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CONTENTS

ISSUE 108

REGULAR SECTIONS

EDITOR'S LETTER

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Greetings, all

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elcome to Islamic Business & Finance. This is the 108th issue of the longest-running Islamic finance magazine in the world. I hope you all had a productive first quarter as the year hurtles past. We have a lot of excellent content for you to peruse. It has become clear that Islamic fintech is an absolutely vital part of the industry moving forward, as I have written about many times in the pages of this publication. Islamic banks need to move fast to keep up with the changes coming to the world of finance, especially to outpace their conventional counterparts. In Bahrain, Islamic banks are doing just that. I spoke to both the Head of Corporate and Institutional Banking of Bahrain Islamic Bank and the head of the Bahrain FinTech Bay about how exactly they’ve done that. Turn to page 12 to read our features on this. Beyond that, there is plenty to peruse. I hope you enjoy digging into another great issue. Till next time,

NEWS ANALYSIS

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18

News & Analysis

OPINION

6 What’s holding back Sukuk? 10 THE LONG VIEW

Women in power

COVER STORY

12 BAHRAIN ISLAMIC BANK ISLAMIC TECH

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18 HOW BAHRAIN IS DRIVING ISLAMIC FINTECH FORWARD

William Mullally www.islamicbusinessandfinance.com

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Log on to www.islamicbusinessandfinance.com for news, polls, events, analysis, blogs, features, commentary and more.

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NEWS & ANALYSIS

Dubai Investments has announced plans to lead a consortium of investors to launch Arkan Bank, a wholesale Islamic financial institution with an initial paidup capital of $100 million, with the authorised share capital of Arkan Bank at $500 million. The bank will initially focus on the GCC region and subsequently build scale and reach across its business lines, products and geographies to become the toptier Islamic wholesale bank in the region and global arena. Coupled with strong public markets, sukuk and mergers & acquisition outlook, the future looks optimistic for the bank and aligns with Dubai’s vision to become the capital of Islamic economy.” - KHALID BIN KALBAN, Managing Director and CEO of Dubai Investments, and the founder and chairman of Arkan Bank

Saudi Arabia’s Ministry of Finance, represented by its Debt Management Office, announced the approval from the Capital Market Authority to list and trade Saudi Riyaldenominated government debt instruments on the Saudi Stock Exchange Tadawul. This will include 45 bonds and Sukuk, according to a statement from the Ministry. This step was preceded by the registration of debt instruments at the Securities Depository Center and arranging of the local Sukuk program, followed by further steps to develop and deepen the local and secondary debt markets. The listing of government debt instruments is an important step towards increasing transparency under a supervisory framework that provides disclosure to investors. It also contributes to ensuring the fair pricing of debt instruments listed on the secondary market through a strong interaction between supply and demand and linking market values with performance."

The Shari’ah-compliant Gatehouse Bank has calculated that the value of Sukuk assets listed on the London Stock Exchange (LSE) would double to GBP 57.8 billion in the next decade if issues continue at their current rate of growth. The woes in the oil market have weighed on the growth of Sukuk over the past few years but as the price of oil improves, longawaited expansion in Sukuk is bound to follow. Sukuk only began life in the UK in 2007 but their numbers have been swelling at an annual rate of around five per cent in the past few years even though they are still little understood. To date the LSE’s 66 Sukuk have raised GBP 35.5 billion so even based on just their current rate of growth, you would expect UK Sukuk assets to be worth GBP 57.8 billion in ten years’ time. As interest grows this could be beaten by some margin so this is a huge opportunity for Britain.” - CHARLES HARESNAPE, CEO, Gatehouse Bank

- HE MOHAMMED AL-JADAAN, Saudi Arabia’s Minister of Finance

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COVER INTERVIEW

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ell us about the launch of BisB Corporate Digital. What does this mean for BisB? We have been planning the design overhaul of the of e-banking portal along with the development of the mobile banking application since 2016, as part of our greater strategy to automate our operations and completely transform the traditional banking experience for our corporate customers into a digitised, hasslefree deed. BisB Corporate Digital was launched in March 2018 with unique differentiated features, comprising a completely revamped e-Banking portal and a brand new mobile application developed with the latest state-of-the-art technology. We believe in a customer-centric strategy, therefore we developed the platform to fulfill the needs of our corporate clients; including a truly bilingual interface, seamless navigation and a centralised overview of their facilities, accounts, cards and investment; and an unparalleled level of customisation enabling our users to control the level of privacy of their account and dictate how the transactions themselves are conducted. Invariably, we prioritise the security of our customers and their data; the electronic portal is embedded with the latest security features and our mobile application is equipped with real-time notifications and fingerprint authentication. The launch of BisB Corporate Digital will catalyse the migration of our customers online, taking basic transactions out of the branch allowing them to focus on more complex service. This will lead to an increase in efficiency and growth in revenue.

