TA does not mention the rule on strict The TA does not mention the rule on strict

application of the law relating to warranties.application of the law relating to warranties.

�� Effect: Effect: TakafulTakaful contract can be avoided by contract can be avoided by

the the takafultakaful co. if a wrong answer is given in co. if a wrong answer is given in

the proposal form when the participants the proposal form when the participants

believes it to be correct.believes it to be correct.

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6. The SSC6. The SSC

�� The TA makes condition a provision in the The TA makes condition a provision in the

AOA to establish AOA to establish ShariahShariah Supervisory Supervisory

Council.Council.

�� The Act The Act silentssilents on the status of the on the status of the SSCSSC’’ss

advice.advice.

�� The function is strictly supervisory.The function is strictly supervisory.

7. Licensing and Control 7. Licensing and Control

�� A A takafultakaful co can be either company or co can be either company or

cooperative society. The requirements:cooperative society. The requirements:--

�� 1. Meet the requirement on deposit and total 1. Meet the requirement on deposit and total

asset. 2. satisfy that the aims and operationsasset. 2. satisfy that the aims and operations--

Islamic 3. provision of the SSC in AOA.Islamic 3. provision of the SSC in AOA.

�� DG may cancel the license if the business is DG may cancel the license if the business is

against against syariahsyariah. But DG to refer to whom?. But DG to refer to whom?

�� Either to refer to the SSC or NSAC.Either to refer to the SSC or NSAC.

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8. Insurable Risk8. Insurable Risk

�� Def: Chance of loss, the possibility of loss or Def: Chance of loss, the possibility of loss or
uncertainty concerning the occurrence of a uncertainty concerning the occurrence of a
loss.loss.

�� Two types of risk Pure Risk and Speculative Two types of risk Pure Risk and Speculative
Risk. Risk. Only pure risk is insurableOnly pure risk is insurable. Reason: . Reason:
would resemble wagering practice.would resemble wagering practice.

�� Conventional Insurance is concerned with Conventional Insurance is concerned with
the economic problems created by the economic problems created by pure riskpure risk. .
EgEg. Accident =may suffer a loss.. Accident =may suffer a loss.

�� Speculative RiskSpeculative Risk: where either profit or loss : where either profit or loss
is possible. is possible. EgEg shares of common stock.shares of common stock.

Should the Should the takafultakaful be confined to be confined to

Pure Risk?Pure Risk?

�� All types of risks are insurable under All types of risks are insurable under takafultakaful

contract:contract:--

�� 1. 1. TakafulTakaful is based on brotherhood, solidarity and is based on brotherhood, solidarity and

mutual assistance. mutual assistance.

�� 2. Al2. Al--tabarrutabarru conceptconcept-- all types of risks are all types of risks are

acceptable.acceptable.

�� 3. Speculative risk is not identical to gambling. 3. Speculative risk is not identical to gambling. EgEg. .

Taxi driver who is driving his car with danger of Taxi driver who is driving his car with danger of

accident. Pure Riskaccident. Pure Risk-- Accident :Speculative RiskAccident :Speculative Risk--

loss of future gain.loss of future gain.

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9. Insurable Interest 9. Insurable Interest

�� Def: Interest an individual  must have in Def: Interest an individual  must have in
insurance coverage carried by someone else.insurance coverage carried by someone else.

�� Legal perspective: the party to the insurance Legal perspective: the party to the insurance
contract who is the insured or policy holder contract who is the insured or policy holder
must have a particular relationship with the must have a particular relationship with the
subject matter of the insurance whether that be subject matter of the insurance whether that be
a life or property or a liability to which he might a life or property or a liability to which he might
be exposed.be exposed.

�� The absence of this requirement under The absence of this requirement under
conventional insurance will render the contract conventional insurance will render the contract
illegal, void and simply unenforceable.  illegal, void and simply unenforceable.

Cont..Cont..

�� The purpose: 1. to determine the motive for The purpose: 1. to determine the motive for
purchasing insurance and in the assignment of a purchasing insurance and in the assignment of a
beneficiary in a life insurance policy. beneficiary in a life insurance policy.

�� 2. to avoid gambling or wagering practices.2. to avoid gambling or wagering practices.

�� EgEg. . ““AA”” pays premium on behalf of his wife and pays premium on behalf of his wife and
names her as beneficiaries= The insurance co. names her as beneficiaries= The insurance co.
recognizes it coz in the event of unexpected recognizes it coz in the event of unexpected
death, the family would suffer an economic loss.death, the family would suffer an economic loss.

�� EgEg. . ““AA”” pays premium of insurance for another pays premium of insurance for another
party let say his best friend, if that person names party let say his best friend, if that person names
him as the beneficiaries. The insurance co will him as the beneficiaries. The insurance co will
not issue the policy. not issue the policy.

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Cont..Cont..

�� S 152 of the Insurance Act 1996S 152 of the Insurance Act 1996--

Requirement of Insurable Interest. Requirement of Insurable Interest.

�� Exception to employerException to employer--employee employee

relationship. relationship.

�� The requirement of II specifies that the The requirement of II specifies that the

insured must lose financially if a loss occurs insured must lose financially if a loss occurs

or must incur some harm if the loss takes or must incur some harm if the loss takes

place.place.

Whether the principle of insurable Whether the principle of insurable

interest is relevant in interest is relevant in takafultakaful??

�� The requirement of II is not relevant under The requirement of II is not relevant under

TakafulTakaful not because of to determine the not because of to determine the

motive for purchasing insurance and in the motive for purchasing insurance and in the

assignment of a beneficiary in a life assignment of a beneficiary in a life

insurance policy and to avoid gambling or insurance policy and to avoid gambling or

wagering practices but:wagering practices but:--

�� 1. The TA 1984 does not require this 1. The TA 1984 does not require this

principle in family principle in family takafultakaful or general or general takafultakaful..

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�� 2. The nature of family 2. The nature of family takafultakaful makes this makes this

element irrelevant as a participant participates in element irrelevant as a participant participates in

this scheme only for the benefit of himself and this scheme only for the benefit of himself and

his family. He cannot do so for the purpose of his family. He cannot do so for the purpose of

benefiting or on behalf of the 3benefiting or on behalf of the 3rdrd party.party.

�� 3. Ab 3. Ab initioinitio irrelevantirrelevant coz the participant cum coz the participant cum

insured could not have any interest on his life.insured could not have any interest on his life.

�� 4. The principle of 4. The principle of takafultakaful: : takafultakaful contract must contract must

be concluded between the participants be concluded between the participants

themselvesthemselves, a party who is neither insured or , a party who is neither insured or

insurer is not eligible to participate in the insurer is not eligible to participate in the

contract.contract.

Thank YouThank You

Zulkifli Bin Zulkifli Bin HasanHasan

Faculty of Faculty of SyariahSyariah & Law& Law

EE--mail: mail: zulkiflih@admin.kuim.edu.myzulkiflih@admin.kuim.edu.my

EE--mail: mail: zul361977@yahoo.comzul361977@yahoo.com..

