REVIEW OF FATWAS ISSUED DURING ALBARAKA BANKING GROUP

SYMPOSIUMS

(THE SECOND COLLECTION)

Prepared by His Excellency, Al-Shaikh Abdullah bin Sulaiman Mannea, member of

the Council of Eminent Ulama‟, Kingdom of Saudi Arabia and member of the Shariah

Supervisory Board, Albaraka Banking Group.

The 29th Albaraka Banking Group Symposium on Islamic Economics was held in

Hilton Hotel, Jeddah, from 6 – 7 Ramadhan 1429 AH, corresponding to 6 – 7

September 2008.

Praise be to Allah and may His mercy and peace be upon the His messenger, The

Holy Prophet Muhammad s.a.w., as well as his relatives and companions, all of

them. Subsequent to this, I am often delighted with the view of the general

secretariat of the Albaraka Banking Group to call for a review of the fatwas issued in

these symposiums, so that they may serve as a contribution, in affirming the pillars

of maqasid al-shari’ah and the general principles of Islamic law, and as a way of

reducing the frequent application of rukhsah, while upholding the principles of

a’zimah. This happened after the Islamic banking system went through a blessed

trend (providing Shari’ah-compliant financing), led by the players themselves.

The factor that drove the general secretariat towards this blessed dimension is that

the customers of the Islamic banks started gradually, in upholding the principles of

rukhsah, which were permitted in temporary fatwas, which have some reservations,

except that, these reservations cannot be extended to that which legalizes what is

illegal or illegalizes that which is legal.

They are only obscures (shubhah), in which abstinence from them entails purification

to the dhimmah (the liability for one to account for his actions) and purification of the

personality. May Allah give His gratitude to the general secretariat, in its

cautiousness of Allah and assist it (the general secretariat) in actualizing its blessed

goals in verifying, deepening, searching and reviewing what has been seen as a

pressing need or necessity or inconveniencing or probability at the expense of

competition from the conventional banks. This type of procedure has been one of the

ways to reform and establish Islam (in the early years of Islam). During that time,

those whose hearts have been (recently) reconciled (to the Truth, i.e. Islam) are part

of the beneficiaries of zakah.

The Prophet s.a.w. used this method (giving zakah to individuals with the propensity

towards Islam) to reconcile the souls and in curbing antagonistic factors from leaders

of various tribes. The rightly guided Khalifah Abu Bakar Al-siddiq (may Allah be

pleased with him) also followed the model of the Prophet s.a.w. Then, after Islam

has gotten its strength, charisma and power, the Amir Mukminin at that time, Umar

bin Al-khattab (may Allah be pleased with him) stopped giving zakah to unbelievers

who are interested to embrace Islam. He supported his view by saying that Islam is

no longer needs to reconcile the hearts, because it has become strong and powerful.

Now, Alhamdulilah, Islamic banking, with its strength, has grown beyond the local

spectrum and extended to non-Muslim societies. These societies have witnessed the

transparency and honesty of the Islamic banks in running its transactions and

avoiding the act of acquiring other people‟s properties through false means, i.e.

through dealings based on uncertainty, manipulation, ignorance of subject matter,

interest and commercial transactions that are combined with mere imagination and

form, and disposal of properties before taking possession of the properties (in which

the seller does not have the right of disposal of the properties). It ought to be noted

that fatwas change in accordance with the changing conditions, circumstances, time

and place. This occurred to Imam Shafie (may Allah be pleased with him), for his

opinions on a certain matter changes as the locality changes (in this case, from Iraq

to Egypt).

This issue (changing fatwas in accordance with the change in conditions,

circumstances, and place) was discussed by Ibnu Al-qayyim in his book „I’lam Al-

muwaqiin an Rab al-alamin’. He said that the yardstick is the achievement of

maslahah and maqasid al-shari’ah. They (Imam Shafie and the Ibnu al-qayyim),

while doing this, were in concordance with the model of the Prophet s.a.w. In this

regard, it is cited that two men came to the Prophet s.a.w One of them was a young

man and the other was an elderly man, asking him about the permissibility of kissing

one‟s spouse while fasting. He (the Prophet s.a.w.) permitted it for the elderly man

but did not permit it for the young one. This was due to the consequences of kissing.

May Allah grant His gratitude to the secretariat in its deed and grant prudency to it in

this review and the correction of mistakes. All of us often commit mistakes, but the

best are those that repent from their mistakes. Allah is the One we implore for help.

The general secretariat requested me to review the following fatwas:

1. Fatwa no. 1/15: The Shari’ah ruling on agents representing the two parties to

a contract;

2. Fatwa no. 6/7: Shari’ah ruling on murabahah mudawarrah;

3. Fatwa no. 6/15: Shari’ah ruling on selling commodity before taking

possession;

4. Fatwa no. 2/8: Shari’ah ruling on taking reward (payment) for issuing letter of

guarantee; and

5. Fatwa no. 5: Terms of real estate financing in London.

The following is the presentation of the abovementioned fatwas and then followed by

my comments on them, in accordance to what I see as the Shari’ah view, i.e. either

supporting or opposing or restricting what is too loose. Allah is the One we implore

for help.

Fatwa no. 1/15: The Shari’ah ruling on agents representing the two parties to a

contract

A fatwa was issued, i.e. it is permitted for a bank to appoint its customer as an agent

to purchase commodity and then the same customer will offer the commodity for

sale, while he is in his capacity as an agent for the bank. However, if the customer

sells to himself, whereby he is taking charge of both sides of the contract, it is

permitted if the price is specified by the principal (in this case, the bank).

This fatwa is related to two issues:

1. First: If the agent sells the commodity which he has purchased to a third party,

by virtue of the agency conferred to him by the principal who asked him to do

so, there are no disputes among the scholars against its validity; and

2. Second: If the agent sells the commodity to himself, whereby he is taking

charge of two sides of the contract, this issue is argued among the scholars.

Some scholars permitted it, if there are no doubtful elements, while some did

not permit it, on the grounds of purification of the personality. Ibnu Qudamah

said in Al-muqni’, “It is not permitted for one who is appointed as an agent in a

sale to sell to himself. He said in the Hashiyah, this is the madhhab (of

Hanbali) and the majority also ruled the same. He further said, that in the

Hashiyah, “This is because the custom in sale is that one sells to another

person, so it is in a wakalah contract. Also, he is subject to suspicious in

selling, so it is in buying for himself.”

