Latest from GIFC

Sunday, 31 March 2013

Sukuk (Islamic bonds) find favour in Australia

SHAUN DRUMMOND: INSURANCE AUSTRALIA GROUP BECAME MALAYSIA’S BIGGEST GENERAL INSURER WHEN ITS JOINT VENTURE BUSINESS AMG INSURANCE BOUGHT KURNIA INSURANS IN SEPTEMBER 2012. CHIEF EXECUTIVE MIKE WILKINS IS KEEN TO TAP INTO THE RAPID RISE IN TAKAFUL, OR ISLAMIC INSURANCE, WHICH ADHERES TO PRINCIPLES OF CO-OPERATION AS PRESCRIBED BY ISLAMIC LAW.

Wilkins’s interest in takaful extends beyond viewing Asia as an important growth market for IAG: he assisted with the preparation of Australia as a Financial Centre, a report released in late 2009, which recommended Australia pull down tax barriers in order to encourage Islamic finance. The federal government is yet to respond to a subsequent Board of Taxation review.
Wilkins stresses it is early days for IAG’s plans in Malaysia given the government is not issuing new takaful licences. But the growth is hard to ignore. “The takaful sector is likely to grow by about 20 per cent a year there,” he says.
Indonesia is also a target market for IAG and, being the largest Muslim state in the world, is another obvious market for takaful. “Given our interest in south-east Asia, and specifically Malaysia and Indonesia, our shareholders would at least expect us to explore the possibilities,” Wilkins says.
Under Islamic law, in order to fund its takaful liabilities, IAG would need to invest the cash flows received from policyholders into sharia-compliant products such as sukuk, or Islamic bonds.

RISE OF MALAYSIAN MARKET

Outside the Middle East, Malaysia has become the chief market to raise and trade Islamic finance instruments, and the vast majority of sukuk issuance now occurs there. At present, there is a low supply of issuers, compared to demand from investors, which is contributing to low yields.
Sukuk issuance dropped off during the global financial crisis but the instrument’s prohibition against interest payments appears to have shielded investors from the full force of the fallout. This resilience, along with high demand from Middle Eastern states seeking to park their piles of cash into sharia-compliant investments, has led to a rapid revival in the asset class.
Investor demand estimates vary. Ernst & Young forecasts sukuk demand is expected to triple from the present level to around $US900 billion by 2017. Thomson-Reuters is more conservative but still says demand will almost double from $US240 billion in 2012 to $US421 billion by 2016. Both agree that demand will continue to outstrip supply.
Thomson-Reuters says sukuk issuance, which reached $US121 billion in 2012, will more than double to $US292 billion by 2016.
So it’s a good time to issue. At present, issuance is dominated by sovereign funds and Islamic banks. Despite numerous Western countries amending their regulations in recent years to remove tax barriers to Islamic finance, offers by Western companies have been sporadic and mostly to fund operations in Islamic countries.
German insurer FWU Group raised $US55 million – the largest amount so far by a European company – in its first sukuk in Dubai in December. Several years ago, UK supermarket giant Tesco issued an Islamic bond to fund its Malaysian operations.

GOOD FIT FOR DEVELOPMENT

Sukuk favours cash flows generated by physical assets and contain various structures designed to provide steady income. These include returns based on a share of profits the asset generates, and often a transfer of ownership to a special purpose vehicle between investors and issuer which then leases the asset to the issuer.
The use of physical assets means it is often viewed as a good fit for infrastructure or property funding, suiting developing countries. The Malaysian government, for instance, has so far raised 1.5 billion ringgit ($458 million) in 2012 and 2013 to fund its biggest construction project, the Sungai Buloh-Kajang mass rapid transit network, with more than 400 million ringgit raised for the first time via a sukuk to retail investors.
Some believe sukuk investors could provide another source of funds for Australia’s high capital intensive industries and fill part of its looming infrastructure funding shortfalls.
National Australia Bank has been preparing to issue sukuk for some time with Malaysian investment bank CIMB for funding diversification purposes. It is understood Australian tax barriers are standing in the way. Non-bank lender FirstMac wants to securitise via sukuk sharia compliant mortgages it has sold in Australia for the past decade.
But where big financial institutions are tentatively exploring its potential, one small Australian company has dived in. In July 2013, a joint venture between Brisbane-based solar producers The Solar Guys and Mitabu Australia plans to raise $100 million in the first Australian dollar-denominated sukuk to build the first of five 50 MW solar power plants in Indonesia. The first one will be based in a “special economic zone” in the province of East Kalimantan on the island of Borneo. SGI-Mitabu plans to raise $500 million in total to finance all of the plants.
Mitabu director Rusdyi Mitabu is leading the financing, but the idea to use a sukuk initially came from the Kuala Lumpur branch of investment bank Kuwait Finance House. AM Bank (IAG’s joint venture partner in AmG Insurance) will lead the second $100 million tranche to build the next 50MW plant in either Bali or West Kalimantan.