Tel. No: 06Tel. No: 06--79885417988541

H/Phone No: 019H/Phone No: 019--6698514 6698514


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Daily Archives: January 9, 2010
January 9, 2010
DR. ZULKIFLI HASAN
Another hurdle to Islamic Finance in India
Court stays Kerala’s Islamic banking plans

Available at:
http://economictimes.indiatimes.com/news/politics/nation/Court-stays-Keralas-Islamic-banking-plans/articleshow/5414884.cms
KOCHI | NEW DELHI: A division bench of the Kerala High Court on Tuesday stayed all further move by the state-owned Kerala State Industrial Development Corporation (KSIDC) to set up an Islamic bank in the state. The division bench gave its orders on a petition filed by former central minister Subramanian Swamy, who maintained that the proposed bank was against India’s secular credentials and its banking norms. The court accepted the petition and issued notices to the Union government and KSIDC.
The Kerala government gave the green signal to the project after a feasibility study found that an Islamic bank was a viable proposition in Kerala, following which a company was registered to take the process forward. Kerala’s finance minister Thomas Issac had recently told the state assembly that the share capital of the bank had been fixed at Rs 1,000 crore.
According to the proposal, the bank will not pay any interest to customers, while a Sharia board would decide what sort of investments it would make. The proposed bank would have Sharia-compliant banking products and profits made out of the investments would be distributed to the shareholders. Muslims comprise 24% of the state’s 3.2-crore population.
In his PIL, Mr Swamy had contended that public money was being appropriated for favouring a particular religion in a secular country, as KSIDC has 11% stake in the multi-crore bank. “The government’s participation is clear instance of state favouring a particular religion. This is violative of Article 14 and 25 of Constitution which promises equality before law and right to freedom of religion. Besides, Islamic Bank is violative of Banking Regulation Act of 1949. A 7-judge bench of the SC had ordered that no public money should be used for promoting institutions of a particular religion,” the PIL contended.
“The whole history of the world is summed up in the fact that, when nations are strong, they are not always just, and when they wish to be just, they are no longer strong.” Winston Churchill
Warm Regards

ZULKIFLI HASAN

DURHAM, UK
University of Glasgow, Scotland.
Islamic finance news
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+

Legal Aspects of Islamic Finance

LAB4112
ZULKIFLI HASAN

+
Contents

n  Islamic finance cases

n  1987-2002

n  2003-2007

n  2008-2011

n  2012-2016

+
1987-2002

n  Tinta Press Sdn Berhad v BIMB (1987) 1 MLJ 474; 1
CLJ 474: IJarah

n  Bank Islam Malaysia Berhad v Adnan Omar [1994] 3
CLJ 735; [1994]3 AMR 44; [1994] 4 BLJ 372: BBA

n  Dato’ Nik Mahmud Bin Daud v Bank Islam Malaysia
Berhad [1996]4 MLJ 295 (BBA) Malay Reserve

n  Bank Islam Malaysia Bhd v Shamsuddin Bin Haji
Ahmad [1999] 1 LNS 275; [1999] MLJ 450 (BBA)

n  Bank Kerjasama Rakyat Malaysia Bhd v Nesaretnam
Samyveloo [2002] 8 CLJ 95; [2002] 7 MLJ 103 (BBA)

+Observation
n The judges are more concerned on the application

of classic common law approach by emphasizing
the civil technical aspects and did not tackle the
actual Shari’ah issues.

n In the case of Bank Islam Malaysia Berhad v Adnan
Omar, the High Court held that the defendant was
bound to pay the whole amount of the selling price
based on the grounds that he knew the terms of the
contract and knowingly entered into the
agreement. In this respect, the court applied the
classic common law interpretational approach
where the parties are bound with the terms and
conditions of the contract. The court did not look
into the issue further whether BBA facility involves
an element not approved by the Shari’ah as
stipulated under the IBA and the BAFIA.

+2003-2007
n  Bank Kerjasama Rakyat Malaysia Berhad v Emcee

Corporation Sdn. Bhd. [2003] 2 MLJ 408; 1 CLJ 625
(BBA)

n  Bank Islam Malaysia Berhad v Pasaraya Peladang Sdn
Berhad [2004] 7 MLJ 355 (BBA)

n  Tahan Steel Corporation Sdn Bhd v Bank Islam
Malaysia Berhad [2004] 6 CLJ 25; [2004] 6 MLJ 1
(istisna)

n  Arab Malaysian Merchant Bank Berhad v Silver
Concept Sdn Bhd [2005] 5 MLJ 210 (BBA)

n  Malayan Banking Berhad v Marilyn Ho Siok Lin [2006]
7 MLJ 249; 3 CLJ 796 (bba)

n  Affin Bank Berhad v Zulkifli Abdullah [2006] 3 MLJ 67
(bba)

n  Malayan Banking Berhad v Yakup bin Oje & Anor
[2007] 6 MLJ 398 (bba)

+Observation
n  In the second phase, the court indicates its interest to examine

critically the underlying principles and financing facility offered
by the IFIs. Unlike the earlier cases in the first phase, several
judges initiated a different approach in resolving issues involving
Islamic finance particularly in the case of Affin Bank Berhad v
Zulkifli Abdullah and Malayan Banking Berhad v Marilyn Ho Siok Lin.

n  This position indicates the improvement of judges’ level of
awareness and understanding of Islamic finance.

+Affin Bank v zulkifli Abdullah
n BBA 25 years PP: rm394k paid rm33k claimed by

the B: rm958k

n Held: profit up to the date of judgment plus penalty.

n The learned judge indirectly criticized the attitude
of early court by using narrow interpretation and
heavily applying classic common law approach.

n The proper approach is that for the court to
examine further as to the implementation of Islamic
banking whether it is contrary to the religion of
Islam. The courts held that Islamic contract of BBA
is similar with conventional loan and hence the
Islamic banks could not claim the unearned profit
because it is equal with interest calculation

+2008-2011
n  Bank Kerjasama Rakyat Malaysia Bhd v PSC Naval

Dockyard Sdn Bhd [2008] 1 CLJ 784; [2007] MLJ
722 (Bai INah)

n  Arab Malaysian Finance Bhd v Taman Ihsan Jaya
Sdn Bhd & Ors (Koperasi Seri Kota Bukit Cheraka
Bhd, third party) [2008] 5 MLJ 631; [2009] 1 CLJ
419 (BBA)

n  Light Style Sdn Bhd v KFH Ijarah House (Malaysia)
Sdn Bhd [2009] CLJ 370; [2009] 1 LNS 193
(Murabahah)’]

n  Bank Islam Malaysia Bhd v Lim Kok Hoe & Anor
And Other Appeals [2009] 6 CLJ 22; [2009] 6 MLJ
839 (BBA)

n  Tan Sri Khalid Ibrahim v Bank Islam Malaysia
Berhad [2009] 6 MLJ 416  (bba)

n  Bank Islam Malaysia Bhd v Azhar Osman & Other
Cases [2010] 5 CLJ 54 [2010] 1 LNS 251 (bba)

+Observation
n  In the case of Arab Malaysian Finance Bhd v Taman Ihsan Jaya Sdn

Bhd & Ors that the application of the BBA is contrary to the IBA and
the BAFIA.

n  Clearly indicates the new constructive approach of the court
towards Islamic banking cases particularly in resolving issues
pertaining to BBA facility. This judgment may affect the Islamic
financial sector in Malaysia as the expert estimates that 70 per cent
of Islamic financing facility was granted under BBA facility.

+ BANK
  ISLAM
  MALAYSIA
  BHD
  V

LIM
  KOK
  HOE
  &
  ANOR
  AND
  OTHER
  APPEALS

[2009]
  6
  CLJ
  22

“Similarly,
  the
  law
  applicable
  to
  BBA
  contracts
  is
  no

different
   from
   the
   law
   applicable
   to
   loan
   given

under
  the
  conventional
  banking.
  The
  law
  is
  the
  law

of
   contract
   and
   the
   same
   principle
   should
   be

applied
  in
  deciding
  these
  cases.
  Thus,
  if
  the
  contract

is
  not
  vitiated
  by
  any
  vitiating
  factor
  recognised
  in
  law

such
   as
   fraud,
   coercion,
   undue
   influence,
   etc.
   the

court
   has
   a
   duty
   to
   defend,
   protect
   and
   uphold
   the

sanctity
   of
   the
   contract
   entered
   into
   between
   the

parties.”

