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L O N D O N VOLUME

08

ISFIRE REVIEW

SHARI’A ANALYSIS OF BITCOIN,

N O. 4 AUGUST

2018

CRYPTOCURRENCY, AND BLOCKCHAIN

POINT OF VIEW

SHARI’A CRYPTOCURRENCY

TALKING POINTS

SMART CONTRACTS

THE FUTURE OF ISLAMIC BANKING

AN EXCLUSIVE INTERVIEW WITH

DR. DWIA ARIES TINA PULUBUHU

R E C T O R O F H A S A N U D D I N U N I V E R S I T Y, I N D O N E S I A

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PROGRAMME SESSIONS

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EDITORIAL NOTE

NOTE FROM THE

EDITOR W

IN CHIEF

ith this issue we are delighted to bring you our new design of ISFIRE, which we think you will find the design refreshing. The top priority of this redesign is to make more content immediately available to you. As you will see, we added several new regular features – Perspectives, Point of View, that provide our readers with more content and a wider range of perspectives. The changes are part of a much broader effort to bring you the kind of information you need in a more useful and engaging way.

Cryptocurrency and blockchain has been the hot topic in the media as well as all major conferences the past few years. It is a concept that few truly understand, and could change the future for everyone in a major way. In this issue, we have 4 interesting discussions on this very matter. Mufti Muhammad Abu Bakar provides a very comprehensive Shari’a analysis on bitcoin, cryptocurrency and blockchain. Whilst Nida Khan talks about the application of smart contracts in Islamic banking and finance. This issue also presents a discussion on the revitalisation of waqf in solving development problems of contemporary Muslim societies today. Dr Salman Ahmad Shaikh rightfully pointed out “The institution of Waqf by creating community assets has the potential to create robust sustainable entities that may address the education, healthcare and other social needs in Muslim societies”. He also suggested some policy recommendations for governments and Islamic financial institutions in his article. The August issue also share several important leadership lessons and insights that are worth reading. Of particular interesting read is the “8 Lessons Entrepreneurs and Dream Chasers Can Learn from the Egyptian Messi – Mo Salah!” Under the column Perspectives, we asked leading professionals a very simple question but yet very relevant in our daily lives: “When faced with 2 great opportunities, how do you decide which one to go?” Read what they had to say and how they made their life changing decisions. We hope you continue to enjoy reading ISFIRE as much as we enjoy publishing it.

Dr. Sofiza Azmi Editor-in-Chief

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ISSN 2049-1905

EDITOR-IN-CHIEF Dr. Sofiza Azmi CEO, Edbiz Consulting

EDITORIAL ASSIS TANT Hasha Dar

INTERNATIONAL EDITORIAL BOARD Dr. Nafis Alam University of Reading Malaysia

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

TABLE OF

CONTENTS AUGUST COVER STORY 22 PROF. DR. DWIA TINA PULUBUHU

Rector of Hasanuddin University, Makassar, Indonesia

Professor Kabir Hassan, The IDB Prize Winner 2016 University of New Orleans

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

TALKING POINTS

08 Smart Contracts - The Future of Islamic Banking Nida Khan 12

Revitalization of Waqf for Socio-Economic Development and Mobility Dr Salman Ahmed Shaikh

73 Mainstreaming the Islamic Economy for Sustainable Economic Development for the New Gambia Almami Fanding Taal

Universiti Teknologi MARA

M. Saleem Ahmed Ranjha Wan Miana Rural Development Programme

Dr. Irum Saba Institute of Business Administration, Karachi

ISFIRE REVIEW 16

IMF Endorsed IFSB Core Principles: Game-Changer for Islamic Finance Dr. Jamshaid Anwar Chattha

82

Capacity Building in Islamic Banking & Finance for Sustainable Competitive Advantage Dr. Abdus Sattar Abbasi

46

Islamic Finance in Jersey – Current and Future Trends Trevor Norman, Director, VG

52

Shari’a Analysis of Bitcoin, Cryptocurrency, and Blockchain Mufti Muhammad Abu Bakar

Dr. Mughees Shaukat College of Banking and Financial Studies, Muscat

Dr. Usamah Ahmed Uthman King Fahd University of Petroleum & Minerals

DESIGNED BY Ehtisham Ahmad Muzna Ashraf

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POINT OF VIEW 30

Bad Leaders, Good Lessons Hessa Al Ghurair

102

Practically Irrelevant? Academia vs the Real World Noor Azizi Ismail


08

88

Shariah Cryptocurrency? (Mufti) Ismail Ebrahim Desai

90

Will Shari’a Robo-Advisors Replace Shari’a Advisors? Yousuf Sultan

34

3 Great Ways to Stay Relevant in Your Job Mujassum Butt

PERSPECTIVES

37 Making Life Decisions: How to Decide Between Two Great Opportunities

16 42

66

42 8 Lessons Entrepreneurs & Dream Chasers Can Learn from “The Egyptian Messi” Mo Salah! Abd Elmohaimen Mansi 94 What Modest Fashion Means to Muslim Women

ISFIRE PERSONALITY 66 ISFIRE interview with Mohammed Kateeb Group Chairman and CEO of Path Solutions

22 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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TALKING POINTS

SMART CONTRACTS

THE FUTURE OF ISLAMIC BANKING

T NIDA KHAN

he revolution against the banking industry is taking place at a breathtaking speed with the movement spearheaded by a new breed of technology entrepreneurs. The finance industry has long been marked by complex regulations, high barriers to entry and economies of scale and this is all set for disruption by the present fintech revolution. One of the most controversial and debated topics in the finance industry is blockchain.

Blockchain is a technological evolution that can support and enhance the transparency feature, which is the core underlying principle of all transactions in the Islamic finance industry. It is a distributed ledger that records that a transaction has happened, when it happened and that it has happened correctly without revealing any confidential details about the subject or the involved parties. To summarise the evolution like it is happening, the next in line is the bitcoin. It is an encrypted virtual currency using the blockchain protocol to perform financial transactions. This was the initial use of blockchain but as of now it exists as a software protocol on its own with applications ranging from virtual wallets, payments, clearing and settlement solutions amongst many others.

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These automated programs interact with real world assets differentiating them from normal computer programs. Currently smart contract technology is being built on top of bitcoin and other virtual currencies. Bitcoin is also a computer program and so smart contracts can interact with it and trigger release and transfer of payments. The distinguishing feature in comparison to paper-based agreements is that smart contracts are computer programs with the capability of unilaterally applying strict rules and consequences on the basis of fresh data inputs. Further the blockchain assures that everyone is seeing the same thing without the reliance on having to trust each other. The applications of this technology are immense but restricting it to the financial world, it can be conveniently said that any kind of business logic relying on data can be coded by way of smart contracts. ISLAMIC FINANCE CAPITAL MARKETS Securities that are based on payments and rights, which are executed according to predefined rules can be coded as a smart contract in capital markets. Experiments are ongoing on the issuance of smart bonds. Sukuk issuance follows a strict Shari’a law and principles of permissible variance, cleansing, the balance-sheet ratios to be satisfied, the ‘conglomerate’ issue and the ‘core’ activities. These can also be coded as if-then statements to ensure both compliance to the Shari’a and transparency for all involved. This would increase the mass appeal of the product amongst Muslims as there can be no discrepancy involved when using a blockchain implementation via a smart contract. ESCROW ACCOUNTS

DEMYSTIFYING TECHNOLOGY THE TERM ‘SMART CONTRACT’ WAS COINED BY A CRYPTOGRAPHER, NICK SZABO, WHO IS WIDELY KNOWN FOR LAYING THE FRAMEWORK OF THE BITCOIN.

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SMART

CONTRACT

Smart contracts is another technology similar to bitcoin. The main feature of smart contract technology is that it can reduce costs for financial transactions by circumventing regulatory infrastructures while simultaneously reducing risk through non-discriminatory execution. Greater efficiency is predicted in servicing markets on account of a lack of a central counter-party agent. The term ‘smart contract’ was coined by a cryptographer, Nick Szabo, who is widely known for laying the framework of the bitcoin. The inception took place in 1994 with the advent of the World Wide Web itself. Smart contracts are basically just computer programs consisting of if-then statements indicating that ‘if’ a certain condition is fulfilled then do this ‘else’ do something else listed in the program code. So if a certain programmed condition is triggered then the contractual clause following that condition is executed by the smart contract.

Smart contracts can easily be set up as escrow accounts monitoring the exchange between two parties. Real estate projects or selling the shares of a company can use smart contract driven escrow account to facilitate the conditional transaction. An instance would be that the buyer would transfer funds to the contract account and after the ownership has been fully transferred, the contract would automatically release the funds to the seller. INHERITANCE LAW Inheritance as ordained by Islam can be coded by means of various conditions expressed in religious doctrines in a smart contract, specifying conditions when a dead person has left a descendant or not and likewise. The triggering condition that sets the contract into execution would be the death of a person. This would increase fairness in distribution of wealth according to the Shari’a, resolve any potential disputes that could arise by means of transparency and reduce the time and effort needed for the process of determination of the wealth allocation to different parties followed by the transfer of money to the respected family members.

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TALKING POINTS

LOANS Lending money is a core activity of any financial institution. Automating the lending process would result in immense cost reductions. Loans can be set up as smart contracts on a blockchain together with the collateral ownership information. In case the borrower misses a payment or a few designated payments - the number agreed upon by the lending institutionthen the smart contract can revoke the digital keys that allow access to the collateral. The coming times could very well do away with banks. Consider the case of mortgages. A person gets his mortgage through a bank, which won’t generally be held by the bank for the tenure of the loan but would be sold to an investor. The borrower however keeps making payments to the bank and not the investor. The bank processes the monthly payments with fractions being sent to the investor, for taxes and home insurance. For this simple operational task the bank takes up to a quarter to a half percent per year to service the mortgage. Smart contracts can do this operational task and either minimise the fees that banks charge or make the investor or lenders come in direct contact with the person through a pool of willing investors and lenders. This pool on a blockchain would aid in transparent transactions fuelled by smart contracts to facilitate them. Till this is not possible banks can adopt smart contracts to eliminate the mortgage processing fees resulting in lowered cost of home ownership. Auto finance contracts are such that one contract type satisfies all. They are documents that anticipate as many outcomes as possible based on human behaviour and typical legalities involved. Thus they are particularly suited to be coded into smart contracts. CRYPTOCURRENCY WALLET CONTROLS Dealing in cryptocurrency is an issue to be discussed by Shari’a scholars but consider the following Hadith by the Prophet (May peace and blessings be upon him) in ‘The book of Transactions (Kitab AlBuyu’)’ of Sahih Muslim: ‘Ubida b. al-Simit (Allah be pleased with him) reported Allah’s Messenger (may peace and blessings be upon him) as saying: Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, and salt by salt, like for like and equal for equal, payment being made hand to hand. If these classes differ, then sell as you wish if payment is made hand to hand.’ (3853, Muslim) This clearly shows that dealing in cryptocurrencies by the parties involved should be permissible by analogy as it comes in ‘like for like’. Wallets can be set up, controlled by smart contracts. These can include conditional clauses like daily withdrawal limits and restrictions like money that can be spent only on certain kinds of assets, in a certain geographical area or between two dates and likewise. The possibilities are endless and the savings would be huge considering the global reach of such a platform.

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PROXY LAWYERS When considering routine financial transactions, lawyers are involved in repetitively processing mundane tasks and yet consumers have to spend a large amount on their fees to have them go through their wills or contracts. Theoretically smart contracts can do a greater portion of what the lawyers do but practically speaking using them to support the legal system in the present age would reduce the costs associated with the process. The smart contracts could function as an intermediate layer between transacting and going to court. The future holds a different role for lawyers where they can be seen producing smart contract templates, which would be customisable as per the needs of a company. TAKAFUL Smart contracts will prove to be a boon for the Islamic Insurance industry. Since the smart contract is an automated computer program, the operating costs would reduce, speed of execution would increase and there would be greater efficiency in claims processing. The transparency and lack of textual ambiguity in coded smart contracts would prevent legal disputes.

INHERITANCE AS ORDAINED BY ISLAM CAN BE CODED BY MEANS OF VARIOUS CONDITIONS EXPRESSED IN RELIGIOUS DOCTRINES IN A SMART CONTRACT, SPECIFYING CONDITIONS WHEN A DEAD PERSON HAS LEFT A DESCENDANT OR NOT AND LIKEWISE.

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TALKING POINTS

There would also be less insurance fraud on account of the contract being preprogrammed according to some specific conditions. Smart contracts are cut out for takaful as islamic insurance involves peer-to-peer insurance with policyholders supporting each other financially in times of crisis. Till now islamic insurance is being managed by a takaful operator. With the use of smart contracts, the operator can be replaced by a smart contract managing a pool of policyholders in a distributed blockchain comprising of ‘permissioned’ ledgers. These ‘permissioned’ ledgers use legal entities to validate transactions and are relatively compatible with existing regulations. This scheme complying with regulations would increase the reliance of consumers on the smart contract driven insurance scheme. TAILOR-MADE FOR ISLAMIC FINANCE Islamic finance industry is all about earning money through a set of sound principles governed by the Shari’a. Smart contracts are computer programs that run according to some predefined conditions. The adoption of smart contracts by the Islamic finance industry is the most natural thing to do, not just to gain a strong foothold in this technological revolution, but also to be able to fully comply with the Shari’a in a transparent way. The Shari’a laws can form the conditions of a smart contract. Honesty, transparency and trustworthiness are qualities that should make a financial transaction in the IF industry, and smart contracts are inherently all of these. Blockchain provides a distributed trustworthy storage and smart contracts provide distributed trustworthy calculations. Equality for all is a principle dear to Islam and smart contracts would pave the way for such an equality by making financial services available to the poverty ridden sections of the society. Reductions in costs associated with the processing in banks and hiring lawyers would provide a larger section of the people to utilise their services. The Muslims, who could not trust financial institutions to be implementing the Shari’a law can rest at ease with smart contracts, knowing and seeing the conditions that go into making the automated contracts. Despite the fears normally associated with any new technology and the challenges and difficulties it would offer, smart contracts are a technology worth investing in for the potential it offers for the future.

NIDA KHAN IS THE DEVELOPER OF TWO PIONEERING TECHNOLOGICAL TOOLS FOR THE ISLAMIC FINANCE INDUSTRY. SHE IS CURRENTLY PURSUING AN INDUSTRIAL PHD IN BLOCKCHAIN AND DATA ANALYTICS FOR TRACEABILITY IN FINANCE FROM THE INTERDISCIPLINARY CENTRE FOR SECURITY, RELIABILITY AND TRUST (SNT), UNIVERSITY OF LUXEMBOURG.

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TALKING POINTS

REVITALIZATION OF

WAQF

FOR SOCIO-ECONOMIC DEVELOPMENT AND MOBILITY

DR SALMAN AHMED SHAIKH

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T

he institution of Waqf implies holding or setting aside certain physical assets by the donor (Waqif) and preserving it so that benefits continuously flow to a specified group of beneficiaries or community. A Cash Waqf is “the confinement of an amount of money by a founder(s) and the dedication of its usufruct in perpetuity to the welfare of society”. The nature of the expected benefit or purpose of the Waqf is clearly stated in the Waqf deed or document created for this purpose by the donor (Waqif). A traditional example of Waqf is that of donating or setting aside a land for construction of a masjid or a school or a hospital. The donor also specifies the trustee-manager(s) who would ensure that the intended benefits materialize and flow to the community. The trustee-manager is variously described as mutawalli or nazir. Historically, in many Muslim societies, Waqf-based institutions were the sole providers (with no state intervention) of education, health care, water resources, and support for the poor. The list of social services even included the welfare of animals. The institution of Waqf by creating community assets has the potential to create robust sustainable entities that may address the education, healthcare and other social needs in Muslim societies. Thus, Waqf is a viable and sustainable funding option for socially beneficial projects, thereby reducing dependency on public funds.

The Distinction of Waqf from Other Islamic Social Finance Institutions

Zakāt

Waqf

• Compulsory

• Voluntary

• Voluntary

• Heads of Zakāt are specified in Holy Qur’an.

• Beneficiaries can be anyone.

• Beneficiaries can be anyone.

• Specific financial flows. • Compulsory

• The flow of benefits on a sustained basis

• Specific financial flows.

• Transfer of ownership to a living Muslim is necessary. Hence, allocation and disbursement are usually contemporaneous.

• Naturally open to institutionalization due to the donation being of an asset that remains intact or has potential to grow

• May or may not be open to institutionalization depending on the nature and value of sadaqah

GLOBAL OVERVIEW OF AWQĀF SECTOR INDIA There are more than 490,000 registered Awqaf spread over different states and union territories of India. A large concentration of Waqf properties is found in West Bengal (148,200) followed by Uttar Pradesh (122,839). Other states with a sizeable number of Awqaf are Kerala, Karnataka and Andhra Pradesh. The total area under Waqf properties all over India is estimated at about 600,000 acres. As the book values of the Awqaf properties are about half a century old, the current value can safely be estimated to be several times more and the market value of the Waqf properties can be put at INR1.2 trillion (about US$20 billion).

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Ordinary Sadaqah

which amounts to a meagre rate of return of 2.7%. Of this amount the Waqf boards are entitled to receive a share at the rate of 7%, which is used for the working expenses of the boards. If these properties are put to efficient and marketable use they can generate at least a minimum return of 10%, which is about INR120 billion (about US$2 billion) per annum. Interestingly, as many as 584 Waqf properties have been in unauthorized occupation of the governments and their agencies! BANGLADESH In Bangladesh according to a survey conducted by the Bureau of Statistics of the Government of Bangladesh, the total number of Waqf properties in the country is 150,593 including 1,400 properties around different ‘mazars’.

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According to the 1983 Mosque census, out of about 200,000 mosques 123,006 are Waqf properties. It is also claimed that almost one-third of the land of Dhaka city is Waqf. Out of the 150,593 Waqf properties, however, only 15,300 are registered with the Waqf Administration of the Government. MALAYSIA Data for Waqf by type of properties indicate that of the 6,406 pieces of Waqf properties; 1,760 pieces are for masjids, 900 pieces for suraus and 219 pieces for religious schools. A total of 2,446 pieces are for cemeteries, 15 pieces for house dwellings, 125 pieces for buildings, 314 pieces for paddy fields, 46 pieces for coconut planting, 42 pieces of rubber trees, and 8 pieces for gardening. Further, there are 38 pieces of orchards; 87 pieces of village lands, 37 pieces of empty lots, 367 pieces undefined and 2 pieces of strata title ownership. According to the Department of Awqaf, Zakat and Hajj (JAWHAR) of the government of Malaysia, the 11,091 hectares of land under Awqaf are valued at RM1.2 billion (the US$384 million). Nonetheless, the current statistics indicate that of Malaysia’s nearly 13 and a half thousand hectares of Waqf land, only two percent of the total area has actually been redeveloped. Awqaf hotels are the recent trend in the development of Waqf property. Four hotels have been built under the Waqf concept in the states of Malacca (Pantai Puteri), Perak (The Regency Seri Warisan), Terengganu (Grand Puteri) and Negeri Sembilan (Klana Beach Resort).

INDONESIA In Indonesia data obtained from the Ministry of Religious Affairs for the year 2012 indicate that the size of registered land Waqf in Indonesia is equal to 1,400 km² and most of them are still idle. The market value of registered land Waqf is estimated to be equal to Rp590 trillion (US$ 60 billion). Collected cash Waqf by Badan Wakaf is equal to Rp3.60 billion (US$370,000). SINGAPORE In Singapore as of 2012, the Waqf portfolio of MUIS includes 157 properties that comprise 114 shop-houses, 30 residential units, 10 commercial units, 2 commercial buildings and 1 institution. Size of land area under Waqf is 406,910 sq ft. The size of the net area that may be rented out is 447,233 sq ft. The portfolio is valued at S$471 million. MAURITIUS The country was among the early states to create a modern and dedicated law of Waqf, the Waqf Act 1941 under which it set up a Board of Waqf Commissioners to protect the community wealth and assets. As on date there are a total of 377 Waqfs comprising 105 family Waqfs, 150 religious Waqfs, and 122 philanthropic Waqfs. Waqf is grouped under Waqf-ul-lillah, the family Waqf is classified as the Waqf-ul aulad. The first Waqf registered under the Waqf Act dated 26th February 1942 and was a family Waqf (Waqf-ul aulad).

THE INSTITUTION OF WAQF BY CREATING COMMUNITY ASSETS HAS THE POTENTIAL TO CREATE ROBUST SUSTAINABLE ENTITIES THAT MAY ADDRESS THE EDUCATION, HEALTHCARE AND OTHER SOCIAL NEEDS IN MUSLIM SOCIETIES.

Comparison of Regulatory Framework in Regional Countries Attributes / Countries Permanence

Temporary, permanent

Indonesia

Singapore

Temporary, permanent

India

Pakistan

Bangladesh

Permanent

Permanent

Permanent

Permanent

Permission to create. Registration required. Un-registration not punishable.

Permission to create. Registration required. Un-registration not punishable.

Permission to create. Registration required. Un-registration not punishable.

Only for one-third of assets. Waqf-Khas needs Sultan’s permission. No private Mutawalli.

Permission to create. Registration required. Un-registration not punishable.

Only for one-third of assets. Registration necessary, else a fine.

Muslims and non-Muslims

Muslims and non-Muslims. Individuals as well as organizations.

Muslims

Muslims and non-Muslims

Muslims

Muslims and non-Muslims

Endowed Assets

No mention of financial assets.

Specification of immovable and movable assets (including financial).

No specification of financial assets.

No specification of financial assets.

No specification of financial assets.

No specification of financial assets.

Beneficiary

Family Waqf not recognized.

Family Waqf not recognized.

Family Waqf not recognized.

Family Waqf recognized.

Family Waqf not recognized.

Family Waqf recognized.

Waqf registered in the name of the Islamic Religious Council as proprietor.

Badan Wakaf Indonesia does not own or manage the assets, but supervise.

Majlis Ugama Islam Singapura administers all Waqf.

State supervises, but does not own or manage assets.

State supervises. Chief Administrator appoints a manager to control, manage and maintain Waqf assets.

State supervises. But, the Chief Administrator can assume responsibility for administration by notification.

Islamic Religious Council or Majlis is the sole nazir or trustee.

Private entities can be a trustee.

Private entities can be a trustee, but with a limited role.

Private entities can be a trustee.

Chief Administrator appoints a manager. Mosques/shrines have religious purposes committee

Private entities can be a trustee.

Creation •

Compulsory

Donor

Ownership and Administration

Trustee

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CONCLUSION AND POLICY RECOMMENDATIONS In order for the institution of Waqf to play a meaningful role in solving development problems of contemporary Muslim societies, dynamism in laws and Waqf jurisprudence can help in revitalizing the institution of Waqf. Below are some policy recommendations to revive and revitalize the institution of Waqf.

