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Saturday, 31 December 2011

Islamic money market starts its operations in Bangladesh

By Mizan Rahman
The Islamic money market began its journey in Bangladesh yesterday aiming to facilitate liquidity management of the Shariah-based Islamic banks and financial institutions.
“We’ve already started the operation of Islamic Inter-bank Fund Market (IIFM) for the first time in Bangladesh from Thursday, the last working day of this month,” a senior official of the central Bangladesh Bank (BB) told newsmen in Dhaka.
On December 21, the central bank took decision at a meeting with the chief executive officers and the managing directors of seven Islamic banks to introduce the Islamic money market by the end of this month.
As part of the preparations, two accounts were opened with Motijheel office of the central bank on Wednesday to make the IIFM operational.
One account will be used by the interested Islamic banks and non-banking financial institutions (NBFIs) to deposit their excess liquidity with Islami Bond Fund (IBF) for participation in the market.
Another account will be operated to adjust profit among the participating banks and NBFIs, the central bank official added.
“The IBF will act as a custodian of the excess fund of the Islamic banks and NBFIs under the arrangement,” another BB official said, adding that all transactions would be based on profit instead of interest.
“If a bank has excess liquidity, it may deposit the amount with IBF for a day, allowing another cash-starved Islamic bank to borrow for the same period,” the central banker said while explaining the rules and regulations of the new market.
“The central bank expects that the market will open a new window on investment of the Islamic banks’ and financial institutions’ surplus fund,” he noted.
Until now there is no tool for managing liquidity of the Islamic banks and NBFIs in Bangladesh.
Some Islamic banks use their surplus funds among them through an informal or unofficial money market, market operators said.
The Shariah rules cannot permit payment or receipt of interest by any individual or institution.
Currently, seven private commercial banks out of 30 are operating under the Shariah. The banks have their own Shariah Councils to dictate terms of banking under Islamic rules and regulations.
The banks are Islami Bank Bangladesh Limited (IBBL), Al-Arafah Islami Bank Ltd, Export Import Bank of Bangladesh Ltd, Social Islami Bank Ltd, Shahjalal Islami Bank Ltd, First Security Islami Bank Ltd and ICB Islamic Bank Ltd.
Two NBFIs are also operating their business based on Islamic Shariah.
Besides, 16 conventional banks are doing Islamic banking through setting up 20 Islamic branches and 21 Islamic banking windows, according to the BB’s latest Financial Stability Report.
Islamic banks showed a remarkable growth in the last calendar year, the report said, adding that the ongoing expansion of the Islamic banking network is also impressive.
As a proportion of the overall banking industry, the combined share of Islamic banks (excluding Islamic banking branches and windows of the conventional banks) was 15.11% in assets, 17.95% in investments (loans), 16.32% in deposits, 13.05% in equity and 15.30% in liabilities as of end of December 2010, according to the BB report. 
 (Gulf Times)

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Forbidden list for business transaction

Islam has not provided any exhaustive list of halal (permitted) business transactions. In fact, no list of this nature has been provided by the blessed Prophet (peace and blessings of Allah be to him). Rather, the guiding principle is that everything that has not been forbidden (declared as haram) is permitted. Hence a list of items and traits that make something forbidden has been described by the blessed Prophet.
This is a great boon for mankind as he has not been burdened with any description of permitted affairs as that would have made human life miserable. A small, countable and exact list of forbidden things has been pronounced and enlisted, leaving man free to take advantage of the vast scope of earning his livelihood and entering into any trade and business deals of his liking and in accordance with his abilities and available opportunities. It is like opportunity provided for Adam, our forefather, to visit any place in the Paradise and consume anything except the produce of one tree. It is another matter that man is tempted to do the forbidden act and thereby lose the Paradise itself! The message is the same even today; keep at bay the forbidden zone and exploit all other opportunities, the life on earth will become like that in the Paradise and this will, God-willing, pave the way for his entering the Paradise itself hereafter – this time eternally as we will be spared the test that our forefather faced.

The forbidden list and features relevant for business transactions are very limited; in fact, they are less than twenty in number. Any business venture not hit by the provisions of these less than twenty forbidden items and traits can be construed and considered Islamically in order. Here lies their relevance and importance. So to ascertain the correctness of any proposal, the correct approach is to examine whether or not it falls under any forbidden activity or attribute. If it is not improper, it must be proper. For everything is permitted if not expressly prevented.
Islamic scholars have described these principles under exclusive terms and qaaidah fiqhiya (jurisprudential principles) that may be called fiqh maxims. Our objective in this write-up is to reach the relevant texts (nasoos) of the traditions of the blessed Prophet for better understanding of the letter and spirit of principles. The relevant texts of the Holy Qur’ān are well-known and those can be found with little effort. However, some amount of searching will be required to reach relevant traditions of the blessed Prophet.
In order to understand these in their true letter and spirit, we will discuss these severally.