SOLAR GUYS WARM TO IDEA OF SUKUK

SGI-Mitabu is raising the funds via the Malaysian International Business and Finance Centre on the island of Labuan, off the northern coast of Borneo. This was set up to attract capital by minimising Malaysian taxes for offshore issuers raising money for non-Malaysian based ventures. Another attraction of Labuan for Mitabu is the ability to raise the funds in Australian dollars, avoiding swap costs.
While some of the costs of the project will need to be paid in Indonesian rupees and to offshore manufacturers, the strong Australian dollar makes it a good currency to buy assets made overseas, such as solar panels. The panels will be bought from Japanese firm Kyocera.
Sukuk investors are also keen on Aussie dollars. “There is very strong appetite from the market for Australian dollar investments,” Mitabu says. “They would like to diversify away from US dollars.”
Sukuk yields have also recently hit record lows due to investor demand. Mitabu says he is looking to price at an equivalent return to investors of around 8 per cent. That may sound pricey to big companies. But he says on conventional bond markets, given the joint venture’s lack of credit rating, the fact it is relatively unknown and the risk allocated to Indonesia, they were looking at around 12 per cent.
The Solar Guys founder and commercial director, Dane Muldoon, says another reason to finance with the sukuk was good PR given the Indonesian government is keen to promote Islamic finance. He says solar power also suits Islamic investment principles. “Solar power is a good fit [for sukuk] in terms of the environment, in terms of the community,” he says. It is also an infrastructure asset that will have a steady stream of income selling electricity.
“Sukuk investors want to own an income-producing asset that has a consistent income per annum.” Solar power plants also don’t need to be finished before they can start generating an income, so he says benefits should flow to investors within about three months.
SGI-Mitabu is being courted by several other investment banks to do the final three raisings, including Malaysian bank RHB and Goldman Sachs.

MANY STRUCTURES, HIGHER COSTS

As in the traditional bond universe, there are numerous structures. Most now are asset-based, according to the global head of Islamic finance at Allen & Overy, Anzal Mohammed. This means that even though returns from the physical asset are the basis for the sukuk, there is also a guaranteed payment with recourse to the issuer in the event of default, just as in a conventional bond.
Mitabu’s sukuk is of the more traditional asset-backed variety, which means the issuer and the investor, in effect, share a proportion of the profits generated by the asset according to their level of investment. The asset is transferred to a special-purpose vehicle, and the issuer leases it from the SPV, with payments made in the form of rent, thereby avoiding interest.
Because they are like conventional bonds, some asset-based structures defaulted during the GFC due to the debt-like guarantees on returns. In asset-backed structures, investors share more of the risk with the issuer with recourse only allowed to the asset. If it doesn’t earn profits, neither does the investor.
The legal and structuring costs for sukuk are around 20 per cent higher, according to Mohammed. Part of the reason for this is the need to pay an Islamic scholar to rule on whether the sukuk complies with Islamic finance rules. SGI-Mitabu used scholars from the International Research Centre For Islamic Finance at Lorong University in Kuala Lumpur. They have ruled investors cannot trade their certificates until the power plant is constructed as the sukuk will be too much like debt up until that point.
While the pricing SGI-Mitabu could get, and the project being based outside Australia in an Islamic country, meant a sukuk suited its purposes, other Australian companies seeking to tap the sukuk market still face barriers. For larger companies, the pricing differences between sukuk and conventional financing may not be great enough to take a risk in a new market. Then there are the tax barriers.

TAX BARRIERS CAN BE SURMOUNTED IF NOT REMOVED

At present, because sukuk is based on several transfers of assets into and out of an SPV, it falls foul of federal capital gains tax and state stamp duty, as well as income tax laws relating to infrastructure funding. This would generally increase the cost of issuance well above a conventional bond.
Countries such as the UK, Germany, Turkey and Japan have removed similar tax barriers to Islamic finance. Australia’s Board of Taxation recommended amendments to tax laws to remove the double taxation in July 2011, but the federal government has not responded.
Some advisers, however, say potential issuers don’t need to wait for tax reform. Almir Colan, head of the Australian Centre for Islamic Finance, says the tax issues are surmountable now, with separate rulings available from the Tax Office for structures. He also points out Victoria has amended its stamp duty rules to remove barriers to Islamic finance.
Corrs Chambers Westgarth special counsel Rhys Jewell says sukuk has a role to play in financing infrastructure in Australia. But he says sukuk for Australian projects is likely to mainly be a source of diversification and funding competition. “It may be one of the pieces to the puzzle when trying to finance a project especially if there are only a few players that might be able to finance them,” he says. “It may increase the competitive tension between the financiers to help reduce the cost of finance.”
Anzal Mohammad believes Western companies are waiting for a big issuer, a global bank for instance, to test the Islamic market for them.
(Financial Review / 27 March 2013)

