BLOG OF KNOWLEDGE (Shari'ah, Law, Islamic Finance and Muslim News)
Shari'ah, Law, Islamic Finance and Muslim News
Monthly Archives: July 2015
July 7, 2015
DR. ZULKIFLI HASAN
From Islamic finance to Muslim lifestyle
From Islamic finance to Muslim lifestyle
Rushdi Siddiqui Available at:
http://www.themalaysianinsider.com/opinion/rushdi-siddiqui/article/from-islamic-finance-to-muslim-lifestyle
Rushdi believes that a change AGENT must tell the truth to a benevolent dictator, religious hardliner, and compassionately connect with youth and have nots.
Published: 7 July 2015
Only when you leave, can you arrive.
Colleagues have asked why I have “left” Islamic FINANCE after 15 years leading teams at DOW JONES INDEXES and Thomson Reuters?
It’s not about leaving, but about expanding my understanding about “have-not” Muslim needs.
Islamic FINANCE has reached only 38 million out of two billion million Muslims (Ernst & Young) in 40 years, and it’s more about the bankable and those with collateral.

Yes, Islamic finance is only the “grease” for the economy and not the economy.
In taking a step back and looking at the landscape, there was a light-bulb moment few years ago that something was missing in ACTION (MIA).
The original vision of the founders of Islamic banking, from Prince Faisal of DMI to Saleh Kamel of Albaraka to Saeed Lootah of Dubai Islamic Bank, was about FINANCIAL inclusion of the non-bankable. Otherwise, what’s the difference with conventional banking?
By non-bankable, I include the youth, say, under age of 30. They want ACCESS to risk capital to build a prototype of their idea, or finish building or start marketing their prototype.
So, the question becomes, what has Islamic BANKING AND FINANCE done for the poor versus the bankable, and what has it done for young entrepreneurs?
Today, sukuk and murabaha, alter ego of Islamic banking, are not FUNDING young people with ideas or poor people with Grameen bank like opportunities. (Note: Bangladesh’s Grameen bank is not an Islamic bank, as its imputed INTEREST RATES are above market rates.)
Furthermore, lets not confuse Islamic PRIVATE EQUITY (PE), linked to buyout of established companies via compliant structures, to Islamic venture capital, which exists more at conferences than in reality.
Finally, the sovereign wealth funds (SWFs) in the Muslim countries, like the largest in the Muslim world, ADIA in Abu Dhabi, have not yet invested in start-ups, even though the latter is an important ASSET class for a diversified portfolio.
Zilzar
The vision of Zilzar is about being a benefit-driven corporation, and not a for-profit only or non-profit only.
A benefit corporation is beyond CSR, SRI, and ESG, it’s about identifying the stakeholders in its entire ecosystem and establishing systemic linkages that provides synergistic benefits (connectivity).
There are other definitions, but we have customised it based upon how and where we see gaps in the Muslim lifestyle marketplace.
The gaps we have identified can be said to be the backbone of the Islamic digital economy.
The digital economy is the future needing blue-printing today, as the actual Muslim economies, mostly COMMODITY based, have not uplifted the lives, lifestyles or living of local people, ex outliers of select GCC countries.
Can we do more? Yes, we must do more, today!
P2P
The biggest problem in the Muslim world is not politics (democracy), religious differences (Shia and Sunni), or corruption (Transparency International’s low ranking), but the plight of micro-enterprises and SMEs.
These are the backbone of any country, emerging or developed, as they provide the majority of employment. Yet, access to FINANCING, be it conventional or risk-averse Islamic, is just not there or very difficult to tap.
Banks and SMEs do not fit seamlessly with each other today. The alleged challenges banks encounter include lack of interest, lack of customized interest rates for borrowers, underwriting costs are high, approval PROCESS time consuming, etc.
Thus, a matching opportunity has opened, called, ‘peer-to-peer’ (P2P) lending between borrowers and INVESTORS on-line.
From the website of Lending Club:
‘Lending Club is the world’s largest online marketplace connecting borrowers and investors. We’re transforming the banking system to make credit more affordable and investing more rewarding. We operate at a lower cost than traditional bank lending programs and pass the savings on to borrowers in the form of lower rates and to investors in the form of solid RETURNS.’
Islamic P2P lending does exist, for example
http://www.liwwa.com
“connects small businesses in need of capital with people who want to invest. Fast and inexpensive asset-financing for small businesses”.
But, to get greater traction, it’s a function of awareness, and we hope embed one of the P2P players we are having conversations with onto Zilzar platform for the benefit of our vendors. However, there are still regulatory issues to be addressed.
Equity crowd funding
From the website of
http://www.syndicateroom.com
