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Saturday, 25 December 2010

Is Islamic finance the new challenge to Wall Street?


(Think Asian by Andew Sheng)

I WAS in Kuala Lumpur in October attending the Global Islamic Finance Forum, organised by Bank Negara and the Malaysian International Islamic Finance Centre. The whole glitterati of the Islamic world was here, and coincidentally, the HSBC Asia Board also held its meeting, so it was also good time to catch up with all the Hong Kong good and great, including the incoming taipans at the bank.

In the 1990s, Islamic finance was a fledgling fringe industry. But today, its size has grown from roughly US$150bil to about US$1 trillion in size. This is, of course, still small relative to some of the largest global fund managers and universal banks, who manage more than US$1 trillion each. But the double-digit growth and potential size of the market cannot be ignored. Some pundits think that the market size will reach US$2 trillion within the next five years.
There are roughly 1.3 billion Muslims in the world, with 138 million in India and roughly 30 million in China. These are growing markets in terms of income and wealth. As the Muslim community seeks to invest in interest-free banking, Islamic funds have been growing in leaps and bounds. Today, there are roughly US$800bil in Islamic banking funds, US$100bil in the sukuk (or Islamic bond) market and another US$100bil in takaful (Islamic insurance) and fund management business. Hong Kong, of course, introduced the Hang Seng Syariah Compliant China Index Fund in 2008 to attract Muslim investors.
As oil prices continue to remain at high levels, the Middle East oil-producers will continue to generate surpluses that must be parked somewhere. With the Western markets and economies under pressure, some of that money has moved Eastwards.
Will Islamic finance be a serious challenge to traditional Wall Street finance' That is a question that deserves a good answer.
First of all, thanks to the good work of Bank Negara and the Gulf central banks, the infrastructure for Islamic finance has been laid, with the establishment of the Accounting and Auditing Organization for Islamic Financial Institutions or Aoffi, the Islamic accounting standards authority, the Islamic Financial Services Board or IFSB, the international Islamic financial regulatory standard-setting organisation and the Institute for Education in Islamic Finance or Inceif. The International Shariah Research Academy for Islamic Finance or Isra also provides an invaluable website that is increasingly the transparent source for syariah interpretations on what is considered acceptable under Islamic law.
For people unfamiliar with Islamic finance, the basic principle of Islamic banking is the sharing of profit and loss and the prohibition of usury. Simply put, interest is prohibited, but profit sharing is not. A cynic can say that with zero-interest rate policies adopted by advanced country central banks today, they are also practicing Islamic banking.
The distinctive elements of Islamic finance are its ethical element (the prohibition of usury and exploitation of the borrower), the preference for trading in real assets (rather than synthetic products), partnership between the investor and investee and its governance structure (requiring a syariah council).
The point to remember in Islamic finance is that there is no Islamic global reserve currency. Although Islamic banks are growing rapidly, there is no assurance that they are not subject to the problems of non-performing loans and bank runs that are endemic in commercial banking.
What has been most innovative was the launching this week of anInternational Islamic Liquidity Management Corp (IILM) aimed to assist institutions offering Islamic financial services in addressing their liquidity management in an efficient and effective manner. This institution addresses one of the fundamental problems of Islamic financial institutions the provision of adequate liquidity in times of stress. Once there is an international lender of last resort facility (to supplement and not to replace national facilities), there would be better confidence in the liquidity of the Islamic financial services industry.
The IILM is expected to issue high quality syariah-compliant financial instruments at both the national level and across borders to enhance the soundness and stability of the Islamic financial markets.
The signatories of the IILM Articles of Agreement are the eleven central banks or monetary agencies of Indonesia, Iran, Luxembourg, Malaysia, Mauritius, Nigeria, Qatar, Saudi Arabia, Sudan, Turkey and the United Arab Emirates. The Islamic Development Bank and the Islamic Corp for the Development of the Private Sector are the multilateral organisations participating in the initiative.
Islamic finance has come a long way, but there is still a long way to go, since US$1 trillion is still small relative to US$232 trillion in conventional financial assets (excluding derivatives).
The real test with any challenger to Wall Street finance is whether Islamic finance will be more efficient, more ethical and more stable. Islamic finance fulfills the needs of the Islamic customer. Ethics aside, there are two crucial problems in finance information asymmetry and the principal-agent problem. Because markets are not completely transparent and information is unequal among market participants, we tend to rely on trusted agents, such as banks, to act on our behalf. Financial institutions are fiduciary agents on behalf of the principals, the real sector savers and borrowers.
What this Wall Street crisis has demonstrated is that complex financial engineering enabled very smart bankers to make profits at the expense of the public purse, because they have become larger (five times greater than GDP). When they fail, the public bears the losses because they are too large and too powerful to fail. This is not the level playing field that is a pre-condition of free markets.
The real question is that under information asymmetry, how do the principals know that the risks of the agents (the banks) have shifted to principals through moral hazard' Islamic finance faces exactly the same dilemma.
If Islamic finance theoreticians can solve this problem, they would be doing a great service to the rest of the world. Then we would truly have an alternative to Wall Street.
● Tan Sri Andrew Sheng is adjunct professor at Universiti Malaya, Kuala Lumpur, and Tsinghua University, Beijing. He has served in key positions at Bank Negara, the Hong Kong Monetary Authority and the Hong Kong Securities and Futures Commission, and is currently a member of Malaysias National Economic Advisory Council.
(The Star, M'sia)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant/Speaker/Motivator : www.ahmad-sanusi-husain.com 
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Schedule of Islamic Finance Events : Jan - April 2011