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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

Insights into Islamic Investment Management from a CFA Charterholder in Pakistan

To gather insights into Islamic investment management from experienced CFA charterholders from different countries, we will be conducting a series of interviews. In the first interview of this series, we discuss Islamic investment management with Mohammad Shoaib, CFA.

Shoaib is the chief executive officer of Al Meezan Investment Management Limited based in Karachi, Pakistan. He earned his CFA Charter in 1999. In addition, he holds an MBA from the Institute of Business Administration, Karachi, which is now a program partner of CFA Institute. He has 23 years of work experience, including 10 years in Islamic investment management.
CFA Institute: Tell us about your market and how it has evolved over the years.
Shoaib: The first conventional fund was launched in Pakistan in 1962, and the first Islamic fund was launched in 2002. The Islamic fund management industry is about 12% of the overall fund management industry. All types that are available in the conventional arena, are also available on the Islamic side also. For example, we have Islamic equity, money market, sovereign, corporate fixed income, index tracker, capital protected, and defined contribution pension funds. The market is concentrated; of the total size of USD520 million managed by Islamic funds, about USD400 is being managed by Al Meezan Investment Management Limited
How has the market for Islamic investment management grown relative to that of conventional investment management?
While the market for Islamic funds is relatively new, the annual growth rate of Islamic funds is about 24% as compared to 12–14% growth for conventional funds.
The appeal to the Muslim population and the competitive returns offered by Islamic funds are two predominant factors leading to high growth for Islamic funds. Conventional funds on the other hand have focused more on institutional money.
How do fees charged on Islamic funds compare with conventional counterparts?
The fees and charges applicable to mutual funds are regulated and capped by the SEC in Pakistan. Due to the very competitive market, the fees charged by Islamic funds are same as those by conventional funds. The extra cost related to the Shariah board are borne by an asset management company instead of being charged to the fund.
Describe the screening process employed in your market? What are the effects on the investable universe and portfolio turnover?
It is basically a negative screening process based on nature of business and financial ratios whereby those companies that do not meet screening criteria are excluded from the permissible investment universe.
Most Islamic funds follow the screening criteria developed by a prominent seminary located in Karachi. While the investment universe is somewhat reduced, it does not much affect diversification of portfolio across sectors as most companies with large market cap are Shariah compliant as per the screening criteria.
How have Islamic investments performed in your market?
The only Islamic index available is KSE Meezan Islamic Index (KMI-30), which was launched about four years ago. The leading conventional index is KSE 100 Index. It is interesting to note that KMI-30 has consistently outperformed KSE 100 every year since launch of KMI-30.
How does the CFA Charter help investment professionals in Islamic investment management? What are the preferred sources of continuing professional development (CPD)?
Yes, employers value the CFA charter. However the curriculum does not cover Islamic finance, so employers need to train or arrange for the training of Islamic finance in addition to CFA program. There are not many CPD opportunities available in Islamic investment management.
What are the major challenges and opportunities for Islamic investment management in your market? How do you see its future prospects?
Two major challenges are: (a) creating awareness and understanding of Islamic finance and its principles; and (b) limited number of investible products (assets) on the debt and money market side. Because about 95% of the total population of about 180 million in Pakistan is Muslim, there is lot of untapped potential for growth in Islamic financial markets, which is expected to grow at twice the pace of the growth in conventional financial markets.
If you are interested in Islamic investment management, please consider joining the CFA Institute Islamic Investment Management subgroup on LinkedIn. If you are an experienced professional investor working in Islamic Investment Management and you would like to share your insights with us, please contact the manager of the Islamic Investment Management group on LinkedIn.

(Enterprising Investor / 26 March 2013)
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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

Petronas Gas ponders RM5bil Sukuk (Islamic bonds)

KUALA LUMPUR: Petronas Gas Bhd is considering setting up a RM5bil Islamic bond programme to part finance the construction of regasification plants, three people familiar with the deal said.