In another version reported from Imam Ahmad, it is permissible for an agent to take

charge of both sides of the contract, if there are no doubtful elements. He said in Al-

muqni, “It is also reported from him, that is Imam Ahmad that, it is permitted for an

agent to sell to himself, if he adds to the normal price, with which the sale was done

by auction, or he appoints another person as an agent and he will be one of the

buyers”. He mentioned in the Hashiyah about the permissibility of the agent to sell to

himself; if he was permitted, then it is permissible and he represents the two sides of

the contract. This is the most authentic view”.

However, having observed that representation of the two sides of a contract by a

customer in the banking transaction has predominantly become mere form (not the

actual purpose of the contract), a situation whereby neither buying nor selling was

executed by the agent and at the same time, he obtains actual profit margin through

ribawi (interest-based) terms. It is representation by an agent of both sides of the

contract that served as a justification for the prohibition of tawarruq, as practised by

the banks.

In order to preserve the reputation of Islamic banking, I am of the view that there is a

need to review the arrangement of an agent taking both sides of a contract. It should

be prevented, in consideration of transparency and to prevent criticisms that Islamic

banks are involved in interest based-transactions and factors that have the

probability to lead to form in transaction.

There are many examples to support that it is permissible to declare something as

lawful and then recommend that it should be prevented on the grounds of precaution

and avoiding ambiguities. One example is  bai’ inah , in which its procedures are in

accordance with a valid sale, but having observed that there is a trick to attract riba,

the majority of the scholars disallow it. Similarly, the case of riba al-fadhli (riba, which

is addition to the original amount borrowed), having seen it as a means that leads to

riba al-nasiah, the majority of scholars prohibited it.

Another example is the tradition reported by „Aishah, may Allah be pleased with her,

who said that, Sa‟d bin Abi Waqas and Abdu bin Zam‟ah reported to the Prophet

s.a.w. in dispute that occurred between them. Sa‟d said, “O you the Apostle of Allah,

this son belongs to my brother called U‟tbah bin Abi Waqas. He gave me a testate

that he (the son) is his child, you can see his resemblance. Indeed, the Prophet

s.a.w. saw a manifest resemblance with U‟tbah, but ruled by saying “he is yours O

you Abdu bin Zam‟ah”. “A child belongs to the bed while the adulterer owns nothing”.

“O you Saudah the daughter of Zam‟ah, veil yourself from him. She („Aishah) said,

he never saw Saudah throughout. In this verdict, the Prophet s.a.w. attributed the

child to the bed owner as that is the original presumption, and he attributed him to

who is not the owner of the bed on the grounds of precaution, in order not to violate

principle of maharam (degree of consanguinity either by birth or breast feeding,

precluding marriage).

The Prophet s.a.w. combined both the original presumption and precaution when he

saw a strong resemblance with the one who is not the bed owner. Here, we can

observe the fatwa that ruled that the sale is valid if the agent sells to himself, at a

specific price, as determined by the principal. It is apparent that when the principal

determines the price for the agent, it is not considered as agency in sale, because

the act of determining the price by the principal is considered as offer to sell, made

by him to the agent. If the agent communicates his acceptance, then, the contract

has been concluded by offer and acceptance made by the eligible parties. There is

neither an agent nor principal in the contract, but all that took place is that the

contract was concluded between the two parties of a valid contract, who are the

seller and the buyer.

The summary of this fatwa is as follows:

1. It permitted for a client of the bank to represent the bank in an agency

capacity, to buy the commodity required by the client of behalf of the bank,

and then the client buys the commodity from the bank, after the bank has

taken possession of the commodity. For this type of transaction, there are no

disputes among the scholars;

2. It is not permitted for a client to take charge of the two sides of the agency

contract, whereby he purchases the commodity for the bank and in turn sells it

to himself, on behalf of the bank. The impermissibility is upheld, in order to

avoid doubtful elements and protect the Islamic banking system against

accusations that its products are merely tools to justify riba;

3. A group of ulama prohibited an agent from taking charge of both sides of a

contract; agent of his principal in buying and selling on behalf of the bank.

Even though some ulama permit it, if there are no doubtful elements,

suspicious of form is in existence and it is more dangerous than the

suspicious involved by way of negligence, if he buys or sells at less than the

normal price; and

4. It is not considered as taking charge of both sides of the contract if the

principal sets the price, in which case it is considered as offer and if accepted

by the client, the sale is completed primarily from the seller and buying from

the client. In this regard, there is neither agent nor principal. The contract was

concluded by its primary parties, i.e. the seller and the buyer.

Fatwa no. 6/7: Shari’ah ruling on murabahah mudawarrah

Its form: The bank appoints the client as their agent, to purchase for the bank and

sell to himself, whereby, the client takes charge of two sides of the contract, with a

pre-determined profit, which is mutually agreed upon. The fatwa ruled that this form

of transaction is permitted.

I have nothing to oppose the permissibility of this contract. It is not because this type

of contract is within the category of the dual role of agents (agent takes charge of

both sides of the contract), but it is part of the sales that are concluded by the banks.

In this type of sale, the bank confers possession of the commodity to the client, after

they have taken possession of the commodities and offered it for sale, at cost price

plus profit margin, of which the margin was mutually agreed upon by the bank and

the customer/agent.

Similarly, they also mutually agreed upon the mode of settlement; either by cash or

deferred payment or by instalment payments. This is how murabahah contracts are

concluded, in accordance with adherence to the agreement between the bank and

its clients, in continuous bargains, as mentioned in the question.

Nothing in the question says that the client sells to himself, in his capacity as the

agent of the bank. Taking charge of both sides of the contract by the agent has been

discussed in the preceding fatwa no. 1/15. Allah knows best.

Fatwa no. 6/15: Shari’ah ruling on selling commodity before taking possession

It is permissible to sell something that is not yet in one‟s possession, provided the

said items are not food. This is because the prohibition of selling something that is

not yet in one‟s possession only applies to eatables.

