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VOLUME 8 - ISSUE 2 | APRIL 2018 - £20

INSIDE THIS ISSUE ISFIRE EVENTS

Rising Power and Influence of Women in Islamic Finance

A Special Report on the WOMANi Awards 2018

PERSONALITY INTERVIEW Khalid Ferdous Howladar, Managing Director & Founder of Acreditus

Standardization in the Islamic Banking and Financial System Through a Methodology of Inclusion and Expansion Shaykh-ul-Islam Dr. Muhammad Tahir-ul-Qadri

Published by:

Exclusive Interview with

Ahmed Khalaf Ahmed Al Otaiba Chairman of Siraj Finance, UAE


FROM THE

EDITORIAL NOTE

The celebrations of women’s contribution to Islamic banking and finance (IBF) continue. This issue carries a special report on the inaugural WOMANi Gala Dinner that took place on April 4, 2018 at Kuala Lumpur, Malaysia. The event was attended by over 100 delegates from around the world, and was hailed as the most successful event ever held anywhere in the world to celebrate the important role women are playing in the global Islamic financial services industry. As a woman myself, I really felt proud to be part of a thriving community that is receiving due appreciation from all the stakeholders in IBF.

The cover story of the issue, however, is about a man who runs one of the most important nonbank Islamic financial institutions in the UAE. Ahmed Khalaf Ahmed Al Otaiba, Chairman of Siraj Finance, shares with us intelligence on his business and his views on Islamic banking and finance in general. With this cover story, he joins an impressive fraternity of ISFIRE covers, which include Presidents and Prime Ministers of different countries. I congratulate him on becoming part of the ISFIRE Covers Club. Perhaps the most important item in this issue is an article contributed by Sheikh-ul-Islam Dr. Muhammad Tahir-ul-Qadri on how standardisation of Shari’a opinions can be achieved by introducing a methodology based on taqlid al-madhaahib (following all schools of Islamic thought

EDITOR IN CHIEF

as opposed to just one). The article summarises a detailed chapter on the same topic to be included in the forthcoming Global Islamic Finance Report (GIFR) 2018. I am sure many of you would like to read that chapter. To do so, you will have to reserve a copy of GIFR 2018 as soon as possible. Pause for Thought covers the ever-burgeoning role of Shari’a technicians in IBF. Also of interest would be the summary of a keynote speech given by Professor Humayon Dar at the 1st World Islamic Economics and Finance Conference held earlier this year at Lahore, Pakistan. He shares his vision of future of IBF. The Personality of the Issue is Khalid Howladar, Managing Director and Founder of Acreditus, who shares with us his thoughts on IBF in a double-pager. Happy reading!

Dr. Sofiza Azmi Editor-in-Chief


ISSN 2049-1905

CONTENTS

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

ISFIRE SPECIAL REPORT 08 Womani Gala Dinner 2018

VOLUME 8 - ISSUE 2 | APRIL 2018

COVER STORY

30 Ahmed Khalaf Ahmed Al Otaiba

Chariman SIRAJ FINANCE, UAE

INVITED ARTICLE

36 Standardization in the Islamic Banking

Financial System Through a Methodology of Inclusion and Expansion

and

Dr. Muhammad Tahir-ul-Qadri

TALKING POINTS

44 Future of Islamic Banking & Finance

Professor Humayon Dar

PERSONALITY

50 Khalid Ferdous Howladar

Managing Director & Founder of Acreditus

ISFIRE EVENTS

52 World Islamic Finance Forum

PAUSE FOR THOUGHT 54 Shari'a & Technology

TECHNICAL NOTE

56 Standardisation of Notation In Islamic Economics, Banking & Finance

BOOK REVIEW

60 Islamic Finance: Revised & Updated

Edition of Meezan Bank's Guide To Islamic Banking

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CONTENTS Editor-in-Chief Dr. Sofiza Azmi CEO, Edbiz Consulting

Editorial Assistant

ISLAMIC FINANCE REVIEW | APRIL 2018

Hasha Dar

COVER STORY

International Editorial Board Dr. Nafis Alam An exclusive interview with

University of Reading Malaysia

AHMED KHALAF AHMED AL OTAIBA

Professor Mehmet Asutay Durham University

Professor Dr. Mehmet Bulut Istanbul Sabahattin Zaim University, Turkey

Dato’ Dr. Asyraf Wajdi Dusuki Deputy Minister, Prime Minister’s Department Malaysia

Professor Joseph Falzon

CHAIRMAN

SIRAJ FINANCE

University of Malta

UAE

State Bank of Pakistan

Dr. Mian Farooq Haq

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

Dr. Rizwan Malik Islamic Finance Expert

Moinuddin Malim Alternative International Management Services

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

Dr. Aishath Muneeza

PERSONALITY

INCEIF

WHICH MOVIE IS YOUR ALL-TIME FAVOURITE?

WHO HAS BEEN YOUR GREATEST MENTOR?

WHERE ARE YOU THE HAPPIEST?

That’s not possible! As a genre SciFi has to be the favourite with movies like Cloud Atlas and The Matrix series but I love movies that are more intricately character driven from Woody Allen to Jean-Pierre Jeunet and Pedro Almodovar.

I’ve never unfortunately had a career mentor as such... although I think I could have used one many times. My father however is the biggest influence. He instilled a deep appreciation for education and hard work that has served me well in life. Also, the fictional character Captain Jean-Luc Picard of Star Trek! His creator Gene Roddenberry was a true visionary and diversity, ethics, responsibility and integrity were always key themes of his writing that impressed on me as a child.

Laughing with friends and family mixed with good weather and food.

Nowadays since set ting my own advisory I have very lit tle spare time .

Dr. Asmadi Mohamed Naim

IF YOUR 15 YEARS OLD SEES YOU TODAY WHAT WOULD HE SAY?

Universiti Utara Malaysia

What happened to your hair?

IN A FEW SENTENCES DESCRIBE YOUR 65 YEARS OLD.

Professor Muhamad Rahimi Osman

Hopefully a happy, healthy and successful family man, in shaa Allah.

ANY DISAPPOINTMENT IN LIFE?

Universiti Teknologi MARA

A few minor ones... but we only really learn through adversity.

M. Saleem Ahmed Ranjha Wan Miana Rural Development Programme

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Dr. Irum Saba Institute of Business Administration, Karachi

Dr. Mughees Shaukat

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College of Banking and Financial Studies, Muscat

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

Designed By Published by Edbiz Corporation Limited 305 Crown House, North Circular Road, Park Royal, London, NW10 7PN, United Kingdom T: +44 (0) 203 617 1089 E: info@edbizconsulting.com W: www.edbizconsulting.com

Ehtisham Ahmad Abdul Wahab Kamal Fasha

Advertisements, Commercial and Subscription Enquiries Khuram Shehzad E: kshehzad@edbizconsulting.com T: +44 (0) 203 617 1089

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.

Copyright © 2018 Edbiz Consulting


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A WOMANi was born! Meet the women who are re-inventing the future, with expertise of yesterday, today’s tools and technology, and design of tomorrow

A young girl wearing hijab comfortably seated on a chair at a slightly elevated stage, and playing guitar in a hall full of women (and some men) at Hilton Hotel Kuala Lumpur, was part of an ambiance rarely seen in the Muslim countries. The girl sang well. Actually, she impressed everyone, including a white lady who had travelled from London to participate in the event, as a distinguished guest. It was a real and live event, and not a scene from Secret Superstar, a 2017 Indian movie made on the subject of Muslim youth facing taboos on the career choice in music and related sub-sectors in the entertainment industry. The ladies in the hall were dressed up in the nicest attires befitting the occasion. In most cases, one could see that their dresses had yet to become part of their wardrobes. The new dresses of all colours and designs added to the vibrancy of the occasion. Farida Tahir, CEO of Grassroots Microfinance Bank in Nigeria, wore the most beautiful dress with a modern African design and style. Dr. Dian Masyita, an academician from Indonesia, was perhaps the most beautifully dressed up for the occasion. Noorsuriani Mohamed, Vice President & Head of Product & Market Development (Islamic Capital Market) at Bursa Malaysia, was not far off from her.

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Dr. Dian Masyita receiving her certificate for being the 42nd on WOMANi2018 List

DR. DIAN MASYITA Associate Professor at Padjadjaran University, Bandung, Indonesia Nationality: Indonesia

Dr. Dian Masyita obtained her PhD in Islamic Finance from Durham University, UK in 2012. Prior to that, she was a member of R&D Division in Indonesian Waqf Board (20072010). She finished her Master of Engineering in 2001 from the School of Industrial Engineering and Management – Bandung Institute of Technology (ITB), Indonesia. In 2007, she got STUNED Award for postgraduate studies at the Maastricht School of Management (MSM), Netherlands. In August 2007, she was awarded “The Best Research Award”, a competitive research paper on the Golden Anniversary of Padjadjaran University. Currently, she is an Associate Professor and Head of Islamic Economics Study Program at the Faculty of Economics & Business, Universitas Padjadjaran, Bandung, Indonesia.

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Noorsuriani Muhamed (WOMANi:16) receiving her accolade from Dato’ Othman Aziz, Deputy Finance Minister of Malaysia and Dr. Sofiza Azmi, Co-founder of WOMANi

NOORSURIANI MUHAMED Vice President Islamic Product and Market Development, Bursa Malaysia Berhad, Malaysia Nationality: Malaysia

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Noorsuriani Muhamed is at present serving as Vice President: Islamic Product & Market Development at Bursa Malaysia, a role that puts her in the helm of all new developments in the Malaysian Islamic capital market. She is one of the potential leaders in IBF, who are expected to make an everlasting mark on the industry. Bursa Malaysia has been host to a number of leading personalities in IBF, including Raja Teh Maimunah (No.2), and the industry analysts view Noorsuriani Muhamed as one of IBF executives who hold a lot of potential and promise.


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Dr. Azura Othman (WOMANi:17) receiving her accolade from Dato’ Othman Aziz, Deputy Finance Minister of Malaysia and Dr. Sofiza Azmi, Co-founder of WOMANi

DR. AZURA OTHMAN CEO of Chartered Institute of Islamic Finance Professionals (CIIF), Malaysia Nationality: Malaysia

Dr. Azura Othman is currently serving as CEO of the Chartered Institute of Islamic Finance Professionals (CIIF), and in this role she is playing a leadership role in talent development for the Islamic financial services industry. She belongs to a new breed of Islamic finance professionals who graduated from INCEIF where she obtained Certified Islamic Finance Professional (CIFP) and PhD in Islamic finance. Since April 2015, she is also a Non Executive Director of Bank Muamalat Malaysia, and in this capacity also serves as Chairman of its Audit Committee.

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Dr. Shamsiah Abdul Karim (WOMANi: 19) receiving her trophy and certificate

DR. SHAMSIAH ABDUL KARIM CEO of Albukhary Foundation, Malaysia Nationality: Malaysia

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Dr. Shamsiah Abdul Karim is currently serving as CEO of Albukhary Foundation, a personal charity of the Malaysian business tycoon, Syed Mokhtar Albukhary. She is involved in a number of Shari’a-compliant socially responsible projects primarily in the not-for-profit domain. A PhD from Durham University, her main area of interest is Islamic endowments and awqaf, in which she is now involved on the practical side. She has extensive experience of running CSR campaigns, something she mastered while serving as COO at Albukhary Foundation. Now, as CEO of the same organisation, she is in a better position to play a lead role in the not-for-profit sector. With more than 20 years of practical experience, she is poised to play an even bigger role in IBF, with a focus on charitable sector and philanthropy.


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Professor Humayon Dar, Co-founder of WOMANi presenting WOMANi Certificate to Professor Dr. Rusni Hassan (WOMANi: 22)

PROFESSOR DR. RUSNI HASSAN Deputy Dean at IIUM Institute of Islamic Banking & Finance, Malaysia Nationality: Malaysia

Professor Dr. Rusni Hassan is another leading alumna of International Islamic University Malaysia (IIUM), who is playing a lead role in IBF. As a leading female Shari’a scholar who has served on the Shari’a Advisory Council of Bank Negara Malaysia (BNM) and is at present advising a number of Islamic banks and financial institutions on matters related with IBF, she is indeed considered as one of the champion female Islamic financial jurists in Malaysia. Like her contemporary, Professor Engku Rabia Ali (No. 4 on the List), she has inspired a new generation of female jurists and Islamic finance experts serving Islamic financial institutions and academia all over the world.

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Sharizad Jumaat is a pioneer in Islamic asset management. She has been in the industry for long and currently is serving as CEO of RHB Islamic International Asset Management (RHBIAM), Malaysia. She was ranked 23 on our global list of the 100 Most Influential Women in Islamic Finance (WOMANi100).