*Workshop Islamic Wealth Management and Financial Planning - 19 Jan 2011 (Kuala Lumpur)
*Workshop on Islamic Banking and Finance - 9 Feb 2011 (Kuala Lumpur)
*Workshop Islamic Wealth Management and Financial Planning - 16 Feb 2011 (Kuala Lumpur)
*Bengkel Perbankan dan Kewangan Islam - 9 Mac 2011 (Kuala Lumpur)
*International Conference on Islamic Wealth Management - 21-22 March 2011 (Kuala Lumpur)
*Global Islamic Finance Conference - 18-19 April 2011

Register/reserve your seat here

Friday, 26 November 2010

Workshop on Islamic Wealth Management & Financial Planning : 19 Jan 2011 - Kuala Lumpur, Malaysia



Workshop on Islamic Wealth Management and Financial Planning

Date : 19 Jan 2011

Venue : Quality Hotel City Centre, Kuala Lumpur, Malaysia

Topics:

i) Overview and issues on Islamic wealth management and financial planning
ii) Islamic wealth creation and accumulation
iii) Islamic investment : recommended Islamic investment avenues
iv) Islamic wealth protection / risk management : takaful
v) Islamic wealth distribution / Islamic estate planning : Islamic wills, faraid etc
vi) Islamic wealth purification : zakat etc
vii) Retirement planning


Facilitator:

Ahmad Sanusi Husain
-Certified Islamic Financial Planner (IFP)
-Islamic Finance and Investment Consultant
-Motivator
(profile: http://ahmad-sanusi-husain.blogspot.com)

Who Should Attend:

Managers, officers of financial institutions and corporations, Islamic financial planners and consultants, university lecturers and students, lawyers, investors and other related parties.