The scholars disputed on the permissibility of disposing a commodity, prior to taking

possession of the commodity. Majority of the scholars did not permit disposal of

commodities before possession takes place. Sale is one of the ways to dispose

commodities. The proponents of this view adduced the following hadith as evidence

of their stand, i.e. the Prophet s.a.w said that, “Anyone who bought food should not

sell it until he has taken possession of the food”. Ibnu Al-qudamah said in the book of

Al-mughni, “I have not found any dissenting opinion on this, except the dissenting

opinion reported from Al-batty. However, Ibnu Abdul Bari gave a ruling that rejects

the opinion reported from Al-batty, by virtue of the Prophetic tradition and other

proofs.”

However, according to some ulama, for things like house, cars and animals, the

condition of possession does not apply, i.e. one can sell it even before possession

takes place. Ibnu Al-qudamah said that this is the prevailing view of the two views

reported from Imam Ahmad (on this issue). Among those that permitted it is Uthman

bin Affan (may Allah be pleased with him), Saed bin Musayyib, Al-hakam, Hammad,

Al-auzai and Ishaq. Also, in the book of Al-insaf by Al-mardawi, it is said that, if the

subject matter is not something that is weighed or measured, then one is permitted

to dispose it before taking possession of it. This is the view of the madhhab (school

of law) of Imam Ahmad ibnu Hanbal.

Ibnu Al-qudamah also supported this view, by citing the hadith, in which the Prophet

s.a.w. bought camel from Jabir and in turn gave the camel to him (Jabir), before he

(the Prophet s.a.w.) takes possession of the camel. In another hadith, it was reported

that the Prophet s.a.w. bought a camel from Umar bin al-khattab. Then, before taking

possession of the camel, the Prophet s.a.w. gave the camel as a gift to Umar‟s son,

Abdullah.

Conceptually, a sold product is considered to be within the reach of the buyer,

except in a situation where the seller refuses to deliver it to the buyer. As long as the

sold product is within the reach of the buyer and within his guarantee (he is

responsible for it – daman), he has the right to dispose product before taking

possession of it, let alone after he has taken possession of it.

Some scholars supported their view of impermissibility of disposing a sold property

before possession takes place, citing the following hadith as evidence, i.e. it was

reported that the Prophet s.a.w. prohibits taking profit from a commodity that you are

not responsible for (daman). Some groups of scholars said that if possession of the

sold product has transferred to the buyer through a sale contract, then it is

considered to be within the reach of the buyer, except if the seller refuses to deliver

the product.

It was reported in Mudawwanah of Imam Malik, while discussing about the issue of a

commodity that is within the reach of the buyer, that Abdurahman bin Auf bought a

horse from Uthman bin Affan for 12,000 silver dirham. In addition to that, he paid

4,000 dirham to Uthman, as consideration for the horse to remain as the liability of

Uthman, until he sends his representative to take possession of the horse. Uthman

accepted the offer. Later, the horse died under the custody of Uthman and he paid

12,000 dirham to Abdulrahman bin Auf. This is because he had accepted to be liable

for the period the horse remains with him.

Fatwa no. 2/8: Shari’ah ruling on taking reward (payment) for issuing letter of

guarantee

The eight symposiums did not issue a fatwa on this issue. Rather, the issuance of a

fatwa was postponed until a more thorough understanding of the processes of

issuing LGs is obtained. I hope that the postponement will not be for long, as there is

a pressing need to know the Shari’ah ruling on the existing practice of issuing letters

of guarantee, both in the Islamic and the conventional banking sector.

To give guarantee to someone is an obligation and the letter of guarantee is the

basis of the guarantee. So, is it permissible to charge a fee for the obligation being

discharged by the bank?

It is necessary to expedite the research on this issue, so that a fatwa can be issued.

For this matter, Allah‟s help is implored.

Fatwa no. 5: Terms of real estate financing in London

In my observation, this fatwa is related to musharakah mutanaqisah. Its nature is that

the bank will have an agreement with its client, to purchase and jointly own several

units of houses. In terms of the capital contribution for this musharakah venture, the

bank will undertake to provide more capital than the customer, e.g. 90% against

10%.

Then, the bank will make a binding promise to sell their own shares of the houses to

the client, on periodical basis, which is based on a predetermined price that is

agreed upon by both parties. Thereafter, the sharikah will lease the houses to a third

party and share the returns on a pro rata basis, until the bank‟s shares is totally

transferred to the client.

The client, who is the musharakah partner of the bank, may, at the same time, be the

lessee. In this regard, the bank owns 90% of the house, until the client has fully

acquired the house. The initial fatwa ruled that this product is permitted. I have no

remark on the ruling in general, except that I have some observations on the fatwa,

as follows:

First

When the client is the lessee, the present practice makes him responsible for all the

financial requirements of the house. Such financial requirements are fees, taxes and

basic expenditure of the house. This is invalid, because the client will not be

responsible, except for his own shares of the musharakah. The client is nevertheless

responsible for the operational expenses (e.g. maintenance) of the house. This is

because he is also the lessee. I suggest that this be reviewed.

Second

Regarding buying insurance policy for the asset, the authentic view is that the

partnership bears the cost of the insurance policy. On this basis, each of the partners

will bear the cost of insurance, in proportion to his share of the asset. Thereafter,

they will recover the insurance premium paid from the asset‟s yield, provided that it is

stipulated in the contract. However, I disagree with the suggestion that the bank may

add the cost of the insurance to the rental, in order to recover the insurance

premium. This, in reality, constitutes using tricks, in order to mimic the conventional

banking concept. For this reason, it is incumbent upon the responsible Shari’ah

authority to state clearly the truth and the right direction of the Shari’ah and avoid

using tricks. It is the responsibility of the Islamic banks to search for replacements

and alternatives (Shari’ah-compliant products). They should also abide by the

requirements of Islamic banking.

Third

If there is a probability that the client may default in paying the shares of the bank, it

is permitted for the bank to hold the client‟s shares in the musharakah as pawn. In

the event of default, the bank may sell the pawned shares of the client, at the market

price, so that they can recover the receivables. This is more just for both parties, as

opposed to forced mutual rescission, which is unjust to the client.

