BLOG OF KNOWLEDGE (Shari'ah, Law, Islamic Finance and Muslim News)
Shari'ah, Law, Islamic Finance and Muslim News
May 12, 2013
DR. ZULKIFLI HASAN
Islamic finance: Attractive for non-Muslims?
Islamic finance: Attractive for non-Muslims?
Available at:
http://www.zawya.com/story/Islamic_finance_attractive_for_nonMuslims-ZAWYA20130512065501/
Would a non-Muslim do better to back ethical rather than Islamic funds? Prof Dr. Volker Nienhaus, Adjunct Professor at INCEIF, explores the fascinating issue.
It is often claimed that Islamic finance is not only for Muslims. This has two meanings: (1) Islamic financial institutions will not turn away non‐Muslim customers, and (2) non‐Muslims can provide Islamic financial services. In practice, one can find examples in both directions.
The large number of non‐Muslim participants in Takaful schemes in Malaysia is an often-quoted example for the first and the asset management for Shari’ah-compliant funds an example for the second direction. But the message that Islamic finance is also for non‐Muslims is often much more ambitious, namely that the market potential of Islamic finance is far greater than just the population of Muslim countries and Muslim minorities in non‐Muslim countries.
If Islamic finance is for all, the whole world is the potential market for Islamic finance, and growth could be virtually unlimited. This, however, implies that Islamic finance has to offer the world something that is superior (or at least not inferior) to what it already has. It is by no means self‐evident what that could be: Shari’ah compliance as the constitutive element of Islamic finance is in itself rather irrelevant for non‐Muslims. It could be macro‐systemic or micro‐commercial or ethical implications of the observance of Islamic law which make it appealing to non‐Muslims.

THE SUPPLY SIDE
For suppliers of Shari’ah-compliant financial services and infrastructure services (such as indexes, tax consultancy, asset management, stock screening, IT support, executive training, legal advice, rating services) Islamic finance obviously was an attractive option. Since most of the Shari’ah-compliant instruments are functional equivalents of conventional products, the necessary adjustments to serve Muslim clients was technically not too complicated for conventional financial institutions.

Once they had learned the Shari’ah restrictions, conventional institutions tapped into an initially highly liquid and not too competitive market with good margins. They did this via Islamic subsidiaries, windows or special products for selected clients. Later the structuring and issuing of Sukuk were added to the service portfolio. The major challenges of banking, capital market and insurance (Takaful) products lay in taxation and in the structuring of contracts in such a way that they satisfy Shari’ah criteria and are enforceable under the law of the land. This became a very lucrative business for western tax consultants and (in particular British) law firms.
DEMAND SIDE
While it is mainly the profit motive on the supply side, it is far less obvious what might bring customers to Islamic financial institutions. There may be similar financial incentives that motivate western corporate clients to acquaint themselves with Islamic modes of financing: The oversubscription of most Sukuk indicates a high demand which, in turn, could translate into lower financing costs compared to conventional bonds (or even equity‐type instruments).
But what has Islamic finance to offer to the retail client? One argument is that the general observance of Islamic finance principles would create a more stable, efficient and just financial system. For a while it seemed that nearly everybody – politicians, businessmen and ‘ordinary people’ – was searching for a better alternative to the crashed “capital market capitalism”. It is debatable whether Islamic finance would really be a superior alternative – at least as long as it is predominantly a replication of conventional techniques and Shari’ah engineers structure prototypes even of those complex derivatives that were held responsible for the collapse of the conventional system.
But even if one would accept the arguments of the proponents of a superior “true” Islamic financial system, one has to realise that the enthusiasm for a fundamental reform of the financial system has evaporated. Fundamental alternatives such as narrow banking or limited purpose banking were on the radar screen of politicians and central bankers only for a (very) short while (and were received with much scepticism in general and strong criticism by lobbyists of the old system in particular).
Basel III (or ‘Basel II+’ as some commentators have called it) is definitely not a fundamental reform, and Wall Street is today occupied not by protesters but again by bankers and brokers. The persistently high unemployment and fiscal austerity measures are now on the top of protest agendas in many countries.
So if it is not ‘systemic superiority’ that will attract non‐Muslims, then there must be something in Islamic finance that the customers see as individual benefit for themselves. This “something” could be the pricing of Islamic products or their quality.
PRODUCT PRICING
The pricing of Islamic savings products (unrestricted investment accounts usually based on Mudarabah contracts) seems to be very much in line with competing conventional products, i.e. the rate of interest for savings or term deposits. But this implies that investment account holders do not get a compensation for the risk they have to take due to the profit and loss sharing character of the underlying contract.
But even if one ignores this risk, savings products do not look particularly attractive for non‐Muslim investors who can get the same return without the risk of the underlying contract. The practice of participatory contracts is such that not only downside risks are factually eliminated or ignored, but also upside chances for fund providers are curtailed in favour of the managers of funds. This is achieved, for example, by regular adjustments of profit sharing ratios (at the discretion of the bank) or by “incentive fees” by which all profits above a benchmark rate are skimmed off by the manager of the funds (which could be the bank in the case of investment accounts or the issuer of Musharaka Sukuk who runs the business).
Such practices have factually turned nearly all Islamic savings and investment products into fixed income instruments (usually benchmarked against LIBOR or a national alternative from the conventional sector), and the participatory character of the original Islamic contracts are lost.
The pricing of Islamic financing products is also more or less in line with conventional alternatives (as are required collateral). This is an achievement in view of the higher complexity of contractual and transactional arrangements (in particular in corporate finance) and of the additional costs of Islamic banks for securing the Shari’ah compliance of products and processes. However, during the last crisis customers of Islamic banks had to realise painfully that the complexity and implied rigidity of sales contracts used for financing purposes could drive the prices of long‐term Islamic financing (in particular home financing) to excessive levels.
An Islamic bank re‐sells assets (e.g. a house) to the client at a price that is determined by the amount to be financed today (the ‘loan’ amount) and the cumulated financing mark‐ups (the cumulated “interest” payments) for the full contracted financing period (e.g. 10 years). This sales price has to be paid in instalments over the whole financing period.
If a client wants to terminate the financing prematurely, say after two years, the bank can claim the repayment of the initial amount and mark‐ups for two years plus a penalty for early termination, as it would in a conventional interest‐bearing loan contract. The sale contract entitles the bank to claim the full sales price which includes mark‐ups for periods in which the financing is no longer provided. Such claims were actually made by Islamic banks, and it was only by the interventions of courts and central banks that clients were protected against such claims which were deemed unfair and

factually usurious.
With such experiences, non‐Muslims who can opt for a conventional loan may not be too enthusiastic over Islamic modes of long‐term financing, even if the initial pricing looks competitive.
PRODUCT QUALITY
If it is not the pricing, then the product quality is left. In what respects could Islamic finance products be superior to conventional products? As long as Islamic finance products are intentionally structured as replications of conventional ones, and as long as even those genuine products such as Musharaka Sukuk which could have a unique risk/return profile are transformed into fixed income instruments, the difference in quality cannot be found in the product structures (ignoring the Shari’ah compliance, higher complexity and legal risks).
If Shari’ah compliance does not alter the economic characteristics such as the (commercial) risk/return profile, non‐Muslim will not look for qualitative differences in the instruments as such but in the types of transactions and businesses for which the instruments are applied. Here proponents of Islamic finance often underline the ethical qualities of Islamic banking and capital market products.
One argument is that Islamic finance is more just and fair than conventional finance because providers and users of funds share returns and risks or profits and losses. It is considered unjust in conventional finance that the entrepreneurial partner bears all the financial risks while the provider of funds receives a risk free income. This violates the basic principle that rewards (from financing) are justified only if they are combined with risk. There are two problems with this position.
The minor problem is that there is no ultimately risk‐free income for financiers in conventional finance – companies and governments can go bankrupt, thus there is always a credit risk. The major problem is that participatory finance (i.e. the sharing of returns and risks or profits and losses) does factually not take place in Islamic finance (except contractually but not factually in the ‘deposit business’ of Islamic banks).
FAIR FINANCE
The other argument is that Islamic financial institutions observe ethical principles in their financing and investment decisions. No funds for Haram activities – this is taken seriously in Islamic finance, at least in principle. But is that enough to attract non‐Muslims?
A minor problem is that Shari’ah boards in some jurisdiction have allowed “tolerance criteria” for investments in Haram activities, provided the Haram business is relatively small and a kind of byproduct of a basically permissible business (such as running an airline and serving or selling alcohol