Your investment (fee structure):

NORMAL FEE:

RM600 - Malaysians
USD250 - International

Early bird fee: (registration with payment by 20 December 2010)
RM500 - Malaysian
USD200 - International

GROUP DISCOUNT: (3 persons and above)

After early bird date (20 December 2010):
RM500 - Malaysians
USD200 - International

Before of by early bird date (20 December 2010):
RM400 - Malaysians
USD150 - International

Special fee for FULL-TIME university students:
RM300 - students in Malaysia
USD120 - students outside Malaysia


Organiser:

AlFalah Consulting
UOA 2 Centre (KLCC)
Kuala Lumpur

Tel: +6019-234 8786 / +6012-610 0526 / +010-295 7990

organiser's web site : http://alfalah-consulting.blogspot.com

e-mail: 
alfalah.consulting@gmail.com

REGISTER:

alfalah events registration
or
register at facebook event


hotel's web site: http://www.quality.com.my

Monday, 15 November 2010

Untapped $105 Billion Endowments May Boost Shariah Funds


Managers of Islamic endowments with $105 billion in assets are seeking to diversify out of bank deposits, providing Shariah-compliant funds with the chance to capture new business, Ernst & Young LLP says.
These “largely untapped” endowments, or awqaf, have as much as $40 billion of cash parked at commercial banks, Ashar Nazim, Manama-based executive director and head of Islamic financial services for Ernst & Young, Bahrain, said in a telephone interview Nov. 9. Awaqf typically consists of cash or assets, including land and buildings, donated by individuals or institutions for charitable and religious purposes.
“Over the next 18 months, the Islamic endowment segment could prove to be a major stimulus for growth in the Islamic funds industry,” Nazim said. “They realize that they cannot manage it on their own and they need to involve the formal financial industry.”
Assets held by Islamic funds have stagnated at around $52 billion since 2008, according to Ernst & Young in its Islamic Funds & Investment Report published in May. The combined wealth of the Middle East’s more than 400,000 millionaires grew 5.1 percent in 2009 to $1.5 trillion,Cap Gemini SA and Bank of America Corp.’s Merrill Lynch unit said in June.
Islamic endowment institutions should diversify their real- estate holdings into government sukuk and other products, Nida Raza, senior vice president of capital markets at Bahrain’s Unicorn Investment Bank BSC, said in telephone interview yesterday from Manama.
Property Slump
Real-estate prices have tumbled more than 50 percent since their 2008 peak in Dubai and 30 percent in neighboring Abu Dhabi as banks tightened mortgage lending and speculators fled the market. Property is used as collateral for Shariah-compliant bonds, which are backed by assets and pay a share of profit instead of interest.
“The demise of real estate in the global market has woken a lot of people up,” Raza said. “For the awqaf, a long-term investment meant real estate, but as more and more products are realized in the Gulf region, more longer-dated sukuk and sukuk funds, you’ll start seeing the diversification from the endowment fund perspective.”
Global sales of Islamic bonds fell 29 percent to $13.7 billion this year from the same period in 2009, according to data compiled by Bloomberg.
Shariah-compliant bonds returned 12 percent this year, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index, compared with a 15.5 percent gain in developing markets, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.
Markets in Bahrain, the United Arab Emirates, Dubai, Kuwait and Qatar are closed Nov. 16-18 for the Eid Al-Adha holidays, Nov. 16-17 in Saudia Arabia and Nov. 17 in Malaysia.
Bahrain’s Research
As much as 80 percent of assets owned by Islamic endowments are donated real estate, Ernst & Young’s Nazim said. Islamic mutual funds account for 5.5 percent of the estimated $939 billion Shariah-compliant industry, according to the company’s May report.
“These are prime properties, with huge scope for enhancing value through professional investment management of the portfolio,” Nazim said. “While awqaf institutions have been successful in mobilizing donors’ money and disbursing it for the defined causes, they typically don’t possess asset management capabilities.”
Bahrain’s Waqf Fund, started in 2006 with $4.6 million from the central bank and Islamic financial institutions, provides money for training and research on the industry, according to the bank’s website.
Malaysian Program
Maybank Islamic, the Shariah-compliant unit of Malaysia’s largest lender, started a awaqf program in July that will allow Muslims to make religious donations through the bank, Abdul Wahid Omar, chief executive officer of Malayan Banking Bhd., said on Aug. 20. Maybank Islamic will then work with awaqf to manage the funds, he said.
The yield on Malaysia’s 3.928 percent Islamic note due in June 2015 climbed 12 basis points today to 2.79 percent, according to prices provided by Royal Bank of Scotland Group. The extra yield investors demand to hold Dubai’s government sukuk rather than Malaysia’s was little changed at 368, according to data compiled by Bloomberg.
The difference between the average yield for sukuk and the London interbank offered rate widened 1.5 basis points to 333 points on Nov. 12, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index.
“Any kind of infusion of new opportunities, whether it’s in the form of cash or human resources, that’s significant for the industry,” Shaykh Yusuf Talal DeLorenzo, Dubai-based chief Shariah officer and board member of Shariah Capital Inc., said in an interview in Dubai on Nov. 11. “Asset managers really haven’t had the opportunities to interface and work” with endowment institutions.