POLICY RECOMMENDATIONS GOVERNMENT

FOR

THE

• To encourage the creation of Waqf other than in dormant real estate alone, private entities shall be incentivised to establish, manage and administer Waqf. • To retain public confidence, the government shall not have the exclusive right to appropriate property unless through the court of law if there is usurpation or abuse by the trustees. Minimal intervention in the routine administration is necessary in order to encourage the private establishment of Waqf on the demand side and for financial institutions and corporations to offer wealth management services, especially in Cash Waqf on the supply side. • It is important to provide tax incentives to engage more people and corporations towards establishing Waqf. Corporations who engage in corporate philanthropy can effectively establish corporate Waqf. The contributions to these Waqf by individual and corporate donors shall be made eligible for tax credit like it is the case with other recognized institutions. • If a donor dedicates real estate to an existing Waqf or to establish a new Waqf, the taxes related to registration and transfer of property shall be exempted. • Waqf law should provide a comprehensive definition of Waqf that includes both permanent and temporary Waqf. It must also explicitly cover various types of Waqf: family and social Waqf, direct and investment Waqf, cash Waqf and corporate Waqf. • There should be a balance between emphasis on preservation and development. To encourage private participation, there should be flexibility in the use of Waqf assets for investment in the form of leasing and financial investments. At the same time, it is important to have risk management guidelines to ensure the preservation of Waqf assets. • Provisions should be added in the existing laws regarding ‘ibdal’ (exchange) and istibdal (substitution) of Waqf assets in order to revive the old Waqf assets, revitalize the existing ones and to ensure sustainable existence and utility of Waqf assets. • The legal framework should not restrict the definition of the endowed asset to immovable tangible assets only, such as, real estate, but should also explicitly recognize movable and financial assets,

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e.g. cash, stocks, gold, financial securities, transportation vehicles, books, computers, medical equipments, hospital beds etc. • Laws must make it compulsory to have transparent and honest reporting of financials. • Punitive actions shall be taken against the abuse or usurpation of assets by the trustees and in this regard, financial penalties should be complemented with physical punishments to act as strong deterrents. POLICY RECOMMENDATIONS FOR ISLAMIC FINANCIAL INSTITUTIONS • Islamic banks can facilitate the development of old Waqf assets by way of Diminishing Musharaka, Sale and Leaseback and Istisna in order to rebuild and renovate Waqf property for improved post-financing valuation as commercial buildings. • Microenterprise Waqf can be established by Islamic banks to mobilize people’s social savings in the form of Cash Waqf donations and then disbursing these funds to the poor micro-entrepreneurs in the form of Qarde-Hasan. • Family Waqf shall also be recognized in the law and its administration services can be offered by financial institutions providing private wealth management services. • Islamic banks like other banks collect donations for hospitals and educational institutions. Such institutions can mobilize funds through cash Waqf and the Islamic banks can become the collection, payment and investment agents. If a special tax credit is allowed to those who donate to cash Waqf through banks, it will help in financial inclusion and documenting the philanthropic third sector activities. • The government can mobilise the funds through Cash Waqf for the shortfall in the annual federal development budget by engaging Islamic banks as the collecting agent to gain wide public participation and engagement. • Waqf-based Islamic microfinance institutions can be established where the seed capital can be mobilized through cash Waqf. Islamic banks can use their existing resources, capacity and infrastructure to integrate financially excluded micro-borrowers into the financial system through this mechanism.

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THE AUTHOR HOLDS PHD IN ECONOMICS FROM NATIONAL UNIVERSITY OF MALAYSIA AND IS WORKING AS ASSISTANT PROFESSOR OF ECONOMICS AND FINANCE AT SZABIST KARACHI, PAKISTAN. HE CAN BE CONTACTED AT SALMAN@SISWA. UKM.EDU.MY

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ISFIRE REVIEW

IMF ENDORSED IFSB CORE PRINCIPLES:

GAME-CHANGER FOR

ISLAMIC FINANCE DR. JAMSHAID ANWAR CHATTHA

F

ollowing the endorsement of the use of the IFSB’s Core Principles for Islamic Finance Regulation (CPIFR) and the associated assessment methodology for the Financial Sector Assessment Program (FSAP) by the IMF’s Executive Board on 24 May 2018, the subject has been a topic of much discussion among the Islamic finance fraternity. Subsequently, from a regulatory perspective, there are several questions which have arisen, such as: how does this historic development propel the international recognition of Islamic finance’s robust regulatory eco-system; whether the implementation of the IFSB standards would increase; would there be an increased convergence in supervisory and regulatory practices; what should be done by the supervisors regulating Islamic banking to ensure that this impetus remains relevant for the industry. This article attempts to address these questions and suggests the way forward for the industry. It is imperative to highlight that the IMF’s engagement with Islamic finance is longstanding. Similar to the commonly held view in Islamic finance literature about the existence of Islamic finance

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IT IS IMPERATIVE TO HIGHLIGHT THAT THE IMF’S ENGAGEMENT WITH ISLAMIC FINANCE IS LONGSTANDING.

specificities, the IMF has also acknowledged in its research and work that Islamic banks have distinct operations with differing risk profiles and balance sheet structures compared to conventional banks. Therefore, the approach to regulating and supervising Islamic banking should reflect the nature of risks to which Islamic banks are exposed. As such, would consequently require additional or different regulatory and supervisory practices. For the past 20 years, the IMF has been cooperating fastidiously with many regulatory and supervisory authorities (RSAs) overseeing Islamic finance to provide technical advice as needed, and with other international organizations (e.g. World Bank, the Arab Monetary Fund, and the IsDB) as well as standard-setters on Islamic banking issues (e.g. IFSB and AAOIFI). It is important to recall that the IMF has played a central and catalytic role in the establishment of the IFSB in November 2002 in order to develop the necessary prudential standards for the Islamic financial services industry (IFSI). The IMF has since been an Associate Member of the IFSB.

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According to the IFSB IFSI Financial Stability Report 2018, the global Islamic financial services industry (IFSI) continues to grow and evolve in size and complexity and has surpassed the US$2 trillion milestone in 2017 with an 8.3% growth in assets in US Dollar terms.1 Strong economic growth in core markets, persistent increasing demand for IFSI, regulatory improvements, and an enabling environment provided by governments and central banks continue to be the main drivers for the significant growth and development of the IFSI. The Islamic banking sector, however, remains dominant. The sector is categorised as systemically important in 12 jurisdictions (Iran, Sudan, Brunei, KSA, Kuwait, Qatar, Malaysia, UAE, Bangladesh, Djibouti, Jordan, Bahrain), where the market shares have reached 15%. Collectively, these jurisdictions account for 92% of the global Islamic banking assets. On the other hand, market share in Pakistan, Oman, Egypt, Maldives, Indonesia, Turkey, and Tunisia remains between 5% to less than 15%. IFSB CORE PRINCIPLES (CPIFR) AND STRUCTURE

1. Global IFSI covers Islamic banking, Islamic capital markets and Islamic insurance (Takaful)

The IFSB has a mandate to promote and enhance the soundness and stability of the IFSI by issuing global prudential standards and guiding principles for the industry, broadly defined to include Islamic banking, Islamic capital markets and Islamic insurance (Takaful). Similar to other international standardsetters, the IFSB’s strength lies in its diverse membership. As at July 2018, the 182 members of the IFSB comprise 75 regulatory and supervisory authorities, eight international inter-governmental organisations (including the IMF, IsDB, BIS, ADB, and the World Bank), and 99 market players operating in 57 jurisdictions.

33 of the CPIFR are largely modeled after the Basel Core Principles for Effective Banking Supervision (BCP) as revised in September 2012, with modifications to address Islamic banking-specific issues in regulation and supervision in particular, with five additional principles and their corresponding methodology specific to Islamic banking operations. This is reflected in Figure 1. Each CPIFR is supported by assessment criteria, which are divided into essential criteria (ECs) and additional criteria (ACs). In total, the additional number of ECs added by the IFSB are 72, mainly covering prudential supervision, of which 46 are from four new principles. While 9 BCP are retained un-amended in the CPIFR in view of their common applicability to both conventional and Islamic banking, 19 BCP have been amended at the level of the assessment criteria rather than the Principles themselves. As per the IMF statement, the CPIFR and assessment methodology will be used in fully Islamic banking systems, and as a supplement to the BCP in dual banking systems where Islamic banking has a significant market share (of 15% or more). Where a jurisdiction has both significant Islamic banking and significant conventional banking sectors, the IMF will assess both sectors at the same time using the CPIFR and BCP standards and assessment methodologies respectively; which would reveal the relevant linkages between Islamic banking and its conventional counterpart, and their implications for financial stability.

THE IFSB HAS A MANDATE TO PROMOTE AND ENHANCE THE SOUNDNESS AND STABILITY OF THE IFSI BY ISSUING GLOBAL PRUDENTIAL STANDARDS AND GUIDING PRINCIPLES FOR THE INDUSTRY, BROADLY DEFINED TO INCLUDE ISLAMIC BANKING, ISLAMIC CAPITAL MARKETS AND ISLAMIC INSURANCE (TAKAFUL).

Thus far, the IFSB has issued 27 Standards, Guiding Principles, as well as Guidance and Technical Notes. It is currently in the process of issuing three more standards by the end of 2018. The CPIFR is one of these 27 Standards, approved by the IFSB Council in April 2015. It is worth mentioning that besides the 23 regulators (central banks); the IMF, the World Bank, the Basel Committee, the IsDB, as well as the ADB were all part of the working group which prepared the CPIFR. The CPIFR provides a minimum international standard for sound regulatory and supervisory practices for the effective supervision of the Islamic banks. Hence, CPIFR can assist all RSAs to carry out self-assessments of the progress made in the development of their regulatory frameworks and in achieving greater consistency in the implementation of the IFSB standards.

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According to the IFSB Implementation Survey 2017, for the Islamic banking sector, five RSAs (15%) have implemented at least 70% of the standards; nine RSAs (28%) record an implementation rate of between 21%-70%; and 16 RSAs (50%) report a rate of 0%-20% implementation of the IFSB standards. While the first revelation is encouraging, the latter two showing lack of implementation represent a significant challenge. Interestingly, in the IFSB survey, the RSAs identified IFSB-15, GN-6, IFSB-12, IFSB-13 and IFSB-16 as presenting significant challenges in terms of implementation.

Taking into account the aforementioned background and context, Figure 2 presents a brief response to the questions raised earlier, which are then discussed below in detail. INCREASED CREDIBILITY, ACCEPTANCE AND IMPLEMENTATION The IMF’s endorsement of the CPIFR will bring increased credibility, acceptance and implementation of Islamic finance globally by RSAs. There are 12 jurisdictions where Islamic banking accounts for more than 15% of the market share. Systemically important jurisdictions seem to be the primary beneficiaries of the IMF’s implementation of the CPIFR. They would subsequently serve as benchmarks for other jurisdictions where Islamic finance is yet to gain a market share of above 15%.

INCREASED CONVERGENCE OF SUPERVISORY PRACTICES It is expected that as a result of compliance with CPIFR, there will be an increased convergence of supervisory practices for Islamic finance across the jurisdictions.

The CPIFR is a compendium of the IFSB standards covering a wide range of standards such as IFSB-1 (Risk Management), IFSB-3 (Corporate Governance), IFSB-10 (Shari‘ah Governance), IFSB-12 (Liquidity), IFSB-13 (Stress Testing), IFSB-15 (Revised Capital Adequacy), GN-6 (LCR and NSFR), and IFSB-16 (Pillar II). In this respect, compliance with CPIFR means that there will be an increased implementation of the IFSB standards by RSAs across jurisdictions. However, one should bear in mind that like the BCBS, the implementation of the IFSB standards by any jurisdiction is on a voluntary basis.

CPIFR 14 CPIFR 16 CPIFR 24 CPIFR 26 CPIFR 32

Increased Credibility, Acceptance & Implementation

Increased Convergence of Supervisory Practices

Formal Unit to Oversee Islamic Finance

Role of International Bodies for Capacity Building

Figure 1: Head-to-Head Comparison: Core Principles of BCBS and IFSB Core Principles

BCBS IFSB

Part A: Supervisory Powers Permanent

#

13

Sub-Total ECs 104

Part B: Prudential Regulation

16

Part A: Supervisory Powers

13

20

127

Permission to create. Registration required. Un-registration not punishable.

106 Muslims and non-Muslims 303 197

Permanent 16

11 Permission to create. Registration required. Un-registration not punishable. 5 Muslims

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BCP 23 Interest rate risk (4 ECs, 2 ACs) with CPIFR 26: Rate of Return Risk (9 ECs, 2 ACs) 13

CPIFR 16: Shari’ah Governance Framework

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CPIFR 24: Equity Investment Risk

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CPIFR 32: Islamic "windows" Operation

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Total ACs

9

CPIFR 14: Treatment of IAHs

New Principles

Sub-Total ACs

231

33 Part B: Prudential Regulation

Total ECs Permanent

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IFSB

Replaced

Total Principles

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First, for instance, it is common knowledge that the management of PSIA raises issues of governance, disclosure, and capital adequacy. In this regard, CPIFR 14 on PSIA will ensure how RSAs determine, from a prudential perspective, the treatment of PSIA by the Islamic banks in their respective jurisdiction (i.e. whether PSIA, as investors who bear all the earnings volatility and risks of losses, or as a liability of an Islamic bank, or as partially risk absorbent so that an Islamic bank bears part of the risk, aka, ‘alpha factor’). The various implications - including the regulatory treatment, governance and disclosures, formation of profit equalization reserve or investment risk reserve, capital adequacy, and resolution framework - relating to PSIA across the jurisdictions will be sorted out by compliance to CPIFR 14. Second, Shari’a compliance is central to ensuring the legality of contracts, and the integrity and credibility of Islamic banking operations as the risk of Shari’a non-compliance can lead not only to losses, but also to reputational risk. In this respect, the application of CPIFR 16 (Shari’a governance) will ensure that there are laws and regulations implemented by RSAs which require Islamic banks’ BODs to have a robust Shari’a governance system (including Shari’a Supervisory Board). Thus, ensuring an effective and independent oversight of Shari’a compliance over various structures covering both ex-ante and ex-post processes within the organisation.

ACCORDING TO THE IFSB’S RECENT SURVEY, 70% OF ALL ISLAMIC BANKS’ FINANCING ASSETS ARE CONCENTRATED ON MURABAHA OR SIMILAR CONTRACTS.

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According to the recent IFSB survey, 51% of the respondents, i.e. the RSAs, found that introducing Regulatory Consistency Assessment against CPIFR across RSAs would be significant to support implementation of the IFSB standards and highlight gaps in the supervisory framework. In the academic literature and conferences, the lack of standardization and consistency in Islamic banking and supervisory practices has been repetitively acknowledged. As an example, lack of equity investment through Mudaraba and Musharaka contracts, and lack of clarity on the profit-sharing investment account (being one of the most significant funding sources for Islamic banks) has been widely attributed to the market players. Often, for some reasons, the RSAs are impugned for the lack of implementation guidance on these issues. Normally, the bottom-up approach is emphasized targeting the market players. However, the application of CPIFR by various jurisdictions will create a top-down approach for ensuring consistency and convergence of supervisory practices. For illustration purposes, this is discussed in detail below.

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Third, according to the IFSB’s recent survey, 70% of all Islamic banks’ financing assets are concentrated on Murabaha or similar contracts. However, equity investment through Mudarabah and Musharaka contracts (being one of the essential distinctive qualities of Islamic finance) only account for less than 5%. Hence, instead of focusing on Murabaha-like products, the focus should be on equity investment contracts. This would not only offer greater product diversification, productivity, and inclusiveness, but will also have a multiplier-effect throughout the wider economy. Thus, the compliance to CPIFR 24 (equity investment) will entail RSAs implement a top-down approach where laws and regulations will require Islamic banks to have in place adequate policies and procedures, strategies including valuation methodologies and exit strategies, and reporting processes for equity investment risk management. WHAT IS REQUIRED? Depending on the robustness of the institutional and regulatory infrastructure, the implementation of CPIFR will require varying degrees of effort and commitment from RSAs to achieve compliance. There are two factors that need to be highlighted. First, there is a strong need to have a formal unit with a clear mandate within a central bank or supervisory authority to oversee Islamic finance operations. In many jurisdictions, according to the IFSB, Islamic banks are being supervised through existing arrangements or departments. In such jurisdictions, one of the first steps to be followed by RSAs is to ensure that there is a formal dedicated unit/section/department for the supervision of Is-

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FIRST, THERE IS A STRONG NEED TO HAVE A FORMAL UNIT WITH A CLEAR MANDATE WITHIN A CENTRAL BANK OR SUPERVISORY AUTHORITY TO OVERSEE ISLAMIC FINANCE OPERATIONS.

lamic banks. This unit should ensure that there is adequate internal capacity and skill-sets to formulate and issue policies and regulations, and oversee their implementation in line with the IFSB prudential and AAOIFI accounting and Shari’a standards. For this to be realised the staff would require adequate knowledge of Islamic finance as a prerequisite in order for the unit to perform effectively, in particular when performing self-assessment using CPIFR. Without a formal structure, the efficacy of the prudential regulation and supervision would be difficult to sustain in the long run. This unit should work closely with other departments within a supervisory authority in order to integrate Islamic finance with the financial system. This approach is an integral part of establishing an Islamic finance ecosystem not only for developing robust internal supervisory capacity, but also for preparing to export the expertise for IFSI. This is particular crucial when the IMF-World Bank FSAP will be implemented after January 2019, as they will need experts from relevant RSAs to participate in missions to undertake and support the quality of the assessments. Second, there is a dire need to have effective coordination among Islamic finance bodies in terms of capacity building. Capacity building and the development of the supervisory resources is one of the key areas which should receive more attention from RSAs, as this will play a critical role in ensuring the compliance with CPIFR. Both BCP 2 and CPIFR 2 lay emphasis on the need for having adequate resources to conduct effective supervision and oversight. In a recent IFSB survey, the two major challenges noted were the lack of “detailed knowledge of Islamic finance” and the length of time taken for the “process of standards implementation”. With respect to challenges in implementation, the IFSB survey reflects that 42% (16/38) of the respondent RSAs indicated, “our supervisory staff face challenge to supervise and assess the compliance with Islamic finance related regulations and guidelines, once issued” as significant, whereas, “implementation needs a detailed knowledge of Islamic finance, which few staff of our organisation have” was ranked as significant by 61% (23/38) of the RSAs. To effectively deal with the challenges of implementation of CPIFR, RSAs should consider developing adequate human resource capacity to deal with CPIFR in terms of numbers and quality, given the peculiar nature of risks in Islamic banking. One way to ensure this is encouraging concerted and collective

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efforts and collaboration for the implementation of IFSB standards. This should be done on global capacity development by international bodies such as the IFSB, the IsDB, IMF, CIBAFI, and regional credible training centres for capacity building of member countries. In this respect, supervisory-focused modules and trainings should be developed and conducted for central banks to achieve compliance with CPIFR. CONCLUSION The wider adoption of the CPIFR may require greater effort and better resources from supervisory authorities so as to achieve compliance across jurisdictions where Islamic banks operate under dual banking systems or otherwise. The IMF’s endorsement of the CPIFR is not just a momentous landmark for the IFSI. The CPIFR will help supervisory authorities in achieving consistency in supervisory surveillance and oversight, and an integrated prudential framework while complementing the international architecture for financial stability. Having in place a formal structure of Islamic finance by the supervisors - where the Islamic finance unit is well-integrated with other organs such as policy affairs, supervision and surveillance, financial stability, and consumer protection – is pivotal to achieve long-term sustainability of Islamic finance growth, stability and resilience. In conclusion, despite the IMF’s adoption of the CPIFR, it is important to acknowledge that without concerted and collective effort by international bodies and stakeholders, the integration of Islamic finance globally would remain a challenge.

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DR. CHATTHA IS CHIEF BANKING RESEARCHER AND ISLAMIC FINANCE EXPERT AT THE CENTRAL BANK OF KUWAIT. HE IS AN EX-STAFF MEMBER OF THE IFSB AND ALSO ADVISES THE IMF ON ISLAMIC BANKING SUPERVISION. HE CAN BE REACHED AT: JAMSHAID. ANWAR@ GMAIL.COM. THE VIEWS EXPRESSED IN THIS ARTICLE ARE THOSE OF THE AUTHOR.

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AN EXCLUSIVE INTERVIEW WITH

PROF. DR. DWIA TINA PULUBUHU

Rector of Hasanuddin University, Makassar, Indonesia

Q1.

AS THE RECTOR OF HASANUDDIN UNIVERSITY, AND PERHAPS THE YOUNGEST AMONGST YOUR PEERS IN INDONESIA, WHAT CHALLENGES DO YOU FACE IN RUNNING A COMPLEX ORGANISATION LIKE A UNIVERSITY? I was recently reappointed as the Rector for the second term from 2018-2022. I am proud to share that Universitas Hasanuddin has entered the Asia University Rankings. The next challenge is now to work towards the modernisation of the university to achieve ‘worldclass’ university ranking status in the next 4 years. Universitas Hasanuddin is a state-owned university and is one of the largest autonomous universities in the country. Out of 130 state-owned universities in Indonesia, only 11 (including Universitas Hasanudin) have been granted such legal status or entity. Managing a university towards achieving a world class status is indeed a complex and challenging task. Universities not only impart education, but also play an active role in the enhancement of knowledge through the empowerment of research. This involves balancing of resources and the appropriate allocation of manpower. Working towards achieving world-class status also requires managing the university in a very professional manner. Hence, the first priority of the university is to focus on modernizing its management and administration. This include having in placed a merit based human resources management system that supports the 2,500 lecturers/researchers and 2,000 employees whom are currently employed at the university. In the academic space, we will strive to improve the learning environment by promoting excellence among our teaching staff and some 35,000 students enrolled here. This requires creating an academic atmosphere that encourages and enables both academicians and students to produce high quality work and enhance their academic productivity through increased in the number of research and publications, innovation, and patents. We also hope to have more alumni who can compete globally.

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Q2.

HASANUDDIN UNIVERSITY IS NOT VERY WELL KNOWN OUTSIDE INDONESIA. PLEASE SHARE WITH OUR GLOBAL READERSHIP ABOUT THE UNIVERSITY. Universitas Hasanuddin was established in 1956 and is located in the city of Makassar, Sulawesi Island, Eastern Indonesia; which is rich in flora and fauna. This area is surrounded by islands and seas, and is the source of maritime products for Indonesia and the world. Over more than sixty years since its establishment, the university has developed a range of faculties and degree programmes, including centers of excellence. Among our leading centres of excellence are the Marine Station, which is a center for marine research and cultivation on a small island near the city of Makassar; the Tropical Diseases Research Center, which is managed by the Medical Team and has published researches and discovered vaccines; and the Center of Microfinance, which is the center of research and training for micro and small enterprises. Innovations in the field of engineering are generated from the Jusuf Kalla Center of Technology. Through this centre, the university has developed specially designed ships for seaweed fishermen as well as flat plate steel vessels.

THE SUCCESS OF THE CONFERENCE AND THE OVERWHELMED INTEREST FOR SHARI'A-BASED ECONOMIC AND FINANCIAL SERVICES HAS ENCOURAGED US TO CONDUCT MORE RESEARCHES FOR THE SCIENTIFIC DEVELOPMENT OF ISLAMIC ECONOMICS AND FINANCE.

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Through our reliable researchers and modern research facilities, we have established a number of international partnerships with numerous institutions worldwide. We also have a Teaching Forest, covering an area of 1,300 hectare where its rich heritage of flora and fauna makes it an ideal environment for research. The Training Forest is equipped with facilities and accommodation for researchers. The university currently offers some 140 programmes; which include undergraduate, postgraduate and professional programme where some of them are internationally accredited.

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Our programmes are offered through 15 faculties and one postgraduate school with teaching being facilitated by experienced lecturers. 80% of our teaching faculties have doctorate degrees and 300 of them are professors. In terms of exchange student programme, our summer programmes have received growing interest from foreign students who are interested to learn the national language as well as the maritime culture.

Q3.

HASANUDDIN UNIVERSITY HOSTED AN INTERNATIONAL CONFERENCE ON ISLAMIC ECONOMICS AND FINANCE IN JULY THIS YEAR. DID THE CONFERENCE ACHIEVED THE EXPECTED OUTCOME YOU DESIRED? The International Conference on Islamic Economic and Finance, which was hosted by Universitas Hasanuddin in collaboration with IRTI-IDB, was a successful scientific meeting. I was excited to see how the delegates were as fascinated as I was about the potentials of a Shari’a-based economy. The success of the conference and the overwhelmed interest for Shari’abased economic and financial services has encouraged us to conduct more researches for the scientific development of Islamic economics and finance. This ultimately can be the basis for innovative forms of economic and financial services, especially for Indonesia where 90% of the population are Muslims. On another note, the development of digital-based information technology have the potential to further spur the outreach of Islamic economic and financial services in Indonesia.

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MY ASPIRATION IS THAT IN FUTURE, THE ALUMNI OF OUR ISLAMIC ECONOMICS PROGRAMME WILL BE THE DRIVING FORCE FOR THE DEVELOPMENT OF ISLAMIC ECONOMICS AND FINANCE IN INDONESIA.

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Q4.