In conclusion, I am comfortable with this good view, which was issued by the general

secretariat in the Al-barakah banking group. It is true that the Al-barakah banking

group symposium has a magnitude of fatwas, most of them are based on ijtihad. It is

alright to change ijtihad, if something more authentic appears. I hope this exercise of

reviewing the fatwas of the Al-barakah banking group will be part of the activities for

future symposiums. This will assist us in ensuring the authenticity and correctness of

the maqasid al-Shari’ah, without violating any text from the Quran, Prophetic

traditions and ijma‟, because a legal maxim says, “Where there is a text, there is no

ijtihad. Allah is the One implored for help.


BLOG OF KNOWLEDGE (Shari'ah, Law, Islamic Finance and Muslim News)
Shari'ah, Law, Islamic Finance and Muslim News
Monthly Archives: December 2009
December 31, 2009
DR. ZULKIFLI HASAN
Islamic finance in 2010
“Towards More Dynamic and Socially Responsive Islamic Finance” InsyaAllah
Bank of Kuwait and the Middle East would transform into an Islamic bank in 2010
.

Germany’s first Islamic bank to open in early 2010

India’s first Islamic bank to start in Kerala by 2010

Bank of London and Middle East eyes LSE listing in 2010

Zitouna Islamic Bank will start in the beginning of 2010

Islamic bank assets to hit $1tn in 2010

Islamic Banking in Indonesia to See 81% Expansion in 2010

Number of Islamic banks in Kuwait rise to five in 2010

Full conversion to Islamic finance by end-2010, says PTPTN

Islamic banks aim to expand into Europe

Jordan’s banking sector performance to improve in 2010

Islamic derivative contract seen by early 2010

Gulf corporate Islamic bonds to flow only in 2010

Islamic Sukuk Market to reach USD140bn in 2010
“We will open the book. Its pages are blank. We are going to put words on them ourselves. The book is called Opportunity and its first chapter is New Year’s Day.” Edith Lovejoy Pierce
Best Regards

ZULKIFLI HASAN

DURHAM, UK
Islamic finance news
1 Comment
December 30, 2009
DR. ZULKIFLI HASAN
Another sign of Islamophobia?
Shariah finance: The deadly jihadist weapon with a dollar

By: David Yerushalmi

Available at:
http://www.sfexaminer.com/opinion/columns/oped_contributors/Shariah-finance-The-deadly-jihadist-weapon-with-a-dollar-80322192.html
News of the recent financial meltdown of Dubai World — a quasi-sovereign global concern that owns 77 percent of international port manager DP World and is the single largest real-estate developer in Dubai — raced from the business pages to front-page headlines in a matter of days. What makes this story more than a massive real estate investment company gone bad is the double-edged sword so prevalent in the chase for oil-based Middle East wealth: sovereign wealth funds and Shariah-compliant finance.
Beginning in the 1970s with the Carter-era oil embargo and accelerating during the post-9/11, $100-plus oil price spikes, Persian Gulf countries like Saudi Arabia and the United Arab Emirates’ wealthiest city-state of Abu Dhabi have been awash in liquidity. These trillion-dollar cash reserves are controlled in every case by royal families, typically in sovereign or quasi-sovereign wealth funds.
Another phenomenon that followed was the promotion and aggressive exportation of the Muslim Brotherhood doctrine of SCF. The goal was that of establishing Shariah as the supreme law of the world. Western imams and their infidel advisers in business suits have understood that given the global jihad’s reliance on the dictates of Shariah to murder apostates and terrorize infidels into submission, SCF must be attired in a kind of progressive Western garb to attract the attention of financial centers in London, Hong Kong and New York. So it was that SCF became known as “ethical investing” and Western and Muslim financiers began lecturing the world that the fraud and abuse of the financial markets were all driven by the desire for forbidden gain through interest and gambling.
They told us that SCF was based not on forbidden interest and speculative paper assets, but profits through equity participation and sound investing in real assets. To understand the rather opaque world of Islamic finance, one must understand the players. Since its founding, the modern SCF world has been driven by two groups. The first we can label the Shariah fundamentalists. These Shariah-inspired financiers understand SCF as part of a larger stealth campaign to institutionalize Shariah in the West. What makes this institutionalization a bit tricky is that the financial jihadists must convince Western financiers that Shariah-inspired economics and finance is somehow distinct from Shariah-inspired global jihad against the infidel West.
Financial jihadists built their strategy upon both sovereign wealth and Western facilitators — the second group — who would sell their own well-being and physical security for a place among the Fortune 500. Greed, self-indulgence and even treason are not new to the international banking and corporate worlds. But, what the Shariah advocates have found even more to their liking is the fact that the Western technocrats and policymakers in government have been more than willing to ignore Shariah’s call for global jihad and its resonance as the common threat doctrine articulated by jihadists around the globe.
“In a World where people are surrounded by darkness, ignorance and fear, it is a sign of hope to be celebrating Islam’s message of peace and light, and the last great Messenger, born and chosen to deliver them to all mankind.” Yusuf Islam (Cat Stevens)
Best Regards

ZULKIFLI HASAN

DURHAM, UK
Glasgow, Scotland
Islamic finance news
Leave a comment
December 29, 2009
DR. ZULKIFLI HASAN
CONVOY TO GAZA BLOCKED IN AQABA BY EGYPT
Gaza Aid Convoy Members Prepare For Hunger Strike