WESAM ABDULAZIZ BAQER

How else has Bahrain Islamic Bank progressed on its mission towards greater digital innovation? With the rise of competition in the financial industry we have made enormous progress in the delivery of the IT infrastructure platforms to

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support the launch of our line of banking products and services to our retail and corporate customers further differentiating ourselves through various key strategies. One of the projects we are most excited about is the in-house BisB Innovation Lab, an inspired step towards empowering the bank’s digital team from being merely a support unit into a business enabler and creative space that leads to idea generation. We were also the first Islamic Bank to successfully partner with Benefit to provide our corporate clients with smart solutions to accept payments through ‘BenefitPay”, the national e-wallet of Bahrain. This is a considerable milestone for Bahrain, joining other nations across the globe that continue to make remarkable progress in the race towards cashless economies. We continue to work in conjunction with the efforts led by the Economic Development Board (EDB) Bahrain and the Central Bank of Bahrain (CBB) in order to create a fintech innovation ecosystem that serves Bahrain and the region as a whole. Tell us more about your work with the Bahrain FinTech Bay. In response to the fintech revolution unfolding, traditional banks are realising the need for innovation, embracing the digitisation drive to rise above competition. As a result, the majority of banks across the world are either closing off branches or shifting the focus of internal financial operations towards increased digital transformation initiatives. BisB has emerged as an expert advisory voice to the country’s digital evolution, strategically working alongside the Bahrain Economic Development Board (EDB) to support the great strides taken by the Kingdom to solidify its position as a leading Islamic financial center and pursue its strategy to establish itself as a fintech

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ISLAMIC TECH

How Bahrain is driving Islamic fintech forward ISLAMIC BUSINESS & FINANCE’S EXCLUSIVE CONVERSATION WITH KHALID SAAD, CEO, BAHRAIN FINTECH BAY

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hat was the vision behind the Bahrain FinTech Bay?

The concept of the FinTech Bay in Bahrain was a vision of how can we meaningfully develop the fintech ecosystem so that it becomes sustainable, forward looking, and embracing the latest innovations. We wanted it to become the place where local regional, international institutions could collaborate, and together call Bahrain home. This initiative included different pieces. One was the regulatory piece, the funding piece, and how can we create a platform which combines both the physical and the non-physical elements, and making it a catalyst to drive the FinTech Bay and drives it as Bahrain’s first dedicated fintech space in the region. At the start had three possible ways to move forward with the concept. First, it could have become a government-backed initiative, but we weren’t sure about whether, in a few years, the government would be dedicated to it or the funding would run out. We could also have gone to a private institution, but then it could become too focused on one entity, which could prevent others from participating. Instead, we decided on having a multitude of institutions buying into a collective vision of together being a part of the fintech ecosystem as a part of the FinTech Bay. At that time, we had 31 partners supporting the FinTech Bay, which had never happened in this part of the world, certainly for fintech. These are the ones that are financially contributing, if we include nonfinancial partners, it’s 45. Included amongst these players, we have banks such as Baraka Bank and Kuwait Finance House,

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Ark Capital for investment, and Bahrain Islamic Bank. What we’re doing with these players, and where these players are going, are working towards taking Islamic finance to the next level and Islamic finance 2.0 to be really based in technology. A lot of these banks have already embarked on digital initiatives to push the boundaries of Islamic fintech. Bahrain Islamic Bank has already announced they’ll invest $10 million in digital infrastructure to become a leader in Islamic fintech. Al Baraka Bank has already been looking at a digital bank at their Turkish subsidiary to tap into the German market. Kuwait Finance House has created something called ALGO, a consortium of Islamic banks that can look at digital solutions, focused on research and development looking at how to take Islamic fintech to the next level. We have these players alongside conventional players that are looking at pushing the envelope and pushing the development of the Islamic fintech ecosystem forward. Islamic fintech is a key component, and we want to build upon Bahrain’s inherent advantages and expertise in this area to push our way into that space, but also be an internationally recognised hub.