Both causing harm initially and reciprocating harm in response to the harm caused are not permitted. Prophet Muhammad (peace and blessings of Allah be to him) has, in a very popular tradition (hadeeth) has expressed his disapproval of both the types of harm – initial and the reciprocal.
“There is not to be any causing of harm nor is there to be any reciprocating of harm” [as reported by al-Daaraqutni, al-Baihaqi and al-Hakim, and narrated by Abu Saeed al-Khudry (may Allah be pleased with him)]. Other companions of the blessed Prophet such as ibn Abbas, Aisha, Jaabir, Ubada ibn al-Samit, Abu Hurairah, Abu Lubaadah and Thalaba and ibn Abu Maalik (may Allah be pleased with all of them) have also narrated this hadeeth.
The Arabic wordings, la dharar wa la dharar, is so much popular that it is often quoted as a phrase and axiom. Its literal translation would be ‘no harm and no reciprocal harm.’ This is in the form of a statement. However, when a statement comes from the blessed Prophet it becomes a commandment and is imperative upon the faithful to act accordingly. This is the spirit in which Islamic scholars have taken and described this particular Prophetic tradition.
Apart from the position that no person should harm any other person, this Prophetic tradition means that every person has the right to make sure that he is not harmed by any other person. This right of taking due care to ensure self-interest is ingrained in the principle of no-harm-and-no-reciprocal-harm. Business transactions are done on mutual consent and in pursuit of mutual benefits. Such deal on mutual benefit with free will cannot be ensured without abstaining from causing harm from both sides.
The difference of meaning of dharar and dharar has been understood by the experts in different situations. One view is that both the words mean the same and the latter is an expression of stressing the former. A more plausible and understandable view is that dharar is in reference to an act by which someone benefits but which, unfortunately, harms others. On the other hand dharar is an act by which no one benefits and only harm is brought upon others.” [Zarabozo, Jamal al-Din M; Commentary on the Forty Hadith of al-Nawawi; published by Al-Basheer Company for Publications and Translations, USA, Volume 3, P.1135-1160]
An act whereby a person himself is not benefited but it is meant to harm others is heinous. It is obviously wicked and evil. However, some discussion is required in the case where a person does not intend to harm others and he acts in self-interest only but, in effect, it affects others. Although no harm is intended but it harms others. These are the acts beneficial to one and harmful to another. This case has been discussed by almost all the schools of thought of Islamic jurisprudence. Jamal al-Din M. Zarabozo [ibid] has summed up these discussions brilliantly and concluded that virtually any act that a person does with his personal private property can be seen as an infringement or harm upon others. If an act performed in a normal manner causes a normally accepted and expected harm, a person should not be prevented from doing that. However, if the act is done in an improper manner and it causes unacceptable level of harm, the person so causing harm will be prevented and he will be liable for compensating any damage caused thereby. Performing an act in pursuit of any benefit is a right of a person and so barrier to performance will be raised only if the act brings unacceptable level of distress to others.  Another relevant deciding factor is that the interest of the general public will take precedence over the right-to-act of any person. The rights of the society may supersede the rights of an individual.
Another barring situation is the due process of law. A person may be harmed by owing to such process of law.

Fiqh Maxims are basically principles of jurisprudential thoughts in Islam which are applied in all areas of jurisprudence to ascertain law relating to any aspect of human life. The Prophetic tradition we are discussing is itself applied as afiqh maxim. Further, a number of fiqh maxims have also been derived from this tradition (hadith). Zarabozo [ibid] has enlisted the following eight such jurisprudential principles:
1.      “Harm is to be prevented from appearing as much as possible.” As prevention is better than cure, the approach should be to thwart the harm before it happens or remove it at the earliest if it has already appeared. Proactive action for averting harm is called for.
2.      “Harm is to be removed or put an end to.” A corollary of this principle is that the person responsible for the harm is responsible for the consequential damages.
3.      “Harm is not to be removed by a similar harm.”
4.      “A greater harm can be removed by a lesser harm.” A corollary of this principle is that if one has no other option, he should take the lesser of two evils. Another corollary is that if there is conflict between two evils, one should avoid the evil of the greater harm.
5.      “The presence of a particular harm is accepted to ward off a general harm.” As society’s need takes precedence over individual needs, harm to individuals or to lesser number of people will be accepted in order to prevent the harm to the general public.
6.      “Preventing evil takes precedence over bringing about some benefit.” The example of sale of intoxicants may be cited. There are admittedly economic benefits involved but the decision to prevent their transaction is based on their harm. Something may have both benefit and harm. In that case prevention of harm shall take precedence over getting the benefit.
7.      “If there is a conflict between factors calling for something and factors prohibiting something, the prohibition takes precedence.” 
8.      “Something harmful is not given precedence just because it was pre-existing.” Existence of anything, as such, does not always give it sanctity and justification for continuation. If it may cause any harm, it may be removed as prevention of harm is a more sacrosanct object.       
 ---by Dr. Waquar Anwar  []                                                                                 

