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THE ADVANCED DIPLOMA IN ISLAMIC FINANCE

ADIF PROGRAMME

CENTRE FOR

ISLAMIC FINANCE The oldest Islamic Finance Professional Qualification in the World

This is a post-graduate diploma level qualification addressing the needs of both Islamic and conventional financial institutions providing Islamic banking services and products

Distance-Learning option available Provides a progression route to a UK-MBA from the University of Bolton

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• Training • Consultancy • e-Learning • Professional Qualifications

ISLAMIC FINANCE

HR Training Platform

Professor Dr. Humain Dar Head of IRTI


Islamic Platinum Business Account Only available for businesses with an annual turn-over of R5 million - R60 million

Designed to help add the most value to your business while meeting your banking needs the Islamic way.

Dedicated Business Manager

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Continue earning a Shariah compliant indicative monthly profit share with the linked Islamic Business Savings Pocket

Visit www.fnb.co.za/islamicbanking or download the app. A division of FirstRand Bank Limited. An Authorised Financial Services and Credit Provider (NCRCP20).


NOTE FROM THE

EDITOR

IN CHIEF

Inclusion is an ideology that is increasingly assuming relevance in today’s digitalised world. In a more general term, inclusion means that all human beings are respected and given opportunities regardless of their differences. Inclusion in business and workplace is an emerging phenomenon linked to higher productivity and a more innovative workforce. This issue of ISFIRE deals with the concept of financial inclusion in Islamic banking and finance for different segments of society, covering Muslims as well as non-Muslims. Almost all international forums and multilateral institutions have started debating the socio-economic welfare of the marginalised or the underserved community in the banking system. Values and beliefs are also being discussed in this context. The article, Islamic Finance: Financial Inclusion or Migration, deals with four profiles of people who are the primary consumers for banks and institutions. Mufti Ismail Ebrahim Desai talks about how Islamic microfinance is different from the traditional microfinance, and how it may impact the low-income groups. Targeting the destitute Muslim populations around the world, Islamic microfinance can be seen as a major tool for bringing the excluded groups into the financial circle, while at the same time mitigating poverty and empowering the underprivileged to provide for themselves. “Islamic Finance Principles and CSR Principles-What Convergence?” discusses the Islamic finance model with its core in CSR and how the traditional and the Islamic finance model can be combined together to provide a holistic approach towards the achievement of economic, social and environmental goals. An exclusive interview with Shaykh-ul-Islam Dr. Muhammad Tahir-ul-Qadri, Founder of Minhaj-ul-Quran International, is the real contribution of this issue of ISFIRE. He has been a strong advocate of Islamic finance in a global context and is now aiming for the standardization of Islamic banking and finance industry globally. Another heavyweight featuring in this issue is Sheikh Dr. Hussein Hamed Hassan, one of the most influential Shari’a scholars in the global Islamic financial services industry. We are also delighted to include Omar Mustafa Ansari, the new Secretary General of Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), as Personality of the Issue. We also extend our sincere felicitations to him on assuming a role of immense importance and responsibility in Islamic banking and finance. There is a lot more intriguing content as you read further. We hope you enjoy the technical articles on Green Sukuk and Banking the Unbanked, as well as those on a lighter note relating to digitization or attaining Peace of Mind.

Dr. Sofiza Azmi Editor-in-Chief


ISSN 2049-1905

An official publication of Cambridge Institute of Islamic Finance

FOUNDER Professor Humayon Dar EDITOR-IN-CHIEF Dr. Sofiza Azmi EDITORIAL ASSOCIATE Tabinda Hussain INTERNATIONAL EDITORIAL BOARD CHAIRMAN Stella Cox DDCAP Professor Mehmet Asutay Durham University Professor Dr. Mehmet Bulut Istanbul Sabahattin Zaim University, Turkey Dato’ Dr. Asyraf Wajdi Dusuki Islamic Finance Expert Professor Joseph Falzon University of Malta Dr. Mian Farooq Haq State Bank of Pakistan Professor Kabir Hassan University of New Orleans Dr. Hylmun Izhar Islamic Development Bank Dr. Rizwan Malik Islamic Finance Expert Moinuddin Malim Alternative International Management Services Dr. Aishath Muneeza INCEIF Dr. Asmadi Mohamed Naim Universiti Utara Malaysia Professor Muhamad Rahimi Osman Universiti Teknologi MARA M. Saleem Ahmed Ranjha Wan Miana Rural Development Programme Dr. Irum Saba Institute of Business Administration, Karachi Dr. Mughees Shaukat College of Banking and Financial Studies, Muscat Dr. Usamah Ahmed Uthman King Fahd University of Petroleum & Minerals ADVERTISEMENTS, COMMERCIAL AND SUBSCRIPTION ENQUIRIES Faisal Mehmood E: fmehmood@cambridge-ifa.net T: +44 (0) 207 078 7297 PUBLISHED BY Cambridge IFA, United Kingdom

On behalf of Cambridge Institute of Islamic Finance www.cambridge-iif.com

T: +44 (0) 207 078 7297 E: info@cambridge-ifa.net W: www.cambridge-ifa.net

Copyright © 2019 Cambridge IFA

TABLE OF

CONTENTS TALKING POINTS 10 TOWARDS HOLISTIC ACHIEVEMENT OF SDGs

AN ISLAMIC PERSPECTIVE

ATIH ROHAETI DARIAH 28 BANKING THE UNBANKED: A PERCEIVED RECIPE

FOR POVERTY ERADICATION PROGRAM OLOROGUN, L.A.M

72 ISLAMIC FINANCE FOR SMEs

ENTREPRENEURS: WHEN TO TAKE THE LEAP?

MOHAMAD NASIR

80 PEACE OF MIND:

AN ISLAMIC PERSPECTIVE ON HOW TO ATTAIN IT KHALFAN ABDALLAH

ISFIRE REVIEW 24 WAQF AND INNOVATIONS IN FINTECH HENDRI TANJUNG AND LUTFI ADHIYANSYAH 34 ISLAMIC FINANCE: FINANCIAL INCLUSION

OR MIGRATION?

DR. AHMED TAHIRI JOUTI

56 ISLAMIC MICROFINANCE AND

FINANCIAL INCLUSION

MUFTI ISMAIL EBRAHIM DESAI 66 GREEN SUKUK: MAPPING FINANCING FLOWS

FOR CLIMATE CHANGE SITI ROHAYA MAT RAHIM


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74 72

ADVERTORIAL

16 SMART LEARNING IN ISLAMIC FINANCE ZAINEB SEFIANI, FOUNDER OF CARRERA LEARNING

ISFIRE EXCLUSIVE INTERVIEW

18 SHEIKH HUSSEIN HAMED HASSAN WORLD RENOWNED SHARI’A SCHOLAR AND ECONOMIST

44 SHAYKH-UL-ISLAM DR. M. TAHIR-UL-QADRI FOUNDING LEADER OF MINHAJ-UL-QUR’AN INTERNATIONAL

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ISFIRE PERSONALITY

64 OMAR MUSTAFA ANSARI SECRETARY GENERAL OF AAOIFI

ACADEMIC ARTICLE

74 ISLAMIC FINANCE PRINCIPLES AND

CSR PRINCIPLES

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ASMA AIT ALLALI & SIMONA FRANZONI

PAUSE FOR THOUGHT

60 TIME VALUE OF MONEY AS A JUSTIFICATION

OF PERMISSIBILITY OF INTEREST

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HUMAYON DAR

This publication is provided for information purposes only and should not be treated as financial, legal or policy advice in relation to Islamic banking and finance in general or to any Islamic financial institution in particular. The reader should not act on the basis of the information contained in this publication without having obtained individual, expert advice. In this respect, publishers, editors, contributors, sponsors and other supporters of the publication do not assume responsibility for any damage resulting from decisions made by the reader on the bases of the information contained herein.

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TOWARDS HOLISTIC ACHIEVEMENT OF SDGs AN ISLAMIC PERSPECTIVE Atih Rohaeti Dariah Bandung Islamic University, Indonesia

The announcement of the Sustainable Development Goals (SDGs) has attracted the attention of many parties. Guyer (2015) for instance mentions that there are five ways for the SDGs to succeed. Firstly, they can be used to build engagement in fragile states around long-term strategies that integrate humanitarian and development approaches. Secondly, they may help in shifting away from a centralized approach to engaging and empowering local systems. Thirdly, the SDGs may serve

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to integrate peace-building programmes and conflict reduction for development. Fourthly, their role in leveraging financial service innovations can be explored. Finally, they will allow the world communities to move beyond the UN (United Nations) architecture. Szabo and Matthews (2015) explain how to track the success of the SDGs. They assert that an effective implementation

Achieving SDGs in the Muslim countries by way of delineating a sustainable development plan in light of the relevant Islamic teachings. of such a two-track SDG framework would require close alignment of the key country level developmental priorities with the global sustainable development agenda and an establishment of clear monitoring and accountability mechanisms responsible for tracking progress. Blanc’s (2014) analysis suggests that goals and targets can be seen as a network, in which links among goals exist through targets that refer to multiple goals.

embedded in their socio-cultural structures if not institutionalised at all, whether political or otherwise, achievement of SDGs therein may have a different approach than in other countries where such an ideology is not relevant. Thus, achieving SDGs in the Muslim countries by way of delineating a sustainable development plan in light of the relevant Islamic teachings. A research study jointly conducted by Universitas Islam Bandung, Indonesia, and Universiti Sains Malaysia established a conceptual framework of Islamic sustainable development planning based on Indonesian National Midterm Development Plan (RPJMN) for 2010-2014 . The following figure illustrates this framework. RPJMN is the basis of strategic plans. Therefore, the proposed framework uses the elements of strategic planning in terms of identification of problem and the strategic issues, in the context of internal and external environments. The solutions must reflect the statements of vision and missions. Accordingly, the strategies & policies, and programmes & actions must be delineated to achieve development goals.

However, a new study on how to achieve Sustainable Development Goals 2030 in a framework of sustainable development planning has yet to be found. The only related studies that seem to exist so far are those done by Roughley (1999), and AlQahtany, et. all (2013). Roughley (1999) proposed a framework for integrated planning for ecological sustainability, in which the value base for ecological sustainable planning is eco-centric philosophy and social justice principles. AlQahtany, et. all (2013) proposed a sustainable urban planning development framework that has four key dimensions, namely environmental, social, economic and planning. The communication technology dimension (ICT) is an implicit dimension that may be included within all of the four key dimensions. Achievement of SDGs depends on the conditions a specific country may face vis-Ă vis their disparate ideological, socio-cultural, institutional and political structures. Given the Islamic ideology Muslim countries have

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Figure: The Conceptual Framework of Islamic Sustainable Development Planning

On a philosophical level, the SDGs must be analysed in light of the core Islamic paradigm as a manifestation of the concepts and beliefs like tawhid (monotheism), rububiyya (sustenance) and uluhiyya (lordship)(Qutb, 1988 as cited in Hanafi, 2013). The belief and acknowledgment of Allah as the creator, owner, and master of the whole universe (rububiyya), hence, only Allah deserves to be worshipped, obeyed, and complied with absolutely (uluhiyya). In addition, according to Salleh (2003), human beings and natural resources are both creations of Allah. In the context of sustainable development planning, based on the Islamic paradigm, the Islamic philosophy becomes the operational foundation of the whole implementation of development. Thus, the first guiding principle for achieving the SDGs is the awareness and the belief that life is solely the property of Allah. Humans are created only to worship Him and all

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their actions during their life will be accounted for in the hereafter. Strategies and policies for problem solving focus on an individual’s spirituality (rohaniyya), namely nafs (soul), aql (intellect) and qalb (heart) development. At the societal level, these include infrastructure, ecology, health, education, social welfare and economics; and at the state level they relate to politics, government administration, law, and security. Finally, at the international level it governs the relationship between the countries (Salleh, 2003). These strategies and policies are supposed to achieve excellence, accumulate social capital and avoid mischief. The scope of development starts at individual level and gets accumulated to community and the state levels. All these three levels are covered in the 17 SDGs. For example, the 16th


TALKING POINTS

SDG of “peace, justice and strong institutions” related to the state, which must use political process, government administration, and law and security to implement it. It means that the state with strong institutions can realize justice. At the international level, building togetherness between countries is aligned with the 17th SDG of “Partnership for the goals”. At the individual level, it is expected to create ‘ihsan’ as the best quality of being a human. In this context, spiritual element should be put forward, maintaining the status as Allah’s servant and representatives on earth. A reciprocal view is expressed by Nurcholis Madjid and M. Amin Aziz in Azis and Ulfah (2010) that development is the fulfilment of the role of humans, as Allah’s representatives on earth, that would eventually be accounted for before Allah. Al-Jayyousi (2012) asserts that the principle of responsible human beings is one of the 10 principles of sustainable development from an Islamic perspective. Interaction between human beings comprises of the relationships between individuals or groups in various aspects that shape a society. The establishment of Muslim communities have the characteristics of ta’awun (mutual aid), takaful (mutual share of the burden), and tadhomun (having solidarity). These characteristics are instruments of social capital. Al-Jayyousi (2012) evinces that the social capital refers to the social networks, from family to neighbourhood and the global human community at large. Research results from Farooqi (2006) show that the strengthening of informal cooperative networks, through

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the inputs of technology, financial, and human capitals from across different sectors, constitutes an essential element in forwarding sustainable development. Natural resources and the environment are Allah’s creations functioning to fulfil the life missions of a Muslim. Life and living go hand in hand, and depend on the space, namely the earth, as one of the planets in the whole system of the universe. Al Jayyousi (2012) describes the earth as a huge circle, with life as a small circle inside it. It means that human life is a part of the whole ecosystem. With such a position, the exploitation of natural resources and the environment should be accompanied by comprehensive understanding, belief, and responsibility. Allah has created everything in balance. According to Nasr as quoted from Akhtar (1996), Islam, human beings, and the universe are in equilibrium, interrelated, and mutually completing. Thus, those conditions will encourage the achievement of the 12th SDG “Responsible consumption and production”. The essence of the above point is that the protection of natural resources and the environment is an inseparable part of the efforts of sustainable development. Principally, there should be ethics or norms in exploiting natural resources and the environment. According to Abdurrahman (2012), Islamic environmental ethics should be based on the conceptual

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framework constituting: tawhid (monotheism that Allah is the only God), ibada (devotion, having the value of charity), ‘ilm (knowledge searched in an attempt of glorifying Allah), khilafa (exploiting and preserving the nature), amana (being honest in treating the nature and just in empowering it), ‘adala (balance, where violators of amana will be rebuked by the prevailing law), jamal (beauty, beautiful phenomena should not be damaged), and halalharam. The above argument shows how pursuit of excellence, accumulation of social capital and avoidance of social harm are injected in the notion of development. The main focus is human development, especially spiritual development that is based on the Islamic belief system, with six pillars that is, faith in Allah, the angels, the prophets, the holy books and the day of judgment, and destiny. Furthermore, the ideal person is not only a pious and faithful human being, but also one who is well-educated and physically healthy. These two characteristics correspond to the SDG-3 ‘Good health and wellbeing’ and SDG 4 ‘Quality education’.

The economic activities take place in a space or location. Each location has specific physical characteristics that the exploitation should be in accordance with, such as the potentials, capacity, and the maximum limit of use. Hence, spatial arrangement becomes equally crucial to support the activities of each sector. Moreover, to encourage economic growth, infrastructure is needed, in the forms of roads, bridges, terminals, ports, airports, electricity, water, telecommunication, and the like. And this is aligned with SDG-9 ‘Industry, innovation and infrastructure’, SDG-11 ’Sustainable cities and communities’.

The first point, still in the context of human development, is that each individual need food, clothing, and housing. This need is met through economic growth as well as job opportunities. And this relates to SDG-8 ‘Decent work and economic growth’. The essence of economic activity is production, distribution, and consumption. Production touches directly with the management of natural resources and the environment in an attempt to produce final goods through a number of production stages. According to Nasr as quoted from Akhtar (1996), Islam, human beings, and the universe are in equilibrium, interrelated, and mutually completing so that economic activities in the context of Islam will sustain the balance of nature to guarantee the availability of clean water and energy, and to maintain life under the sea and on land as well. All of them refer to the SDG-6 ‘Clean water and sanitation’, SDG-7 ‘Affordable and clean energy, SDG-13 ‘Climate action’, SDG-14 ‘Life below water’, and SDG-15 ‘Life on land’.

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In this framework, development goal is to seek the pleasure of Allah in accordance with the main purpose of human life. It is something that cannot be found in other approaches. Furthermore, in achieving development goals, the process of all development field plans has to work in a context of general equilibrium.

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Fairness in this respect is in line with the SDG-1 ‘No poverty’, SDG-2 ‘Zero hunger’, and SDG-3 ‘Reduced inequalities’. Based on the above explanation, moving towards holistic achievement of SDGs in the Islamic perspective stresses on the paradigm that a human is a leader who is in charge of prospering and nurturing the earth and is forbidden to do any damage. Human responsibility to prosper and nurture the earth can be held under Islamic economic system which guarantees the economic, social and environmental integration. Within an Islamic perspective, there are five aggregate components for the achievement of SDGs. It involves an Islamic paradigm, human and human relationships, utilization of natural resources and environment, and economy. Therefore, the framework and structure of Islamic sustainable development planning will cover those components. The Islamic paradigm has become the operational basis for Islamic sustainable development planning formulation. The fundamental focus is on human development, i.e., creation of a complete man ‘insan kamil’, which requires spiritual development as the first priority, followed by education, health, and economy. The human development is supported by carefully managing the natural resources and environment, the infrastructure facilities and spatial responsibility.