YOUR UNIVERSITY IS IN THE PROCESS OF LAUNCHING A DEGREE PROGRAMME IN ISLAMIC ECONOMICS, BANKING AND FINANCE. CAN YOU PLEASE SHARE SOME DETAILS WITH US? Universitas Hasanuddin will soon offer a Bachelor and Master of Sharia Economics Study Programme in the Faculty of Economics and Business. There is very high interest amongst Indonesians to study in this field. Moreover, the Centre of Micro Finance at the university will jointly carry out education, training, and research in the field of Islamic economics. My aspiration is that in future, the alumni of our Islamic economics programme will be the driving force for the development of Islamic economics and finance in Indonesia. I am delighted to share that the Islamic Economics Study Programme at the Universitas Hasanuddin will be supported by IRTI-IDB.

Q5.

LET US REVERT TO A PERSONAL QUESTION. WHAT IS YOUR FAVOURITE HOBBY AND WHAT DO YOU ENJOY THE MOST?

I enjoy reading and exercising. Reading broadens the mind, stimulates thinking and improves your knowledge. I love books and I read all kinds of books from scientific to novels. I am also into sports especially jogging, yoga, and swimming. I try my best whenever possible to start my morning with either jogging or yoga. Exercising to me is not just about being healthy, it is also an expression of gratitude to Allah swt for giving me good health.

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Q6.

Q7.

WHAT IS A TYPICAL DAY OF PROF. DR. DWIA TINA PULUBUHU? HOW DOES YOUR DAY STARTS AND ENDS? WHAT IS IN BETWEEN?

HASANUDDIN UNIVERSITY HOSTED AN INTERNATIONAL CONFERENCE ON ISLAMIC ECONOMICS AND FINANCE IN JULY THIS YEAR. DID THE CONFERENCE ACHIEVED THE EXPECTED OUTCOME YOU DESIRED?

My typical day as the Rector/President of Universitas Hasanuddin starts at 9 am in the office and I normally reach home by 7 pm. Despite by busy schedule, I try my best to have dinner with my husband and my children, and spend quality time with them. Shared family time at the dinner table is important as it helps to strengthen relationship between family members as well as promotes healthy communication and the spirit of togetherness.

There is huge potential for Islamic economics, banking and finance in Indonesia given the large Muslim population in the country. There is already a strong and growing demand for Islamic financial products and services. I believe that over time increased awareness and public education would drive up the demand further and the sector would eventually become the key driver of Indonesia’s economic growth.

When on holidays, my husband and I would visit our grandchildren who are living in different cities. One of my grandchildren lives in Amsterdam together with his parents, as his mother (my daughter) is currently pursuing her doctoral study there.

Islamic banking and finance in Indonesia is increasingly gaining popularity. Over the years, we have seen increased number of the poor and destitute benefitting from the many CSR assistance received through zakat funds. Similarly, increasingly amount of zakat funds are now channelled for educational development.

Whenever I am on campus, I would take the opportunity to visit the university grounds and its infrastructure. Universitas Hasanudin has a huge campus that extends to an area of 220 hectares with numerous buildings and many facilities. Regular inspection and maintenance is essential to ensure proper functioning of existing infrastructure and facilities. As such, I make it a priority to carry out the inspections myself rather than just relying on reports given to me.

In Indonesia, micro and small enterprises are the backbone of the country’s economy. Nevertheless, limited access to finance remains one of the main obstacles to their growth. Historically, micro and small enterprises have struggled to gain reliable access to capital. Hence, providing significant potential for Islamic finance in the micro and SME sectors.

In addition to carrying out my duty as a Rector, I am still actively teaching at the Faculty of Social and Political Sciences where I am a Professor of Sociology in the field of conflict resolution. I am also actively involved in many associations. I was appointed as the chairman of the Forum of Indonesian Rectors, and am also the Chair of the Indonesian Sociology Association. My involvement in these associations and organizations often requires me to travel both domestically and abroad.

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I BELIEVE THAT ISLAMIC BANKING AND FINANCE WILL EMERGE AS A FORCE TO BE RECKONED WITH IN SHAPING THE FUTURE DEVELOPMENT OF GLOBAL FINANCE.

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Q8.

ISFIRE HAS COME TO KNOW THAT UNIVERSITAS HASANUDDIN IS IN THE PROCESS OF SETTING UP AN ISLAMIC CREDIT UNION. THIS IS A VERY UNUSUAL STEP BY A UNIVERSITY. HOW DID THE IDEA COME ABOUT? WHAT OBJECTIVES ARE YOU EXPECTED TO ACHIEVE FROM THIS LATEST INITIATIVE? Our campus currently provides services to micro and small enterprises through the Center of Micro Finance in collaboration with Bank Rakyat Indonesia or BRI, which is a state owned bank. The centre provides training, education, business mentoring as well as technical support to ensure product standardisation, enhanced product quality as well as product marketing. The centre also provides micro and small enterprises access to micro credit and micro finance services from Islamic banks. The university also have plans to establish a Shari’abased Rural Bank (BPR), which would ensure that the community is served directly and comprehensively as part of the university’s social responsibility initiatives.

Q9.

HOW CAN THE ROLE OF WOMEN BE IMPROVED IN ISLAMIC BANKING AND FINANCE? AS RECTOR OF HASANUDDIN UNIVERSITY WHAT DO YOU PROPOSE TO DEVELOP WOMEN INTO EFFECTIVE LEADERS FOR ISLAMIC BANKING AND FINANCE? In Asian societies, women play a pivotal role as financial manager in their household. Similarly, women in Indonesia hold a great deal of economic decisionmaking power in the family, where they have traditionally taken a lead role in financial management of the household.

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Yet women often lack access to formal methods for managing cash flows. This makes women and their families vulnerable to economic shocks The development of Islamic economics and finance must take into account the economic role of women in the society. Hence, promotion of financial literacy through targeted financial education programmes, would enable women to develop skills in household financial management that could potentially lead to empowerment and subsequently, better household financial decisions. Education is an essential means of empowering women with the knowledge, skills and self-confidence necessary to fully participate in the development process. In my capacity as the Rector of Universitas Hasanuddin, I see my role not just in developing the next generation of female leaders for the Islamic finance industry but also as a role model and mentor to all young graduates.

Q10.

WHAT IS YOUR MESSAGE FOR THE YOUTH WHO ASPIRE TO PURSUE A CAREER IN ISLAMIC BANKING AND FINANCE?

I believe that Islamic banking and finance will emerge as a force to be reckoned with in shaping the future development of global finance. So there are many opportunities for a career in this sector, for both men and women. For the millennial generation who grew up in the era of digital technology and the Fourth Industrial Revolution (Industry 4.0), a career in Islamic economic and finance will be a strategic choice.

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POINT OF VIEW

BAD LEADERS, GOOD LESSONS

HESSA AL GHURAIR

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believe you can learn from good leadership as often as you can learn from bad ones. Many attribute cookie-cutter traits to good leadership such as dominance, social boldness, self-assurance, or tough-mindedness. However, extroverted executives are not always the best leaders and throwing elbows doesn’t always equate to professional progression. Leadership styles aside, we are used to taking our learning cues from the “greats” but there is much to be learnt from the bad bosses. Knowing what not to do is just as valuable in the corporate arena and presents numerous opportunities for you to hone your own leadership skills. Here are the top five tell tale signs of bad leadership and what we can learn from them.

KNOW-IT-ALL

Weak leaders think they have all the answers. Have you ever been in a conversation and you can feel the other person is just waiting for their turn to speak? A know-it-all will position their expertise as the one-source of truth. They often don’t ask for feedback, second opinions or help. They have big egos and are usually defensive if their work is challenged by others. More importantly, they worry more about being right rather than achieving the right outcomes. Good leaders know how to listen and take feedback. They create teams with diverse skill sets and strengths and they understand that you can never know everything - so personal learning should never stop. PROTECTING THE STATUS QUO

Leaders who follow a “don’t rock the boat” approach have no place in modern day business. This type of leadership will only lead to static output, missed opportunities and disengaged teams.

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They are unable to make the tough calls, they shy away from constructive confrontation and they smother out new growth or innovation. By protecting the status quo they become blind to threatening situations or dismissive of new solutions. There is no greater kiss-of-death than narrow-mindedness. Great leaders encourage diversity of thought and they take healthy risks. They are tuned into the changing dynamics in markets and industries and are open to transform. More importantly, they manage “above and beyond” rather than routine. BROKEN COMPASS When you see a team running off in different directions or have murky perspectives on strategy, you know you have a boss that does not provide adequate direction. Generally, this is a red flag of a bad boss who is an ineffective communicator and has poor people management skills.

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HESSA AL GHURAIR IS CHIEF HUMAN RESOURCES OFFICER AT COMMERCIAL BANK INTERNATIONAL AND HEAD OF CORPORATE SOCIAL RESPONSIBILITY. SHE HAS 15 YEARS OF EXPERIENCE IN THE BANKING INDUSTRY IN SENIOR HR ROLES. IN 2016, SHE WAS AWARDED “INSPIRATIONAL FEMALE LEADER” AT THE 2016 IBX AWARDS.

Good leaders provide a clear vision of the company and explanation of how each role contributes to strategic priorities. Teams are more motivated when they know their job plays a significant role in the overarching priorities of the business. FEAR OF SPEAKING UP A sure sign of a terrible leader is someone who manages by fear because they create teams that never speak-up. They motivate by force and they threaten, embarrass or intimidate. Managers who follow a public execution style of discipline, who have a zero tolerance policy for mistakes will smother out any creativity, knowledge sharing or learning on a team. Good leaders manage by motivation and enthusiasm. They look at mistakes or failures as learning opportunities and they provide constructive, not destructive, criticism. PERFECTING BUREAUCRACY We have all met this type of leader at one point in our career. They are quick to say no. They burden situations with endless red tape or layers of approvals. They use regulation to push away a problem. The generally serve as a bottleneck or gatekeeper. They lead from the side lines and rarely get their hands dirty on their behalf. More importantly, they hesitate. Great leaders empower teams, build cross-functional teams and suggest solutions rather than blockers.

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POINT OF VIEW MANAGERS WHO FOLLOW A PUBLIC EXECUTION STYLE OF DISCIPLINE, WHO HAVE A ZERO TOLERANCE POLICY FOR MISTAKES WILL SMOTHER OUT ANY CREATIVITY,KNOWLEDGE SHARING OR LEARNING ON A TEAM. GOOD LEADERS MANAGE BY MOTIVATION AND ENTHUSIASM. THEY LOOK AT MISTAKES OR FAILURES AS LEARNING OPPORTUNITIES AND THEY PROVIDE CONSTRUCTIVE, NOT DESTRUCTIVE, CRITICISM.

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WAYS TO STAY RELEVANT IN YOUR JOB MUJASSUM BUTT

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I’m going to keep it real and simple……here is my 3 ways in which you can stay relevant. Try not to be too shocked by some of the points I’m about to raise. This article is not for the faint-hearted! 1. MY FIRST SHOCKER FOR THE SYSTEM: Do not enhance your degree or take on postgraduate degrees or some other specialised degree Though it might be a bit hard to swallow this concept, believe it or not you have already received the golden pass that you can follow a system and get grades. So well done. Most universities today teach you subjects that are already out of date in this information age. So thinking your company will promote you because you have a second degree or that you’ll network better due to the status of your university is slightly naïve to say the least. Instead start networking. Use social media and approach with direct face to face contact. The ‘information age’ is upon you. You can learn and become anything with just a little interest, homework and dedication. Prove that you can think on your feet and solve scenarios presented to you, have a diverse researched and considered view of the world. 2. DO NOT FOLLOW THE “PROVEN STRATEGY” TO SUCCESS FROM PEOPLE WITHIN YOUR INDUSTRY Venture out of your known function, sector or industry to learn new ways of doing business, new ways of looking at solutions, new ways of management. Feel free to look at what people are doing successfully in your industry but find innovation around these ideas. For example, our Unicorn ‘Souq/Amazon’ could have been content that distributing product is not profitable with all the big players in the UAE market but today they do. In hindsight everything is possible. But when Souq started they had to consider if approximately 8 major family groups provide nearly 80% of all products consumed than why even bother as clearly all these groups must have deeper pockets and faster route to market with probably better strategists directing their shareholders.

3. DO NOT THINK IN A LINEAR OR BOX FASHION. PERIOD! If linear is your company preferred set ethos then by all means comply. But if you would like to see yourself progress then you should seek to continue to think creatively mostly after work hours. Be prepared for moving up in the ‘food chain’. Job positions switch and change all the time. The boss you have today may not be the boss you have tomorrow. So, build your character and rapport so those around you can respect your adaptability. The term “Past results predict the future” has become a cliché. There are too many cases around us proving this theory wrong. For example, in 1980, McKinsey was commissioned by AT&T to forecast cell phone penetration in the US by the year 2000. McKinsey got it all wrong when they told AT&T that cell phones would be a niche market in the year 2000 with only 900,000 subscribers and hence, concluded that there was no market for mobile phones. The firm’s estimations were off by 108 million. Their prediction persuaded AT&T to pull out of the mobile phone market, a decision which ended up costing AT&T billions of dollars. There are so many unpredictable factors that will consistently impact our markets from AI to political, and other economic factors. But one fact remains true… AI does not have the ability to replace human creativity and empathy. So seek knowledge, build networks, and argue your found ideas within your network taking feedback to continually innovate until they make sense. Stop hiding your views as innovation of anything will never come from sharing your concept with yourself. At some point you must test the idea. If you’re linear then you have already lost your job. It’s just a matter of time before this creates an even more depressing scenario where you become too dependent on the company when all you had to do was take accountability.

DO NOT ENHANCE YOUR DEGREE OR TAKE ON POSTGRADUATE DEGREES OR SOME OTHER SPECIALISED DEGREE

MUJASSUM BUTT IS THE CO-FOUNDER, ADVISORY GROWTH & STRATEGY AT BLOCKCHAIN TECHNOLOGY CAPITAL.

That faith in yourself is all you need.

Analyse strategies, people, industries, products, governments whatever you like and see how they may apply to your area. Especially if people say it doesn’t apply to your industry.

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IFLP 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


PERSPECTIVES

MAKING LIFE

DECISIONS:

HOW TO DECIDE BETWEEN TWO GREAT OPPORTUNITIES? Decisions, decisions, decisions. We’ve all been there . . . some of us hundreds of times over! We have at one point in our lives had to choose between two different courses of action, and often agonised over them even if both would probably lead to good outcomes. How do you decide when you are presented with two great opportunities? How do you make tough decisions that will completely change your life? Our decisions shape our lives. The connection among our decisions lies not in what we decide, but in how we decide. ISFIRE asked eight industry leaders and professionals the following questions:

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Q:

WHEN FACED WITH 2 GREAT

OPPORTUNITIES, HOW DO YOU DECIDE WHICH ONE TO GO? “With an opportunistic entrepreneurial mind, I shall never wish to choose, as both opportunities, if they are actually great opportunities, must not be left unexplored and unexploited. I believe the choice is always between working hard and working harder. I would choose the latter to aim at benefiting from both opportunities. Obviously, the resource constraint at times is binding and one may have to forego some opportunities. However, if the two opportunities are good enough to mobilise more resources, this option must be explored. The end result could very well be success in one and failure in the other, but then we are faced with uncertainty of success even if only one was chosen. My philosophy has always been to exploit all the good opportunities. Nevertheless, it is important to assess the opportunities thoroughly before pursuing them. It is possible that two seemingly great opportunities may turn out to be false alarms, once thoroughly investigated. If there is huge difference of evaluation between the two, then obviously the one with greater degree of success must be chosen. Two factors are important in evaluation: inherent strength of the opportunity; and my ability to exploit it. If an opportunity is seriously good but I know that I, or my team, will not be able to deliver, it is not a great opportunity for me. It is not for me but rather for someone else.” Dr Humayon Dar, Director General & CEO, IRTI, Islamic Development Bank

“When we have to compare between two opportunities, we usually listen to our gut and think fast but not slow. I follow a very simple concept when I have to compare between two opportunities, which is a risk return trade-off. The return that I look for may not necessarily be in the form of a 100% financial return; but it could be in the form of ethical, social, and value added return. And I always try to think slow to remove any biased resulted from emotions, thinking fast and their consequences.” Dr. Mahmoud Al-Homsi, Research Economist at General Council for Islamic Banks and Financial Institutions (CIBAFI)

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“Irrespective of circumstances always ask yourself when deliberating the financial and career upside and the downside of each choices whether is it really an opportunity or just an attractive disaster wrapped up as a decoy to make it look like something that you cannot refuse. Most importantly, ask yourself whether these opportunities resonate with your personal core values as a person coexisting with fellow beings to improve their lives. Don’t just do things right but constantly do the right things even better!” Dato Wan Mohd Fadzmi, Independent Director, Sumitomo Mitsui Banking Corporation

“This is what you have been working so hard for. Whether it was those nights in prayer, the endless grind, the focus on the straight path, this is what you have been blessed with. You think the choice is difficult, but in reality you know what you will decide, you know which path to take, and you can feel it deep down in the bottom of your gut. In the end, there is no wrong choice to make, it has already been written. Whatever you decide, be firm and full of conviction and do not have any regrets. No mistakes, just opportunities to learn, no failures just lessons on how to succeed. Don’t look back, you’re not going that way!” Abed Hakim, Assistant Vice President-Head of Social Media, Dubai Islamic Bank

“I vividly remember when I had to make the choice of either moving to a new position in a local financial institution or to stay put in a foreign financial institution which I was very comfortable and was treated well. The considerations were very much different as monetary benefit was not the main factor influencing my decision. To be honest, the two main factors that had influenced my decision to move were the ability to contribute more to the organization and faster opportunity to move up the corporate ladder. Since I will be based in the Head Office of the local institution rather than at the regional office of the foreign institution, I opted for the local financial institution. It is important to get recognition from top management or to be noticed by them if you want to move up fast. Decision making is never static as the considerations changes at different stage of your working life. I guess for me, my decisions are quite simple - set your career goals early and work towards it, and of course, your heart will move in tandem with your goals.” Ferdaus Toh Abdullah, Deputy Chief Executive, Affin Islamic Bank

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“ONE, evaluate your choices. Know what you want and how the opportunities will bring you closer to what you want in life. TWO, Consult. Ask people around you - you’ll be surprised how enlightening their advices can be. THIRD, Decide. Sometimes, it doesn’t matter which side of the fence you end up with. Once you have decided, work with it and don’t look back. FINALLY, when you have taken a decision, put your trust in Allah swt. Certainly, Allah swt loves those who put their trust (in Him) (al-Imran, 109). Personal decisions are always the hardest. Some we regret, some we’re proud of. Both are lessons to us as guidance to make better decisions in future.” Marina Mardi, Assistant Vice President Finance

“The one that will bring the greatest benefit to my key stakeholder. Start with why your business exist and whom do you serve. Most of the time, it is your customers. If that great opportunity, would resolve in your customer being happier, satisfied and amazed by your service or product, that is the best opportunity. Many a time, we start to seek out in maximizing shareholders value and identify an opportunity that may be incorrect. If that great opportunity leaves your customer better off than before, this will eventually lead to better enterprise value.” Abdul Aleem Habeeb, Manager, Asia Region at International Islamic Trade Finance Corporation

“Like yin and yang, opportunities generate duality of good possibilities and adverse exploitations. This awareness, hand-in-hand, with upright life guiding principles will be the pathway for my decision to select THE opportunity. In addition, one needs to be passionate over the subject matters and not merely follow the latest craze or fad. Passion is highly inspirational and necessary. It encourages sustainable contribution and continuous thriving interest that will drive over and against challenges to attain the necessary quantitative and qualitative objectives and goals.” Belinda Gan, Executive Director, Itramas Corporation

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LESSONS ENTREPRENEURS & DREAM CHASERS CAN LEARN FROM

“THE EGYPTIAN MESSI”

MO SALAH!

ABD ELMOHAIMEN MANSI

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We all know who Mo Salah is, but in this article, I would like to highlight some takeaways we can learn from this iconic footballer. Most of the times when I want to inspire myself, I look at successful role models who started from nothing to creating a great impact. And I don’t mean great wealth. Some people have created wealth with very little impact and others have impacted the world on their way to creating wealth. Our great example in this article is Mohamed Salah, the man who used to spend 9 hours on 10 buses a day to continue chasing his dreams in Egypt, starting from nothing to now worth over £140 million, yet remain very humble. Let us look at some of his quotes to inspire you on your journey. Here he is, in his own words and what we can learn from him:

1. BEING SUPER DEDICATED AND FOCUS “For five days a week, every week for three or four years, I would make this journey. I was leaving at 9 am in the morning, then I would arrive at the training ground at 2 pm or 2.30 pm. Training was always at 3.30 pm or 4 pm. I would finish training at say 6 pm, then I’d go home and arrive at 10 pm or 10.30 pm. Then it was eat, sleep and then the day after the same thing.” he said. I am not saying that life is about work, work and work but sometimes it is just as important to value rejuvenation and relaxation during the grind to success. But the key take away here is being super dedicated and focused on your goal and overcome challenges. 2. USING STRUGGLE AS FUEL TO BUILD A GREAT NAME “As I said, it was a difficult time, but I was young and I wanted to be a footballer. I wanted to be a big name. I wanted to be something special.” he said Coming from a humble background, Mo Salah’s success was rooted in overcoming challenges he has in his life and the struggle to be better. He used this struggle to build a dream for himself and become what he knew how to be. Instead of focusing and complaining on the difficulty, he preferred to focus on what could be instead. 3. BEING PERSISTENT EVEN IF THINGS ARE NOT YET CLEAR “I cannot promise you that it was clear to me what I would become and I was like, ‘I will be something special’. No, it was not like this. I was coming from nothing, a 14 year old kid with a dream. I didn’t know it would happen, I just wanted it to happen so badly.” he said. Some people say football build bridges. I would say business build bridges too and therefore it’s key to be true to yourself, remember who you are, where you came from. Your true identity is what creates genuine love.

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“ALWAYS FEEL YOUR HEART. BE LOYAL TO YOURSELF. ALWAYS BELIEVE IN YOUR ABILITY AND IN YOUR GOALS. THIS IS THE ONLY WAY YOU WILL BE ABLE TO REACH THEM. DURING THIS JOURNEY, ALWAYS RESPECT YOUR MATES AND YOUR OPPONENTS. RESPECT OTHER PEOPLE - THEIR ORIGIN, RELIGION, AND NATIONALITY. AND FINALLY, NEVER STOP IMPROVING YOURSELF.”

4. GIVE BACK TO THE COMMUNITY AND SOCIETY Despite money and fame, He kept himself grounded and humble, creating anti-drugs campaign, donating over $600,000 to hospitals in Egypt, sponsoring his entire neighbourhood’s weddings and above all he always tries not to let the public know. He has become a role model for millions of Liverpool fans, Muslims, non-Muslims and even inspired others to chant “I will be Muslim too”. 5. RESPECT YOUR COMPETITION AND BE HUMBLE “Always feel your heart. Be loyal to yourself. Always believe in your ability and in your goals. This is the only way you will be able to reach them. During this journey, always respect your mates and your opponents. Respect other people - their origin, religion, and nationality. And finally, never stop improving yourself.” 6. SOMETIMES IT’S NOT WISE TO COMMIT TO ANY OFFER Responding to Real Madrid transfer links, Mo Salah insisted that his entire focus will be on Liverpool until the end of the season, saying “If I have to say anything, I’ll say I am happy at Liverpool”. While it’s a dream for any footballer to play for a club such as Real Madrid yet Salah prefers to focus and continue to create an impact to his loyal loving fans.

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“WHEN SOMEONE TELLS YOU YOU’RE FAST, MAKE SURE, THE NEXT DAY, YOU SHOW THEM YOU CAN RUN FASTER.”

ABD ELMOHAIMEN MANSI IS THE FOUNDER AND CEO OF ELMANGOS, A VENTURE STUDIO SPECIALISED IN IDENTIFYING TECH-RELATED OPPORTUNITIES AND BUILDING IMPACTFUL BUSINESSES IN EMERGING ECONOMIES.