+
Tan Sri Khalid Ibrahim v Bank Islam
Malaysia Berhad [2009] 6 MLJ 416

n For the first time in the history of the
Malaysian court that the High Court judge
made reference to the SAC for confirmation
of the Shari’ah status of the agreement.

n BBA is recognized form of transaction.

+
Azhar bin Osman & 3 Other Cases
(2010) 9 MLJ

n  Counsel for the bank contended that in a BBA contract the Bank has a
legal right to claim for the full sale price as stipulated in the Property
Sale Agreement, as.

n  The HC observed that in specifying the amount due, the issue which
confronts a BBA contract is the agreement is silent on:

n  Since the tenure of the contract has not completed, normally the bank
will further deduct as ibrar (a term used in Islamic banking for rebate)
what it refers to as ‘unearned profit“, i.e. the amount which has yet to
be earned by the bank, based on an Amortization table.

n  when a BBA contract is prematurely terminated upon default by the
borrower, the court cannot allow the bank to enforce the payment of
the full sale price in a premature termination:

+
Arab Malaysian Finance Bhd v
Taman Ihsan Jaya Sdn Bhd &
Ors ) [2008] 5 MLJ 631

n  The beginning of pro-active attitude of the court in
examining the validity and determining issues involved in
Islamic banking cases.

n  The Federal Constitution, the IBA and the BAFIA do not
provide the interpretation of which madhhab is to prevail.
BBA facility must not contain any element which is not
approved by the religion of Islam under the interpretation of
any of the recognized maddhab.

+n  The court accepts that BBA facility is a bona fide
sale transaction and the interpretation of selling
price in the case of Affin Bank Berhad v Zulkifli
Abdullah was referred to where the court rejects the
plaintiffs’ interpretation and applies the equitable
interpretation.

n  Where the bank recalls BBA facility at a higher
price in total, the sale is not a bona fide sale but a
financing transaction and rendered the facility
contrary to the IBA and the BAFIA.

n  The court holds that the plaintiffs are entitled under
section 66 of the Contracts Act 1950 to return the
original facility amount they had extended. It is
equitable that the plaintiffs must seek to obtain
price as close to the market price as possible and
account for the proceeds to the respective
defendants.

+Case analysis
n In BBA facility, the court uses an equitable

interpretation as to the definition of selling price
whether the defendant was bound to pay the whole
amount of the selling price even in the event of early
termination of the contract.

n The classic common law approach will require the
defendants to pay the whole amount of the selling
price as they are bound by the terms of the contract
but the court in this case chooses to apply an
equitable principle.

n An equitable interpretation of the selling price
removes the excessive amount of profit derived from
BBA transaction and therefore the defendants will only
have to pay the principal sum of the facility.

+
Profit portion of BBA facility is unlawful
and contrary to the religion of Islam
n  1. The court considers deferred payment of the selling price is a

credit or a loan and any profit claimed or charged by the bank as
an additional to the facility amount is interest. The court signifies
that the profit derived from BBA facility is lawful if the transaction is
considered as a bona fide sale. Nevertheless, BBA facility in this
case abandon the element of bona fide sale in which making the
profit derived from it would be prohibited as riba

+
n  2. In addition, the court also mentions that excessive selling price

under BBA facility imposed a heavier burden upon the defendants
that would be contrary to the intent and purpose of verses 275-280
of surah al-Baqarah. Al-Ghazali insists the practice of ihsan or doing
good deeds in business rather than merely advocating the
maximization of profit. The element of tolerance and benevolence
should be the basis upon which the Islamic banking business
transactions are conducted.

+n  3. the issue of iwad in BBA transaction. Although the court in the
current case does not mention anywhere this specific issue, it is
observed that BBA facility has apparently neglected the
requirement of iwad (equal counter value or compensation) where
the obligation of warranty to the properties sold has been shifted
to the vendor and not the plaintiffs as the sellers. Moreover, it is
evident in most of BBA legal documentations that the bank holds no
liability arising from all defective assets sold.

+n  4. The true nature of contracts and transactions is the substance and
not the words and the structure. The distinction between a sale and a
loan is not maintained in its form alone but it must also be
maintained in substance.

n  The court opines that BBA facility may be classified as pretence of
sale transaction unless there was a novation agreement to make the
bank a genuine seller.

+n  5. In interpreting the requirement under the IBA and the BAFIA that
the financing facilities offered do not involve any element not
approved by the religion of Islam, the court declares that the
facility must not contain any element not approved by any of the
recognized madhab unless the financing agreement states the
specific to a particular madhhab.

n  Since Bay al-Inah concept is only acceptable in madhhab Shafi’i, it
fails to meet the IBA and the BAFIA’s requirement and renders the
transaction null and void.

+Mohd
  Alias
  Ibrahim

  V
  Rhb
  Bank
  Bhd
  &
  Anor
  [2011]
  4

Clj
  654
  [2011]
  3
  Mlj
  26

n Pt challenged the validity of s 56-57 of the cba. Ultra
vires the federal constitution

n 1. binds the court? Usurping article 121 (1) of the fc.

n 2. wtr the sections had in effect delegated the court
power to the sac.

n 3. making ruling binding, the parties had been
deprived of their right to be heard:

n i. breach of constitution

n Ii. Breach of natural justice

n 4. retrospective effect.

+
2012-2015

n  Tan Sri Abdul Khalid bin Ibrahim v Bank Islam Malaysia
Bhd [2012] 7 MLJ

n  Low Chin Meng v CIMB Islamic Bank [2015] 5 CLJ 324

n  MK Associates Sdn Bhd v. Bank Islam Malaysia Bhd  [2015] 6
CLJ

n  Maybank Islamic BHD v M-10 Builders Sdn Bhd & Anor
(2015) 1 SHR

+Tan Sri Abdul Khalid bin Ibrahim v Bank
Islam Malaysia Bhd [2012] 7 MLJ

n (Mohd Zawawi J):

n   It is settled law that ss 56 and 57 of the Act are
valid federal laws enacted by Parliament and as
such were not in contravention of the FC.

n Difference of opinion on Shariah issues relating to
Islamic banking should be resolved within the
SAC. It is advisable and practical that a special
body like the SAC should ascertain the Islamic law
most applicable to the Islamic banking industry in
Malaysia

+
Low Chin Meng v CIMB Islamic Bank
[2015] 5 CLJ 324

n  Highlighted the same issue i.e. its validity and legality of al-
Bay Bithaman Ajil.

+
MK Associates Sdn Bhd v. Bank Islam
Malaysia Bhd  [2015] 6 CLJ
n  In this case the plaintiff, MK Associates Sdn Bhd defaulted in the

installments of al-Bay Bithaman Ajil. The defendant, Bank Islam Malaysia
Bhd claimed the outstanding balance of the facility together with ta’widh
or compensation for late payment in the amount of RM10, 384, 262.88 for
the period of 30 months i.e. from January 2000- June 2012. The plaintiff
contended that the defendant was not entitled to charge ta’widh since it
was not part of the terms agreed upon at the time of the agreements
were signed. The defendant on the other hand claimed that it has rights
to do so pursuant to the BNM’s letter dated 10 December 1998 and the
Shari’ah Advisory Council Resolution in 1998.

n  There are there main issues involved in this case namely: (i) whether the
defendant was entitled to charge the plaintiff, ta’widh pursuant to the
Agreements; (ii) whether the defendant was entitled in law to charge the
plaintiff ta’widh; and (iii) whether the defendant was entitled to charge
ta’widh in the sum of RM10, 384, 262.88. After giving due consideration
of all factors and arguments, the learned judge made decision in favour
of the plaintiff and ta’widh was not relevant in this case.