:
“Equity crowd-funding is the name given to the process whereby people (the ‘crowd’) invest in an unlisted company (a company that is not listed on a stock market) in exchange for shares in that company. A shareholder has partial ownership of a company and stands to profit should the company do well. The opposite is also true, so if the company fails investors can lose some, or all, of their investment.”
Thus, equity crowd funding is people’s capitalism with the essence of Islamic finance, risk sharing. For example, Cairo based
http://www.shekra.com
was the world’s first (Islamic) crowd funding platform, and its has funded companies likes Nofoos, Minbetna, Optimizer, and others in Egypt.
(Full disclosure, I own small percent of Shekra and sit on the board of advisors. We have embedded Shekra onto Zilzar platform, but it has not received approval from Malaysia’s Securities Commission to do business as of yet.)
There are regulatory issues that need to be addressed to protect the interest of the small investors, but best in class regulations from the west exist and can be customised and adopted.
Thus, equity crowd FUNDING presents an interesting opportunity in the Muslim world to (1) provide risk taking capital (2) to young entrepreneurs for (3) building prototypes on ideas or finish building prototypes.
It may be just be the spark to bypass the non-cooperative banking sector, expand stakeholders in the CAPITAL MARKETS and grow an equity culture, a vital element in building a knowledge base economy.
Mobile to mobile (M2M)
Is M2M the electronic version of Hawala?
According to Investopedia website:
“Hawaladars, or Hawala dealers, arrange money transfers that are often backed only by trust, family connections or regional relationships. Hawala originated in South Asia during ancient times, and is used throughout the world today, particularly in the Islamic community as an alternative means of conducting FUNDS transfers. Hawala is frequently referred to as underground banking, which is a misnomer because Hawala services often operate openly and legitimately.”
According to the Thomson Reuters/Dinarstandard study on the Islamic economy, as of 2012, Muslims had 1.3 billion mobile phones or 21% of total, hence, massive opportunity for FINANCIAL inclusion via mobile phones.
For example, from the Economist magazine, Why does Kenya lead the world in mobile money? May 27, 2013:
“Paying for a taxi ride using your mobile phone is easier in Nairobi than it is in New York, thanks to Kenya’s world-leading mobile-money system, M-Pesa.
“Launched in 2007 by Safaricom, the country’s largest mobile-network operator, it is now used by over 17 million Kenyans, equivalent to more than two-thirds of the adult population; around 25% of the country’s gross national product flows through it. M-Pesa lets people transfer CASH using their phones, and is by far the most successful scheme of its type on earth.
“M-Pesa has since been extended to offer loans and SAVINGS products, and can also be used to disburse salaries or pay bills… One study found that in rural Kenyan households that adopted M-Pesa, incomes increased by 5-30%. In addition, the availability of a reliable mobile-payments platform has spawned a host of start-ups in Nairobi, whose business models build on M-Pesa’s foundations…’
M2M has been adopted by a number of Muslim countries, like Afghanistan, but there are a number of challenges, including MONEY laundering.
I would take it one step further, we have yet to see an Islamic payment gateway for e-commerce TRANSACTIONS for, say, halal products, hence, a major opportunity exists. The user would like to have an end-to-end halal solution.
Lessons from Etsy
From Linkedin influencer Bernard Marr:
“Etsy – the online marketplace which connects sellers of handmade goods and traditional craft products with buyers from around the world…
Over the past decade it has risen to become a leader in the market for peer-to-peer TRADING, enabling small-scale manufacturers and retailers make millions of sales each month.”
Now, imagine customer-to-customer (C2C) getting FINANCING via P2P or equity crowd funding and getting paid by M2M transfers. We are trying to do “etsy” with our Made in Penang and Made in Mindanao Powered By Zilzar campaign.
Conclusion
Financial inclusion is the tide that lifts all boats because of the network effect. Islamic FINANCE has yet been able to bring about financial inclusion to the Muslim masses.
A solution for inclusion is access to markets combined with innovative FINANCE, trusted platform, and technology.
What are you doing for inclusion for the masses? – July 7, 2015.
– See more at:
http://www.themalaysianinsider.com/opinion/rushdi-siddiqui/article/from-islamic-finance-to-muslim-lifestyle#sthash.XzK3IkOO.dpuf
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July 6, 2015
DR. ZULKIFLI HASAN
Russia looks to replace Western loans with Islamic finance
Russia looks to replace Western loans with Islamic finance
June 18, 2015 Alexei Lossan, RBTH