(Bloomberg)


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Friday, 12 November 2010

Islamic banks grow as recession impact muted

HONG KONG — Islamic banking is gaining popularity in emerging markets after helping some financial institutions avoid the worst of the economic meltdown.
In its simplest form, Islamic banking requires that financial products — from mortgages to savings accounts — be structured to comply with sharia law under the Quran. Sharia law restricts rates and encourages clear terms, which means that under an Islamic home financing, banks can't charge interest, but may buy the property outright and lease it back to the consumer for a set amount each month.
From 2007 through 2009, Islamic banks' assets grew an average of twice as fast as conventional banks' assets in major Muslim markets, research released in September by Maher Hasan and Jemma Dridi of the International Monetary Fundshow. While Islamic banks weren't necessarily more profitable than traditional institutions during this time, they were able to extend credit to customers at a faster rate.
Islamic banks' growth, along with their tendency to avoid excessive leverage and risk-taking — most didn't have the off-balance-sheet loans or derivatives that nearly toppled the U.S. banking system — have given some consumers, even non-Muslims, a new appreciation for the sector.
"People got a little concerned about the conventional (banking) sector, and the interest to explore Islamic banking has increased," says Afaq Khan, chief executive for Standard Chartered Saadiq, an Islamic bank launched by the U.K. company.
Overall, while Islamic banking has gained ground most rapidly in the Middle East, the "focus now is on the Asia-Pacific region," says Prathima Rajan, a Celent analyst.
Assets in the Asia-Pacific region reached $450 billion — roughly 60% of the global industry — by 2007, the latest data available, according to Celent. Given the industry's 10% to 15% annual growth rate in the last decade, total assets are likely approaching $1 trillion.
Within Asia, Malaysia is a growing hub for Islamic finance. But other nations, including Singapore, South Korea and Hong Kong, are also competing for these assets.
Nations are eager to attract investment from the Middle East to fund infrastructure, airports, toll roads and real estate projects, according to Rushdi Siddiqui, global head of Islamic finance for Thomson Reuters, a data and information firm.
Eddie Yue, deputy chief executive for the Hong Kong Monetary Authority, said in a speech last year that a "key part of the government's strategy for developing Hong Kong as an international financial center is a focus on Islamic finance."
An Islamic mutual fund and equity index have been launched in the city as it tries to become a gateway to the greater China market for Middle East investors. CIMB, a Malaysia bank, also helps arrange "sukuks," or Islamic bonds, and other forms of financing in Hong Kong.
Islamic banking comes with risks, however. The interpretation of what's allowed under sharia law can vary from country to country. Islamic banks have also been the target of lawsuits, including those filed by the families of victims of the Sept. 11 attacks, alleging that they financed terrorist activities. And like conventional institutions, Islamic banks can be vulnerable to property and equity market downturns.
"This is not a subsector of the financial sector that's isolated from broader market trends," says Rachel Ziemba, a senior research analyst at Roubini Global Economics.
These issues, critics say, could tamp the long-term growth of Islamic finance. Yet, the short-term appeal — and one reason the customer base is growing rapidly, at least for now — is that Islamic banking operates on relatively simple and easy to understand principles.
"It is considered boring finance, but boring finance is in vogue after the (financial) crisis," Siddiqui says.
The Vatican has taken the unusual step of expressing support for Islamic banking, suggesting in a 2009 issue of its publication L'Osservatore Romano that conventional banks can regain clients' trust by adopting the "ethical principles" that form the cornerstone of Islamic finance.
Modern-day Islamic banking got its start more than three decades ago, with the opening of the Islamic Bank of Dubai in 1975. Other banks in the Middle East entered the market, and Islamic banking eventually spread to Asia and Europe. Islamic banking even gained a foothold in the United States: A handful of community banks there now offer sharia-compliant products.
Western institutions including CitibankHSBC and Standard Chartered have also broken into Islamic banking in the Middle East and Asia. Standard Chartered Saadiq, for instance, has expanded to six countries in seven years, buoyed by client interest.
The bank offers savings accounts to individual customers, as well as sukuks and other types of Islamic financing to corporate and government clients.
Critics see Islamic banking as merely another way to charge consumers fees. But Stephen Lange Ranzini, CEO of University Islamic Financial in Ann Arbor, Mich., says "the ingredients are very different" from conventional banking.
So are the risks to customers. If a consumer defaults on an Islamic home financing, the bank could take the house, but the consumer's personal assets wouldn't be at risk, as could be the case with a traditional mortgage.