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In business, you may sometimes get the opportunity to work with big companies or clients, forgetting that small clients were once loyal, supporting and contributing to your growth. It is important to know that sometimes you should politely reject an offer to focus and continue what you started.

7. HAVE FAITH IN YOURSELF AND PROVE THEM WRONG “When someone tells you you’re fast, make sure, the next day, you show them you can run faster.” No matter what you do with your life, whether you are getting married or building your business, go to college or drop out of college, growing your talent or prefer to focus on your career, some people will support you while others will continue to criticize you. You either give them your ears or have a “Do Not Disturb” tagline and continue doing what you love the most. You must remain confident at all times if you know where you are going.

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8. YOU CAN’T DO IT WITHOUT FAITH He is often seen reciting Quran, making Duaa and prostrating after scoring goals. As an entrepreneur knowing that your payslip at the end of the month does not exist anymore, makes you realise that having faith in your creator (Allah) is the only source of rizq (income). However, this requires so much dedication and work to earn it, but when it comes, be always thankful and grateful. What we learn from Mo Salah’s story is that working hard towards a goal, believing in yourself and being humble can create some extraordinary results. A young, unknown man from Egypt decided he has something to offer to the world, he wanted to be something great and never stopped short from believing in his vision. This is a great example of how persistence, focus, discipline, hard work and faith can lead you to. As Jack Ma said, “Being an entrepreneur is like riding a horse. In the beginning, it’s difficult to control the horse but as you are able to ride the horse, it keeps moving faster and faster that you can’t enjoy it as you are afraid that you may fall off the horse.”

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2018 THE LEADING ISLAMIC FINANCE PUBLICATION SINCE 2010

THE MOST AUTHENTIC SOURCE OF INTELLIGENCE IN ISLAMIC BANKING AND FINANCE With nine most authentic and widely respected annual reports, the GIFR has gained recognition and accolade from the Islamic financial services industry, including leading Islamic financial institutions and policymaking bodies. The Global Islamic Finance Report (GIFR) 2018 carries the theme “Global Islamic Economy and Islamic Finance”. This theme was chosen to highlight the strategic sectors for future growth and development of the global Islamic economy.

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CONTENTS: • Overview of the Global Islamic Financial Services Industry • Islamic Finance Country Index – IFCI 2018 • Islamic Finance in a Global Economic Context • State of the Global Halal Industry: Trends & Growth Opportunities • Waqf: An Important Islamic Socio Economic Institution • Role of Waqf in Socio & Economic Development • Humanitarian & Development Finance Through Islamic Philanthropy: The Role of Zakat • The Rise of Islamic Fintech • Responding to a World in Need: How the Islamic Economy can Contribute to Humanitarian Aid • The Future Drivers of Islamic Finance • The Role of Islamic Microfinance in Social & Economic Development

http://gifr.net/

To get a copy of GIFR 2018 please contact:

kshehzad@edbizconsulting.com


I ISFIRE REVIEW

SL AMIC FINANCE IN JERSEY

CURRENT AND FUTURE TRENDS TREVOR NORMAN, DIRECTOR, VG

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Financial institutions in Jersey have been providing services to Muslim clients, and in particular those resident in the GCC, for many years. Unlike some other western countries, Jersey has not had to make any changes to its laws to permit Islamic financial transactions or investment, thereby ensuring that conventional and Islamic financial products are governed, regulated and administered on the same basis. Elsewhere such changes are often driven by ensuring the equality of treatment of financial contracts drafted under Shari’a law (where interest, whether received or paid, is forbidden) which do not readily fit within the countries’ tax laws. Jersey’s position as a tax-neutral jurisdiction means that no such amendments are necessary, in addition our other corporate laws and regulations are such that in over twenty years of structuring Shari’a-compliant vehicles, I have yet to encounter a problem with a structure or contract that could not be accommodated within Jersey’s laws. 2017 – A SNAPSHOT Historically, the two primary areas of Shari’a-compliant services offered by Jersey are: a) Private wealth management services such as the establishment and administration of trusts, foundations and private companies for individuals and family groups and

UNLIKE SOME OTHER WESTERN COUNTRIES, JERSEY HAS NOT HAD TO MAKE ANY CHANGES TO ITS LAWS TO PERMIT ISLAMIC FINANCIAL TRANSACTIONS OR INVESTMENT, THEREBY ENSURING THAT CONVENTIONAL AND ISLAMIC FINANCIAL PRODUCTS ARE GOVERNED, REGULATED AND ADMINISTERED ON THE SAME BASIS.

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b) The establishment and administration of structured finance vehicles, such as collective investment funds, and other special purpose vehicles for the investment of capital on behalf of Islamic Financial Institutions (IFIs), or small groups of family and friends investors which are often referred to as ‘club deals’. Whilst 2016 finished with a flurry of activity, particularly in investment in UK commercial real estate by both individuals and IFIs, it was our experience that 2017 started very slowly with minimal activity across all sectors as individuals and institutions were cautious as to the possible effects of the Brexit decision in the UK, with a knock-on effect over investment sentiment for European assets. The Trump effect also led to many investors from the GCC being very cautious and delaying plans for investing into assets located in the US. It’s not possible to identify a trigger event or timing when activity picked up again, but we saw a steady build up in activity in the period preceding Ramadan in late May, and then an unusual level of activity during Ramadan itself which is traditionally a very quiet period with regional businesses working shorter hours. Following the annual (lengthy) summer holidays we were inundated with enquiries and transactions from across the region, and beyond, and it seemed the UK real estate had lost none of its appeal.

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That was until the UK Chancellor dropped his bombshell in his autumn budget with a proposal that from April 2019 capital profits on UK real estate will be subject to Capital Gains Tax (CGT), and whilst, at the time of writing, this is still subject to ‘consultation’, this development has been talked about for some years and is almost certainly going to be introduced. Many experts have pointed out that such profits are already subject to taxation in other jurisdictions across Europe, and, over the longer term, rental income in the UK is likely to increase to mitigate the effect of the additional tax on individual properties. As such the overall investment returns from UK real estate should prove to continue to be attractive to the overseas investors on which the UK is highly dependent. Meanwhile, we have seen an increase in interest by regional investors in European real estate, utilising Jersey corporate structures rather than European corporate vehicles. 2018 AND BEYOND There are no indications to suggest real estate will not continue to be the predominant asset class for Muslim investors from the GCC and elsewhere but increasingly the availability of real estate assets where the activities of the tenants are not haram, i.e. prohibited in accordance with the principles of Shariah law (e.g. non-Islamic banks or financial institutions), are becoming more difficult to find.

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Shari’a Scholars will generally approve an element of purification (or cleansing) of rental flows arising from haram activities of the tenants, but these can be difficult to ascertain with any real certainty and naturally have an adverse effect on the ultimate returns paid to the investors. Along with this pressure on the availability of appropriate real estate assets, many IFI’s and their clients are looking to diversify their portfolio into new asset classes, and it is for these asset classes that we anticipate Jersey entities playing an active role. GREEN SUKUK The worldwide trend towards socially responsible investment (SRI) and increasing environmental awareness has seen a marked rise in the appetite for green bonds and within the Islamic finance sector this is reflected in the potential for Green Sukuk which speak to the underlying purposes of the sector in bringing good and avoiding harmful acts. MALAYSIA HAS BEEN THE MARKET LEADER IN THE ISSUANCE OF GREEN SUKUK, WITH GUIDELINES ISSUED IN 2014 FOR SRI.

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Malaysia has been the market leader in the issuance of Green Sukuk, with guidelines issued in 2014 for SRI. These set out that the proceeds of SRI Sukuk can be used to preserve the environment and natural resources, conserve the use of energy, promote the use of renewable energy and reduce greenhouse gas emission.

Jersey has a long history in facilitating Sukuk structures, notably the Caravan Sukuk structure which won an award as the Innovative Product of the Year as long ago as 2004, and we are seeing renewed interest in establishing Sukuk structures through Jersey vehicles, particularly in the energy from waste and renewables sectors. AFRICA Many African countries have a large Muslim population, but conversely have only a small and relatively informal Islamic finance sector and therefore have the potential to grow in scale and sophistication. But equally economic growth and financial participation will be critical which gives investment opportunities for both residents and foreign IFI’s and individuals alike. Islamic financial solutions to support both inward and outward investment will be a key part of realising the investment opportunities in Africa, and Jersey is well placed to play its part in assisting with these solutions. GOLD The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), which sets Shariah standards followed in whole or in part by IFI’s around the world, approved a new standard in December 2016 setting out the Shariah parameters for trading in gold, the approved types and forms of gold, and the Shariah rulings for gold-based financial products.

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MANY AFRICAN COUNTRIES HAVE A LARGE MUSLIM POPULATION, BUT CONVERSELY HAVE ONLY A SMALL AND RELATIVELY INFORMAL ISLAMIC FINANCE SECTOR AND THEREFORE HAVE THE POTENTIAL TO GROW IN SCALE AND SOPHISTICATION.

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Prior to this there had been a degree of uncertainty as to permissibility of gold as an investment product as it had been closely associated with money which cannot be traded or held as an investment. THE GOVERNMENT OF JERSEY HAS IDENTIFIED FINTECH AS A POTENTIAL NEW INDUSTRY SECTOR FOR THE ISLAND AND THE FIRST REGULATED BITCOIN FUND WAS GIVEN REGULATORY APPROVAL IN 2014.

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However, the anticipated flurry of new gold based, Shari’a-compliant investment structures has not materialised which may be a reflection of the volatility of gold bullion in 2017, or slow acceptance of investors of the new Standard (or both); but this is an area which deserves to be monitored in the future. FINTECH And finally Fintech, or for the purposes of this article, Islamic Fintech. The government of Jersey has identified Fintech as a potential new industry sector for the Island and the first regulated Bitcoin fund was given regulatory approval in 2014. But whilst the Scholars have yet to issue conclusive guidance on whether investing in bitcoin and other synthetic currencies is halal or haram, Fintech is a much wider topic and encompasses all technology that is used to give greater access to financial products for all investors. Equality of individuals is a fundamental precept of Islam, and Fintech will assist in achieving this in financial services, so whilst the exact role (or roles) of Jersey in delivering Islamic Fintech remain uncertain, you can be certain that Jersey will be playing a role in this sector in the near future. CONCLUSION As noted in my introduction, Muslims have been establishing structures in Jersey for several decades, either for private wealth purposes or the issuance of securities. The rationale for this is similar to that for any other group or nationality, but Jersey’s long-standing connections to the Middle East bring an additional benefit of experience and expertise in establishing these structures in a Shari’a-compliant context, both now and for the future.

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Promoting and Advocating Ethical Values Inherent in Islamic Finance Edbiz Consulting is a truly unique, international Islamic financial advisory firm, committed to engendering the value proposition that Islamic finance serves to offer in the global financial markets. Edbiz Consulting provides multiple services that balance the dual purpose of developing thought leadership in this niche industry and strengthening the Islamic finance capacity for businesses and banks. Our client base is diverse and includes financial institutions, governments, education providers, established businesses and entrepreneurs. We are proud of our international network that spans five continents and includes leading names within and beyond the industry. Our aim is simple: to push the Islamic finance industry forward through dedication, collaboration and innovative thinking.

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SHARI’A ANALYSIS

OF BITCOIN,

CRYPTOCURRENCY, AND BLOCKCHAIN

MUFTI MUHAMMAD ABU BAKAR

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D 1. Ziyaad Mahomed (2017). Crypto Mania. CIAWM INCEIF Bulletin, Vol.3.

2. Virtual currency schemes: a further analysis (2015). The European Central Bank

3. Pieters, G., & Vivanco, S. (2017). Financial regulations and price inconsistencies across Bitcoin markets. Information Economics and Policy.

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igital cash and payment through electronic money has gained popularity after the computer system is adopted by mainstream banking industry. However, this system relies on payment network, the infrastructure required to manage payments and network, the infrastructure required to manage payments and avoid multiple spending using the same funds has always been costly and managed through a centralized banking network. A central server, therefore, ensures that funds are spent only once. In this system, the people have to transact based on regulated and controlled precepts that may be used to manipulate the value of currencies and the wealth of individuals. It is argued that if individuals were able to transact freely between themselves through a peer to peer network, this would allow society itself to determine the value of their currency. This would require a database that is able to record individual transactions with levels of encryption that make it impossible to manipulate, amend or steal. This has given rise to blockchain technology that achieve all these goals and more provide a platform for legitimacy of an instrument that can be recorded and recognized as a digital medium of exchange or cryptocurrency.¹

WHAT IS CRYPTOCURRENCY?

BITCOIN

The word “crypto” refers to the encryption or cryptography that the instrument is built on and then added to a blockchain database. The “currency” here refers to the recognition as medium of exchange amongst its users. The European Central Bank explains virtual currency in its published document as "a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat money or currency, but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically".²

Bitcoin is a digital currency with no central issuing authority or physical form. More specifically, Bitcoin is a cryptocurrency that uses cryptography techniques to guide encryption protocols which identify ownership and verify transactions details. The Bitcoin encryption protocol was outlined by the entity Satoshi Nakamoto. Nakamoto designed Bitcoin to ultimately create 21 million bitcoins as rewards for solving mathematical algorithms (necessary to maintain the bitcoin ledger) in a process called mining. Once mined, every bitcoin—or fraction thereof—can be sold, used as payment for retail purchases, or kept as an investment to be traded later.

Examples of virtual currencies include cryptocurrencies such as Bitcoin, Litecoin, Stellar and so on, but also include non-cryptocurrencies like in-game credits for in massive multiplayer games such as World of Warcraft; advertiser issued credits; and various other digital stored value systems. The idea of digital monetary systems dates back to the early 1990s when several companies and programmemers tried their hand at creating money meant to be exchanged virtually. Many of these early currencies struggled to find their footing due to prohibitive regulation, insufficient technology, poor security features, lack of adoption, and a slew of other issues. The cryptocurrency segment of the digital currency universe was created in 2009 with the invention of Bitcoin.

Bitcoin is bought and sold on trading websites known as “exchanges,” each of which is independently operated and accessible 24/7 to a global clientele in much the same way as conventional foreign exchange trading and brokerage platforms.³ The following characteristics of bitcoin are explained by its advocates: 1. The decentralized nature of Bitcoins eliminates the prospect of government control or ownership. Further, only a finite amount of bitcoin (21 million) is available. Thus, no governing body or entity can artificially manipulate bitcoin value through an increase or decrease in currency production or other means. This leaves bitcoin value largely to the laws of natural supply and demand economics.

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2. The blockchain is a permanent public record of all confirmed transactions that occur in the system and an integral part of the Bitcoin ecosystem. The blockchain helps promote order and transparency while preventing counterfeiting. 3. Digital payments to individuals and merchants can occur at any time, are processed faster, and incur lower fees. This is due in large part to removing banks and other intermediaries from the transaction processing flow. 4. Although all Bitcoin transaction details are stored publicly, the identities of the users involved remain relatively anonymous. Bitcoin doesn’t offer the complete anonymity of cash, but is certainly a far more private experience than making online payments or transactions using debit or credit cards. BLOCKCHAIN The basis of the Bitcoin platform is a technology called blockchain. The blockchain turned out to be the golden goose of the Bitcoin platform. Blockchain is a new innovative technology that will change how financial institutions transact business in the financial services system. So here are five key points: 1. Distributed ledger technology is more than Bitcoin, and the words blockchain and distributed ledger apply to a broad set of related technologies. There are many use cases for these technologies completely apart from cryptocurrency.

This ledger contains every transaction ever processed, allowing a user’s computer to verify the validity of each transaction. The authenticity of each transaction is protected by digital signatures corresponding with the sending addresses, allowing all users to have full control over sending bitcoins from their own Bitcoin wallets. In addition, anyone can process transactions using the computing power of specialized hardware and earn a reward in bitcoins for this service. This is often called "mining". An address is like a bank account into which a user can receive, store, and send bitcoins. Instead of being physically secured in a vault, bitcoins are secured with public-key cryptography. Each bitcoin wallet has a private key, which the owner must keep secret. With this private key, the user can create any number of public keys which can be used to create public addresses where the user can receive money into that wallet. Anyone can send bitcoins to any address, but only the person with the private key can spend the bitcoins inside that wallet. While bitcoin addresses are public, it is not automatically possible to knows which address belongs to which person; in this way, Bitcoin addresses are pseudonymous.

4. John Best (2018). Breaking Digital Gridlock. Wiley & Sons.

2. A shared distributed ledger is a linked set of mirrored transaction records. For the accountants who are reading this, it is like double ledger entries on steroids. Imagine a ledger system that is simultaneously maintained by a thousand notaries for every transaction. 3. All transactions on a distributed ledger are independently verified by the participants on the network and then stored on in ledger individually. 4. The decentralized nature of these technologies offers the ability to remove the intermediaries and allows anyone to participate, so long as they follow the rules established by the protocols. An analogy can be found in the internet itself: initially, it was only a closed, private group of a few universities and government institutions; but the internet eventually became open and decentralized so that now, anyone can participate and benefit from using the internet.

block chain

0101o1 0101o1 0101o1

5. Removing the intermediaries will increase efficiency and security.4 HOW DOES BITCOIN WORK? From a user perspective, bitcoin is nothing more than a mobile app or computer programme that provides a personal bitcoin wallet and allows a user to send and receive bitcoins with them. Behind the scenes, the bitcoin network shares a public ledger called the "blockchain".

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IN SHARI’A, THE FUNDAMENTAL REQUIREMENT FOR A COUNTER VALUE OR CONSIDERATION IS THAT IT HAS STATUS AS MAL, MEANING PROPERTY.

5. See for more details: Franco, P. (2014). Understanding bitcoin. Wiley & Sons., Chuen, D. L. K. (2015). Handbook of digital currency: Bitcoin, innovation, financial instruments, and big data. Academic Press.

The sender of bitcoin broadcasts the transaction details to other members of the network. Other members in the network verify the published transaction details, and if the transaction appears valid, the transaction is incorporated into the blockchain. As an example transaction, if you want to buy cupcakes from Cups and Cakes Bakery in San Francisco, then you need the public address of their wallet. After entering the amount and the destination address in your wallet software, your wallet will broadcast the transaction to the network. This transaction is published on the peer-to-peer bitcoin network where it is validated with various checks - such as if your wallet has sufficient balance - and it propagates to all of the other members of the network.

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The transaction is eventually received by a miner, who incorporates the transaction into a block. This block is then flooded into the network and is incorporated into the global blockchain. The bitcoins now belong to Cups and Cakes Bakery’s wallet identified by the address you sent the bitcoins to.5 ISLAMIC LEGAL CRITERION FOR PROPERTY (MAL) In Shari’a, the fundamental requirement for a counter value or consideration is that it has status as mal, meaning property. Therefore, before discussing the status of cryptocurrencies in Shari’a, it is important to define the concept of mal in the Sharia. There are three sources in Shari’a used to understand the origin and definition of Islamic terminologies.

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First and foremost source is revelation in the form of Quranic text or the Hadith (sayings) of the Prophet Muhammad (peace be upon him). For instance, the meanings of salah (prayer), zakat (obligatory giving to charity), marriage, and divorce, etc. are explained by revelation in both the Quran and Hadith. The second source is to know the required meaning of Shari’a is the Arabic language itself, which is the language of the Quran and the Sunnah. For instance, Allah (swt) has given the ruling to wash your face, hands and feet in ablution (wudhu). Using an Arabic dictionary to learn the meaning of the Arabic words used in these texts, one understands the limits and areas of these parts of the body which we need to observe to fulfil the ruling of ablution. The third source in determining of the Shari’a terminologies is urf, meaning customary practice. There are various things which are not explained by the revelation in their literal meanings, but rather they are defined by the customary practice. Shari’a regards and validates customary practices in determining certain things. When we look at the definition of mal in this context, we find the word “mal” is commonly used in the texts of the Quran and in the sayings of the Prophet Muhammad (peace be upon him). However, the definition of mal and what would be considered as mal is not explicitly explained in the text. Literally, according to the famous Arabic dictionary Lisan al-Arab, mal refers to something which can be possessed. Al-Isfahani says that mal is something which is desirable and can be transferred from one person to another person.6 The contemporary scholars Shaykh Yusuf al-Qardawi explains mal that according to the native speakers of Arabic, everything which is desirable for human beings and they want to store and possess it, is considered as mal.7

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Manzur quotes Ibn al-Athir that originally mal was limited to silver and gold, but its definition was gradually expanded to every physical thing which is desirable for humans to store and possess.8 Shaykh Wahbah al-Zuhayli says that linguistically mal refers to everything, which is possessed and stored by humans, whether it is a corporeal (ayn) or a usufruct (manfaha).9 For instance, gold, silver, animals, plants as well as riding a vehicle and living in a house are considered mal. But a thing which can neither be stored nor possessed cannot be considered as mal: a bird in the sky, a fish in the water, and unknown treasures inside the earth. In summary, everything which can be possessed and is valuable for human beings is considered linguistically as mal, or property.

8. Manzur, Yamal al-Din Muhammad Ibn. Lisan al-arab. Al Dar al-Misriyya Li-l-ta’lif wa-l-tarhim (1975)

9. Al-Zuhayli, Wahbah, and Abdul Hayyie Al-Kattani. Fiqih Islam wa adillatuhu. Gema Insani (2002)

6. Al-Isfahani, Al-Raqib. "Mufradat Alfaz Al Quran." Dar Al-Qalam (Damascus) (1992)

7. Al Qardawi, Yusuf. Fiqh al Zakah. King Abdulaziz University (2000)

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THE AUTHENTICITY OF EACH TRANSACTION IS PROTECTED BY DIGITAL SIGNATURES CORRESPONDING WITH THE SENDING ADDRESSES, ALLOWING ALL USERS TO HAVE FULL CONTROL OVER SENDING BITCOINS FROM THEIR OWN BITCOIN WALLETS.

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VIEWS OF SCHOLARS IN DEFINITION OF MAL As we said earlier, the Quran and the Sunnah of the Prophet Muhammad (peace be upon him) do not explain the definition of mal in clear terms. Therefore, the jurists and scholars differ somewhat in their definitions of mal. Some scholars are of the view that mal is only used for corporeal (ayn) or tangible things. Other jurists are of the view that mal includes both tangible and intangible things, provided that the thing has both value and desirability. Shaykh Zuhayli categorizes the scholars into two groups in this regard: Hanafi scholars and majority scholars. DEFINITION OF MAL ACCORDING TO HANAFI SCHOLARS Ibn Nujaim is of the view that mal is something which is desirable and can be stored for the time of need.10 Anything can be recognized as mal, when all or a group of people accept and act as if something is mal. The same definition of mal is given by another great jurist: Ibn Abidin al-Shami. He further quotes another jurist that mal is something other than human beings, which is created for the benefit of humans and can be stored and used at the time of need.11 According to this definition, there are two attributes to consider something as mal: 1. It would be desirable for human being. 2. It would be capable to be stored for the time of necessity. According to this definition, usufructs and rights (such as riding a car or living in the house, copyrights, etc.) are not mal because, these things cannot be stored. Although, the above-mentioned definitions do not limit the definition of mal to tangible or corporeal (ayn) things in clear terms, but it can be understood from their context. This indication is further supported from the writings of Hanafi scholars who clearly mention that mal should be a tangible thing or ayn. For instance, the famous Hanafi jurist Al-Haskafi defines mal as “a tangible thing or corporeal thing which is desirable and consumable”. Likewise, Shaykh Zarqa explains the view of Hanafi jurists with regard to definition of mal. He says: “every tangible thing which has material value among the people is mal”.12 It is clear from these definitions that, according to Hanafi scholars, mal is limited to corporeal and tangible things and that intangible things like rights and benefits are not considered as mal according to Hanafi scholars.

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DEFINITION OF MAL ACCORDING TO MAJORITY OF SCHOLARS The majority of jurists and scholars (including Maliki, Shafi, and Hanbali scholars) are of the view that mal is not limited to tangible things. The majority view is that mal also includes intangible things as well as benefits and rights with certain conditions. Shakyh Zuhayli explains the majority view of scholars is that mal refers to everything which has value and be compensated if it is destroyed. Likewise, Al-Suyuti quotes the definition of mal from Imam Shafi that mal refers to something which: has value, is used as consideration in trade, must be compensated for if destroyed, and that people do not behave as if it is a valueless thing.13 In summary, the majority view of scholars is that mal is not limited to tangible things and it can be intangible things if it fulfils the above-mentioned conditions.