Where do you see innovation coming in the Islamic fintech space? Many aspects can apply to both conventional and Islamic institutions. Both are looking at how they can be digitally savvy in the way they develop their products. The way that we see innovation is in the regulatory technology space, which is still a fresh space, where new companies will be able to develop better compliant structuring, and that’s a place that

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ISLAMIC TECH

Islamic fintechs can play a significant role. Another component that fintech is helping spread Islamic finance, a significant sum of the people that are unbanked are predominantly muslim countries. This a huge sum—hundreds of millions of people that could potentially be serviced by Islamic banks. In Bahrain, we have Baraka Banking Group, which is in 15 countries globally, including some of the largest unbanked populations such as Egypt, Pakistan and more. How can Baraka Banking Group and KFH tap into these markets to deploy solutions where the unbanked population can be banked? That’s a part of financial inclusion, and that’s definitely going to expand the net for Islamic finance. Islamic finance has reached a maturity stage where they need to take a leap forward using technology. A lot of the players are looking at existing technologies, but they’re also looking at new innovative technology to help them with Shari’ah governance, structuring of products, and so forth. That’s an area where Bahrain can play a meaningful role. AAOIFI and CIBAFI are both headquartered in Bahrain and are looking at standards. How

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can we take these standards to be integrated with technology help in the delivery and maintenance of these standards? Can the Central Bank of Bahrain also utilise these standards using fintech? We’re in the early days of having specifically but there are a lot of potential on all fronts.

KHALID SAAD, CEO, Bahrain Fintech Bay

What innovations have you seen outside of the banks coming from the fintech space? Over the last few years, people have started being aware of blockchain, roboadvisory services, digital wallets and so forth. What has happened, or helped even further, is the fact that the Central Bank has done a few things. One thing they developed a dedicated fintech innovation unit. From a regulatory perspective, they see it as a top priority that these innovations need to be based in Bahrian. They want to be both the champion of these initiatives and mandate players to embrace things. Some of these include crowdfunding innovations, both in equity and debt, in both conventional and Islamic. These are the first regulations to do this in a dedicated Shari’ah-compliant way.

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ISLAMIC BANKING

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hat are your views on the current Islamic banking landscape in Kuwait? The Islamic banking industry enjoys unwavering support of the government of State of Kuwait. With plans to boost its investment spending and allocate a significant share of new project financing to Islamic banks, the Kuwaiti government is instrumental in the industry’s progress. Accordingly, capacity of the Kuwaiti government to execute its investment plans are emerging as key factor to watch for in the growth of Islamic banks. Naturally, to keep with the ever-evolving world, technology-based growth initiatives should potentially play a meaningful role. Based on a recent study by the International Monetary Fund (IMF), it is evident that some GCC countries will have to significantly cut spending to balance their budget with an average oil price of $50 per barrel. For Kuwait, this is less than five per cent. The Central Bank of Kuwait (CBK) has introduced new Shari’ah banking guidelines for implementation by the end of this year. This highlights that the CBK is keen to enhance and develop proper guidelines for

RICHARD GROVES CEO, Ahli United Bank Kuwait

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ISLAMIC BANKING

RICHARD GROVES CEO, Ahli United Bank Kuwait

Being part of shaping Kuwait’s history, AUB has a proud heritage in social responsibility towards the community, and 2017 was another outstanding year in terms of social initiatives. Driven by the vision to better serve our customers with special needs, now our branches, ATMs, website and call centers are equipped with inclusive features such as priority service, wheelchair access, braille printers, voice control, headphones, and expertly trained staff, to name a few. In addition, we are the first bank in Kuwait which proactively anticipated the customers’ need as a result of fluctuating market conditions and unpredictable US Fed rate changes and launched innovative ‘profit rate swap (PRS)’ product after Shari’ah approval. The PRS enables the customers to manage their profitability and market risk. What is your personal leadership style? My management philosophy has always been to lead by example with a high level of personal integrity.

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Whilst one makes every effort to obtain the best return for shareholders it is important to take into account the varied needs of all our stakeholders, whilst bearing in mind our overall risk profile. I also believe in engaging our youth in decision making processes which helps in bringing innovation, which is always appreciated. What was the proudest moment of your career? I have had a career in banking of over thirty-eight years and have worked in 11 countries, in the Middle East, Asia and Europe. Hence my experiences have been many and very varied and for the most part highly enjoyable and rewarding over the years. There have been many proud moments and no single one can be deemed to be the proudest. However, AUB’s hugely successful AT1 Sukuk issuance in October 2016, followed by being invited to ring the market opening bell on Nasdaq Dubai in November will go down in my personal experiences as a very significant and proud moment.