SHARIZAD JUMAAT CEO of RHB Islamic International Asset Management (RHBIIAM), Malaysia Nationality: Malaysia Sharizad Jumaat is not new to Islamic asset management but she has brought a renewed dynamism to RHB’s Islamic asset management business since she joined RBHIIAM in 2013. She was tasked to spearhead RHB’s efforts to become one of the top 10 global players in Islamic asset management, a target she is well on track to achieve during her on-going tenure with the company. She commenced her career as an analyst with Permodalan Nasional Berhad (PNB), later to join another important Government Linked Company (GLC), namely

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Employment Provident Fund (EPF) as Head of Treasury and Fixed Income and later as Head of Equity Investments. With more than 15 years on the ‘buy’ side at EPF, she took a bold step to join the ‘sell’ side at Amanahraya REITs Berhad as CEO. In that role, she was involved in the entire process of property acquisitions and injection into the Amanahraya REITs listed on Bursa Malaysia. Impressed by her performance, the board decided to offer her a larger role as the Managing Director/CEO of Amanahraya Investment Management Sdn. Bhd., a company providing asset management services for both private mandates and unit trusts. During her tenure within the Amanahraya Group, she was exposed to all aspects of property investments and private equity businesses, involving joint ventures with partners in the Middle East. Today, Sharizad Jumaat is considered as one of the most experienced female Islamic asset managers in the country. She is certainly an inspiration for a large number of young female analysts and equity investment practitioners.


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It was an evening showcasing the power of modest fashion. Malaysia has emerged as a hotspot of modest fashion in the world. Within Islamic finance, the likes of Shabana Hasan (WOMANi: 48) have been championing Islamic fashion as part of a global halal economy.

Finance Minister of Malaysia. Although it was an event to celebrate success of leading women in IBF, the hall had about one-third filled with men. Most of them accompanied an invited woman.

It was a gathering of high-powered professional women working in the Islamic banking and finance (IBF) industry. Yet, it had flavour of a family do, full of nicely made up women flanked by their partners, children and mothers. Dr. Sofiza Azmi, the host of the evening, had her young daughter perform the important role of emceeing the event. The young girl who played guitar and sang was a friend of Dr. Azmi’s daughter. There were actually four girls from her school who volunteered to help at the event.

"A WOMANi is a modern female, professional in career, powered by leadership and authority, with ambition bounded by family concerns, confident in manners, aggressive yet sensitive to social norms, and a proficient communicator," said Professor Humayon Dar, Co-founder of WOMANi Awards.

Rati Rachmawati, President Director (CEO) of BTPN Syariah, an Islamic bank in Indonesia, was an invited guest. She travelled from Jakarta, with her mother. Dr. Irum Saba, another rising star in IBF, was there with her husband. They had flown in from Karachi. The event was enthusiastically over-subscribed, and some husbands happily obliged their wives to attend the main event while they spent time with their children in the foyer. One lady had flown from Dubai with an infant daughter, as she didn’t want to miss the event. By the way, it was evening of April 4, 2018. The evening witnessed the launch of WOMANi Awards. The Chief Guest on the occasion was Dato’ Othman Aziz, Deputy

What is WOMANi?

WOMANi is a world-wide recognition and felicitation programme. Designed by Cambridge IFA, it promotes gender equity in the corporate sector, government agencies and departments, and in social sector & philanthropy. WOMANi’s initial focus is on IBF. It attempts to compile a list of 1,000 leading women in IBF in the next five years. Its ultimate goal is to contribute to developing at least one million women into leadership roles in government, business and social sector & philanthropy in the world. It must be clarified that WOMANi Awards are not exclusively for Muslim women. In fact, Stella Cox (Managing Director of DDCAP UK), a non-Muslim, was honoured as the Most Influential Woman in Islamic Finance for 2018. This was in recognition of her pioneering work in the field of Islamic liquidity management, which has helped a large range of activities – from retail banking to capital markets – in IBF.

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“A WOMANi is a modern female, professional in career, powered by leadership and authority, with ambition bounded by family concerns, confident in manners, aggressive yet sensitive to social norms, and a proficient communicator.” “IBF is no more merely a profession but rather a lifestyle,” said Dr. Sofiza Azmi, Co-founder of WOMANi. The woman leaders in IBF are now jet-setters. Gone are the days when women had to forego a lot of professional opportunities, owing to family pressure or social taboos. “For me it is almost every month when I meet my fellow professional ladies in IBF in different parts of the world,” said Dr. Aishath Muneeza, a Maldivian national working at INCEIF as an associate professor in Islamic finance.

Looking at the list, anyone familiar with the ladies will immediately understand the highlighted definition of WOMANi. All these women have to share very interesting personal stories of hard work, disappointments, struggle and of course success. Farah Mounir, who received WOMANi Special Award 2018, at the inaugural WOMANi Awards, was a source of information for everyone in attendance. She had courageously and successfully fought back cancer to return to her Islamic banking job at a bank in Abu Dhabi.

Farah Mounir of ADCB Islamic Banking Abu Dhabi received WOMANi Special Award 2018

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Another invited delegate that received extraordinary attention and huge appreciation was Huang Lei, Founder & CEO of China Islamic Finance Club. She travelled all the way from China, and was the only lady representing Islamic finance in her country.

HUANG LEI Founder & CEO, China Islamic Finance Club Nationality: China

Ms Huang Lei is the Founder and CEO of China Islamic Finance Club. She is also the Chief Executive Officer of Zhishang Inter-culture Communication (Cross Time International Group), China. She has been instrumental in creating greater awareness about Islamic banking and finance in China amongst the government officials and business leaders in the country. Under her leadership, the first China-UAE Conference on Islamic Banking and Finance was held in Beijing in 2016. This event was organised by the Dubai Center for Islamic Banking and Finance (DCIBF) at Hamdan Bin Mohammed Smart University (HBMSU) and Dubai Islamic Economy Development Centre (DIEDC), in cooperation with the China Islamic Finance Club, and ZhiShang Inter-culture Communication. Since then, she has co-organised several roundtables and conferences in China in her endeavour to further promote Islamic banking and finance in the country.

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“IBF is no more merely a profession but rather a lifestyle.” Dr. Sofiza Azmi The most influential Woman in Islamic Finance: Stella Cox, CBE Islamic liquidity management and championing IBF within the industry and beyond. Out of the three parameters, Stella scored the highest in professional leadership and international recognition; and obtained the second highest score for advocacy. In 2016, Stella was appointed a Commander of the Order of the British Empire (CBE) by Her Majesty Queen Elizabeth II of the Great Britain on the occasion of Her Majesty’s birthday in recognition of her role as a champion for the development of Islamic finance in the UK and for her services to the UK economy.

Stella Cox has been consulted on Islamic financial market practice for several regulatory authorities, home and abroad. She was one of a small group of industry experts appointed to the first Islamic Finance Task Force convened by the UK government. The ministerial led Task Force was established to refocus on Islamic finance and the UK proposition. With support from the Task Force, the first UK Sovereign Sukuk was issued in June 2014. In 2014, she was appointed Chair of the Islamic Finance Market Advisory Group formed by TheCityUK, the financial services professional body that champions UKbased financial and related professional services. Under her leadership, the Islamic Finance Market Advisory Group has worked with the British government to support and promote key announcements, including the Bank of England’s feasibility study on establishing a Shari’a-compliant liquidity management facility, and the aspirations for the central bank to be the first in the Western markets to make such an offering.

Having realm the leadership of DDCAP Group as the Managing Director since 1998, DDCAP has invested, for its own account, in a number of Islamic financial services initiatives. This includes pioneering Islamic finance intermediation services, serving clients and counterparties in the GCC countries, South East and Central Asia, Europe and beyond. Today, DDCAP is a leading provider of Shari’a-compliant intermediation services and related technology solutions, including the award winning ETHOS Asset Facilitation Platform™. Her greatest contribution to IBF is the pivotal role she played in pioneering Islamic liquidity management solutions. All commodity facilitation platforms (e.g., Suq Al Sila’ of Bursa Malaysia, and commodity murabaha platform developed by Dubai Multi Commodities Centre (DMCC), etc.) trace their roots to Dawnay Day, later renamed as DDCAP, a company Stella Cox continues to spearhead.

Stella Cox is also a Fellow of the Institute of Islamic Banking and Insurance in the United Kingdom and has served on its Board of Governors within the Islamic Banking Group. She also served as a member of HM Treasury Islamic Finance Experts Group, where she was part of the Market Standardisation sub-group. At the international front, She was also a member of the Working Group established by the Central Bank of Bahrain (formerly the Bahrain Monetary Authority) with the purpose of developing procedures and documentation for Islamic commodity trading and she assisted the DIFC Islamic Advisory Committee with its work on selected strategic development initiatives. She serves as a member of the Islamic Financial Services Board Money Market Task Force on Markets and Instruments for Shari’a Compliant Liquidity Management and represents DDCAP on the Market and Product Development Committee (MPDC) of the International Islamic Financial Market.

Stella Cox CBE, Managing Director of DDCAP Group, tops the Womani List again this year as the most powerful women in Islamic finance. She holds the distinction of being Number One lady on the WOMANi List for two consecutive years (2017 & 2018), climbing up from the second position in 2016. Her contributions to the development of IBF world-wide are numerous, both professionally and on the advocacy front. Having worked within the Islamic financial marketplace for more than three decades, she has played a pivotal role in

Prior to founding DDCAP, Stella Cox was a Director of Dresdner Kleinwort Benson, where she was responsible for the Middle Eastern and Islamic financial marketplaces. Whilst with the Bank, she was involved in structuring The Islamic Fund, the first Shari’a-compliant global equity product, launched in 1986. She was also a Director of the Al Meezan Commodity Fund plc, a joint venture initiative with a GCC Islamic bank that invested in non-ferrous metals traded on the London Metal Exchange. From 2007 to 2009, she served as an Independent Non-Executive Director of Gatehouse Bank, a UK Islamic investment bank.

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Since 2015, she has been a member of the Board of Trustees of the RFI Foundation and, since 2016, an Advisory Board member for the Ethical Finance Innovation Challenge Awards (“EFICA”).

Stella Cox continues to support education initiatives in IBF. She is a member of the University of East London’s Islamic Finance and Banking Advisory Board and a visiting lecturer at Durham University’s Islamic Finance Summer School Programme. Her strong support towards and involvement in Cambridge Islamic Finance Leadership Programme demonstrates her commitment to develop the next generation of leaders in IBF.


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ISFIRE SPECIAL EPORT

Celebrating Women in Islamic Finance

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PROF. DR. ENGKU RABIAH ADAWIAH ENGKU ALI Professor at International Islamic University Malaysia, Malaysia Nationality: Malaysia Professor Dr. Engku Rabiah Adawiah Engku Ali, a professor of law at International Islamic University Malaysia, is perhaps the first globally-recognised female Shari’a scholar in the contemporary Islamic financial services industry. As an academician who is actively involved in Shari’a advisory for Islamic financial institutions, she has inspired a new generation of female Shari’a scholars in Malaysia and globally. Her success story is significant in many respects. She earnt fame when she was appointed as the first female member of the Shari’a Advisory Council of Bank Negara Malaysia (BNM), the central bank of Malaysia. She emerged as a heavyweight Shari’a scholar when she combined memberships of Shari’a

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Advisory Councils of all the three regulators in Malaysia, namely, BNM, Securities Commission Malaysia, and Labuan Financial Services Authority. Engku Rabiah’s story also has a national significance. Her progression to success and fame is an outcome of Malaysian government’s planning to empower women in different fields and roles. Engku Rabiah had a ripple effect on a global level by inspiring women to choose Shari’a and law as a viable profession. This is indeed an impressive contribution to revive tradition of female jurists, which otherwise had a bright history but remained subdued in the recent past. Although there are now a number of other competing female jurists emerging, Engku Rabia continues to play a central role in the contemporary Islamic financial jurisprudence.


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RATIH RACHMAWATY President Director of BTPN Syariah, Indonesia Nationality: Indonesia Ratih Rachmawaty is presently the only female CEO of an Islamic bank – BTPN Syariah – in Indonesia. Under her dynamic leadership, BTPN Syariah has emerged as an award-winning Islamic bank, recognised for its focus on microfinance and women empowerment through financial inclusion, and thus supporting productive poor families to achieve better lives. The financial services provided to serve the productive poor customers are aligned with the Islamic principle of Mu’amalat, designed for the customers to nurture key behaviours of Courage, Discipline, Hardworking, and Solidarity. In Indonesia, a country of more than 13,000 islands, offering Islamic microfinance is a daunting task. BTPN Syariah has found this niche under dynamic leadership of Ratih Rachmawaty. With

more than 2.6 million microfinance customers, and about US$250 million outstanding financing, BTPN Syariah is a major player in Islamic microfinance. With 23 years of experience under her belt in the business of banking at large and microfinancing in specific, she has spent the last 14 years in building mass market business model. Ratih is founder of financial services for the productive poor women, introduced through the Shari'a business unit within BTPN Bank in 2010, where she served as the head of Sharia's Business Unit. When the Shari'a Business Unit was spun off and transformed as BTPN Syariah Bank in July 2014, she continued to serve as the Deputy President Director of BTPN Syariah for three years before being appointed as the President Director in March 2017. To date, over 2.9 million customers in 23 provinces are empowered by more than 12,000 BTPN Syariah’s employees in which 94% are female employees.