10. Ibn Nujaim, Z. "al-Bahr al-Ra’iq." Beirut: Dar al-Kutub al-‘Ilmiyyah (1997)

11. Ibn Abidin al-Shami. Fatawa Shami. Dar al-Kutub al-‘Ilmiyyah (2009)

ACCEPTED DEFINITION OF MAL The contemporary hanafi scholar Shaykh Taqi Usmani is of the view that if non-tangible things such as rights and benefits become valuable things according to custom, then it is treated as mal. He says that prevalent customs (urf) of business play pivotal role in determining the benefits and rights (huquq & manafih) as mal.14 This is why, for example, copyrights, patents, trademarks, and goodwill are considered as mal - even though these things are intangible, because these are very valuable things in custom and urf of business and trade in today’s world. Likewise, another contemporary jurist, Shaykh Khalid Saifullah Rahmani, argues that tangibility is not a core condition for determining something as mal. He argues that the core condition for the criterion of mal is storability.15 At the time of earlier jurists, only tangible things could be stored. It was not imagined at their time that intangible things such benefits and rights can be stored and protected. He further explains that if something has the following required attributes, it can be considered as mal:

12. Zarqa, Mustafa. "Syarh al-Qawa’id al-Fiqhiyyah." Damascus: Dar al-Qalam (1989)

13. Al-Suyuti, Jalal al-Din. "Al-Ashbah wa alNaza’ir." Beirut: Dâr al-Kutûb al-‘Ilmiyyah (1983)

1. It is permissible and lawful in Shari’a (mutaqawwam). That’s why, dead and alcohol are not considered as mal. 2. It is capable of being owned and possessed. 3. It has some uses and benefits. 4. If custom determines and treats something as mal, it would automatically be considered as mal. These attributes are supported from the definitions of different scholars. The second attribute is obvious and does not require any justification, because, if something has no use or benefit, then no one will use it as mal or valuable thing. Therefore, it’s necessary to explain the first and third conditions briefly.

14. Usmani, Muhammad Taqi. “Fiqh al-Buyu”. Dar al-Qalam Damascus (2015)

15. Rahmani, Khalid Saifullah. “Jadeed Fiqhi Masail”. Zam Zam Publishers, Karachi (2010)

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The criteria for determining something as mal is not clearly defined in the texts of Shari’a. Therefore, scholars have emphasized the role of custom in determining something as mal. The jurists of all four schools of Islamic law are unanimous that if something becomes valuable due to the custom and acceptability of people, then it is considered as mal. This is the reason that many hanafi scholars have considered various rights and benefits (copyrights, patent and trademark etc.) as mal, since people in society treat them as valuable and material things. ISLAMIC LEGAL CRITERION FOR MONEY/CURRENCY After the brief discussion of the definition of mal (definition of property), it is pertinent to discuss the legal criterion of money and currency in Shari’a. DEFINITION OF MONEY Money refers to everything which is widely acceptable as a medium of exchange and store of value, it does not matter what is the nature and form of that thing.16 (Money can be everything which is used as a medium of exchange - whether it is gold, silver, flower petals, skin, paper, etc. - if it is generally accepted among the people (Al-Mausuah, Al-Fiqhiyah, Al-Kuwaitiyah). Shaykh Usmani says that money refers to something which has following three attributes and can be used as a: a. medium of exchange b. unit of account and c. store of value.

MUTAQAWWAM This is a core condition to determine something as mal. Mutaqawwam refers to something which is permissible in Shari’a. Shaykh Zuhayli explains the mutaqawwam as “something which is stored or present and permissible to use”. So, if something is not stored or not present, then it is not considered as mal. For instance, bird in the sky or fish in the water is not mal unless someone possess and stores them. Likewise, if something is not lawful and permissible in Shari’a, it could not be regarded as mal, such as dead animals, swine, and alcohol. 16. Turki, Adnan Khalid. “Al-Siayasa al-Naqdiyya wal masrifiyya”. Muhassah al-risalah, Beirut (1988)

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CUSTOMARY PRACTICE (URF) Urf is considered an important source of ruling when the texts of Shari’a do not give any judgment in explicit terms. The jurists have said that what is derived from urf is equivalent to what derived from the texts.

These definitions of scholars are very similar to what modern economists says with regard to the definition of money. For instance, Merriam-Webster dictionary defines money as “something generally accepted as a medium of exchange, a measure of value, or a means of payment”. Based on these definitions, an expanded definition of money includes all the following attributes: 1. medium of exchange 2. widely accepted as a means of payment 3. measure of value 4. unit of account DIFFERENCES BETWEEN MONEY AND COMMODITIES It’s important to clarify the differences between money and commodities, because, money is not equivalent to commodity according to Shari’a law. Shari’a emphasizes to treat money just for its basic purpose (i.e. as medium of exchange and measure of value). In the following, some fundamental differences between money and commodities are explained.

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Ibn Taymiyyah says that dirhams and dinar (gold and silver coins) have no intrinsic use and purpose, but they are created just to use as medium of exchange. Gold and silver coins differ from commodities in that commodities have intrinsic use and purpose.17 The same explanation is given by Ibn qayyim that money is not desired for itself, but rather it is created to facilitate the trade of goods.18

17. Taymiyyah, Ibn, Ahmad Ibn, and Ibn al-Qayyim al-Jawziyyah. "Majmû’Fatâwâ Ibn Taymiyyah." Mujamma'al-Malik Fahd (1995)

So then, if money itself is treated as a good or commodity, this would lead to destruction. (In other words, the objective of money is to serve as a medium of exchange. When we deviate money from its natural objective and treat as commodity, then it will disrupt the financial system from its natural pace).

Customary money refers to a type of money which gets the status of money due to custom and acceptability of people. Customary money is not created to serve for the purpose of money, but people accept it widely to use as medium of exchange. Certain commodities (other than gold and silver) used for money, as well as fiat currencies, are commonly used forms of customary money. Customary money does not necessarily have intrinsic moneyness (thamaniyyah), but rather it is assigned moneyness externally by its customary user. Customary money is unlike natural money in that natural money has intrinsic moneyness (thamaniyyah) and does not required any recognition for that.

Shaykh Usmani deliberates on the differences between money and commodities in a conclusive manner as he explains the following three fundamental differences between money and commodities: 1. Money has no intrinsic value and it is capable to fulfil directs needs of human such as eating, drinking and wearing etc. On contrary, the commodity has an intrinsic value and can be utilized directly without the need of exchanging with something else. 2. The commodities may have different qualities and attributes. But money has no quality except it is a medium of exchange and measure of value. That’s why all the units of the same denomination of money have same value and are equal to each other. Theoretically, there is no difference in value between a dirty US$100 bill and a new US$100 bill. 3. Sale and purchase transactions are applied on particular item or instance of a commodity. For example, if someone purchases a car, the seller has to give him that particular car itself and the seller cannot change the particular with another similar car. Unlike the money, commodities cannot be fixed in a transaction of exchange. As an example, it does not matter if you offer to pay by showing a particular US$100 bill and then pay with a different US$100 bill.

18. Al-Jawziyyah, bn Qayyim. "I ‘lam al-Muwaqqi ‘in ‘an Rabb al-‘Alamin." Riyadh: Dar Ibn al-Jauziy (1973)

Given the above mentioned rules and discussion, it becomes possible to evaluate cryptocurrency and discuss whether it fulfils the conditions of mal and currency. The most famous type of cryptocurrency is Bitcoin. Therefore, the existing literature of articles and especially fatawa (experts’ legal opinions) are generally concerned with bitcoin. However, the principles and arguments to determine any type of cryptocurrency are same. Therefore, the existing literature pertaining to Bitcoin specifically has benefits broadly with regard to cryptocurrency.

The jurists and scholars have classified money into two types: 1. natural money 2. customary money

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Customary money can be further divided into two types: commodity money and fiat money. The commodity money has intrinsic value and can be used for other purposes, but it does not have intrinsic moneyness (thamaniyyah). Fiat money generally refers to paper currency which is issued by governments; it has neither intrinsic value nor intrinsic moneyness (thamaniyyah). SHARI’A ANALYSIS IN LIGHT OF FATWAS AND SCHOLARS’ OPINIONS

TYPES OF MONEY

Natural money refers to a type of money which is created to serve as a medium of exchange and possesses monetary value. The natural money is not something which receives the status of money due to the customary practice and acceptability of people, but rather it is created specifically to serve as money and medium of exchange.

Natural money includes gold and silver, whatever the form is, because these are created to serve as money and used as means of payment. The famous jurist Imam al-Ghazali says that Allah (swt) created gold and silver to be circulated among the people and become the standards of measurement for different assets.19 Gold and silver are means to get all other assets and that’s why they are precious; they are not desired for themselves, but rather desired to use a means to obtain other assets.

19. Al-Ghazali, Abu Hamid Muhammad. "Ihya ‘Ulum al-Din " Dar al-Ma’rifah, Egypt (2004)

In general, the scholars and Shari’a experts have two different opinions. The first group of scholars is of the view that cryptocurrency is haram, meaning prohibited by Shari’a. The other group is of the view that cryptocurrency is in principle halal meaning permissible.

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FIRST VIEW: CRYPTOCURRENCY IS HARAM This view is supported by a number of scholars and fatwa. There are presented here, summarized. GRAND MUFTI OF EGYPT The Grand Mufti of Egypt Shaykh Shawki Allam has declared that bitcoin and cryptocurrency is haram. The Shaykh cites these primary reasons in his statement, among others: 1. Bitcoin is easily used for illegal activities; therefore, people use Bitcoin largely for illegal and non-Shari’a compliant purposes to avoid and hide themselves from governments and relevant authorities. 2. Bitcoin is intangible and can only be used through internet 3. Bitcoin allows for money laundering and fraud 4. Bitcoin has no central authority that monitors its system, but rather it destroys the control of central banks and governments to monitor and control the monetary system. TURKISH GOVERNMENT The Turkish government’s religious authority also declared that bitcoin and all other cryptocurrencies are prohibited. The fatwa states: Buying and selling virtual currencies is not compatible with religion at this time. Because of the fact that their valuation is open to speculation (excessive gharar), they can be easily used in illegal activities like money laundering and they are not under the state’s audit and surveillance.

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FATWA CENTRE OF PALESTINE The fatwa centre of Palestine also issued a fatwa with regard to bitcoin and cryptocurrency. The fatwa claims that bitcoin and cryptocurrency is haram and prohibited based on the following reasons: 1. The issuer of Bitcoin is unknown, and neither a government nor a central authority is behind it. Bitcoin comes into existence with the objective of no central authority and monitoring system and therefore, it is untrustworthy and unreliable. 2. Bitcoin is a type of gambling, because people invest a lot of money to create bitcoin without a guarantee as to whether they will be successful or not. Bitcoin miners try to solve mathematical puzzles, and if they succeed, they get money, but if they lose, they get nothing.

SECOND VIEW: CRYPTOCURRENCY PERMISSIBLE IN PRINCIPAL

Other scholars are of the view that bitcoin is permissible in principal. This view can be analysed in light of our previous discussion with regard to both the criteria and definition of property (mal) and money. There is a famous legal maxim explained by jurists: “ “This means that original rule is permissibility in financial and business transactions. In other words, everything is permissible unless we found it clearly contradictory to Shari’a principles. According to this principle, cryptocurrency is permissible principally. Likewise, anything can be considered as money if it has these attributes:

3. Bitcoin is subject to high speculation because there is no base for speculation control in bitcoin and other cryptocurrencies.

1. treated as valuable thing among the people,

SHAYKH HAITAM FROM THE UK

3. it is a measure of value,

The UK based scholar Shaykh Haitam authored a paper in Arabic in which he declared that bitcoin and other cryptocurrencies are prohibited and not compatible with Shari’a. Among the key reasons, he claims: 1. Cryptocurrency is not backed by anything, but rather it is created out of nothing 2. Cryptocurrency is not a legal tender; it is neither under the supervision of any government nor any central monitoring/control system

2. accepted as medium of exchange by all or substantial group of people, 4. and it serves as unit of accounts Therefore, any cryptocurrency which fulfils these conditions (such as Bitcoin) is acceptable as money. The fatwa centre of South African Islamic seminary, Darul Uloom Zakariyya, has taken the position that Bitcoin fulfils the conditions of mal and therefore it is permissible for trade. However, they note that to be qualified as currency, it should be approved by relevant government authorities.

3. Cryptocurrency can be easily used for money laundering and illegal purposes

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THE ISSUER OF BITCOIN IS UNKNOWN, AND NEITHER A GOVERNMENT NOR A CENTRAL AUTHORITY IS BEHIND IT. BITCOIN COMES INTO EXISTENCE WITH THE OBJECTIVE OF NO CENTRAL AUTHORITY AND MONITORING SYSTEM AND THEREFORE, IT IS UNTRUSTWORTHY AND UNRELIABLE.

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ANALYSIS OF THE FIRST VIEW: BITCOIN IS HARAM If we look at the above mentioned fatwa and views of scholars and experts with regard to prohibition of cryptocurrency and bitcoin, we find some common reasons of prohibition: a) Bitcoin is not a legal tender b) Bitcoin’s issuer is unknown c) Bitcoin has no central authority or government backing it d) Bitcoin is highly speculative and not stable e) Bitcoin can be easily used for money laundering and illegal purposes ON STATUS AS LEGAL TENDER As far as the issue of legal tender is concerned, it is true that when a government makes something as legal tender, it gets the acceptability among the people in that jurisdiction automatically. In principal, to qualify something as money, it is not necessary to have the status of legal tender. The main criteria for money in Shari’a is its acceptability by people - whether it comes about by forcing it upon people through laws, or through widespread voluntary acceptance of people. ON LACK OF CENTRAL ISSUER/AUTHORITY Consider the claim that the issuer of Bitcoin is unknown and there is no central authority to monitor and guarantee it. The advocates of Bitcoin and cryptocurrency argue that the governing framework is a set of rules adopted by voluntary mutual acceptance by users of the currency, and that these rules are published and open for anyone to critique or suggest revision. In the case of bitcoin, it is mathematically impossible to manipulate the laws and rules that govern Bitcoin mining and transaction process, because the cryptographic technology that underlies the currency prevents it. Additionally, Bitcoin uses the blockchain technology which is much more secure than any centralized system employed by a government or central bank. For example, the SWIFT network is widely used by banks as an inter-bank payment system. In February 2016, US$1 billion was stolen from the Federal Reserve Bank of New York from the account of the Central Bank of Bangladesh.20 Even though there is no guarantee and support from a government or central bank for Bitcoin, trust and confidence is achieved through the use of blockchain technology and underlying cryptography. Of major concern in Shari’a regarding money is the preservation and protection of wealth (Maqasid al-Shariah). In many cases throughout history, governments and central banks have destroyed wealth through inflation: Weimar Germany in 1923, Greece in 1944, Hungary in 1946, Yugoslavia in 1994, Indonesia in 1999, and Zimbabwe 2008.

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As a contemporary example: Venezuela is in the midst of a major economic crisis stemming from its failed monetary policy and artificially low enforced exchange rates; inflation is running at an estimated 500%. In this case, the lack of a central authority is Bitcoin’s strength; some Venezuelans have turned to Bitcoin as a more reliable store of value and unit of exchange than the government mandated bolivar which now takes literal barrels full of paper currency just to buy a loaf of bread.21 ON VOLATILITY AND PRICE STABILITY It is also commonly mentioned by scholars who claim Bitcoin and cryptocurrency are haram (impermissible), that Bitcoin’s exchange rate is highly volatile not stable. Speculation is an external factor which has no concern with regard to determining something as valid money and currency. Prices are always based on the rule of supply and demand, as it is the case in all other assets including, gold, silver, and fiat currencies as well. It is worth noting that, as of writing, the exchange rate of Bitcoin and other cryptocurrencies is more volatile than many fiat currencies, and therefore trading in Bitcoin and cryptocurrencies is riskier. Therefore, it is not advisable to trade in cryptocurrency, especially for lay people who lack professional experience and sophistication with regard to foreign exchange trading. However, Bitcoin and cryptocurrency cannot be declared haram (impermissible) based on the fact that they experience speculation. In fact if this principle was valid and applied, then trading in gold, silver, US Dollars, and Euros would all be ruled impermissible, since those assets also experience extreme levels of speculation. For example, twice the quantity of gold that has ever been mined in the history of human civilization was traded in digital gold markets in a single physical quarter.22

20. Bangladesh Bank robbery. Wikipedia (2018, March 06). Retrieved April 04, 2018, from https:// en.wikipedia.org/wiki/ Bangladesh_Bank_robbery

ON ILLICIT OR ILLEGAL USE It is also commonly argued that Bitcoin and other cryptocurrencies are widely used for money laundering and other illegal purposes. This is an external factor which does not directly effect on Islamic legal criterion of currency. In general terms, the use of something lawful for an unlawful purpose does not make the thing itself become unlawful. An example from the Hadith can be found in that the Prophet Muhammad (peace be upon him) forbade the selling of grapes to a wine merchant, since making wine is haram (impermissible), but did not forbid the production or trading of grapes for lawful purposes. On this point, it is especially noteworthy that all fiat currencies are used for illegal purposes such as money laundering, fraud, and illegal commerce. It is readily acknowledged that the US Dollar is the most widely used for currency for money laundering and other illegal purposes.

21. Caracas, K. L. The Guardian (2016, December 16). Growing number of Venezuelans trade bolivars for bitcoins to buy necessities. Retrieved April 04, 2018, from https:// www.theguardian. com/technology/2016/dec/16/ venezuela-bitcoin-economy-digital-currency-bolivars

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CONCLUDING REMARKS To conclude, the author would like to highlight some key points: 1. The understanding of cryptocurrency, its mining, tradability, security and systematic impact is evolving. Therefore, it is expected that Shari’a opinions must become more informed and conclusive as cryptocurrency is better understood. 2. The blockchain is not only a platform for bitcoin & cryptocurrency; it is a decentralized digital ledger technology to record anything of value whether it is currency or assets. Blockchain may be considered a boon to the Shari’a requirements of transparency and disclosure. Blockchain can serve to enhance the notions of trust in exchange transactions and transfers. It can serve to enforce the principle of cash transactions in exchange of currency and commodities. 3. As far as the current Shari’a status of bitcoin is concerned, the author agree with the second view that bitcoin is permissible in principal as Bitcoin is treated as valuable as reflected by market price on global exchanges and it is accepted for payment at a wide variety of merchants, including bakeries, restaurants, and even large ecommerce retailers like Overstock.com. Moreover, may private individuals accept bitcoin as a medium of exchange in their private transactions. To decide the Shari’a status and permissibility of bitcoin and any other qualified cryptocurrency, the following classification matters in the prevalent legal and regulatory environment. There are three types of jurisdictions in terms of cryptocurrency regulations: a. Jurisdictions where the usage of cryptocurrency is prohibited and banned explicitly. In such jurisdictions, it is not allowed to deal with cryptocurrency. b. Jurisdictions where regulators are silent, or have not explicitly acknowledged or disavowed cryptocurrency as permissible money; often in these jurisdictions, the regulators merely warn the public to exercise caution and be aware of the risks involved. c. Jurisdictions where regulators have accepted cryptocurrency either as a financial asset or as an alternative currency and have enacted specific legislation that permits the public to utilize cryptocurrency. From Shari’a point of view, it is permissible in the last two types of jurisdictions to deal with bitcoin and other qualified cryptocurrencies. However, the preservation and protection of wealth is one of the fundamental objectives of Shari’a (Maqasid al-Shariah). Therefore, it is necessary for cryptocurrency users to take care of its related risks.

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4. The objective of cryptocurrency - particularly bitcoin - is to serve as an alternative currency in a peer to peer network without the control of any central authority. Cryptocurrency markets are subject to extreme fluctuation, and will likely remain volatile for the next few years. In many jurisdictions, the legal status of cryptocurrency remains unclear, further adding to the price volatility. Therefore, it is not advisable to buy cryptocurrency for investment purposes, like stocks or shares (as it is being practiced widely at the moment). As mentioned earlier, it is against the basic objective of currency whether it is fiat or crypto to treat it as a commodity or investment asset. Rather, it is advisable to utilize cryptocurrency networks as a payment system in the cases where cryptocurrency networks offer specific benefits and advantages over conventional systems.

22. Sizing up the gold market. Financial Times (2007, September 09). Retrieved April 04, 2018, from https:// www.ft.com/content/ eb342ad4-daba11e0-a58b-00144feabdc0

5. The swift rise of popularity in cryptocurrency and related technology, especially the rise of ICO (initial coin offering) has spawned many suspect investment opportunities. Although it is outside the scope of this paper to consider the permissibility of the ICO, all investors should exercise extreme caution. Muslim communities especially should exercise caution as recently they have become the target of scammers advertising “halal investment” opportunities using cryptocurrency. As a rule of thumb, any cryptocurrency investment opportunity that promises a fixed rate of return is likely a scam, such as a ponzi/pyramid scheme which is both illegal and haram.

MR. MUHAMMAD ABU BAKAR SERVES AS BLOSSOM’S INTERNAL SHARIAH ADVISOR IN HIS ROLE AS HEAD OF SHARIAH COMPLIANCE. HE HOLDS MASTER AND BACHELOR DEGREES IN ISLAMIC STUDIES AND ARABIC FROM THE WAFAQ-UL-MADARIS-UL-ARABIYYAH, PAKISTAN, AS WELL AS CERTIFICATIONS IN AAOIFI & BANK NEGARA MALAYSIA SHARIAH STANDARDS AND A DIPLOMA IN ISLAMIC BANKING & TAKAFUL FOR SHARIAH SCHOLARS. THIS ARTICLE IS BASED ON AS RESEARCH PAPER THAT WAS COMMISSIONED BY BLOSSOM FINANCE. YOU MAY VISIT HTTPS://BLOSSOMFINANCE.COM/ FOR THE FULL PAPER. DISCLAIMER: THIS PAPER SHOULD NOT BE CONSIDERED AS FINAL FATWA OR SHARIAH VERDICT. THE OBJECTIVE OF THIS WORKING PAPER IS TO PUSH THE DISCUSSIONS ON THESE NEW ISSUES AND GET FEEDBACK AND COMMENTS FROM SUBJECT-MATTER EXPERTS AND SCHOLARS FOR FURTHER DEVELOPMENT OF THE RESEARCH. WE BELIEVE THAT THESE ARE NEW ISSUES AND MATTERS OF IJTIHAD WHICH REQUIRE A MORE COLLABORATIVE AND IN-DEPTH RESEARCH. THE SHARIAH OPINIONS ON THESE MATTERS WILL BE MORE INFORMED AND CONCLUSIVE WITH THE PASSAGE OF TIME AND FURTHER RESEARCH COLLABORATION, INSHALLAH.

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ISFIRE INTERVIEW

WITH

MOHAMMED KATEEB

Group Chairman and CEO of Path Solutions

Q1.

FINTECH IS IN VOGUE, WITH HARDLY ANY CONFERENCE, SEMINAR OR ANY PROFESSIONAL GATHERING MISSING OUT A DISCUSSION, DEBATE OR REFERENCE TO IT. AS A TECHNOLOGY FIRM, HOW PATH SOLUTIONS HAS MANAGED TO KEEP ITSELF ON THE FOREFRONT OF ISLAMIC FINANCIAL TECHNOLOGY? As a strategy, Path Solutions has been investing heavily in R&D and the latest cutting-edge technologies, so when Fintech revolution started years back, we were not surprised by it, but we anticipated it and we were ready for it and we took the clear position of being the main enabler for all Islamic financial institutions to find themselves in the new ecosystem. We were the realists recognizing that Fintechs will not replace traditional financial institutions but complement them in building a global ecosystem.

Q2.