on board).
However, such tolerance criteria can become tricky if they are too lax: suppose the tolerance level were set at 10 per cent of the turnover of a company. A company that generates 50 per cent of its turnover [e.g. $50 million of a total of $100 million] from the production of tobacco or alcohol or weapons could not be financed in a Shari’ah-compliant manner.
But if this company is absorbed by another company of (at least) four times its size (i.e. a total turnover of $400 million) and so far zero prohibited business, the new larger company (with a total turnover 100 + 400 = $500 million) would generate only 10 per cent of its turnover from prohibited business. As a result, exactly the same business that was clearly Haram in the first instance can now be financed in a Shari’ah-compliant manner.
A major problem is that the avoidance of a rather limited list of Haram businesses is not “much ethics” for those who should be attracted to Islamic finance because of its ethical dimension. First, the “old style prudent banker” (who is still alive in many places) would also shy away from the financing of many of the haram businesses. But more important: individual savers who look for ethical savings products or institutional investors who want to add responsible investments to their portfolios can find already a much wider and more sophisticated choice of products in the non‐Islamic investment universe.
ETHICAL INVESTING
The avoidance of investments in “sin stocks” (shares of companies with businesses similar to those prohibited in Islam) and the observance of ethical criteria in faith‐based banking finance have a long tradition dating back to the 19th century. But after business scandals in the 1990s and a strong growth of ecological movements in many western countries, ethics, social responsibility and sustainability ranked high on the agenda of international organisations such as the OECD and the UN system and gained considerable attention from financial institutions and asset managers.
The now widely used term for the consideration of environmental, social and governance (ESG) criteria in investment decisions is “responsible investing”. This generic term comprises a wide range of different approaches and strategies which are summarised by the European Sustainable Investment Forum as follows:
Sustainability themed investments are investments in themes or assets linked to the development of sustainability with a focus on specific or multiple issues related to ESG.

Best‐in‐Class investment selection is an approach where leading or best‐performing investments within a universe, category, or class are selected or weighted based on ESG criteria.

Norms‐based screening is based on the screening of investments according to their compliance with international standards and norms, in particular those of the OECD and the UN system (including Global Compact, ILO, UNICEF, UNHRC).

Exclusion of holdings from the investment universe means that specific investments or classes of investment are excluded from the investible universe such as companies, sectors, or countries engaged in weapons, pornography, tobacco and animal testing; this approach is also referred to as ethical‐ or values‐based exclusions.

Integration of ESG factors in financial analysis is the explicit inclusion of ESG risks and opportunities by asset managers into a traditional financial analysis and investment decisions based on a systematic process and appropriate research sources.

Engagement and voting on sustainability matters is the active use of ownership rights through voting of shares and engagement with companies on ESG matters in order to improve their ESG performance; it is a long‐term process, seeking to influence behaviour or increase disclosure.

Impact investments are investments made into companies, organisations and funds with the intention to generate social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below market to market rate, depending upon the circumstances.

The responsible investment business is supported by a sophisticated infrastructure, including data and index providers, screening consultants, legal advisors, marketing companies, specialised asset managers, industry associations and lobby groups. Although the volume growth of the RI industry is mainly driven by an increasing engagement of institutional investors (especially pension funds), retail clients can find customisable and interactive web‐based screenings of responsible investment funds and tests of their performance.
The volume of responsible investments exceeds by far the global assets of the Islamic finance industry (estimated at $1.3 trillion by 2011): the volume of assets under management (AuM) in responsible investment funds in Europe alone is estimated at EUR 6.8 trillion by 2011 [Eurosif: European SRI Study 2012] which is half of the total European asset management industry (and the AuM of the European asset management industry accounts for approximately 33 per cent of the global AuM).
Obviously, there is a huge market for investments with a ‘responsible’ dimension, and Islamic finance structures fit well into this scheme as an exclusion strategy. But to capture a wider share of this market, Islamic finance has to make considerable progress.
Similarities in the structure (form) of processes in Shariah-compliant and responsible investing cannot hide the fact that there are fundamental differences in substance. Conventional and Islamic institutions apply an “exclusion” filter on the first‐level of their screening process and exclude prohibited (haram) businesses. Islamic fund managers have to limit the investment universe further by filtering out companies with an unacceptable level of interest‐based assets and liabilities.
Such financial ratios are not a major concern for conventional responsible investors. What is a major concern is how the actual investment objects are chosen from those which passed the exclusion filter(s). Here lies the major difference: while Islamic financial institutions (like ‘non-responsible’ conventional institutions and responsible funds that apply only an exclusion strategy) decide on the basis of financial performance criteria, the majority of responsible investment funds (which combine exclusion with other strategies) take additional non‐financial criteria such as the ESG performance into account. This is where the attraction lies for individual and institutional investors (such as Western pension funds) who are looking for responsible investment opportunities.
MORE INCLUSION, NOT EXCLUSION
For the time being, Islamic finance has not much to offer in this area: The exclusion strategy alone is probably not the most appealing one of all responsible investing strategies. Given the widespread poverty in the majority of Muslim countries, themed investments with high relevance for poverty alleviation (e.g. sanitation, healthcare or renewable energy related themes) and impact investment strategies could make substantial contributions. Western funds have shown that such strategies can yield a satisfactory return on investment.
Unfortunately, Islamic funds or financial institutions with such profiles are extremely difficult to find. If they do exist, they are virtually invisible for non‐Muslims.
While even universal banks with a strong investment banking arm rediscover the retail client and acquire deposit collecting institutions (such as Deutsche Bank who bought the German Postal Bank), Islamic retail business is scaled down – most visible by the closure of HSBC Amanah in the UK. This could be seen as an early warning sign.
Given meagre market shares of 10 per cent or less of total bank deposits from the general public even in many Muslim countries where Islamic finance is operating since two decades or (much) more, it becomes apparent that Islamic finance as it is practiced today is not so well received by the average Muslim. Thus it may be a good idea not only to look for non‐Muslim clients, but also to target the 90 per cent or more of Muslims who still prefer conventional finance.
Maybe they have similar problems as non‐Muslims have to appreciate a difference in substance that could compensate for increased contractual complexity and legal risks without higher returns or superior product qualities. The responsible investing movement is a great opportunity for Islamic finance, but also a great challenge at the same time.
Regards

Zulkifli Hasan
Hospital Raja Perempuan Zainab II, Kota Bharu
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2 thoughts on “Islamic finance: Attractive for non-Muslims?”
rabeah says:
May 17, 2013 at 3:29 pm

Assalamualaikum doctor,can you give some opinion on..’What are the biggest obstacles to develop Islamic Corporate Governance(theory and practice) in Malaysia and else where?tq.

Reply

asma
says:
May 28, 2016 at 8:38 am

assalamu alaikum doctor can you please provide more concise facts on how islamic finance and banking attracts on non muslim investors and companies?