The gas distribution arm of Petroliam Nasional Bhd invited proposals from investment banks to arrange the debt sale, said the people, who asked not to be named as the details are private.
A sale would be the company’s second offering of sukuk. It sold RM860mil of syariah-compliant notes in August via unit Kimanis Power Sdn Bhd to part finance a power plant, with maturities ranging from 2016 to 2028.
The 5.05% notes due in 2023 yielded 4.23% on Wednesday, according to data compiled by Bloomberg.
Petronas Gas started building its first regasification plant in Malacca in 2010 to meet rising domestic demand. The terminal is expected to begin commercial operations in the second quarter of this year, the company said in November.
The group is also planning similar facilities in Johor and Sabah, according to its latest annual report.
Petronas Gas chief executive officer Samsudin Miskon could not be immediately reached for comments.
Global Islamic bond sales have dropped 18% this year to US$10.3bil (RM32bil), after reaching a record US$46.5bil (RM144bil) last year, according to data compiled by Bloomberg.
Average sukuk yields have climbed 10 basis points, or 0.1 percentage point, to 2.91% this year, 24 basis points off an all-time low reached in January, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. 
(The Star Online / 29 March 2013)

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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

IFC Makes First Islamic Finance Investment in Sub-Saharan Africa

IFC, a member of the World Bank Group, today announced the investment of $5 million equity in Gulf African Bank to support corporate finance and lending to small and medium businesses in East Africa. The investment in Gulf African Bank marks IFC’s first engagement with an Islamic finance institution in Sub-Saharan Africa.

Gulf African Bank, one of Kenya’s only two Islamic banks, has fourteen branches in Kenya, offering a range of Sharia-compliant banking products and services. The bank will use IFC’s financing to increase finance for retail and corporate customers, develop programs for women entrepreneurs and extend more services to small and medium businesses.

Jamal Al Hazeem, Chairman of Gulf African Bank, said, “We are delighted by IFC’s decision to take up a 15% shareholding stake in Gulf African Bank.
This is a clear indication of their belief not only in our Bank’s future but the future of Islamic Banking in the region. In addition to the IFC partnership, the Bank is undertaking a rights issue simultaneously to increase its capital base by an additional Kshs 850M. We feel priviledged that this is the first investment by IFC in an Islamic financial Institution in Sub_saharan Africa. IFC’s involvement will open up more opportunties for Gulf African Bank’s growth and expansion and enhance our processes.”
Gulf African Bank, which was established in 2007, has in the past five years greatly raised awareness in Kenya about Islamic banking. The bank’s shareholders are institutional investors from the Middle East and North Africa.
Oumar Seydi, IFC Director for East and Southern Africa, said, “IFC is committed to helping expand access to financial services in Africa. In Kenya, new financial market segments like Islamic banks enhance competition and can help reach a greater number of small businesses and women entrepreneurs, who are often excluded from banking services. IFC looks forward to working with Gulf African Bank to extend services and offer clients a more diverse range of financial products.”

In addition to the equity investment, a further $3 million trade line will be made available to Gulf African Bank under IFC’s Global Trade Finance Program. The Program complements the capacity of banks to deliver trade financing by mitigating risk in new or challenging markets where trade lines may be constrained.
To date, IFC’s investment and advisory services have partnered with 11 banks and one microfinance institution in Kenya, to help them sustainably increase business with small and medium enterprises.
(African Brain / 29 March 2013)

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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

Egypt’s al-Azhar asserts role on Islamic finance, clashes with Muslim Brotherhood

Egypt’s leading Islamic authority Al-Azhar said on Thursday its clerics must be consulted on a law allowing the state to issue Islamic bonds, setting it at odds with the Muslim Brotherhood which drove the legislation through parliament last week.

It marks the first time Al-Azhar, a thousand-year-old seat of Islamic learning, has said its Senior Scholars Authority should be consulted on issues pertaining to Islamic law as set out in Egypt’s new, Islamist-tinged constitution.
Al-Azhar’s intervention could set a precedent for clerical oversight of other affairs of state. The Salafi Nour Party has said Al-Azhar must also approve an agreement Egypt is seeking with the International Monetary Fund because it includes a loan upon which Egypt will pay interest.
The Islamic bond, or sukuk law, will allow Egypt to issue debt compliant with Islamic principles, allowing the state to tap a new area of finance as President Mohamed Mursi’s administration grapples with an unaffordable budget deficit.
The sukuk law has been a source of friction between the Brotherhood, whose Freedom and Justice Party leads the upper house of parliament, and more hardline Islamists who say it should first have been approved by Al-Azhar.
(Reuters / 29 March 2013)
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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

Tuesday, 26 March 2013

The Concept of Riba & Banking in Islam

Shariah, the body of law that governs all aspects of Muslim life, forbids riba, a word in Arabic commonly interpreted as "interest," though it also means usury and all forms of unearned income. However, modern banking is established on the basis or riba, or paying interest to depositors and charging interest to borrowers. Islamic banking attempts to provide modern financial services that are permissible in Islamic jurisprudence.