All eyes on Islamic finance

KUALA LUMPUR: Islamic financing is gaining popularity in many non-Muslim countries such as Britain, Australia, New Zealand, South Korea and Singapore in recent years, Gatehouse Bank PLC chief executive officer Richard Thomas said.
“We are seeing greater interest in Islamic financing, especially by corporations in non-Muslim countries,” he said at the World Congress of Accountants yesterday.
Thomas was one of the guest speakers at the second plenary session of the congress titled Islamic Finance: Strengthening the Global Market.
He said Islamic financing, which currently is operating under banking and non-banking institutions, were growing at different rates depending on the region.
“For example, Islamic financing in the banking sector in Britain is now growing at 15% to 20% annually, while in certain places in the Gulf it can be as high as 50% per annum,” he noted.
According to an International Monetary Fund report, Islamic financing was growing at about 8% globally.
However, Thomas said there were a host of factors impeding the growth of Islamic financing.
“Islamic financing can grow faster but the current taxation laws and conventional accounting practices have not kept pace with the global expansion of Islamic financing,” he noted.


Links:

Wednesday, 10 November 2010

Inner Dimension of Zakat - Excerpts from Ghazali's Inner Dimension of Islamic Worship


Certain inward attitudes and duties are incumbent on those who seek, through the payment of Zakat, that which leads to good in the Hereafter:
1. Knowing Zakat's purpose and significance
To understand the necessity of paying Zakat, how it represents a test of character, and why it has been made one of the fundamentals of Islam, even though it is a financial transaction and not a physical  act of worship.
Three points deserve consideration here:
(a) Testing the degree of love for Allah
To pronounce the two sentences of the Confession of Faith(Shahada) ("There is no God but Allah-Mohammad is God's Messenger") is obligatory as affirmation of the Divine Unity and testimony to the singleness of the One to Whom all worship is due.
Complete fulfillment of this obligation requires that he who affirms the Divine Unity should direct his love to none but the One, the Unique.
There is little value in mere verbal affirmation.The degree of love is tested only by separating the lover from other things he loves.
Worldly goods are an object of love in everybody's eyes, being the means by which they enjoy the benefits of this world. Because of them, we become attached to life and shy away from death, even though death leads us to meet the Beloved (Allah).
The truth of our claim to love God is therefore put to the test, and we are asked to give up the wealth which is the apple our eye.
That is why Allah said: "God has bought from the believers their persons and their goods,
Paradise being theirs for the price " (part of Quran: 9:111).
Allah also says that true piety means giving away one's wealth, in spite of love for it, to close relatives, orphans, the wayfarer and beggars, and for the emancipation of slaves (see Quran 2: 177) .
(b) The elimination of miserliness
The Divine decree by which Allah bids His servants to spend their wealth, is also significant  in purging the habit of miserliness, which is a deadly sin.
"And whosoever is saved from his own covetousness, such are they who will be the successful" (Quran 59:9).
The habit of miserliness is only eliminated by making oneself accustomed to spending money, for to break an attachment one must force oneself away till a new habit is found.
The purity he acquires is in proportion to his expenditure, to his delight in giving away and to his joy in spending for the sake of Allah.
(c) Expression of gratitude
The third factor is gratitude for benefits received, for the servant is indebted to Allah for personal and material bounties
2. Payment of Zakat at the proper time
The second duty with regards to Zakat concerns the time of payment .
A good practice is to anticipate the moment when payment is due.