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BLOG OF KNOWLEDGE (Shari'ah, Law, Islamic Finance and Muslim News)
Shari'ah, Law, Islamic Finance and Muslim News
August 2, 2014
DR. ZULKIFLI HASAN
KAPITALISME, PASARAN SENJATA DAN KRISIS
Kapitalisme, Pasaran Senjata dan Krisis
Zulkifli Hasan
Pendahuluan
Tatkala Gaza dihujani bom dan peluru, Amerika dilaporkan terus menyalurkan bantuan kewangan dan senjata kepada Israel. Ahli Kongres Amerika memberikan lampu hijau dan menyatakan sokongan penuh kepada rejim zionis. Dilaporkan juga bahawa Rusia dan China telah menggunakan kuasa veto untuk membatalkan resolusi Majlis Keselamatan Pertubuhan Bangsa-Bangsa Bersatu (PBB) yang menyokong pelan Liga Arab untuk mendesak Presiden Syria Bashar Al Assad supaya berundur dan mengutuk keganasan kezaliman yang berlaku. Hingga kini dilaporkan ribuan rakyat Gaza dan Syria telah terkorban dan tercedera. Ramai yang tertanya-tanya mengapa dan kenapa negara-negara ini berbuat demikian. Sudah pasti mereka mempunyai sebab dan justifikasi terhadap tindakan mereka ini. Rusia merupakan pembekal senjata dan rakan dagang utama Syria dalam membekalkan pelbagai jenis senjata kepada rejim Al Assad. Begitu juga di Bahrain, dalam keghairahan media barat mengutuk Iran untuk membangunkan tenaga nuklearnya, Amerika dalam masa yang sama telah membekalkan senjata yang besar jumlahnya kepada Bahrain. Amerika juga pastinya sekutu utama Israel menyalurkan peralatan senjata termodennya dan akan berbuat apa sahaja untuk mengiyakan segala kejahatan rejim zionis. Lihat saja kelengkapan ‘Iron Dome’ Israel yang dibiayai oleh Amerika dengan belanja melebihi USD225 juta. Amerika secara konsisten menjadi penyumbang utama ekonomi dan persenjataan Israel dan ini diketahui dunia.
Krisis merupakan perkara yang sinonim dengan kapitalisme. Bahkan, kapitalisme memerlukan krisis untuk ‘survive’ atau untuk terus relevan. Tanpa krisis, kapitalisme akan runtuh dan tidak akan berfungsi. Itulah antara faktor mengapa berlakunya kitaran krisis ekonomi, krisis kewangan, krisis peperangan dan pelbagai krisis yang lain pada hari ini. Mengetahui perkara inilah, golongan pemodal akan memastikan krisis itu dicipta dan direncanakan secara strategik demi mengaut keuntungan melaluinya. Begitu juga apa yang berlaku pada hari ini khususnya di Timur Tengah. Dengan sumber kekayaan yang melimpah melalui hasil minyak yang menjadi rebutan dunia, golongan pemodal pastinya telah merencanakan pelbagai krisis dan ancaman yang membolehkan produk senjata mereka dilanggani tanpa had. Dalam erti kata lain, golongan pemodal ini mencipta “PASARAN’ melalui krisis dan peperangan.
Dunia telah menyaksikan bahawa abad ke 20 merupakan abad yang paling kejam dalam sejarah manusia dengan dua peperangan dunia, diikuti lebih 30 tahun perlumbaan senjata, perang teluk, perang Afghanistan, Perang Vietnam, Perang Iran-Iraq termasuk konflik dalaman, revolusi dan sebagainya. Program Penyelidikan Keamanan, Cornell Universiti di Amerika telah menganggarkan bahawa seramai 231 juta manusia telah terkorban melalui peperangan dan konflik sepanjang abad ke 20. Di antara faktor utama sejarah tragis manusia ini adalah kesan daripada perdagangan senjata. Perdagangan senjata yang sering kali dilihat sebagai langkah memperkuatkan sistem pertahanan dan perbelanjaan persenjataan atas dasar keselamatan sebenarnya hanya mencetuskan konflik dan pertumpahan darah. Dalam erti kata lain, peperangan telah dicipta bukan hanya kerana ideologi tetapi juga berfaktorkan keuntungan.
Melihat kepada signifikannya isu perdagangan senjata dan agenda para kapitalis pengeluar senjata, artikel ini cuba menelusuri dan meninjau realiti perdagangan senjata termasuk menampilkan aktor-aktor pengeluar senjata dan pelanggan tetap kepada saudagar senjata ini di seluruh dunia. Di samping itu, penulis juga berkongsi sedikit maklumat berkenaan dengan institusi dan badan yang aktif dan komited mengawal dan memantau perdagangan senjata dan juga entiti yang secara komperehensif merekod dan menyimpan data serta statistik perdagangan senjata di seluruh dunia.
Kenali Pengeluar dan Pelanggan Senjata
Adalah tidak mengejutkan bahawa, Amerika merupakan peneraju perdagangan senjata diikuti oleh Rusia, Britain dan Perancis. Maklumat mengenai Perdagangan Senjata dunia boleh diperolehi menerusi Stockholm International Peace Research Institute (SIPRI) sebuah badan bebas antarabangsa berpengkalan di Sweden yang mengkhusus kepada penyelidikan mengenai perdagangan senjata yang memantau dan mempunyai pengkalan data yang komprehensif mengenai perdagangan senjata dunia. Menurut SIPRI, direkodkan bahawa antara 1996-2000 perdagangan senjata dunia dipelopori oleh Amerika, Russia, Perancis yang mewakili 30%, diikuti oleh Britain dan Jerman, 20% dan Belanda, Ukraine, Italy, China, Belarus, Sepanyol dan Israel, 15%. Apa yang menarik dan dalam masa yang sama agak mengejutkan ialah negara-negara pengeluar senjata ini merupakan ahli tetap Majlis Keselamatan PBB iaitu mewakili 85% perdagangan senjata dunia. Sudah pasti fakta ini menimbulkan persoalan mengenai keberkesanan dan keadilan dalam Majlis Keselamatan PBB.
Dari aspek pengeluar senjata, terdapat tujuh syarikat utama pengeluar senjata di dunia iaitu Lockheed Martin (Amerika) BAE Systems (Britain), Boeing (Amerika), Raytheon (US), General Dynamics (Amerika), Thomson-CSF (Perancis). Syarikat-syarikat ini secara aktif mempromosi dan membekalkan senjata di seluruh dunia. Terdapat juga individu pengusaha dan pembekal senjata yang beroperasi membekalkan senjata secara penyeludupan. Victor Bout seorang ikon saudagar senjata dunia yang telah membekalkan pelbagai jenis senjata di serata dunia akhirnya telah ditangkap di Thailand dan diekstradisi ke Amerika. Di antara 2005-2009, direkodkan bahawa negara utama pengguna dan yang melanggan senjata ialah Taiwan, Arab Saudi, Turki, Korea Selatan, India, Mesir, Israel, Pakistan, Kuwait, Malaysia, Greece, Singapura dan Algeria. Menurut ‘Congressional Research Service’, institusi yang menjalankan penyelidikan untuk kongres Amerika, nilai perdagangan senjata antarabangsa bagi 2010 sahaja telah mencecah USD35 bilion.
Selain daripada senjata berat, isu perdagangan senjata kecil juga perlu diambil perhatian kerana ianya juga sangat mempengaruhi dan kerap kali kematian diakibatkan oleh senjata sebegini. Panel Pakar PBB mengkategorikan senjata kecil ini kepada senjata yang digunakan oleh pihak polis dan tentera seperti pistol, rifel, bom tangan, mortar, gas pemedih mata dan lain-lain. Senjata kecil ini pada dasarnya bertujuan untuk menjaga ketenteraman awam dan memelihara keamanan. Namun demikian, dunia menyaksikan senjata ini akhirnya sering kali digunakan oleh pihak berkuasa menindas dan menzalimi orang awam. Pengeluar utama senjata seumpama ini ialah China, Russia dan Amerika. Kajian yang dibuat oleh ‘Graduate Institute of International Studies’ di Geneva menganggarkan bahawa sekurang-kuranya 550 juta pistol dan senjata seumpamanya yang terdapat di dunia iaitu mewakili satu senjata bagi setiap 11 penduduk dunia. ’Small Arms Survey’ yang dijalankan oleh institusi ini pula melaporkan bahawa nilai perdagangan senjata kecil ini adalah melebihi USD7 bilion setahun. Ironinya ialah sebanyak USD2.4 bilion telah diperuntukkan pada 2010 untuk pembelian senjata kecil ini seperti gas pemedih mata, kereta perisai dan senjata lain telah dijual kepada Negara yang mengalami krisis dan konflik seperti Bahrain, Mesir, Libya, Syria dan Yaman. Ini menunjukkan bahawa oleh kerana tiadanya undang-undang antarabangsa pengawalan perdagangan senjata yang boleh menghalang penjualan senjata kepada negara-negara yang secara jelas melanggar hak asasi manusia telah mengakibatkan krisis dan konflik yang berterusan di negara-negara berkenaan.
Industri Senjata dan Implikasinya
Persepsi yang selalu menjadi tanggapan umum terhadap persenjataan ialah senjata adalah untuk keselamatan. Bagi negara pengeluar senjata, industri ini dapat menjana ekonomi dan memberi hasil kepada negara termasuk mencipta peluang pekerjaan. Tetapi tahukah anda bahawa sekitar 2,000 orang mati setiap hari akibat dari perdagangan senjata ini. Industri pembuatan senjata juga tidak banyak menyumbang kepada ekonomi dan sebenarnya tidak menjana peluang pekerjaan yang signifikan. Ini memandangkan industri senjata ini dikategorikan sebagai industri berteknologi tinggi dan tidak memerlukan pekerja yang ramai. Sekiranya dibandingkan antara maslahah dan mafsadah industri ini, didapati terlalu banyak implikasi negatif secara langsung atau tidak langsung melalui urusniaga perdagangan senjata ini.
Jika diteliti dan dianalisis secara telus, hakikatnya perdagangan senjata ini boleh memberikan implikasi yang sangat negatif dan amat berpotensi untuk mencetuskan konflik. Umpamanya pada 1998, terdapat 11 konflik senjata di Afrika. Bagaimana hal ini boleh berlaku? Di antara faktor utama konflik ini ialah pihak yang bermusuhan memiliki armada tentera dan persenjataan yang mencukupi. Dilaporkan antara 1989-1998, Amerika telah memperuntukkan USD227 juta untuk latihan ketenteraan dan senjata bagi tentera-tentera di beberapa negara di Afrika. Daripada jumlah ini sebanyak USD111 juta digunakan untuk peperangan yang berlaku di Democratic Republic of Congo, Angola, Burundi, Chad Namibia, Rwanda, Sudan, Uganda dan Zimbabwe.
Perdagangan senjata ini juga boleh mempengaruhi dasar dan peruntukan kewangan negara. Peruntukan perbelanjaan untuk persenjataan yang berlebihan akan menjejaskan agenda pembangunan sesebuah negara. Menurut Laporan Setiausaha Agung PBB kepada Majlis Keselamatan berkenaan dengan senjata kecil (S/2008/258) melaporkan bahawa perbelanjaan senjata terutamanya di negara dunia ketiga dan membangun menyebabkan kekayaan negara tidak dapat disalurkan kepada pembangunan sosial. PBB merekodkan bahawa lebih 1 bilion penduduk hidup di bawah paras kemiskinan iaitu pendapatan kurang daripada USD1 sehari sedangkan USD184 setahun diperuntukkan bagi perbelanjaan senjata bagi setiap individu di muka bumi ini. Amat malang kerana fenomena perbelanjaan persenjataan yang keterlaluan ini juga berlaku di negara membangun dan mengalami krisis kemanusiaan. ‘Global Fire Power’, sebuah laman sesawang yang mempunyai pengkalan data mengenai maklumat umum pertahanan negara di dunia, merekodkan tatkala Pakistan dan Mesir dilanda krisis pengangguran dan masalah ekonomi, kedua-dua negara ini telah memperuntukkan jumlah wang yang besar untuk ketenteraan dan masing-masing kini menduduki tangga ke 15 dan 16 dunia dari segi kekuatan angkatan tentera. Lebih mengejutkan lagi ialah daripada jumlah pasaran senjata dunia, 10 negara membangun yang mengalami masalah ekonomi dan kemanusiaan adalah mewakili 60% daripada jumlah pasaran senjata bagi tahun 2003-2010.
Perkembangan perbelanjaan senjata yang berlebihan untuk tujuan keselamatan juga mengakibatkan peruntukan yang sepatutnya disalurkan kepada sektor pembangunan dan kebajikan tidak dapat dimanfaatkan. Sebagai contoh, harga bagi 30 buat jet Sukhoi-30 MKI buatan Rusia ialah USD1.8 bilion. Peruntukan sebanyak ini sebenarnya boleh disalurkan untuk membiayai persekolahan rendah selama setahun bagi 20 juta kanak-kanak. Harga bagi 310 kereta kebal T-90S buatan Russia ialah USD600 juta dan sekiranya wang ini digunakan untuk tujuan kesihatan ianya boleh dibelanjakan untuk membiayai pembelian 200 juta ‘insecticide-treated nets; yang mampu mengurangkan kematian akibat malaria. Nilai bagi 6 buah kapal selam buatan Perancis ialah USD1.8 bilion. Peruntukan sebanyak ini mampu untuk membantu dalam proses rawatan 1.7 bilion kanak-kanak yang mengidap ‘debilitating intestinal worms’ selama 3 tahun. Harga bagi sepuluh jet pejuang Mirage-2000E buatan Perancis ialah USD325 juta. Dianggarkan wang ini cukup untuk membekalkan vitamin dan mineral yang diperlukan bagi 1 bilion orang selama 10 tahun. Peruntukan untuk membeli 66 Jet Pejuang Hawk fighter buatan Britain ialah USD1.7 bilion. Perbelanjaan ini hakikatnya mampu untuk membiayai ‘antiretroviral AIDS drugs’ bagi lebih 11 juta pesakit AIDS selama setahun. Fakta dan angka ini kadang-kadang amat menggerunkan kerana kita dapat menyaksikan betapa rakusnya manusia terhadap kuasa hingga sanggup mengenepikan keperluan yang lebih mendesak seperti kesihatan, pendidikan dan pembangunan sosio ekonomi masyarakat.
Di antara implikasi negatif yang sering juga terjadi berikutan kegiatan perdagangan senjata ialah meningkatnya indeks rasuah. Perdagangan senjata sering melibatkan pihak tengah, tidak telus, bersifat rahsia dan sangat berpotensi menyumbang ke arah amalan rasuah. Dilaporkan bahawa terdapat lebih 50% tuduhan rasuah melibatkan perdagangan senjata. Amalan industri perdagangan senjata yang tidak telus dan keghairahan pihak tertentu untuk memiliki senjata berteknologi tinggi dan terkini menyemarakkan lagi anasir rasuah yang akhirnya menelan perbelanjaan yang besar bagi bajet sesebuah Negara. Berdasarkan kepada faktor ini, seharusnya sesuatu perlu dilakukan bagi memantau industri senjata dan juga mewujudkan satu undang-undang antarabangsa untuk mengawal perdagangan senjata di dunia. Sekurang-kurangnya, undang-undang antarabangsa yang bersifat universal ini akan sedikit sebanyak dapat mengurangkan perdagangan senjata yang tidak bertanggungjawab dan beretika.