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(kenary820/SHUTTERSTOCK)

ISLAMIC INVESTMENT

Islamic wealth management and its relevance in modern times PROFESSOR SHAMSHER MOHAMAD & DR ZIYAAD MAHOMED (INCEIF) WRITE EXCLUSIVELY FOR ISLAMIC BUSINESS & FINANCE ABOUT THE CONCEPT INTRODUCTION

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slam has a unique dispensation on the concept of wealth, its ownership and distribution. Wealth is not regarded as an end per se, but a means to an end: the end being the paradise in the hereafter. Essentially, material possessions are considered the primary form of wealth, perceived

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to be generated, accumulated and/or invested by the one who acquired it. Inclusively, wisdom, knowledge, salvation and even contentment can all be categorised as wealth. From the Islamic perspective, Allah (to Him be Praise) is the true owner of all wealth and He entrusts it to man for beneficial use (Qur'an 20:6).

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ISLAMIC INVESTMENT

From the Islamic perspective, wealth is a means to living a beneficial existence and providing societal benefits and welfare to the members of the society. Islam allows for private ownership of wealth except for the three public goods declared by the Prophet (PBUH), namely water, herbage (grazing land, forest, mines) and fire (energy in the modern sense) that belongs to the community.1 The total assets of Islamic Wealth Management (IWM) is no more than a minute fraction (approximately two per cent) of the world’s conventional assets. But the steady growth of this unique IWM system has made it on the global stage, practiced in more than 76 countries and adopted by secular governments in sovereign fund-raising.2 Th i s a r t i c l e b r i e f s o n t h e c o n c e p t a n d comparative notes of wealth from conventional and Shari'ah perspective.

CONCEPT OF WEALTH – MODERN VERSUS SHARI'AH PERSPECTIVE From the Islamic perspective, all resources or wealth belong to their Creator (swt)3 who has provided these resources to mankind (Qur'an 45:13) with the expectation that they would be held in trust (Qur'an 33:72). Humanity is accountable for the manner in which wealth is created, amassed and distributed. This is a fundamental tenet of Islam and Islamic Wealth Management.4 Wealth in Islam comprises both tangible and intangible assets, similar to modern meaning of wealth (Jusoh & Muhammad, 2005). The significant difference however, is that tangible (money, real estate, commodities, etc.) and intangible assets (intellectual capital, copyrights, patents, financial rights, etc.) have specific rules in Islamic jurisprudence that limit uncontrolled trade of these assets. For example, same currencies and commodities can only be exchanged at par and at spot, whilst differing currencies and commodities can be traded at agreed prices but at spot.5 The concept of ‘spiritual’ wealth is also relevant here. In Islam, the spiritual precept is considered in the context of ‘zuhd’ or ensuring that love of wealth has not entered the heart (simply: greed). Here, specific prohibitions must be avoided to establish ‘zuhd’ or maintain spirituality of wealth in Islam: Al Bukhl or miserliness; Al Israf or wasteful expenditure

in extravagance (Qur'an 7:31); Al Tabzeer or spending on prohibited items (Qur'an 17:27); Kanzul Maal or hoarding of wealth for the love of it. In mainstream economics, wealth is defined by quantitative measurements of one’s material possessions. In the parlance of modern economics, wealth is defined as the owners’ potential capital that is employed to create more wealth. Wealth is “...the value of assets owned minus the value of liabilities owed at a point in time. Wealth can be categorised into three principal categories: personal property, including homes or automobiles; monetary savings, such as the accumulation of past income; and the capital wealth of income producing assets, including real estate, stocks, bonds, and businesses.” 6 This definition forms the foundation of modern wealth management practise in the industry. This definition considers wealth as net assets with potential to generate income for the holders. Income, which is merely the periodic addition to wealth is product of the synergic combination of resources and labour-entrepreneur. This mainstream concept of wealth had moved away from the centuries-old Calvinist7 idea that wealth is a sign of God’s gift to the wealth holder, and that wealth is not an end in itself but a means to fulfil the needs of wealth holders and the community at large. The modern concept of wealth is now practised in the context of personal wealth maximisation with a very thin-line between morality and ethical restrictions, except as dictated by the secular laws relating to acts of fraud, criminal breach, trust as stipulated in these laws. Unlike mainstream wealth management practices, IWM is bound by restrictions to ensure it serves its objectives. The first restriction is that no wealth increase is permissible if the wealth is created through illegitimate production and/or investment activities. That is, it is only lawful to earn returns on permissible and risk-sharing based investments. From a Shari'ah perspective, impermissible earnings refer primarily to interest income and proceeds from other impermissible sources of income such as the sale of pork or alcoholic beverages (Elgari, 2000). Although Shari'ah scholars provide a tolerance level for incidental gains from impermissible activities (less than five per cent), the purification of tainted or impure income cleansed through distribution to charity.