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Ratih Rachmawaty brings her passion for community empowerment to her role as a banker. During her stint at Bank Danamon (2003 to 2008), she was a key member of Danamon Simpan Pinjam; a division of Danamon’s microbanking and was the first private bank to focus exclusively on the micro and small enterprise market. With a personal mission to empower the mass market in Indonesia, Ratih Rachmawaty went on to establish a new business unit focusing on micro banking known as Mitra Usaha Rakyat after joining BTPN Bank in 2008. She has conducted various comparative studies on best practice in microbanking in countries such as India, Mexico and Peru. She continuously feeds her passion for learning especially in the areas of financial inclusion and poverty eradication through her various engagements with institutions such as Grameen Foundation, International Finance Corporation (IFC) and United Nations Capital Development Fund (UNCDF). She regularly attends conferences and leadership programme for professional development as well as to enhance her knowledge in micro banking knowledge and leadership, such as the World Micro Credit Summit and Harvard Business School, Boston, USA. Ratih Rachmawaty is known for making statements that become tag-lines. “The biggest risk is the risk of divorce,” she said in an interview in 2013, in response to a question on microfinance. BTPN Syariah offers microfinance to women with homes, and the incidence of divorce adds to the risk of default. Similarly, she made a statement, “[Clients’] faces are their collaterals,” meaning that in group-based lending individual borrowers must attend weekly/monthly meetings in person to reduce the risk of default.

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MAYA MARISSA MALEK Managing Director of Amanie Advisors, UAE Nationality: Malaysia Maya Marissa Malek is serving as Executive Director for Global Shari’a Advisory and Compliance at Amanie Group of Companies, in addition to being Managing Director of Amanie Advisors LLC, Dubai. Coming from a legal background with more than 20 years of experience mainly in corporate, legal and Islamic financial matters, she is one of the very few women who are leading Shari’a advisory management business. In her current role, she has managed a number of projects in Shari’a governance, structuring and conversion of conventional banks into Islamic. In particular, Maya Marissa has been instrumental in

landmark Islamic financial instruments and projects such as development of Islamic banking framework for the Central Bank of Afghanistan, and in developing the first ever Shari’a standard on gold together with the World Gold Council and AAOIFI. Her area of specialisation includes Islamic finance framework, Shari’a governance, structuring, enhancement and conversion exercises, establishment of Islamic financial entities as well as development of Islamic finance policies and standards. She is also a prolific speaker and speaks at various industry conferences and forums around the world, creating awareness on Islamic finance.

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PROFESSOR DR. NORMAH OMAR

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Director of Accounting Research Institute at UiTM, Malaysia Nationality: Malaysia

management, integrity, fraud risk factors and anti-money laundering measures in the financial service industry and including the Islamic finance sector.

Professor Dr Normah Omar, who has more than 25 years of research experience, is a professional accountant by training. She is the founding and current director of ARI. She has been instrumental in both the establishment of ARI in 2006 and in getting the Higher Institution Centre of Excellence (HICoE) status from the Ministry of Higher Education in 2009. Although not an Islamic scholar herself, Professor Normah believes that knowledge corpus in accounting and financial criminology is necessary and can add significant values to the development of the Islamic finance sector. Together with her research team, Prof Normah has completed various research projects related to governance, risk

Under her helm, ARI has won many international awards. For four consecutive years (2014 to 2017) ARI has been recognized for pioneering research and in developing academic programmes in Islamic Financial Criminology by the prestigious Global Islamic Finance Awards (GIFA). ARI was also named as “Research Body of the Year in Islamic Financial Criminology� by ACQ Global Awards in 2015 and 2016. In 2017, ARI clinched the Excellence in Higher Education Award at the Global Good Governance Awards (3G), an event initiated by Cambridge IFA in the United Kingdom. At the regional level, ARI won the ASEAN Risk Awards for 2016 and 2017 from the Global Enterprise Risk Management Academy (ERMA).


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ISFIRE SPECIAL EPORT

FARIDA TAHIR CEO of Grassroot Microfinance Bank, Nigeria Nationality: Nigeria Farida Tahir is our first entrant from Nigeria to the prestigious WOMANi50 List for 2018. As a microfinance practitioner, the noble cause of women empowerment is very close to her heart. Out of her over 15 years of banking experiences, she has mostly worked for conventional banks like Africa International Bank (AIB), and Bank PHB before joining Grassroot Microfinance Bank as the GM business development & strategy. In her various roles in the banking industry, she has been involved not only in product development but also in business development and marketing. Her appointment in 2012 as MD/CEO of Grassroot Microfinance Bank spurred her interest in Islamic finance. When she assumed this position, she took upon herself to introduce and grow Islamic microfinance

business within her bank. This also triggered her to acquire a postgraduate degree in Islamic banking and finance from the International Institute of Islamic Banking & Finance in Nigeria in 2014. As a onetime First Lady of a local government community, Farida Tahir has been involved in many community development programmes that have impacted the lives of her people. In 2007, she founded MIA (mata iyayen al’umma), a cooperative society for women, offering interest-free financial and non-financial services that have aided the empowerment of over 2,000 members across different rural communities in Kano, Nigeria. In the same year she founded MIA foundation, a body that focuses on creating opportunities and financial inclusion of women and other marginalized groups in the society.

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ISFIRE SPECIAL REPORT

Datin Maznah Mahbob (WOMANi: 08) talking to another delegate attending WOMANi Awards

ISLAMIC FINANCE REVIEW | APRIL 2018

Dr. Irum Saba ranked 33th on our WOMANi100 List was recognised for her leadership role in Islamic banking and finance. She is the first and only female Shari'a advisor hailing from Pakistan, advising Islamic financial institutions.

Dr. Shamsiah Mohamad is a heavyweight in Shari'a advisory services. She was ranked 39 on WOMANi100 List, but in the coming years, she will certainly climb up to smaller figures.

Dr. Magda Ismail Abdel Mohsin (WOMANi: 26) receiving her certificate

Sairana Saad (WOMANi: 41) receiving her WOMANi certificate

Marina Mardi (Assistant Vice President (Finance) at the Malaysian sovereign wealth fund, Khazanah, is a graduate of Cambridge Islamic Finance Leadership Programme (Cambridge-IFLP). She is a rising star in Islamic finance and was ranked 28 on our global list of the 100 Most Influential Women in Islamic Finance for the year 2018 (WOMANi100).

26 Shabana Hasan (WOMANi:48) receiving her certificate


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ISFIRE SPECIAL EPORT

Datin Maznah Mahbob receiving her WOMANi Award from Dato’ Othman Aziz, Deputy Finance Minister of Malaysia, and her WOMANi Certificate from Dr. Sofiza Azmi, Co-founder of WOMANi

DATIN MAZNAH MAHBOB Partner Strategic Swiss Partners, Malaysia Nationality: Malaysia Datin Maznah Mahbob, previously Chief Officer of AmInvest, is no stranger in the male-dominated funds management industry. With more than 30 years of experience, she has carved a name as one of the leading personalities in this niche industry. Under her dynamic and capable leadership, AmInvest has been on the forefront within the Shari’a-compliant space evidenced by its string of

international accolades, including the prestigious Global Islamic Finance Awards. In 2016, the institution picked up the award for the Most Innovative Fund Manager at the Global Islamic Finance Awards 2016 held in Jakarta, Indonesia. Datin Maznah sits on several Boards of AMMB private companies as well as Chairman Commissioner of AmInvestasi Indonesia. She is also on the Board of Trustees of the Hearts of GOLD (Generating Opportunities for Learning Disabled) Foundation, which supports social entrepreneurship projects for the economic empowerment and independence of the learning disabled. Datin Maznah is number 8 on the Womani2018 for her significant efforts and contribution towards Islamic finance industry in the forte of Islamic funds management.

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ISFIRE SPECIAL REPORT

ISLAMIC FINANCE REVIEW | APRIL 2018

POWER GIRLS: Dr. Marjan Muhammad (WOMANi:13), Dr. Irum Saba (WOMANi: 33), Dr. Ayesha Muneeza (WOMANi: 14) and Professor Rusni Hassan (WOMANi: 22) are four power ladies in Islamic finance. They share one thing: all of them are specialists of jurisprudence of Islamic financial transactions with a focus on modern applications of fiqh al-muamalat al-maliya.

IBF has actually provided a number of opportunities for women, from Shari’a advisory positions to board level engagements. With the likes of Professor Engku Rabia Wadiah Ali, the first female Shari’a scholar advising an Islamic financial institution, Professor Rusni Hassan, Dr. Shamsiah Mohamad, Dr. Irwani Abdullah and Dr. Marjan Muhammad, one could only see that the future of Shari’a advisory was in safe hands. The likes of Raja Teh Maimunah (Number 2 on the WOMANi100 List), Sharizad Jumaat (CEO of RHB International Islamic Management), Sheila Halim (CEO of Amanah Mutual Berhad) and Farida Tahir (CEO of Grassroot Microfinance Bank) are future of IBF.

And the future was born on April 4, 2018 - WOMANi had arrived.

Congratulations to everyone! For further information on WOMANi Awards, methodology and selection criteria, please consult pages 12-45 of ISFIRE February 2018 issue, which contains a detailed WOMANi Report.

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ISFIRE SPECIAL EPORT

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ISLAMIC FINANCE REVIEW | APRIL 2018

COVER STORY

An exclusive interview with

AHMED KHALAF AHMED AL OTAIBA

CHAIRMAN

SIRAJ FINANCE UAE

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COVER STORY

ISFIRE has global distribution and our readers come from all over the world; please tell us about your personal approach to Islamic banking and finance. As Chairman of Siraj Finance, how have you contributed to the development of Islamic banking and finance in the UAE?

While we are cognizant on the basic principles of the origin of Islamic banking, the idea of a conceptual banking practice is necessarily to facilitate a purposeful funding on acquiring an end product that could be tangible or intangible while fulfilling the demand of the society in terms of meeting the end consumer requirements. In this day and age, such funding is currently available in various forms, however the nomenclature of rationalizing the qualification criteria could be very indecisive while calculating the liability positioning of the debt burden ratio. The simplicity of reducing the debt burden ratio by capital reserve allocation would create a high dependability on the market risk appetite and thus questioning the integrity of the customer portfolio. Such excerpts and notations would symbolically highlight an unethical business proposition, wherein the origin of such facilities dismay the country’s economic stance. We at Siraj Finance, constantly work toward meeting the consumer demands in an ethical approach while foreseeing the ever-demanding market appetite on a forward learning curve with due gratitude of the UAE leadership and its business acumen. To-date, our service offerings ensures a dynamic approach towards scaling the requirements on qualifying or rather proof- reading a genuine credit proposal without creating undue resistance on pre-qualified requests and facilities. This has been evidently possible through the dedication and commitment of securing a clean chit with the due diligence parameters triggered by the Central Bank of UAE guidance and roadmap, our Shari' a team (Dar Al Sharia) and the Etihad Credit Bureau amongst others. In a nutshell, we tend to deal with requests that are ethical in nature and are driven to have an impact in the growth of the economy and the social wellbeing thereby avoiding undue surprises and consequences.

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ISLAMIC FINANCE REVIEW | APRIL 2018

COVER STORY

You have had an illustrious career in Islamic finance, and now you’re running arguably one of the best Islamic finance companies in the UAE. How does your current role as Chairman of an Islamic finance company differ from your previous roles?

First and the foremost, it has been an immense satisfaction and fulfillment in being able to service and practice the Islamic principles under Sharia`a guidance. Furthermore, an opportunity to leverage this experience with the social community has always been a feather in the cap while comparing my previous roles in managing other business propositions.

The UAE is big on an Islamic economic agenda. What have Islamic banks and finance companies in the country done to achieve Islamic economic objectives the UAE has set for herself?

As a Finance Company, we were able to segment our approach towards servicing multi-level customer engagements and businesses that included the Small and Medium Enterprise (SME) companies and their associated employees irrelevant of them being a white collar or a blue collar. This has led to better market capitalization and penetration while furthering on our financial inclusion program. While it has been noticeably alarming to see the trending, patterns experienced globally around the volatility of unsecured and secured finances and facilities, we believe that Islamic finance would bridge the gap in creating an essential platform that eases the pressure on the lending community and enables a rewarding career prospect for healthy financing facility. Thus, the Islamic banking community is showcasing their true relevance in bringing the UAE social community closer to a niche proposition that is economically stable and certain.

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Islamic banking and finance is significant in terms of size and proportion in the UAE financial sector. Some analysts believe that further growth in the sector will pose a real challenge and that it will be extremely difficult for Islamic banks and financial institutions to cannibalize conventional banking and financial business beyond the current market share. Does it mean that Islamic banking and finance will never have a market share of 50% or more in the UAE?

Although it has not been within our purview to measure the success of the Islamic banking penetration, nevertheless the principle and methodology of Islamic banking has created a boosting inspiration to all faiths and has never been confined to the Muslims alone. With the practice of Sharia`aĂą ' concepts and ruling, a greater traction has been observed in the UAE market and we would conceptualize this development to get closer to the 50% breakthrough if not exceed.


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COVER STORY

The UAE is one of the few examples of countries where governments are extremely supportive of Islamic banking and finance. In the presence of practices like tawarruq, how easy has it been for the UAE Islamic financial institutions to compete with their conventional peers?

While Islamic banking concepts and principles have shown increased traction with the UAE residents, the support by UAE government has further instilled confidence within the overall banking customers. This development has led to an increased acceptance of the concepts of Islamic banking and tawarruq has been duly accepted and followed-through as a practice for materializing any Islamic banking facilities and services. Hence, the concept of tawarruq has been duly recognized and accepted over the conventional peers as a bare minimum requirement to pursue with any Islamic finance. We trust that the market penetration towards Islamic finance would show an increased interest and signup on major projects and deals surfacing through the private and government companies.