PATH SOLUTIONS IS A FULL-FLEDGED SHARIA-COMPLIANT TECHNOLOGY FIRM. CAN YOU EXPLAIN WHAT MAKES A TECHNOLOGY FIRM SHARIACOMPLIANT? A banking activity that complies with the Islamic law has its own products, services and contracts that differ from any other banking activity. From a technology point of view, this is translated into procedures and controls built in the platform to ensure transactions are carried out according to the Sharia principles; in addition to having a solid profit distribution engine which provides flexibility in pool definition, profit-sharing schemes, revenue reserves allocation and distribution; supporting all Islamic financing instruments such as murabaha, musharaka, mudaraba, istisnaa, ijarah, and others; and incorporating stringent treasury management tools to reduce liquidity risk.

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ISFIRE PERSONALITY For the past 25 years, Path Solutions has developed pioneering Sharia-compliant technologies for the Islamic financial services segment. Over the years, we have been expanding and increasing the depth of our set of services to Islamic banks to include digital capabilities to ensure the most comprehensive and innovative suite is offered to them. Our core banking platform is built from the ground up in accordance with the Sharia principles, and serves to streamline an overly complex Islamic banking sector, and we believe it is this that has given us the competitive edge in this arena.

Q3.

AS AN ISLAMIC TECHNOLOGY FIRM, WHAT KIND OF CHALLENGES YOU FACE FROM LARGE CONVENTIONAL TECHNOLOGY FIRMS OFFERING SHARIACOMPLIANT TECHNOLOGY SOLUTIONS TO ISLAMIC BANKS AND FINANCIAL INSTITUTIONS? In a perfect world, we would not have to compete with large conventional technology firms as we consider ourselves unique and different in the segment. We are a pure player and we provide an end-to-end core banking platform in full compliance with the Sharia law, which large conventional players always fail to do. But in reality, these firms spread lots of what we call FUD (Fears, Uncertainty, Disinformation) about the uniqueness of Islamic finance and its specific requirements. We know that Islamic finance is not built into their core systems, but through simple changes on the edge of the system to look and feel as Sharia-compliant, but for the expert eye, this dressing is easy to detect!

BLOCKCHAIN AS AN INFRASTRUCTURE TECHNOLOGY HAS THE POTENTIAL TO BE A DISRUPTER FOR THE FINANCIAL INDUSTRY.

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In addition, Islamic banks are always seeking to innovate and come up with new products and services in retail finance, corporate financing, asset and portfolio management, internet and mobile banking, and this requires core banking systems that allow them to support their business processes, improve operational efficiencies, abide by regulatory requirements and build new Sharia-compliant products rapidly. Technology firms with tweaked banking platforms have to align their systems with the guiding principles of Sharia and are not as reliable nor scalable as ours, which has been designed from the ground up based on the tenets of Islam.

Q4. AS A TECHNOLOGY SPECIALIST, WHAT FUTURE DO YOU SEE FOR BANKING AND FINANCE? ARE BANKS GOING TO BE STILL AROUND AFTER 10-15 YEARS?

It is true that the digital disruption is clearly underway while Fintech innovations are reshaping many of the financial services, which inevitably presents a threat to traditional institutions, but also an amazing opportunity. I definitely believe Fintechs will not make banks redundant but will speed the creation of a global financial ecosystem that many players will contribute differently. We will see significant changes in the industry which will force financial institutions to be more customer-centric and efficient, and provide more targeted, secure and intelligent solutions. With technology as the driving force and a key competitive advantage for those in the Islamic banking segment, customers have plenty to look forward to!

This testifies the inability of our competitors to simply cater to the increasing demand for innovative Shariacompliant solutions and services that could adapt to local regulations, and a clear recognition from our clients for our pure offering. Our set of services is multilingual, multi-currency, and thus we can offer our solution worldwide, but in the African and Asian markets where innovation and technology are key to engaging the unbanked and lifting billions of people out of poverty, we excel. Besides, we have got our solid references there with a proven track record of successful implementations.

Q6. BLOCKCHAIN TECHNOLOGY IS

GETTING INCREASING ATTENTION. WHAT IS PATH SOLUTIONS DOING IN THIS FIELD? Blockchain as an infrastructure technology has the potential to be a disrupter for the financial industry. Large financial institutions, from investment banks to stock exchanges to central banks, are all beginning to work on their own Blockchain-based solutions in order to stay on top of this innovation The most obvious and basic use for Blockchain technology is its use as a payment system. These Blockchain transactions are borderless, secure, largely anonymous and their costs are minimal. Path Solutions already have two projects underway in this area, and we are planning to introduce the Blockchain technology in a set of services that we will announce their pilots with key financial organizations in the coming few months.

Q5.

PATH SOLUTIONS IS WINNING MANDATES IN AFRICA, ASIA AND EVEN IN THE AMERICAS. WHAT IS THE SECRET BEHIND THIS PHENOMENAL SUCCESS?

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WE WILL SEE SIGNIFICANT CHANGES IN THE INDUSTRY WHICH WILL FORCE FINANCIAL INSTITUTIONS TO BE MORE CUSTOMER-CENTRIC AND EFFICIENT, AND PROVIDE MORE TARGETED, SECURE AND INTELLIGENT SOLUTIONS.

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Q7.

ISLAMIC BANKING AND FINANCE WILL HAVE TO KEEP PACE WITH THE TECHNOLOGICAL ADVANCEMENTS IF IT WISHES TO REMAIN COMPETITIVE. ARE YOU SATISFIED WITH THE USE OF TECHNOLOGY IN THE INDUSTRY? WHAT NEEDS TO BE DONE TO MAKE ISLAMIC BANKS AND FINANCIAL INSTITUTIONS TO BE MORE TECHNOLOGY-ORIENTED? Innovation is a cornerstone in the development of Islamic finance itself. As such, technological advancements have the potential to play a major role in the Islamic finance industry primarily to improve processes and cost effectiveness while maintaining Sharia compliance. However, regulatory compliance is a drain on a bank’s technology investment budget, as is the maintenance of legacy systems, and it leaves little capital for developing truly transformational and innovative technologies. This goes a long way to explaining why Islamic banking does not have a reputation for being the most innovative of industries. We are somehow satisfied with the adoption of new technologies by some banks, nevertheless Islamic banks need to invest more in advanced IT frameworks and digital banking; they need to embrace newer technologies to stay relevant and compete.

Q8.

WOULD YOU LIKE TO SHARE ANY FUTURE INNOVATIONS PATH SOLUTIONS IS INVOLVED IN? Banking has changed in the era of big data; banks have now access to different types of data including different new sources like e-mails, social media information, and video feeds. Path Solutions is currently in its final research

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phase for introducing the necessary tools needed for handling and manipulating big data. The new technology will contribute to several areas in our platform which includes risk management, analytics, and other major functions. Big data analytics can improve existing processes. Its approach allows for the advanced statistical analysis of structured data, and advanced visualization and statistical text mining of unstructured data. These approaches can provide the means to quickly draw out hidden links between transactions and accounts, and uncover suspicious transaction patterns. While big data, machine learning and predictive analytics are almost in our pipeline, our next plan is to start using artificial intelligence for smoother, faster and more secure banking operations. As an example, fraud detection is one of the fields which has received massive boost in providing accurate and superior results with the intervention of artificial intelligence. It’s one of the key areas in the banking sector where artificial intelligence systems are bound to excel the most. Other AI suites such as chatbots work by identifying the context and emotions in the text chat by the human end user, and respond to them with the most appropriate reply. With time, these chatbots collect massive amount of data for the behavior and habits of the user, and learn the behaviour of the user, which helps in adapting to the needs and moods of the end user. Chatbots can be extensively used in the banking industry to revolutionize customer relationship management at a personal level.

Q9.

PATH SOLUTIONS IN THE NEXT FIVE YEARS? WHERE DO YOU WANT YOUR COMPANY TO BE? Our target is to be the Fintech of the Islamic finance Industry, and the main technology provider empowering the global Islamic financial ecosystem. We

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believe technology is rising to be the most strategic component in shaping the future of this industry, and as the number one technology provider for our segment, we see ourselves becoming the true undisputed strategic partner.

Q.10

ANY MESSAGE YOU WANT TO SHARE WITH THE YOUNG PROFESSIONALS IN ISLAMIC BANKING AND FINANCE? Islamic finance has an amazing unique soul of its own that is completely different than its counterpart, and the only thing that is stopping this industry from realizing its full potential, is the availability of the innovative human capital that understands fully its principles and push to ensure its continuous uniqueness. I ask all of them, especially the young ones, to be innovators and resist the translation of conventional services to Islamic ones. The long-term success of this industry relies on the ability of all of our young professionals to do just this!

Q.11

ON A PERSONAL NOTE, YOU’RE THE ONLY TECHNOLOGY SPECIALIST WHO IS EXCEPTIONALLY VISIBLE IN ISLAMIC BANKING AND FINANCE. WHAT MAKES YOU PERSONALLY SO SUCCESSFUL IN THE INDUSTRY? I am a passionate person, and for me to do something well, I need to be passionate about it. Early in my career I had the opportunity to work for Microsoft and I climbed through the ranks from an engineer to an executive who ran 22 countries for Microsoft. This was a great experience that created a passion inside me for technology as I saw its impact on people’s lives all around the world. Then I turned my focus to Islamic finance. I understood its principles and its potential very well and I developed a passion for it. These

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two passions complement each other inside of me and allow me to focus on continuously pushing for technology to have tremendous impact in this industry.

Q.12

OUR READERS WOULD LIKE TO KNOW ABOUT YOUR MANAGEMENT STYLE. HOW DIFFICULT IT IS TO MANAGE A TECHNOLOGY FIRM SPECIALISING IN ISLAMIC BANKING AND FINANCE? As a leader, I believe that our most important asset in a technology company such as Path Solutions is the people we have; they are our competitive advantage, which makes it also the most challenging part of our company’s management. People are different in personality types, what drives them, what motivates them, and what makes them tick. Therefore, as a leader, you have to understand each individual and customize your management style based on that person. We are operating in mission critical environments all around the world, and we need to support our clients 7x 24x365. We must be always on alert and we need to always respond fast. A leader needs to motivate his people to always be focused on this service nonstop! Our industry is a young industry, and many of our clients operate in developing countries with many challenges including regulation challenges, continuously changing standards, size, capital, and customer base challenges, etc. We need to cater to these banks regardless of size or geography. We need to have staff in the different countries, and a true leader needs to have breadth and depth to manage people of any background.

AS A LEADER, I BELIEVE THAT OUR MOST IMPORTANT ASSET IN A TECHNOLOGY COMPANY SUCH AS PATH SOLUTIONS IS THE PEOPLE WE HAVE; THEY ARE OUR COMPETITIVE ADVANTAGE, WHICH MAKES IT ALSO THE MOST CHALLENGING PART OF OUR COMPANY'S MANAGEMENT.

To do all the above you have to motivate your people and empower them to do a good job, and if you are a good leader, you will always trust that they will!

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GIFA MILLION DOLLAR CAMPAIGN “Edbiz Corporation is pleased to announce GIFA Million Dollar Campaign to set up an Islamic Finance Scholarship Programme to support studies and research in Islamic banking and finance“

 gifa@gifaawards.com  www.gifaawards.com


TALKING POINTS

MAINSTREAMING

THE ISLAMIC

ECONOMY FOR SUSTAINABLE ECONOMIC DEVELOPMENT FOR THE

NEW GAMBIA

ALMAMI FANDING TAAL

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n 2019, Gambia will be hosting the Organization of Islamic Cooperation (OIC) Summit. Currently, 57 Muslim countries are registered with the OIC, where membership stretches across four continents and form an essential aorta for international trade via meaningful land and maritime presence. With the global population share of more than 22%, OIC countries have 70% of the world’s energy resources and 40% of the global raw materials. Therefore, the concept of building one ummah can be an extremely useful tool for the transformation of Muslim communities around the world and maximise the leverage on the numerous bargaining chips possessed by the Muslim states collectively. Below is the inspiring preamble of the OIC Charter:

Convinced that their common belief constitutes a strong factor for rapprochement and solidarity among Islamic people; Resolved to preserve Islamic spiritual, ethical, social and economic values, which will remain one of the important factors of achieving progress for mankind; Reaffirming their commitment to the United Nations Charter and fundamental human rights, the purposes and principles of which provide the basis for fruitful cooperation among all people;

THE CONCEPT OF BUILDING ONE UMMAH CAN BE AN EXTREMELY USEFUL TOOL FOR THE TRANSFORMATION OF MUSLIM COMMUNITIES AROUND THE WORLD AND MAXIMISE THE LEVERAGE ON THE NUMEROUS BARGAINING CHIPS POSSESSED BY THE MUSLIM STATES COLLECTIVELY.

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Determined to consolidate the bonds of the prevailing brotherly and spiritual friendship among their people, and to protect their freedom, and the common legacy of their civilisation resting particularly on the principles of justice, tolerance and non-discrimination; In their endeavour to enhance human well-being, progress and freedom everywhere and resolved to unite their efforts in order to secure universal peace which ensures security, freedom and justice for their people and all people throughout the world.

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The OIC Summit is the highest decision making organ and the flagship meeting of the Monarchs and political leaders of the Muslim world. Thus, it is not only a great honour for any Muslim state to host the kings, emirs, leaders and representatives of the largest religious community and the fastest growing religion in the world. It is also an excellent opportunity to have an infusion of resources into the economy of a member state via a pipeline of projects that can improve the quality of life of the less fortunate members of the Islamic ummah. Islam is pre-eminently a religion of fidelity and solidarity and wherever the Summit is held there is a massive injection of solidarity funds to develop the facilities for a successful hosting. Senegal has hosted the Summit twice with the first one held in 1991. Some have observed that the excellent urban infrastructure of roads, bridges and tunnels dotted around Dakar are the visible legacies of the second Summit held in Dakar in 2008. Senegal and Gambia have a lot in common both culturally and socially, including a shared Islamic heritage of the Maliki School of Islamic jurisprudence. Gambia and Senegal also share some unflattering dataset - approximately 40% of people living in extreme poverty worldwide live in member states of the OIC. In 21 of those 57 countries, less than half of the population has access to adequate sanitation. Four percent of infants born in these countries die before they reach the age of five.

However, the present global economy is dominated by a Eurocentric world view inspired by Judea-Christian values and ethics, and made up of the politically and militarily powerful countries of Europe and the Americas-countries that initially gained much of their pre-eminence from the exploitation of Africans (and other non-Western people). As slaves or colonial subjects, Africa’s labour and resources (usually obtained directly or indirectly by coercion) provided many of the low-cost raw materials for Western factories and the affluent consumer lifestyles that the developed world takes for granted today. The influence of the West and Western culture and value systems has been the major modernisation force in the Sahel. By responding to the promise of acquiring Western affluence, Africans across the continent, to varying degrees; are being integrated into the worldwide network of trade and productive relationships sometimes called “the global capitalist economy.”

DESPITE GREAT POTENTIAL, MANY OIC COUNTRIES HAVE STRUGGLED TO ACHIEVE BROADBASED DEVELOPMENT.

Simply put, despite great potential, many OIC countries have struggled to achieve broad-based development. For many African OIC countries, the infamous “resource curse” is at work; in others, weak leadership and failed institutions are to blame. It does not help that the vast majority (some 71%) of the 125 million people affected by conflicts and natural disasters reside in OIC countries. Instability places enormous strain on national budgets. Against this background and given the levels of poverty, unemployment and deprivation among the Muslim peoples of the Sahel, governments all over the region are reviewing and recasting their development models and devising alternative means to improve the livelihoods and living standards of the majority of their citizens. INTEGRATION OF AFRICA INTO THE GLOBAL ECONOMY In this context, Gambia has to re-examine its own model of development and should look to its Islamic heritage as an important source of organisational forms and institutions for empowering the people and communities in addressing their development needs. Fortunately, countries like the Gambia have options. In particular, capital that has accumulated in some of the OIC countries’ financial systems could play an important role in helping them to meet their development goals – especially if Islamic finance is used to its full potential.

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Since the end of colonialism; African raw materials, cash crops, minerals, and fuels have continued to be transported overseas, while Western manufactured goods, technology, financial capital, and western systems and lifestyles are imported into Africa. So far, the “integration” of Africa into the global economy has largely gone badly for most countries on the continent as the cost of Western imports compared to the prices of African exports have typically been negative to Africa; leaving almost all countries in debt, their economies a shambles, and living standards spiralling downward. Only a minority of Africans have been able to acquire more than a few tokens of the promised good life that the West symbolizes. GAMBIA HISTORY Gambia gained its independence from the UK in 1965, after being a separate British Colony for less than a hundred years. Even though the presence of European powers in this region dated back to the mid15th century, first by Portugal who had dominated overseas trade at the time, it is important to note here that the presence and importance of Islam in the lives of the people in this region predates the Europeans by at least 500 years. By the 11th century or at the latest the 12th century, the rulers of kingdoms such as Takrur, a monarchy centred between Gambia and the Senegal Rivers and just to the north, ancient Mali and Ghana; had converted to Islam and had appointed Muslims who were literate in the Arabic language as courtiers to the Sahel region. Mansa Musa made his famous pilgrimage to Makkah between 1324 and 1325. The Emperor’s entourage reportedly included 60,000 men; including 12,000 slaves who each carried 1.8 kg (4 lb) of gold bars and heralds dressed in silks who bore gold staffs, organized horses, and handled bags. Musa provided all necessities for the procession, feeding the entire company of men and animals. Those animals included 80 camels which each carried 23–136 kg (50–300 lb) of gold dust. Musa gave the gold to the poor he met along his route. Musa not only gave to the cities he passed on the way to Mecca, including Cairo and Medina, but also traded gold for souvenirs. It was reported that he built a mosque every Friday. The Emperor of Mali was reported to be carrying so much gold that the price of gold was depressed throughout the Maghreb and in modern historiography Mansa Musa has been described as the richest man to have ever lived. The relevance of history in the development of any nation or people cannot be over-emphasised. And the role such a history plays in shaping and influencing the future prosperity and happiness of succeeding generations have been overlooked by most scholars of economic science.

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Our indigenous institutions, mechanisms of cooperation and solidarity within a socio-economic framework have been either destroyed or jettisoned by colonialism and neo-colonial educational systems. Adam Smith, who is credited and celebrated as the father of modern economics and his book “the wealth of nations” is treated to this day as the gospel and foundation stone of the modern liberal economic framework, which was bequeathed to our nation at independence. Smith lived through the transatlantic slave trade without once querying the inhumanity of trading in human beings.

GAMBIA GAINED ITS INDEPENDENCE FROM THE UK IN 1965, AFTER BEING A SEPARATE BRITISH COLONY FOR LESS THAN A HUNDRED YEARS.

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What is urgently necessary is to unlock the existing knowledge, mainstream and adapt it to our present needs and realities. With a 95% Muslim population, Gambia really ought to benefit more from the Islamic economy for its developmental aspirations. ISLAMIC FINANCE TODAY Today, the total value of assets in Islamic financial instruments alone stands at an estimated US$2.4 trillion. The major financial centres of London, Hong Kong and Singapore have joined the market leader Malaysia in issuing sukuk and other Islamic economic products. This growth is being fuelled not only through the world’s 1.6 billion Muslims but also by consumers of other faiths who see Shari’a-compliant products as offering a credible alternative for ethical investment that is, environmentally friendly and socially responsible. Interest in Islamic economic products from differing faiths is not restricted to end-product consumption. Finance industry personnel and economists from many different religions and socio-economic backgrounds have also shown an ever increasing professional interest in the Islamic economy. Despite its rapid growth and acceptance, Islamic economic assets globally only constitute slightly over 1% of banking and financial assets globally. This surprisingly insignificant figure can only be understood from an historical perspective. Unlike conventional finance which has been evolving over four hundred years, contemporary Islamic finance is of recent vintage. The use of Islamic finance which was widespread at one time, its growth and development was interrupted with the passing of the classical age of Islam and the reign of the Righteous Caliphs.

TODAY, THE TOTAL VALUE OF ASSETS IN ISLAMIC FINANCIAL INSTRUMENTS ALONE STANDS AT AN ESTIMATED US$2.4 TRILLION.

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Many scholars agreed on the fact that Ibn Khaldun, the Tunisian historian and Islamic scholar had outlined an early, possibly even the earliest example of the political economy. Ibn Khaldun described the economy as being composed of value-adding processes; that is, labour and skill is added to techniques and crafts and the product is sold at a higher value. He also made the distinction between “profit” and “sustenance”, in modern political economy terms, surplus and that is required for the reproduction of classes respectively. Against this background, in a predominantly Muslim nation it makes eminent sense to explore alternative paths to the development of our people. Our Islamic heritage has provided an economic framework based on equity, solidarity, fairness and social justice.

The Renaissance and Reformation in Europe, the Industrial Revolution, the collapse of the Ottoman Empire and the dividing up of the territories of the world by the European powers further diminished the prospects for Islamic economics as result it was largely forgotten. Following the collapse of the Ottoman Empire and end of the 1st World War, the Muslim ummaah was divided into Kingdoms, Emirates and Sultanates. This was how the Arabian Peninsula was turned into Saudi Arabia and Yemen and the rest of the Muslim states in the Middle East were similarly created under European designs and supervision. It was not until the latter part of the 20th century that modern ideas about the Islamic economy were revived. As a result of the extraordinary wealth generated by the discovery of oil and gas resources in predominantly Muslim states.

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However, the present insignificant proportion of Islamic economic assets in the global financial system only serves to highlight the fact that the growth potential for Islamic economy in poor and marginal economies like Gambia is enormous. The growth of the global Muslim population, estimated at 1.84% annually, and the internationalisation of the Islamic economy are key factors to consider in this respect. The emergence of Asia and the Middle East as economic powerhouses and the shift of wealth from the West to these regions are other important factors. The growing research outputs are progressively cementing the scientific foundations on which a robust legal and regulatory framework will be built. MAINSTREAMING ISLAMIC FINANCE IN GAMBIA Gambia has abundant human and natural resources but a limited research infrastructure both hard and soft in agriculture and industry, as agricultural production remains predominantly rain-fed. About three-quarters of the population depend on the agricultural sector for its livelihood and the sector provides for about one-quarter of GDP.

The agricultural sector has untapped potential - less than half of the arable land is cultivated. Investments from the Islamic economy can be a game changer in this regard. Furthermore, youth unemployment and underemployment remain serious challenges for the holistic development of the Gambia. In the last 50 years of relying on the Bretton Woods Economic Development Models, Gambia and most of the Sahel countries have sunken into a debt black-hole, which is used to justify the imposition of conditionalities and other structural adjustment programmes by the IMF and World Bank. Conventional banking and finance depends largely on the savings of the people which is mobilized into investments for housing and infrastructure development. Gambia with about 7% national savings deposit cannot mobilise the resources required for investment and transformation of the productive sectors of the economy. However, it should be noted that at grassroots levels, groups and communities have developed a saving culture through the informal use of “OSUSUs� where the members agree to contribute a specific amount every week or month, typically for a year and members take turns to withdraw the total amount contributed by the group. Therefore, a framework has been invented by the people out of necessity. But what remains is to develop the principles to meet certain standards of trust and risk management and dispute settlement mechanism that is efficient and effective. More formally, through the establishment of cooperative credit unions that almost all Public Enterprises in Gambia operate and have had a significant influence in personal savings for the working class. With some investments from the Islamic economy such institutions can become transformational and their activities can create value, wealth, employment and shared prosperity across the nation. The Central Bank of Gambia (CBG) is evolving the requisite architecture for the Islamic economy to take root and flourish in Gambia. The CBG has the mandate to license Islamic financial institutions and Bank itself is the sole issuer of Sukuk Salaam. Microfinance Institutions and other Non-Bank Financial Institutions are formally recognised in the financial industry of Gambia, but sourcing finance to fulfil their mandates continues to be a major huddle for these hybrid institutions. Using Islamic economic models will be more in keeping with visions and aspirations of such institutions.