REFERENCES Abdurrahman. 2012. Memelihara Lingkungan Dalam Ajaran Islam. Kerjasama dengan Menteri Koordinasi Bidang Ekonomi RI. Akhtar, Muhammad Ramzan. 1996. Towards An Islamic Approach For Environmental Balance. Islamic Economic Studies Vol. 3, No. 2, June 1996. Pp 57 - 76

AlQahtany Ali, Yacine Rezgui & Haijiang Li. (2013). A Proposed Model For Sustainable Urban Planning Development For Environmentally Friendly Communities. Architectural Engineering and Design Management, 9, 176194, DOI: 10.1080/17452007.2012.738042. Aziz, Abdul. Ulfah, Mariyah. 2010. Kapita Selekta Ekonomi Islam Kontemporer. Penerbit Alfabeta Bandung Blanc, David Le. (2014). Towards Integration at Last? The Sustainable Development Goals as a Network of Targets. Rio+20 Working Papers, Dariah et. al., (2015). Towards An IslamicBased Sustainable Development Plan In Indonesia. Paper presented at Thematic Workshop on Islamic Economics and Finance. Economics Department and IRTI IDB Collaboration. 27-28 August 2015. Farooqi, Abul Hasan. 2006. Islamic Social Capital And Networking. Humanomics Vol. 22 No. 2, 2006. Pp. 113-125. Guyer, Neal Keny. (2015). 5 ways the Sustainable Development Goals can succeed. https:// agenda. weforum. org/ 2015/ 08/ 5 -ways-sustainable- development-goals- cansuccess/. Roughley, Alice. (1999). Ecologically Sustainable Local Area Planning: A Framework To Enhance Integration Of Community Workers And Environmental Planners. Urban Policy and Research, 17, 267-286, DOI: 10.1080/08111149908727813Szabo Sylvia and Zoe Matthews. (2015). How can we track the success of the SDGs? Accesed from https:// a g e n d a . w e f o r u m . o r g / 2 0 1 5 / 0 8 /d e s i g n i n g effective-sdg-indicator-framework/ Salleh, Muhammad Syukri. (2003). Prinsip Pembangunan Berteraskan Islam, Kuala Lumpur: Zebra Editions and Penang: Islamic Development Management Project (IDMP), Universiti Sains Malaysia

Al-Jayyousi, Odeh Rashed. (2012). Islam and Sustainable Development. Surrey: Gower Publishing, Ltd.

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ISFIRE ADVERTORIAL

SMART LEARNING IN ISLAMIC FINANCE

ZAINEB SEFIANI, FOUNDER OF CARRERA LEARNING

s digital technologies invade modern life, classroom learning is increasingly shifting towards smart learning. This phenomenon is taking place both in the academic as well as in the professional learning space. Many organizations use digital technology to enable learners to build their capabilities, more efficiently and effectively. From start-up businesses to giant techs like Microsoft, eLearning offers users the ability to acquire a large amount of knowledge and skills at a reasonable cost. However, can the same be said about Islamic financial institutions? A growing number of organizations in the Islamic finance sector are becoming aware of the importance of the fourth industrial revolution and how it will impact this industry. When it comes to knowledge and skill not much has been said in terms of using technology for training and talent development in Islamic finance. We believe that sooner or later the traditional method of face-to-face trainings will disappear and will be replaced by modern digital technology. Such change will someday

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inevitably encompass the industry of Islamic finance as well. There are typically two aspects considered by organizations that want to integrate online learning for their employees: a learning management system known as LMS and the content itself. THE LEARNING MANAGEMENT SYSTEM (LMS)

Ann Schulte, Chief Learning Officer at Procter & Gamble contends that the “fast learner wins”. The ability of employees to learn new skills or develop their knowledge daily at a fast rate to keep up with the changes in the market is essential. And this is definitely not possible with face-to-face trainings alone. There are many LMS’s in the market, which are developed to support online learning. However, how many of those also allow the ‘fast learner to win’?

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ISFIRE ADVERTORIAL Our experts at Carrera Learning have noticed the need for a ‘faster’ learning experience in the competitive world of market. That is why Carrera Learning has designed an LMS that supports both teaching and learning experience. We believe that the LMS developed by Carrera Learning revolutionizes the way Islamic finance trainings are delivered by offering user-specific customization for organizations. For instance, trainings can be turned into weekly deliverables or can also be set up so that employees need to achieve a certain score before they can move to the next module. People waste a lot of time on social media, and this is why with Carrera learning, we choose to enable users to learn and socialize at the same time. Employees from the same organization can share content and ideas as well as chat to each other via the platform. This creates a single communication channel for learning within an organization. According to Elisabetta Galli, from Bank Santander, “Employees use social media and search in their spare time to satisfy their curiosity, right when they need it. It should be exactly the same at work. We must create corporate learning experiences to match consumer-grade experiences. This is our vision: to create a learning-in-the-flow-of-work ecosystem and become a learning organization, whose workforce is up-skilled in real time.” SO HOW CAN ORGANIZATIONS ENSURE THIS IS REALLY HAPPENING?

Our LMS enables management to track the progress of their employees in real time and support them in the areas where they need the most help. They can also assign them to specific training programmes. Our platform comes with an online chat with qualified Islamic finance professionals, allowing learners to ask questions at any time.

Carrera Learning already covers trainings on various topics related to Islamic banking and finance ranging from Islamic Retail Banking, Takaful, and Islamic Capital Markets. Carrera Learning is mobile friendly with a simple interface to help anyone who wishes to learn on the go, given it is entirely online. The courses are flexible and can be modified to accommodate the pace of the learner or the pace required by the employer. We can also incorporate game-like elements in their learning experience. Studies show that games embedded in a learning experience tend to enhance the performance of the users as well as their engagement level.

We expect to roll out our first Arabic content by June 2019. THE CONTENT

The way the trainings are provided is in line with many Islamic financial institutions that are looking to efficiently train their staff. The interactive videos are easy to follow. The structure of each training is usually designed to define a concept, followed by an example and then a practice question to ensure content absorption. At the end of each video, there is a short one-page summary with the key takeaways. All the modules are bite-size, between 15 to 30 minutes long. Additionally, Carrera Learning will be introducing a feature that fully translates all content into Arabic language to cater to the needs of its users residing in the Middle East. We expect to roll out our first Arabic content by June 2019. FOR ISLAMIC FINANCE PROFESSIONALS

Carrera Learning calls on Islamic finance experts and Sharia scholars to join hands in assisting in developing talent in Islamic finance. Carrera Learning is open for anyone to add content and get paid for it. We believe this will enable us to capture good content that is still being delivered in the traditional way.

We believe that sooner or later the traditional method of face-to-face trainings will disappear and will be replaced by modern digital technology.

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Carrera Learning is a breakthrough platform that manages to truly replace and reform the entire training experience. For both large and small organizations, Carrera Learning is the ideal way going forward for an effective training experience. It is user-friendly, cost-effective and scalable. In an endeavor to nurture and bring forth new talent & development in Islamic finance, we offer a handful of free, accessible modules for our new customers wishing to learn more about Islamic finance.

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ISFIRE EXCLUSIVE INTERVIEW

AN EXCLUSIVE INTERVIEW WITH

SHEIKH HUSSEIN HAMED HASSAN WORLD RENOWNED SHARI’A SCHOLAR AND ECONOMIST

SHEIKH, YOU ARE A TOWERING PERSONALITY IN ISLAMIC BANKING AND FINANCE AND THAT YOU NEED NO INTRODUCTION IN THE INDUSTRY AND BEYOND, BUT IT WILL BE INTERESTING FOR OUR READERS TO KNOW ABOUT YOUR CHILDHOOD AND EARLY AGE. WOULD YOU CARE TO SHARE WITH US SOME MEMORIES OF THE PAST? My father was a poor farmer and camel herder, he died when I was 6 years old and I was raised by my mother. In our village there were no schools and none of my peers went to school and I used to herd camels as a child. On an occasion a Sheikh, who had given a Jumma sermon in my village, was invited to have dinner with the family. I was serving him, and when he realized that I did not go to school he advised me to memorize the Holy Quran. I took his advice seriously and by the time I was 12, I had memorized the Holy Quran in 4 months only and perfected it in another 2 months. Egypt had a dual educational system; Al-Azhar religious system and a secular educational system and students could join both in parallel if they were able to. When I attended school at around 12 years of age, I studied in both systems. I would study at the Al-Azhar school from 8:00 am to 2:00 pm and would then attend the Ministry of Education school from 4:00 pm to 8:00 pm and successfully obtain both certificates.

PLEASE TELL US THE STORY OF ISLAMIC BANKING IN YOUR NATIVE EGYPT, AS IT WILL BE INTRIGUING FOR OUR GLOBAL READERSHIP TO LEARN ABOUT THE ADVENT OF ISLAMIC BANKING IN A COUNTRY THAT IS CONSIDERED AS PIONEER OF MODERN ISLAMIC BANKING. The principles of Islamic economic and financial system are stated in the Holy Quran and under Shari’a and with the advent of Islam in Egypt, the profit sharing practices started replacing interest bearing transactions between parties. However, the idea of establishing Islamic banks did not realize until the early 1970’s when a bright young scholar, Dr. Ahmed Al-Najjar (later the Secretary General of the International Union of Islamic Banks) established the first Islamic Bank in Al-Mahala Al-Kobra in the Delta region North of Egypt. Dr. Ahmed, had based the idea of an Islamic bank on

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I had memorized the Holy Quran in 4 months only and perfected it in another 2 months. Egypt had a dual educational system; Al-Azhar religious system.

his experience of cooperative banks, which he had observed during his education in Germany. He found the cooperatives banks to be in accordance with Islamic system demonstrating principles of cooperation and avoidance of interest. Unfortunately, the first Islamic Bank in Al-Mahala faced several challenges due to incompatibility with the laws and regulations of the Egyptian interest-based banking system at that time. It was not until the idea spread with success in several Arab Gulf countries and other Islamic countries that Islamic banks started flourishing in Egypt in the late 1970’s.

YOU HAVE ADVISED ON HUNDREDS OF TRANSACTIONS FROM RETAIL BANKING TO SOME OF THE MOST SOPHISTICATED INVESTMENT BANKING AND CAPITAL MARKET PRODUCTS. WHICH ONE OF THESE YOU WILL CONSIDER AS THE MOST INNOVATIVE AND WHY? Fortunately, I have been part of all micro and macro initiatives in Islamic banking and finance industry. For us everything was based on innovation and path-breaking initiatives. Applying the Principles of Shari’a

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to contemporary commercial transactions was not less than a challenge for me and my peers. Our challenge was to ensure the integration of principles of Shari’a and Islamic law of contract in the economic ecosystem of a particular jurisdiction mainly focusing on commercial viability, Shari’a compliance and alignment with the applicable legal system. In this context, everything we did for Islamic banking and finance industry was innovative and first of its kind in the industry – right from a simple retail product and service to most complex corporate finance and investment transactions. Our responsibility was to set a benchmark for innovation within the purview of Principles of Shari’a and Islamic law of contract. By grace of Allah, me and my peers were successful in satiating the ever-growing requirement of the new products, services and structures right from the inception of Islamic banking till where industry stands today. Let me acknowledge that all this would not have been possible without the assistance of some dynamic institutions which volunteered to try and test these innovative solutions. Thanks to the collaborative effort of all stakeholders, Islamic financial institutions are now capable of successfully competing with the conventional peers in terms of availability of products and services.

AMONGST ALL OF YOUR PIONEERING INITIATIVES WHAT WOULD YOU RANK AS YOUR MOST PROMINENT? Answer: Empowering Islamic finance industry through innovative solutions is something I am very passionate about and consider it to be my most accomplished achievement. I have advised on conversion of many conventional entities into Islamic institutions – a challenging assignment that involves not only coordination across all stakeholders but also warranting the use of innovative solutions for operationalizing the transformation. Besides, I have also advised in relation to the establishment of new Islamic banks, Islamic windows, Takaful companies and other Islamic financial institutions in some of the most challenging legal environments. To empower the Islamic finance industry, I also successfully persuaded Dubai Islamic Bank to setup an Islamic finance advisory firm, Dar Al Sharia, which is a leading Islamic finance advisory firm in the industry.

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For me, every assignment is ground-breaking as I am driven by the objective of ensuring that the project should be impactful for the industry. By nature, I always strive to be meticulous and detailed in all my undertakings and assignments. Apart from Islamic finance, my earlier engagements entailed the establishment of prominent institutions such as International Islamic University Islamabad in Pakistan (a pioneering educational institution that offers a combined Islamic and contemporary education in almost every basic discipline of education) and the Islamic Culture University Nur-Mubarak in Kazakhstan. Apart from the above, I had humble contributions in many other landmark initiatives in the field of Islamic jurisprudence, Islamic finance and education across four continents. Even in my writing in Islamic jurisprudence, I have endeavored to employ a contemporary style in order to attract the attention and interest of readers. Some of my works include, Usool Al Fiqh Al Islami (an all-inclusive work on sources and principals of Islamic jurisprudence), Al Madkhal Le Dirasat Al Fiqh Al Islami (a book on history of Islamic jurisprudence and theories of Islamic Law of Contract) and Nazriatul Al Maslaha fi Al Fiqh Al Islami – (theories of public interest in Islamic Jurisprudence). My primary focus through my writings has always been to present and highlight the practical aspects of Islamic jurisprudence and its efficacy as the most relevant code of life for human being in all spheres.

YOU ARE, MA SHAA ALLAH, NOW IN YOUR EARLY 90S BUT STILL VERY ACTIVE PROFESSIONALLY. WHERE DO YOU GET THIS ENORMOUS ENERGY? WHAT KEEPS YOU TICKING? I would attribute this to four core reasons. Firstly, my passion for Shari’a sciences. I like comparing secular legal and financial systems against the backdrop of the juristic and financial systems advocated under Shari’a principles. This is why I have successfully completed my studies in law and finance across civil law, common law and the Islamic Shari’a.

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Secondly, I consider researching in these disciplines as an act of worship and obedience to God and a religious duty. Thirdly, I find satisfaction and comfort when I realize from the results of these studies, that Shari’a, is the most capable of all systems to achieve the welfare of people and elimination of corruption, discrimination and social injustice. Finally, the validity of my belief has been proven by the tremendous growth of the Islamic finance services industry. Indeed, the solution to all world problems can be found in Shari’a.

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The success of Dar Al Sharia can be attributed to the holistic approach to Shari’a advisory services, the client centric values and the sincere efforts of the team. LET US ASK AN EASY QUESTION TO MAKE THE INTERVIEW LIGHTER IN TONE AND CONTENTS. WHICH SPORTS HAVE YOU PLAYED AND ENJOYED THE MOST? AND WHY? Football (soccer). In this sport, one uses their body putting their strength and stamina to the utmost test, which is very useful for body health. I had a football field near my residence, and I had the chance to practice it as a young boy. My wife and children are all football fans.

SHEIKH, YOU HAVE BEEN A STAUNCH CRITIC OF THE USE OF TAWARRUQ IN ISLAMIC BANKING AND FINANCE, BUT DESPITE ALL THE CRITICISM THE ORGANIZED TAWARRUQ HAS ATTRACTED, ITS USE IS RAMPANT IN THE INDUSTRY. HOW DO YOU FEEL ABOUT IT? Organized Tawarruq is something to be used in an extreme necessity situation - where no other Shari’a nominate contract could have been used to do a transaction in a Shari’a compliant manner. Organized Tawarruq has undermined the very objective of Islamic finance. It undercuts the fundamental values of participation, profit and loss sharing, contribution to mainstream economy and elevation of social and economic conditions of the community as the product operates in a similar fashion as conventional financing which results in indebtedness in addition to, in my opinion, have certain inherent anomalies from Shari’a compliance perspective.

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ONE OF YOUR INITIATIVES HAS BEEN DAR AL SHARIA. IT IS AN AWARD-WINNING ADVISORY FIRM. HOW WOULD YOU EXPLAIN ITS SUCCESS AND RECOGNITION? Dar Al Sharia was established by Dubai Islamic Bank as a pioneering Shari’a advisory and consultancy firm. It has been at the forefront of providing innovative and qualitative solutions. By the grace of the Almighty, the success of Dar Al Sharia can be attributed to the holistic approach to Shari’a advisory services, the client centric values and the sincere efforts of the team.

ANOTHER LIGHT QUESTION. WHO IS YOUR MOST FAVORITE SHARI’A SCHOLAR COLLEAGUE, AND WHY? I am very fortunate to live among the most accomplished jurists of our time. They are very thorough in their approaches and enjoy juristic acumen of high level. They are the founding pillars of the Islamic jurisprudence in general and Islamic finance in particular. Islamic finance industry, where it stands tall today, is because of unwavering contribution of all my peers, notably, without assigning any ranking and limiting the list, Dr. Abdelsattar Abu Ghuddah, Abdallah bin Manee’a, and Sheikh Taqi Usmani, etc. For me, all senior scholars who have been working hard, in any capacity across the world to support the Islamic finance industry deserve appreciation and, honestly, all of us owe them for their sincere efforts. I am also very satisfied with the work of the current generation of Shari’a scholars who I am sure will follow the footsteps of the senior scholars.

THE WORLD IS FAST BECOMING ORIENTATED TOWARDS THE USE OF SOCIAL MEDIA. WHAT ROLE CAN SOCIAL MEDIA PLAY IN CREATING AWARENESS AROUND ISLAMIC FINANCE?

WHAT IS A TYPICAL DAY OF SHEIKH HUSSEIN HAMED HASSAN? HOW DOES IT START AND HOW IT ENDS? All through my life, my daily routine has always been packed with schedules and commitments. I attended two different schools one in the morning and the other in the afternoon. The same routine followed through during my university education, where I obtained degrees from two different universities at the same time (Al-Azhar University, faculty of Shari’a and Cairo University, Faculty of Law). My typical day is still the same, I start my day after Fajr prayer and end my day at around 10 pm. A typical day would involve conducting research, official work, and commercial work.

ON A PERSONAL NOTE WHO HAS INSPIRED YOU THE MOST AND WHY? HOW HAS THIS INSPIRATION SHAPED YOUR APPROACH TO ISLAMIC JURISPRUDENCE? I have been inspired by a large number of scholars from Cairo University (Dr. Mohsen Shafiq, Dr. Mahmoud Mostafa, Sheikh Abu Zahra, Sheikh Ali Al-Khafeef) and Al-Azhar University (Dr. Othman Muraiziq, Dr. Taha AlDeenary). I attended their lectures, I carefully read their books and writings, I had friendship with them and would also have personal meetings with them. I learned a lot from my interactions with them as it helped me shape my approach to Islamic jurisprudence.

WHAT WOULD BE YOUR MESSAGE TO THE GLOBAL ISLAMIC FINANCIAL SERVICES COMMUNITY, PARTICULARLY THE YOUNG SHARI’A SCHOLARS? I encourage them to love their work, act with responsibility on the basis of thorough research, and consider their efforts as a form of worship and obedience to God.