The world is fast becoming orientated towards the use of social media. What role can social media play in creating awareness around Islamic banking and finance? As an Islamic finance company, what challenges do you perceive in the wake of growing role and influence of FinTech? As it has been observed and factually represented that the experiences in the global economy within the banking community has already created enough friction on the impact of bad loans and extensions- streaming on social media to begin with the prime finances and other distortions. There has also been positive impact in terms of financial Inclusion and literacy programs has spearheaded the social media with the awareness coverage on the intricacies associated with the banking community. We are certain that the growing coverage of the credentials of Islamic banking would instill confidence in the end consumers to be decisive in materializing their financing requirements and thereon the experiences shared within the social community would enable in capturing remote markets amongst the existing areas of coverage. The social media would make a growing impact with appropriate visuals and writeups on the relevance of Islamic banking and further facilitate in the penetration towards securing untapped markets.

FinTech has always been an enabler in the emerging financial space and has had a varied impact on the way banking in perceived to be operational. The concept of Islamic banking has always been adopted within the Sharia`aN guidelines and hence FinTech developments were duly recognized and translated for a smooth transition. In order to meet the growing demands of the payment landscape and further ensuring a balanced approach towards convenience and security, it has been crucial to consider automation of systems and processes. This has led to system upgrades and process revisit from the legacy approach. As with conventional banking, we do not see great variation on the roadmap to upgrade but nonetheless the pace at which automated solutions and services were being adoptedthere were fewer service providers back in the early tenors.

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ISLAMIC FINANCE REVIEW | APRIL 2018

COVER STORY

Since then, there has been an influx of service providers and systems that surpassed the growing requirement of FinTech in the Islamic finance. Currently, the service levels and product propositions display a multitude of offerings and has facilitated a full-fledged ecosystem that is time bound and cost-effective. Worthwhile to note that FinTech within the Islamic purview brings in an experience that is personalized in nature and meets the customer demands, irrelevant within the banking premise or offsite.

Can you please share with us details on different product offerings of Siraj Finance?

As any other Finance Company, our goals and objective are to meet the product guidelines issued by the Central Bank of UAE, the Shari`a recommendations and in accordance to our internal compliance reviews and external audit reports. As a dynamic entity, we are at the forefront of facilitating the following products and services that include:

The GCC is passing through a very critical stage at present. What is the future of Islamic finance in the wake of the current developments?

It’s unfortunate that the regional political instability has led to an increased oversight of the banking sector and has an immense influence on the nature of operations with due consideration of Anit- Money Laundering (AML) and Countering Financing of Terrorism (CFT). With the ongoing regulations and due diligence under the Central Bank of UAE guidelines, UAE has been instrumental in adopting appropriate measures and processes that is in compliance to the FATF recommendations and encompasses strict adherence to the Office of Foreign Assets Control (OFAC) and other global watch list indicators. In line with such developments, GCC countries are perceived to be following similar guidelines and are in close tandem with the regional counterparts in addressing any challenges and uncertainties that affect the banking community as a whole.

Consumer Finance Personal Finance Vehicle Finance SME & Corporate

You travel extensively. Which Muslim-majority country has really impressed you and why?

Current Account Corporate Wakala Trade Finance

All type of Guarantees (i.e. Labour Guarantees, Bid, performance, Advance payment etc.) LCs Import/Export Cheque / bill discounting Property Finance Equipment/Vehicle/Machinery Finance We are also venturing into other products that include Wage Protection System (WPS), Islamic Card Issuance, Mortgage Finance and other funding prospects within our licensed agreement and terms.

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Traveling has always been a passion to learn and greet people and societies from different ethnic groups and tribes. Although my travel plans have no relevance to any specific Muslim-majority country, I do share some memorable thoughts around certain instances that has helped me change the way I operate and judge people of different nationalities. Every country, I have visited calls out for different positive experiences that are varied in approach and the belief systems. Respecting individual countries competence, relevance and capacity, every new experience has set impressions apart.


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COVER STORY

Please share with the readers a typical day of Ahmad Khalaf Ahmad Al Otaiba. How it starts and what are must on the to-do list on a daily basis?

As an ambitious man with realistic goals and deliverables, I starts my day with prayers and meditation. In my personal capacity, I am also a philanthropist on community wellbeing I ensure that I devote my time and effort in visiting senior citizens. On a routine visit, I frequently interact with my employees and try to be approachable. A go-getter attitude, I am well connected with the business world and have been instrumental in materializing family business with successive accomplishments on an ongoing basis. I have chosen my father's path to be a front-runner on the innovation path and I ensure that I take a calculated risk on my business advents.

What would be your message to the global Islamic financial services community, particularly the youth?

Islamic finance has emerged with greater acceptance and belief, and now it’s the next generation's turn to further engage and innovate in an ethical manner by following the teachings of our Prophet Muhammed (PBUH). It’s worthwhile to remember that your past sets the pace for future generations to weed and seed, hence your actions and intentions define the landscape for generations to follow.

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ISLAMIC FINANCE REVIEW | APRIL 2018

INVITED ARTICLE

STANDARDIZATION in the

ISLAMIC BANKING and

FINANCIAL SYSTEM Through a Methodology of Inclusion and

EXPANSION Rationale and Historical Intellectual Evidence

Shaykh-ul-Islam 36

Dr. Muhammad Tahir-ul-Qadri


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INVITED ARTICLE

Introduction Islamic banking and finance (IBF) today is making giant strides in terms of development and delivery of products and services. As reported by Global Islamic Finance Report 2018, the global size of IBF is estimated at US$2.431 trillion at the end of 2017. This success has not emerged without challenges that are diverse and multidimensional. One of the major challenges the Islamic banking and financial industry is facing today is lack of harmonized Shari’a rules and regulations, and the consequent non-uniformity in Islamic banking products and services being offered in various regions of the world. This has been a major point of discussion in the global Islamic financial services industry, with a widely held view that the validity or invalidity of certain products offered by Islamic financial institutions (IFIs) across the world is due to divergence of opinions among Muslim jurists belonging to different schools of fiqh (e.g., hanafi, maliki, shafi’i and hanbali). Regional differences in interpretation and derivation of rulings in accordance with the popular school of law of that region stand as the main reason for not having a standardized, harmonized, uniform and universal Islamic banking system across the world.

The resultant multiple interpretations by jurists belonging to different schools of fiqh regarding Islamic financial products result in minor and major disparities. In view of this fact, it is logical that without a universally unified and uniform Shari’a code, the acceptability of products introduced in Islamic financial industry will remain fragmented.1 It is, therefore, suggested that a prompt attention and action by Muslim scholars and Islamic finance experts is essential, as the continuation of the current state of affairs in this domain would damage the growth of the IBF industry in the years ahead. This is becoming a growing concern, given that the industry has already started slowing down. Furthermore, the critics question viability of Islamic economic and banking system as an alternative to the conventional system, if global harmony and universal standardization of Islamic banking products and services cannot be achieved even within the Muslim world. Considering the necessity and importance of the issue of standardization of products, this article focuses on this issue of immense importance to IBF.

1

Rafay, Abdul, Ramla Sadiq and Mobeen Ajmal. “Fragmentation of Islamic Financial Products—An Exploratory Study of Islamic Schools of Thought.” Abasyn Journal of Social Sciences—Special Issue: Towards Financial Inclusion: 48.

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Historical Context of the Problem There are different national approaches to Shari’a governance around the world. For instance, Central Bank of Bahrain (CBB) requires IFIs operating in its jurisdiction to set up a Shari’a Advisory Committee at the institutional level, while it has only recently set up a National Shari’a Advisory Board, with a limited role to advise the central bank on Shari’a matters. In Malaysia and Indonesia, on the other hand, National Shari’a Advisory Councils attempt to standardize Shari’a opinions (fatawa) and the resultant Shari’a practices in IFIs. In the case of some other GCC countries, such as Kuwait and Qatar, the Shari’a committees at the institutional level and another independent body, i.e., the Ministry of Awqaf and Religious Affairs or the Ministry of Justice and Islamic Affairs, are given the authority to oversee Shari’a governance practices. The UAE has also recently set up a centralised Shari’a Advisory Council. The higher Shari’a authorities in the UAE, Qatar, and Kuwait only act when there are conflicts of opinion among Shari’a scholars. In Saudi Arabia, Shari’a advisory is a purely market phenomenon. It is also considered therein that the higher Shari’a authority cannot effectively supervise Shari’a-compliance for IFIs, and may in fact negatively impact stability of the Islamic finance industry. 2 In the absence of a central Shari’a authority and abidingness of its rulings and fatawa on IFIs, Different interpretations of Shari’a rules amongst Shari’a scholars may create confusion in the general public as well as in banking communities. This difference of opinion applies not only to some of the products, but also to some of the operations of the Islamic banks. For example, there is no uniformity in opinions pertaining to the principle of the trust financing contract (mudaraba) in business transactions. The maliki and shafi’i schools of jurisprudence are of the view that mudaraba should be confined to trade and trade-related activities alone, and should not include the activities of manufacturing. According to them, the contract for manufacturing should be excluded from mudaraba, which is a profitloss sharing contract, but formed under a specific longterm contract whereby a party undertakes to manufacture, i.e., istisna’. However, the hanafi school of law does not object to the application of mudaraba for manufacturing activities, while the hanbali school of law allows two separate agreements using mudaraba and istisna’ principles as long as the two agreements do not impose conditions upon each other. 3

ISLAMIC FINANCE REVIEW | APRIL 2018

Suggested Solution The real reason behind the lack of harmonisation of practices and uniformity of opinions is the strict conformity with one school of law (taqlid almadh’hab) in a particular region, and with some other school of law in another region. The solution to this problem lies in adopting a neo-juristic approach of inclusive accommodation and flexibility. This alternative approach is based on the Quranic principle of facilitation and the juristic principle of expansion. It may be named as taqlid al-madhahib or conformity with all schools of law.

The Quranic Injunctions on the Principle of Facilitation (tas’hil) and Flexibility (tawassu’) One of the primary objectives of Shari’a is to facilitate human kind and remove burdens, difficulties and hardships from their lives. The Quran states, “Allah desires ease for you and does not desire hardship for you.”5 The entire religion of Islam is structured upon the provision of ease and the removal of difficulty. The Quran explicates this by saying, “He has chosen you, and has not laid upon you any hardship or constriction in the matter of religion.”6 Furthermore, it is also stated, “Allah does not want to make things hard for you.”7 Since Allah knows the weakness of human beings, He has lightened for them the legal responsibilities and lessened from them the obligations that they would not be able to fulfil. He said, “Allah intends to lighten your burden. And man has been created weak (and infirm).”8 He further explained, “Allah has, at present, lightened the burden (of His commandment) on you. He knows that there is (some degree of) weakness in you.”9

Such non-uniformity of opinions amongst Islamic scholars from different schools of law generates confusion amongst bankers, customers and the general public. Customers will not really understand what are the ‘dos and don’ts’ of the Islamic banking industry, and will make their own personal interpretations. This situation is unhealthy for bankercustomer relations, as both parties may have different interpretations.4

2

Kasim, Nawal, Sheila Nu Nu Htay and Syed Ahmed Salman. “Empowering the Shari‘ah Committee towards Strengthening Shari‘ah Governance Practices in Islamic Financial Institutions.” Review of European Studies 8 (March 2016): 144.

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3

Ahmad Shaharudin Bin Abdul Latiff. 2013. “The Need for an Information System for the Dissemination of Knowledge on Islamic Banking.”

4

Ibid. 5 Quran 2:185. 6 Ibid., 22:78. 7 Ibid., 5:6. 8 Ibid., 4:28. 9 Ibid., 8:66.


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INVITED ARTICLE

Evidence from the Hadith Jabir (may Allah be pleased with him) reported that Holy Prophet (peace be upon him) said, “Indeed, Allah did not send me to be harsh or cause harm; He sent me to teach and make things easy.”10 Aisha bint Abu Bakr (peace be upon her) said, “Never was Allah’s Messenger presented with two options except that he would choose the easier of the two, so long as it was not a sin.”11 According to Anas bin Malik (may Allah be pleased with him), the Prophet (peace by upon him) said, “Make things easy and do not make things difficult. Give glad tidings and do not make people feel averse.”12 Abu Hurayra (may Allah be pleased with him) reports that Allah’s Messenger (peace by upon him) said, “You were sent to make things easy and not to make things difficult.”13 Imam Ahmad bin Hanbal narrated in Musnad that the Holy Prophet said, “Verily, the best of your religion is the easier part. Verily, the best of your religion is the easier part. Verily, the best of your religion is the easier part.”14 That is why Allama Ibn Qudama, a great jurist of hanbali school of thought, writes in his book Rawda al-Nazir fi Usul al-Fiqh, “If a jurist is approached for an edict and his edict remains devoid of openness and flexibility because of his rigidity the edictseeker should be guided towards some other jurist who is open-minded and flexible”15 . Furthermore, Allama Ibn Qudama reports that Hussain bin Bashaar inquired from Imam Ahmad bin Hanbal about an issue. He said, “If he does it, he will become a perjurer.” Hussain bin Bashaar said, “If someone issues me the edict that he will not be a perjurer then (what will be the case)?” Imam Ahmad replied, “Do you know of the Medinans’ session (at Rasaafa)?” He asked, “If they issue the edict, would that be permissible?” Imam Ahmad replied in affirmative16 .