1 Abu Hurairah that the Messenger of Allah said: “Three things cannot be denied to anyone: water, pasture and fire.” Sunan Ibn Majah, Vol.3, Book 16, Hadith 2473 2 The UK and South African governments have both launched Sukuk (Islamic debt securities) for fund-raising.

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The earning returns from permissible production and investment is expected to improve the well-being of communities and provide financial stability compared to the one-sided no-risk-shared investments under the current modern wealth management practices. The second restriction is on expenditure: the owner may not spend his wealth frivolously (Qur'an 17: 26-27) as he will be questioned on its use.8 He is however encouraged to spend on himself, his family and those in need. Beyond routine consumption and spending on others, he also has an obligation of alms-giving or Zakat to alleviate the suffering of his fellow beings, starting with the next of kin, then the orphans, those dispossessed of wealth, the poor and the wayfarer, in that order (Qur'an 9:60). The objective of Islamic wealth management is economic justice through equitable distribution of wealth. This by no means restricts private ownership and entrepreneurship but a wider circulation of wealth (Qur'an 59: 7) and invested in socially beneficial economic activity (Qur'an, 62:10 and 73:20). The insights of these verses also imply that the poor have a rightful share in the wealth of the rich, which mandates annual reduction of the wealth by mandatory charity (Zakat of 2.5 per cent), further necessitating the productivity of wealth. This qualifier is important: the Calvinist idea under a secular concept of wealth enables wealth maximisation but with no requirement to spend other than on one’s needs and wants. For example, with the advent of modern capitalist ideas in the 1990s, individuals have justified accumulation of huge wealth in households so much so that the inequality of wealth has dramatically increased to a level of the top one per cent of the households owning 49 per cent of all the wealth compared to in 1950 when top 10 per cent of households owned half the global wealth. The wider concentration of wealth in the current period has largely resulted from the revisionist thinking that capital is an important component for development, so capital is increasingly becoming untaxed in the hands of wealth holders.9

Besides the mandatory alms (Zakat), Islam encourages its followers with wealth entrusted to them to establish voluntary endowment in the form of a charitable trust (Waqf) (Hoexter, Eisenstadt, & Levtzion, 2002). This is meant to provide for beneficiaries (family and communities) during and after the wealth-holder dies (Maududi, 1960). Historical sources suggest that the government public service in modern times was largely provided by the venerable institutions of these awqaf, which catered to the basic needs of the community in Islamic countries before 1900 AD.

SOCIAL JUSTICE UNDER IWM IWM is based on the practice that, whilst there is no objection to wealth creation in permissible ways, wealth should not be used to exploit those without wealth via one-sided contracts. Conventionally, wealth has been generated by undertaking no-risk-sharing ventures to which wealth of an individual or an entity is made available to produce goods useful to society. Modern banking accepts deposits, ‘increases’ its value using the money multiplier and lends this inflated ‘virtual money’ to entrepreneurs in need of funds. They engage in one-sided contracts requiring an interest (or Riba in Arabic which means an increase over the amount lent) irrespective of whether the entrepreneur achieves profit or loss from the funds. This bank-lending generates passive interest income to capital owners, increasing the concentration of wealth among a few. This aspect of interest-based lending without considering the borrower’s situation is social injustice. Entrepreneurs with ideas may have to forego their earnings or even lose the enterprise if the venture loses money. Foreclosure laws enable banks to liquidate the venture without considering loss of skill to the society or the loss of wealth of the entrepreneur, protecting the lender and its ‘virtual’ money. Thus, financing through risksharing methods enables a balanced contract that

3 To Him (God) belongs all that is in the heavens and all that is on the earth, and all that is between them, and all that is under the soil.” The Qu’ran further says, “...and give them something out of the wealth that God has bestowed upon you”; Qu’ran 24:33. It is also customary to insert “swt” after each mention of the word God. For brevity, this acronym is left out in further parts of the text, except at the start of the chapter. 4 “ The two legs of the servant (men) will be immovable until he is asked with regards to four matters: during his lifetime, how was it utilized, during his younger days how was it spent, with regards to his property, where (how) did he acquire it and how was it spent and lastly, to what extent did he practiced his acquired knowledge”. According to the Hadith reported by Al-Tirmidhi (2416), each individual will be asked on the day of judgement. 5 Ubada bin al-Samit (may Allah be pleased with him) reported Allah's Messenger (may peace 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 as long as payment is made hand to hand.” (Muslim, Hadith No 1569) 6 http://en.wikipedia.org/wiki/Wealth#Definition. Accessed 16-02-2015. Wealth has two components: wealth that is in place at the time of investment, and the addition to wealth once wealth is invested in productive ventures. Chapter 2