Available at:
http://www.paltelegraph.com/palestine/gaza-strip/3327-gaza-aid-convoy-members-prepare-for-hunger-strike
Palestine, December 27, 2009, (Pal Telegraph) – Members of the Viva Palestina international aid convoy to Gaza will begin a hunger strike at 11.25am local time tomorrow (27th) in protest at the Egyptian government’s refusal to allow the convoy entry onto its soil. Diplomatic negotiations are also taking place between the Turkish and Egyptian governments over the convoy’s entry to Egypt. IHH, Turkey’s main humanitarian aid agency, has 63 vehicles travelling on the convoy.
The Syrian government has also provided aid and vehicles, as has the government of Malaysia. More than 400 people from 17 countries are travelling on the 150 vehicle convoy, which is taking medical, humanitarian and educational aid to Gaza. They left London on 6 December and have travelled nearly 3,000 miles across Europe and the Middle East. However, the convoy and its cargo of aid is now stopped in the Jordanian port town of Aqaba, having been denied entry into Egypt.
British MP, George Galloway, who is travelling with the convoy, said: ‘Israel has kept Gaza under siege for three-and-half years against international law. It has not allowed aid or rebuilding materials in following its attack on Gaza earlier this year. Our convoy is determined to break the siege and take in urgently needed supplies Spirits are high in our camp in Aqaba, and we are going nowhere except to Gaza.’
It was at 11.25am on December 27 2008, that Israel dropped its first bombs on the besieged population of Gaza. Three weeks later, following a sustained air, land and sea assault, more than 1,400 Palestinians had been killed. The Viva Palestina hunger strikers will consume only liquids until the convoy is allowed entry into Egypt.
Convoy members will also mark the first anniversary of the beginning of Israel’s Operation Cast Lead by holding a march through Aqaba, jointly with the Jordanians. In the evening, more than 1,400 candles will be lit for a vigil. The convoy has been jointly organised by the charity Viva Palestina and the Palestine Solidarity Campaign, the UK’s largest organisation campaigning for solidarity with the Palestinian people.
First Viva Palestina Gaza Convoy, February 2009
Best Regards

ZULKIFLI HASAN

DURHAM, UK
Palestine
Leave a comment
December 28, 2009
DR. ZULKIFLI HASAN
Solvency Requirements for Takaful Undertakings
The IFSB issues Exposure Draft 11 for public consultation

Available at:
http://www.ifsb.org/preess_full.php?id=134&submit=more
Kuala Lumpur- The Technical Committee of the Islamic Financial Services Board (IFSB) has approved the issuance of the IFSB Exposure Draft entitled Solvency Requirements for Takaful Undertakings (ED-11) for Public Consultation starting 17 December 2009. Click here:
ED11 English
ED11 Arabic
ED-11 aims to enhance and improve the ability of Takaful undertakings in sustaining and managing the risks on behalf of the participants. The seven (7) Key Principles outlined in ED-11 complement the substance of solvency standards and assessments developed by International Association of Insurance Supervisors, the international standard-setter for conventional insurers. This adopted approach is intended to ensure the supervision of Takaful, while catering to the specificities of Islamic finance, is consistent with that of the conventional insurers.
The key principles set forth in this document are hoped to foster the confidence of the market towards the integrity and stability of the Takaful undertakings as well as providing the Takaful undertakings a competitive niche among the insurance providers.
During the five-month consultation period, the IFSB will hold a roundtable discussion, workshop and a public hearing to encourage interaction with, and comments from, the members of the IFSB as well as the financial community in general.
“Our greatest lack is not money for any undertaking, but rather ideas, If the ideas are good, cash will somehow flow to where it is needed.” Robert H. Schuller
Best Regards

ZULKIFLI HASAN

DURHAM, UK
Kyoto, Japan
Islamic finance news
Leave a comment
December 25, 2009
DR. ZULKIFLI HASAN
How Islamic is Islamic Finance?
How Sharia-compliant is Islamic banking?
By John Foster Available at:
http://news.bbc.co.uk/1/hi/business/8401421.stm
The Islamic finance industry has often battled with the question: How Islamic is Islamic banking? The question’s pertinence was raised in March last year, when Sheikh Muhammad Taqi Usmani, of the Accounting and Auditing Organization for Islamic Finance Institutions (AAOIFI), a Bahrain-based regulatory institution that sets standards for the global industry, said that 85% of Sukuk, or Islamic bonds, were un-Islamic.
Usmani is the granddaddy of modern-day Islamic finance, so having him make this statement is synonymous with Adam Smith saying that free-markets are inefficient. Because Sukuk underpin the modern-day Islamic financial system, one of its pre-eminent proponents arguing that the epicentre of the system was flawed sent shockwaves through the industry. It also gave ammunition to the many critics who see Islamic finance as an industry more driven by cultural identity than practical problem solving: as a hodgepodge of incoherent, incomplete, impractical and irrelevant ideas.
Recognisable products
The products that modern-day Islamic bankers have created are very similar to conventional products.

So similar, in fact, that to an outside observer they could be considered the same. Islamic banks now offer Islamic mortgages, Islamic car loans, Islamic credit cards, Islamic time deposit and guaranteed return accounts, Islamic insurance and some even offer Islamic managed and hedge funds.This point is conceded by Samir Alamad, Sharia, or Islamic law, compliance and product development manager of the Islamic Bank of Britain.
“The industry does not want to alienate its products,” he says. “They have to be recognisable, produce the same outcome as conventional products, but remain within the guidelines of Sharia.”
No interest
The core of Islamic economics is a prohibition on interest. This immediately creates a problem for Islamic banks, as conventional banks charge borrowers an interest rate through which they can reward their depositors and make some profit for being the broker.
With interest ruled out it is harder to make money. The modern Islamic banker has found a way around this prohibition, however. As in many Islamic products, the bank enters a partnership with its depositors and invests his money in a Sharia compliant business. The profit from this investment is then shared between the depositor and the bank after a set time. In many cases this “profit rate” is competitive with the conventional banking system’s interest rate for savers.
Lease agreements
Alternatively, an Islamic banker might enter into a lease agreement for a car or a house with an individual.