Here, Imam Ahmad himself is guiding the inquirer to go to Rasaafa and get the answer from the Medinan scholars because their opinion was based on openness, inclusion, flexibility and facilitation. These juristic principles are always closer to the basic spirit of Islamic teachings.

The Principle of Distinction and Option of Choice Between Different Juristic Verdicts The intent of the wholesome of Shari’a is to create ease and facilitation for humankind. Keeping in view this principle, the jurists have promoted ease, expansion and facilitation for humans in making inferences from the sources. While describing various disputations, they have reported different verdicts and opinions that contain greater flexibility and facilitation. Mentioning these verdicts, the imams have frequently referred to statements, using descriptions like: This is the most correct This is the vastest This is the safest This is the best analogy That is better This is more evident This is more compatible to analogy This is more lenient and easier for the people The jurists who have used such epithets do not represent any specific period, nor do they belong to any single school of law; rather they belong to all the eras and all the schools of law. They include Imam Abu Hanifa, Imam Malik, Imam Shafi’i, Imam Ahmad bin Hanbal, Imam Muhammad, Imam Abu Yusuf, Samarqandi, Sarakhsi, Kasani, Zayla’i, Subki, Nawawi, Shurbini, Ramli, Ibn Hazm, Ibn Muflih, Ibn Qudama, Ibn Taymiyya, Ibn Nujaym, Haakafi and Ibn Abidin, etc.

Juristic Strategy for Resolving Contemporary Issues Through the Principle of Inclusion and Expansion In this regard, a reasoned strategy needs to be developed, which will enable us to benefit from the juristic reservoir of all the four schools in order to sort out the complexities of life without any deferment and hindrance.

10

Sahih Muslim: Book: Talaq [The Divorce], Chapter: “Merely giving a woman the option of divorce does not make the divorce effective, but only when it is actually intended,” 2:1104 §1478. 11

Sahih Bukhari: Book: Manaqib [The Exemplary Virtues], Chapter: “The qualities of the Prophet,” 3:1306 §3367; Sahih Muslim : Book: Fadha’il [Virtues], Chapter: “The Prophet’s distance away from sins,” 4:1813 §2327. 12

Sahih Bukhari: Book: Ilm [Knowledge], Chapter: “On the Prophet being careful about giving people admonition and knowledge lest they feel aversion to it,” 1:38 §69; Sahih Muslim : Book: Jihad wa Siyar [The Striving and Military Expeditions], Chapter: “The command to make things easy and not making others feel aversion,” 3:1359 §1734.

13 Sahih Bukhari: Book: Wudu [The Ablution], Chapter: “Pouring water over urine in the mosque,” 1:89 §217; Sahih Muslim: Book: Tahara [The Purification], Chapter: “The obligation to wash away urine and other impurities,” 1:236 §284–285. 14

Imam Ahmad b. Hanbal, Musnad, 3:479; 4:338; 5:32.

15

Ibn Qudama, Rawda al-Nazir, 1:386.

16

Ibid.

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INVITED ARTICLE

1.

Pursuing this principle, Imam Wali Allah Muhaddith Dihlawi states:

Categories of Juristic Opinions

i. In most of the juristic reasoning characterized by difference of opinions, the truth spreads through all of these opinions.

Imam Wali Allah Dihlawi further writes that the difference of opinion is of four kinds:

There is no narrowness in Deen; rather it offers ease, expansion and ii. accommodation.

1. Determined Opinion: The difference of opinion is not justified in matters wherein the truth is absolutely and certainly determined. Its compliance is mandatory and differing from this position is definitely void.

iii. Sticking only to one way and believing firmly that the opponent’s viewpoint is definitely wrong, is baseless. 17 Imam Izz-ud-Din bin Abd-us-Salam, expressing the same strategy, 2. states:

2. Preferred Opinion: The problem where the truth is determined by majority vote of the schools and the jurists and it weighs in predominant scale. Differing from this position is probably voidable.

“Successful is the person who acted upon things the scholars agreed upon and refrained from things that the scholars declared unlawful without any disagreement, and believed in the permissibility of matters, which the scholars and jurists decreed unanimously, also performed the acts, which the scholars unanimously regarded commendable; and abstained from the acts that the scholars unanimously agreed to disapprove. However, the things where the scholars disagreed and could not concur on one opinion can be divided into two forms:

3. Unpreferred Opinion: This is a problem where both aspects are under equal authority and none of the aspects is preferred to the other. In this matter, an open choice between the two opinions is granted definitely.

i. The matter wherein they have had difference of opinion on the disputations about which the command of the Lawgiver can be repealed. In this case, no chance of following that opinion remains permissible, because such a ruling will be considered a mistake in totality. It will be rejected because the mistake lies in its original legality, and this mistake has detached the ruling from the basic will of the Lawgiver and spirit of the textual law.

4. Compatible Opinion: This is an issue where similar choice is given on both sides with a dominant opinion. Therefore, in this case also, a jurist is free to adopt either of the two authorities or opinions, based on the compatibility of the evidence and the given circumstances. 20

ii. The second form is related to the matter where difference of opinion does not pertain to the issues about which the command of the Lawgiver can be repealed. There is no harm in obeying or disobeying such a ruling, with the condition that one should follow some authentic juristic opinion and not an unauthentic one. The practice in the early centuries of Muslim Umma, when the traditional schools of law were not formulated and enforced, was not to follow any specific jurisprudence; but people used to follow any legal opinion of a competent scholar, which at least enjoyed the consensus of some jurists.” 18

Therefore, the scholars and jurists, leaving the first kind aside, can use their juristic discretion in adopting any viewpoint in the last three situations, following the above-mentioned principles of jurisprudence.

3.

Imam Izz-ud-Din bin Abd-us-Salam further asserted on a question:

“If the school that he is abandoning and the one that he is adopting are without much distance closer to one another in their sources and origins, then it is permissible to leave one and join the other. It is because from the period of the Companions until the formation of four juristic schools, the Muslims have been following all the schools of jurisprudence instead of one of them. Whoever, one would consider a better scholar, superior in Godconsciousness, he would approach him for an edict and follow him. Nobody used to dislike this way, nor was considered disliking by anyone worth any notice. Had it been the wrong way, the scholars would have rejected it and stopped others to follow it.” 19

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18

17

Imam Wali Allah Muhaddith Dihlawi, Iqd al-Jeed fi Ahkam al-Ijtihad wa al-Taqlid, p. 178.

19

Izz-ud-Din Abd-ul-Aziz bin Abd-us-Salam, Qawaid al-Ahkam fi Masalih al-Anaam, 2:158.

20

Imam Wali Allah Muhaddith Dihlawi, Iqd al-Jeed fi Ahkam al-Ijtihad wa al-Taqlid, p. 172.

Ibid., pp. 178–179.


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INVITED ARTICLE

iv. A different approach in formulating the juristic principles. Since the framed juristic principles or conditions were different from one another, resultantly, difference of legal opinion occurred also in peripheral issues.

The Occasions to Differ Imam Wali Allah Dihlawi describes the occasions to differ at another place in his book Iqd al-Jeed:

That is why the Prophet said: “Difference of opinion amongst my Umma is a blessing.”21 This difference of opinion has been declared to be a blessing of Almighty Allah, because none of them is negating the command of God. All of them are trying to determine the meanings and specify the implications of a particular verse, hadith or word in question in different ways. Therefore, these juristic differences have expanded the scope of legal options for the Umma.

“It is an established fact that the difference amongst the jurists or mujtahidun arose due to following reasons:

“Therefore, all of the mujtahids are on straight path in all the above-mentioned forms when their sources are akin to and compatible with the indicated methodology. That is why, one can easily accept anyone of them without any confusion.” 22

1. A mujtahid found a hadith about an incident, while the other missed it. In this case, the one who found the truth is called mujtahid mu’ayyan.

Quranic Verdict on Shifting from one School to Another

2. Every mujtahid has hadiths of the Prophet and the reports of the companions. Every one of them exercised ijtihad (deductive reasoning) in preferring or finding compatibility among hadiths and companions’ reports regarding any given legal situation. Their ijtihad took it to the status of a determined command, due to which the difference of opinion transpired to the scope of adopting any of the opinions.

It can be asserted in the light of legal arguments that, apart from the Prophets, it is not legally prohibited to differ with any person of any exalted position in any issue under any circumstances. This station is only exclusive for Allah and His exalted Messenger. The four Imams too have expanded upon this matter. The Quran states:

2. The mujtahids differed in the following matters:

The Quran and Sunna come under the article of:

i. The connotations and interpretation of words and idioms in use and determining their meanings and implications.

The schools of law and their Imams fall under the article of:

ii. Pinpointing and determining the confines of usages.

As mentioned in this verse, the commandment of “obey’ has been repeated for the Prophet in the same way as for Allah, to declare the absolute and unconditional authority vested with the commandment of the Holy Prophet. However, in the case of the ruler, the command of obeying has not been verbally repeated. This style of linguistic composition signifies that the obedience rendered to the ruler is qualified, conditional and challengeable. That is why, Almighty Allah has further commanded:

iii. The true recognition of conditions and constituent elements of a legal act or its effects. Thus ijtihad of every mujtahid took him to a separate and permanent opinion in framing the legal position of that act.

“O believers! Obey Allah and obey the Messenger and those who hold the authority amongst you.” 23

“Obey Allah and obey the Messenger.” 24

“Those who hold the authority amongst you.” 25

“Then if you disagree amongst yourselves over any issue, refer it to Allah and the Messenger (for final judgment), if you believe in Allah and the Last Day.” 26

21

Set forth by Jassas in Ahkam al-Quran, 2:314; Ghazali in Ihya’ al-Uloom al-Din, 1:27; Nawawi in Sharh Sahih Muslim, 11:91–92; Mulla Ali Qari in Mirqat al-Mafatih, 1:59; Hindi in Kanz al-Ummal, 10:59. 22

Wali Allah Dihlawi, Iqd al-Jeed fi Ahkam al-Ijtihad wa al-Taqlid, pp. 173–174.

23

Quran 4:59.

24

Ibid.

25

Ibid.

26

Ibid.

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Application of Intra-School Position to InterSchool Position In like manner, the above-mentioned intra-school principles should be applied to inter-school matters, in order to infer, extend, prefer or adopt a verdict of any of the schools of law as per requirements. This is how the truthfulness and veracity of all the four schools of law would be practically applied and enforced. Otherwise, it will negate Islam’s global immensity and vastness. This Quranic article promulgates three basic principles: i. The principle of the supreme and absolute juristic authority of the Quran and Sunna; ii. The principle of subordinate and conditional authority of the juristic opinions; and iii. The principle of permissibility of differing from one opinion and adopting the other, due to the reason of stronger supporting evidence of the Quran and Sunna. 1. Imam Wali Allah al-Dihlawi states: “The overwhelming majority of scholars belonging to the four schools have followed the middle course between two extremes of excess and paucity we have mentioned. All the four Imams instructed their followers of the same path of moderation. Shaykh Abd al-Wahhab al-Sharani has reported from Imam Abu Hanifa in al-Yawaqit wa al-Jawahir, saying, ‘It is unjust for a person who is not acquainted with the proof contained in my words to issue an edict just on the basis of my words.’ When he decreed his edict he would point towards himself and say, ‘As far as I know, this is the opinion of Numan Bin Thabit [Abu Hanifa], and, this is more acceptable to me. If there is a better opinion, that is more authentic and would be closer to the truth.’ Similarly, Imam Malik used to say, ‘Except for the Messenger of Allah, everyone can be seized for his words and his words can be rejected.’ Hakim and Bayhaqi have reported from Imam Shafi’i, saying, ‘When the authenticity of hadith is proved, that is my school.’” 27 2. Zarkashi states: “The Companions had a common agreement on this point that there was a difference in their level of knowledge and understanding but, despite that, there was consensus among them on the permissibility of following a path of a person of lower rank in the presence of a person enjoying a higher rank in knowledge and wisdom.” 28 This principle reveals that, under peculiar circumstances, it is permissible to prefer another Imam’s verdict due to legal expediency, evidential strength or circumstantial necessity. The majority of jurists maintain the same standpoint. However, the juristic conditions and limits have to be observed compulsorily.

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One of the main Divine objectives, and why various schools of law earned acceptance and popularity amongst the Umma, was that all the commands and teachings of the Prophet Muhammad (peace be upon him) should be protected, practiced and transmitted in their real manifestation. In this way, every single Sunna of the Holy Prophet would always remain alive. None of the Prophets’ practices, teachings and commands may be abandoned at any given time. Almighty Allah has practically protected all aspects of the holy life of the Prophet in the form of different schools of law. Nevertheless, the protection of the whole of the Sunna of Holy Prophet would not have been possible through one school of law only, because some variations and alterations gradually took place in the Sunna from time to time, in accordance with occasional needs and circumstantial requirements. Therefore, the real purpose of the existence of different madhahib is to create a total comprehension of the Prophetic practices, and not to create a narrow and rigid vision of Islamic commands.