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The Islamic Development Bank Group is working with partners to help realize these reforms. Furthermore, World Bank Group has introduced investment projects that use Islamic financing across the Muslim World. The World Bank Treasury has issued a variety of Islamic financial instruments, including two Sukuk, which have raised US$700 million. Similarly, the World Bank’s private-sector arm, the International Financial Corporation, has established the IFC Sukuk Company, which issued US$100 million in trust certificates in 2015. The World Bank’s political risk insurance arm, the Multilateral Investment Guarantee Agency (MIGA), has provided a US$427 million Shari’a-compliant investment guarantee for an infrastructure project in Djibouti and US$450 million in political risk insurance for a telecommunications investment in Indonesia. And, together with the Islamic Development Bank Group; the United Nations, and other donors, the World Bank has created a joint facility to assist the countries hardest hit by instability with concessional financing, which includes an Islamic-finance instrument for Lebanon and Jordan to help them bear the costs of supporting refugees from Syria. New technology can play a vital role in making financial systems more inclusive, particularly for groups that face greater barriers to access. For example, some 90% of Syrian refugees have access to smart phones, through which they could access financial services. Efforts must be made to ensure that we make the most of such technologies. Islamic finance has important advantages over conventional financial products. Its prohibition of interest and requirement that investments be linked to the real economy, together with its approach to profitand loss-sharing, add stability to the financial sector. Islamic finance also can enhance financial inclusion, as it incorporates people who, for cultural or religious reasons, are excluded from the traditional financial system. This is perhaps one reason why Islamic finance has been expanding at 10-12% per year over the last decade or so. If Islamic finance is to play its full part in revitalizing and diversifying the economies of the OIC countries, governments will need to undertake important reforms. Topping the list is the need for stronger legal institutions that protect property rights and ensure that contracts are enforced. If people are to have full confidence in Islamic financial products, moreover, the industry will need to be standardized and regulated. National tax policies will also need to be tweaked, to prevent discrimination against Islamic financial instruments.

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Finally, there are humanitarian objectives. And, indeed, work is already underway to address how waqf (charitable endowments), zakat (the obligatory alms tax), and a variety of Islamic financial instruments can be channelled effectively and efficiently to meet humanitarian needs. CONCLUSION Islamic finance can help deliver much-needed solutions to the Muslim world’s development challenges. Its ability to enhance financial stability, promote financial inclusion, and drive sustainable development could spark transformative change across the region. To realize this potential, Islamic finance, no less than its conventional counterpart, needs an appropriate enabling environment, one characterized by a level playing field, an adequate regulatory framework, and effective partnerships.

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ALMAMI FANDING TAAL IS THE PRESIDENTCOLLECTING SOCIETY OF THE GAMBIA & GENERAL COUNSEL AT AFRICA DEVELOPMENT GROUP. LLP. HE IS A LEGAL PRACTITIONER WITH OVER 15 YEARS’ EXPERIENCE IN PUBLIC LAW AND PRIVATE LAW AND A FORMER JUDGE OF THE HIGH COURT OF THE GAMBIA.

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CAPACITY BUILDING IN ISLAMIC BANKING & FINANCE FOR

SUSTAINABLE COMPETITIVE ADVANTAGE DR. ABDUS SATTAR ABBASI

D

espite irrevocable consensus on prohibition of riba in Muslim communities, outreach of Islamic banking and finance (IBF) is far less than the expectation. It is utter surprise that masses in Muslim societies are still not convinced that IBF operations are Shari’a-compliant. We can observe global agreement on exploitative dynamics of existing financial system. There is even a stronger belief that contemporary financial system is absolutely in contradiction to Shari’a principles.

The obvious outcome with the advent of IBF would have been instant massive popularity in Muslim communities with overwhelming clientele. However, despite professionally groomed IBF operations, they are still unable to capture significant market share in many Muslim societies. In Pakistan, for example, market share of Islamic banks in terms of assets and deposits is less than 15% of total market.1 One can hardly identify any shortcomings while visiting IBF institutions. The industry has successfully managed to constitute professional structure to provide modern-day banking services. If an institution is providing contemporary services according to prevailing professional standards with additional advantage of complying religious obligations, they should become the first choice for all Muslims.

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1. IBB (2018), Islamic Banking Bulletin January-March 2018, State Bank of Pakistan. Retrieved on July 18, 2018 from: http://www. sbp.org.pk/ibd/bulletin/2018/Mar.pdf

But IBF institutions are struggling for sufficient share in Muslim majority societies, let alone in countries where they are a minority. Emerging movements in Western countries such as Socially Responsible Investing (SRI), Environmental, Social and Governance (ESG) models and Ethical Finance; all sharing several fundamental values with Islamic finance; are indicative of global desire for alternative financial system. It was expected and expressed by experts that eventually this mode of banking and finance will replace the conventional banking structure. During face-to-face interactions in Pakistan (where 95% of the population is Muslim), I have observed explicit reluctance of conventional banking officials to convert to Islamic banking due to the lack of pragmatic business proposition.

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Series of meetings with business owners clearly indicated their desire to opt for Shari’a-compliant financial services. There are businesses who maintain their massive operations on cash transactions to avoid riba. Numbers of business owners maintain their personal accounts in Islamic banking, however, their corporate accounts are maintained by conventional banks. They believe that they are responsible only for their own earnings as shareholders but are hesitant to convert complex business operations. Likewise conventional banking officials also indicated difficulties in converting each and every account holder to IBF. Based on these observations, one wonders how to answer questions such as: Where is the missing link? Despite conducive circumstances, why there is so much delay in the transformation? Why people cannot distinguish between Islamic banking transactions and conventional banking products? Why employees do not exert pressure to their employers and bankers to provide them Shari’a-compliant financial services? Why people still don’t believe in Shari’a compliance of IBF? Why conventional banks don’t consider Islamic finance a business proposition?

2. O’Rafferty S, Curtis H, O’Conner F (2014), Mainstreaming sustainability in design education – a capacity building framework, International Journal of Sustainability in Higher Education, 15(2), pp 169-187.

Competencies can thus be classified around four themes including subject (facts, definitions, concepts, rules, systems), methodological (fact-finding, analysis, problem-solving), social (working interactively, communicating, citizenship) and personal (thinking, reflecting, ethics, moral judgements).3

3. Stevens, C. (2008), OECD Work on Competencies for Education for Sustainable Development, OECD, Paris.

There is substantial progress in developing Shari’a framework and operational structures of IBF. Probably these developments couldn’t get across effectively to all relevant stakeholders. Otherwise, we would have been at par with conventional banking in terms of volume with the journey we have completed. Share of IBF is still far below our expectations. Frontline employees of Islamic banking and financial institutions are responsible for transmitting these developments to the people. We really need to determine if they have the ability to create competitive advantage for Islamic banking and financial institutions. This article examines the capacity of frontline officials of Islamic banking and financial institutions to communicate conceptual and practical underpinnings of Islamic finance to all relevant stakeholders and decision makers. It also attempts to explain how capacity building can lead to sustainable competitive advantage for Islamic banking and financial institutions. CAPACITY BUILDING Capacity is multi-dimensional and is made up of components such as foundational components (information, culture, values), competencies (knowledge, behaviours, skills, motivations) and capabilities (professional skills). Capacity building enables an organization to improve performance to achieve successful outcomes. However, building individual capacity is an integral part of this process for sustainability.2

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4. Hou, J.-J. (2008), Toward a research model of market orientation and dynamic capabilities, Social Behavior and Personality: An International Journal, (36)9, pp. 1251-1268.

It is also suggested that a framework of competencies required within an organization is the ability to sense and understand market dynamics, absorb new knowledge & information, integrate existing infrastructure and innovate & develop new products and services.4 Building on these perspectives, we can outline key competencies for IBF professionals such as: • Knowledge of basic prohibitions in financial transactions • Conceptual clarity about riba and business transactions • Sufficient knowledge of IBF products • Dynamics of contracts in Islamic financial transactions. • Adequate ability to determine and explain the difference between Islamic and conventional financial transactions

5. Harris, A. (2011), System improvement through collective capacity building, Journal of Educational Administration, 49(6), pp.624-636

Essentially, capacity building implies that people take the opportunity to do things differently, to learn new skills and to generate more effective practices.5 Capacity building must be systemic if it is going to make a performance difference.6 Hence, it should be broad including every IBF institution and deep for every IBF employee. Collective capacity, on the other hand, refers to resources and processes which include qualification and development of staff, quality of management & leadership, internal & external networking and so on. Collective capacity can be increased, developed or built mainly by actions taken by those with the responsibility of management and leadership.7 As such organizational capacity can be classified into three forms as capital including intellectual, social and organizational. Intellectual capital, what is often called human capital, consists of the totality of the knowledge, skills, competences and expertise. Social capital has two sides. One is the degree of trust among members of organization and between them and any external people. The other is the extent or reciprocity between those in trusted relationship. Trust and reciprocity combine in social capital to bind people into networks. Organizational capital is a distinctive component of organizational leadership and consists of the capability of the leaders to deploy organizational potential intellectual and social capital. In the backdrop of above discussion, the following deductive findings are presented based mainly on observations during capacity building program in collaboration with State Bank of Pakistan (SBP) for the reflection of relevant stakeholders:

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6. Sharrat, L. and Fullan, M. (2009), Realization: The Change Imperative for Deepening District Wide Reform, Corwin Press, Thousand Oaks, CA

7. Hargreaves, D.H. (2011), System redesign for system capacity building, Journal of Educational Administration, 49(6), pp.685-700

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• IBF employees mostly have a weakly developed concept of individual and organizational capacity. • IBF leaders generally underestimate the nature and potential of intellectual and social capital and/or lack the knowledge and skills to mobilise these as a way of capacity building. • Generally IBF leaders are unable to build organizational capital. COMPETITIVE ADVANTAGE

8. Popa I, Dobrin C, Popescu D and Draghici M (2011), Competitive Advantage in the Public Sector. Theoratical and Empirical Researches in Urban Management 6(4), pp. 60-66

Battle of competition in any domain or industry is the confrontation for benefits to create and maintain strategic advantage. Therefore the strategy of the organization has to be focused on creating new advantages that will lead to increased customer satisfaction and asymmetry compared to that of the competitors. By doing so, the held advantage may extend, while also diminishing or eliminating the advantages of the competitors.8 A company is said to have a competitive advantage when it can create more economic value than other rival companies. Economic value is the difference between perceived benefits gained by a buyer who purchases goods or services of a company and the economic cost of these products and services. Therefore, the size of a company's competitive advantage is the difference between the economic value that the company makes and that of its rivals.9 Sustainable competitive advantage lies in occupying a superior position in the market. Islamic finance has inherent characteristic of occupying specifically superior position in Muslim communities and in all societies in general due to the spirit of circulation of wealth, mobilization of resources and the intent of welfare behind every financial or commercial transaction.

• Muslims, that IBF offers a superior value not for this life but hereafter and • Non Muslims, that IBF discourages accumulation of wealth and ensures equitable distribution of wealth in the society.

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Capacity building programme brought several insights in identifying reasons of relatively low pace of expansion of IBF. With fewer bases growths are always impressive, it is probably due to this reason that Islamic finance as a sector usually celebrates sparkling growth figures. If we relate existing size of Islamic finance with aspirations of people at gross root level to embrace riba free financial structures, it is not difficult to detect weaknesses of practitioners and institutions in IBF in displaying and explaining existing framework of Islamic finance to the masses. This lack of intellectual capital resulted into the huge loss of social capital of IBF. Intellectual capital of those who developed and established this parallel financial system is praiseworthy. However, there are several concerns about those who are now acting as a face of Islamic finance on front desks of IBF institutions. They actually communicate with public to explain Islamic financial products and transactions. Social capital of IBF is dependent on these frontline practitioners.

9. Barney, J. and Hesterly, W. (2006). Strategic Management and competitive advantage, Upper Saddle River: Pearson Education

However, it seems that IBF probably failed to exhibit the character to be considered as a superior option available to the mankind for their financial needs and the onus of this failure lies on the shoulders of human resource which is bearing the flag at the frontline to give necessary understanding of IBF products and procedures. Another type of competitive advantage is the one that results from a successful brand, which suggests that successful brands “offer reliable guarantees in terms of high quality products and services.10 Competitive advantage based on brand creates serious entry barriers for potential new competitors. Competitive advantage can be obtained only if a business system creates superior value for buyers. A company must be able to provide a more suitable product/service for customers than those produced by rival companies. In IBF, we have probably failed to establish superior value for both:

ISLAMIC FINANCE AWARENESS SURVEY

In this realm, an instrument was developed to gauge fundamental knowledge, competencies and expertise of working IBF professionals to determine the reliability of intellectual capital that is actually in-place and responsible for providing sustainable competitive advantage to the sector. The instrument determines primary understanding of those employees of banks and IFIs who interact with masses on several fronts from customer services to corporate finance. Underlying spirit in the development of subject instrument remains that IBF professional while dealing with people should be able to speak language of Islamic banking and finance. These professionals have to develop expertise with basic prohibitions, types of Khiyar, conditions for valid ‘offer & acceptance’, elements of ‘aqd and so on, to convince and attract clientele for IBF. They should be able to explicitly differentiate conventional and Islamic financial products. Result of the survey from selected branches of Islamic banks and financial institutions in Lahore, the second biggest city of Pakistan with more than 11 million population, is given below for the observation of readers. FINDINGS

10. Popa I, Dobrin C, Popescu D and Draghici M (2011), Competitive Advantage in the Public Sector. Theoratical and Empirical Researches in Urban Management 6(4), pp. 60-66

When respondents were asked about types of riba, only one third were familiar with both al-Fadl and al-Nasiah. While none of the respondent marked all given types of Khiyar including al-Shart, al-Majlis, al,Wasf & al’ayb, suggesting lack of understanding about Khiyar despite the fact that there is hardly any training of IBF which concludes without mentioning or through discussion about Khiyar. Responding to the conditions for valid contract only a few could manage to indicate all three given options including ‘aqd, mube’e & thaman, with the majority missing at least one of these.

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Gharar is one of important concepts which differentiate IBF from conventional banking system. Only one third of respondents were not aware of the notion. However, caution may be taken in generalising the conclusion of this survey as this is an assessment of only one city and cannot be generalized to entire country or the sector. Nonetheless, it is sufficient to alarm bells about focusing towards the capacity building of IBF professionals. CONCLUSION Product knowledge brings confidence in an individual. The knowledge of sources of development of a product/service, knowledge of the recipes of contracts, knowledge of possession and ownership, knowledge of permissibility & prohibition and so on can enable a banking professional to present and promote products of Islamic banking and financial institutions accurately and persuasively. The knowledge of IBF products/services may not be enough rather ability of comparing and qualifying Islamic banking and financial products is essentially required to help end-users to decide conveniently to opt Islamic banking and finance.

PRODUCT KNOWLEDGE CAN HELP UTILIZE UNIQUE SELLING POINTS (USPS) OF ISLAMIC BANKING AND FINANCE TO ESTABLISH SUSTAINABLE COMPETITIVE ADVANTAGE.

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It was surprising to see that even with reasonable experience in Islamic baking all respondents couldn’t managed to point out Bai’ as ‘exchange of commodity and price’, they usually confused Bai’ with ‘offer and acceptance’. It was sheer disappointment to notice knowledge of participants about prohibited transactions in IBF. Misconception of masses while considering Ijarah and lease as one and the same thing was evident by the responses in this survey where employees of Islamic banks indicated Ijarah as ‘selling an asset on instalments’. Only 40% respondents could indicate Murabaha as ‘selling on mutually agreed profit’, while majority couldn’t opt right options for Salam and Istisna. Knowledge about takaful and sukuk was also not appreciable. Interestingly all participants responded well about Musharkah and selected ‘d’ from following options: a)

shirkah al-amwal

b)

shirkat ul ‘aqd

c)

sharing of pro rata profit & loss

d)

all of the above

e)

none of the above

DR. ABDUS SATTAR ABBASI IS THE HEAD, CENTER OF ISLAMIC FINANCE AT COMSATS UNIVERSITY ISLAMABAD (CUI) LAHORE CAMPUS, PAKISTAN.

Product knowledge can help utilize unique selling points (USPs) of Islamic banking and finance to establish sustainable competitive advantage. USPs of Islamic banking and finance are usually in favour of the end-user but somehow our customers are mostly unable to grasp this intrinsic peculiarity of Islamic banking and finance. If an employee of Islamic banking or financial institution cannot comprehend transparency of Murabaha, dynamics of Khiyar, spirit of Takaful, rights and responsibilities in case of default, soundness of Musharaka and dependability of Mudaraba, then how will she or he be able to transmit these USPs to concerned stakeholders for appropriate decision making to patronize Islamic banking and finance. Sound knowledge can lead to conceptual clarity to develop dynamic capabilities in Islamic banking and finance through learning, integration and transformation to enrich individual and organizational ability. Pursuing strategic direction of becoming dependable alternative, Islamic banking and financial system still requires aiming prolific human resource development. Sustainability of competitive advantage of Islamic banking and finance depends on sufficient competence of human resource to make sure that parallel movements can’t readily imitate inherent advantage of Islamic banking and finance. Making Islamic banking and finance a superior brand and ensuring superior economic value for all stakeholders requires unshakeable capacity of IBF professional. We all have to join hands to build required capacity for long-term success of the sector.

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POINT OF VIEW

SHARIAH CRYPTOCURRENCY?

(MUFTI) ISMAIL EBRAHIM DESAI

A

new revolutionary technology in computing has been developed. The technology called blockchain, a distributed ledger which facilitates the transfer of value or data without the need of a central authority or a third party. The popularity of the blockchain has led many experienced and powerful business leaders within the financial services sector to predict a competition between the blockchain and fiat currencies by as early as 2025. The potential of blockchain is so powerful that thousands of financial institutions, millions of investors and entrepreneurs are utilizing this powerful tool for their benefit. In fact, Dubai has unveiled its plan in becoming the leader of blockchain across its private and public sector by 2020. It is no surprise that central banks and regulators are taking a keen interest in blockchain technology. The South African Reserve Bank has formed a joint working committee to develop regulations for the blockchain and crypto-currencies. The International Monetary Fund (IMF) recently published a discussion document indicating that banks around the world should begin to seriously consider investing in cryptocurrencies and other fintech opportunities, as a means of adapting to new technological demands.

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WHAT IS BLOCKCHAIN? The blockchain is a decentralized digital ledger which records transaction chronologically and publicly, allowing anyone to verify and access the data. The blockchain is the underlying technology that powers Bitcoin, a decentralised digital currency which is the first and original application of blockchain. The blockchain allows anyone to send money from anywhere in the world at little to no cost, with no banks or third-parties involved in the transaction. The use for blockchain is limitless; it can cater to any form of transactions involving value such as money, property and goods. In 2008, an individual (or a collective) under the pseudonym Satoshi Nakamoto published a white paper on how Bitcoin would work, along with the open-source software needed to run the protocol the following year. His invention has sparked the blockchain revolution, without anyone knowing who he is.

THE BLOCKCHAIN IS THE UNDERLYING TECHNOLOGY THAT POWERS BITCOIN, A DECENTRALISED DIGITAL CURRENCY WHICH IS THE FIRST AND ORIGINAL APPLICATION OF BLOCKCHAIN.

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POINT OF VIEW

IS BLOCKCHAIN SECURE? Blockchain’s security protocol is effective since it relies on 2 important characteristics; Use of cryptography: Blockchain uses cryptographic techniques backed by complex mathematical algorithms to verify and secure the data Nature of decentralisation: It is much harder to hack a decentralised network rather than a centralised, single-point-of-failure system. Imagine the amount of work needed to hack into thousands of computers distributed in a decentralised network! The features of immutability and transparency of the blockchain process removes the possibility of fraud and theft. DIGITAL CURRENCIES The emergence of blockchain technology is in tandem with the advent of cryptocurrencies, in particular, Bitcoin. Hence, it is only fair that we examine both elements individually to explore their compatibility with Islamic finance. Unlike fiat money, cryptocurrencies cannot be made out of thin air. A huge amount of effort and resource is required to produce the supply of cryptocurrencies like bitcoin. This is called “mining”, where individuals or entities use sophisticated computer equipment and software to solve complex mathematical problems through the use of cryptography. This process creates 2 outcomes: ensure the security of the entire network and creation of cryptocurrency supply as a reward for miners’ efforts Since the blockchain is a decentralized network, miners have an important role in securing transactions. Their interests will naturally be aligned since miners will be rewarded with cryptocurrencies for every successful block they secure. The exertion of computing power, electricity and time by the miners represents the value that validates the creation of cryptocurrencies. This is contrary to the fiat system, where governments and banks can create money out of impulse with no corresponding injection of value. It is important to point out that fiat money is debtbased. It follows that whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

MUFTI ISMAIL EBRAHIM DESAI IS THE CEO OF GLOBAL ISLAMIC FINANCIAL SERVICES FIRM. HE MAY BE CONTACTED AT

SHARI’A AND BLOCKCHAIN Fiat Currency is considered to be a valid medium of exchange in Islam and is not viewed as a store of value such as physical assets and commodities. Cryptocurrencies may be viewed as a valid medium of exchange and hence Shari’a compliant. However since there are various forms and denominations of such currencies, a more detailed research is required from a Shari’a perspective.

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CEO@GIFSRV.COM

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SHARI’A ROBO-ADVISORS

REPLACE

SHARI’A ADVISORS?

YOUSUF SULTAN

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met few young Shari’a graduates during a Fintech forum recently. They expressed their concerns about their career as Shari’a scholars in Islamic finance. With the rapid expansion of Fintech and the emergence of robo-advisors in the finance and wealth management space, many Shari’a robo-advisors are expected to be there in next few years. However, does that mean that human Shari’a advisors will no longer be needed? Currently, the scope of Shari’a robo-advisors is limited to Shari’a-compliant investment and wealth management. For example, Wahed Invest and Algebra - both featured as the pioneers of Shari’a robo-advisory platforms - provide algorithms to filter Shari’a-compliant portfolio and provide financial advice to the investors based on their risk appetite. Algebra is specifically targeted to the Asian market. The platforms provide financial, business and operational screening, in addition to stock purification and investment services. However, the role of Shari’a robo-advisory can be extended beyond financial advice and wealth management. The AI bots can play the role of validating the basic requirements of Shari’a compliance for a product or contract.

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YOUSUF SULTAN HAS DIVERSE EXPERIENCE IN SHARI’A AND TECHNOLOGY. CURRENTLY, HE IS LEADING THE TECH TEM AT ETHIS VENTURES ALONG WITH THE SHARI’A ADVISORY SERVICES.

“ASK THE PEOPLE OF THE BOOK IF YOU DO NOT KNOW.” (ALQUR’AN, 21:7)

For example, in sale contracts, ensuring that there is a proper offer (ijab) and acceptance (qabul), the subject matter (ma’qud alayhi) and price (thaman) are well defined and not uncertain.

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“Ask the People of the Book if you do not know.” (Al-Qur’an, 21:7)

In partnership contracts (mudaraba/ musharaka), the profit-sharing ratio is valid and does not eliminate any partner from receiving profits (if there is any) at any time. Capital contributions are well defined to define loss (if there is any).

The ‘ahl al-dhikr (people of the book)’ is interpreted by the commentators as the people with knowledge (of Shari’a). Thus the need for human Shari’a advisors will always be there.

The robo-advisor may further investigate if the product meets specific objectives of Shari’a (maqasid-shari’ah). It may also check the ESG (Environmental-Social-Governance) criteria for example, and give a score based on those.

One of the core objectives of Shari’a scholars is to provide Shari’a based solutions to real-world problems. On the other hand, technology being an enabler makes things easier, faster and more efficient. Shari’a scholars are thus recommended to keep themselves updated on latest happenings in the Tech space.

Once the bot goes through the basic requirements check, the human Shari’a advisors will need to look at it, based on the knowledge and wisdom they acquired from Qur’an, Sunnah and other sources of Shari’a.

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Human scholars will always have their role to play. Allah SWT mentioned in Al-Qur’an:

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There are many things to do with AI (artificial intelligence), machine learning, big data, blockchain, smart contracts and other tech innovations, and Shari’a has a significant role to play through those.