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THE BASIC STRUCTURE OF ISLAMIC WEALTH MANAGEMENT

SHAMSHER MOHAMAD, Professor, INCEIF

is more equitable and more profitable for both the funder and financing client. To serve social justice, wealth is not considered legitimately earned unless the risk-and-rewards are both shared in a financial contract: so one-sided norisk-sharing contracts are not permitted under IWM. IWM allows a socially permissible use of wealth to fund a permitted economic activity based on a balanced contract that provides (i) the fund provider with income (or profit) (increase to the amount funded) only in the years when a profit is made and shared on a pre-agreed basis proportional to the risk of the venture; (ii) it provides for deferment of dividends if no profit is made due to no fault of the entrepreneur; and (iii) the loss of a failed venture may mean loss of wealth of the funder and loss of efforts on part of the entrepreneur. This is an important ethical foundation of IWM. Unfortunately, this introduces a free-rider problem that could be mitigated through effective supervision and joint participation in decisions relating to the funded venture.

IWM involves wealth generation, accumulation, preservation, purification and distribution. Creation of wealth is defined more broadly than in conventional practise. A set of filters are applied to financial transactions that ensure permissibility and productive activities to promote society’s wellbeing. Such binding ethical restrictions (filters), which could only be exempted under juristic necessity,10 are absent in modern wealth management practises based on secular laws, despite the fact that secular laws also have societal objectives.11 The principle of permissible wealth creation places society’s welfare on par with personal welfare. This somewhat limits the unfettered pursuit of personal wealth creation and also the pursuit in the management of wealth practises that are inimical in the long term to the sustainability of a society and the planet (commonly referred to as socially responsible investments or SRIs). Wealth cannot be earned from activities that are not permitted (weapons of mass destruction; production of intoxicants for personal consumption; production of unhealthy food defined as pork; degrading environment; etc.). Once such wealth is created and filtered, then the wealth is permitted to be cumulated through permissible yields of investments forming additions to wealth over time.12 Next is the objective of wealth accumulation. The Islamic belief is that wealth is apportioned according to God’s own discretion, such that no person can envy wealth holders nor should the wealth holder treat the wealth as his own. While wealth accumulation is encouraged, the purpose of the accumulation is first to fulfil one’s personal (the betrothed and the family) needs and wants, then the needs of the broader community. The holder is expected to enjoy his wealth, adorn good clothing, and acquire conveniences, etc., without being miserly (nor be a spendthrift) while at the same time treat the wealth as a trust to improve the lives of others (Qur’an 7: 31). Wealth protection and wealth cleansing should be considered together. If wealth is appropriately

7 John Calvin is identified with three other names for reforming the Roman Church that led to the rise of a brand of Protestantism. Under their influence in the 17th Century, personal wealth maximization gave rise to the pursuit of wealth as permissible as wealth if a gift of God. Mainstream economists have attributed Calvin’s influence for the growth of wealth and the Protestant pursuit of wealth across the Earth. 8 Asmah related that the Prophet (peace be upon him) said “Spend, and do not count, lest Allah counts against you. Do not withhold your money, lest Allah withholds from you. Spend what you can.” (Bukhari & Muslim) Abu Huraira related that the Prophet (peace be upon him) said “The Lord's commandment for every one of His slaves is, ‘Spend on others, and I will spend on you'”. (Bukhari, Muslim) 9 Justified by the Thatcherite-Reagan political thinking, the one-time corporate tax of close to 50% has now been reduced to almost a third. Recent laws in several countries has exempted dividends from tax while estate duty has been rolled back in many countries.