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Thursday, 29 December 2011

Libya: Libyan Islamic banking law seen in March 2012

TRIPOLILibyan central bank may finalise Islamic finance regulations by March, in what would be the first major step towards introducing sharia-compliant banking in the country.
The bank's deputy governor, Ali Mohammed Salem, also told Reuters in an interview on Tuesday the exchange rate of the Libyan dinar would be fixed for up to three years, pegged to the IMF's special drawing right currency basket.
The government was expected to run a budget deficit in 2012, which will be financed domestically, he said.
"The banking law of 2005 will be changed by adding a new chapter regulating Islamic banking and once the law is approved, Islamic banks will be given licences," Salem said. "It is possible that it will be ready by the end of March."
Mustafa Abdul Jalil, chairman of the National Transitional Council, said in October Libya's new rulers were working on an Islamic banking system.
While that announcement raised speculation the entire banking system in Libya might be converted into an Islamic one,Salem said: "Islamic banks will compete with conventional banks. They can offer their services to customers who will decide for themselves".
Salem said licenses would be granted to both commercial and government-owned banks, adding policy on whether to grant foreign banks access to the Libyan market was yet to be formulated. "That depends on economic planning by the cabinet to build the national economy."
"The exchange rate will be fixed for one to three years to prevent it from shocks resulting from the current crisis in Libya," he said. "After three years, if the current interest rate is the best option it will be kept."
Libya's large cash reserves kept the dinar largely stable during the civil war that ended Gaddafi's 42-year rule, he said.
Salem said the central bank's major concern was to restore liquidity in the Libyan banking system, which was depleted of its dinar reserves when Gaddafi's entourage seized 3-4 billion dinars ($2.4-$3.2 billion) from the central bank. They also seized 2.3 billion dinars worth of gold, he said.
The problem was made worse when people rushed to the banks during the war, withdrawing 7 billion dinars, Salemsaid.
He said the central bank was working on injecting cash into local banks by printing 6 billion dinars, adding the first batch of 300 million dinars was delivered on Dec. 24.
"We will have nearly 3 billion dinars by March and that is enough to absorb the liquidity problems," he said.
On the unfreezing of Libyan foreign assets by the UN Security Council, Salem said the decision meant the central bank had immediate access to between $6-$7 billion cash. An estimated $150 billion had been frozen by the UN resolution.
Turning to how a 2012 government deficit might be financed, Salem said: "The current system is to issue bonds in the local market. It is not international borrowing. We have enough reserves, there is no need at the moment to go to the international market." (Reuters/28Dec2011)


Kashmir Aspires to Islamic Banking

Aspiring for a share of the booming industry, a leading Muslim leader has called for establishing an Islamic banking system in the Muslims-majority valley of Kashmir, reported the Greater Kashmirnewspaper.
“We will not refrain from meeting RBI [Reserve Bank of India] and other government agencies if needed for establishing Islamic Banking,” Mirwaiz Umar Farooq,  chairman of Hurriyat Conference, told reporters.
“We have to make serious efforts for it and soon we will constitute a team of economists to come up with the contours of establishing the system.”
Islamic banks escaped relatively unscathed world economic crisis as the religion prohibits subprime investing.
Islam forbids Muslims from usury, receiving or paying interest on loans.
Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.
Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.
The Islamic banking system is being practiced in 50 countries worldwide, making it one of the fastest growing sectors in the global financial industry.
A long list of international institutions, including Citigroup, HSBC and Deutsche Bank, are going into the Islamic banking business.
“Even non-Muslim countries in Europe and America have established Islamic Banking, why should not it be done here?” asked Farooq, who is also the patron of the Muttahida Majlis Ulema.
“Financial experts in the West opine that economic crisis can be overcome only by adopting the economic system suggested by Islam.”
Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.
“Jammu and Kashmir is a Muslim majority state and we need to speed up our efforts for introduction of Islamic Banking.”
Kashmir is divided into two parts and ruled by India and Pakistan, which have fought two of their three wars since the 1947 independence over the region.
Pakistan and the UN back the right of the Kashmir people for self-determination, an option opposed by New Delhi.
More than 60,000 people have been killed since Kashmiris took up arms against the Indian rule in 1989.
New Delhi has consistently rejected any foreign mediation to solve the Kashmir conflict, leaving Kashmiris empty-handed.


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