This demonstrates a willingness to comply by bringing joy to the hearts of poor, forestalling the obstacles time might place in the way of charitable action, being aware that there are dangers in delaying payment, as the servant runs the risk of disobedience should he or she postpone beyond the appointed moment.
Whenever the impulse to good arises from within,the opportunity must be grasped at once as the believers heart lies between the two fingers of the All-Merciful. Yet how fickle is the heart! The devil threatens poverty and bids us to commit atrocious and abominable deeds.
Demonic suggestion follows hard on the heels of angelic inspiration. One should therefore seize the opportunity and fix a definite month for giving Zakat (if one is used to paying it all at once.)
One should endeavor to choose one of the most opportune times to pay Zakat, resulting in more closeness to Allah and compounding the value of the Zakat.
One such favorable time would be month of Muharram, since it is the first month of the Islamic year and one of the sacred months. Another is Ramadan.
3. Give In Secret
The third duty is secrecy, for this is farthest removed from hypocritical display and reputation-seeking.
Allah says, "If you disclose your Sadaqat (alms giving), it is well, but if you conceal it, and give it to the poor, that is better for you. (Allah) will forgive you some of your sins. And Allah is Well-Acquainted with what you do" (Quran 2:271).
According to one Hadith, the Prophet said, "Seven people will be shaded under Allah's Throne on the Day on which there will be no other shade: (1) a just ruler, (2) a young person who worships Almighty Allah, (3) a person whose heart is attached to Masajid, (4) two people who love one another for the sake of Allah, and who come together and part for His sake, (5) a man who is called by a beautiful woman of good family, but refuses her, saying ‘I fear Allah', (6) a person who gives his money in charity so secretly that his left hand does not know what his right hand gives, and (7) someone who remembers Allah privately, so that his eyes brim with tears." (Bukhari, Muslim).
According to one of the scholars, " Three things are accounted among the treasures of righteousness, one of them being to give Alms in secret."
Whenever fame is the donor's objective, his work will be in vain, since the purpose of alms giving is to eliminate miserliness and to weaken the love of wealth. But the love of status has a stronger hold over the soul than the love of wealth, and both of them have deadly consequences in the Hereafter.
4. Give openly
The fourth duty, when one knows that such conduct will tend to encourage others to follow suit, is to let one's giving be seen.
In doing so, however, one must be inwardly on guard against hypocritical motives.
Apart from the expectation of gratitude and the risk of hypocrisy, there is another danger in visible alms giving, namely that of offending a poor man's dignity. It may be hurtful to him to be seen to be needy.
But someone who begs in public is bringing the disgrace upon himself; there is therefore no sense in being wary.
5. Avoid Taunting and Hurting
The fifth duty is not to invalidate one's alms giving through taunting and hurting.
As Allah said, "Do not make your Alms giving void by taunting and hurting."(part of Quran 2: 264).
Taunting is reminding a person of a favor, while hurt lies in making it known. According to others taunting is to exploit a person in return of a gift, while hurt lies in making him feel ashamed of his poverty.
Still others say that taunting means making one's gift an excuse for arrogant behavior.
One should therefore realize that giving alms is actually paying Allah,Great and Glorious is He, what is due, while the poor person is actually receiving his sustenance from Allah.
Anyone who grasps the significance of the three points mentioned above while discussing the purpose and importance of the Zakat, or even one of them, realizes that he is a benefactor only to himself , through spending his wealth either to demonstrate his love of Allah or to purge himself or herself of the voice miserliness, or to give thanks for the blessing of wealth in the hope of receiving more.