Advokasi Pengawalan Perdagangan Senjata
Pada hari ini, didapati tiada satu perjanjian yang bersifat global dan mengikat mengenai pengawalan perdagangan senjata. Gerakan dan aktivisme pengawalan perdagangan senjata ini secara rasminya bermula pada 1997 di New York hasil inisiatif sekumpulan Pemenang Nobel Perdamaian dan ‘International Physicians for the Prevention of Nuclear War’ (IPPNW) yang mengesyorkan untuk mewujudkan Kod Etika Perdagangan Senjata. Selepas kempen dan promosi oleh pelbagai badan bukan kerajaan dan masyarakat sivil antarabangsa, saranan ini kemudiannya diterima oleh PBB dalam resolusi 61/89 pada 18 Disember 2006.
Tarikh 30 Oktober 2009 menjadi detik sejarah apabila Perhimpunan Agung PBB dengan 151 undi akhirnya telah bersetuju mengguna pakai Resolusi A/Res/64/48 untuk menerima usul ke arah mewujudkan Perjanjian Pengawalan Perdagangan Senjata (Arms Trade Treaty). PBB juga bersetuju untuk meneruskan proses memperincikan Perjanjian ini dengan menganjurkan beberapa mesyuarat Jawatankuasa Pemandu pada 2010 dan 2011. Kini Perjanjian ini berada diperingkat akhir pengemaskinian dan PBB akan menganjurkan konferen khas pada Julai 2012 bagi menggubal Perjanjian atau Instrumen yang bakal mengikat semua negara sama ada pengeluar atau pengguna senjata mengenai undang-undang pengawalan perdagangan senjata.
Secara umumnya, Perjanjian Pengawalan Perdagangan Senjata ini bertujuan untuk menghentikan pertambahan perdagangan senjata, menghalang penyalahgunaan senjata dan menyediakan peruntukan undang-undang bagi mengawal perdagangan senjata. Perjanjian ini akan memastikan senjata tidak berpindah kepada pihak yang tidak bertanggungjawab. Di antara kandungan utama Perjanjian ini ialah sebarang perdagangan senjata adalah tidak dibenarkan sama sekali dan melanggar undang-undang antarabangsa sekiranya ianya melibatkan pihak-pihak yang boleh menjejaskan pembangunan sosial dan bertentangan dengan hak asasi manusia. Di antara mekanisme untuk merealisasikan matlamat ini, Perjanjian ini akan menyediakan garis panduan perdagangan senjata secara komprehensif yang perlu dipatuhi oleh semua pihak. Perjanjian senjata ini juga akan memastikan bahawa tiada perdagangan senjata yang melibatkan risiko kemanusiaan dan ini termasuk sekiranya perdagangan senjata tersebut bertentangan dengan hak asasi manusia antarabangsa, tergolong dalam jenayah kemanusiaan atau ‘genocide; potensi untuk menjana jenayah terancang dan boleh menjejaskan kedudukan ekonomi sosial dan pembangunan.
Setakat ini, gerakan ke arah penggubalan dan termeterainya Perjanjian ini hinggi kini dimainkan oleh badan bukan kerajaan terutamanya institusi keagamaan. Penulis berkesempatan menghadiri program seumpama ini dan telah berinteraksi dengan pimpinan agama dari seluruh dunia bersama-sama merancang gerakan dan strategi untuk mempromosikan aktivisme ke arah keamanan sejagat. Di Sweden, ‘Swedish Fellowship of Reconciliation’ (SWEFOR) dan ‘Church of Sweden’ sangat giat mengatur strategi dan program bagi memberikan kesedaran terhadap peri pentingnya isu pengawalan perdagangan senjata ini. Di Amerika, ‘Global Youth Network of Religions for Peace’ secara aktif terlibat dalam gerakan mempromosi Perjanjian Pengawalan Perdagangan Senjata ini dan menganjurkan pelbagai program berkaitan. Di Malaysia, Angkatan Belia Islam Malaysia telah menjalinkan kerjasama dengan pelbagai badan bukan kerajaan dari seluruh dunia dan merangka beberapa agenda gerakan bagi tujuan mempromosi inisiatif Pengawalan perdagangan Senjata ini. Di India, ‘Asian Muslim Action Network’ di antara organisasi yang serius mengatur program bagi tujuan yang sama. Satu Deklarasi menyokong Perjanjian Pengawalan Perdagangan Senjata ini juga telah ditandatangani oleh 40 pimpinan agama dan 70 institusi keagamaan dari seluruh dunia hasil inisiatif SWEFOR, ’Caritas France’, ‘CCFD-Terre Solidaire’ dan ‘Interfaith Working Group of the Control Arms Coalition’ pada 21 September 2011. Di peringkat Asia Pasifik, satu bengkel intensif telah dianjurkan pada 26-27 Januari di Bangkok dengan melibatkan perwakilan dari seluruh dunia untuk merangka gerak kerja seterusnya. Ini diikuti dengan konferen di Manila yang telah diadakan pada 11-13 Mac 2012. Usaha-usaha sebegini semakin giat dijalankan oleh masyarakat antarabangsa dan sehingga kini ianya mendapat sambutan yang amat baik di seluruh dunia.
Negara Islam Mangsa Kapitalisme
Mahu tidak mahu, umat Islam di dunia perlu mengakui bahawa negara-negara Islam merupakan di antara pelanggan dan pengguna terbesar senjata. Arab Saudi, Bahrain, UAE, Malaysia termasuk negara-negara miskin seperti Pakistan, Syria, Mesir dan Yaman merupakan negara yang berbelanja besar bagi maksud persenjataan. Kerap kali alasan yang sering diberikan atas pembelian senjata ini ialah atas faktor keselamatan. Ada juga yang memberikan justifikasi keselamatan dan ancaman Israel, konflik sempadan dan keperluan pertahanan negara.
Lihat saja situasi di Timur Tengah. Jane Defence Weekly melaporkan bahawa antara 2011-2013 sahaja, negara teluk seperti Arab Saudi, UAE,Qatar dan Oman telah memperuntukkan lebih USD300 billion untuk perbelanjaan senjata. Terkini Algeria juga telah membelanjakan lebih USD7 bilion ringgit untuk persenjataan dengan Rusia terkesan akibat berlakunya ‘Arab Uprising’ di negara Timur Tengah termasuk ancaman Mesir baru-baru ini. Lihat sahaja rejim al Sisi di Mesir yang tanpa peri kemanusiaan menggunakan senjata milik negara membunuh dan menzalimi rakyatnya bukan memerangi musuh. – negara teluk yang dibelenggu masalah kemunduran ilmu pengetahuan, sains dan teknologi dan sosial memperuntukkan sedemikian banyak untuk kelengkapan senjata berbanding pendidikan yang tidak sampai 0.5% daripada GDP berbanding negara maju seperti Jepun dan UK yang membelanjakan lebih 2.5% untuk pendidikan. Mungkin ini antara faktor mengapa Timur Tengah mundur dan dibelenggu konflik berterusan. Dari sudut ekonomi, direkodkan bahawa hampir separuh daripada 57 negara OIC diklasifikasikan sebagai ’Negara Berpendapatan Rendah’ dan ’Negara Miskin dan Tinggi Keberhutangan’. 70-85% umat Islam dikategorikan sebagai ’non-bankable’ dan 50% hidup di bawah garis kemiskinan serta 25% tiada akses pada kemudahan perubatan dan air bersih. Di Tunisia, lebih 40% kadar pengangguran dan lebih 25% dilaporkan sebagai miskin tegar manakala di Mesir, dengan 80 juta penduduk dan lebih 90% adalah Muslim, direkodkan hampir 50% penduduk adalah miskin dan kadar pengangguran juga mencecah lebih 13%.
Namun sekiranya dilihat dan diperhatikan, bahawa sebenarnya tidak terdapat keperluan yang menghambat untuk membeli persenjataan ini secara besar-besaran hingga mengabaikan tangungjawab yang lebih utama. Bahkan, apa yang berlaku ialah senjata-senjata ini kerap kali digunakan untuk hal ehwal dalaman malahan menzalimi rakyat dan orang awam. Umpamanya di Libya, Mesir dan Syria, pihak kerajaan telah menggunakan senjata yang dibeli bukan untuk tujuan keselamatan negara tetapi atas dasar ingin mempertahankan kuasa dan telah menelan ribuan nyawa rakyatnya sendiri. Oleh itu, alasan faktor keselamatan negara untuk berbelanja besar dalam pembelian senjata tidak boleh diterima secara bulat bahkan boleh dipertikaikan. Sebagai contoh, Amerika merupakan pengeksport utama senjata kepada Mesir termasuk memberikan dana ketenteraan dan persenjataan sebanyak USD1.3 bilion setahun. Manakala 10 negara pengeluar senjata telah membekalkan senjata kepada Libya semenjak 2005 hingga sekarang iaitu Belgium, France, Germany, Italy, Russia, Spain and the UK. India, Perancis, dan Rusia telah membekalkan bahan letupan dan pelbagai senjata lain ke Syria. Kesannya apa yang dapat dilihat ialah, tragedi kemanusiaan yang telah berlaku di mana kehilangan nyawa ribuan orang awam termasuk kanak-kanak dan wanita serta kerosakan infrastruktur awam yang hanya memburukkan lagi keadaan di negara-negara yang mengalami konflik dalaman ini.
Kesimpulan
Di antara prinsip utama yang sangat ditekankan oleh Islam ialah keadilan dan pro kepada keamanan. Ini bertepatan dengan firman Allah di dalam surah al Baqarah ayat 190 yang bermaksud: ”Dan perangilah kerana (menegakkan dan mempertahankan) ugama Allah akan orang-orang yang memerangi kamu, dan janganlah kamu menceroboh (dengan memulakan peperangan); kerana sesungguhnya Allah tidak suka kepada orang-orang yang menceroboh”. Bahkan dalam ayat yang lain, al Quran jelas menggariskan kepentingan memelihara keamanan dan memperjuangkan keadilan seperti firman Allah di dalam surah al Maidah ayat 32 yang bermaksud: ”Dengan sebab (kisah pembunuhan kejam) yang demikian itu kami tetapkan atas Bani Israil, bahawasanya sesiapa yang membunuh seorang manusia dengan tiada alasan yang membolehkan membunuh orang itu, atau (kerana) melakukan kerosakan di muka bumi, maka seolah-olah dia telah membunuh manusia semuanya; dan sesiapa yang menjaga keselamatan hidup seorang manusia, maka seolah-olah dia telah menjaga keselamatan hidup manusia semuanya. Dan demi sesungguhnya, telah datang kepada mereka Rasul-rasul kami dengan membawa keterangan yang cukup terang; kemudian, sesungguhnya kebanyakan dari mereka sesudah itu, sungguh-sungguh menjadi orang-orang yang melampaui batas (melakukan kerosakan) di muka bumi”. Nas-nas di atas jelas menunjukkan bahawa adalah menjadi keutamaan kepada umat Islam untuk menegakkan keadilan dan memelihara keamanan.
Fenomena krisis peperangan yang berlaku di dunia pada hari ini bukanlah terjadi secara semulajadi tetapi ia dicipta dan direncanakan secara strategik demi mengaut keuntungan. Golongan pemodal yang didominasi oleh negara pengeluar senjata merupakan aktor utama kepada konflik yang berlaku di seluruh dunia khususnya di Timur Tengah. Konflik di Iraq, di Libya, di Mesir, di Tunisia, di Algeria, Palestine dan lain-lain negara kesemuanya direncanakan oleh pihak berkepentingan secara halus. Musuh-musuh baru dan ancaman-ancaman dipropagandakan bagi memastikan negara kaya seperti di Teluk termasuk negara miskin seperti Mesir dan Syria terus melanggani senjata yang dikeluarkan oleh pengeluar senjata dunia. Malangnya, negara-negara Islam terus-terusan diperdayakan dan akhirnya mengabaikan aspek lain yang lebih utama seperti pendidikan dan pembangunan sains dan teknologi serta memajukan ekonominya.
Isu perdagangan senjata sama ada secara sah atau haram merupakan perkara yang perlu diberi perhatian oleh semua pihak. Di antara punca keganasan dan pembunuhan serta penindasan yang berlaku di seluruh dunia adalah berpunca daripada perdagangan senjata yang tidak beretika. Negara-negara kaya menjadi pengeluar senjata dan menikmati keuntungan yang berlipat ganda melalui penjualan senjata terutamanya kepada negara-negara membangun dan dunia ketiga. Hasil negara yang sepatutnya digunakan untuk tujuan pembangunan terpaksa digadaikan untuk tujuan pembelian senjata atas nama keselamatan. Bahkan dalam konteks negara-negara Islam, alasan ancaman Israel juga kerap kali menjadi justifikasi untuk berbelanja secara besar-besaran membeli kelengkapan senjata. Alasan ini sebenarnya kadang kala adalah bersifat delusi dan khayalan, pada hakikatnya dunia menyaksikan kerap kali senjata yang dibeli ini telah digunakan untuk menzalimi dan menindas rakyat sendiri seperti apa yang berlaku di Mesir, Libya dan Syria. Sudah sampai masanya, umat Islam untuk bangun dari dibuai mimpi ini.
Gerakan pro-keamanan dan mendesak adanya Perjanjian Perdagangan untuk mengawal perdagangan senjata ini perlu diberikan perhatian dan sokongan. Tindakan kerajaan Bolivia, Ecuador, Brazil, Chile,Peru, El Salvador untuk membatalkan semua perjanjian ketenteraan dan perdagangan dengan Israel sebagai protes kepada kezaliman rejim Zionis patut dijadikan contoh sebagai permulaan bermulanya aktivism membantah keganasan. Kesan daripada pemulauan secara berterusan terhadap rejim Apartheid di Afrika Selatan akhirnya meruntuhkan tembok diskriminasi berasaskan bangsa. Di samping itu, masyarakat antarabangsa juga perlu memastikan bahawa pelaksanaan undang-undang antarabangsa mengenai sebarang bentuk keganasan adalah berpaksikan kepada keadilan dan tidak bersifat partisan serta berpihak. Ianya harus terpakai kepada semua negara di dunia termasuk negara pengeluar senjata dan perhatian serius dan khusus sewajibnya diberikan kepada negara-negara yang kerap kali melanggar hak asasi manusia, mencetuskan konflik serta sering melancarkan keganasan seperti Israel yang secara terus terang tidak menghormati kehormatan Palestin.
Best Regards