I believe that social media can play a vital role in spreading knowledge about Islamic finance, more than any other means of communication.

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WAQF AND INNOVATIONS IN FINTECH THE INDONESIAN EXPERIENCE HENDRI TANJUNG AND LUTFI ADHIYANSYAH

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aqf as an Islamic economic instrument has an important role to play in socio-economic development. In Indonesia, land waqf assets span over 4,359 billion square meters (2016 data). In addition, cash waqf, which is recognized by the regulatory system in Indonesia, can potentially raise another of IDR187 trillion (over USD13 billion). People can easily contribute to cash waqf through a waqf management company (naazir), an organisation officially listed with the Indonesian Waqf Board (BWI). Unlike a traditional waqf, cash waqf involves a cash donation made through a retail outlet, bank transfer, or even hard cash contributed during a social event like a gala dinner. The proceeds can be utilized to build a variety of waqf projects. The on-going developments in the technological domain in the 4.0 digital are expected to help accelerate cash deployment,

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making it easier to contribute to cash waqf and similar vehicles. This brief paper focuses on how technology in general and FinTech in particular can help cash waqf to develop into a more effective and efficient vehicle with meaningfully huge size in terms of assets under management.

CASH WAQF IN INDONESIA: POLICY & CHALLENGES Indonesia has progressed extra-ordinarily in developing an effective policy framework for waqf operations and regulation. The role of the government of Indonesia in this respect is praise-worthy. Indonesian Waqf Board (Badan Wakaf Indonesia - BWI) was established to regulate and supervise naazir waqf activities. It also requires all naazirs to be registered officially in the BWI. Furthermore, during the IMF-World Bank Group Annual Meeting 2018 in Bali, BWI

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collaborated with DEKS-BI (Sharia Division of Bank Indonesia) and IRTI-IsDB (Islamic Research and Training Institute, Islamic Development Bank) to launched Waqf Core Principles (WCP). WCP provides comprehensive guidelines for risk management practices to be employed by the naazirs managing waqf funds. BWI has also issued a special sukuk programme with the Ministry of Finance, called Waqf Linked Sukuk (WLS), whereby the investors are able to purchase retail sukuk, with a feature to donate their profit into cash waqf. Although the waqf policy has contributed significantly in Indonesia, there still exist challenges and obstacle in terms of fundraising, progress reporting, administration of awqaf assets and their productivity, risk management for awqaf projects, and general literacy and public awareness of the concepts and prctices. FinTech could address these six main issues. Indonesia has once again taken a lead role in introducing regulation in this field. The relevant regulation is called Indonesia Fintech Regulation, which plays an important role in establishing FinTech services in Indonesia, especially Islamic Fintech.

To prepare for Digital Age 4.0, the government of Indonesia has committed to devise appropriate policies to support financial services industry as well as the technology vendors. The financial services in Indonesia are regulated by Bank Indonesia (the central bank) and the Financial Services Authority (OJK). Each of these regulators has a different focus. Bank Indonesia focuses on regulating payment services and OJK regulates financial services. OJK has issued two regulations for FinTech: (1) OJK Rule No. 77 (POJK 77) for FinTech P2P lending; and (2) POJK 13 for digital financial innovation. In the near future, it will also issue regulations on equity crowd funding.

HOW DOES FINTECH BENEFIT WAQF PT Ammana Fintek Syariah (Ammana) was founded in Indonesia in July 2017, and was officially registered with OJK as the first Islamic P2P lending platform in December 2017. Subsequently, it launched its crowd funding services in March 2018. After an year or so, it is being seen as a promising alternative Islamic financial service. Ammana operates as

INDONESIA FINTECH REGULATORY FRAMEWORK Joko Widodo, the President of Indonesia, aptly remarked on January 19, 2018 that the financial industry must prepare for the Industrial Revolution 4.0. It is the time to become digital, computerized and make decision on the basis of Big Data Analytics. Next step is to use Artificial Intelligence (AI). The Industrial Revolution 4.0 has already started transforming business processes by using information technology innovatively. Besides information technology, it is also using automation based on AI, internet of things and digital economy. This is entirely in line with the approach adopted by the Indonesia Financial Services Authority (OJK).

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an Islamic P2P lending Fintech, giving the users access into Islamic financing. On May 18, 2018, Ammana broadened its services by providing crowdfunding services for production sector, using cash-waqf fundraising. Through Ammana mobile app, donors can choose a cash waqf project of their choice. It is an easy-to-use app, offering detailed information on the naazir and the use of the funds thus collected by it. In future, Ammana plans to develop an online live-streaming application to oversee the progress of the waqf projects. Thus the hospitals and schools benefitting from the cash waqf proceeds will be required to use CCTV cameras, allowing donors to have access to the funded projects through live streaming shown on a mobile app. This sharing of information should allow the donors to have more trust in the appropriate and required use of their funds, making this kind of giving more impactful and socially responsible. In addition, Ammana is also allowed by OJK to become a selling agent for state securities, in this case retail Sukuk. As mentioned earlier, the waqf regulatory framework in Indonesia is robust as to accommodate more products like Waqf Linked Sukuk (WLS). WLS is an official programme

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between the Ministry of Finance, National Waqf Board and Productive Waqf Forum to structure and offer sukuk products, issued on awqaf. An interesting feature of such products is that the sukuk holders do not claim profit but rather endorse it to a designated naazir. This is just a fraction of the FinTech’s potential benefits to waqf. With further technological advancement and ensuing innovations, the products can not only benefit from the additional fundraising but can also become a new asset class available to investors.

CONCLUSION Waqf is one of the powerful instruments in Islamic finance, with long-term social impact and benefits to the overlapping generations. With the advancements in the digital era, Muslim millennials are increasingly becoming more tech-savvy. Hence, Islamic finance must adapt and utilize more technology so it can be practiced by more people, especially Muslims. In this respect, the role of Islamic FinTech should not be under-estimated. Its applications in the waqf sector and related areas – zakat, infaq, sadaqah and even simple financing – have huge implications for future of Islamic finance.

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BANKING THE UNBANKED: A PERCEIVED RECIPE FOR POVERTY ERADICATION PROGRAM INDUCTION OF A NEW ISLAMIC MICROFINANCE MODEL IN NIGERIA Olorogun, L.A.M Business Division ADMC, Higher Colleges of Technology Abu Dhabi UAE

A new Islamic microfinance model – entitled Manara Project – was developed in Nigeria. A popular and famous Islamic group was used as a Close User Group (CUG). The CUG is an Information Technology (IT) platform created by EasyGIS Limited – a consulting firm based in Kaduna State Northern Nigeria - for mapping mosques and members of a religious charity called lzalat Bid’a Wa lqamat Sunna (JIBWIS). Through this platform, JIBWIS represents leadership that has agreed in principle to reposition itself in contemporary Nigeria beyond missionary activities to foster economic and financial propagation among its members. The Manara Project was formed and detached from the JIBWIS administration. Every JIBWIS office was requested to form and present a fiveman committee as part of the Manara Financial Inclusion Project. In fear of lack of competency and fidelity (BFM personality variables) etc. a three-day financial induction programme was held for the selected Manara officials. Each state official was strictly selected according to prior set conditions. Manara officials comprise of a

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representative of JIBWIS’s Imam Committee, a representative of JIBWIS’s administrative committee, a representative of JIBWIS’s First Aid Committee, a computer literate, and wellseasoned and trained managerial personnel. In addition, a national Manara Project seven-man committee, selected from JIBWIS’s national committee, was constituted to oversee the state officials’ committee’s projects. The Manara Project idea was prompted by the harsh realities of microfinance across the globe particularly in developing and under-developed countries. Previous literature highlighted the need to reverse the state of affairs of the current microfinance system which has landed many in the affected countries in greater debt and has worsened poverty. This has distanced many Nigerians from engaging in conventional banking and financing. Nigerians often prefer the traditional banking and finance systems such as Esusu (informal finances in Nigeria) or mutual weekly contribution amongst peers and friends.

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The Manara Project promotes the culture of a true Islamic finance that excludes any usurious lending or interest-based financing. It seeks to foster stronger brotherhood among its members where donations are modelled after the early Islamic Bayt al-Mal model. With JIBWIS’s multimillion membership across towns and villages in Nigeria, the Manara Project demands professional management. The concept of relationship in management specifically relationship marketing, was first mentioned in marketing literature around two decades ago wherein personality trait is a vital consideration. Some of the main motivators, such as intense competition among organizations in the same industry and demanding customers, are the reasons why labour or relationship marketing has increasingly attracted the attention of researchers and practitioners alike. Thus, customer loyalty is a core goal of organisations (Christopher et al, 2004). Many studies have posited that profitability of an organisation depends on the degree of customers’ loyalty.

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After this introduction, this note attempts to evaluate the effects of induction and training programmes of a Closed User Group (CUG) seeking to foster better personality traits in a new Nigerian Islamic microfinance model. Despite existing research on personality traits in financial organisations, the majority of such research literature concentrated on the general Western view of personality without considering specific cultural or religious variables, especially the new model of Islamic financing. The induction programme’s materials were designed with the view of inculcating reputable personality traits into the participants. This is important because reports show that Nigeria has a high rate of illiteracy, especially in NorthEastern Nigeria where Western education is largely prohibited. After retaining the BFM variables, our model added the Islamic religious values. The actions of employees are driven by many factors, which have been debated extensively in both psychological and economic disciplines, especially those actions related to employees’ relationship with their organisation

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in helping the organisation realize its objectives. Individuals have different instincts that subsequently determine the personality of such a person or the way the person acts or reacts to his/her environment. The results offer useful insights regarding the need for additional models of Islamic microfinance systems. Our analysis of the Manara Project, which involved the grassroots members of numerous Nigerian communities, discovered that educational background might have no serious effect on the personnel. Our results showed that the induction programme could serve as one remedy for illiteracy in Nigeria. This may also be true for other SubSaharan African countries. Therefore, it suggests that for Islamic finance to be successful in Nigeria there must be educational or literacy transformation at the grassroots level. Since literacy, as discussed by previous literature entails both hereditary and experience, training and induction programs, would serve as one of its natures. The experience itself should focus on management with emphasis on finance and particularly Islamic finance. There is urgent need to capitalize on instilling the BIG FIVE variables as well as Islamic orientation into the aspiring future Islamic finance professionals. Recruitment should not be based on educational qualifications, rather a proper criterion should be adopted for the selection of the zealous participants. However, such a programme must be well arranged. There is some evidence that the programme location served as one of the motivational factors for the participants. Providing accommodation encouraged participants to postpone other responsibilities and participate in the three-day programme. In addition, facilitators played a pivotal role as the participants found the programme interesting, stimulating, and motivational which empowered them with new skills and prepared them for future leadership roles beyond the Manara Project. In light of this, factors such as “educational” stood out as a superb determinant contributing to the success of the model. The induction programme achieved its objective of educating the laymen on engaging with mini financial institution at the basic level.

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Thus, the success of Manara or Islamic financial institutions depends on the honesty of the professionals. Officials are committed to achieving the goals of the project with little consideration for remuneration. Implications of this programme in upgrading and standardizing of the educational curriculum in Nigeria are beyond exaggeration, because even educated participants were convinced that their views on financial systems were transformed from negative to positive. This highlights the need for including this type of financial management orientation programme into the Nigerian educational system, at least at the senior secondary school level given that on average 60-70% of the senior secondary school leavers would not make it to tertiary institutions due to financial constraints and other reasons. Even in Malaysia where there are number of experts, in Islamic finance, reports and complaints of Hisham (2015), Annuar (2015) and as well Taap and al-Awar (2015) in the Islamic Finance News’ Magazine indicated the utmost importance of upgrading our educational systems. The sample group also agreed that this induction programme was timely in the wake of increasing poverty in Nigeria. One of their conclusions was such a vital program such as the Manara Project should be open to all communities and beyond JIBWIS’s CUG. By this, it is posited that communities can be regrouped according to the CUG ideology. This would bring like-minded people together as well as ensure their inclusion in leadership and problem-solving programmes. Eventually, more induction programmes would be needed and Nigerian communities would be educated in the same way the participants have benefited.

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The Nigerian government needs to look beyond common forms of microfinance and develop financial inclusion at the grassroots level where members of communities would be the managers of the microfinance institutions based on CUG cooperation. Policy wise, the Nigerian government needs to look beyond common forms of microfinance and develop financial inclusion at the grassroots level where members of communities would be the managers of the microfinance institutions based on CUG cooperation. Current financial inclusion programmes segregate between the financial institutions which are basically conventional oriented and thus prioritise profit over community service. Advancing interest-based loans to businessmen is the only mechanism adopted by these financial institutions. While the majority of Nigerian businesses are small scale in nature and require stable infrastructures for steady growth and development; Nigerians are overwhelmed by the lack of infrastructure facilities such as electricity, roads etc. making their survival extremely difficult. Whereas repayment of loans with interests is an obligatory responsibility, inability to honour the contract at the appropriate time would lead to confiscation of property or the entire business venture and perhaps jail. Many Nigerians fear losing their collateral in an uncertain business environment like Nigeria. The funds under the Manara Project were generated and managed by the community members and overseen by appointed officials.

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These results were similar to Khan’s (2008) proposed microfinance model for Pakistan. Khan argued that the only way to manage rampart microfinance failures is the inclusion of charity into microfinance programs. This is the major operandi for the Manara Project where members’ “rich/affluent, average and poor” contributions are regarded as charity. The usage of these funds is a collective project, such as for community hospitals, and consumer food chain stores selling various local raw foods at a discounted rate for registered members etc. It would surely serve as an antidote to Tan’s (2017) concerns about shrinking job markets, particularly in banking and finance profession. Similarly, it embraces Berisha’s (2017) opinions of continuous development, creation of attainable new business models, education and training as antidotes to uncertainties facing the financial markets across the globe. Thus, the current programme also includes individual funding of feasible projects for technicians and traders. These groups form the majority of all communities in Nigeria. The individual beneficiaries would pay back their loans through the donation process as charity without interest. These projects have immediate effects on members of the communities, particularly for the Manara members. Funds are advanced for projects without interest and members donate funds without seeking profit on investments. Further, the inclusion of the grassroots

Advancing interest-based loans to businessmen is the only mechanism adopted by these financial institutions. While the majority of Nigerian businesses are small scale in nature and require stable infrastructures for steady growth and development; Nigerians are overwhelmed by the lack of infrastructure facilities such as electricity, roads etc.

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members into financial development project would boost the Nigerian Central Bank’s efforts in implementing the World Bank’s financial inclusion and poverty eradication programmes. The results further showed that educational background was not a barrier to the recruitment of officials. The induction programme’s manual and materials were prepared in English; however, the discussions and presentations were in the local language, particularly Hausa. Participants indicated that repeating the programme is important for the success of Islamic finance, particularly microfinance programmes. Another cogent observation was that the Manara manual was distributed to the participants as a guide for the operations of the officers involved and was well received by the participants. Thus, orientation and re-orientation programmes would be ideal activities for the Nigerian Islamic financial industry. Lack of both human and other resources is one of the major concerns facing Islamic finance in Nigeria. The majority of the market players are unclear about Islamic injunctions on contemporary Islamic commercial contracts. Front-liners are mainly conventional oriented with a limited number of qualified Shari’a scholars. This has led to qualified scholars serving multiple competing financial institutions. Islamic financial institutions particularly in Nigeria currently mobilized funds to focus on an undefined microfinance lending with returns almost similar to the conventional microfinance (see Khan 2008). However, the Manara Project’s mobilization of funds would be through donations. This is similar to the early Islamic Bayt al-Mal funds mobilization. These funds are thereafter returned to the society and community for the betterment of both the rich and poor. Trustworthiness would be achieved without extra expenses because the custodians are the donators of the funds. Participants were reminded of the consequences of failure of the Manara Project to Islam and Muslims in general. Thus, the success of Manara or Islamic financial institutions depends on the honesty of the professionals. Officials are committed to achieving the goals of the project with little consideration for remuneration. This

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was because they realized the importance of community services through the discussions on Islamic ethics, the Qur’an, and Prophetic traditions on helping one another in piety and goodness. Speakers at the orientation should be experienced professionals in both Islamic and conventional finance. This will eradicate the current gaps in the Islamic financial industry where the Muslim scholars have no or little knowledge of conventional finance. Bridging the gap would also extend to the conventional finance background professionals, with little or no knowledge of Islamic jurisprudence. The Manara orientation and induction programme benefited from those professionals with both Islamic and conventional qualifications. In addition, local trainers are preferable to foreign trainers or professionals. Brevity and accuracy are fundamental qualities of such trainers, including knowing the demographic backgrounds of their trainees.

This was because they realized the importance of community services through the discussions on Islamic ethics, the Qur’an, and Prophetic traditions on helping one another in piety and goodness. The results further confirmed that financial management and operation with embedded psychological discipline is a vital tool in changing perceptions and obsolete thoughts on finance and financial institutions among local Nigerians (the grassroots members of the society). When presented with a brain-storming project on investment on an island, participants’ views shifted and broadened.

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ISLAMIC FINANCE

FINANCIAL INCLUSION OR MIGRATION1? DR. AHMED TAHIRI JOUTI2

During the last decade, Islamic finance has raised its competitiveness and coverage visà-vis conventional finance, through Shari’acompliant product innovation to widen the scope of its offerings to previously unchartered areas. An indirect target of this endeavour was greenfield growth in Islamic financial services. Many international reports had highlighted the role that Islamic finance could play to enhance financial inclusion in countries with dominant Muslim population 3 . Nevertheless, according to the Global Financial Inclusion Database 4 (Global Findex), only 6 per cent of the unbanked people cited religious concerns as their main reason for not having a bank account. For some authors5 , these results would seem to be very encouraging to introduce Islamic finance in countries with dominant Muslim populations. However, it is necessary to make sure that all the unbanked people with religious concerns are interested in Islamic finance. It goes without saying that being sensitive to the Shari’a dimension and adhering to antiRiba practices does not automatically mean the acceptance of the Islamic finance Model. Then, investors shall measure the potential demand for Islamic financial services to justify

1. An earlier version of this paper was first published in the ISRA International Journal of Islamic finance: Ahmed Tahiri Jouti, (2018) “Islamic finance: financial inclusion or migration?”, ISRA International Journal of Islamic Finance, Vol. 10 Issue: 2, pp.277-288, https://doi.org/10.1108/IJIF-07-2018-0074 Permanent link to this document: https://doi.org/10.1108/IJIF-07-20180074

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the launch of Islamic financial institutions. If the potential is not sufficient, the project shall be aborted, or the business model shall target other segments of customers to be profitable without focusing solely on unbanked people with religious concerns.