+
Cont…

n  The court held that the plaintiff must know of the imposition
of ta’widh so that consent would be valid. The plaintiff in this
case did not know the term ta’widh as at the time the
agreements were entered into in 1998, it was not practised by
IFIs. The learned judge opined that ta’widh was only
introduced after the SAC’s Resolution in 1998 and the said
resolution was only effective on 1 January 1999. It is unfair for
the imposition of ta’widh where the agreements are silent on
it and therefore it shall be applicable only on or after 1
January 1999.

+Maybank Islamic BHD v M-10 Builders Sdn
Bhd & Anor (2015) 1 SHR

n  By their conduct, both parties were privy to the illegality and
had camouflaged the MOD facility as murabahah and both
had benefited from this illegality. This transaction had clearly
violated the basic tenets of the financing premised on the
Islamic concept. Further, the contract involving the MOD
facility which the parties termed as murabahah was contrary
to the basic tenets of financing based on murabahah as there
were no fresh ASA and APA having been executed.

+n  Held:

n  1. the practice of the civil court referring question on islamic law to
islamic authorities is not new.

n  2. the jurisdiction falls under the civil court jurisdiction. Law
relating to finance.

n  3. the sac is merely required to make an ascertainment and not
determination. the court still has to decide the ultimate issues and
the final decision remains with the court.

n  4. no retrospective effect.

+
Thank You

Zulkifli Bin Hasan

Faculty of Syariah & Law

E-mail: zulkiflih@admin.kuim.edu.my

E-mail: zul361977@yahoo.com.

Tel. No: 06-7988455

H/Phone No: 016-3379776


BLOG OF KNOWLEDGE (Shari'ah, Law, Islamic Finance and Muslim News)
Shari'ah, Law, Islamic Finance and Muslim News
Monthly Archives: February 2013
February 26, 2013
DR. ZULKIFLI HASAN
Window dressing, scholar wannabes
Window dressing, scholar wannabes
Dr Zulkifli Hasan Available at:
http://themalaysianreserve.com/main/sectorial/islamic-finance/3118-window-dressing-scholar-wannabes
Shariah scholars in Islamic finance are frequently put in a dilemma position. They have been accused upside down with numerous allegations even without any basis. During early implementation of Islamic finance, Shariah scholars were alleged to have formed an alliance with Islamic capitalists to create a new market for Islamic finance sector.
In this instance, the Islamic banks were guided by those well-paid clerics and always issued rulings according to their needs. In fact, since 1980s, many of the scholars have been accused of being bankers’ window dressing and of overstretching the rules of Shariah to provide easy fatwas to Islamic financial institutions.
Lately, it is quite surprising that the scholars have been criticised even by Islamic bankers. The myth of alliance between Islamic bankers and Shariah scholars seems to be no longer relevant. One of the critics refers to an allegation where the Islamic financial market globally has been invaded by Shariah scholar wannabes, a new term introduced to refer to the so-called unqualified Shariah scholars.
Infiltration of Islamic Banks
These Shariah scholar wannabes have infiltrated Islamic banks, regulatory authorities and Shariah governing bodies without due consideration to stakeholders value. Much more serious is where the criticism includes allegations of changing the meaning of Quranic verses and Hadith by those Shariah scholar wannabes.
Caution and criticism are mostly welcomed and in fact warranted but not baseless allegations and wrongful accusations. Constructive criticisms particularly on the governance issue in Islamic financial institutions will surely contribute to the development of Islamic finance industry. The unqualified criticisms will lead the industry nowhere and in fact hinder its development and negate the public confidence.
Considering the significance of this issue, this article attempts to address several misconceptions about Islamic finance even by the so-called truly Islamic finance practitioners with the aim of providing a basic understanding and removing any inaccurate or unfounded prejudice.
1. Islamic finance is purely a commercial transaction: Islamic finance concept is grounded in ethics, values and norms. As Islamic finance is not pure commercial transaction and not only confined to nominate contracts, Islamic financial institutions therefore should be commercially and morally oriented entities.
Islamic finance assumes a moral based value proposition which offers solutions for the economic and financial problems. These moral and ethical value systems require that the decision-making process in Islamic finance must not be solely based on efficiency and equity but must have social and ethical dimensions.
2. Stakeholders value confines to shareholders interest: The stakeholder value orientation is not only concern for shareholders but also to protect all the stakeholders’ interests and rights. The stakeholders value, conceptually, requires Islamic financial institutions to balance the corporate goal of maximising the profit with the duty to uphold the principle of social justice and maqasid Shariah and this entails the notion of protecting the interests and rights of all stakeholders within the Shariah rules.
Even the Basel Committee for Banking Supervision on “Enhancing Corporate Governance for Banking Organisations”, expands the term “stakeholders” to include employees, customers, depositors, suppliers, supervisors, government and the community.
Not only that, the Organisation for Economic Cooperation and Development further classifies the stakeholders into shareholders, internal stakeholders (employees and labour unions), operational partners (customers, suppliers, creditors and contractors), and the social community (state authorities, trade union, non-governmental organisations and civil society).
3. The true meaning of Bay is sale and it has no element of risk: Islamic finance is gharar-free, maysir-free and riba-free, but not risk-free. Since Islamic financial products and services are designed based on different nominate contracts, it is erroneous and would be a sheer misconception to say that Islamic finance is risk-free or less risky.
Moral and Ethical Dimensions
Furthermore, Islamic financial products and services should have moral and ethical dimensions and therefore any transaction should be embedded in real economy which offers an alternative financing paradigm. At this point, the conceptual framework of Islamic finance suggests that it should be more than financialisation of the nominate contracts.
Islamic financial institutions should take necessary risks equitably and not simply shifting the liability unfairly to the customer. In other words, Islamic finance should represent a holistic approach to financing not only bankable customers but also to allocate certain funds for non-bankable and underprivileged people as part of its social responsibility to the society and ummah.
4. Islamic financial institutions are purely profit-oriented entities: Based on its epistemological dimension, Islamic finance is actually a society oriented financing proposition as it aims to serve the community, ummah and not solely to the markets. Islamic finance must not be confined within profit-driven orientation but it should also address issues on economic and sustainable development, social justice and social investing oriented principles.
With reference to several empirical studies, the current Islamic finance practices on the other hand do not indicate positive correlation with human development index scores. Surprisingly, the corporate social responsibility performance of Islamic financial institutions also has been rather weak and poor as compared to its conventional counterpart. This position demands Islamic financial institutions to seriously re-evaluate and review their current practices and future direction.
5. Shariah scholar wannabes infiltrated the industry’s wellbeing: The critics on the roles of Shariah scholars are always blown out of proportion and over-exaggerated.
Undeniably, Shariah scholars, either senior or young scholars or conservative or pragmatic scholars have their own unique contribution to the industry’s wellbeing but their approaches may be different. This should not be the reason of denying their significant contribution.
The “conservative” scholars may view the legitimacy of Islamic financial products and services to be based on the legal and mechanistic aspects of Shariah. The products and services are classified as lawful and Shariah-compliant or Shariah-based if they meet the conditions of a valid muamalat transaction after going through the ordinary process of usulal fiqh.
On the other hand, the “pragmatic” scholars admit that Islamic finance should not confine their function by solely emphasising the fiqh aspect. The “pragmatic” scholars acknowledged that Islamic financial products and services should not only be valid and lawful, must fulfill the spirit of maqasid Shariah but must also be ethical and uphold the Islamic values.
Allegations Misleading
The critics upon Shariah scholars of either being banker’s window dressing or invasion of the scholar wannabes are actually misleading. These allegations to a certain extent will negatively influence the Islamic finance industry as they are not supported with any empirical evidence. Rather than discussing these unnecessary issues, the Islamic finance discourse should actually be focusing on its fundamental principles and how to ensure its sustainability. It is important to critically evaluate the performance of Islamic financial institutions against their foundational base and at the same time to maintain its positive development.
The existing practices of Islamic finance so far have failed to establish a distinct identity or to draw a clear demarcation line with conventional banks. In fact, with several corporate failures of Islamic financial institutions, such as the closures of Ihlas Finance House in Turkey, the Islamic Bank of South Africa and the Islamic Investment Co of Egypt, and corporate difficulties, as in the case of the Dubai Islamic Bank, and Bank Islam Malaysia Bhd, Islamic finance is clearly not immune from the crisis.
Islamic finance must learn from the history and take lesson from previous financial crisis. We do not want to hear that the only lesson that Islamic financial institutions have learned is that they never learn.
Dr Zulkifli Hasan is a senior lecturer at Shariah and Law faculty of Islamic Science University of Malaysia. He is a Shariah committee member of Affin Islamic Bank Bhd and also sits in the committee member for the Association of Shariah Advisors. Opinions expressed in this article are his personal views.
Muscat, Oman
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February 22, 2013
DR. ZULKIFLI HASAN
Infaq or Giving in the Way of Allah
Mengimarahkan Budaya Infaq
Zulkifli Hasan
Sidang Jumaat yang Dirahmati Allah,
Pada hari yang mulia ini, saya memperingatkan diri saya dan sidang jemaah yang dimuliakan sekalian, marilah kita sama-sama bertakwa kepada Allah subhanahu wataala dengan sebenar-benar takwa, dengan mengerjakan segala suruhannya dan meninggalkan segala larangannya mudah-mudahan dengan jalan ini kita akan selamat di dunia dan di akhirat. Ini amat bertepatan dengan firman Allah:
ـٰٓأَيُّہَا ٱلنَّاسُ إِنَّا خَلَقۡنَـٰكُم مِّن ذَكَرٍ۬ وَأُنثَىٰ وَجَعَلۡنَـٰكُمۡ شُعُوبً۬ا وَقَبَآٮِٕلَ لِتَعَارَفُوٓاْ‌ۚ إِنَّ أَڪۡرَمَكُمۡ عِندَ ٱللَّهِ أَتۡقَٮٰكُمۡ‌ۚ إِنَّ ٱللَّهَ عَلِيمٌ خَبِيرٌ۬