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earned from permitted economic activities and then accumulated, there is no need for cleansing. Though the ideal of such high-flouting wealth creation might not always be possible in a community where conventional practices are well established. For example, people living under a secular system may not have freedom to avoid interest earned on pension fund schemes, compulsory interest on deposits, etc. These impermissible gains are expected to be distributed to the needy as a method of purification or cleansing. The process of cleansing applies in corporate finance and investment as well. IWM also deals with the distribution of wealth in a compliant manner. The mandatory charitable deduction (Zakat) is considered a means of spiritual cleansing of the wealth one has acquired in excess of a minimum threshold referred to as the nisab. The Zakat operators are to distribute the money to the eight classes of recipients explicitly mentioned in the Qur'an (9:60). The inheritance law is part of the distribution process. The premise of this law is that if the wealth originally belongs to God and man is only entrusted to have it while he is alive. When he dies, the wealth goes back to its original owner i.e. God and it is then re-distributed through inheritance. In brief, Islamic Wealth management is broadly similar to the modern wealth management practises except for the filters at each stage to ensure Shari'ah compliance.

CONCLUSION This article started with the capitalist idea of what wealth followed by IWM and its provisos. The Islamic and Christian beliefs are based on the premise that all wealth belongs to God, and that the goal of wealth is to improve the welfare of the society and earn merit through good deeds. The Islamic belief system advocates that wealth is permissible if it is meant to be spending for the sake of pleasing the Creator: it is fair to spend on one’s needs/wants—meaning that fulfilling needs and wants of the created beings are in the radar as pleasing to God. What is pleasing are actions to spend wealth for doing good deeds, including on oneself.

The modern position on how concentration of wealth is not in the best interest of societies is expounded by Amartya Sen (1999). He identifies the incidence of unprecedented opulence in this century along with extreme deprivations as a serious problem for humanity to resolve. The difference between the wealthy and those deprived of wealth is widening especially since the anointment of special positions given to wealth under the current brand of capitalism. Wealth creation, accumulation and distribution have tilted in favour of the wealth-endowed households while production is shifting around the world to take advantage of income disparities to dictate where wealth can be amassed. In this context, it is perhaps noteworthy to redefine wealth as a means not for fulfilling the needs/wants of the wealthy alone but also those deprived and are in dire need. Hence, IWM has much relevance in this modern world today and the future to help mitigate the inequality gap between the wealthy and the poor and serve social justice.

DR ZIYAAD MAHOMED, Professor, INCEIF

10 Juristic necessity or darurah can be defined as conditions that allow the exception rather than the rule. 11 Beginning around the 1970s in the United States, a social movement has become a pressure group to introduce binding constraints on the management of wealth by public investment firms, the mutual funds. As at 2015, this has led to a regrouping of mutual funds to consider a number of pro-society ethics before investing wealth in the securities issued by a firm. Such efforts have attracted a total of about USD500 billion investment in what are called People and Planet before Profit (PPP) investments. Thus, secular investment laws have been found to be wanting in this regard, so filters are being applied to investment purposes. 12 In a later section, we will show how, if wealth is suspected to have come from non-permissible actions, such wealth could be cleansed through voluntary donations to benefit others.

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www.islamicbusinessandfinance.com

23/04/2018 14:27


EXPERT OPINION

Examining Saudi Arabia's Sukuk developments MOHAMMED KHNIFER, DEBT CAPITAL MARKETS (DCM) BANKER AT SUPRANATIONAL BANKING INSTITUTION, WRITES EXCLUSIVELY FOR IB&F ABOUT KSA'S BIG MOVES WHAT QE INVESTORS SHOULD CONSIDER REGARDING THE $54.5 BILLION IN GOVERNMENT DEBT OF SAUDI ARABIA

B

ack in early April 2018, Saudi Arabia’s securities regulator announced that it had approved the listing of local currency government Sukuk & bonds on the Saudi Stock Exchange. The week after saw over 204.4 billion riyals ($54.5 billion) of riyal government debt being traded in the local exchange. it’s a landmark move, because we’re talking about $54.5 billion coming to the market in one go. It will enable, for the first time, qualified and approved foreign investors to purchase that debt at floating, fixed, bond, Sukuk, as well as with different tenors. This will give emerging market debt investors access to this untapped local debt which has been closed off for several years. Local debt is becoming a trend in emerging markets and many investors plan to increase or increase their exposure to local currency debt. This especially to the fact that the SAR is pegged to the USD, so there so it is stabilised. While listing will help develop active yield curve, I caution that it will take time. This assumption that there will be active trading, I doubt initially, because no market makers and primary dealers have been assigned yet, once these steps are taken, we should see an active tradability, which will be positive as it will enable to corporates to have local and active reference benchmark. On the local level there is huge publicity and retail investors are excited and wondering if they