ZULKIFLI HASAN
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BLOG OF KNOWLEDGE (Shari'ah, Law, Islamic Finance and Muslim News)
Shari'ah, Law, Islamic Finance and Muslim News
Monthly Archives: November 2008
November 24, 2008
DR. ZULKIFLI HASAN
My Story: Palestine Solidarity Campaign
Assalamualaikum,
Dear all,
While we are busy with our own affairs, it is important for us as a Muslim to locate our time to know what is happening around the world especially to the recent situation in Palestine. Last Thursday, I attended the Durham County Palestine Solidarity Campaign organised by the PSC at Town Hall, Durham City Market Place. The PSC is a human right movement in Durham which is actively promoting awareness amongst the public regarding with the issues of Palestine.
Palestinians in the Gaza Strip faced a sharply deteriorating humanitarian situation as Israel tightened its closure of the border crossings. No food, medicine, utilities or other vital supplies have been allowed into Gaza that is home to 1.5 million Muslims. An estimated 70 percent of the Gaza Strip has experienced lengthy power outages as Israel has cut off fuel supplies to Gaza’s power plant which is affecting seriously condition in the Gaza’s hospital.
This time, the PSC invited Yvonne Ridley a well known journalist as a special guest speaker who is also an eyewitness account of the Free Gaza Movement boats that in August this year broke the Israeli blockade. Furthermore, 2 Palestinian students, Mr. Iyad and Mr. Mahmoud also shared their experience and recent information on Palestine in which they concluded it as a sheer genocide of Palestinian by Israelis. Although, the International agencies and officials, including UN Secretary General Ban Ki-moon have condemned the  violation of international humanitarian law by Israel but there is no sign of relief as everybody knows that Israel does not respect the international law at all.
Let us pray to Allah the Almighty for our Muslims brothers in Palestine. Perhaps, we also could donate a certain sum of money for them by depositing into the interpal account at
https://www.interpal.org.uk/donate/donate.aspx/
. Interpal is a non-political, non-profit making British charity that works with international funding partners on the ground to provide relief and aid to Palestinians in need, mainly in the West Bank, Gaza Strip and the refugee camps in Lebanon and Jordan.
Best Regard

