Professional Documents
Culture Documents
1.0 Introduction
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Professor and Head, Banking Department email:saiful@inceif.org
The prohibition of riba (usury) and the implementation of the zakat
system has been the backbone of Islamic economics, thus it is not
surprising that Islamic economics is sometimes labeled as capitalism
minus riba plus zakat. Focus on the financing aspects of economic
activities has been overwhelming. It is normal to see discussions on
Islamic economics to revolve around financial issues such as banking
and the capital market. Islamic finance seemed to have overtaken
similarly important issues such as economic methodology, the
problem of the consumer and the firm, market structures, factor
markets, public finance, poverty and economic development.
Islam does not see the above assumptions are false and evil. In fact
Islam recognizes scarcity as nature’s way arising from the two inherent
conflict between wants and ability. The limited resources assumption
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Property ownership of by virtue of work and effort (kasb,ikhtiyar), risk-taking (ghurmi), gifts
(hibah and wasiyah) and inheritance (faraid).
is made to show that man’s ability to exploit resources is limited by his
knowledge. In this manner economics looks at relative scarcity and not
absolute scarcity. The same applies to Islamic economics. There is no
absolute scarcity in Islam because the Quran says:
“It is Allah Who hath created the heavens and the earth and sends down rain from the
skies, and with it bringth our fruits wherewith to feed you; it is He who hath made the
ships subject to you, that they may sail through the sea by His Command; and the
rivers (also) hath He made subject to you. And He hath made subject to you the sun
and the moon, both diligently pursuing their courses; and the Night and the Day hath
He (also) made subject to you. And He giveth you of all that ye ask for but if ye count
the favors of Allah, never will ye be able to number them”.
Islam also recognizes that human desires are not limited. This is
further attested by the Quran and Traditions that:
• What goods and services people want and how much? This is the
problem of the consumer.
The next question is why should man submit himself to the rules and
regulation ordained by God? That is, why must he obey God in
conducting economic activities? Why can’t he resort to reason and
facts in making resource allocation choices? The answer lies in the
conception of Islam as al-Din. Islam in general means submission.
Islam as al-din is also understood as a way of life. Interestingly, one of
the meanings of din is indebtedness, i.e. man indebtedness to his
Creator. The term din is extracted from the root word dyn. It is this
notion of indebtedness that gives deeper meaning to the reason for
human economic existence in Islam.
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Taqwa has been interpreted by many scholars as God-fearing but an accurate meaning is God-
consciounsness or awareness.
SMEs deserve more from the Islamic economics. One is certainly
spurning up their business plans in search for new capital.
Prevailing Islamic banking assistance in the form of bay inah and
murabahah facilities are not helping these halal SMEs in view of the
collateral they do not usually have. Partnership financing should
more suitable to attend their needs. Unfortunately, Islamic banks
do not provide partnership facilities in view of the high risk involved
in doing business with SMEs. This should have not taken place
given that the fundamental principle of Islamic banking is based on
al-bay (trade and commerce) where risk-taking under the rule of al-
ghorm bil ghonm or “reward comes with risk” predominates in all
aspects of banking transactions.
Partnership financing such as the musharakah and mudarabah
financing usually look at the strength of cash flows of the projects
at hand. Collateral and guarantors to the facilities are not
important as in interest-bearing loans, although they provide
comforts. To undertake this project poses a great challenge to
Islamic economists who should be able to provide financial models
for pricing risks. They can also learn from venture capitalist and
private equities to accommodate new parameters required by
Shariah.
5.0 Expanding Zakat base
Zakat plays a pivotal role in poverty eradication and income
redistribution of the Muslim people and it forms a critical component
of public finance in Islam. Zakat administration in essence deals with
the collection of Zakat from Zakat payers and distribution of Zakat to
the 8 recipients (asnafs). In the Federal Territories, zakat
administration is within the statutes of Federal government while in
the nine Malay States, it falls under the purview of the State Religious
Councils.
The increasing number of shareholdings by Muslims in business
corporations as well as companies using the Islamic label such as
Islamic banks and takaful companies has provide strong basis for a
systematic and efficient zakat system of collection and distribution.
The Securities commission provided quarterly report of Shariah
compliant companies in the local bourse averaging around 850
companies per listing. The Shariah screening is based on the
Securities Commission’s formula involving qualitative or core business
screening and financial screening. The latter serves to minimize
indirect contact with interest in the profit and loss statement.
Incidentally, the screening is a passive one, which means that listed
companies put no request to become the object of screening.
However, this may change when local companies are actively looking
for capital, while capital is abundant in the Arab countries. To fulfill
Arab values, namely Islam, these companies may have to ask the
regulatory authorities and even private companies to conduct the
screening based on several models including Dow Jones and FTSE.
The screening formula may even require the company to pay zakat on
behalf on existing Muslim shareholders, if any. Currently Islamic
banks have contributed positively to zakat. When we put together
zakat from Shariah compliant companies, the zakat base will get
bigger and hence the collection too. Distributional issues have been
heartache to many observers, which can be discussed in other
occasions
6.0 Cash Waqf
Waqf is a religious endowment and it involves giving away one’s
property such as plot of land for Muslim religious or charitable
purposes. More waqf were made as people become wealthy, which
means that waqf expanded with the level of economic growth and
development.
The institution of waqf in Islam constitutes the backbone of economic
development in early Islam. Waqf properties can be used as capital
when allowed by the founder (waqif). In the past, schools, hospitals
and public amenities were funded by waqf, thus relieving state
expenditure. Making waqf is driven and motivated by the ahadith that
says, “when the son of Adam died, his good deeds stopped except those
from three sources, namely the prayers of his pious children, his
charities (one of which is waqf) and his knowledge that people benefited
from”.
One type of waqf is cash waqf, wherein the founders gave away cash
instead of tangible assets. This is more pragmatic when people may
find it difficult to donate properties in large amounts or in the form of
physical assets.
In waqf, the waqf property shall remain intact or preserved while the
usurfruct is appropriated and used by the beneficiaries. In the case of
cash waqf, the mutawallis (trustee) can draw various models to
accommodate how the usurfruct can be best utilized by economic
agents. If it is capital that is needed, the usurfruct (and not the waqf
property) can be used as capital in project finance, either given away
as a grant or an interest-free loan or equity. In this way waqf is a
potent tool in financing economic development of Muslim
communities.
Thank You
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