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could purchase the debt, unfortunately they won’t be able to do that, because the bonds are expensive. Each Sukuk unit will cost around SAR 1 million. The listing and tradability of local currency bonds and Sukuk with fixed rate could also create the culture of pricing corporate bonds through fixed rate and not floating rate. The majority of DCM deals are priced at floating rate, probably because the investor base are banks and they are dictating what sort of rate they are looking for, which will be in their favour when the local reference rate (SAIBOR) moves up. This in turn is negative for the corporate sector because it will eat into their profits. The listing will create awareness of the fixed rate, the pricing of bonds, and Sukuk. These potential issuers will also have a local and active benchmark when it comes to fair price and this will raise awareness of credit rating. Overall this will have positive impact on the local debt market in Saudi Arabia and the wider EM space.

MOHAMMED KHNIFER

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23/04/2018 14:29


TAKAFUL

shared Nor Azman Zainal, Chief Executive Officer of PruBSN. “PruBSN MicroTakaful Jariyah is designed with simplicity and convenience for customers. No underwriting will be required, allowing coverage to be effective instantly. The plan is also hassle-free with quick and easy claim procedures in place. All claims payment will be transferred via e-banking directly to the nominees’ bank account, ensuring beneficiaries receive prompt service in times of need. Recipients can also easily make enquiries and receive information on their claim status through PruBSN Prihatin’s dedicated hotlines,” continued Zainal. “PruBSN takes great pride in launching this programme, which is in line with our commitment to narrowing the protection gap in the country. We hope to empower the low income families to recover quickly from unexpected financial and emotional losses, and support them in achieving their life goals,” Azman concluded.

protects more than 800,000 certificate holders or around 2.7 per cent of the Malaysian population. PruBSN continues to focus on offering customercentric products and services to cater to the evolving needs of its customers. As part of this effort, the company has moved towards paperless offerings by introducing its certificate, statements and soon, medical card, in digital format via its customer portal PruBSN Touch. Recognising that protection not only encompasses financial peace of mind but also one’s health and wellbeing, PruBSN has enabled its customers to make more informed decisions about their health through myDNA, a nutrigenomic-based mobile health coach that allows users to personalise their diet and fitness programme based on their genetic information. The Takaful operator also became one of the first Takaful operators to offer Perlindungan Tenang through its affordable onlinebased product named Lindungi to promote financial inclusion for the underserved.

GAINING RECOGNITION Prudential BSN has been recognised for its offerings recently. Prudential BSN Takaful Berhad (PruBSN) has won multiple awards including the coveted Best Takaful Operator (Agency Family Takaful Business), Corporate Social Responsibility, Young Takaful Manager and other recognitions in the agency and bancaTakaful categories, for its efforts and impact on the Takaful industry. The Malaysian Takaful Association (MTA) StarNite Awards is Malaysia’s defining recognition for excellence of specifically Takaful operators, employees, agencies and agents within the local Takaful industry. This year marks the award’s seventh year and is an important part of the Takaful industry’s event calendar. Commenting on the success, Chief Executive Officer of PruBSN, Nor Azman Zainal said “We are honoured and excited to be receiving these awards from MTA once again. My deepest thanks and appreciation goes out to our employees, agents and partners for all their contribution, as well as our customers for their continued support, which have ensured our incredible achievements in just 12 years of operation.” PruBSN achieved the leading position in family Takaful business for seven successive years from 2011 to 2017, as confirmed through the data provided by Insurance Services Malaysia. As of today, PruBSN

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About Prudential BSN Takaful Berhad Established in 2006 through the licence awarded by the Central Bank of Malaysia, Prudential BSN Takaful Berhad (PruBSN) is a joint venture between the UK-based Prudential plc and Bank Simpanan Nasional, two financially strong companies in their respective fields of expertise. Today, PruBSN is the country’s leading Takaful operator providing financial security to the Malaysian population and their families. PruBSN has over 16,000 Takaful consultants serving nearly 850,000 customers with many impressive firsts in the local Takaful industry and award wins under its belt. For seven successive years since 2011, PruBSN has been the Number 1 Family Takaful Operator. Its rapid growth is a direct result of its customer-centric approach, multidistribution channel strategy, innovative solutions and technological leadership. Driving on ‘Takaful For All. For Life’ proposition, PruBSN strives to build a strong and lasting impact to help develop Malaysia through protection of wealth and investment in capital markets, while realising our vision of being the first choice Takaful provider for the people and communities.

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23/04/2018 14:33


Islamic Business & Finance #108 - April 2018  
Islamic Business & Finance #108 - April 2018