USURY AND INTEREST

Ancient civilizations and major religions since pre-Biblical times have tried to define the difference between the charging of interest on loans and usury. The former is seen as an acceptable fact of commercial life, while the latter, or excessive interest, is frowned upon because it is an extortionate charge for money and regarded as exploitation. The concept of riba as either interest, usury or both is one of the most hotly debated topics among Muslim scholars.  Islamic scholars came to a conclusion that both interest on loan and usury are Haram (prohibited). 

OTHER SHARIAH PROHIBITIONS

In addition to prohibiting riba, Shariah also forbids “gharar,” meaning deceit, uncertainty, hazard and risk. The aim of the ban is to protect individuals against unexpected losses through exploitation by others. Islamic law also forbids “maysir,” or all forms of gambling and easy acquisition of wealth by chance. As an example, a conventional bond issued by a Western bank is “haram,” or sinful, in Islam because the issuer stipulates a predetermined interest rate (riba), to compensate for as yet unknown future circumstances (gharar), in order to make money from his money (maysir).

MUDARABA

Mudaraba is the oldest form of Islamic banking. It’s a partnership between a bank and a borrower. The bank uses depositors’ funds to invest in a project, which may be a real estate development or an industrial plant. It distributes the profits from this investment to the depositors according to a pre-agreed, fixed ratio. The bank, or other capital provider, carries any losses the investment may make.

MUSHARAKA

In Musharaka banking, the bank and its depositors share in both the profits and losses of the investment. They agree in advance how to share the profits and losses. The depositors may also participate in the management of the investment, but are not obliged to do so.

MURABAHA

Murabaha is a form of costs plus financing, and is the most popular form of Islamic banking. The bank buys a product, often a commodity cargo such as oil or wheat, on behalf of a client. The bank resells the commodity back to the client at an agreed markup that includes an agreed sum for the bank's costs as well as a profit margin. This setup effectively charges the client for the use of money, but not through interest. The markup, or fee, does not increase if the client fails to make a payment on time, but remains as pre-agreed.
(Opposing News / 25 March 2013)
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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

Malaysian capital market posts record performance in 2012

KUALA LUMPUR: The Malaysian capital market rose by 16.4% to RM2.5 trillion in 2012 from RM2.1 trillion a year earlier despite challenging market conditions, Securities Commission Malaysia (SC) chairman Ranjit Ajit Singh said.
All market segments, including equity market capitalisation, debt securities outstanding, asset under management and Islamic capital market recorded double-digit growth of between 14.1% and 22.6%, he said.
At a press conference on the 2012 SC annual report here today, Ranjit said the Islamic capital market rose 22.6% to RM1.4 trillion with Malaysia maintaining its position as the leading sukuk market.
“The year 2012 was also a year of strong assessment outcomes in terms of market regulatory framework,” he said, adding that this achievement is the highest among countries that recently underwent the assessment.
He said last year sealed Malaysia’s ranking as the world’s biggest sukuk market, the fifth largest IPO destination globally and the fourth most active in Asia for corporate bond issuances.
Key indicators such as corporate bonds and the sukuk market exceeded the RM1 trillion mark for the first time and positioned Malaysia as the third largest bond market in Asia.
It was also a record year for IPOs with issuers raising a total of RM22.1 billion, increasing equity market capitalisation by 14.1 per cent to RM1.5 trillion, while the benchmark index FBM KLCI ended the year 2012 at a record high of 1,688.95.
Fund management posted a significant expansion of 19.2% in assets under management valued at RM505.1 billion, while net asset value of the unit trust industry rose to RM294.9 billion.
“Islamic assets under management accounted for about 16% of the industry’s total assets under management or RM79.6 billion,” Ranjit said.
He said the Islamic capital market, at RM1.4 trillion, has enjoyed greater internationalisation through wider participation of foreign sukuk issuers from Singapore, the UAE, Bahrain and Kazakhstan.
On supervisory and enforcement efforts, Ranjit said the SC filed seven criminal charges for insider trading while a company director was convicted on four charges for furnishing false information on a company’s unaudited financial results.
In addition, eight administrative sanctions were imposed against licensed intermediaries for improper business practices, while an investment bank was reprimanded for failure to carry out proper due diligence in a corporate exercise, he said.
Meanwhile, Ranjit said the Malaysian capital market’s set of standards in terms of regulatory and supervisory framework was accepted by the International Monetary Fund and the World Bank.
“The independent assessments acknowledge the strong regulatory regime in Malaysia, which has validated the SC’s approach to regulation that is approximately benchmarked to global standards,” he said.