If he doesn’t give it to us, we phone up another scholar, offer him a sum of money for his services and ask him for a Fatwa. We do this until we get Sharia compliance Investment banker in Dubai. The bank would buy a vehicle outright and then lease it back to the person who wanted it, over a time period that would ensure that the capital was repaid and the bank made a profit.
Alternatively the bank would enter into a partnership with a person wanting to buy a house. The bank would buy 70% of the house, the individual 30%. The bank then rents its share of the house back to the individual until the house is fully paid for.
The bank makes a profit on the rent, which would be higher than equivalent rents in the area, but on an annualised percentage basis, would look very much like a conventional mortgage interest rate. To the casual observer, a spade is a spade. Whether the product is dressed up in Arabic terminology, such as Mudarabah, or Ijarah, if it looks and feels like a mortgage, it is a mortgage and to say anything else is semantics.
Sophisticated finance
The potential wealth locked up in oil-rich Gulf states encouraged the conventional banks to enter Islamic finance. HSBC established the Amanah Islamic Finance brand in 1998 and Deutsche Bank, Citi, UBS and Barclays quickly joined the fray, all offering interest-free products for wealthy Arabs.
However, this new generation of Islamic bankers had cut their teeth in the City and Wall Street, and were used to creating sophisticated financial products. They often bumped heads with the Sharia scholars who authorised their products as Sharia compliant. However, these bankers had a way of dealing with this, as one investment banker based in Dubai, working for a major Western financial organisation explains:
“We create the same type of products that we do for the conventional markets. We then phone up a Sharia scholar for a Fatwa [seal of approval, confirming the product is Shari’ah compliant]. “If he doesn’t give it to us, we phone up another scholar, offer him a sum of money for his services and ask him for a Fatwa. We do this until we get Sharia compliance. Then we are free to distribute the product as Islamic.”
No consensus
This “Fatwa shopping”, which was carried out by some institutions, brings us back to the Sharia scholars. Even these scholars do not agree all the time, which means that in some cases a product is deemed Sharia compliant in one market and not in another. This is especially the case with Malaysian products, which are often deemed not Sharia complaint in the more austere Gulf.
“Often no rulings exist for modern day problems, such as use of narcotics,” Alamad explains. “In Islam intoxication by wine is forbidden, but at the time of the Prophet Mohammed there was no crack cocaine.”
Modern scholars had to interpret the rules on intoxication, and the consensus was that crack should also be forbidden to Muslims, as it is a dangerous intoxicant. “This is how we make rulings, whether in finance or societal,” Alamad says. “The consensus rules, which usually will become mandatory for all Muslims to follow, but there are some opinions and sometimes scholars are not in the consensus.”
Banking is banking
This makes it more important to be in the consensus, and so getting a favourable ruling from a leading Sharia scholar is important for a product manager. That is why the top scholars can earn so much money – often six-figure sums for each ruling. The most creative scholars are the ones in the most demand, says Tarek El Diwany, analyst at London-based Islamic financial consultancy Zest Advisory.
“To date, most Islamic financiers have been looking at examples of financing in Islamic history and figuring out how to apply them to today’s financial products.” But banking is banking. It is the taking of a deposit and then using it to finance a purchase or business.
The lender pays the depositor compensation for the opportunity cost of his money, and the person borrowing the money “rents” it off the bank. The same symbiotic relationship occurs whether it is conventional banking, ethical banking, Islamic banking or Presbyterian banking. As Majid Dawood, chief executive of Yasaar, a UK-based Islamic finance consultancy says: “Everything that is not forbidden in the Holy Qur’an is OK. “Yes, the industry has to evolve, but it is only 40 years old and its competing with a conventional finance system that is over 800 years old.”
“If any religion had the chance of ruling over England, nay Europe within the next hundred years, it could be Islam” George Bernard Shaw
Warm Regards

ZULKIFLI HASAN

DURHAM, UK
Atlantis the Palm, Dubai, UAE.
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Shari'ah, Law, Islamic Finance and Muslim News
Monthly Archives: July 2011
July 29, 2011
DR. ZULKIFLI HASAN
The Chairmen of Islamic finance industry bodies need to put aside their egos for a bigger cause
A Different Kind of Consolidation in Islamic Finance
By Rushdi Siddiqui Available at:
http://islamic-finance-resources.blogspot.com/2011/07/different-kind-of-consolidation-in.html
One of the most over-used words in Islamic finance is not standardization, scholars, regulations, etc., but ‘consolidation’. Islamic banks, Islamic leasing companies, Takaful companies need to consolidate to reach size and achieve scale.
As larger capitalized entities, they can better compete with not just the Islamic windows and subsidiaries of conventional banks and insurance companies (like HSBC or Prudential) but eventually the larger conventional financial institutions for mandates on project finance, M&A, buyouts, and so on.
Then again, what about consolidation amongst the Islamic industry bodies, the likes of AAOIFI (Accounting and Auditing Organization of Islamic Financial Institutions), IIRA (International Islamic Rating Agency), IIFM (International Islamic Financial Market), and CIBAFI (General Council for Islamic Banks & Financial Institutions)?
Consolidation would make sense when there is an overlap of founding shareholders, overlap of conference content, when same scholars sit on boards of the various bodies, when there are resource-constraints resulting in operational challenges and hiring qualified human assets, and so on.
Finally, consolidation would make sense when the need of the hour is an industry body that not only sees the bigger picture and where they fit in as an important stakeholder in Islamic finance versus the present ‘silo’ approach, but also speaks with one ‘heavy’ voice.
Founding Stakeholders
If we look at the sampling of the founding shareholders of the above-mentioned industry bodies, there is an overlap with heavy weights of Islamic finance including the Islamic Development Bank (IsDB), Al Rajhi, Albaraka, and Kuwait Finance House (KFH). The vision for Islamic finance at the time period of conception and launch of these industry bodies was from 1991 (AAOIFI) to 2005 (IIRA), and now times have moved on and the bodies need to do likewise in order to stay relevant.
The IIRA’s website states its corporate profile as:

The Islamic International Rating Agency (IIRA) is the sole rating agency established to provide capital markets and the banking sector in predominantly Islamic countries with a rating spectrum that encompasses the full array of capital instruments and specialty Islamic financial products, and to enhance the level of analytical expertise in those markets.

IIRA publishes professional analytical research for its multiple constituencies. The research will set a high standard for the market, enhancing the level of understanding of the value of fundamental analysis in assessing default or investment risk. Seminars will be used to teach this type of analysis outside the rating agency.
Today, IIRA does not have the history, size and reach to be able to compete with established rating agencies involved in Islamic finance, like Standard & Poor’s, Moody’s or Fitch.  More importantly, is there any point in reinventing the rating ‘wheel,’ as the rating agencies understand quite well the various risks associated with Sukuk contracts, Islamic funds, Islamic banks, and so on?
IIRA may need to look into the process of Shariah adherence of Islamic banks, Takaful, leasing, iREITs, and even Islamic stock exchanges (like the DFM). The focus on process may result in addressing one of the important issues in Islamic finance, the non-compliant Shariah risk.
The International Islamic Financial Market (IIFM) website states its mission as:

IIFM is the global standardization body for the Islamic Capital & Money Market segment of the IFSI. Its primary focus lies in the standardization of Islamic financial products, documentation and related processes.