ZULKIFLI HASAN

DURHAM UNIVERSITY
With Yvonne Ridley and Mr. Mahmoud of Palestinien Student of Durham University.
Yvonne Ridley is a British-born, award-winning journalist and well known in the Muslim world for her outspoken views and defence of Islam. She reverted to Islam 30 months after making international headlines when she was captured by the Taliban in Afghanistan.
My Story
Palestine
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November 20, 2008
DR. ZULKIFLI HASAN
The very recent case of Arab-Malaysian Merchant Bank Bhd v Silver Concept Sdn Bhd [2008] 6 MLJ 295 and Launching of My New Web Page
Assalamualaikum,
Dear Readers,
I am very pleased to announced that I just created my new webpage at
https://zulkiflihasan.wordpress.com/my-case-report/
. This web page offers a range of cases report and cases commentaries regarding with the issues in Islamic finance. It is hoped that all my respected readers will benefit something from this informative webpage.
In the mean time, I would like to share the very recent case of Arab-Malaysian Merchant Bank Bhd v Silver Concept Sdn Bhd [2008] 6 MLJ 295 which was decided by the learned judge Dato’ Abdul Wahab Patail.
Click Here
Unlike in the earlier case of Arab Malaysian Finance Bhd V Taman Ihsan Jaya Sdn Bhd & Ors (Koperasi Seri Kota Bukit Cheraka Bhd, third party) [2008] 5 MLJ 631, the court held that that BBA facility in this case is a bona fide sale since there was a novation agreement which indicates that the bank is the legal purchaser and rightful owner of the properties and therefore rendered the transaction as a Shari’ah compliant facility. By the way, the court asserts that there must be a conscious effort in the form of novation agreement or any other valid instruments to make the transaction into a true and formal sale which is acceptable under the Shari’ah principles.
Happy Reading!