(F.M.T News / 14 March 2013)

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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

Monday, 25 March 2013

Islam and Consumerism

Consumerism is spreading like a plague in today’s culture. People are transformed into tireless shopping machines whose lifestyles are centered on malls, sales, and new offers. In the words of  Tyler Durden, from Fight Club, the movie: 

"We’re consumers. We are by-products of a lifestyle obsession. Murder, crime, poverty, these things don’t concern me. What concerns me are celebrity magazines, television with 500 channels, some guy’s name on my underwear”.

In the pre-Islamic era, also known as Jahiliyyah (period of ignorance), the Arabs were known for worshipping multiple idols, magnifying their dads and forefathers, adopting all their belief system, in addition to tribalism, racism and sexism. The Qur'an and the message of Prophet Muhammad (peace and blessings be upon him) were revealed not only to solve those problems but also to provide guidance that fits all problems of humanity.
Nowadays, we are experiencing a newer version ofJahiliyyah that is centered on celebrities dictating our lifestyles (replacing idols and the forefathers), using women as sex-objects in advertising (which might not be so different from burying them alive), and the most important ritual that takes place at the temple of consumerism (malls): Shopping!
The H&H perspective (Halal /Haram)

I know that many people expect answers about every single matter from an H&H (Halal and Haram) paradigm. If you are one of them then you may not want to continue reading this article because you will not find what you are looking for.

Instead, we will try to examine the etiquette of spending and dealing with money in Islam, and hence will leave the H/H answer up to you, based on YOUR understanding of YOUR situation. 

BEWARE from Omar’s Stick

Jaber ibn `Abdillah narrates that `Umar ibn Khattab saw some meat in his hand. `Umar immediately asked: "what is this, Jaber?" 

Jaber replied: I was craving for meat, so I managed to buy some. (It looks like meat was such a luxury item at that time, something we don’t think about these days).
`Umar said: So are you going to buy whenever you crave for something, Jaber? Don’t you fear that the following verse might apply to you:

{And the Day those who disbelieved are exposed to the Fire [it will be said], "You exhausted your pleasures during your worldly life and enjoyed them …} (Al-Ahqaf 46:20)

While some people will counter this argument by quoting the hadith:

“Allah loves to see the traces of His blessings on His slave” (Tirmidhi)

It is interesting to note another narration of this hadith, which is preceded by the following:

“Enjoy eating and drinking without excessive spending and showing off, because Allah loves to see the traces of His blessings on His slave”(Narrated in Al-Mustadrak )
Keeping up with the Joneses

This is a well-known idiom in many parts of the English-speaking hemisphere, which refers to always comparing what you have (house, car, backyard, clothes, etc…) with what your neighbors, the Jones, own.
After starting as a comic strip holding the same name in 1913, this slogan redefined one of the pillars of modern consumerism: shopping and spending to show off and to compete with others, regardless of whether you need the goods or even if you can afford them  in the first place.
In the age of social media and satellite channels, the Jones need not to be your next door neighbors, they might be a random family living on the other part of the world. They are definitely not happy with what they have (if they really own it) and are trying to compete with their own version (or perception) of the Jones family, and this infinite loop continues endlessly. 
No one can claim that the modern capitalism invented envy, which is a trait that existed in human beings since their creation, since the famous story of Habeel and Qabeel (Abel and Cain) (Al-Ma’idah 5:27-31).
In addition, greed was built into the creation of Adam himself (Ta-Ha 20:120). However, there is a big difference between having a negative trait that you recognize and try to cure and fight, and having this trait control your life, dictate the way you identify yourself and you look to others.
Therefore,“Keeping up with the Joneses” defines a culture of consumerism. The consumerism culture is becoming like a fire that is continuously ignited by the fuels of greed and envy.
Rich man with one garment

An interesting long story is narrated in Sahih Al-Bukhari about Ka`b ibn Malik, a rich companion who did not join the Prophet (peace and blessings be upon him) during the expedition of Tabuk. To make a long story short, he was boycotted by the Muslims for fifty days, and no one was allowed to talk to him until further instructions are revealed from Allah in his matter.
 After this lengthy period of living alienated from the Muslim society, Allah accepted the repentance of Ka`b (At-Tawbah 9:118) and the Prophet (peace and blessings be upon him) informed the Muslims about the happy news. Now listen to Ka`b himself, narrating how he got the good news:While I was praying Fajr that morning on the rooftop of my house, I heard a man shouting on the top of Mount Sil`: ‘O Ka`b ibn Malik, rejoice!’I fell prostrate, and I knew that relief had come. The Prophet had announced my forgiveness during Fajr. A man came riding on a horse to bring me the news, but the voice of the other man on the mount has reached me first. So when I saw that man I gave him my garment as a way to thank him, and I had only one garment. So I borrowed an outfit and rushed to meet the Prophet (peace and blessings be upon him) 

