SAIFUL AZHAR ROSLY
To the layman who wishes to understand modern Islamic financial transactions, this book will prove friendly and helpful. It provides the underlying principles of Shariah financial instruments and presented them in actual and practical form. Since 1983, Malaysia has been making significant inroads into the Islamic financials landscape. Today Islamic financial transactions have made their presence felt in almost all financial institutions including banks, unit trusts, insurance, discount houses, fund management, factoring, pawn broking and project financing. And with more than USD200 billion Islamic funds available in global finance today, it is logical that the business of Islamic banking, insurance and fund management is fast expanding and encroaching into non-traditional financing.
As the Holy Quran enjoins profit creation via trading and commercial transactions (al-bay’) while forbidding profit earned from loans (riba), increasing Islamic consciousness among the Muslims today has opened up new business opportunities in Islamic finance, financial planning and wealth management.
The Shariah not only condone interest as riba, but prohibits elements of gambling (maisir) in financial transactions. Ambiguities (gharar) in contractual agreements must be avoided at all cost while companies seeking Islamic capital must not engage with prohibited goods such as alcoholic beverages, pork and pornographic material. But current practices although unintentionally seem to out focus the real Quranic agenda for wealth creation and management. The Quranic alternative to riba is trade and commerce (al-bay’). The essence of trade and commerce is profit creation that implicates risk-taking (ghorm) and value-addition (kasb). Doing so promotes fairness and equitable transactions (‘adl) and thus putting ethics and morality (akhlak) into the limelight of corporate business today. This book has attempted to venture into several issues of Islamic finance that incorporates the Quranic conception of trading and commerce (al-bay’). Profit created from financial instruments devoid of risk-taking (ghorm) and value addition (kasb) does not fit into the Quran’s outlook of al-bay’. It critically examines current Islamic financial products offered by banks, mutual funds and insurance companies and help guide prospective customers to understand the underlying Shariah principles on which these products are structured. Products ranging from bank deposits/assets and capital market instruments are discussed based on prevailing practical experience in Malaysia as well as other Muslim countries.
Divergent Shariah opinions on sale-buyback (bay’ al-’inah) and debt trading (bay’al-dayn) are discussed with good intentions to harmonize global Islamic financial transactions. Of most significant is the push for equity financing (musyarakah/mudarabah) in the banking business with proper application of salam and istisna’ contract as well. Widespread use of murabahah and al-bai-bithaman ajil (credit sale) contracts in Islamic finance is a worrying trend. This book tries to explore the place of Islamic financial contracts in modern financial markets, whether Islamic financial instruments actually reflect true label. Implication of trading (al-bay’) is expected to invite venture capital application in Islamic banking and rationalizes universal banking model for Islamic banks. This book serves to guide banking customers, practitioners and investors over the range of Shariah products available in Malaysia’s financial market and help impress how these products can impact their earnings and business.
Saiful Azhar Rosly is Professor of Economics at the International Islamic University Malaysia. As a teacher he has taught various courses, including Islamic economics, Islamic banking and finance, money and banking, economic development, microeconomics, macroeconomics and principles of economics. He obtained his undergraduate and masters degree from Northern Illinois University, DeKalb, USA and Ph.D from the National University of Malaysia.
Professor Saiful has published his work in academic journals including International Journal of Social Economics, Arab Quarterly, Thunderbird Business Review and IIUM Journal of Economics and Management. He has also written for magazines and newspapers such as the KLSE Investors Digest, AmInvest, ZoomFinance, DataNiaga and the Sun.
On the area of Islamic economics, banking and finance, Saiful as a consultant has advised several institutions, including Ministry of Finance, National Economic Advisory Council (NEAC), Permodalan Usahawan Nasional Berhad (PUNB), EON Bank, Commerce International Merchant bank (CIMB) and Silverlake Malaysia. He has also conducted courses on Islamic financial markets in Singapore, Brunei and Indonesia. In addition to his teaching, research and consultation, Saiful is currently an independent director for the Federation of Malaysian Unit Trust Management (FMUTM).
Professor Saiful lives in Taman Tun Dr. Ismail, Kuala Lumpur with his wife, Faridah, and their children, Anas, Nur Iman, Ameen, Ariff and Nur Ilham. To unwind and relax, Saiful enjoys playing golf.