IIFM has done a commendable job on standardization of documentation in an inclusive manner with industry practitioners whilst working and/or partnering with established conventional institutions like ISDA. The question becomes would it be more sensible and efficient for IIFM to work under the umbrella of an industry setting-body that produces standards requiring standardization/adoption?
The message from the Chairman of General Council of Islamic Banks & Financial Institutions (CIBAFI) on its website states:

CIBAFI was established, then, for 2 major roles: support and protect the industry. Support the industry through awareness and training, holding conferences, seminars and forums and providing the necessary information. Protect the industry so as to avoid, as much as possible, the obstacles and deviations in the course of the Islamic finance industry.

Today, there are a number of more prominent institutions, universities and for-profit initiatives, offering Islamic finance certification courses, training, seminars, and conferences. There are many Islamic finance conferences, from Euromoney in London to IIFF in Dubai to KLIFF in Malaysia, that have pre and post conference workshops.
Would it not make more sense to bring CIBAFI under the umbrella of an industry body that produces standards that are followed by training, seminars, and work-shops on them?
Finally, the most prominent Islamic finance industry body in the GCC is AAOIFI, with 84 standards [(a) 44 Shari’ah standards, (b) 26 accounting, (c) 5 auditing, (d) 7 governance, including on Shari’ah compliance and supervision processes, and (e) 2 codes of ethics] and nearly 200 members from 40 countries. The mission of AAOIFI, as stated on its website:

AAOIFI is an Islamic international autonomous non-for-profit corporate body that prepares accounting, auditing, governance, ethics and Shari’a standards for Islamic financial institutions and the industry. Professional qualification programs (notably CIPA, the Shari’a Adviser and Auditor “CSAA”, and the corporate compliance program) are presented now by AAOIFI in its efforts to enhance the industry’s human resources base and governance structures.

Here the question becomes, why only a handful of jurisdiction have mandatorily adopted the AAOIFI standards, including Bahrain, DIFC, Jordan, Lebanon, Qatar, Sudan and Syria? Has AAOIFI lost focus from its core mandate on accounting, auditing, ethics, governance and Shariah standards for Islamic finance to areas, like, stock screening for Shariah compliant companies?
AAOIFI is best positioned to be the umbrella Islamic finance industry body in GCC as its standards become globally adopted documents (IIFM) with a process review (IIRA), and promoted and protected with that understanding (CIBAFI).
The combination then results in a four-by-four Olympic relay race, where much work is done together before the race, and, at the event, the baton is seamlessly passed from one body to the next. For example, it results in one Islamic finance conference event with all the four bodies under roof and taking place in the various Islamic finance hubs to educate, make aware, and demystify.
In looking forward, stage 2, assuming AAOIFI is tasked with ‘acquiring and integrating’ these Bahrain-based industry bodies, there needs to be discussions for a merger of equals with Malaysia-based IFSB (Islamic Financial Services Board).
The IFSB website states:

The IFSB is an international standard-setting organisation that promotes and enhances the soundness and stability of the Islamic financial services industry by issuing global prudential standards and guiding principles for the industry, broadly defined to include banking, capital markets and insurance sectors.

IFSB’s ‘prudential standards and guiding principles’ are targeted to the same stakeholders that AAOIFI ‘prepares accounting, auditing, governance, ethics and Shari’ah standards…’ for.
In stage 1, the Chairmen of these industry bodies need to put aside their egos for a bigger cause: promote and protect Islamic finance under one strong industry body.
Best Regards

ZULKIFLI HASAN
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July 27, 2011
DR. ZULKIFLI HASAN
Report card of Islamic indices
Report card of Islamic indices
By Rushdi Siddiqui Available at:
http://www.btimes.com.my/Current_News/BTIMES/articles/20110711232814/Article/index_html
Islamic equity indices, 1.0, became a global ‘instrument’ in 1999, with the launch of the Dow Jones Islamic Market Index (DJIM). But, what progress, if any, has been made in the last 11 years on Islamic indexing? (Full disclosure: I was fortunate enough to lead a team for the DJIM.) But, first, a step back to better understand the function and role of indices.
The reason indices are important is because they are the DNA of investing, be it conventional, ethical or faith based. Trillions of dollars are managed/benchmarked to indices in the form of active funds, passive funds and exchange traded funds for the man on the street to funds to sovereign wealth funds.
Indices serve three major functions;