3. Ibn Taymiyya states: “Sometimes, Allah Most High bestows upon a scholar the wisdom and insight which the other lacks.”29 4. Ibn Abidin has stated with reference to al-Iqd al-Farid authored by Allama Shurunbulali: “It is not imperative for a person to follow a particular school of law in all cases, without any exception.” He further states: “In certain issues, it is permissible for a person to follow another Imam’s school against the school of his own Imam, provided he cares for all the terms and conditions fixed by the other Imam.”30 We learn from these proofs and statements that, about a given disputation, shifting from one juristic school to the other is permissible. However, this permissibility is dependent upon the fulfilment of certain conditions described by the jurists.

27

al-Sharani, al-Yawaqit wa al-Jawahir, 2:478. Shah Wali Allah al-Dihlawi, Iqd al-Jeed fi Ahkam al-Ijtihad wa al-Taqlid, p. 216.

28

al-Zarkashi, al-Bahr al-Muhit fi Usul al-Fiqh, 4:577.

29

Ibn Taymiyya, Majmu’ al-Fatawa, 20:19.

30

Ibn Abidin al-Shami, Radd al-Mukhtar ala al-Durr al-Mukhtar, 1:87.


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Guiding Principles for the Methodology of Inclusion and Flexibility The following are the guiding principles for finding juristic solutions for modern issues, through the methodology of inclusive accommodation and flexibility (al-tawassu’). 1. As far as possible and whatever way it works, we should normally try to draw inferences from the rulings of the great Imams and must not exit from all of the four schools of jurisprudence. There is no harm in deserting one school of law and taking up the other in solving a specific complicated issue. 2. Of the followed schools, whichever offers any key or solution to any modern-day complication or complex development, should be adopted to solve the problem. Therefore, conducting a modern ijtihad does not become the only solution, nor do we open the door of ijtihad to every Tom, Dick and Harry. 3. This is so because the demand of necessity or compulsive intervention of time neither does open the door of ijtihad wide apart, nor shuts it absolutely. The right and moderate path lies between these two extremes, so that juristic reasoning is practiced under real necessity. And this juristic reasoning does not transgress or go independent of the principles and juristic procedures laid down by the schools of law. In brief, if the desired solution is found in the master books of any of the four schools, the edict can be issued from there, and so new juristic reasoning remains beyond any need. 4. The change of school of law should not be due to personal desire; it should rather be owing to religious necessity or general expediency as stated by Allama Ibn Abidin al-Shami: “A person’s change from one juristic school to the other due to worldly desires and pursuits without a solid reason will be an extremely condemnable act, because he has followed the prohibitions of deen and degraded his School of law.” 31

5. Leaving one’s own Imam’s verdict and following the other’s should be based on the strength of proof, legal expediency or circumstantial necessity. It should not be for the sake of avoiding the Divine Commandments. 6. Only such a person is allowed to shift from one school to another who is sufficiently competent to distinguish between weak and strong reasons and equipped with knowledge of legal expediencies. 7. If a solution is not explicitly found, even in any of these sources, there is no harm in exercising analogical deduction for unsolved matters provided the analogy is not absolutely differential. 8. However, if all the four schools do not offer any analogical solution to a modern-day problem, then we should go for exegetical deduction. This is reinterpretation of the text, following the exegetical and juristic principles and general legal provisions of the Quran and Sunna. 9. If we do not find any clear text of the divine command that can be used as juristic basis for the above-mentioned deductions, then we should go for deductive reasoning based on public interest. This can be conducted in the forms of: juristic preference (al-istihsan), presumption of continuity (al-istishab), public good (al-istislah), common benefit (al-masalih al-mursala), ‘usage (al-urf) and convention (al-ada)’, ‘legal necessity (aldarura)’, ‘change of law by change of time (taghayyur al-ahkam bi taghayyur al-zaman)’, etc. 10. There are some juristic principles, agreed upon and practiced by all great scholars of the early Islamic generations, before the schools of law were formulated. One of these principles relates to interactions. According to this principle, wherever flexibility and facilitation is necessarily required, anyone of the four schools or anyone of the Shari'a evidences will be adopted on the basis of compatibility between the spirit of Islamic teachings and the demands of the time.

Finale In view of the current national and international complexities and changing ground realities, the jurists have followed the path of openness, flexibility and liberality (al-tawassu’) instead of tenacious adherence to a single school of law or the path of narrowness and rigidity. As the basis of the problems grows wider and expands in span and novelty, the rules to resolve the problems also demand adoption of an open-minded and a holistic approach. If the issue is related to personal matters, adherence to a particular school of law will be preferred. However, if the problem happens to be wide-spectrum and involves a broader span of activity and extensive international repercussions, the methodology to deal with it would also be all-inclusive, liberal and wide-ranging.

For a comprehensive and complete analysis, please consult Global Islamic Finance Report 2018 to which Dr. Muhammad Tahir-ul-Qadri contributed a chapter on the same issue. 31

Ibid., Radd al-Mukhtar ala al-Durr al-Mukhtar, 4:80.

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TALKING POINTS

FUTURE OFISLAMIC BANKING & FINANCE

This article is ased on a Keynote Speech delivered by Professor Humayon Dar at the 1st World Conference on Islamic Economics & Finance, organised by Minhaj University Lahore on January 3-4, 2018.

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Introduction This article may very well initiate a controversy but it must be ascertained right in the beginning that this has never been intended. Islamic banking and finance (IBF) has made some valuable progress in the last five decades, and it is indeed an achievement that a humble start has become a significant phenomenon in more than 20 countries of the world. Size of the global Islamic financial services stood at US$2.431 trillion at the end of 2017, with an annual growth rate of around 6%1 . In other countries, although IBF exists but it has yet to make a mark. It has also attracted attention of global players in financial markets, with the likes of HSBC, Standard Chartered, Citibank, UBS, BNP Paribas, and many more. Admittedly, many of these institutions have revised their IBF strategies and their initial excitement towards the industry has receded. However, this has allowed full-fledged Islamic banks, like Dubai Islamic Bank (DIB), Kuwait Finance House (KFH) and Al Rajhi Bank, to strengthen their positions in the growing markets of IBF. Conglomerates of Islamic financial institutions are fast developing to become multilateral organisations. There is growing recognition of IBF in the multilateral institutions like the World Bank and International Monetary Fund. In academia, Islamic economics has got marginalised but there is a growing focus on IBF. There are regular conferences, seminars and workshops with an exclusive focus on Islamic economics, banking and finance (IEBF). Academicians continue to make valuable contributions to what may come under the rubric of IEBF. Despite impressive growth and significant market shares in a number of countries, IBF has failed to impress government agenda in terms of poverty alleviation, financial inclusion, gender balances, employment creation and support for industry and innovation. It has also yet to enter public policy debates in addressing socio-economic problem faced by the countries wherein it has otherwise assumed significance and prominence. Main Hypotheses This article focuses on the future of IBF.

1

Global Islamic Finance Report 2018.

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Scenario Number One The question arises if the future is pathdependent. If it is, then there are three possible scenarios for future of Islamic banking and finance. 1. It will continue to grow to eventually become indistinguishable from the conventional interest-based banking and finance. 2. It will continue to develop itself to become completely independent of conventional interest-based banking and finance. 3. It continues the way it is being developed and nothing happens. In this path-dependency framework, there is no other possibility. Other possibilities may arise out of a paradigm shift that may come into existence because of a completely new and path-independent event. We shall come to this possibility later, but first let us analyse the above three path-dependent outcomes. Number one is the most probable, and unfortunately this will be the gloomiest future of IBF. Number two is the least likely. Number three is possible only in the medium to long run, giving rise to the ultimate outcome, i.e., the first outcome, in the very long run.

To understand it, let us look at the practice of Islamic banking and finance. No one can deny the fact that Islamic banking and finance is different from its conventional counterpart in the process only, with exactly the same ultimate outcomes and objectives. Islamic banks are merely money managers, with at best facilitating trades, and contrary to the claims, not traders. Admittedly, the existing banking regulations do not allow Islamic banks to operate as traders. But, then this is a completely different story. No one compelled Islamic banks to be in bed with banks. This is a deliberate choice rather than a compulsion. Because Islamic banks are banks, they operate and behave as such. They offer credit for home purchases, for buying and selling of cars, and they offer credit cards to cater for liquidity needs of households and individuals. For businesses, they offer credit in the form of trade finance and in some cases for working capital. In a wider context, Islamic financial institutions are involved in issuing Islamic bonds named as sukuk to borrow or lend, named as financing. All Islamic financial products are priced as credit facilities. Because they are credit facilities, and not trading activities, they are benchmarked to a loan contract. Here comes the role of LIBOR, SIBOR, KLIBOR and KIBOR. At present, Islamic financial products are benchmarked to an interestbased index, with the distinction that Islamic financial products differ in the process only, with an ultimate outcome similar to an interestbased loan contract. This was acceptable, if the transactions were real trades. However, Islamic banks merely finance trades; they are not traders. The regulators do not deem them traders. Islamic banks themselves ask tax authorities to deem their transactions mere financing, and not trading, to negotiate tax neutrality. When we look into the contracts like murabaha, istisna’, salam and even ijara, they are structured in such a way that there are provisions for rebate on early payments and penalties on late payments and defaults, making these contracts nothing more than loan contracts. These are just a few of many examples that lead one to conclude that in future Islamic banking and finance will become indistinguishable from the interest-based conventional banking and finance. This is the most likely future of Islamic banking and finance, if it continues to grow the way it has grown in the last fifty years.

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TALKING POINTS Scenario Number Two IBF can become a completely independent financial system if reforms are endogenised. There are some early indicators of this trend in countries like Malaysia. Malaysian Islamic banks started with only one product, that is of bai al-‘ina or what they called as bai’ bithaman ‘aajil or BBA. This controversial contract was systematically and gradually routed out to be replaced by a less controversial contract of tawarruq. Most recently, the central bank of the country, Bank Negara Malaysia (BNM), has introduced the concept of value-based intermediation to ensure that Islamic banks and financial institutions offer a distinct value proposition to their customers and clients. There is no doubt that a number of malpractices in IBF have been taken out as a result of greater emphasis on Shari’a governance and assurance. The effectiveness of industry-bodies like Islamic Financial Services Board (IFSB) and Accounting & Auditing Organisation for Islamic Financial Institutions (AAOIFI) is on a rise. The regulatory bodies are increasingly becoming aware of IBFspecific needs and requirements and are trying to develop frameworks for strengthening of Islamic financial institutions to ensure their stability and sustainability. Furthermore, there are a number of countries (e.g., the GCC countries, Malaysia, Brunei and Bangladesh, etc.) where Islamic banking is about one-fourth of national banking sectors, or more, and one should expect that the influence of Islamic banking and finance in these countries will increase in future. This must create monopolistic competitive markets wherein Islamic and conventional banks will compete with each other, trying to win business from each other. With the increase in share of Islamic banking and finance in such markets, more authentic and distinctly different Islamic financial products may emerge. This is the least probable scenario though. The reason behind this pessimistic view is the institutionalisation of practices like tawarruq and commodity murabaha. The latest development (or anti-development if one may say so) in this respect is the allowance of commodity murabaha even in countries like Pakistan.

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ISLAMIC FINANCE REVIEW | APRIL 2018

Scenario Number Three Growth in IBF has been phenomenal in the first decade of the current century. However, in the last three to four years, there has been a visible slowdown in the growth, with only 6% annual growth in 2017. The current size of the global Islamic financial services industry stands at US$2.431 trillion. There have been revised downward estimates for the size of the industry in the next 5 years. This means that potential of Islamic banking and finance to replace conventional banking and finance even in the key markets is rather limited. Saudi Arabia is an exception, where Islamic banking and finance is at least as much as its conventional counterpart in terms of the size. In all other markets, Islamic banking and finance will struggle to match with its conventional peer. The quantitative comparison, however, should not be the major concern for the industry stakeholders. The real challenge is of qualitative nature. Conventionalisation of Islamic banking and finance is more rapid than Islamisation of conventional banking and finance, as Islamic banking and finance is becoming more conventional with every new development. There is now a strong movement in favour of changing the nomenclature to remove or limit the Islamic tag. In the medium to long-run (next 15 to 25 years), IBF will continue to grow the way it has developed so far. This will in the very long-run mean no distinctly different Islamic banking and finance.