2. Management Board member at Al Maali Group, Associate editor at ISRA International Journal of Islamic finance. 3. The World Bank (2013), “Global financial development report 2014: financial inclusion”, available at: http://documents.worldbank.org/curated/ en/225251468330270218/Global-financial-development-report-2014financial-inclusion (accessed 17 August 2018)

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From another perspective, other people could find the results daunting and would not justify the introduction of Islamic finance. Nevertheless, a World Bank Survey6 focused only on people who do not have a bank account and having a bank account does not mean that the customer would necessarily have access to all the other financial services especially since, in many countries, having a bank account is obligatory in order to receive a wage or to create and run a business. Therefore, among people who already have a bank account, there are the self-excluded people in terms of financing, savings and insurance for religious concerns. From the perspective of Islamic financial institutions (IFIs), this segment could be very interesting. Measuring the impact of the introduction of Islamic finance is important when it comes to financial inclusion and competition with incumbents. The measured impact can significantly define the strategies and approaches to adopt Islamic finance.

FINANCIAL INCLUSION FROM THE CONVENTIONAL FINANCE PERSPECTIVE Financial inclusion: the main concepts

individuals and firms that use financial services7. It covers: Lack of access (i.e., people are not able to use financial services); and Self-exclusion (i.e., people have access to financial services but choose not to use them generally because they do not need these services or they do not trust financial institutions or because it’s not in line with their religious beliefs). The lack of access could be due to the expensive cost of using financial services, limited geographic coverage or low income. Many solutions and products have been developed around the world to lower the cost of financial services. These include M-PESA 8 , WeChat Pay 9 , and AliPay10 etc. For the self-exclusion issue, Islamic finance and financial literacy11 seem to be the main solutions to include more people in the financial system. Nevertheless, in some contexts, the informal finance can be the main reason of self-exclusion12 . Indeed, people would use cash rather than financial services because of their preference for more privacy and less control, especially when it comes to taxes.

Financial inclusion is the proportion of

4. The World Bank (2018), “The 2017 global findex and the fintech revolution”, available at: www.worldbank.org/en/events/2018/04/23/global-findexfintech-inclusion (accessed 17 August 2018)

5. Demirguc-Kunt, A. and Klapper, L. (2012), “Measuring financial inclusion: the global findex database”, Policy Research Working Paper No. 6025, World Bank, Washington, DC, available at: https://openknowledge.worldbank.org/ handle/10986/6042 (accessed 17 August 2018)

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8. M-Pesa is a mobile phone-based money transfer, financing and microfinancing service, launched in 2007 by Vodafone for Safaricom and Vodacom, the largest mobile network operators in Kenya and Tanzania.

9. WeChat Pay is a Chinese multi-purpose messaging, social media and mobile payment application developed by Tencent.

10. AliPay is a third-party mobile and online payment platform, established in Hangzhou, China in Feb 2004 by Alibaba Group and its founder, Jack Ma

6. The World Bank (2018), “The 2017 global findex and the fintech revolution”, available at: www.worldbank.org/en/events/2018/04/23/global-findex-fintech-inclusion (accessed 17 August 2018)

11. Ramakrishnan, R. (2012), “Financial literacy and financial inclusion”, 13th Thinkers and Writers Forum, available at https://ssrn.com/abstract=2204173 (accessed 17 August 2018). [Google Scholar]

7. The World Bank (2018), “The 2017 global findex and the fintech revolution”, available at: www.worldbank.org/en/events/2018/04/23/global-findexfintech-inclusion (accessed 17 August 2018)

12. Mauri, A. (2000), “Informal finance in developing economies”, UNIMI Economics Working Paper No. 9, available at: https://ssrn.com/ abstract=667262 or http://dx.doi.org/10.2139/ssrn.667262 (accessed 17 August 2018). [Google Scholar]

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FINANCIAL INCLUSION LEVELS AND IMPACTS A typical approach to measuring financial inclusion is based on account ownership data, since in conventional banking, the first step to access other financial services is to own a bank account. Otherwise, the customer would be excluded from the whole system.

Having an account means having a credit record, which makes it possible to get microor nano-loans when needed. Having access to micro- or nano-loans can inspire companies to find solutions for daily problems.

Having no access to financial services is a costly affair. Indeed, a person with no access to a bank account would have to go to every retail establishment and stand in line to pay his/her bills and may even have to pay extra fees for paying in cash.

ACCESS TO INSURANCE SERVICES AND ITS IMPACT ON DEVELOPMENT

Layer 3

Insurance

Layer 2

Financing & Saving

Layer 1

Holding a Bank Acount

Pr equisite er

to

Pr

Figure 1: Layers of financial inclusion from the conventional finance perspective13

ACCOUNT OWNERSHIP AND ITS IMPACT ON DEVELOPMENT The experience of mobile money accounts in East African countries14 revolutionized the concept of financial inclusion. Operators such as M-PESA contributed in increasing the consumption levels and lifted 194,000 Kenyan

13. Ahmed Tahiri Jouti, (2018) “Islamic finance: financial inclusion or migration?” ISRA International Journal of Islamic Finance, Vol. 10, Issue: 2, pp.277288, https://doi.org/10.1108/IJIF-07-2018-0074 Permanent link to this document: https://doi.org/10.1108/IJIF-07-2018-0074

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ACCESS TO LOANS AND ITS IMPACT ON DEVELOPMENT

Indeed, having a bank account improves the possibility of access to credit, insurance services and savings. Therefore, the main challenge in terms of inclusion is to increase the proportion of people that have a bank account.

equisite er

to

households out of poverty. It offered the unbanked people the possibility to send money back to their home villages faster, more cheaply and more securely which increased the stability of revenues especially when times get tough.

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The mobile money account gives an opportunity to unbanked people to get access to insurance services. In Zimbabwe, based on its Econet experience, farmers were offered Index insurance for their crops that would pay out automatically to a mobile phone account without the need to put in a claim if the rainfall index drops below a certain level (The Economist, 2018). Such innovations can help farmers in periods of drought and avoid deep crisis effects.

FINANCIAL INCLUSION LEVELS FROM ISLAMIC FINANCE PERSPECTIVE Most analysts and researchers adopt the approach of conventional finance regarding financial inclusion and consider Islamic finance as a complementary tool to attract self-excluded people with religious concerns. Nevertheless, the levels of financial inclusion in Islamic finance are not organized in the same way. Indeed, four profiles of people exist:

14. The Economist (2018), “Special report: financial inclusion is making great strides”, 3 May. [Google Scholar]

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People who do not have a bank account and reject all conventional financial instruments and services because of religious concern.

People who are limited to basic services and reject all the financing and savings products as well as insurance. They merely accept to have a bank account.

People who use all the conventional financial services but they will prefer to subscribe to Islamic financial products once available for their new needs and projects.

Using conventional financial services but prefer to convert all their conventional financial commitments to Shari’a-compliant ones.

Indeed, introducing Islamic finance would have different impacts depending on the profiles of people. Figure 2 summarizes these impacts:

Pure Inclusion

Inclusion

Inclusion

Financial Inclusion based on account ownership enhancement

Financial Inclusion Shari’a complaint instruments

Pure

& saving for future needs

& saving

Figure 2: The Profiles of customers - Inclusion or migration15

HOW TO ASSESS THE IMPACT OF INTRODUCING ISLAMIC FINANCE ON FINANCIAL INCLUSION? In countries willing to introduce Islamic finance, the main argument is that it will enhance financial inclusion, bringing more funds to the banking system, which will constitute a real opportunity for investors and the whole economy. Nevertheless, the impact can be different. Indeed, instead of financial inclusion, introducing Islamic finance can create financial migration. Each impact (migration or inclusion) has a suitable strategy to be adopted by investors and financial authorities. It is worth noting that although Shari’a compliance is an important factor for moving to an IFI, research16 showed that pricing and proximity of branches and quality of services are also critical to the decision function. Thus, the proportion of people who are migrating to IFIs would depend on factors other than Shari’a compliance.

15. Ahmed Tahiri Jouti, (2018) “Islamic finance: financial inclusion or migration?” ISRA International Journal of Islamic Finance, Vol. 10, Issue: 2, pp.277288, https://doi.org/10.1108/IJIF-07-2018-0074 Permanent link to this document: https://doi.org/10.1108/IJIF-07-2018-0074

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16. Aaminou, M.W. and Aboulaich, R. (2017), “Modeling consumers’ behaviour in new dual banking markets: the case of Morocco”, Review of Pacific Basin Financial Markets and Policies, Vol. 20 No. 2, available at: https://doi. org/10.1142/S0219091517500096 (accessed 17 August 2018).

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To assess the impact of Islamic finance on financial inclusion, a series of questions need to be answered. Some of these are as follows: •

What is the proportion of unbanked people with religious concerns?

What is the proportion of unbanked people with religious concerns who accept Islamic finance principles?

What is the proportion of unbanked people with religious concerns who accept Islamic finance principles and who may be interested in IFIs?

What is the proportion of people having a conventional bank account and who refuse to subscribe to conventional financing and saving products on the basis of religious concerns?

What is the proportion of people having a bank account, who would accept to open an Islamic bank account?

What is the proportion of people having a conventional bank account who would refuse to subscribe to conventional financing products for religious reasons and would accept the Islamic financing model?

What is the proportion of people having a conventional bank account who would accept the Islamic saving model?

What is the proportion of people having a conventional bank account who subscribe to financing and saving products and would prefer to get Islamic products once they are available in the future?

What is the proportion of people having a conventional bank account who subscribe to conventional financing and products and would like to convert all their financial commitments to Islamic ones?

Figure 3: Impact assessment of Islamic finance

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By combining the different proportions estimated, we can find four main scenarios.

Context 1

X% X%+Y%+Z%+W%+A%+B%

2 3

In this context, introducing Islamic finance will bring more people to the financial system to open bank accounts and start subscribing to financial services. For such a context, introducing Islamic finance seems to present a real opportunity to include more people and to attract more customers. The appropriate strategy would be to recommend the introduction of Islamic finance to financial authorities and investors.

Context 2

X%+Z%+W% X%+Y%+Z%+W%+A%+B%

2 3

Introducing Islamic finance will bring more people to the financial system. Some will open bank accounts, while others will convert their conventional bank accounts to Islamic ones to subscribe to financing and saving products. For such a context, introducing Islamic finance would represent an opportunity for banks which would invest to grant Shari’a-compliant financing to people who are not interested in conventional loans. The appropriate strategy in this context would be for financial authorities and existing banks to target underserved people in terms of financing and saving products.

Context 3

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Z%+W%+A% X%+Y%+Z%+W%+A%+B%

2 3

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Introducing Islamic finance would cause a soft financial migration. Indeed, those who do not have conventional loans would subscribe to Islamic financing instruments and would convert their deposit and saving accounts to Islamic ones. Generally, those who are not interested in financing or saving products would not move their accounts to IFIs because they may not consider their existing conventional accounts as being Shari’a non-compliant and do not have a real incentive to migrate. Moreover, in this context, people who are already using conventional financial services would prefer to deal with Islamic banks once available. In this context, introducing Islamic finance would represent a threat and an opportunity at the same time. It would represent a threat for conventional banks since an important proportion of their customers would move to Islamic finance and concurrently an opportunity because they can attract underserved customers. Y%+B% X%+Y%+Z%+W%+A%+B%

Context 4

2 3

Introducing Islamic finance would cause a hard-financial migration. Even people who have financial commitments would ask to convert them to Islamic ones. For incumbents, introducing Islamic finance in this context becomes a necessity rather than a choice because conventional banks are exposed to a significant migration threat.

CONCLUSION Generally, researchers and analysts link the introduction of Islamic finance to financial inclusion. Nevertheless, from the perspective of Islamic finance, the issue of financial inclusion needs to be tackled in a different manner. Customers dealing with IFIs can be categorized into different profiles, starting with people that are self-excluded for religious reasons and thus do not use conventional finance products, and ending with people who use all conventional instruments but would prefer to convert their commitments to Shari’a-compliant ones once available. In practice, introducing Islamic finance is not limited to financial inclusion. It could cause a financial migration from conventional to Islamic banks, but even this migration can take many forms and depends on many factors that need to be analysed deeply and carefully. In real experiences, people interested in Islamic financial products can have different profiles, and the proportion of each profile can define whether Islamic finance enhances inclusion or creates migration. Finally, Islamic finance has to contribute to the efforts of financial inclusion. Indeed, it has to adopt the same mechanisms of conventional finance and adapt them to Shari’a principles. Moreover, Islamic finance can use Islamic institutions such as waqf (Islamic endowments) or zakāh (Islamic almsgiving) to have a wider impact on financial inclusion.

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Forthcoming Book HOW TO SUCCEED IN ISLAMIC BANKING & FINANCE

PRE-BOOK YOUR COPY NOW!

Humayon Dar

Phd (CANTAB) W W W. I S F I R E . N E T

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AN EXCLUSIVE INTERVIEW WITH

SHAYKH-UL-ISLAM DR. MUHAMMAD TAHIR-UL-QADRI

S

haykh-ul-Islam Dr. Muhammad Tahir-ul-Qadri is a former Professor of Law and Head of Department of Islamic Jurisprudence and Legislation at the University of Punjab. He is also the Founder of Minhaj-ul-Quran International, which has branches and centres in more than 100 countries. He studied classical Islamic sciences under eminent scholars around the world, including Makkah and Medina in Saudi Arabia, Syria, Baghdad, Lebanon, Morocco, India and Pakistan, and has received around 500 authorities and chains of transmission in the various branches of Islamic knowledge. He has authored about 1,000 books, including a more than 600 pages book to explain his decree against suicide bombing, (over 551 of which are published in Arabic, English and Urdu), and delivered over 7,000 lectures around the world. Shaykh-ul-Islam is also the Founder and Chairman of the Board of Governors of the Minhaj University Lahore. Besides that, he is also the Founder of Minhaj Welfare Foundation and Minhaj Education Society. Minhaj Education Society is running more than 650 schools all over Pakistan where 150,000 students are being educated at present.

ISFIRE interviewed the great scholar for the benefit of our global readership who are interested in knowing about Dr. Tahir-ul-Qadri’s views on Islamic banking and finance. 44

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WE SHALL START WITH YOUR MOST RECENT AND SEMINAL CONTRIBUTION TO ISLAMIC BANKING AND FINANCE, WHICH YOU TERMED AS TAQLID AL-MADHAHIB. ALTHOUGH IT WAS PUBLISHED IN THE GLOBAL ISLAMIC FINANCE REPORT 2018, IT WOULD CERTAINLY EDUCATE OUR READERSHIP IF YOU COULD SUMMARISE THE APPROACH. Let me explain the problem statement first then I will come to the summary of the solution. As we know, the Islamic banking and finance industry is growing and expanding to all parts of the world, and its market share is increasing gradually. This success has not appeared without challenges. Especially since

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last three to four years the challenges are emerging more apparently hence causing the stagnation in the growth of Islamic banking and finance industry around the globe. One of the significant and concerning challenges the Islamic finance industry is facing today is lack of standardisation and global non-uniformity in terms of Shari’a interpretations of Islamic financial matters and products. Islamic banks are operating in different jurisdictions where different schools of Fiqh (Islamic Law) are being followed. Different jurisdictions require conformity to particular school of Fiqh in legality and regulations of financial matters. This also applies to Islamic banking

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I must say that the proposed approach of Taqlid Al-Madhahib is the best solution to the problem

products and services that lead to different Shari’a interpretations and explanations of Islamic banking products and legal matters in different jurisdictions. The conformity to only one particular school of Fiqh in banking matters is the root cause of the problem of nonstandardisation in Islamic banking. This problem is also highlighted and enumerated in various research studies. I tried to address this issue and proposed a solution to this problem in the 1st World Islamic Economics and Finance Conference organised by Minhaj University Lahore. I have the view that the answer to this problem lies in adopting a “neo-juristic approach of inclusive accommodation and flexibility.” This approach is based on the Qur’anic principle of facilitation and the juristic principle of expansion. This approach should be known as conformity with all schools of law (Taqlid-al-Madhahib). The intent of the wholesome of Shari’a is to create ease and facilitation for humankind. Keeping in view this principle, the jurists have

promoted ease, expansion, and facilitation for humans in making inferences from the sources. While describing various disputations, they have reported different verdicts and opinions that contain greater flexibility and facilitation. Let us come to the approach of Taqlid AlMadhahib; what does it mean? One of the critical points, which is needed to be considered is that banking and finance is not a jurisdiction-limited or region specific issue. It is a global issue, and Muslims in all parts of the world need to access financial services. So, a solution having a global scope is the real need of the time. This approach is a theory of expansion and inclusion of all schools of Fiqh on Islamic banking products and other matters. This provides flexibility, and it is based on liberality (Tawasuu) instead of tenacious adherence to a single school of law or the path of narrowness and rigidity. As the basis of the problems grows wider and expands in span and novelty, the rules to resolve the problems also demand the adoption of an open-minded and a holistic approach. If the issue is related to personal matters, adherence

Especially since last three to four years the challenges are emerging more apparently hence causing the stagnation in the growth of Islamic banking and finance industry around the globe. 48

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to a particular school of law will be preferred. However, if the problem happens to be a broadspectrum one and involves a broader span of activity and great international repercussions, the methodology to deal with it would also be all-inclusive, liberal and wide-ranging. In the end, I must say that the proposed approach of Taqlid Al-Madhahib is the best solution to the problem. If governance and regulatory mechanisms are established based on this approach, the Islamic banking industry will perform much better than today.