Islamic economics as a subject is relatively new in Malaysian universities but practically unknown in corporate business. People may have heard about Islamic banking and finance, but there has been limited discussion on Islamic economics and many may think that these two are the same.
To some extent, there are similarities because economics is the mother knowledge of business and finance. The same is true for Islamic economics. But Islamic economics as a discipline is still a baby. It has relied a lot on Islamic commercial law (fiqh muamalat) with its undue emphasis on the prohibition of riba (usury) and the implementation of the zakat system. It is, thus, not surprising that Islamic economics is sometimes labeled as capitalism minus riba, plus zakat.
Focus on the monetary side of the economy has been overwhelming. It is normal to see discussions on Islamic economics revolve around financial issues. Islamic banking and finance seemed to have overtaken other focus areas like economic methodology, the problem of the consumer and the firm, market structures, factor markets, public finance, poverty, and economic development.
But Islamic economics is not about financial institutions alone. It seeks to examine the behavior of man in the marketplace, his likes and dislikes and how these tendencies have impacted his way of conducting economic activities.
The problem at hand is, how is Islamic economics defined? Or how to best understand Islamic economics as field of study. One way is to take a look at the concept of scarcity. This is where the study of economics begins.
Islam has no objection to the concept of scarcity because scarcity is a fact of life. It exists when the necessary resources for producing things are not enough to satisfy all wants. Scarcity to an economist is like gravity to a physicist. It is a fundamental principle in the study of economics. Economists say that scarcity arises when available resources are not sufficient to fulfill human wants. In other words, economists have made two general assumptions about the universe and mankind, namely:
a) Assumption about the universe – Limited resources
b) Assumption about man – Unlimited human wants
Islam does not see the above assumptions are false and evil. In fact, Islam recognizes scarcity as nature’s way arising from the two inherent conflicts between wants and ability. The limited resources assumption is made to show that man’s ability to exploit resources is limited by his knowledge. In this manner, economics looks at relative scarcity and not absolute scarcity. The same applies to Islamic economics. There is no absolute scarcity in Islam, because the Quran says:
“It is Allah Who hath created the heavens and the earth and sends down rain from the skies, and with it bringeth our fruits wherewith to feed you; it is He who hath made the ships subject to you, that they may sail through the sea by His Command; and the rivers (also) hath He made subject to you. And He hath made subject to you the sun and the moon, both diligently pursuing their courses; and the Night and the Day hath He (also) made subject to you. And He giveth you of all that ye ask for but if ye count the favors of Allah, never will ye be able to number them.”
Islam also recognizes that human desires are not limited. This is further attested by the Quran and Traditions that:
“Surely man is created greedy and impatient” (70:19)
“Fair-seeming to men is made the love of desires, of women and sons and hoarded treasures of gold and silver and well-bred horses and cattle and tilth: (3:13).
“And you love wealth with exceeding love” (89:20).
“He thinks that his wealth will make him abide” (104:3).
“If man is given a valley of gold, certainly, he wants the second and third one” (Sahih Hadiths)
Scarcity in Islam is, through and through, a tabi’ phenomenon. Therefore, when scarcity exists, nature empowers people to make choices (ikhtiyar) as nothing is available for free anymore. Let’s look at the problem of choice in economics and how they affect our lives.
Economists usually say that with scarcity, nothing can be obtained without costs. Hence, economics is a science or art of making choices dealing with the following questions:
· What goods and services people want and how much? This is the problem of the consumer.
· What is the most efficient method to produce goods and services that people want? This is the problem of the firm.
· How to reward factor inputs such as labor, land, and capital taking part in the production of goods and services that people want?
· How to reduce unemployment and inflation? This is the problem of the government.
· How to promote economic growth given the available supply of labor and capital resources? This is the problem of the market and government.
Making these difficult choices definitely requires knowledge. Making correct decisions based on knowledge defines what the study of economics is all about. The main focus of economic study is man himself. The knowledge he uses to make correct decisions is expected to help him find ways to overcome the problem he encountered in allocating scarce resources. The knowledge sought must give him a sense of certainty since any form of “knowledge” that is bound to create uncertainty and doubts would be of no use for him in making the right decision.