ZULKIFLI HASAN

DURHAM UNIVERSITY
The Empire State Building, New York
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November 18, 2008
DR. ZULKIFLI HASAN
Islamic Banking and Finance – Social Failure
Quoted from the New Horizon by Dr Mehmet Asutay
Introduction
The phenomenal growth of the Islamic banking and finance (IBF) industry has been remarkable since it came into existence just over thirty years ago. However, a closer reading of this positive development indicates that IBF does not necessarily share the aspirations or the foundational claims of Islamic moral economy (IME), an authentic value system for human-centred economic development and social justice. Despite its contribution in expanding the financial base in Muslim countries and overcoming financial exclusion through product diversification, IBF, in responding to the realities of the international financial system has converged towards the conventional notion of managing wealth, resulting in tensions with the foundational axioms upon which an Islamo-ethical financial system was intended to be built. In such transformation, the identity of IBF is reduced to the mere removal of riba and conducting financial activity in contractual norms derived from the Shari’ah. The result, therefore, has been the divergence between the aspirations of IME and IBF as an instrument of that system.
Philosophical sources of Islamic finance: utopia
IME, in its modern usage, came into existence in the early 1970s mainly as a critique of economic development strategies that ignored the importance of societal well-being. Therefore, it aimed at formulating a human-centric development strategy by providing the following foundational base through which financial and economic activity could be conducted:
* Tawhid (unity) indicates the vertical dimension of the Islamic ethical system in terms of equality in front of God;

    * Al-’adl wa’l-ihsan (justice and equilibrium) provides for the horizontal dimension of equity in terms of equality between individuals;

    * Ikhtiyar (free will), provides individual opportunities in the economic system to choose between various options;

    * Fard (responsibility) implies that individuals and society need to uphold the public good;

    * Rububiyyah indicates divine arrangements for nourishment, sustenance and directing things towards their perfection;

    * Tazkiyah calls for growth with purification to incorporate the good of the others and be conducted with ethical and moral considerations;

    * Khilafah indicating an individual’s role as God’s vicegerent on earth.
Within this framework, maqasid al-Shari’ah, or the objectives of Shari’ah, is interpreted to suggest that economic and financial activity must lead to ‘human well-being’. Being the institutional aspect of this IME, IBF institutions are expected to operate within this framework to produce a social and environmentally acceptable optimum.
From utopia to reality
In responding to this moral economy strategy, the initial experience of IBF in Egypt in late 1960s was structured as a socially-oriented institution, aimed to provide credit to peasants, small businesses, and workers to overcome financial exclusion and expand the ownership base of society. However, despite such a novel origin, with the internationalisation and unprecedented growth in their assets base and financing since 1980s, the lives of Muslim individuals have not been significantly affected by such development of IBF, as the social dimension is limited to zakat and other non-systematic charitable activities, which negates systematic economic development.
It might be useful, therefore, to compare the realities against the aspirational worldview by deconstructing the practices of IBF through values the practitioners attach to IBF against the foundational values mentioned above. Speaking at the Islamic Finance Seminar held in London last year, Iqbal Khan, a leading contributor to the development of the sector, suggested the following values among the aims of IBF:
* Profit-and-loss (PLS) sharing and risk- sharing is preferred alongside creating more value addition to the economy;

    * Community banking: serving communities, not markets;

    * Responsible finance, as it builds systematic checks on financial providers; and restrains consumer indebtedness; ethical investment, and corporate social responsibility (CSR) initiatives;

    * Alternative paradigm in terms of stability from linking financial services to the productive, real economy; and also it provides moral compass for capitalism;

    * Fulfils aspirations in the sense it widens ownership base of society, and offers ‘success with authenticity’.
It is clear that these values fit into the aspirational values of IME as well. A critical examination of these objectives, however, indicates that the reality is far from fulfilling these objectives.Regarding preference towards equity-based PLS and risk-sharing financing over debt financing, data analysis, for instance, in the Malaysian IBF case depicts that the percentage share of musharakah declined from 1.4 per cent in 2000 to 0.2 per cent in 2006, while major modes of Islamic financing remain to be bai bithaman ajil (sale of goods on a deferred payment basis; another term used for such sales is bai mu’ajjal) and ijara wa iqtina (leasing and subsequent purchase) with 55.9 per cent and 25.2 per cent respectively in 2006. In addition, from 1984 to 2006, murabaha constituted 88.1 per cent of the mode of financing for Bank Islam Malaysia Berhad, and 67.3 per cent for Dubai Islamic Bank, while mudarabah and musharakah was about 1.7 per cent and 9.3 per cent respectively.
Moreover, in relation to social lending, the percentage of qard hasan (an interest-free loan for welfare purposes/short-term funding requirements) is at a negligible level in IBF sector. Taking into account that IME aims for equity financing for creating value addition in economic activity, the change towards debt-financing is rather meaningful, which indicates that IBF institutions have deviated from the economic development and social welfare objectives of IME. Thus, the promise of Islamic finance in relation to its performance failed to be realised in providing socio-economic development for the larger parts of the Muslim world and communities.
Data analysis also shows that long-term financing is not the norm, as most of the financing focuses on projects with maturities lasting less than a year. In addition, while developmental financing necessitates financing sectors such as agriculture and manufacturing, the majority of IBF is related to retail or trade financing. For instance, after the initial years, Islamic banks in the Sudan moved away from financing agriculture and industry using PLS schemes. Furthermore, instead of investing in value-added economic activity in the Muslim countries, there has been a tendency to invest the funds abroad. As a result, the value addition of IBF to the local economy has further declined, and the contribution of IBF for economic development through real economy has been rather elusive.
Regarding the community banking objective, experience shows that IBF has done little to contribute to capacity building in the communities. On the contrary, IBF has aimed at becoming part of the international financial markets and, despite the social expectations, IBF claims that it is not a charity, and that firms have to work under difficult competitive conditions. Clearly, this indicates profit maximisation as the aim, which negates the importance of societal responsibility.
As regards to responsible finance, there is no universally accepted regulatory body that systematically checks Islamic financial providers. The initiatives by AAOIFI (Accounting and Auditing Organisation for Islamic Financial Institutions) in Bahrain and IFSB (Islamic Financial Services Board) in Malaysia remain weak and are not generally adopted. To evidence this, a recent study demonstrates that a large number of Saudi Islamic finance practitioners, accountants and auditors, are largely unaware of AAOIFI standards.
Pertaining to fulfilling aspirations, IBF has not positively affected social capacity building and contributed to widening ownership, which could have been possible through venture capital or PLS type of investments. However, as discussed previously, these do not seem to be preferred by IBF. As part of restraining consumer indebtedness, the data indicates that IBF institutions prefer to involve themselves in transactions, which are debt-financing oriented, as they are more profitable. Thus, this aim remains unfulfilled.
Concerning ethical investments, restraining the investment areas does not necessarily make IBF ethical. Rather, it only implies that IBF fulfils its legal expectations, as screening of Islamic investment is part of Shari’ah. However, considering that ethicality includes being pro-active in regards to IBF, there is little indication that the industry is entirely ethical. This, again, refers to the CSR, as recent studies on these initiatives of IBF demonstrate they have not pro-actively developed such an understanding. Their perceptions of CSR remain within the framework of zakat distribution and other non-systemic charitable activities rather than working towards capacity building for developing communities.
In terms of real economy consequences, the claim that IBF links financial services to the economy’s productive side is not convincing, since IBF does not exhibit macroeconomic consequences. Particularly so, when considering the most preferred financing is debt financing as opposed to equity financing. It is, therefore, difficult to argue that IBF is related to the real economy beyond financing the retail markets. In addition, further involvement of IBF sector in debt-like financing, including tawaruq products (sale of a commodity to the customer by a bank on deferred payment at cost plus profit), clearly undermines the ‘productive economic activity’ discourse in Islamic economics.
The realities of financial markets, which prioritise economic incentives rather than religious behavioural norms, has thus forced IBF to become part of the international financial system by adopting the commercial banking model. In that predicament, IBF is described as heterogeneous financial products deprived of their value system as expected by IME. Under such circumstances, it is difficult to argue that IBF acts as a moral compass for capitalism, either. On the contrary, recent studies show that IBF has much to learn from conventional finance in terms of ethical and CSR financing issues.
As to locating the principles governing IBF in the Quran, indeed it reveals the importance of authenticity. Yet, the characteristics of IBF do not necessarily reflect the Quranic economic meaning of authenticity or, for that matter, Shari’ah-based principles as formulated in the aspirational notions of IME. Instead, religion serves to provide justification for IBF’s current operations by claiming legitimacy in the form of ethicality and social responsibility as shaped by Islam.
Conclusion
The discussion so far should not be considered to undermine the progress of IBF, as its contribution in terms of bringing economic growth through expansion of the financial base in Islamic commercial banking is self-evidenced with the developments in the sector. Also, provision of alterative products in compliance with Shari’ah overcomes financial exclusion. However, against this ‘commercial’ nature, social aspects of IBF, in terms of economic development and as described in IME need to be addressed, which constitutes the gap between promised expectations and performance.
It can, therefore, be suggested that IBF has failed to internalise the social dimension and social justice into its own operational function, as the distinguishing characteristics of IBF has been reduced to a technicality in which the value system is referred to only in describing the Quranic prohibition of riba. As a consequence, a solution to overcome social failure requires new models of institutional developments beyond commercial IBF, by going back to the Islamic construction. In this new modelling or reorienting social banking, community banking, ethical and social investment, community development-oriented projects and microfinance have to be endogenised and addressed as objectives.
In reorienting towards social banking, Professor Mahmoud El-Gamal, a renowned contributor to academic discourse in the field, in his recent books states that ‘the “Islamic” in “Islamic finance” should relate to the social and economic ends of financial transactions, rather than the contract mechanics through which financial ends are achieved’.
The difficult state of economic affairs in the developing world requires such a transformation. In this effort, the evolutionary financial experience in the West can be taken as an example in developing Islamic community development banks and Islamic social banks alongside commercial IBF. Such an institutional solution aiming at correcting and moderating the social failure of IBF will contribute to the development of individual lives by focusing on societies’ micro-dynamics rather than affecting the financial equilibrium by extending financial involvement to embrace larger society in this economic dynamics. This fits into the new development paradigm, which has shifted focus from macroeconomic development to micro dynamics.
Thus, a move towards goals and policy rather than the mechanistic and legal structure of IBF will serve human well-being much better, as suggested by Professor Nejatullah Siddiqi, a leading scholar in the field. This will help to establish optimality between venal behaviour and sacrificial behaviour, and the choice between the two will be determined by the values of the participants in the sector and the interest of the larger environment. However, Islamic social and community banking can provide this balance, and the new brand in compliance with ethical religious norms of IME regarding economic and financial activity for achieving prosperity (falah) in this world and in hereafter through purification and perfection of individuals and institutions for growth and development, as tazkiyah suggests.
Best Regard