Maksudnya: Wahai umat manusia! Sesungguhnya Kami telah menciptakan kamu dari lelaki dan perempuan dan Kami telah menjadikan kamu berbagai bangsa dan bersuku puak, supaya kamu berkenal-kenalan (dan beramah mesra antara satu dengan yang lain). Sesungguhnya semulia-mulia kamu di sisi Allah ialah orang yang lebih takwanya di antara kamu, (bukan yang lebih keturunan atau bangsanya). Sesungguhnya Allah Maha Mengetahui, lagi Maha Mendalam PengetahuanNya (akan keadaan dan amalan kamu). (al-Hujurat: 13).
Sidang Jumaat yang Dirahmati Allah sekalian,
Mimbar hari ini ingin mengambil peluang membicarakan secara ringkas khutbah yang bertajuk ”Mengimarahkan Budaya Infaq”. Bersesuaian dengan situasi dan isu yang melanda umat Islam terutamanya dari aspek sosio-ekonomi dan kemanusiaan, budaya infaq dan bersedekah merupakan satu perkara yang amat dituntut oleh Islam. Budaya infaq ini juga akan dapat memastikan budaya kebergantungan kepada kerajaan dan pemerintah dapat dikurangkan dan seterusnya menjadikan sesebuah masyarakat itu bebas dan berdikari. Sebelum mimbar membicarakan konsep infaq ini, adalah amat bermanfaat untuk kita melihat secara ringkas kedudukan dan amalan infaq ini dalam konteks umat Islam di Malaysia. Mungkin ia bermanfaat untuk kita koreksi dan muhasabah tentang sejauh mana umat Islam menghayati tuntutan infaq atau bersedekah ini dalam Islam.
Dari sudut infaq wajib iaitu zakat. Dilaporkan hanya 10% umat Islam di Malaysia yang membayar zakat iaitu mewakili 1.74 juta sahaja daripada 17.35 juta umat. Agak mendukacitakan juga apabila dianggarkan hanya sejumlah 4.2% golongan profesional di Malaysia yang melaksanakan pembayaran zakat pendapatan dan lebih 80% syarikat orang Islam tidak membayar zakat.  Daripada jumlah yang membayar zakat ini termasuk zakat syarikat sebanyak lebih RM1.6 bilion dapat dikutip oleh pusat zakat pada 2012. Ini membuktikan bahawa potensi infaq bagi umat Islam di Malaysia adalah sangat besar dan perkara ini perlu diberikan perhatian oleh semua umat Islam. Begitu juga dengan sedekah yang masih belum sampai ke tahap ia dibudayakan. Kita sering kali mendengar dan menyaksikan kedhaifan sesetengah umat Islam yang memerlukan bantuan di media massa dan masalah tidak cukup dana pertubuhan kebajikan Islam yang ingin memberi bantuan.
Bersesuaian dengan perkembangan yang berlaku di dunia Islam termasuk tanahair kita mengenai keperluan memupuk budaya infaq ini dari segenap lapisan, khutbah pada hari ini akan cuba membicarakan secara ringkas Infaq atau sedekah dan kedudukannya dalam Islam.
Sidang Jumaat yang Dirahmati Allah,
Bagi membicarakan konsep infaq ini, adalah amat penting untuk kita umat Islam memahami konsep dan epistimologinya. Sedekah adalah suatu sunnah dan amalan para sahabat yang sangat mulia. Dalam tradisi Islam ia merujuk kepada zakat, sedekah, derma, hadiah, hibah dan lain-lain. Zakat adalah amalan wajib ditunaikan oleh umat Islam yang berkemampuan manakala sedekah adalah amalan sunat yang sangat dituntut. Ia merupakan pemberian sesuatu kepada orang yang memerlukan dengan tujuan mahu mendekatkan diri kepada Allah SWT dan merupakan amalan yang mulia serta mencakupi perkara yang mendatangkan kebaikan dari sekecil-kecil sehinggalah sebesar-besarnya.
Tuntutan bersedekah ini perlu disandarkan pada niat yang ikhlas kerana Allah SWT demi untuk kebajikan pihak yang memerlukan dan tidak mengharapkan pujian atau balasan, bahkan semata-mata untuk mencari keredhaan Allah SWT dan menjunjung ketaatan kepada-Nya serta memupuk kasih sayang kepada manusia dan masyarakat seluruhnya. Keutamaan bersedekah ini amat digalakkan oleh Islam dan telah dijelaskan oleh Allah SWT di dalam surah al-Baqarah ayat 261:
Bermaksud: “Bandingan (derma) orang-orang yang membelanjakan hartanya pada jalan Allah, ialah sama seperti sebiji benih yang tumbuh menerbitkan tujuh tangkai, tiap-tiap tangkai itu pula mengandungi seratus biji. Dan (ingatlah), Allah akan melipatgandakan pahala bagi sesiapa yang dikehendakiNya, dan Allah Maha Luas (rahmat) kurniaNya, lagi meliputi ilmu pengetahuanNya”.
Berdasarkan ayat ini Allah memberi jaminan bahawa bersifat pemurah dan dermawan tidak akan mengurangkan harta malah punca pendapatannya akan ditambah selain mendapat saham pahala akhirat yang berterusan. Malah dalam beberapa hadith Sahih riwayat al-Bukhari menyebutkan bahawa para malaikat turut berdoa agar rezeki orang yang menderma bertambah. Sabda Rasulullah SAW:
Maksudnya: ” Tidak ada satu hari hamba Allah berpagi pada hari itu, selain ia dihadiri dua malaikat; kemudian salah seorang daripada keduanya mendoakan: “Wahai Tuhan, berilah si dermawan itu ganti; dan salah satu malaikat lagi mendoakan : Wahai Tuhan, berilah orang yang bakhil itu kehancuran ” .
Bukan itu sahaja, mereka yang diberkati sedekahnya akan mendapat penghormatan yang tinggi daripada Allah SWT dan malaikat sentiasa mendoakan kebaikan kepadanya. Oleh itu, tidak hairanlah bagaimana para sahabat yang begitu mengambil berat soal membudayakan infaq ini dalam kehidupan harian. Umpamanya, Saidina Abu Bakar yang telah mendermakan seluruh hartanya untuk Islam dan ummah tiada bandingannya. Ketika Rasulullah SAW bertanya Saidina Abu Bakar, apakah yang beliau tinggalkan untuk keluarganya, beliau menjawab, tiada apa-apa melainkan Allah dan Rasul-Nya sahaja. Demikianlah tingginya tahap pengorbanan dan kasih sayang yang dihayati oleh umat Islam terdahulu.