While this story has lots of benefits and wisdom to learn from, it sheds the light on one important aspect in the life of the Companions, particularly the rich ones: They did not have a closet full of clothes and had to stand up next to it for half an hour to decide what to wear! Ka`b was known to be rich, and you may refer to the early part of this long story in Sahih Al-Bukhari for more information.

However, it was a well-known practice for them not to buy clothes more than their need (because of their proper understanding of Islam).

We really have to reframe our mindsets on how we define our needs, our budget, and our spending, if we want to achieve something in this world or in the afterlife.
(On Islam / 24 March 2013)
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Pakistan as a leader in Islamic banking and finance

LONDON: In recent years, Islamic banking and finance in Pakistan has experienced phenomenal growth. Islamic deposits – held by fully-fledged Islamic banks and Islamic windows of conventional banks – at present stand at 9.7% of total bank deposits in the country: meaning that every 10th rupee is now being deposited in an Islamic bank account.
Similarly, assets managed by banks offering Islamic financial services are 8.6% of total banking assets in the country. Net Islamic savings and investments are 8.19% of the total savings and investment in the banking sector in Pakistan.
Total Islamic banking assets in Pakistan stand at Rs837 billion ($8.5 billion), which is only a fraction of the total global Islamic financial assets of $1.631 trillion. Once considered a global powerhouse for Islamic financial thinking, Pakistan is now far behind a number of other countries, which have expended more energy into developing the Islamic banking and finance sector. London-based Edbiz Consulting has recently released a ranking of the top 10 countries in Islamic banking and finance on its Islamic Finance Country Index (IFCI). The ranking is presented in the table.
According to the IFCI, Iran has remained the number one market for Islamic banking and finance, primarily because its entire banking and finance sector is operating under Shariah law. But this cannot be the only reason, as the only other country with all of its banking and finance in compliance with Shariah, Sudan, stands only ninth. Pakistan, the third country that adopted a policy of Islamisation of banking and finance in the 1980s, stands just eighth – one point above Sudan.
Malaysia, on the other hand, has emerged as a true global leader in Islamic banking and finance. It has consistently stood at number two since the creation of the index in 2011. Committed to developing Islamic banking and finance as a strategic economic tool, Malaysia has this year enacted a new comprehensive law, the Islamic Financial Services Act 2013, which is coming into force from May this year.
The Government of Pakistan has given the Islamic banking project to the State Bank of Pakistan (SBP), the central bank, which has very ably helped Islamic banking and finance grow by issuing guidelines to conduct Islamic banking business, and regulating and supervising the institutions offering Islamic banking and finance.
The government, however, has failed to develop the country as a centre of excellence for Islamic banking and finance, despite it having a number of strengths especially in ensuring Shariah authenticity of financial products. While countries in the Gulf Cooperation Council are involved in controversial practices like tawarruq (a financial transaction done through a series of commodity trades) and, likewise, Malaysian institutions are engaged in transactions based on bai’ina (sale and buyback) and bai’dayn (discounted trading in debt), Pakistan maintains a very strict view on Shariah matters, and the SBP has ensured that no controversial practices creep into the country’s Islamic banking and finance sector.
It was because of this strict Shariah supervision and control by the SBP (along with the Shariah advisory board of a Pakistani Islamic bank, BankIslami) that BankIslami won the prestigious Shariah Authenticity Award at the Global Islamic Finance Awards held in Kuala Lumpur in November 2012. This strength in Islamic banking should be further developed to make Pakistan as a centre of excellence for Shariah authenticity in the global industry.
After a lull of about four years following the inception of the global financial crisis, different countries have already started seeking a greater share in the global Islamic financial services industry. While Malaysia stood firm during the crisis, and rightfully claims to be the global leader in Islamic banking and finance, there are other countries that are reclaiming their share of leadership in the industry. Sheikh Mohamed bin Rashid alMaktoum, the Ruler of Dubai and vice president of the UAE, has affirmed that Dubai has all the ingredients of becoming a regional hub for Islamic banking and finance. The Bank of London and the Middle East, an Islamic investment bank in the UK, has recently claimed that Britain could do a lot more to become a European centre of excellence for Islamic banking and finance. Other financial centres like Hong Kong and Singapore have once again started positioning themselves to claim their share of the industry. It is, therefore, the right time for Pakistan to start highlighting strengths of its Islamic banking sector that at present comprises five fully-fledged Islamic banks and thirteen conventional banks with Islamic windows/branches.
One obvious way for Pakistan to claim a role in the global Islamic financial services industry is to deepen its domestic Islamic banking and finance sector. Given that this is election year in Pakistan, it will certainly be a good strategic move by a political party to put Islamic banking and finance on top of its election manifesto. While the Jamaat-e-Islami is a natural candidate, it will only benefit other mainstream political parties to start owning Islamic banking and finance. While outsourcing the ownership of the Islamic banking project to the SBP has worked so far, it will certainly benefit the government even more if it starts owning and hosting the project in Islamabad.