ZULKIFLI HASAN
Coventry University
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November 17, 2008
DR. ZULKIFLI HASAN
New Sukuk Regulation From IFSB
Quoted from New Horizon (
http://www.newhorizon-islamicbanking.com
)
The remarkable rise and subsequent sharp drop in sukuk (Islamic bond) sales have been the issue of many debates of late. The sales were doubling in volume year on year since 2004, but 2008 has witnessed a 50 per cent drop. The ongoing unrest in the financial markets worldwide has been blamed for this by some. However, the February ruling of Shaikh Muhammad Taqi Usmani, head of Shari’ah committee of the AAOIFI (Accounting and Auditing Organisation for Islamic Financial Institutions), was widely accepted as the main reason. Shaikh Usmani labelled a substantial number of sukuk non-compliant with Shari’ah and pointed out that many sukuk followed Shari’ah principles only in form, but not in substance.
Since then, a series of steps to rectify this discrepancy have been taken by AAOIFI and other international standard-setting organisations. The most recent prudential standards regarding sukuk have been issued by the IFSB (Islamic Financial Services Board). They focus on the capital adequacy requirements for sukuk securitisation and real estate investment, and will be published by the end of 2008. The regulation was approved by the IFSB Council during its 13th meeting, recently held in Dubai. It was chaired by H.E. Dr Shamshad Akhtar, governor of the State Bank of Pakistan (central bank and regulator) and chairperson of the Council, and attended by a number of high profile members, including the president of the Islamic Development Bank (IDB).
In addition to new sukuk guidelines, the Council also issued guiding principles of governance for Islamic collective investment schemes (also available by the year-end). Professor Rifaat Ahmed Abdel Karim, secretary general of the IFSB, stated that once these standards were implemented they would ‘enhance the soundness and stability of the Islamic financial services industry’. Meanwhile, the number of IFSB members continues to grow steadily, contributing to a pool of resources and expertise of current participants. Since the start of the year, the IFSB has welcomed about 40 new members, with the most recent additions being Arbah Capital (Saudi Arabia), Absa Bank Limited (South Africa), Al Hilal Bank (UAE) and Cagamas Berhad (Malaysia).
BEST REGARD

ZULKIFLI HASAN

DURHAM UNIVERSITY
The National Library of Wales.
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November 16, 2008
DR. ZULKIFLI HASAN
Islamic Banks in the UK Grow Despite Crisis
By David Oakley, The Financial Times
Launching a bank in the face of the worst financial crisis in almost 80 years does not appear to make business sense.But that is precisely what investors in two of Britain’s five Islamic banks did as demand continued to grow in Europe for financial products that avoided paying interest, in line with strict religious rules. These products pay profits from an underlying business or rent from a building used as collateral to raise money. The European Finance House launched in January and Gatehouse Capital followed in April, while a third Islamic bank, the Bank of London and the Middle East, opened for business in July last year – a month before the August credit crunch surfaced.
Steady growth
All three are growing steadily, even as the credit crisis deepens, because they are not exposed to the toxic assets and derivatives that have seen losses mount higher and higher, above $650 billion (Dh2,385.5 billion) at the latest count, among the conventional banks.The European Islamic Investment Bank and the Islamic Bank of Britain – the two other British Islamic banks – are also expanding.
The IBB launched its first Islamic, or Sharia-compliant, residential mortgage in September, just as Lehman Brothers, one of Wall Street’s most renowned banks, collapsed under the weight of its credit exposure. Humphrey Percy, chief executive of the Bank of London and Middle East, says: “We have not been affected to the same extent that the conventional banks have, although we have been indirectly impacted by the general lack of liquidity.”
Sultan Choudhary, commercial director of the Islamic Bank of Britain, adds: “We are still growing, not contracting. We never had the asset exposure in terms of the toxic assets that other banks have.”As the city has been devastated by financial losses and job cuts, Islamic finance is a refreshing positive among the gloom for London, which has pioneered the growth of this sector in Europe and the west. Britain is the only country in the European Union that has established Islamic banks. The Treasury is still planning to launch an Islamic bond, known as sukuk, even though this market has suffered in recent weeks.
Principal Insurance, the UK’s first Islamic insurance company – and the first in western Europe – was also launched in May, providing Britain’s two million Muslims with the opportunity of insuring their cars or houses in a Sharia-compliant way.
Best Regard

ZULKIFLI HASAN

DURHAM UNIVERSITY
MADRID, SPAIN
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BLOG OF KNOWLEDGE (Shari'ah, Law, Islamic Finance and Muslim News)
Shari'ah, Law, Islamic Finance and Muslim News
Daily Archives: August 20, 2009
August 20, 2009
DR. ZULKIFLI HASAN
Luxembourg Stock Exchange becomes an important European centre for Sukuk
Source: Le Voix E paper, Originally taken from Salaheddine Ahmedi
The Luxembourg Stock Exchange is an important European centre for the quotation of sukuk issuances. The statement follows after the admission of a new issue of sukuk for a total value of USD 1.5 billion. The issuer is the oil company owned by the Malaysian government, Petroliam Nasional (Petronas), which simultaneously made a bond debt quotation for an amount of USD 3 billion. The Luxembourg Stock Exchange lists 16 sukuk for a total amount of USD 7.3 billion, further positioning itself among the major players for this niche product and enabling it to compete in terms of value with notably London.
In 2009, global sukuk issuances could amount to USD 27.5 billion, according to a report by global consultancy firm Ernst & Young (E&Y) on Islamic finance, of which sukuk represents only one part. The E&Y report also highlights that this market weakened a bit in 2008, with issues worth USD 15.5 billion compared to USD 47 billion in 2007. Proving the interests of the Grand-Duchy, the Luxembourg Stock Exchange advocates a practical approach in requesting documentation pertaining to the inherent transactions rather than that of an exhaustive description of the sukuk structure. In addition, Clearstream, which is the international central depositary of Luxembourg, has adapted its technical procedures to take into account the specific nature of these products.
Finally, according to representatives of HSBC Securities Services, specialists in Islamic Finance, the Luxembourg government is at the moment studying the possibility of financing various activities of state or public entities through sukuk. Equivalent to bonds in Islamic finance, the sukuk should conform to Sharia law. Among other rules, the Sharia prohibits loans with interest, on which lies the principle of the classic bond issue. In the case of sukuk, the issues should correspond to a specific investment project and the profits paid annually to owners corresponding to profits coming from the development or utilisation of the underlying project. Hence, if losses are incurred, the owners don’t receive anything; a risk notion is thus associated with the return on investment of a sukuk.
Best Regards

ZULKIFLI HASAN

DURHAM
World Museum, Liverpool, United Kingdom
Islamic finance news
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