Sidang Jumaat yang Dirahmati Allah,
Mimbar ingin menekankan bahawa sebenarnya sedekah bukan saja berbentuk kebendaan. Berinfaq lah mengikut kemampuan individu masing-masing. Bagi yang tidak mampu atau tiada harta, mereka boleh menyumbangkan usaha dan doa. Di sini mimbar ingin mengajak sidang jumaat yang dirahmati Allah untuk melakukan inovasi dalam melaksanakan amalan infaq atau sedekah ini. Inovasi dan kreativiti bukan sahaja diperlukan dalam pembelajaran, pengajaran, penyelidikan tetapi ia juga diperlukan dalam tuntutan untuk berinfaq ini. Hal ini disebut dalam hadith Rasulullah SAW:-
Daripada Abu Zarr R.A. juga, (beliau meriwayatkan): Bahawa sebahagian sahabat Rasulullah SAW berkata kepada Nabi SAW: Wahai Rasulullah! Orang-orang kaya telah mendapat banyak pahala. Mereka sembahyang sebagaimana kami sembahyang, mereka berpuasa sebagaimana kami berpuasa dan mereka bersedekah dengan lebihan harta mereka. Baginda bersabda: Bukankah Allah telah menjadikan bagi kamu sesuatu yang kamu boleh bersedekah dengannya? Sesungguhnya dengan setiap kali tasbih itu adalah sedekah, setiap kali takbir itu adalah sedekah, setiap kali tahmid itu adalah sedekah, setiap kali tahlil itu adalah sedekah, menyuruh amar ma’aruf itu sedekah, menegah mungkar itu sedekah dan pada kemaluan seseorang kamupun adalah sedekah. Mereka bertanya: Ya Rasulullah! Adakah apabila salah seorang kami melepaskan syahwatnyapun dia beroleh pahala? Baginda bersabda: Bagaimana pandangan kamu kalau dia melepaskan syahwatnya pada tempat haram, adakah dia berdosa? Maka demikian jugalah apabila dia melepaskannya pada tempat yang halal, dia beroleh pahala. Hadis riwayat al-lmam Muslim
Menyentuh aspek infaq dalam konteks yang lebih luas, inovasi dan kreativiti mampu membuka dimensi yang lebih segar dan baru. Di USIM, pensyarah misalnya bukan sahaja boleh bersedekah wang ringgit tetapi boleh sahaja menginfakkan masanya untuk mendidik pelajar di luar waktu pekerjaan termasuk mengadakan kelas tambahan atau aktiviti yang dapat meningkatkan pengetahuan dan kemahiran pelajar. Seorang doktor boleh sahaja menginfakkan sebanyak 5 pembedahan secara percuma bagi tempoh setahun sebagai infaq beliau. Seorang peguam boleh memperuntukkan sebanyak 5 kes setahun bagi mengendalikan kes secara percuma bagi mereka yang memerlukan. Begitu juga bagi pelajar, dengan masa yang begitu berharga, mungkin pelajar boleh menginfakkan masa untuk kerja-kerja amal dan kerja sosial untuk masyarakat terutamanya semasa cuti semester. Dalam hal ini kerja-kerja kesukarelawanan adalah amat bermanfaat. Selalu kedengaran, pertubuhan kebajikan dan amal yang bukan sahaja tidak punyai cukup dana tetapi kekurangan sukarelawan untuk membantu mereka melaksanakan kerja-kerja amal.
Sidang Jumaat yang Dirahmati Allah sekalian,
Umat Islam diseluruh dunia adalah bersaudara kerana Islam adalah agama persaudaraan. Tali persaudaraannya diikat kuat oleh persamaan akidah. Dengan demikian apabila umat Islam di negara atau kawasan tertentu ditimpa malapetaka atau dizalimi, maka akan timbul perasaan atau keinginan untuk membantu meringankan penderitaan mereka. Ini bertepatan dengan firman Allah SWT dalam surah al-Hujurat ayat 10:
Maksudnya: ” Sebenarnya orang yang beriman itu bersaudara maka damaikanlah di antara dua saudara kamu itu; dan bertakwalah kepada Allah agar kamu beroleh rahmat.”.
Bertepatan dengan tajuk khutbah pada hari ini mengenai Budaya Infaq, di kesempatan ini mimbar ingin mengajak sidang Jumaat sekalian untuk bersama-sama berinfaq untuk saudara kita yang kini sedang menghadapi ujian yang amat berat khususnya di Gaza, Arakan, Myanmar dan Syria. Marilah kita sama-sama mendoakan keselamatan saudara-saudara kita ini yang kini dikhabarkan dalam keadaan tegang dan getir.
Berpeluang berada di Gaza baru-baru ini begitu menginsafkan.Saudara kita di Palestin benar-benar memerlukan pembelaan. Mereka kehilangan keluarga, rumahtangga, kemusnahan hartabenda, sekolah, hospital dan sebagainya. Gaza memerlukan bantuan kita untuk dibangunkan semula. Begitu juga di Arakan Myanmar, dilaporkan bahawa keadaan umat Islam yang diletakkan di dalam penempatan khas pihak berkuasa Myanmar kini berada dalam keadaan dhaif dan kesengsaraan. Mereka kini sangat-sangat memerlukan bantuan saudara seIslam untuk meneruskan kehidupan.
Dan yang paling kritikal ialah saudara kita di Syria. Konflik di Syria yang telah  selama 20 bulan ini telah mengorbankan 27,600 nyawa, dan mengakibatkan 200,000 orang menjadi pelarian di sempadan Turki, Jordan dan Lubnan. Ribuan rakyat yang tercedera, ratusan mati kerana kekurangan peralatan dan bekalan ubat, bayi mati kekurangan susu, dan kebanyakan rakyat di seluruh negara Syria kekurangan keperluan asas termasuk tempat tinggal dan makanan. Pertubuhan Bangsa-Bangsa Bersatu (PBB) menyatakan bahawa Syria memerlukan bantuan kemanusiaan bernilai hampir 700 juta USD dan keadaan di Syria menjadi semakin kritikal daripada masa ke semasa.
Sebagai saudara seakidah dan atas sifat peri kemanusiaan, maka kita berkewajiban terus menerus membantu mereka. Persaudaraan sesama Islam akan terbukti apabila kita turut merasa susah, sedih dan bersedia membantu, bilamana saudara kita sakit, susah dan menderita. Imam Muslim dan Ahmad telah meriwayatkan bahawa Rasulullah SAW bersabda:
Mafhumnya: “Gambaran kehidupan orang yang beriman dari segi kasih sayang, saling bersimpati dan saling cinta mencintai samalah seperti anggota tubuh yang jika salah satu daripadanya mengadu kesakitan, ia melibatkan seluruh anggota lain yang tidak tidur malam dan demam”.
Sidang Jumaat yang Dirahmati Allah sekalian,
Mengakhiri khutbah pada minggu ini, mimbar menyeru marilah sama-sama kita mendekatkan diri kepada Allah SWT dengan mengamalkan amalan yang mulia ini dengan membantu sesama kita. Dengan kita bersedekah dan berinfaq mudah-mudahan hidup kita sentiasa diberkati oleh Allah SWT.
Justeru itu, pada hari yang penuh berkat ini, mimbar menyeru umat Islam memperbanyakkan amalan bersedekah dan infaq kerana (i) Bersedekah adalah antara tanda keimanan seseorang; (ii) bersedekah merapatkan tali persaudaraan dan menggembirakan ummah; (iii) Bersedekah menghapuskan dosa; (iv) bersedekah idak memiskinkan seseorang malah menambahkan rezeki; dan (v) bersedekah adalah amalan para Rasul, Nabi dan orang-orang soleh.
بَارَكَ اللهُ لِيْ وَلَكُمْ فِي الْقُرْآنِ الْعَظِيْمِ وَنَفَعَنِيْ وَإِيَّاكُمْ بِمَا فِيْهِ مِنَ اْلآيَاتِ وَالذِّكْرِ الْحَكِيْمِ. أَقُوْلُ قَوْلِيْ هَذَا وَأَسْتَغْفِرُ اللهَ لِيْ وَلَكُمْ وَلِسَائِرِ الْمُسْلِمِيْنَ مِنْ كُلِّ ذَنْبٍ فَاسْتَغْفِرُوْهُ إِنَّهُ هُوَ الْغَفُوْرُ الرَّحِيْمُ
Khutbah Kedua
إِنّ الْحَمْدَ ِللهِ رَبِّ الْعَالَمِينَ وَأَشْهَدُ أَنْ لاَ إِلهَ إِلاّ اللهُ وَلِيُّ الصَّالِحِينَ وَأَشْهَدُ أَنّ مُحَمّدًا خَاتَمُ الأَنْْْبِيَاءِ وَالْمُرْسَلِينَ اَللَّهُمَّ صَلِّ عَلَى مُحَمَّدٍ وَعَلَى آلِ مُحَمَّدٍ كَمَا صَلَّيْتَ عَلَى إِبْرَاهِيْمَ وَعَلَى آلِ إِبْرَاهِيْمَ، إِنَّكَ حَمِيْدٌ مَجِيْدٌ. وَبَارِكْ عَلَى مُحَمَّدٍ وَعَلَى آلِ مُحَمَّدٍ كَمَا بَارَكْتَ عَلَى إِبْرَاهِيْمَ وَعَلَى آلِ إِبْرَاهِيْمَ، إِنَّكَ حَمِيْدٌ مَجِيْدٌ., أَمَّابعد
My Dear beloved Jemaah,
On this blessed Friday, let us pray that Allah subhanahu wataala continues to protect our taqwa and our faith. Let us consistently strive to perform all of His commandments and avoid all of His prohibitions. Hopefully, we will be in an excellent condition during our meeting with Allah subhanahu wataala. and Rasulullah sallallahualaihiwasallam in the hereafter. The topic for today’s khutbah is ‘The Importance of Infaq or Giving in the Way of Allah’.
My Dear Beloved Brothers,
Infaq has a very broad meaning. It constitutes all kind of expenditures given without any expectation of reward or return and just for the sake of Allah. Infaq can be for family, siblings and also it can be for the poor and the needy. There are many indications in Holy Quran that infaq is both an order and a strong recommendation. For instance in surah al baqarah verse 261, Allah says:- The parable of those who spend their substance in the way of Allah is that of a grain of corn: it groweth seven ears, and each ear Hath a hundred grains. Allah giveth manifold increase to whom He pleaseth: And Allah careth for all and He knoweth all things.
If a person spends his better parts of his goods, and the goods that he is personally fond of, and he does this under the name of infaq and only for the sake of Allah, he will reach the level of righteousness. This is affirmed by Allah SWT in surah al Baqarah verse 274, Allah says:- Those who (in charity) spend of their goods by night and by day, in secret and in public, have their reward with their Lord: on them shall be no fear, nor shall they grieve.
My Dear Beloved Jemaah,
The Infaq is a way to purify one’s heart and mind. It is an unselfish act of worship. Infaq can bring numerous benefits in this world and hereafter. (i) Allah the Almighty will increase and guarantee your wealth. Through Infaq, the giver does not lose his or her income and wealth, because God guarantees that at least the same amount will be returned, if not more. (ii) Allah the Almighty will give you reward so you will not be fear or stressed. (iii) Infaq will strengthen family relation and enlarge social networking. (iv) Infaq can strengthen the spirit of brotherhood and solidarity. (v) Infaq can contribute to ummah development.
اَللّهُمَّ اغْفِرْ لِلْمُسْلِمِيْنَ وَالْمُسْلِمَاتِ وَالْمُؤْمِنِيْنَ وَالْمُؤْمِنَاتِ، الأَحْيَاءِ مِنْهُمْ وَالأَمْوَاتِ. إِنَّكَ سَمِيْعٌ قَرِيْبٌ مُجِيْبُ الدَّعْوَاتِ وَقَاضِىَ الْحَاجَاتِ.
اللّهُمَّ انْصُر مَلِكَنَا، يَغ دِفرتوأن بسر نضري سمبيان دار الخصوص، توأنكو مُخرِز ابن المرحوم توأنكو مُنوِّر وأَيِّدهُ وَوَفِّقْهُ لِماَ تُحِبُّهُ وَتَرضَاهُ، وأَبِد بِوُجُودِهِ مَكَايِدَ أَهلِ الظُّلمِ وَالكُفرِ وَالخِذلاَنِ،
اللّهُمَّ ارْزُقِ العَوْنَ والتَوفِيق، داتوء كلانا فِترا، داتوء حاج مبارك ابن ضحاك المَعرُوف بأُندَغ لُوأَق سُوغَاي أُوجُوغ، وأَيِّدهُ وَوَفِّقْهُ لِماَ تُحِبُّهُ وَتَرضَاهُ، بِحُرمَةِ مَن أَرسَلْتَهُ لِلْعَالَمِينَ رَحمَةً وَبُشْرَى، وَدَاعِياً إِلَى الله بإِذْنِهِ وَسِرَاجاً مُنِيراً.
Ya Allah, Engkau berkatilah Universiti Sains Islam Malaysia serta warganya. Jadikanlah kami dalam kalangan hamba-hamba-Mu yang sentiasa mendapat hidayah, rahmah kesihatan dan kelapangan, serta jauhkanlah kami daripada bala-bencana dan ancaman wabak mudarat serta penyakit al-wahn. Sesungguhnya Engkaulah tempat kami memohon dan mengharapkan pertolongan.