YOUR MULTI-FACETED PERSONALITY HAS CONTRIBUTED TO ALMOST ALL FIELDS. HOWEVER, WE HAVEN’T SEEN ANY SIGNIFICANT PROJECT IN THE FINANCIAL SECTOR. HAS THIS BEEN DELIBERATE? I have written many books on Islamic banking and finance and tried to open new doors of innovation and research on this subject. My books entitled, “Islamic Banking and Finance”, Interest-Free Banking in Islam” and “Iqtasadiate-Islam (The Islamic Economic System)” are particularly written on this subject and highlight vis-a-vis suggesting the practical solutions of the economic problems of humanity. My efforts are not confined to literary work but the major part of them is spent to find the practical ways to implement the theory of Islamic financial system. The establishment of a great progressive learning institution in the form of Minhaj University Lahore is one of the concrete steps taken in this connection. This progressive approach is adopted to produce Islamic economists or to say specially trained manpower that could implement the theory of Islamic finance in the field of finance and economy world over in professional style. As per your question which is about commercial projects such as establishing a bank or a corporate entity, you may not find any such project. Let’s flip the coin and take this question from another angle, and I will shed light on some realities and our projects and what we are doing in financial sectors: our motto and our vision is to serve the global Muslim community and whole humanity as well. Our services are

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designed in the same way as our vision is. We have a Minhaj Welfare Foundation, (MWF). Obviously this is not our financial arm, but it is serving the humanity at large with the focus on empowering the neglected and deprived strata of the community. The core objectives of MWF are to alleviate poverty in the undeveloped regions of the world by developing long term and sustainable projects, to advance and promote human rights, equality and diversity irrespective of race, colour and creed in the world and to advance in humanitarian programs. In other words, our aim of establishing this entity is to achieve Maqasid al-Shari’a which is the essence of developing Islamic economic visa-vis Islamic financial system. To tap more opportunities in the financial sector, we have taken another initiative of establishing an Islamic microfinance entity named “Al-Mawakhat Islamic Microfinance” with the slogan of “Serving Humanity with Dignity.” This project is aiming at serving the needy and low-income individuals as well as those who do not have access to typical banking services. The aim is to enable these types of consumers so that they can empower themselves and get rid of poverty if given access to financial services. Last but not least, we are heading towards entering into the formal financial sector, and in the future, you will see more initiatives and projects in this regard.

My books entitled, “Islamic Banking and Finance”, Interest-Free Banking in Islam” and “Iqtasadiat-e-Islam (The Islamic Economic System)” are particularly written on this subject and highlight vis-a-vis suggesting the practical solutions of the economic problems of humanity.

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ISFIRE EXCLUSIVE INTERVIEW PAKISTAN HAS OFFICIALLY ADOPTED WHAT IS KNOWN AS A DUAL BANKING SYSTEM, WHICH ALLOWS CONVENTIONAL AND ISLAMIC BANKS TO OPERATE SIDE-BY-SIDE. IS IT A SUFFICIENTLY ISLAMIC APPROACH TO ISLAMISATION OF THE FINANCIAL SECTOR AND ECONOMY OF PAKISTAN? In Pakistan, Islamic banks are operating side by side with conventional banks. However, still the percentage of Islamic banks compared with a conventional one is too small but the share is increasing with higher speed. Islamic banking system is spreading its wings in Pakistan. The assets recorded in the Islamic banking industry are Rs2,458 billion and the deposits held by Islamic banking institutions are Rs2,005 billion by the end of September 2018. In overall

banking industry, the market share of Islamic banking was recorded 13.6 and 14.7 percent, respectively by end September 2018. There are different factors due to which the financial system of Pakistan has not wholly become Islamized. One of them is the attention and willingness of government, which is of great importance to Islamize the country’s financial system. It can be demonstrated that the government itself deals in interest-based mechanism while doing financial agreements internationally and as well as domestically. The government has to eliminate interest in terms of providing and taking loans from and to the

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provincial governments and other government agencies. These loans constitute a large part of the national economy, and they are based on interest. At the same time, they have to stop receiving from and paying interest payment to State Bank of Pakistan. The government has to use Islamic finance modes in their deals and national schemes, such as youth development scheme, laptop scheme, Clean and Green Pakistan, empowerment of the poor, etc. Moreover, though the government can’t stop paying interest at an international level at once it can stop paying interest on every domestic loan at least. I also appreciate the initiatives taken by State Bank of Pakistan for the development of Islamic banking sector in Pakistan, but to Islamize the financial system demands a strong will power from the government as well as the banking sector.

IN YOUR VIEW, IS THE PRACTICE OF ISLAMIC BANKING AND FINANCE SUFFICIENTLY AUTHENTIC? WHAT ARE YOUR MAJOR CONCERNS, IF ANY? Islamic banking and finance system or you may say the Islamic economic system has appeared as a suitable alternative to capitalism and socialism, which is evidenced by the exponential growth of the Islamic finance industry around the globe. There is no issue of authenticity; now this has been already resolved and proved the matter.

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ISFIRE EXCLUSIVE INTERVIEW Now, come to the second part of the question. One of the significant concerns is that some products of Islamic banking and finance are very limited and becoming less attractive to consumers and investors as well. But since these products are catering to the needs of the people at large, so the Islamic banking industry has to work harder and come up with more innovative and solution-based products. The second concern is human capital or human resources in the Islamic finance industry. The challenge of capacity building has become a significant concern that needs to be resolved with immediate effect. For this, the industry, academia, regulators and governments have to join hands with each other and build an

CAN YOU PLEASE SHARE WITH OUR READERSHIP SOME OF THE ACTIVITIES OF MINHAJ-UL-QURAN INTERNATIONAL AND ITS AFFILIATED BODIES? Minhaj-ul-Quran International is a religious, reformist, modernising and welfare movement that is working for inter-religious harmony, sectarian tolerance and promote peace and love in the world. Minhaj-ul-Quran International, during its journey of 38 years, has established its organisational structure in 100 countries of the world according to the local legal bindings and under the name of Islamic Centers. These Islamic Centers are imparting religious, social, educational and welfare services.

Islamic banking and finance system or you may say the Islamic economic system has appeared as a suitable alternative to capitalism and socialism ecosystem for the young generation to attract them, to teach them, to train them and then bring them into the Islamic finance industry. More and more initiatives, projects and programmes have to be started in all regions, especially in Muslim countries. The third one is governmental support, and it is especially crucial for Muslim countries. The Muslim countries have to sit together and come up with a robust and standardised Islamic economic system. For this, academia from all Muslim countries has to sit together and make a global academic Islamic finance forum or a platform to discuss Islamic financial issues and resolutions. The Islamic banking industry should also move forward for the globalised solutions and Islamic financial products and business models. The Islamic banking industry has to keep a thin line difference from conventional banking industry. This thin line exists between profit maximisation and achieving Maqasid al-Shari’a. Islamic banking and finance industry has to work hard for the empowerment of the people. Last but not least, if these concerns are addressed with strong will and determination, Islamic banking growth would be unstoppable.

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Minhaj-ul-Quran has established a well knitted educational network. One of the remarkable achievements in this regard is the establishment of Minhaj University Lahore (Charted) that was given an international award for imparting social services in the private sector at the Global Good Governance Awards 2018. Hundreds of school and colleges have been established by Minhaj Education Society with the main focus on women’s education. The welfare projects of Minhaj-ul-Quran are realised by Minhaj-ul-Quran Welfare Foundation, which holds relief and medical camps at calamitystricken areas off and on. Besides, it established an institution for imparting cheap and stateof-the-art education in developing countries and provides financial assistance for their needy citizens. Minhaj Welfare Foundation gives scholarships to poor students as well. It also runs Orphan Care Homes where orphan and abandoned children are provided homely shelter and care. When the 9/11 incident shook the world, and Muslim Ummah was subjected to a unique prejudice among the comity of nation. I took the initiative and beside issuing a decree against the suicide bombing, established Al-Hidaya camps

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around the world under the aegis of the Minhajul-Quran International to brief the Muslim youth about the counter-terrorism measures needed to be taken theoretically as well as practically. These camps were addressed and conducted by myself where I got an opportunity to interact with Muslim youth. Moreover, a peace syllabus was prepared and is being taught in peace classes taken at Islamic Centres of Minhaj-ulQuran International across the world. Minhaj-ul-Quran has a legally registered central secretariat that includes various wings of the organisation namely Minhaj Women League, Minhaj Youth League, Minhaj Ulema Council, Minhaj Welfare Foundation and Minhaj Orphan Care Homes. Minhaj-ul-Quran International also provides guidance on various international issues to be discussed at International Forums. Farid-eMillat Research Institute is another feather in the crown of Minhaj-ul-Quran International, which is a state-of-the-art research institute facilitating research on contemporary issues relating to the implementation and understanding of Islamic ideology concerning Muslim Ummah and the world community. This institute also works for producing quality books based on modern methods of scientific expression like every statement should be accompanied with reference, bibliography and index, etc.

ON A LIGHTER NOTE, WHAT IS A TYPICAL DAY OF SHAYKH-UL-ISLAM PROFESSOR DR TAHIR UL QADRI? HOW DOES IT START AND WITH WHAT IT ENDS? My daily routine, besides my ongoing work of reading and writing, comprises making a few telephone calls. My daughter Khadija Qurat-ulAin lives in New York, I phone her to inquire about her and her children’s well being. I also make a phone call to my elder daughter Aysha Qurat-ul-Ain and my granddaughters and grandsons to exchange news and views. I prefer to make video-calls so that we may watch each other also. Then I phone my son Dr. Hussain Mohi-ud-Din Qadri, daughter in law Fiza Hussain Qadri and granddaughters Sukayna and Marwa in Lahore to inquire about their activities and well being. It includes a discussion with Dr Hussain on matters related to the ongoing educational as well as welfare

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projects of Minhaj-ul-Quran International and its local chapter and affairs and progress of Minhaj University Lahore. Then I talk to my eldest son Dr Hassan Mohi-ud-Din Qadri and get apprised about the affairs of the secretariat and movement. Likewise, I converse with the Secretary-General of Pakistan Awami Tehrik, Khurram Nawaz Gandapur, and its Secretary Information, Noorullah Siddiquee, to get information about the political situation of the country and activities of our party. Model Town case is also being heard in the court nowadays, so I remain in contact with our lawyers to know about the developments in proceedings of the case and be a part of consultation about it.

WE ARE FORTUNATE TO LIVE DURING THE LIFE OF SHAYKH-UL-ISLAM AND TO BENEFIT FROM HIS SCHOLARSHIP DIRECTLY. OUR READERS WOULD LIKE TO KNOW WHO AMONGST THE CONTEMPORARY SCHOLARS AND YOUR TEACHERS HAVE INFLUENCED AND IMPRESSED YOU? Being an anti-status quo and pro-revolution by nature my first inspiration was my learned father Dr Farid-ud-Din Qadri. He was a medical doctor by profession and had travelled through many countries of the world in quest of acquiring knowledge from the renowned scholars of those countries like India, Syria, Palestine, Iraq, Egypt, Saudi Arabia and many other Arab countries. His academic stature was not confined to India and Pakistan but an international one due to his frequent visits to foreign countries to quench his thirst for knowledge. My personality has deep imprints of the qualities of my father. I spent almost 25 years, i.e., from 1966 to 1990 in the spiritual company of my Shaykh Sayedna Tahir Allauddin Al Gilani who was the successor of Shaykh Abdul Qadir Jilani of Baghdad and a renowned person among the Arab Mashaykh and Sadat. I learned Tasawaf, Salook and Maarfat and manners from him. That spiritual learning and training have a great impact on my personality. The personality that inspired me a lot during my studentship was that of Allama Syed Ahmad Saeed Kazmi Shah. He was known as “Ghazali-e-Zaman” means the Imam Ghazali of his time. Then from 1970 to 1974, I studied Islamic Philosophy from Dr. Burhan Ahmed Farooqi and acquired the Quranic thought of

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revolution from him. Besides that, I had also been a pupil of the Islamic scholars of Syria, Lebanon, Yemen, Makkah, Madina Munawara and Baghdad; including Shaykh Muhammad bin Alwi Maliki Makki, Maulana Abd-ush-Shakoor Muhajar Madni, Maulana Zia-ud-Din Ahmed Madni and Badar Aalam Merathi. All of them have a significant role in my character building. Imam Jalal-ud-Din Sayuti tops the list of the teachers that were my spiritual inspiration and put a great influence on my educational upbringing including Shah Wali Ullah Muhaddas Dehlavi, Imam Ghazali, Imam Hajar Asqalani, Imam Qistalani, Imam-e-Azam Abu Hanifa, Imam Muhammad bin Idrees Shafi, Imam Malik, Imam Ahmed Bin Hanbal, Imam Bukhari, Imam Muslim, Imam Tirmazi, and Imam Yusaf Bin Ismail Nabhani (may Allah bless them with His mercy).

I spent almost 25 years, i.e., from 1966 to 1990 in the spiritual company of my Shaykh Sayedna Allauddin Gillani who was the successor of Shaykh Abdul Qadir Jilani of Baghdad and a renowned person among the Arab Mashaykh and Sadat. WE KNEW THE OBVIOUS ANSWER TO AN UNQUALIFIED QUESTION SO WE WOULD LIKE TO QUALIFY BY ASKING YOU WHERE DO YOU FEEL HAPPIEST, IF NOT AT THE MOSQUE OF THE PROPHET (SALL ALLAH ALAIHI WA SALLAM). You ask where I would like to live second to Harmain Shariain to feel great peace and spiritual tranquillity, isn’t it so?

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Well! The next to Harmain Sharifain place where I wish to go for a long time and yet in waiting is the city of al-Quds in Jerusalem. Picture of that city always rolls before my eyes, and I feel present there. Next to it is the city of Baghdad, I had been a frequent visitor of Iraq, and I always felt an unexplainable spiritual content while there. The third is Damascus where I want to go immediately after receiving the news of favourable conditions of law and order there. It’s the land of prophets and saints. The land of Najaf where the Shrine of Hadhrat Ali A.S. is situated is spiritually dear to me as well. After that the Turkish cities of Istanbul and Konia are very much liked by me. I used to go there frequently as one of the companions of Allah’s Prophet PBUH Hadhrat Abu Ayub Ansari R.A. is buried in Istanbul, and the shrine of Maulana Rum is in Konia. These cities are nearer to my heart. I always use Turkish Airlines while coming from or going to Canada and feel great tranquillity while flying over the city of Istanbul.

LET US COME BACK TO ISLAMIC BANKING AND FINANCE. WHAT DO YOU FORESEE THE FUTURE OF ISLAMIC BANKING AND FINANCE? IN PAKISTAN AND WORLD-WIDE? I am very hopeful about the future of Islamic banking and finance in Pakistan and as well as worldwide. Islamic banking is expanding and growing in all regions of the world with each passing year. Islamic banking has emerged as a better alternative to conventional finance. The future of the Islamic banking industry is also based on the performance and goals of the industry itself. Islamic banks have gained the attention of consumers at large. Now is the time to keep those consumers and also remove barriers for un-served consumers to ensure the sustainability of the industry. The steps should be taken to increase the trust level of investors; innovation and standardisation in the products of Islamic banking are indispensable for future growth. The Islamic banking industry has to move forward to achieve the goal of empowerment of Muslim Ummah and the whole of humanity. They have to address the global problems and challenges the Muslim Ummah is facing such as the challenge of unemployment, poverty, and social, economic and environmental

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sustainability. The future of Islamic banking will be bright if Maqasid al-Shari’a are achieved successfully.

SHAYKH, A LOT OF INDUSTRY OBSERVERS, ARGUE THAT THE WORD “ISLAMIC” SHOULDN’T BE USED WHILE REFERRING TO ISLAMIC BANKING AND FINANCE. RATHER THEY PREFER TO CALL IT BY A NAME THAT MUST BE NEUTRAL AND HENCE ACCEPTABLE TO NON-MUSLIMS AS WELL. WHAT IS YOUR VIEW ON THIS RESPECT? The use of words ‘Islamic Banking’ is not required by Shari’a compliance by any means. Islamic products can be sold by any name because Islam does not demand that the products of Islamic banking should be sold using the name of Islam. If we go into the Islamic history the classical literature of Islamic Fiqh does not use the suffix Islamic with any of Islamic financial products, like Mudaraba wouldn’t be written as Islamic Mudaraba or the economy wouldn’t be taught as Islamic economy, so on and so forth. The popular terms like ‘interest-free’ and other similar terms may be converted in popular terminology. So, if we introduce these products using Islamic terminology, they may hardly be acceptable to the Western world; particularly in the present wave of terrorism. Hence, it may make the sale of Islamic products unacceptable.

YOU HAVE LIVED IN CANADA FOR A NUMBER OF YEARS, AND HAVE FIRST-HAND KNOWLEDGE OF WESTERN SOCIETIES. HOW WOULD YOU COMPARE THE MORALITY OF ISLAM AND THE CONTEMPORARY WEST? DOES IT HAVE IMPLICATIONS FOR ISLAMIC BANKING AND FINANCE? Aside from the Shari’a commandments and matters, the issues concerning human rights, freedom of an individual, security and ethics are such values which are being practised in the Western world for a pretty long time. For instance, in the Western world anger, deception, backbiting, bickering, shouting and making noise are only rarely witnessed; also, you don’t see the habit of lying. A child cannot tell a lie even if he tries. In fact, all these values

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belong to Islam, which were adopted by Europe. Then Europe expanded these values. If we turn towards history, the period ranging from six to seven hundred years takes you to the Muslim era. This was the period, when the Muslim world made progress in science, education, medicine, biology, philosophy and technology. Every city had hundred of law colleges. That was the era of knowledge, progress and research, whereas the same era was known as Dark Ages in Europe. Then, gradually, the Muslim decline started, and Europe began to develop in fields such as knowledge, research and departments of ethics. And then all such things travelled to Europe from Spain, Baghdad, Damascus, Istanbul, Balkh and Bukhara. This is a historical fact that the whole of Europe was illuminated by Islamic values and education culture. Then this light was spread across Australia, America and New Zealand. Anyway, the West now stands in a better position as far as human rights and ethical etiquettes and manners are concerned.