(The Express Tribune / 24 March 2013)
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Gold as a currency in Islamic finance?

Many advocates of Islamic banking suggest using gold as a replacement for the money created through the interest rate mechanism. This is an interesting proposition, especially in the context of Malaysia where the state of Kelantan has already started using gold and silver coins as a potential replacement for the federally issued legal tender of currency notes and coins.
It is important to assess its economic implications with respect to growth and overall economic activity in the country.
Americans find it difficult, and painful, to revert to the gold standard for reasons peculiar to the US economy, but these limitations are not relevant to Malaysia.
In Malaysia, the government can experiment with the gold currency by limiting the use of gold and silver coins issued by the state governments for investment purposes only. This will allow people to buy gold and silver coins through paying in ringgit providing an alternative tool for saving on a long-term basis, even if gold and silver coins are not treated as legal tender.
Furthermore, the Malaysian government can use Islamic banking as a tool to introduce gold deposits for customers who would like to save for the long term. In fact, Bank Negara Malaysia (BNM) may continue to issue coins like Kijang Emas bullion coins and distribute them through Islamic banks.
At present, Malayan Banking Bhd (Maybank) designates 32 branches to sell Kijang Emas bullion coins, but an extended programme may be rolled out with the help of Islamic banks in the country.
While Islamic banks could be allowed to use gold deposits (by way of selling gold for cash), they must return the depositors’ gold if the latter wish to redeem after a specified time period. Alternatively, the gold deposits must be kept for safe custody, in which case the depositors must be willing to pay a safe custody fee to the banks.
This alternative arrangement will also have a dampening effect on the ability of the Islamic banks to extend credit to their customers as they will not be able to use the depositors’ gold (by selling it for cash) to offer financing to those who may need it. This will, in turn, have implications for economic growth.
If Islamic banks are reluctant to offer gold deposits, the government may use the likes of Lembaga Tabung Haji and similar institutions to allow Muslims to save in gold and silver. It is expected that an overwhelming demand for the proposed gold deposits will compel Islamic banks to start offering such deposits out of market pressure.
Radical idea
If the introduction of gold coins in the states of Kelantan and Perak proves successful (which appears to be the case so far), monetary authorities, that is, BNM, may consider using gold coins to bring about monetary reforms in the country. Indeed, advocates of monetary reform have long advocated a return to the gold standard. Some prominent economists, like Nobel laureates Robert Mundell and James Robertson, have written extensively on the benefits of returning to the gold standard.
In the context of Islamic banking and trade, the likes of the former prime minister, Dr Mahathir Mohamad and activists like Tarek El Diwani, have been influential figures in advocating the introduction of gold dinars and replacing the fractional reserve-based banking system.
While it may take some time for BNM to expand its Kijang Emas bullion coins issuance, the increasing demand for Islamic banking in Malaysia (25% of the country’s financial sector’s assets derive from Islamic banking) offers Islamic banks a window of opportunity to exploit the trend by offering bullion-based investments to those who consider gold coins to be more syariah-compliant than conventional money created through an interest-based credit system.
If the gold deposits look like a radical idea, there are some other more acceptable ideas floating around.
James Fierro of Recipco Holdings Ltd has for some time been advocating for an international currency based on the excess capacity the world’s businesses have at any given point in time. This concept has similarities with the gold dinar in the sense that both the currencies are based on the real value of goods and services they represent (gold dinar representing the intrinsic value of the gold, and the Recipco’s proposed currency representing the value of goods and services excessively produced by businesses).
As these ideas are seen as radical by many, including Islamic bankers, it is important that the governments take a proactive role in implementing these proposals. As the government of Malaysia is spearheading an initiative to develop tools for liquidity management for Islamic banks, gold dinar and the issuance of a currency based on excess capacity may not be entirely abstruse concepts.

(F.M.T News / 18 March 2013)

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