6. Adopt humility
The sixth duty to think little of one's donation, for to regard it highly is to invite that pride which is one of the deadly sins, making good deeds worthless.
It must be recognized that ten of two and-a-half percent is a tiny fraction, and that to pay only this is to content oneself with the least generous level of expense as we have explained above.
This is something to be ashamed of rather to boast about. Even if one rose to the highest level, disbursing all or most of one's wealth, one should still reflect on where it came from in the first place, and for what purpose it is being spent.
For all wealth belongs to Allah. It is to Him that one should be grateful for for being given it and being enabled to spend it, so why pride ourselves on spending for the sake of Allah when it is actually His property?
And, if one's situation is such that one must look to the Hereafter, spending for the sake of spiritual reward, why boast of giving what one expects to receive many many times over?
As for action, one's giving should be done with a sense of shame at one's meanness in holding back the rest of one's wealth from God, Great and Glorious is He.
One's demeanor should be humble and abashed, like that of someone who is asked to hand back a deposit but returns only part of it and holds on the rest.
For all wealth belongs to Allah and He would prefer to see us give all we possess. If He has not commanded His servant to do so, it is only because that would be too hard on them by reason of their greed.
As Allah says: "If He were to ask you of it, and press you, you would covetously withhold, and he will bring out all your (secret) ill wills'" (Quran 47:37).
7. Give the best and the dearest
The seventh duty is to select from one's wealth what is best and dearest to one: the finest and most excellent part, for God,exalted is He. Allah is good and accepts only what is good.
If the offering has been acquired by dubious means, it may not strictly belong to the donor and will then be disqualified.
"O you who believe! Spend of the good things which you have (legally) earned, and of that which We have produced from the earth for you, and do not aim at that which is bad to spend from it, (though) you would not accept it save if you close your eyes and tolerate therein. And know that Allah is Rich, and worthy of all praise." (Quran 2:267).
8. Seek the Worthy and Deserving
The eighth duty is to seek out the truly worthy recipient for one's offering (Sadaqa), rather than be content with just anybody who happens to fall within the eight categories of legally qualified beneficiaries.
For among those generally eligible there are some with special qualities. Attention should be paid to these five qualities:
First, one should seek out those pious people who have renounced the world and devoted themselves exclusively to the business of the Hereafter.
Second, the recipient should be chosen from among the people of learning, to support him in his quest for knowledge. Learning is the noblest form of worship, so long as it is based on right intention.
Third, the recipient should be a person who kept his need to himself, not being given to fuss and complaint.
Fourth, the recipient should be someone with a large family or disabled by illness or some other cause.
Fifth, the recipient should be a close relative, whether paternal or maternal.
Each of these points should therefore be taken into consideration, for they represent the desired qualities. Within each quality there are further gradations, so one ought to seek the highest .
If anyone can be found in whom all these qualities are combined, that is the greatest treasure and the supreme prize. If one does one's best and succeeds, one gets a double reward, but even if one fails, there is still a single reward for the effort.


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Alfalah Consulting - KL: www.alfalahconsulting.com 
Islamic finance consultant: www.ahmad-sanusi-husain.com 
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

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