NOW A QUESTION THAT HAS CONFUSED A LOT OF PEOPLE. THE SCHOLARS LIKE MR. JAVED AHMAD GHAMDI HAVE ARGUED THAT WHILE CHARGING INTEREST IS NOT ALLOWED, THERE ARE NO ISLAMIC RESTRICTIONS ON WILLFULLY PAYING INTEREST. PLEASE CLARIFY THIS ISSUE OF IMMENSE IMPORTANCE. There should be no confusion in this matter. The prohibition of interest is unequivocal in the Holy Quran and the teachings of Holy Prophet (peace be upon him). The more you discuss this issue the more you bring complexities and misconceptions about it. Let’s come to the point, the matter of interest while you are saying it conditional, non-conditional, commercial, non-commercial, hence wilfully paying or un-willfully paying, in all cases, it is prohibited and haram (illegal) in Islamic law. The interest in any shape or kind or type is considered haram and prohibited without any condition and specification. There are many myths, and misconceptions that have emerged and propagated in this matter in the last four to five decades since the commencement of Islamic banking. It was trying to make segregation between commercial interest and general type of interest, conditional and non-conditional loan hence willfully paying and un-willfully paying.

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Our point in this issue is always that interest is completely prohibited with its all forms and shapes and all schools of Islamic jurisprudence such as Hanafi, Maliki, Shafi and Hanbali are of the same view that interest is prohibited in all shapes and forms. As per your question which is pertaining that there is a misconception found either willfully paying of interest is allowed or not. Our answer is categorical No; it’s unjustifiable and prohibited. Paying interest means promoting interest, and it leads to more problems. If you are paying interest to someone, then the question will arise either he can use the paid amount of interest or not, and so on. It is pertinent to mention only one hadith here as evidence of our viewpoint. Jabir bin Abdullah narrates the hadith, the Holy Prophet (peace be upon him) cursed the receiver and the payer of interest, the one who records it and the two witnesses to the transaction and said: “They are all alike [in guilt].” You may read my book

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“Interest-Free Banking System” for more details. This hadith provides the answer to the question that the paying of interest either wilfully or unwillfully is not permitted.

AT THE END, SHAYKH, WOULD YOU LIKE TO GIVE A MESSAGE TO THE YOUNGER GENERATIONS CONCERNING PURSUING A SUCCESSFUL CAREER IN ISLAMIC BANKING AND FINANCE. The single message to the younger generation is that they have to work hard, build their study habit, think and create innovative Islamic financial products and business models. Moreover, they have to keep in mind the essence and objective of Islamic financial system which is empowering the people, take themselves out of the poverty circle and uplift the level of deprived people hence achieving Maqasid al-Shari’a.

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ISLAMIC MICROFINANCE AND FINANCIAL INCLUSION MUFTI ISMAIL EBRAHIM DESAI CEO AND CHAIRMAN OF GLOBAL ISLAMIC FINANCIAL SERVICES FIRM, SOUTH AFRICA

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ignificant segments of population are disadvantaged in Muslim countries, particularly in Central Asia, Sub-Sahara Africa and the MENA region. They have no proper access to formal banking conventional or Islamic. Banks, in particular, are not strategically focused on reaching out to the needy. Private and foreign financial institutions or banks seek to maximise profits for their shareholders/ stakeholders by building businesses in relatively easier urban areas. Rural infrastructure projects, microfinance and rural development are generally left only to public sector institutions because of the assumed high risk that is associated with lending and financing micro enterprises. Given the rate of high poverty among the lowincome groups and the unavailability of adequate collateral, financing these groups is normally associated with greater risk as reflected in the banks’ high non-performing loans in some countries like Egypt and Morocco. In this background, Islamic microfinance may be used as a tool for financial inclusion and poverty alleviation in both Muslim and non-Muslim countries. Its significance is paramount, as it can be a means for propagation of Islam, although admittedly Islamic

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banking and finance has been careful in aligning itself to any non-financial objectives. Having said that, Islamic microfinance can be used to portray economic and financial values of Islam. Irrespective of the ultimate objectives, Islamic microfinance can provide finance to the poor or the people with good expertise without any start-up capital. EMPOWERING THROUGH ISLAMIC MICROFINANCE

Islamic microfinance is based on sound Islamic financial and economic principles. Islam encourages self-employment and empowerment rather than just donating money and food to the needy for consumption. Providing tools for production to the poor is better than donation of consumable charity. Through this, the self-employed poor can be empowered to care for themselves and their families on a sustainable basis. There is a definite synergy between this thinking and that of contemporary multilateral institutions (e.g. United Nations Development Programme and the World Bank), which also recognize microfinance as a means of eradicating inequality and poverty. Islamic microfinance has great relevance to the Sustainable Development Goals (SDGs) – an important development agenda being pursued by an increasing number of countries around the world.

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ISLAMIC MICROFINANCE TARGETS THE VERY POOR WHO ARE CAPABLE OF WORKING IN THE PRODUCTION OF GOODS OR SERVICES. Islam offers various means for eradicating income inequality, such as through zakat (compulsory charity) and sadaqa (general giving), given directly to the poor to solve their urgent needs. Hence, Islamic microfinance targets the very poor who are capable of working in the production of goods or services. Consequently, while zakat should be paid only to specific people, Islamic microfinance has a bigger scope. It can be used to mitigate negative impact of high unemployment among the youth in poor geographies. As the below figure suggests, the rate of unemployment is skyrocketing, especially among the Muslim youth. The story is not grossly different in other poor countries with significant non-Muslim populations. In such countries, Islamic microfinance can be used to finance Small and Medium-sized Enterprises (SMEs). This could lead to a solution to hyper unemployment and the challenges facing SMEs in accessing suitable finance. The Sudanese and Pakistani experiences have shown that Islamic microfinance has had a positive impact on income generating activities. In addition, Islamic microfinance has also been used to finance graduate students as part of a programme targeting the unemployed youth in Sudan.

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YOUTH UNEMPLOYMENT IN ARAB COUNTRIES

PERCENTAGE OF THE ARAB YOUTH AGED BETWEEN 18 AND 25 SOURCE: STEP FEED

Despite the positive impact of Islamic microfinance in many Muslim countries, conventional lenders still dominate the market. Most of the Islamic microfinance lenders are small and face greater challenges in reaching out to their customers and expanding their businesses. These challenges include lack of basic infrastructure, rudimentary financial infrastructures, and far and unreachable markets. It has negatively impacted accessibility of Islamic microfinance and has indeed contributed to the cost of finance. Other challenge facing Islamic microfinance in Muslim countries is the riskiness of financing poor borrowers. This stems from the small size of their finances, the remote residential areas of the poor from the urban cities, and their uncollateralized risk. In addition, many Muslims countries have only recently recognized the importance of microfinance as a tool of empowering the low-income, reducing the problem of unemployment, and elevating poverty. Weakness of Islamic microfinance infrastructure owes to the following: •

Limited spread of Islamic financial institutions;

Lack of relevant financial regulations;

Unavailability of popular Islamic microfinance agencies; and

Ineffectiveness of microfinance as a whole.

A step towards making Islamic microfinance effective in the context of Islamic banking and finance is to increase the share of this type of business from merely 1% to about 5% in the next three to five years.

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For this to happen a strategic approach towards Islamic microfinance must be delineated. Although the countries like Bangladesh are recognised for the provision of microfinance, other models, especially in Malaysia and Pakistan, must also be considered. The World Bank plans to end extreme poverty by end of 2030. Some empirical evidence has shown that people in the poorest regions of rural Africa can lift themselves out of extreme poverty in just five years. Thus, this can become a reality if proper means and tools of microfinance exist. This will facilitate the particular needs of the poorest, if their diversity is considered. Diversification of the Islamic microfinance products may represent the right intervention for achieving better financial inclusion among the poorest in Muslim communities.

while masakeen are the people that do not have enough substances to satisfy their basic needs for the whole year. While fuqara may be offered help from zakat, the masakeen may also be helped from other sources of sadaqa. In other words, different solutions may be delineated for different segments, based on their peculiar conditions. In this way, Islamic microfinance must move beyond its conventional counterpart to achieve better and more effective social and financial inclusion. Islamic microfinance is also expected to be more ethical, as it focuses on social responsibility, in addition to profit maximization. It is ethical in two ways: in the choice of the recipient of funds, and in terms of leniency it shows towards those who cannot afford to pay at all or delay. This is in line with Quranic injunction of:

THE READINESS OF ISLAMIC MICROFINANCE

Islamic microfinance can be effective for creating hope not only for the poor and those above the poverty line as shown by traditional microfinance. In this respect, the unique needs of extremely poor Muslims who opted out of traditional microfinance must not be ignored. The primary reason for many deserving Muslims to voluntarily exclude from microfinance is the incidence of interest. Other reasons for exclusion are purely economic in nature, as many of the potential users of microfinance refrain from it because they believe that they would not be able to pay back loans – the affordability trap. This has something to do with the risk appetite of such individuals and families.

Success of Islamic microfinance lies in the recognition of these attitudinal issues. It must, therefore, use interest-free loans and combine these with zakat, waqf, and sadaqa.

Islam does not differentiate between the poor based on the conventional notion of poverty. Rather it divides the poor into two main categories: fuqara (singular faqeer) and masakeen (singular miskeen). Fuqara are those who do not have enough substances to satisfy their basic needs for one day,

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And if someone is in hardship, then [let there be] postponement until [a time of] ease. But if you give [from your right as] charity, then it is better for you, if you only knew. [Holy Quran, 2:280]. Despite being an excellent tool for poverty alleviation and financial inclusion, conventional microfinance has not fully succeeded in the Muslim countries. As stated earlier, the failure of microfinance therein is not necessarily due to inherent inefficiency of the conventional model but it is primarily due to the attitude of Muslims towards interest. Islamic microfinance, based on interest-free loans, zakat, sadaqa and waqf, is relevant to global efforts for poverty alleviation. Islam provides tools that are universal, and if used strategically, they will bring benefits to all, irrespective of their religious beliefs. Islam recognises the right of the poor in the wealth of the rich Muslims in the form of zakat. When this is combined with the prohibition of interest, this gives rise to a universally relevant model of microfinance. Furthermore, sale contracts (salam and istasna’, etc.), profit and risk sharing arrangements like murabaha, musharaka and muzara’a (sharecropping), and ijara can also be used to address the diverse business needs of the poor who look for SME financing.

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PAUSE FOR THOUGHT

TIME VALUE OF MONEY AS A JUSTIFICATION OF PERMISSIBILITY OF INTEREST HUMAYON DAR, PHD (CANTAB) DIRECTOR GENERAL OF CAMBRIDGE INSTITUTE OF ISLAMIC FINANCE

have always opposed the notion of the Time Value of Money (TVM), and in fact deem it to be nothing but a blatant insistence on charging of interest and reiterating the claim. Let me give a rather vulgar example. If someone standing at a crossroad is almost 100% sure that if he follows Street A he will meet a woman who will happily allow him to consummate. With this knowledge, the person takes another Street B and half way he meets a woman standing in the corner of a building. Will the man be justified to demand the woman to consummate because he would have had done so with another woman had he followed Street A? If not, then TVM can also be not used as a justification for charging interest. Understood? If not, let us look into the concept of TVM. TVM refers to nothing but a loss, also known as opportunity cost, of not putting a one-dollar into an interest-bearing instrument (like a fixed interest paying bond). The concept assumes on a priori basis existence of an interest-based instrument. Therefore, it is tautological to use it as a justification of dealing in interest. It does not explain why interest should be paid; rather it states that a one dollar would generate interest in future and therefore it is better to receive one dollar now rather than in future and lend it to earn interest to have more than one dollar in time.

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PAUSE FOR THOUGHT

It is absolutely imperative for those aiming to succeed in IBF to understand the concept of Riba and its prohibition. Money must be put into a productive use to earn a return. Merely lending it to someone on interest and earning a fixed return is problematic from a Shari’a viewpoint. By productive use we mean investing it in a production process and assuming all the risks thus ensuing. This means that the investor of money must assume downside risks to earn a possible upside benefit. In other words, money can only be invested and not used for mere financing. Can money be used for home or trade financing? Not in the traditional sense, as the contemporary practice of banking and finance prevails. In fact, Islam does not recognise debt financing at all other than lending money interest-free. Period. All debt-based financing products – whether offered by Islamic or conventional banks – are inconsistent with the relevant Islamic doctrines of business and investments. In fact, debt financing as a concept (or in the form of contemporary practices) is not recognised in Islamic economic doctrine. Islamic banks and financial institutions put up an intermediate Shari’a structure – which may be called Green Box for ease of reference – to execute debt-based financing deals in a Shari’a-compliant way. A litmus test of Shari’a authenticity of such financing deals is what may be referred as Irrelevance of Shari’a Structure. A Shari’a structure is deemed irrelevant if its addition does not bring any added economic benefits or by simply stripping it off the deal there is no material economic effect. The principle of Irrelevance of Shari’a Structure may be explained with the help of the following diagrams.

FIGURE A: DIFFERENCE BETWEEN CONVENTIONAL & ISLAMIC FINANCING

CONVENTIONAL FINANCING MONEY FINANCIER

FINANCIEE MONEY+INTEREST

ISLAMIC FINANCING

MONEY FINANCIER

SHARI'A STRUCTURE

FINANCIEE MONEY+INTEREST

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PAUSE FOR THOUGHT FIGURE B: DIFFERENCE BETWEEN COMMODITY MURABAHA AND INTEREST-BASED FINANCING

Commodity Broker 1 (Agent for Financier)

MONEY

Money Commodity

Money MARKET Commodity

FINANCIER Commodity

Commodity Broker 1 (Agent for Financier)

Money

FINANCIEE

MONEY + RETURN

MONEY FINANCIER

FINANCIEE MONEY+INTEREST

FIGURE C: IRRELEVANCE OF SHARI’A STRUCTURE

MONEY FINANCIER

FINANCIEE MONEY + RETURN

MONEY FINANCIER

FIGURE C: IRRELEVANCE OF SHARI’A STRUCTURE FINANCIEE MONEY+INTEREST

Removal of the Shari’a structure (from Figure B) makes the two structures, Commodity Murabaha and interestbased financing, exactly the same. If that is the case, and if there are no material economic differences between the two arrangements, then the structures like Commodity Murabaha are indeed little more than legitimising the economic effects of conventional lending. On technical grounds, Commodity Murabaha looks like a Shari’acompliant arrangement. However, in its economic effect, it is no different from a conventional interest-based loan. It is a case of eating a halal KFC burger, while being halal making it no better a junk food. Because of the legitimization of conventional risk-returns in Islamic banking and finance, the supply side players are mere financiers and not investors and traders as they otherwise pretend to be. Isn’t it the right time to start being a bit more innovative to bring the required vitality to Islamic banking and finance? To read more about the above and the ways to succeed in Islamic banking and finance, pre-book a copy of the author’s forthcoming book, How to Succeed in Islamic Banking and Finance.

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5

MBRID

GE

CA

TH

IFLP

July 07 - July 12, 2019

WHY CAMBRIDGE ISLAMIC FINANCE LEADERSHIP PROGRAMME? The leadership programme prepares the next generation of leaders by providing them with a unique mentoring opportunities, rigorous leadership training from renowned leaders as well as industry-specific case studies in Islamic finance.

WHO SHOULD ATTEND?

The Cambridge-IFLP aims at bringing Islamic banking and finance professionals in the middle and upper middle management positions, to the prestigious University of Cambridge for a period of 5 days, with a view to offer them an opportunity to become members of the most prestigious mentoring programme in Islamic banking & finance.

SALIENT FEATURES LEADERSHIP TALK: Covers a wide range of topics including structuring and product development, human resource development and leadership. LEADERSHIP INTERVIEW: Leading personalities share their personal perspectives on leadership in this unique one-on-one interview. LEADERSHIP ACTIVITIES: Identify leadership skills and traits in a fun way. CAMBRIDGE CASES: Delegates apply their theoretical knowledge, develop team skills, and develop solution-oriented decision making SOCIAL ACTIVITIES: There will be numerous social activities, allowing the delegates to interact with each other and with mentors. These include a Garden Party, Punting, and a Leadership Walk, among many others.

http://cambridge-ifa.net/ CONTACT US AT: info@cambridge-ifa.net W W W. I S F I R E . N E T

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OMAR MUSTAFA ANSARI

SECRETARY GENERAL OF ACCOUNTING & AUDITING ORGANISATION FOR ISLAMIC FINANCIAL INSTITUTIONS (AAOIFI) WHAT WAS YOUR EARLIEST AMBITION? To be a professional footballer… Although I never pursued my ambition… And let me clarify… It was not for money as I did not know at that time that it had a hell of money involved. Actually, I loved playing it… Maybe if I knew, I would have followed it…

WHAT DO YOU ENJOY THE MOST? Reading. And reading freely, lying on the bed or a sofa. And with some snacks, or at times with meal…

WHY ARE YOU INTO ISLAMIC FINANCE? When I started my career as a Chartered Accountant, I realized that this field had lot of impermissible activities including interest, bribes, tax evasions and fraudulent financial reporting. To avoid it all, I decided to stick to one of the best professional firms (EY) and to start research and study on the interest-free financing. This eventually led me to Islamic finance consulting and then resulted in my move to AAOIFI.

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ISFIRE PERSONALITY

WHAT DO YOU DO IN YOUR SPARE TIME? Reading, sports (table tennis, football and squash) and computer games.

WHICH MOVIE IS YOUR ALL TIME FAVOURITE? (IF YOU WATCH MOVIES)

IN A FEW SENTENCES DESCRIBE YOURSELF AT THE AGE OF 65. If I am blessed with this much life, maybe I will be spending a lot of time in reading, writing and a little bit in social and religious activities. But with the speed I am aging, I have doubts as to whether I will be able to do anything at that time, if still alive…

I can’t pick one.

WHO HAS BEEN YOUR GREATEST MENTOR? My two bosses and teachers at EY Pakistan, Mr. Ebrahim Sidat and Mr. M. Basheer Juma. Both of them are great professionals and great humans. Mr. Sidat is the finest professional I have met in my life with whom you learn at every step, while Mr. Juma is not only a good professional but also a great mentor (and author) on self, life and time management.

WHERE ARE YOU THE HAPPIEST? Playing football, and playing with my children. Can’t decide for one.

I decided to stick to one of the best professional firms (EY) and to start research and study on the interest-free financing.