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Introduction: Introduction:

Islamic Bankers Association (IBA) is a new international industry representative body for practitioners of Islamic Islamic Bankers Association (IBA) is a new international representative body for practitioners ofThe Islamic banking and finance. It is officially incorporated in Unitedindustry Kingdom, with its registered office in London. IBA banking and finance. It is officially incorporated in United Kingdom, with its registered office in London. The membership is open to individuals and corporates, and aims to become the largest industry representative bodyIBA for membership is open individuals corporates, and aims to become the largest industry representative body for Islamic banking and to finance in the and world. Islamic banking and finance in the world.

Membership categories include: Membership categories include:

Corporate Membership: For all Islamic banks and the institutions offering Islamic financial services – IIFS (Annual Corporate Membership: For all Islamic banks and the institutions offering Islamic financial services – IIFS (Annual Fee: £3,500) Fee: £3,500) Associate Corporate Membership: For all businesses that offer their services to Islamic banks and IIFS (Annual Fee: Associate £5,000) Corporate Membership: For all businesses that offer their services to Islamic banks and IIFS (Annual Fee: £5,000) Individual Membership: For all the employees of Islamic banks and IIFS, with work experience of a period of five Individual Membership: For£100) all the employees of Islamic banks and IIFS, with work experience of a period of five years or more (Annual Fee: years or more (Annual Fee: £100) Young Professional Membership: For all the employees of Islamic banks and IIFS, with work experience of a Young of Professional Membership: For all employees of Islamic banks and IIFS, with work experience of a period less than five years (Annual Fee:the £50) period of less than five years (Annual Fee: £50) Associate Individual Membership: For any professional whose application is endorsed by at least one existing Associate Membership: For any professional whose application is endorsed by at least one existing member ofIndividual IBA (Annual Fee: £100) member of IBA (Annual Fee: £100) Islamic Bankers Association is a non-profit organisation, registered in England and Wales as a company limited by guarantee, and Islamic Bankers does Association a non-profit in England and as a Conduct companyAuthority. limited by guarantee, and not offeris any financial organisation, products and registered as such is not regulated byWales Financial does not offer any financial products and as such is not regulated by Financial Conduct Authority.

If interested in becoming a member, please get in touch with Khuram Shehzad on: If interested in becoming a member, please get in touch with Khuram Shehzad on:

+44 (0) 20 3617 1089 or kshehzad@edbizconsulting.com +44 (0) 20 3617 1089 or kshehzad@edbizconsulting.com


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WHAT MODEST FASHION MEANS TO

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odest fashion is on the rise globally and becoming very en vogue at the moment. Thanks to social media and retail globalisation, modest fashion has now gone mainstream. Global fashion brands such H&M, Uniqlo and Nike have introduced modest fashion lines as they wake up to the tremendous opportunities of the worldwide Muslim market. For example, Nike announced their interest to venture into the sports hijab line.

Established international brands such as DKNY, Tommy Hilfiger, Zara, Gucci, Oscar de la Renta and Mango have brought out special collections of modest wear during Ramadan in recent years. Dolce & Gabbana has been selling a luxury collection of abayas and matching hijab since 2016 in the Middle East, Paris and London. These brands are riding the wave of a phenomenon called “modest wear” that is sweeping the world. Modest wear aligns with contemporary fashion but is geared to the needs of Muslim women, offering style and diversity. The kick-start of Istanbul Modest Fashion Week, London Modest Fashion Week and Singapore Modest Fashion Week has helped modest fashion to boom. The rise of the new generation of millennial Muslimah has led to the rapid development of a burgeoning market for what is term as ‘modest fashion’. These consumers prefer to shop online and are driving the e-commerce for halal segment. In 2016, OIC countries accounted for 8.1% of total value sales of apparel and footwear. Expenditure on modest fashion is forecasted to grow to US$373 billion by 2022. Historically, dressing conservatively has been at odds with what is considered ‘cool’ in Western fashion trends. However, modern women of today are adhering to modesty in style. Trends such as layering, supersize silhouettes, high neck lines, low hem lines, baggy pants has become somewhat of a fashion norm even in Western countries. What started with Muslim women looking for more stylish ways to express themselves through fashion while still respecting and adhering to Islamic as well as cultural requirements, modest fashion has now become a multi-billion dollar industry, appealing to people across all nationalities, backgrounds and faiths.

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AIDA HADZIC VIP Business Club Assistance at Bosna Bank International, Bosnia & Herzegovina

According to Aida Hadzic, VIP Business Club Assistance at Bosna Bank International, Bosnia & Herzegovina; modest fashion doesn’t refer only to clothing as Islam is the combination of body and soul. “A woman can be dressed in total black, but behave in a manner that hurts others. On the other hand, a Muslim woman can face barriers to dress in a way that is prescribed by Islam because of the culture she lives in,” explained Aida. She added that there can be many extremes, where in some countries there are strict rules on female dress and appearance. “I don’t think that covering women in black to protect them from the outer world, or better said, to protect the outer world from women is a good thing,” she further explained. “I think a Muslim woman should be dressed in a way that protects and signifies her dignity and beauty - a pearl is beautiful on its own, it is the overall design that makes it astonishingly gorgeous,” Aida stressed. “I believe that both - Muslim women and men, in a world full of prejudice towards Islam and Muslims, should keep the basic rule of hijab - to cover what is supposed to be covered, to be perfectly tidy.” This is especially true for women who haven’t been blessed with the strength or ability to wear hijab. They should bear in mind that hijab doesn’t refer only to the scarf. She further added that if a woman cannot cover her hair, then she should cover the rest, but mostly, cover her soul with faith, and her eyes, hands and the rest of her body from sins. “That is what I understand under Muslim fashion in its full version,” Aida said in response to the question on what is modest fashion.

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ISFIRE ASKED SEVERAL WOMEN PROFESSIONALS TO DEFINE THAT MODEST FASHION MEANS TO THEM, IF THEY THINK MODEST FASHION IS FOR EVERYONE AND IF DRESSING MODESTLY CAN BE EMPOWERING. THE FOLLOWING ARE THEIR EDITED ANSWERS:

TAMIMOUNT KADDOURI Owner MOUMINA, Modest Islamic Fashion, Netherlands

Modest fashion for me is a way to communicate, to express myself without speaking and without having to give away my beliefs. I love clothes and playing with colours, fabrics and styles ever since I can remember. So when I started wearing hijab at the age of 23, this didn’t stop, it actually only grew. Because I felt there where to little options to choose from, which eventually drove and motivated me to start my own modest fashion brand MOUMINA. My goals is to provide women who want to dress modestly with quality clothes made from natural fabrics, like cotton, linen and viscose and more modern colours and designs.

MODEST FASHION FOR ME IS A WAY TO COMMUNICATE, TO EXPRESS MYSELF WITHOUT SPEAKING AND WITHOUT HAVING TO GIVE AWAY MY BELIEFS.

Being a Muslim doesn’t mean you can’t be fashionable. God loves nice things and so do we. It’s just the way we are wired. Modest fashion is comfortable, simple, and easy but still look chic, stylish and elegant at the same time. Is modest fashion for everyone? Definitely! It should be. Covering up yourself in a modest way is something I believe everyone does. The difference is some just do it every day. Others once a week etc. You clearly see the trend that mainstream fashion brands, like H&M and Zara and even high end fashion brands are noticing that modest fashion is growing and is worth paying attention to. Brands like D&G and DKNY already have a special modest ‘Ramadan collection’ and are working with modest fashion bloggers to gain more popularity amongst that group of consumers. Modest fashion will keep growing and smart brands are looking for a way in. Dressing modest makes it more about you and what you effectively can bring to the table. It is less superficial than the mainstream fashion and off course less revealing.

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Historically, the female body have been exploited in a history of fashionable dress. Dressing modestly just takes that out of the equation. I truly subscribe to the view that dressing modestly can be empowering. Being able to look modest and still being able to dress in the style you love gives you the confidence to do whatever you want. Feeling good about the way you look has a positive psychological effect on your self-image and hence, on the way you think and act. As I said before, dressing modestly makes it more about you and your thoughts. I believe people will take you more seriously if you are dressed modestly than if you are to wear a revealing dress. You should be able to wear what makes you happy and makes you feel good, without losing your faith or personal beliefs.

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SARAH DIMANI Communicate & Content Manager, Belgium

Modest fashion is often perceived as a style that only fits Muslim women, which I don’t agree with. To me, modesty does not have a universal definition because it’s very personal and comprehends many factors. If we look in the dictionary modest is understood as: 1. not large in size or amount, or not expensive; 2. not usually talking about or making obvious your own abilities and achievements 3. simplicity, minimalistic Neither one of the above definitions explain what modest in modest fashion means. The social scene added the latest year another meaning on modesty. In this context we can understand modesty as the level of cleavage. The modest consumer can be segmented in general groups with clear guidelines. In other words: Modest Fashion is simply when clothes are designed or combined in a way that suits people who would prefer to show less skin. On the question if I think modest fashion could be for everyone, the answer is definitely a YES! I genuinely believe that modest fashion is one of the few clothing styles that connects people worldwide. It connects all religions (who often have clear guidelines on clothing) but also people who are mostly left out of society such as Mormons, Amish, and other smaller groups. Besides that you can find modest women in every field, group, ethnicity or religion. A quick overview: Professional: Women with a high status at work often dress modestly (especially when they work in a male dominated field). Personal choice: Some women prefer to show less skin and dress (un)consciously modest. Religious: Religious people often follow strict clothing rules that results in modest dressing. Throughout the world women choose to dress modestly for professional and religious reasons but there are also various other reasons such as for their skin conditions, sun protection, allergies or their view/ status in their community.

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Modest fashion is so much more than covering wardrobe options. Modest fashion is here to change perception and extend a softly empowering influence, offering a new chapter for women who can finally combine their modesty with fashion. Not only will the appearance be inspired but also their mind and way of thinking. By meeting, seeing and getting inspired by modest women with different backgrounds, modest fashion builds bridges. Dressing modestly can be empowering as it unconsciously aims to highlight commonalities and bridge differences in an empowering way.

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MODEST FASHION IS SO MUCH MORE THAN COVERING WARDROBE OPTIONS.

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SHUMAILA KHALID Human Resource Professional, United Kingdom

NOORSURIANI MUHAMED Product & Market Development, Islamic Capital Market, Malaysia

My interpretation of modest fashion would be fashion trends of wearing comfortable dressing that covers the body, yet still looking stylish. It also represents social diversity. However, modest fashion does not have to be dull and boring, and it shouldn’t be limited to a certain style. You can dress up modestly, yet in colourful and stylish way, according to personal preferences. Hence, modest fashion is absolutely for everyone, not only for those wearing hijabs or only in Muslim countries, but everywhere. There are lots of choices and brands out there that we can choose from and mix and match, from high street fashion to couture to designer brands. Anybody and everybody can experiment the latest trends and styles. In fact, modest fashion has gone global including via online, and has contributed hundreds of billions to the economy. For women, self-confidence includes the way we dress-up. Dressing up modestly yet in a stylish way brings confidence and builds self-esteem. Women that bring modest fashion forward are powerful because they are able to inspire and empower others to be confident too. As you know, modest fashion has come to limelight recently. You can see more designer brands featuring modest fashion on runways. There are modest fashionistas out there with positive and powerful aura and confidence too.

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MODESTY COMPRISES OF TWO ELEMENTS: THE OUTER GARMENT AND THE INNER SELF (SOUL). ONE CAN DRESS THE PART BUT NOT ACT THE PART THEREFORE IF THERE IS AN IMBALANCE IN EITHER OF THESE TWO ELEMENTS THEN MODESTY BECOMES IMPARTIAL AND INCOMPLETE.

While modesty is manifested differently from person to person, we can all agree that its central principal is to cover as opposed to reveal. It applies to both men and women. To me, modest clothing should be clean, dignified, covers all the right places and it is worn with the correct intention and attitude. The purpose of which is to submit to Allah swt rather than the fashion of society. Modesty comprises of two elements: The outer garment and the inner self (soul). One can dress the part but not act the part therefore if there is an imbalance in either of these two elements then modesty becomes impartial and incomplete. Whether we admit it or not, clothes and presentation communicate volumes about you as a person. I was trained as a Diagnostic Radiographer and part of my dress code was to wear clinical uniform. A number of my colleagues and I would vouch that as soon as we put on our uniforms, our mind set would become more focused. We seem to enter into a zone where we appear to act more professional, accountable, and responsible as we have a duty to care and fulfil our roles efficiently. Not only this, people saw us differently to an extent that they relied on our professional knowledge, appearance and respected our position. Therefore, the formality of clothing could influence decision making, our performance and overall attitude. To me, dressing modestly compliments my belief, it creates a positive mind set with me. It gives me a sense of contentment and I am better focused on the things around me, thereby having the right internally and external balance helps bring out the best version of me. I am in a position to empower others as I am confident, content and secure with myself.

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RAFIZAH ABU BAKAR Multimedia Designer, Malaysia

In my opinion, modest fashion is the best clothing selection for my daily wear as it is important to portray our identity as Muslim women. I wear hijab not only to fulfil religious requirements, but also to attain a certain level of comfort and increase self-confidence.

NASHA PHEDRA AMIN Islamic Banking Legal, Malaysia

We make decisions all the time. And people form opinions about us based on our decisions. Similarly, for many women, their decision to dress modestly is a declaration of their need to feel more protected and more empowered through clothing that covers more than it reveals. In Malaysia, the awareness of young Muslim women have changed towards wearing ready-to-wear praying clothes instead of wearing ‘telekung’1 where most of public praying rooms are too small and crowded with many people who want to pray simultaneously. By simply wearing ready-to-wear prayer clothes, they are ready to perform prayer comfortably with confidence. The fact that fashion plays an important role in our life is truly unmistakable. We are judged by our clothing and appearances on an everyday basis. And it’s up to the individuals as to how they want to dress up but still conform to Shari’a while at the same time looking stylish, trendy and fashionable. Today, dressing modestly is no longer seen as a symbol of oppression of Muslim women, rather as an expression of their empowerment.

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1. Telekung is a traditional two-piece clothing that is worn for prayers by Muslim women in Malaysia and Indonesia.

Dressing modestly is dressing within our religious parameters, i.e. with clothes that doesn’t reveal our aurat or shape but at the same time allowing us to look stylish, classy, modern and trendy. Traditional religious clothing like jubahs or long hijabs are modest but it should not be confused with modest fashion, which is not always traditional and should not be confined to a culture or religion. Women of different shapes, faiths, colours, sizes and backgrounds can be as stylish and trendy. Modest fashion is for women who are confident, knows what they want and are not afraid to express their personality through the clothes they wear. They dress for themselves instead of dressing to get men’s approval. Behind the modest fashion they wear is a message about the strength of the women. Hence, dressing modestly is about empowering oneself.

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OMOTOLANI BUSARI Communication Specialist and Blogger, Nigeria

SAMAH RAGAB Strategy & Investor Relation, Dubai, UAE

Modest fashion means dressing in a conservative way, that is chic and elegent at the same time. Modesty is for everyone and for women choosing to cover their body, they do so to portray themselves in a certain manner and because fashion in itself is a form of expression. They’re making a statement to the world that a woman should be portrayed as a beautiful jewel and an important person who contributes to society, not a person who is exposing her body to the world, and, unfortunately, sometimes attracting the wrong attention. Modesty has been long known in all religions whereby we see that in addition to Muslims, nuns from both Christianity and Judaism also dress conservatively and promote this idea. When I started wearing hijab a few years ago, I started paying more attention than before, to wearing elegant clothes, because I want to correct the misconception that some people have about how hijab and fashion cannot be related. I’m a proud hijabi and a person who loves fashion and follows the latest fashion trends at the same time.

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MODESTY COMPRISES OF TWO ELEMENTS: THE OUTER GARMENT AND THE INNER SELF (SOUL). ONE CAN DRESS THE PART BUT NOT ACT THE PART THEREFORE IF THERE IS AN IMBALANCE IN EITHER OF THESE TWO ELEMENTS THEN MODESTY BECOMES IMPARTIAL AND INCOMPLETE.

To me, modest fashion means any kind of clothing or fashion item that keeps me well covered and not revealing of my awrah. There is no unified definition of modest fashion where the meaning of modesty differs from individual to individual. However, dressing modestly can be empowering for women because it shows that you don’t have to compromise on your ideals to achieve your dreams. Modest fashion has also broken the stereotype that only scantily dressed people get particular gigs. People now tend to pay more attention to modestly dressed women. Dressing modestly allows women to express their individuality and personality through fashion, while maintaining and showcasing the beauty of their faith. Today, modest fashion has led to the emergence of more market opportunities. Even established businesses now have a ‘modest fashion’ section to attend to the needs of Muslim women and women of other beliefs who also want to be modestly dressed. However, Muslim women need to be focused and try not to dilute the idea of modest fashion with every trends that comes along. We need to stay true to the teachings and directions of Islam regarding our appearance.

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DRESSING MODESTLY IS DEFINITELY EMPOWERING.

HAJAR LAKHOUL Trainee Consultant, Morocco

MURSHIDAH SAID Trainer & Social Entrepreneur, Singapore

Modest fashion to me means to be able to wear what the individual feels will protect his or her modesty and dignity. Modest fashion is the reflection of the person’s beliefs in covering up his/her body with the clothes on his/her body. Modest fashion is not limited to a particular religion but rather for both men and women who do not like wearing tight and revealing clothes. Dressing modestly is definitely empowering. Firstly, it is the choice of the person wearing it. The person is not forced to put on the clothing or succumb to a particular dress code that is not in accordance to the person’s beliefs. Modest clothes also place the focus on the person (and his/her mind) and not the person’s body or physique.

I think modest fashion refers more to expressing one selves through our style and clothes, than just following the latest fashion trends. With trends changing so fast especially in today’s evolving world, it is becoming more and more difficult to stay synced with the ever changing fashion trends. This is especially true if you take costs into account because not everyone can afford to buy every new style of clothing that comes out. On the subject of whether modest fashion is for everyone…. I don’t think so. Some people prefer to stick to their old style of dressing rather than embrace modest fashion. Not everyone is up on the whole hijabi-hipster movement. And not everyone is raving for the trend, with some commentators arguing that modest fashion could sometimes look totally incoherent with our values and principles. I believe that dressing modestly can be empowering, especially in an environment where society places too much importance on looks and appearances. When dressing modestly, we are sending the message that we want to earn reputation for our skills and expertise, not for the way we look. The way you dress shapes how people perceive you. But there is always that option of sticking to your own style and not let fashion dictate you.

CONCLUSION If there’s one thing all of the women I spoke to agree on, it’s this: There is no one definition of what modest fashion means, but it essentially relates to having a degree of awareness when it comes to covering up parts of your body. However, dressing modestly is not just about an outfit, but also about how you see yourself. It is not restricted by the attire, religion, gender or age; it is a belief that comes from within to build your self-esteem and gives you the strength to be different. Because it isn’t just a trend, it’s the way of dressing, a lifestyle, and way of expressing your style parallel to your way of life. Arguably, the modest fashion movement has further provided an opportunity to empower all women. For many women, dressing modestly is a way to assert female empowerment and self-confidence. Michael Kors observed, “I am convinced that there is something far more alluring about women wearing things that give them confidence, that don’t make them feel as if they have to tug at their hemlines or yank at their straps.” Former Céline creative director Phoebe Philo, an early adapter to the modest dressing trend, eloquently said, “When you feel secure and comfortable and protected [by your clothes], you feel stronger.” Modest dressing, in other words, is an empowered choice.

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PRACTICALLY IRRELEVANT? ACADEMIA

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REAL WORLD

NOOR AZIZI ISMAIL DEPUTY DIRECTOR GENERAL OF HIGHER EDUCATION AT MINISTRY OF HIGHER EDUCATION MALAYSIA

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was recently invited to deliver a keynote speech at the Islamic Finance Education Ecosystem and Quality Assurance Symposium. It was exciting to meet and chat with leaders in Islamic finance, both from academia and the industry. In the context of social science research, particularly in the field of Islamic finance; I stressed the need to balance between theory and practice. I highlighted that it is crucial for academicians to have a good understanding of what is happening in the real world prior to further deliberations on the issues discussed. Real world perspectives are topics that academicians can get carried away with. When I was a young lecturer, I took pride in presenting papers around the world. The joy of rubbing shoulders and getting feedback from the gurus in my discipline were like meeting members of my all-time favourite rock band, Metallica. Similar excitement surfaced when my article was accepted for publication in the International Journal of Accounting Information System, the highest-ranked journal in my field of study. It was one of my greatest achievements and the culmination of countless hours, days and nights of reading, researching, drafting, writing and re-writing. Nevertheless, I felt like something was missing. There was a gap. A gap between writing for publication and writing for satisfaction. During those early years, I also endeavoured to write articles for professional magazines such as Accountants Today. The articles were simplified versions of my academic works, which were professional-friendly. Unlike my academic papers, I received emails from readers within a week after the articles were published.

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My insights and discussions were further criticised and debated by the professional accountants. This provided me with a sense of achievement and fulfilment. Slowly but surely, the importance of having a relationship with the industry dawned upon me. In mid-2000, I was engaged as a part-time trainer and consultant by a business intelligence company for three years. Dare I say, it was one of the most crucial experiences in my academic career. Beyond training and consulting, the gig entailed providing solutions to problems faced by GLCs and MNCs. Such experience gave me a deeper appreciation of the real-world challenges and renewed perspectives on how to enhance my classroom lessons. “…MIT BUILT ITS REPUTATION FOR SERIOUS INNOVATION BY TRANSLATING BASIC SCIENCE INTO CONCEPTS AND TECHNOLOGIES TO SERVE THE SOCIETY”.

Over the years, I built up solid networking with industry players and even became good friends to some CEOs and MDs. My industry network became an important asset upon being appointed as Dean of UUM Othman Yeop Abdullah Graduate School of Business in 2011. I was able to call upon 10 corporate-sector figures to become the School’s Advisory Panels. We also created a new scheme called adjunct faculty members, consisting of those holding managerial positions in the corporate sector, to teach the MBA and DBA candidates. That helped us inject more practical elements into our curriculum as well as delivery. It also helped us build our reputation among the industry players. That said, I believe the higher education institutions must work together with the industries to deliver a comprehensive educational experience. Industries provide real-life experiences and cater to an immediate productivity-economic need, while academia provides theoretical appreciation which is not merely technical in contents but encompasses arts, humanities, history, sociology and more. What we need is a connection and this is the missing gap. Rafael Reif, President of MIT shared that the key to MIT’s success is collaboration. He further stated

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“…MIT built its reputation for serious innovation by translating basic science into concepts and technologies to serve the society”. Similarly, Nitin Nohria, Dean of Harvard Business School once said, “nothing that we do that is not relevant”. Without a doubt, we want our lecturers and researchers to be imaginative and innovative while being referred to and respected by the industries. Research results must benefit the society while at the same time be far sighted – or as President Faust of Harvard University once shared that research must “…foster restless scepticism and unbounded intellectual curiosity yet innovative enough to imagine a world different from the one in which we live now”. Hence, we must move away from an obsession with publications per se, but focused on a balance between quality research and practical applications. Similarly, rankings are important but they are also by-products of high quality education. When high quality education is in place, good ranking will come naturally. Ultimately, we aspire our students to leave us as transformed persons, those who are not only responsible for their businesses or organisations but also liable for the consequences of their actions to the environment and society at large. I wrote a poem back in 2012 and read it once during a keynote speech in 2014. Last week, I read it again, albeit only a small section. The title of the poem is ‘We are proud...but have we ever thought?’ The gist of the poem is about those who benefit from our research, our presence at various conferences and our publications of academic journals. Other than helping us climb the academic ladder, how does our effort positively impact the society? It is a hard question. After reading it, I paused and looked around to see the reaction of the audience; it was a mixed-reaction. Some were nodding, some were shaking their heads while the rest just stared at me. At that moment, I wanted to dive into their minds to really understand what is going on. From the stage, it struck me that it will take some time to break free of the academic world’s orthodox beliefs and practices.

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WE MUST MOVE AWAY FROM AN OBSESSION WITH PUBLICATIONS PERSE, BUT FOCUS ON A BALANCE BETWEEN QUALITY RESEARCH AND PRACTICAL APPLICATIONS. W W W. I S F I R E . N E T

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