Available at:
http://rbth.com/business/2015/06/18/russia_looks_to_replace_western_loans_with_islamic_finance_46993.html
Islamic FINANCE will help Russian companies make up for their credit shortage, which was in large part caused by the cooling of relations between Russia and the West. Russian banks are already showing interest in this alternative form of credit.
Islamic FINANCE could provide short-term relief to Russian companies.
Islamic finance could help Russian companies hit by Western sanctions to gain ACCESS to credit, Rustam Minnikhanov, President of the predominantly Muslim-populated Russian republic of Tatarstan, said at the Kazan Summit Forum.

“Muslim countries did not join attempts to isolate our country on the international arena, and the latest events in the world economy have shown that Islamic BANKS help counter world crises and supplement the world financial system,” Minnikhanov said. He added that this Islamic finance could not completely substitute Western credit, but instead could provide Russian companies with an important financial instrument. According to IMF’s latest calculations, by the end of 2015 the volume of Islamic finance around the world will amount to $3.4 trillion.
An alternative scheme
“Against the backdrop of world crises, the importance of Islamic finance only increases, because all the operations in this scheme are backed up by real money, while INVESTMENTS become secure and do not carry any risks,” said Qatar’s Undersecretary of Economy and Commerce Sultan Al-Khater.  According to the requirements of Islamic banking, it is prohibited to charge interest while lending, while receiving credit essentially implies exchanging one commodity for another.

 Ahmad Mohamed Ali Al-Madani, President of the Islamic Development Bank, said, “Islamic finance is by nature tied to real economic activity, which is why such a scheme allows the optimization of the internal resources.” He added, “The concept of dividing risk in Islamic banking stimulates healthy financial practices. In Islamic finance, the transactions are tied to real INVESTMENTS, which helps avoid speculation and the instability related to it.”

Al-Madani suggested that Tatarstan could be promoted as “an Islamic finance hub in Russia.”
Russian banks open to Islamic finance
According to Rustam Minnikhanov, Russian banks, including the country’s largest bank Sberbank, are currently showing an interest in Islamic FINANCE.  One of the advocates of the development of Islamic BANKING in Russia is the head of Sberbank, former Russian Minister of Economic Development, German Gref.

“There are still problems with taxation and the lack of qualified personnel, but with the help of our colleagues in the Russian government, we will be able to make this PROCESS more dynamic,” Minnikhanov said. One example is Tatarstan’s largest bank, AK Bark, which has already attracted financing in accordance with Sharia regulations.

In January 2015, the local Alliance Insurance Company started selling an Islamic insurance product called Khalal INVEST.

Minnikhanov also told RBTH that the development of Islamic banking in Russia should be done on a federal level and that there is no talk of creating a unique financial zone in Tatarstan. “Today the KazanSummit is a platform that must change the attitude that Russians and Russian regions have towards Islamic finance, and this is our mission,” he said.

Elvira Nabiullina, Chairwoman of the Central Bank of Russia, met Ahmad Mohamed Ali Al-Madani this week.
Regards

Zulkifli Hasan
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