ANY DISAPPOINTMENTS IN LIFE? Humans around us are rigid. They do not learn the benefit of flexibility in thoughts and easygoing approach for matters disturbing you… This does not let you enjoy the blessings of Allah…

IF YOUR 15-YEAR OLD SELF SEES YOU TODAY, WHAT WOULD HE SAY? He could never imagine it to be himself. I am so much blessed by Allah SWT in all aspects, that I don’t have words. But to be honest, nothing close to the imaginations of myself at that young age. So, he will say “I can’t believe it’s me!!!”.

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GREEN SUKUK MAPPING FINANCING FLOWS FOR CLIMATE CHANGE Siti Rohaya Mat Rahim Academy of Islamic Studies, University of Malaya, 50603 Kuala Lumpur

Climate change can be defined as rising of average temperatures, extreme weather conditions, rising sea levels, and shifting of wildlife populations and habitats. Battling climate change is crucial to address the issue of global warming. Today, global average temperature is 0.85ยบC higher than it was in the late 19th century. The main reason of climate change is global warming caused by greenhouse gases. Greenhouse gases trap heat within the atmosphere causing global temperatures to rise. Climate scientists believe that human activities are the main cause of global warming observed since the middle of the 20th century; and the impact of climate change is huge. This means more droughts and heatwaves, more precipitations, more natural disasters like floods, hurricanes, storms and wildfires, and frost-free season being affected by these upheavals.

The climate change is already altering entire ecosystem. Warm sea surface temperature is intensifying major typhoons, hurricanes and tornadoes, as more water vapors enter the atmosphere where they become fuel for more powerful storms to develop. Experts warn of the association between tropical cyclones and anthropogenic global warming in western North Pacific. The outcomes show that thermodynamic changes to the environment significantly influence the upper portion of extreme typhoon intensities, signalling that super typhoons are likely to be stronger. Researchers also found that the climate change has enhanced the average and extreme rainfall of hurricanes Katrina, Irma and Maria. Nevertheless, it does not change the power of tropical cyclone wind-speed.

1. Spence, et al (2011).

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WHAT IS GREEN SUKUK?

Climate scientists believe that human activities are the main cause of global warming observed since the middle of the 20th century The strong rainfall from hurricanes and other tropical storms will negatively impact the human, and may require billions of funds in restructuring of buildings and the related infrastructure. In the same vein, severe flooding is also caused by the climate change. For instance, a 2011 study reported that 1,822 individuals across United Kingdom in 2010 were affected by floods. Similarly, during the monsoon period of August 1-19, 2018, the Indian state of Kerala witnessed unprecedented floods resulting from heavy rainfall in a short space of time, killing over 474 people and making another 800,000 homeless. Consequently, the Hong Kong government had to offer $8.262 million to provide relief to the flood victims in Kerala. This is just one small example of financial implications of the climate change.

Sukuk is plural of sakk – Arabic for an Islamic bond. Green sukuk refer to a new investment certificate representing shares of an investment vehicle which in turn invests in tangible assets. Green sukuk aims to finance renewable energy projects. Islamic Development Bank defines green sukuk as the Shari’a-compliant version of a green bond and represents Shari’a-compliant investments in renewable energy and other environmental assets. Green sukuk notably addresses the Shari’a concerns for protecting the environment. Thus a Green sakk may specifically be earmarked for investments in solar parks, wind and hydro. Green sukuk could also conceivably serve in other renewable energy sources, such as biomass, geothermal and tidal, as well as in power generation and transmission systems, energy efficiency, reduction of greenhouse gas emissions, water treatment projects, sustainable waste management, redevelopment of polluted or contamination sites, public hospitals or medical services, educational services and affordable housing.

Such observations point to the significance of the climate change. It is already shaking up social, health and geopolitical balance in many parts of the world. Furthermore, the scarcity of resources like food and energy might lead to new conflicts. Thus, mobilising investment and innovation in low-carbon technologies and renewable energy, is a central idea in keeping the global average temperatures below 2ºC. Islamic finance cannot ignore the rising importance of environmental concerns in terms of its product offerings and its own commitment to ESG-related concerns. An important development in this respect is the advent of Green sukuk.

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FRANCE In November 2011, Paris Europlace launched the French sukuk guide to support the issuance of sukuk in France. In this regard, Legendre Patrimoine and Anouar Hassoune Conseil issued the first green sukuk known as the Orasis Sukuk. Orasis Sukuk would be utilized for financing solar plants project. Investors of the Orasis Sukuk would be eligible for tax deductions up to 10 years. The financing offers 7% return per annum for every second quarter and benefit from a 71% tax cut. Currently, Orasis Sukuk offer ownership rights to individual and institutional investors.

The main reason for the green sukuk to continue to increase in importance and use is the potential of green investment projects needed in ASEAN from 2015 to 2030. The green investments in the region may go up to USD$3 trillion. According to Moody’s, the green finance market itself has grown rapidly since 2017 when it recorded issuance amount worth USD$155 billion. This is obviously only a small fraction of the potential requirement.

French President Emmanuel Macron, aimed to make himself a leader in fighting against global warming during the Climate Finance Summit in Paris on December 12, 2017. Nicolas

In the following, we discuss developments in the green sector and related sukuk issuance in a few countries of importance.

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Hulot, France’s Environment Minister, said “France is struggling to cut greenhouse gases and obtaining cash for the climate-friendly renovation of buildings.” Recently, on September 26, 2018, France, Germany, Hewlett, Grantham and IKEA Foundation and BlackRock, as the asset manager have, announced the Climate Finance Partnership at the One Planet Summit in New York. The partnership committed to developing an investment vehicle that aims to invest in climate change infrastructure in emerging markets. Specifically, the partnership will make investments in renewable energy, energy efficiency, energy storage, low carbon and electric transportation across Latin America, Asia and Africa. More importantly, renewable investment in OECD and G20 countries was driven by targeted investment incentives like feed-in-tariffs, tradeable renewable certificate and public tenders.

OMAN Oman has a varied climate and geography. There are periodic droughts, the summer winds often produce large sand and dust storms in the central region, and the strong southwest summer monsoon is recorded between May to September. It is one of the most water scarce countries in the world. Rising temperatures and climate change is likely to threaten water security and disrupt agricultural production. Furthermore, increase in urban population density has led to increased air pollution deriving from energy production, transportation and industry, especially cement, chemical and petrochemical plants.

Last year, Abu Dhabi Future Energy fully financed the first of the 13 turbines at Dhofar Wind Farm. Each turbine has a capacity to generate an estimated of 50 MW electricity. The Dhofar Wind Farm is expected to become operational by the third quarter of 2019, supplying 7% of Dhofar governorate’s electricity demand. It is expected to supply green energy to power 16,000 homes, while offsetting an estimated 110,000 tons of carbon dioxide emissions annually. Elsewhere, in Oman, Mazoon Electricity Company raised $500 million from its debut sukuk issuance. The 10-year sukuk offered profit rate of 5.2% per annum. The issuance will support the group electricity transmission and distribution networks investment. The issuance is rated BAA2 by Moody’s and BBB by Fitch. The composition of the investors is represented by 52% of banks and 46% other asset managers. Similarly, Saudi Arabia Electricity Company has issued a 30-year sukuk. The $1 billion issuance demonstrated the increasing popularity of sukuk in the global market.

MOROCCO Morocco is the largest energy importer in the MENA region because of its limited hydrocarbon reserves. The country imports 95% of its primary energy supply, of which US$80 billion is spent on imported oil. Moroccan government has spent US$150 million since 2015 for its Clean Technology Fund. The main objective of this fund is to support a cleaner economy regime in Morocco. And, yet, so far, Morocco’s Investment Commission plans to invest nearly $11 billion in solar and wind energy projects. The fund aims at turning the country into an exporter of alternative energy by 2020. Morocco’s largest concentrated solar power farm is located in Ouarzazate. This project is financed by the World Bank with a $400 million loan, combined with $216 million provided from the Clean Technology Fund. The solar power uses solar cells to directly convert sunlight to electricity for over one million homes. The first phase of the project, Noor 1, was officially turned on in 2016 with a generating capacity of 160MW. It enables storage of three hours’ worth of electricity. Phases 2 and 3 of the project are under construction with capacities

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ISFIRE REVIEW INDONESIA A paper by Dalal Aassouli and her colleagues, looked at the application of istisna’ ijara structure for green sukuk in Indonesia. The solar project required up to AUD $550 million of financing for 250 megawatt solar panel project. The first phase of the project offered AUD$150 million of sukuk and agreed to pay between 6.5% to 7.5% returns. Under this model, guarantor was responsible directly for the investors (sukukholders).

of 350 MW and 70 MW, respectively. As for hydro power, Morocco lately installed 12 small hydro plant with totaling 92MW. Furthermore, Morocco aims to install 2,000 MV hydro plant capacity by 2020. Morocco’s central bank had been expected to tap local sukuk market since July 2018, after multiple delays. Nevertheless, after the new securitization law gazette in April 2017, Moroccan authorities announced the first “sukuk” worth 1 billion Dirhams, about 90 million EURO with a demand that exceeded 3.6 times that of conventional bonds. The sukuk was issued on October 5, 2018.

Investors (Sukuk Holders) Issuance proceed

Sukuk

Special Purpose Vehicles (SPV) Solar panel leasing (ijarah)

2

Sale of Solar Panels Purchase Price

Supplier of Solar Panels

Issuance proceed

Opera ng Companies 1

Guarantor

Guarantee of SPV obliga ons

3

4

Electricity Purchase Sale of Energy (KW)

Energy Distributor Purchase Price

Sale of Energy (KW)

Final User of Energy A

B

C

X

Figure: Istisna’ Ijara Structure for Green Sukuk in Indonesia

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The SPV will finance this acquisition by cash raised by the issue of sukuk certificates. Unlike istisna’ sukuk, ijara sukuk entitles the sukukholders to receive a proportionate share of the returns, generated by the underlying asset through a lease back to the issuer company. Meanwhile, for 20 years onwards, a musharaka sukuk will be used to finance the construction projects. The SPV pays cash toward the capital of the musharaka to the operating companies, and subsequently, leases the underlying musharaka assets to the energy distributors at agreed regular fixed or floating rentals. The sukuk-holders are entitled to earn returns from the underlying assets that are distributed between the issuer and sukuk-holders in accordance with a profit-sharing ratio. In the case of default or maturity, the issuing entity issues a promise to musharaka units from the SPV at an agreed price.

A simple istisna’ ijara sukuk structure is given above in the figure. During the construction phase, issuer or SPV issues istisna’ sukuk to raise funds from the investors (sukuk-holders). Investors make payments to SPV, in order to purchase Istisna’ Sukuk Certificate. Istisna’ Sukuk Certificates are issued to the investors upon receiving the funds. SPV uses the sukuk proceeds to pay the contractor who is also known as the supplier of solar panels, under the istisna’ contract to build and deliver the asset. However, on its own, an istisna’ sukuk does not generate returns for the sukuk-holders during the construction phase. In case of the Indonesian Green Sukuk, for first 20 years from the completion, SGI-Mitabu will issue ijara sukuk. Ijara sukuk is a hybrid between an operational lease and a capital lease with certain ‘ownership’ risk. In simple words, ijara sukuk will sell certain physical assets to a Special Purpose Vehicle (SPV).

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CONCLUSION The list of relevant case studies from France, Oman, Morocco and Indonesia have been brought to understand the issues. The agenda is the same, which is to fight climate change and protect the environment and the planet. To meet green sukuk deployment goal for financing the climate change problem, policy makers and banking system needs to strengthen investment conditions, be it an investment policy, specific policy incentives or trade and financial market policy. The introduction of green sukuk may have had the consequence for providing access to debt financing for capital-intensive investment such as renewable projects. Finally, there is a strong endorsement of the message that green sukuk and climate change risks must go handin-hand with representatives from government, business and civil society.

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Mohamad Nasir Across the world, entrepreneurs are driving innovation and economic growth locally, regionally and internationally. Business and government leaders are encouraging entrepreneurship in speeches and different conferences around the world. Although governments must provide the regulatory and economic environment for entrepreneurs to flourish, the question that individuals, aspiring to be entrepreneurs, must answer is when do they take the plunge into this new world of entrepreneurship? Some of the questions that a person contemplates as they consider being an entrepreneur are: when to take the jump into entrepreneurship or am I even the right person? Do you take this risk right out of college or do you wait until you have gained some experience in the corporate world? Do you launch a startup after financial security or do you have to belong to a family of entrepreneurs?

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There are two areas that need to be considered before answering these questions; first is the characteristics of entrepreneurs and the second is the timing of venturing into entrepreneurship. Entrepreneurs have a tendency of being problem solvers: they identify a problem and attempt to solve it or see an opportunity and grab it. Dan Meader of Allowance Manager, developed an app and web portal for parents to manage their children’s allowance when he realized there must be a better mechanism for him and his wife to track and fund their children’s allowance. Some of us don’t consider physicians to be entrepreneurs in business. However, meet Dr. Bassam Osman, a practicing neurologist, who was having difficulty investing in a Halal way. So, in 1984 he and a few partners launched the first Halal Mutual Fund in the United States.

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The primary characteristic of an entrepreneur is the drive: the ability to work through obstacles and hurdles. So, if you have the drive, you will be able to succeed in your endeavors. One of other characteristics that you will need to develop and utilize is vision. Entrepreneurs have vision. They see into the future when everyone else sees a dead end. Entrepreneurs are imaginative, creative, and determined. They adapt, learn and develop. They understand how to take calculated risks. Never forget to dream big. Shahed Amanullah, the founder of Zabiha.com, had only one regret as an entrepreneur: he did not dream big as he was developing his business. He launched Zabiha.com as a Muslim food portal rather than a food portal for all Americans. Zabiha.com could have been the Yelp of today.

Now is probably the best time for an entrepreneur to take the risk to enter into this new world. There are always advantages and disadvantages of waiting, postponing, and trying to find the perfect time. This is difficult to achieve since there is no perfect time. If an entrepreneur waits to gain experience and financial security, he will have other responsibilities that may hinder his ability to make the jump. If an entrepreneur jumps early, he will have limited experience and unnecessary mistakes will happen. Either way, as my father, Dr. Ibrahim Nasir, always drove home, that one should always be learning and developing oneself either in career or in business. Nadia, the cofounder of Launchgood, recently said at a finance conference, always be learning.

There are always advantages and disadvantages of waiting, postponing, and trying to find the perfect time. This is difficult to achieve since there is no perfect time.

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ISLAMIC FINANCE PRINCIPLES AND CSR PRINCIPLES WHAT CONVERGENCE? ASMA AIT ALLALI ASSOCIATE PROFESSOR PhD in Business and Law and Corporate Social Responsibility at the University of Brescia (Italy)

SIMONA FRANZONI ASSOCIATE PROFESSOR Department of Economics and Management University of Brescia (Italy)

ISLAMIC FINANCE: A SOCIALLY

1 RESPONSIBLE AND OPEN ECONOMIC MODEL

Islamic finance is based on principles and values in which sustainable development and social responsibility play crucial role in its existence. In order to comprehend Corporate Social Responsibility (CSR) from an Islamic financial point of view, it is necessary to look into its related principles and values, and aim to deeply understand what are the underlying dynamics as well as identify the similarities between the conventional CSR and Islamic finance. The Islamic finance model has its foundation and origin in the Quran and in the Sunna, a model founded on ethical and religious values and principles that are very and essentially near the concept of CSR that requires responsible actions and protection of stakeholder’s interests. In other words, an economic-financial model that requires – in addition to the observance of individual religious obligations – the assumption and fulfillment of responsibility towards the protection of interests of other people, the environment and therefore the balance between one’s own interests and those of the society.

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Islamic Finance bases its activities on the real economy, i.e., on goods that can be identified and are tangible, and calls on the parties to support the risks linked to the success or failure of the investments they have undertaken. This finance is open and within the reach of everybody, Muslims and non-Muslims, because of its ethical, peculiar characteristics. There are five fundamental ‘pillars’ that oversee the regulation and religious validity (Shari’a compliance) of any Islamic economic and financial activity, as follows:

Ban on Ribà (charging of interest); Ban on Speculating (maysìr) and introducing elements of uncertainty in contracts (ghàrar); Ban on the use of, trade and investment in, prohibited assets or activities (haram); Profit and Loss Sharing - PLS principle; The obligation to have real assets underlying all financial transactions.

Starting from theoretical studies to religious principles, underlying the correct functioning of Islamic finance institutions, the main objective of this analysis was that of verifying whether there is any convergence between the religious principles of Islamic finance and the CSR principles proposed for conventional companies.

CORPORATE SOCIAL

2 RESPONSIBILITY IN ISLAMIC FINANCE

Nowadays, CSR is relevant to creating a stable economic environment that aims to safeguard the interests of community. In particular, this has been undertaken and discussed by academics who have studied the conventional economic model.1 During the last decade, several studies have been conducted into CSR in the context of Islamic finance. 2 In more detail, these studies have been focused in two parts. One of them tried to analyse the client perception of CSR related to Islamic finance3 while the other studied the method in which CSR and its outcomes are reached through execution of liable business management by Islamic financial bodies. 4 Regulations and guidelines have been introduced by several International Accounting Institutions of Islamic Finance to support the development of CSR according to clear and uniform rules and practices at international level. The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) played an important role in 2010, when among other governance standards developed one on CSR. Standard No. 7 “Corporate social responsibility conduct and disclosure for Islamic financial institutions” defines CSR and explains in detail what is meant for each of the responsibilities included in the definition of CSR. In particular, the guidelines regarding CSR shown in Standard 7 of the AAOIFI are subdivided into two categories: mandatory and recommended.

1. Bowen, 1953; Fredirick, 1960; Votaw and Launche, 1973; Preston and Post, 1975; Makower, 1994; Elkingston, 1997; Caroll, 1999; Dashrud, 2004; Obahola 2008, Freeman, 2017. 2. Ekawati, 2004; Mohammed, 2007; Irwani and Dusuki, 2007; Dusuki, 2008; Zinkin and William, 2010; Yusuf, M. Y., & Bahari, Z. B. 2011.

The Islamic finance model has its foundation and origin in the Quran and in the Sunna, a model founded on ethical and religious values and principles.