* provide a pulse of the health of the market place (in theory),
* are the basis of investable products and
* allow investors to know how their fund, portfolio , stock, etc, did against the benchmarks, be it DJIA, S&P 500, FTSE 100, Russell 2000, TR-IR Islamic Indices.
Pre-1999, Islamic funds were using social-ethical indices and major conventional benchmarks to measure performance against Islamic funds and portfolios. Obviously, it’s a challenge to compare a “pomegranate to an apple”, and the Islamic investor, much like their conventional counterpart, demanded their “own” performance benchmark.
Delinking
The desire to have their “own” is the beginning of the delinking from the conventional finance. So, today we have thousands of Islamic indices from all six index providers, but only a handful are actually utilised as basis for products. Why?
Today, nearly 95 per cent of the Islamic funds are actively managed funds due to higher management fees, cynically speaking. The more important take-away is that it’s a start point of capital market parti-cipation to start balancing the bias towards a depositor only mentality.
Query: Would an Islamic fund index, that captures the alpha fund managers are trying to achieve, be a ripe offering for Islamic investors? Is this innovation?
Two important questions come to mind to understand progress in Islamic indexing:
* Have Islamic indices achieved the status of high profile indices after 11 years?
* Are companies vying to get into Islamic indices as part of their marketing plan?
Many of the largest companies in a global Islamic index are western/conventional companies.
About 85 per cent of market capi-talisation of a global Islamic index is in the (non-Muslim) G-20 countries, including names like Micro-Soft, Pfizer, ExxonMobil, hence, screening bias results in excessive exposure to three major economic sectors, technology, healthcare and energy. These sectors are not well represented in Organisation of Islamic Countries (OIC) stock exchanges, yet important part of a knowledge-based economy.
Thus, there is delinking from conventional indices, but Islamic indices, have a large bias towards compliant western headquartered companies and economic sectors not available or prominent in Muslim countries, hence, re-lin-king to western/conventional capi-tal markets, as exhibited by high correlation ratios to conventional counterpart indices,92 per cent to 98 per cent!
OIC Exchanges
So, what is the situation in Muslim countries with stock exchanges if we apply the international syariah screening standards of Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI)? Typically, the largest economic sector in most Muslim countries is the conventional financial sector, and many companies have small free float and illiquidity issues.
Thus, today’s syariah screening work well in the large and efficient G-10 markets, but not in the Muslim countries. The scholars need to look at the screening situation in OIC countries and, like converting a conventional bank into an Islamic bank, suggest ways and time frames to ‘Islamisise’ non-financial companies in Muslim countries to become compliant.
Additionally, because of automated screening of many of the index providers, many Islamic fi-nancial institutions, like Islamic banks, Takakful, Islamic leasing companies, etc, are sector screened out because classification deems them as “conventional financial” companies! Thus, the present methodology Islamic indices screen out syariah based or syariah by law companies!
(Full Disclosure: on June 27 in Kuala Lumpur, Thomson Reuters and IdealRatings, launched the world first research based Islamic indices following AAOIFI screening standards, TR-IR Islamic Indices, to address many of the concerns raised by fund managers and some scholars associated with automated syariah screening. The concerns go to credibility, especially if there are companies in an Islamic index that are not compliant, as usually associated with revenue streams breaching the 5 per cent threshold!)
High profile?
Thus, today, we have many Western companies in Islamic indices, but are they excited about being in such an index? These companies are neither vying to get into an Islamic index, nor promoting their inclusion in an Islamic index. Additionally, because there are very few Islamic index funds and ETFs, there is very little incentive to get into an Islamic index, as the assets under management for such funds is very small.
Second question is, how are Islamic indices covered in newspapers in Islamic finance hubs, like Malaysia, UAE, etc? The front pages of the business section of NST or GulfNews has previous day performance/closing of conventional indices, bond indices, currency rates, gold and oil prices, but no Islamic index performance! Yet, another reason for companies not to publicise as no publicity in an Islamic index!
Thus, in 11 years of Islamic indices in the public domain, we have:
* Thousands of Islamic indices but very few actually utilised for funds
* Mostly western/conventional screened companies in a global Islamic index, and neither have interest in being in an Islamic index nor promoting their inclusion
* Most of the funds are either in Malaysia or Saudi Arabia with bias towards actively management, and assets under management is small on average
* The print media may have daily stories about Islamic finance, but does not include Islamic indices where conventional indices are located
Surely, syariah-compliant screened companies from the western capital markets cannot be said to give a pulse of Islamic fi-nance as no major link to Islamic finance, except possibly selling their products and services to Muslim world. They may provide, at best, a pulse of fund flows, especially for global Islamic equity funds.
But, two important inter-related questions need to be raised and addressed:
• how to capture the pulse health of Islamic capital markets with equity indices indexes and
• how to build out the Islamic equity capital market to balance the present build out and bias to the Islamic debt capital market?
Conclusion
It must be emphatically stated that today’s syariah-screened indices are permissible and acceptable for all Islamic investors, be they Muslim or non-Muslims, even though there is a bias towards western “conventional” companies. Thus, today’s Islamic equity indices are very much like an Islamic window or subsidiary of a conventional bank holding company, both are scholar approved. But, is that enough?
To those important institutional entities, like pension funds in Muslim countries, that give out mandates for syariah-compliant investing, they need to dangle the “financial carrot” for more precise screening from committed index providers. Pension funds, with Islamic allocations, are the entrusted representative of less-informed Muslim investors, hence, they must be demanding on index providers for not only more thorough scree-ning but also purification.
The last 11 years raised the many issues in Islamic indexing. Now, looking forward, Islamic indexing in next 11 years, 2022, will have high-profile syariah-based indices, carried by many western media, have many passive funds off of it, and provide financial pulse of Islamic finance and Islamic equity capital markets, Inshaallah!
Best Regards

Dr. Zulkifli Hasan
Durham University Summer Congregation 2011. With Reader in Political Economy and Islamic Finance, Dr. Mehmet Asutay
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July 25, 2011
DR. ZULKIFLI HASAN
My Publication: Shari”ah Governance Practices in Malaysia, GCC Countries and the UK
Salam,
Dear My Weblog Readers,
I am happy to share with you my recent article published in the International Journal of Islamic and Middle Eastern Finance and Management. This article provides some interesting information and findings on the actual Shari’ah governance practices in three different jurisdictions.
For full article, click here:
A survey of Shari’ah Governance Practices in Malaysia, GCC Countries and the UK
Enjoy reading!
Best Regards

DR.ZULKIFLI HASAN
Durham University Congregation 2011. With Emeritus Professor Rodney Wilson.
Islamic finance news
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July 22, 2011
DR. ZULKIFLI HASAN
My New Contact Information
SALAM,
Dear my weblog readers,
Alhamdulillah, I am very delighted to inform you that I have successfully obtained my Ph.d and now back in Malaysia for good.
Any future correspondence, you may either contact me via e-mail zul361977@yahoo.com or send a letter to the following address:-
Faculty of Shari’ah and Law

Islamic Science University of Malaysia

Bandar Baru Nilai

71800 Nilai

Negeri Sembilan

Malaysia
Many thanks for your supports and responses on every updates, issues and information posted in my weblog. I will continue this small endeavor and consider it as one of my humble contributions to the knowledge on the subject.
Best Regards

DR. ZULKIFLI HASAN
Durham University Summer Congregation 2011. With my best supporter, Mrs Hanani Harun.
Islamic finance news
1 Comment
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AUTHOR
DR. ZULKIFLI HASAN
Menu
Welcome to My Blog of Knowledge

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My Thought

My ‘Quest for Meaning’

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My E-Lecture Series

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Islamic Science University of Malaysia

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Search
Al-Baqarah, 2:275
Calendar
July 2011

M

T

W

T

F

S

S

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31
« Jun
Aug »
Academic
Centre for Islamic Area Studies at Kyoto University

Durham Islamic Finance Programme

Harvard University Islamic Finance Project

IIUM Institute of Islamic Banking and Finance

INCEIF

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