 أقيموا الصلاة…
Regards

Zulkifli Hasan
Masjid al Nabawi, Madinah al Munawwarah
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3 Comments
February 8, 2013
DR. ZULKIFLI HASAN
BETWEEN BANKER’S WINDOW DRESSING AND INVASION OF SCHOLAR WANNABES
BETWEEN BANKER’S WINDOW DRESSING AND INVASION OF SCHOLAR WANNABES
Zulkifli Hasan
Shari’ah scholars in Islamic finance are frequently put in a dilemma position. They have been accused upside down with numerous allegations even without any basis. During early implementation of Islamic finance, Shari’ah scholars have been alleged as forming an alliance with Islamic capitalist to create a new market for Islamic finance sector. In this instance, the Islamic banks are guided by those well-paid clerics and always issue rulings according to their needs. In fact, since 1980s, many of the scholars have been accused of being bankers’ window dressing and of over-stretching the rules of Shari’ah to provide easy fatwas to Islamic financial institutions.
Lately, it is quite surprising that the scholars have been criticized even by Islamic bankers. The myth of alliance between Islamic bankers and Shari’ah scholars seems to be no longer relevant. One of the critics refers to allegation where the Islamic financial market globally has been invaded by Shari’ah scholar wannabes, a new term introduced to refer to the so called unqualified Shari’ah scholars. This Shari’ah scholar wannabes have infiltrated Islamic banks, regulatory authorities and Shari’ah governing bodies without due consideration to stakeholders value. Much more serious is where the criticism includes allegation of changing the meaning of Quranic verses and Hadith by those Shari’ah scholar wannabes.
Caution and criticism are mostly welcomed and in fact warranted but not to baseless allegation and wrongful accusation. Constructive criticisms particularly on the governance issue in Islamic financial institutions will surely contribute to the development of Islamic finance industry. The unethical criticisms will lead the industry nowhere and in fact will infiltrate its development and negate the public confidence. Considering the significance of this issue, this article attempts to address several misconceptions on Islamic finance even by the so called truly Islamic finance practitioners with the aim of providing a basic understanding and removing any inaccurate or unfounded prejudice.
1. Islamic finance is a pure commercial transaction: Islamic finance concept is grounded in ethics, values and norms. As Islamic finance is not pure commercial transaction and not only confine to nominate contracts, Islamic financial institutions therefore should be commercially and morally oriented entities. Islamic finance assumes a moral based value preposition which offers solution for the economic and financial problems. These moral and ethical value systems require that the decision-making process in Islamic finance must not solely based on efficiency and equity but must have social and ethical dimensions.
2. Stakeholders value confines to shareholders interest: The stakeholder value orientation is not only concern on shareholders but also to protect all the stakeholders’ interest and rights. The stakeholders value, conceptually, require Islamic financial institutions to balance the corporate goal of maximizing the profit with the duty to uphold the principle of social justice and maqasid Shari’ah and this entails the notion of protecting the interests and rights of all stakeholders within the Shari’ah rules. Even the Basel Committee for Banking Supervision on ‘Enhancing Corporate Governance for Banking Organizations’, expands the term ‘stakeholders’ to include employees, customers, depositors, suppliers, supervisors, government and the community. Not only that the OECD further classifies the stakeholders into shareholders, internal stakeholders (employees and labour unions), operational partners (customers, suppliers, creditors and contractors), and the social community (state authorities, trade union, non-governmental organizations and civil society).
3. The true meaning of Bay is sale and it has no element of risk: Islamic finance is gharar-free, maysir-free and riba-free, but not risk-free. Since Islamic financial products and services are designed based on different nominate contracts, it is erroneous and would be a sheer misconception to say that Islamic finance is risk-free or less risky. Furthermore, Islamic financial products and services should have moral and ethical dimensions and therefore any transactions should be embedded in real economy which offers an alternative financing paradigm. At this point, the conceptual framework of Islamic finance suggests that it should be more than financialisation of the nominate contracts. Islamic financial institutions should take necessary risks equitably and not simply shifting the liability unfairly to the customer. In other words, Islamic finance should represent a holistic approach to financing not only bankable customer but also to allocate certain fund for non-bankable and underprivileged people as part of its social responsibility to the society and ummah.
4. Islamic financial institutions are purely profit-oriented entities: Based on its epistemological dimension, Islamic finance is actually a society oriented financing proposition as it aims to serve the community, ummah and not solely to the markets. Islamic finance must not only confine within profit-driven orientation but it should also address issues on economic and sustainable development, social justice and social investing oriented principles. With reference to several empirical studies, the current Islamic finance practices on the other hand do not indicate positive correlation with human development index scores. Surprisingly, the corporate social responsibility performance of Islamic financial institutions also has been rather weak and poor as compared to its conventional counterpart. This position demands Islamic financial institutions to seriously reevaluate and review their current practices and future direction.
5. Shari’ah scholar wannabes infiltrated the industry’s well being: The critics on the roles of Shari’ah scholars are always blown out of proportion and over-exaggerated. Undeniably, Shari’ah scholars, either senior or young scholars or conservative or pragmatic scholars have their own unique contribution to the industry’s well being but their approaches may be different. This should not be the reason of denying their significant contribution. The ‘Conservative’ scholars may view the legitimacy of Islamic financial products and services to be based on the legal and mechanistic aspects of Shari’ah. The products and services are classified as lawful and Shari’ah-compliant or Shariʿah-based if they meet the conditions of a valid muamalat transaction after going through the ordinary process of usul al fiqh.  On the other hand, the ‘Pragmatic’ scholars admit that Islamic finance should not confine their function by solely emphasizing the fiqh aspect. The ‘Pragmatic’ scholars acknowledged that Islamic financial products and services should not only be valid and lawful, must fulfil the spirit of maqasid Shariʿah but must also be ethical and uphold the Islamic values.
The critics upon Shari’ah scholars of either being banker’s window dressing or invasion of the scholar wannabes are actually misleading. These allegations to certain extent will negatively influence the Islamic finance industry as they are not supported with any empirical evidence. Rather than discussing these unnecessary issues, the Islamic finance discourse should actually be focusing on its fundamental principles and how to ensure its sustainability. It is important to critically evaluate the performance of Islamic financial institutions against their foundational base and at the same time to maintain its positive development. The existing practices of Islamic finance so far have failed to establish a distinct identity or to draw a clear demarcation line with conventional banks. In fact, with several corporate failures of Islamic financial institutions, such as the closures of Ihlas Finance House in Turkey, the Islamic Bank of South Africa and the Islamic Investment Companies of Egypt, and corporate difficulties, as in the case of the Dubai Islamic Bank, and Bank Islam Malaysia Berhad, Islamic finance is clearly not immune from the crisis. Islamic finance must learn from the history and take lesson from previous financial crisis. We do not want to hear that the only lesson that Islamic financial institutions have learned is that they never learn.
Disclaimer: This is the personal opinion of the author.
Regards
Zulkifli Hasan
Grand Mosque of Cordova
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