3. Hamdan, 2014; Goby & Nickerson, 2014; Aribi & Arun, 2015.

4. Samina, 2012; Sairally, 2013; Mallin, Farag & Ow-Yong, 2014; Alamer, Salamon, Qureshi & Rasli, 2015.


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The ‘mandatory’ guidelines on conduct (obligatory for all IFIs with respect to the laws of the country) concern the implementation of a set of internal Islamic bank procedures based on the following: respect for CSR principles; the safeguarding of their interests in the drafting of the contract; supervision of the sharia compliance of earnings and investments; the safeguarding of the personnel’s welfare; and policies defining the conditions for the stabilisation of the zakàh (compulsory alms for Muslims). The ‘recommended’ guidelines on conduct (recommended for institutes that have the capacity to apply them) concern the following: the definition of the conditions for benefitting from qard hasan (loan without interest) granted for social reasons; the implementation of investment, instrument and operating process selection procedures aimed at safeguarding and protecting the environment, clients, micro and small businesses; policies aimed at setting up charity-oriented social activities; and policies of endowment (waqf) management aimed at reinforcing the company’s commitment to integrate CSR principles into its management activities. Starting from the CSR concept and the related considerations, it is interesting to investigate and identify the possible common principles, values and objectives, in order to understand the underpinning dynamics and identifying the convergences among the principles underlying conventional CSR and Islamic Finance. The methodological approach is based on case studies (Yin, R.K., 2013), a qualitative method based on data collection acquired from documents and questionnaire interviews. In particular, the analysis has focused on the study of two cases countries. The first country is Morocco, an Islamic country that, in 2017, introduced the first participation bank according to the Act 103.12 2015. Moroccan’s case focused itself on “Umnia Bank”, the first participation bank that inaugurated the opening of its first branches in several cities in Morocco. The second country is Germany which is not an Islamic country but it introduced, at experimental stages, the first Islamic bank named KT Bank AG, in 2015.

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ISLAMIC FINANCE PRINCIPLES

3 AND CSR PRINCIPLES: WHAT CONVERGENCE?

Nowadays, CSR presents itself as a basic concept that is directly connected to the success of enterprise in terms of sustainable and durable value creation, as well as the achievement of economic, social and environmental results that take into account the protection of stakeholders. The theoretical studies on the religious principles underlying the concept of CSR of Islamic financial institutions, the studies of CSR definition formulated by the AAOIFI (Standard No. 7) and the analysis of the two case studies mentioned above, show strict convergence between the social responsibility of companies as structured in conventional economic systems and the social responsibility of financial institutes generated from a religious standpoint (Table 1). This convergence becomes manifest in the responsibilities which companies are called to take on, i.e., a managerial conduct attentive to the protection of stakeholders and the environment, and the creation of sustainable value (through effective and efficient management of economic activities). All this means having a social role oriented towards justice and sustainable development in the environment in which the company operates.

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TABLE 1. ISLAMIC FINANCE AND CSR: THE ELEMENTS OF CONVERGENCE CONVENTIONAL CSR

CSR IN ISLAMIC FINANCE

Economic responsibility: creation of value/profit.

Economic responsibility: efficient and effective management of one’s own business

Social responsibility: safeguarding stakeholders’ interests.

Discretional responsibility: having a social role, meeting stakeholders’ expectations, respect of religious Islamic ideals.

Environmental responsibility: impact of economic activities on natural systems and the environment.

Ethical responsibility: respect for environment; in general, the religious and cultural norms not codified by the law.

Legal responsibility: with respect to worker safety law, etc.

Legal responsibility: respect for the law in the country where the company operates. Religious responsibility: respect for religious obligations in own operations.

SOURCE : FRANZONI, S., & AIT ALLALI, A, 2018.

In particular, the elements of convergence are found in the following responsibilities: economic responsibility, discretionary responsibility, ethical responsibility and legal responsibility. The convergence shows its effects once a company owns up to its responsibility, through a managerial conduct that considers stakeholder protection and the creation of sustainable value.

This convergence leads to a better integration of Islamic financial institutions in conventional economic contexts and a harmonization of the regulations and directives relative to CSR directed at economic entities operating in the same countries. Finally, the element of divergence from the conventional CSR concept is the obligation of Islamic financial institutions to assume responsibility of a religious nature, i.e., respecting the principles and obligations established by Islam and applying them in their business activities. The element of nonconvergence refers to the nature of Islamic finance itself and this should not prevent the integration and development of both conventional CSR and Islamic CSR because there are several common elements that make both systems compatible despite the existence of such discordant elements.

Social role oriented towards justice and sustainable development in the environment in which the company operates.

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CONCLUSION Both conventional and Islamic CSR concepts have several common principles. The convergence between the two systems should encourage the implementation of economic collaboration policies between Muslim and non-Muslim countries, and between Islamic and conventional banks; considering, on one hand, a growing attention of the investor-savers to CSR and the stakeholders’ rights protection, and on the other hand, a strong presence of the Muslim community, especially, in the European context. This convergence leads to a better integration of Islamic financial institutions in conventional economic contexts and a harmonization of the regulations and directives relative to CSR directed at economic entities operating in the same countries.

is aimed at all those who are interested, beyond religious ideology, in investing their savings in a business conducted according to principles and values related to CSR. In the Moroccan case study, it is underlined as the Legislator intending to implement the use of participatory Islamic financial instruments (musharaka and mudaraba) based on the PLS principle, which represents reliability, honesty, cooperation, justice and social responsibility as part of Islamic finance purposes. As a result, we can state that CSR may be the element of convergence for these two systems, an instrument going beyond the traditional concept of marketing strategy in the short term, promoting a sustainable concept to create sustainable value for stakeholders in terms of economic, social and environmental returns.

REFERENCES

As a result, we can state that CSR may be the element of convergence for these two systems, an instrument going beyond the traditional concept of marketing strategy in the short term, promoting a sustainable concept to create sustainable value for stakeholders in terms of economic, social and environmental returns. An aspect found in the case studies analysed, specifically in the case of Germany where KT Bank AG aims to offer complete financial products and services compatible with the Shari’a principles and at the same time in compliance with the German Banking Act. This

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Accounting and Auditing Organisation for Islamic Finance Institutions. Governance Standard for Islamic Financial Institutions No. 7. Corporate Social Responsibility Conduct and disclosure for Islamic Financial Institutions, 2010. Alamer, A. R. A.; Salamon, H. B.; Qureshi, M. I.; Rasli, A. M. CSR’s Measuring Corporate Social Responsibility Practice in Islamic Banking: A Review. International Journal of Economics and Financial Issues, 2015, 5(1S). Aribi, Z.A.; Arun, T. Corporate social responsibility and Islamic financial institutions (IFIs): management perceptions from IFIs in Bahrain. Journal of Business Ethics 2015, 129(4). Carroll, A. B. Carroll’s pyramid of CSR: taking another look. International journal of corporate social responsibility, 2016, 1(1), 3. Carroll, A. B.; Shabana, K. M. The business case for corporate social responsibility: A review of concepts, research and practice. International journal of management reviews, 2010, 12(1). Carroll, A.B. Corporate Social Responsibility: Evolution of a Definitional Construct. Business Society, 1999, 38.

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Casper, M.; Ait Allali, A. Islamic Finance Made in Germany–A Case Study on Kuveyt Türk (KT Bank): Germany’s First Islamic Bank, 2017. Corbetta, P. Social research: Theory, methods and techniques; Sage publications: London, UK, 2003. Corcoran, P. B.; Walker K. E.; Wals, A. E. Case studies, make‐your‐case studies, and case stories: a critique of case‐study methodology in sustainability in higher education, Environmental Education Research, 2004, 10(1). Dashrud, A. How Corporate Social Responsibility is Defined: An Analysis of 37 Definitions. John Wiley and Sons, Ltd and ERP Environment: New Jersey, 2006. Dusuki, A. W.; Irwani, N. Maqasid As-Shari’ah, significance and corporate social responsibility. The American Journal of Islamic Social Sciences, 2007, 24. Ekawati, R. Tanggung jawab sosial perusahaan (corporate social responsibility) dalam perfektif ekonomi Islam, 2004. Elkington, J. Cannibals with Forks: The Triple Bottom Line of 21st Century Business. Capstone Publishing Limited: Oxford, 1997. Franzoni, S., & Ait Allali, A., Principles of Islamic Finance and Principles of Corporate Social Responsibility: What Convergence? Sustainability, 2018, 10(3). Franzoni, S., & Ait Allali, A., The Role of the Participatory Depositor in the Governance of Islamic Banks. International Journal of Business and Management, 2018, 13(8). Freeman, R.E.; Dmytriyev, S. Corporate Social Responsibility and Stakeholder Theory: Learning From Each Other. Symphonya. Emerging Issues in Management, 2017, 2.

Hamdan, M.H. Corporate social responsibility of Islamic banks in Brunei Darussalam. In Corporate Social Responsibility in Asia, K.C.P. Low, S.O. Idowu and S.L. Ang (eds.); Springer International: Cham, Switzerland, 2014. Huster, S. Die ethische Neutralität des Staates, 2nd ed.; Mohr Siebeck: Tübingen, Germany, 2017. Mallin, C.; Farag, H.; Ow-Yong, K. Corporate social responsibility and financial performance in Islamic banks, Journal of Economic Behavior and Organization, 2014, 103, Supplement Special Issue on Islamic Finance, S21–S38 Mohammed, J. A. Corporate social responsibility in Islam. Doctoral dissertation, Auckland University of Technology, New Zealand, 2007. Sairally, B.S. Evaluating the corporate social performance of Islamic financial institutions: an empirical study. International Journal of Islamic and Middle Eastern Finance and Management, 2013, 6(3). Samina, Q.S. Practice of corporate social responsibility in Islamic Banks of Bangladesh. World Journal of Social Sciences, 2012, 2(6). Williams, G.; Zinkin, J. Islam and CSR: A study of the compatibility between the tenets of Islam and the UN Global Compact. Journal of Business Ethics, 2010, 91. Yin, R. K. Case study research: Design and methods; Sage publications: Los Angeles, USA, 2013. Yusuf, M. Y.; Bahari, Z. B. Islamic corporate social responsibility in Islamic banking: Towards poverty alleviation. International Conference on Islamic Economics and Finance, Doha, 2011, Qatar, 1-29.

Goby, V.P.; Nickerson, C. Conceptualization of CSR among Muslim consumers in Dubai: evolving from philanthropy to ethical and economic orientations, Journal of Business Ethics, 2014.

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PEACE OF MIND AN ISLAMIC PERSPECTIVE ON HOW TO ATTAIN IT KHALFAN ABDALLAH

rofessor Gilbert, author of Stumbling on Happiness wrote, “The human being is the only animal that thinks about the future.... We think about the future in a way that no other animal can, does, or ever has, and this simple, ubiquitous, ordinary act is a defining feature of our humanity.” Humans, in the course of thinking about the future, may end up with more peace of mind or they may end up with confusions, uncertainty, lack of inner peace, and to the extreme, can decide to end their lives and the life of others. Peace of mind is often easier said than attained; when attained, the challenge is to maintain it. This article reviews what Muslim scholars have said about peace of mind (al aman al nafsi). In this article, peace of mind refers to the state of mind whereby one feels a sense of ease and peace within the face of challenging circumstances. This implies a state free of despair, grudge, remorse, or blame, and more importantly maintaining a constant positive attitude with Allah and with oneself or others, despite heavy losses or afflictions.

SIGNIFICANCE OF PEACE OF MIND

We live in what some thinkers call a – VUCA (Volatile, Uncertain, Complex and Ambiguous) world. A lot of Individuals as well as corporations face demanding circumstances without having any foreknowledge about it or being unable to take appropriate timely action. Remez Sasson asserts, “Often, even when being in good financial condition and in good health, people have no peace of mind…” Peace of mind is good for health and an honorable living. Peace of mind is associated with habits such as steadfastness (thabat), exuberance and hope, and free from despondency, anxiety, stress, worries, fear, and mental and emotional restlessness.

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Thus having strong faith in God and in His ability to rescue His believing servants, and cherishing the thought that one is under the protection of the Most Powerful, leads to feeling inner peace. In the story of Moses and the Israelite, when they were approached by the powerful army of the Pharaoh, the Israelite felt that this was their end. However, Moses had strong belief. We are told in the Holy Qur’an: “And when the two companies saw one another, the companions of Moses said, “Indeed, we are to be overtaken!” [Moses] said, “No! Indeed, with me is my Lord; He will guide me.” Then We inspired to Moses, “Strike with your staff the sea,” and it parted, and each portion was like a great towering mountain.” (26:61-63). At any trying moment that has incapacitated one’s ability to find a way out, they must remember that Almighty Lord is not incapable, powerless or stoppable by any force. They should direct their thinking and hope towards Him, and say “Indeed, with me is my Lord; He will guide me.” Or “Indeed, Lord is with me/us.”

HOW TO ACHIEVE PEACE OF MIND?

One school of thought advocates for training, as peace of mind “is an acquired skill which requires time, practice and perseverance to develop, just like any other skill. Often, the skill package contain learning to change mental attitude and developing inner strength and inner detachment, through meditation and other means.” Furthermore, several tips have been shared online, such as those available on https://www.successconsciousness. com/peace_mind.htm. The question is, if it is possible to maintain that peace of mind. One may argue that the given tips therein are temporary in nature. Below are some of the more permanent ways to maintain peace of mind as shared by Muslim scholars.

1. STRONG FAITH

“As a matter of fact, those who believe and do not taint their faith with wrongdoings will feel more secure and will be better guided.” (6:82).

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As faith increases, so does inner peace. Without faith in Him and the commitments to do deeds that uplift faith, any perceived inner peace shall be delusional and unsustainable. Devoid of faith in Him, surely, one is moving on a losing path. “Losers indeed are those who deny the meeting with Allah until the Hour takes them by surprise, then they will cry, “Woe to us for having ignored this!” They will bear ˹the burden of˺ their sins on their backs. Evil indeed is their burden!” (6:31). Finally, they must reflect on this question from the Holy Quran: “Ask them: “Who delivers you from calamities in the darkness of the land and of the sea, when you call upon Him in open humility and silent terror: If You deliver us from this affliction, we shall become truly grateful.” Say, “It is Allah who saves you from it and from every distress; then you [still] associate others with Him.”” (6:63). Therefore, He is the best hope and the best savior.

2. TOTAL TRUST

“And whoever puts their trust in Allah, then He ˹alone˺ is sufficient for them”. (65:3) This is referred to as a tool of the believer, of the past and present. A Believer never abandons his reliance in Allah, as it is only though reliance or trust alone that can change and improve his affairs and he never relents to do his duty because it is all that he needs to improve! What one can do, must do it with total reliance to Almighty as success or failure never comes except when He wills. So why fear the future? Why lose hope in times of difficulty

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TALKING POINTS 4. SUPPLICATION

The Prophet (PBUH) said, “Du’a (supplication) is worship.”

As a matter of fact, those who believe and do not taint their faith with wrongdoings will feel more secure and will be better guided. [Holy Quran, 6:82]. or distress? Why feel overjoyed for a success? Everything belongs to Allah, thus they must trust in Him to rescuethem from distress and be grateful for any success. Quran narrates, “Those to whom hypocrites said, “Indeed, the people have gathered against you, so fear them.” But it [merely] increased them in faith, and they said, “Sufficient for us is Allah, and [He is] the best Disposer of affairs”. So, they returned with favor from Allah and bounty, no harm having touched them. And they pursued the pleasure of Allah, and Allah is the possessor of great bounty.”” (3:173-174).

3. REMEMBRANCE

“Who have believed and whose hearts have rest in the remembrance of Allah. Verily in the remembrance of Allah do hearts find rest!” (13:28). Believers must constantly remember Allah; early morning and at night. Besides, Prophet Muhammad (PBUH) taught us what to do and the words to say at times of distress or sadness. Some of them are:

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It is reported that “When anything distressed the Prophet (PBUH), he prayed.”

The Prophet (PBUH) used to invoke Allah at the time of distress, saying, “La ilaha illal-lahu Al-`Azim, al- Halim, La ilaha illal-lahu Rabbu-s-samawati walard wa Rabbu-l-arsh il-azim.”

“The Messenger of Allah (PBUH) taught me some words to say at times of distress: Allah! Allahu Rabbi la ushriku bihi shay’an (Allah, Allah is my Lord, I do not associate anything with Him).”

“Whenever a matter would distress him, the Prophet (PBUH) would say: ‘O Living, O Self-Sustaining Sustainer! In Your Mercy do I seek relief (Yā Ḥayyu yā Qayyūm, bi-raḥmatika astaghīth).’” And with this chain, “The Messenger of Allah (PBUH) said: ‘Be consistent with: “O Possessor of Majesty and Honor (Yā Dhal-Jalāli wal-Ikrām).’”

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Supplication is a weapon of a believer. It is a form of worship that a believer upholds during good times and bad times. Therefore, it is very important to constantly supplicate when one is in a good situation so that they can be answered when in distress. The Prophet (PBUH) said “He who wants to be happy to receive a response during distress or hardship, let him supplicate a lot when he is fine or happy.” “Get close to Him during the moments of ease, He will be close to you during hardship.”

5. POSITIVE ATTITUDE FOR EVERY DISTRESS

Hassan Al Basri said “Don’t hate hardships that you face. Perhaps that which you hate, is what will save you and perhaps that which you like, may harm you” “…perhaps you dislike a thing and Allah makes therein much good.” (3:19) We must know that distress and hardship are a blessing in disguise for those who are patient and hope for a reward from their Lord. The believer psychology is to remember that, Allah forgive sins in return for every discomfort that we experience in our lives. Surely, trials are part of believer’s life journey, perseverance is his coach and His Lord is the only hope for reward for every distress and hardship. “Do you think you will be admitted into Paradise without being tested like those before you? They were afflicted with suffering and adversity and were so ˹violently˺ shaken that ˹even˺ the Messenger and the believers with him cried out, “When will Allah’s help come?” Indeed, Allah’s help is ˹always˺ near.” (2:214). For more practical ways and details, you can download and read: Al Aman Nafs by Dr. Muhammad Musa Shariff at https://ia800501.us.archive.org/8/items/ waq65859/65859.pdf

“No! Indeed, with me is my Lord; He will guide me.” Then We inspired to Moses, “Strike with your staff the sea,” and it parted, and each portion was like a great towering mountain.” (26:61-63).

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