This is indeed a pessimistic view of IBF. This whole process that started with a promise will collapse into a mere technicality. The prohibition of interest will in fact become a technical requirement, without any real benefits. That is what we have already admitted when we accept benchmarking of Islamic financial products with reference to an interest-based index. Benchmarking of Islamic financial products with reference to LIBOR, SIBOR, KLIBOR and KIBOR is nothing more than accepting efficiency of interest in pricing and resource allocation. Different stakeholders, especially Shari’a scholars, challenge the critics of Islamic banking and finance to suggest a more suitable benchmark than interest rates. Outside banking, Islamic asset management provides a good opportunity for development of Islamic finance. In the context of Pakistan,

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TALKING POINTS mudaraba sector has a huge potential to develop Islamic finance as a viable alternative to conventional finance. However, despite the intial success of mudaraba companies and mudarabas, this sector has not been developed to its full potential. It will certainly be an incomplete picture of the future of Islamic finance, if one stops here. The phrase used in the last sentence is Islamic finance, and not Islamic banking and finance, deliberately, because Islamic finance has a very different future than Islamic banking. It is almost certain that a new Islamic financial institution will emerge in future, which will not price credit, and which will not be involved in trading of credit, either in the form of loans or credit embedded in financial arrangements woven around trades. This institution will accept the fact that the prohibition of interest implies no purchase and sale of credit. Credit would be provided for free, if it effectively means transfer of money now in exchange of money in future. In this framework, credit will fetch a price only if a trading institution has sold something on deferred payment basis. This means that this future institution will not be a bank (i.e., it will not be a deposit-taking institution), rather it will be a genuine trading establishment. If one takes a more radical view, a charitable organisation will emerge, which will offer free credit to individuals, families and even businesses. It will be run with the help of charitable contributions and endowments to offer completely interest-free loans to anyone who would need it for consumption or business. It will become completely sustainable in a period of 15 to 25 years, when a full generation of beneficiaries becomes net contributors rather than mere recipients of credit. That will be the actual realisation of the prohibition of interest. That

model will ensure no one inflicting injustice and not itself being subject to any injustice. One may argue that such institutions are already in existence in various countries of the world. Perhaps they are not entirely wrong in their observation. However, one would like to see such institutions emerging as what may be called Foundations. Foundations and not banks! These Foundations may have their own endowments or awqaf, or may be organised as profit-oriented establishments. Fauji Foundation in Pakistan provides a good example, although it is not being proposed that Foundations should emulate what Fauji Foundation does. There is perhaps a better example in the form of Islamic Relief. The Islamic Relief Worldwide (IRF) is a charitable organisation, with operations in more than 30 countries of the world. Although it is primarily a relief organisation but it has of late started offering microcredit to the poor, particularly women. As mentioned earlier, mudaraba model in Pakistan was perhaps the best opportunity to develop a new model of profit-oriented Islamic finance but even this is fast becoming a lost opportunity. This still has a potential to become a viable alternative model of financial intermediation, if it is further developed as a non-bank financial institution based on participation in capital and sharing of risk and reward. The emergence of FinTech and crowdfunding should help in democratising the model, as at present the only entry point for participation in mudaraba business is through stock market and Participation Term Certificates, based on musharaka. The mudaraba model may very well be deemed as a double-helix model of Islamic finance. It was a better structure than the sukuk that stole the limelight from it. It was in fact an embryonic form of Exchange Traded Funds (ETFs) that came into prominence about 10 years back, almost 35 years after the first mudaraba was set up in Karachi. Mudarabas in Pakistan could also have been developed into full-fledged Islamic investment banks, but again nothing much was done to evolve this into a credible alternative system of financial intermediation. If all the existing such businesses are studied, assessed and analysed to found a new model of Islamic finance, that could be one example of what was referred earlier as a completely pathindependent event to introduce a new, genuinely authentic model of Islamic finance. That, one should hope, will be the future of Islamic finance.

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PERSONALITY

ISFIRE Personalities are leading men and women drawn from the global Islamic financial industry and the related institutions. Over the last seven years, these personalities have emerged as a prestigious club of leaders in Islamic banking and finance (IBF). Through short rapid-fire kind of interviews, we aim to bring out hidden aspects of their personalities for the benefit of those who would like to play leadership roles in IBF. This issue’s personality is a man who has played a central and vocal role in identification and quantification of the risks and challenges facing Islamic banks and sukuk markets. After an illustrious career with Credit Suisse and then as Moody’s first ever Global Head of Islamic Finance and GCC Banking, Khalid Howladar founded Acreditus, a new advisory created to serve the needs of the GCC and Islamic credit markets. He joins a very distinguished faculty of ISFIRE Personalities that include Chairmen and CEOs of Islamic banks and financial institutions, leading Shari’a scholars, practitioners and lawyers. Previous ISFIRE Personalities include Hasan Bilgarami (CEO of Bank Islami Pakistan), Raja Teh Maimunah Raja Abdulaziz (CEO of Aminvestment Bank, Malaysia), Sheikh Nedham Yaqubi (Shari’a scholar, Bahrain), Amman Mohammed (CEO of FNB Islamic), and many more.

PERSONALITY

KHALID Ferdous Howladar, Managing Director & Founder of Acreditus

BANKING AND FINANCE?

WHAT WAS YOUR EARLIEST AMBITION? Actually, it was to be an Architect. I was good at Art & Design as well as Physics & Maths – this career would in theory combine the two, but when I found out it took seven years to become a Chartered Architect and even longer (if ever) before you could really apply your imagination – I realised it wasn’t for me.

WHAT DO YOU ENJOY THE MOST? Learning, travelling and meeting new smart people who have nothing to do with finance.

WHY ARE YOU INTO ISLAMIC

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It began in 2006 when an inspirational Moody’s MD called Michel Madelaine (now Vice Chairman of Moody’s) asked me to investigate the Nakheel sukuk in 2006 – then the world’s largest at around $3.5 billion. Back then nobody had any idea what these things were... after looking through several hundred pages of legal documentation, I told him it was a very complex senior unsecured bond (unfortunately not much has changed). He then asked I cover this market (and the Middle East) for Moody’s until I become the first ever Global Head of Islamic Finance in 2014 as we set up a global team to cover the growth. More recently however since the global financial crisis and Brexit I have taken an interest in inclusive capitalism and this is a natural fit with Islamic finance. The underlying economic principles have value beyond Muslims for all society and I sincerely believe it can help reduce the increasing inequality that we see globally. It is this view of Islamic or participation finance that I like to share/promote.

WHAT DO YOU DO IN YOUR SPARE TIME? Nowadays since setting my own advisory I have very little spare time! I have discovered Podcasts and love the TEDtalks, LSE lectures and Bloomberg episodes. Aside from that I like writing but invariably my book takes second place to the topical research I write on the things I learn - the latest being blockchain and cryptocurrency. I watch a LOT of movies and if I am really trying to disconnect then xbox and/or house music!


ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

PERSONALITY

WHICH MOVIE IS YOUR ALLTIME FAVOURITE?

WHO HAS BEEN YOUR GREATEST MENTOR?

WHERE ARE YOU THE HAPPIEST?

That’s not possible! As a genre SciFi has to be the favourite with movies like Cloud Atlas and The Matrix series but I love movies that are more intricately character driven from Woody Allen to Jean-Pierre Jeunet and Pedro Almodovar.

I’ve never unfortunately had a career mentor as such... although I think I could have used one many times. My father however is the biggest influence. He instilled a deep appreciation for education and hard work that has served me well in life. Also, the fictional character Captain Jean-Luc Picard of Star Trek! His creator Gene Roddenberry was a true visionary and diversity, ethics, responsibility and integrity were always key themes of his writing that impressed on me as a child.

Laughing with friends and family mixed with good weather and food.

Nowadays since set ting my own advisory I have very lit tle spare time .

IF YOUR 15 YEARS OLD SEES YOU TODAY WHAT WOULD HE SAY? What happened to your hair?

IN A FEW SENTENCES DESCRIBE YOUR 65 YEARS OLD. Hopefully a happy, healthy and successful family man, in shaa Allah.

ANY DISAPPOINTMENT IN LIFE? A few minor ones... but we only really learn through adversity.

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ISFIRE EVENTS

IBA CEIF C

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The 2nd World Islamic Finance Forum in Karachi 19th – 20th March 2018

Movenpick Hotel Karachi , Pakistan

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ISFIRE EVENTS

IBA’s Center for Excellence in Islamic Finance (IBA-CEIF) successfully conducted the World Islamic Finance Forum (WIFF). The Conference was themed ‘Expanding the Footprint of Islamic Finance: Innovation, Fintech and Regulation’ and was held on 19th and 20th March 2018 at Movenpick Hotel, Karachi. The Conference, commonly referred to as ‘WIFF 2018’, aimed to define future direction for the global Islamic finance industry in light of rapidly changing dynamics, driven by technological developments and growing need for innovative products to cater to upcoming sectors. As such, on each day, it hosted special Industry Sessions on Days 1 and 2 on “Implementing Industry Vision”, Fintech, “Islamic Finance: Building the Brand Proposition”, “Completing the Financial Circle – SMEs, Agriculture, Financial Inclusion”, and a concluding Power Session with Islamic Finance Visionaries. The latter included Dr. Zamir Iqbal (Vice President, IsDB), Prof. Dr. Necdet Sensoy, Member of the Board, Central Bank of Turkey, Dr. Mohamad Akram Laldin (ISRA, Malaysia), Dr. Yahia Abdul Rahman (Chairman & CEO, LaRiba Bank, USA), and industry leaders from Pakistan, such as Meezan Bank CEO Mr. Irfan Siddiqui, and CEO of Al Baraka Bank Pakistan Mr. Ahmed Shuja Kidwai, Mufti Irshad Ahmad Aijaz, and Dr. Mufti Muhammad Imran Ashraf Usmani (Resident Shari’a Board Member, Meezan Bank). As the Conference’s title of expanding Islamic finance footprint suggests, Day 2 hosted a special industry session on “Completing the Financial Circle”, chaired by Prof. Dr. Humayon Dar, the Chairman of HD-Edbiz Group of Companies. The discussion included Dr. Aishath Muneeza (INCEIF), Mr. Syed Samar Hasnain (Exec. Director, Development Finance Group, State Bank of Pakistan), Mr. Omar Mustafa Ansari (Acting Secretary General, AAOIFI), Dr. Salman Syed Ali (Senior Economist at IRTI) and Mufti Muhammad Hassaan Kaleem (Resident Shari’a Board Member of Dubai Islamic Bank Pakistan). The leaders addressed the need for Islamic finance in Pakistan to target the agriculture sector, the issues of financing the SMEs (such as credit guarantees), and the need to increase financial inclusion through Islamic finance. They also emphasized that Islamic finance industry could use Fin tech integration such as digital payment systems, branchless banking etc. to address the over 70%+ unbanked population of Pakistan. It was also emphasized that Islamic financial institutions, not just in Pakistan but across the world, should focus on Sustainable Development Goals (SDGs) as well when designing or modifying their corporate strategy.

The Chief Guest at the Conference was H. E. Shaikh Ebrahim Bin Khalifa Al Khalifa, Chairman, AAOIFI Board of Trustees. He delivered the inaugural address at the conference. The special guest of the Conference was the Pakistan’s Federal Advisor to the Prime Minister (Dr. Miftah Ismail), the honorable Shaikh Mufti Muhammad Taqi Usmani, prominent Shari’a scholars, renowned academicians, Fin Tech experts, Governor, Deputy Governor and regulators from the State Bank of Pakistan (SBP), Securities Exchange Commission of Pakistan (SECP), and highlevel delegates from Islamic Research and Training Institute (IRTI), Islamic Development Bank (IDB), Deloitte & Touche in addition to key local and global Islamic financial institutions. Over 400 participants, students, Academic researchers, industry leaders, regulators and scholars attended the event, from Pakistan, Malaysia, USA, Bahrain, Indonesia, Turkey, Saudi Arabia, Maldives, Germany etc. One of the key objectives of WIFF was knowledge enhancement through intellectual input from the academia. Thrust of CEIF is on bridging the gap between academia and industry through facilitating focused research that can be put to practice. Furthermore, CEIF aims at promoting development of case studies to impart Islamic finance knowledge through real life examples. In this pursuit, CEIF received over 70 research papers and case studies on the themes of Islamic finance, including takaful, monetary policy, financial inclusion, agricultural sector, Fin Tech integration, Islamic banking and stability, product innovation etc., of which a selected 21 were presented at WIFF 2018.

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ISLAMIC FINANCE REVIEW | APRIL 2018

PAUSE FOR THOUGHT

Shari’a & Technology The Birth of Shari’a Technician

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In IBF, Shari’a and technology must go along each other, as failing this will give rise to lack of innovation in structures and resultant stifling growth in the industry. The industry needs people with in-depth knowledge of Shari’a and equally good understanding of trends in conventional banking and finance. There is an excellent term that describes such people – Shari’a technicians.

Shari’a technician, on the other hand, initiates product development by applying juristic rules pertaining to financial transactions,

structures tend to push Shari’a boundaries, a Shari’a technician always faces criticism from some segments of the industry.

i.e., fiqh al-mua’malat al-maliya, to develop innovative Islamic financial products, and in the process procures Shari’a approval from the Shari’a fraternity. A Shari’a technician may himself in certain cases be part of the Shari’a approval process.

The difference between a Shari’a scholar and a Shari’a technician is that the former is an expert in Islamic jurisprudence while the latter is an innovator who specialises in financial innovation that fulfils all the Shari’a requirements while developing cutting edge Islamic financial products. Shari’a scholars are reactive, i.e., they issue fatwas on the products and structures presented to them for Shari’a approvals. A

As a Shari’a technician, I have been involved in some of the most pathbreaking product development endeavours in IBF. Short-selling techniques, Shari’a plugs-&play structures, Islamic financial derivatives (better known as Islamic hedging instruments) and Shari’a feeders into conventional products are some of the examples of the innovations in which I have been involved in the past. Because such

In the aftermath of the great financial crisis (2007-2011), innovation in IBF has slowed down, although there has been a lot of focus on FinTech in the recent past. Many IBF experts are found to be enthusiastic about FinTech in the recent past and at present. However, it must be emphasised that experts in Islamic FinTech should not be confused with Shari’a technicians, as the latter have in-depth knowledge and understanding of Shari’a matters while the former have distinction of being technology experts.


ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

PAUSE FOR THOUGHT

Shari’a technicians should be employed by Islamic financial institutions for the following reasons: Employing Shari’a technicians as part of product development & structuring teams and also using their expertise and skills for internal audit (which must include Shari’a audit as well) is expected to internalise costs associated with Shari’a advisory services. This model is being practiced in Pakistan where leading Islamic banks have developed their product development & structuring departments under supervision of a resident Shari’a scholar. Meezan Bank, for example, employs a large team of product developers who are also involved in training and advisory. It’s resident Shari’a advisor, Dr. Imran Usmani, closely works with Ahmad Ali Siddiqui who heads a vibrant team of product developers, structures and trainers. Bank Islami Pakistan is also emulating the model under leadership of Mufti Aijaz Ahmad Irshad, its

1 2 3

For spearheading Shari’a-compliant financial innovation; For undertaking internal Shari’a audit; and

resident Shari’a advisor.

Although Dr. Imran Usmani and Mufti Aijaz Ahmad Irshad are scholars of international and national repute, their teams comprising young Shari’a scholars are members of the emerging breed of Shari’a technicians. These Shari’a technicians are not just fatwa issuers but are actually central to a regime providing turnkey Islamic financial solutions.

The likes of Darul Uloom Karachi, with which most of the young Shari’a technicians are associated (either as alumni or teaching staff) has modernised the practice of traditional seminaries (called madrasas) to make them relevant to the contemporary financial markets. Consequently, graduates of madrasas have started enjoying diversity of career options, which previously was limited to teaching and/or administration of

For liaising with members of Shari’a Advisory Board.

mosques and similar establishments. The future holds good for Shari’a technicians rather than traditional Shari’a scholars, or ulama, who still have a narrow choice of career in academia or some research organisations. Shari’a technicians, on the other hand, have a blue ocean horizon full of opportunities in banking, insurance and capital markets.

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ISLAMIC FINANCE REVIEW | APRIL 2018

TECHNICAL NOTE

STANDARDISATION OF NOTATION IN ISLAMIC ECONOMICS, BANKING & FINANCE In the August 2016 issue of ISFIRE, we started with a one-pager to introduce standardisation of natation in Islamic economics, banking and finance (IEBF). We have now issued 7 notes (including the latest one on istisna’ (“ISFIRE Note on Istisna’”) being reported for the first time in this issue of ISFIRE). Prior to this, we issued the following notes: August 2016 October 2016 December 2016 February 2017 October 2017 ISFIRE February 2018

ISFIRE Note on Murabaha ISFIRE Note on Salam ISFIRE Note on Mudaraba ISFIRE Note on Ijara Note on Musharaka ISFIRE Note on Bai

We believe that standardisation of notation will help develop consistent pedagogical tools to be used for education and training in IEBF. We aim to hold a special workshop on Standardisation of Notation in IEBF in 2018 to finalise all these standards and more in a formal way. In this respect a Board on Standardisation of Notation in Islamic Economics, Banking and Finance is under formation. The interested individuals are invited to submit their expressions of interests to Professor Humayon Dar by emailing on hdar@isfire.net.

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TECHNICAL NOTE

ISFIRE Note on Bai’ [First issued in February 2018] (A.X.B; P) represents a spot sale contract between A (seller) and B (buyer) to buy/sell a commodity X for the price P. Both the object of sale, X, and price, P, must be exchanged on spot. A variant of this contract may be notated as (A.X.B; P|T 0), explicitly mentioning the time, T0 , when the exchange of object of sale and its price be exchanged.

We aim to hold a special workshop on Standardisation of Notation in IEBF in 2018...

(A.X.B; P|T1, T 0) represents a sale contract between A (seller) and B (buyer) to buy/sell a commodity X for the deferred price P|T1 to be paid by B at a later time T1 , allowing the buyer to receive the commodity upfront at time T0 . (A.X.B; P|T 0 , T1) represents a sale contract between A (seller) and B (buyer) to buy/sell a commodity X for the a price P|T0 to be paid upfront by B at time T0 , allowing the seller to deliver the commodity during time period T or on a specific date at the end of T1 .

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TECHNICAL NOTE

ISFIRE Note on Murabaha [First issued in August 2016] (A.X.B; P MUR , ∏ MUR , T) represents a classical murabaha arrangement between A (seller) and B (buyer) to buy/sell a commodity X for the murabaha price P MUR and murabaha profit of ∏ MUR for T as the date of payment of price. (A.X[1].B; P MUR , ∏ MUR , T) represents a commodity murabaha arrangement between A (financier) and B (financee) arranged by a single commodity broker 1; whereby P MUR is the murabaha price, ∏ MUR is the murabaha profit, and T is the duration of the financing period (in years, months, or days, etc.). (A.X[1.2]X.B; P MUR , ∏ MUR , T) represents a commodity murabaha with two commodity brokers, 1 and 2. (A.X[1].B; P MUR , ∏ MUR , T, D(.), R(.)) represents a commodity murabaha arrangement between A (financier) and B (financee) arranged by a single commodity broker 1; whereby P MUR is the murabaha price, ∏ MUR is the murabaha profit, and T is the duration of the financing period (in years, months, or days, etc.); D(.) and R(.) represent default and rebate clauses, respectively, such that:

ISLAMIC FINANCE REVIEW | APRIL 2018

ISFIRE Note on Salam [First issued in October 2016] (A.X.B; P SAL |T 0 , T) represents a classical salam contract between A (seller) and B (buyer) to buy/sell a commodity X for the salam price P SAL |T0 to be paid upfront by B at time T0 , allowing the seller to deliver the commodity during time period T or on a specific date at the end of T. ([A.X.B; P SAL1|T 0], [B.X.C; P SAL2 |T1], T) represents a salam-parallel-salam arrangement, involving three independent parties, A , B and C, whereby A sells a commodity X to B for a salam price, P SAL1|T 0 , paid by B upfront at T0 , to receive the delivery during time period T or on a specific date at the end of T. The salamparallel-salam arrangement also involves B selling the commodity X to another independent party C that pays salam price, P SAL2 |T1 , to B at the time of entering into the salam contract, i.e., at T1 T0 ≠ T1 , to deliver the commodity X during time period T or on a specific date at the end of T. (A.X.B.X.C; P SAL1|T i , P SAL2 |T j , T) represents a threepartite salam-parallel-salam contract, whereby A sells a commodity X to B for a salam price, P SAL1|T i , paid by B upfront at T i , and B sells on the commodity X to C for a salam price, P SAL2 |T j , whether T i = T j or T i ≠ T j ; the deliveries take place during time period T or on a specific date at the end of T. This is a null and void contract that does not fulfil the requirement of independence of the two salam transactions.

Default Penalty = a X i; and Rebate amount = b X j

whereby X i = amount outstanding at the time of default; X j = amount outstanding at the time of early settlement date; and 0 ≤ a ≤ 1 and 0 ≤ b ≤ 1. (A.X[1].B; P MUR , ∏ MUR , P MUR IK, T / N, P EX ) represents a commodity murabaha based Islamic mezzanine financing arrangement between A (financier) and B (financee) arranged by a single commodity broker 1; whereby P MUR is the murabaha price, ∏ MUR is the murabaha profit, P MUR IK is the payment in kind (one-off balloon payment at the end of the financing period) and T is the duration of the financing period (in years, months, or days, etc.); N is the number of shares that B promises to sell to A in the event of default for an agreed price P E X .

ISFIRE Note on Mudaraba [First issued in December 2016] (A.K.B; ∏, α; -∏, 1; T) is a simple mudaraba contract between a Party A (capital provider) and a Party B (the managing party) in such a way that A receives α percentage of the profit, ∏, if any. K is the capital contribution (money) by A; while T is the mudaraba time period. In case of loss, i.e., -∏, A shall have to bear it with α = 1. (A.K.B; ∏ 0 , α; ∏1 , 0; -∏, 1; T) is a mudaraba contract that stipulates that the capital providing party (Party A) will receive a percentage of the profit if the realised profit is up to a threshold level of profit, ∏ 0 ; any profit over and above this threshold, i.e., ∏1 , will be retained by the managing party, i.e., the share of A will be zero (0). However, in case of the loss, -∏, A shall have to bear it with α = 1. If a mudaraba contract is notated with (A.K.B; α, T), it shall always be deemed as a short version of (A.K.B; ∏, α; -∏, 1; T).

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ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

TECHNICAL NOTE

ISFIRE Note on Ijara

ISFIRE Note on Istisna’

[First issued in February 2017]

[First issued in April 2018]

(A , Y, B; R = r 1 + r 2 +...+ r 3 , T) represents an ijara mausufa dzimma contract between A (lessor) who leases an asset Y (which has yet to come into existence) for a total rental value of R to be paid in instalments of r1 , r 2 , ..., r t , for a period of T (which may coincide with the time that Y must take to come into existence). If an ijara contracts is notated with (A , X , B; R, T), it shall be deemed as an ijara that requires a lump-sum amount of rental either at the start of the lease period or at the end of it. An ijara contract notated with (A , X , B; R 0 , T) shall imply that the rental amount is required to be paid in lump- sum at the start of the lease period; and an ijara contract notated with (A , X , B; R t , T) shall imply that the rental amount is required to be paid in lump-sum at a specific time in future, which may include the end of the lease period.

2. ([A.X.B; P 1|T1 , P 2 |T 2 , … P n |Tn ; n P IST1=∑ i=1 P i ,Tn], [B.X.C; P 1|T1 , P 2 |T 2 , … P n |Tm ; P IST2=∑ mj=1 P i ,Tm]) represents an istisna’-parallel-istisna’ arrangement, involving three independent parties, A , B and C, whereby A sells a commodity X to B for price, P IST1 , paid by B in instalments, to receive the delivery on a specific date at the end of T. The istisna’-parallel-istisna’ arrangement also involves B selling the commodity X to another independent party C that pays price P IST2 , to B in instalments i ≠ j and/or P IST2 ≥P IST1 , to receive the commodity X on a specific date at the end of T Tm≥Tn . A

(A , X , B; R = r 1 + r 2 + ... + r t , T; P 1 , P 2 ) represents an ijara wa iqtina’ contract between A (lessor) who leases an asset X to B (lessee) for a total rental value of R to be paid in instalments of r1 , r 2 , ..., r t , for a period of T; with an understanding that B will have to buy the asset for a price, P 1 , should it happens to default on rental payment during the term of the lease, and if that (event of default) does not occur B will buy the asset X at the end of the lease period for a price, P 2 .

1. (A.X.B; P 1|T1 , P 2 |T 2 , … P n |Tn ; n P IST=∑ i=1P i ,Tn ) represents an istisna’ contract between A (seller) and B (buyer) to buy/sell a commodity X (which may be manufactured by A during the contract period) for total price of P IST, payable in instalments P 1 , P 2 , … P n , until the time of the delivery Tn , by when the whole price must have been paid.

A

(A , X , B; R = r 1+ r 2 + ... + r t , T) represents a simple ijara contract between A (lessor) who leases an asset X to another person B (lessee) for a total rental value of R to be paid in instalments of r1 , r 2 , ..., r t , for a period of T.

3. A short version of the istisna’ contract stated in (1) can be written as IST(A . X .B; P IST=∑ i =1 P i ,Tn ). n

ISFIRE Note on Musharaka [First issued in October 2017] (A .K A .K B .B, Π, α; -Π, β i; T) is a musharaka contract between a Party A and a Party B whereby both parties contribute capital, K A and K B , respectively, to a venture, in such a way that A receives α percentage of the profit, Π, if any, and B therefore receives (1-α) percentage of the profit, Π. In case of loss, i.e., -Π, both parties shall bear loss in accordance with β i , whereby i = A or B; β A = K A /K and β B = K B /K, and K = K A + K B . T is the time period for musharaka; and α and β may differ.

4. A short version of the istisna’parallel-istisna’ arrangement stated in (2) can be written as (IST1(A . X .B; P IST1=∑ i =1 P i ,Tn ), IST 2 (A . X .B; P IST2=∑ j=1 ) m n P i ,Tm ).

(A .K A .K B .B, Π, β i; T) is a simple musharaka contract between a Party A and a Party B whereby both parties contribute capital, K A and K B , respectively, to a venture, in such a way that A receives β A percentage of the profit, Π, whether positive or negative, and B receives β B percentage of the profit. In other words, β = α. If a musharaka contract is notated with (A .K A .K B .B; α, β; T), it shall always be deemed as a short version of (A .K A .K B .B, Π, α; -Π, β i; T).

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ISLAMIC FINANCE REVIEW | APRIL 2018

BOOK REVIEW

BOOK REVIEW ISLAMIC FINANCE: MUHAMMAD IMRAN ASHRAF USMANI PUBLISHER: Maktaba Ma’ariful Quran (Quranic Studies Publishers), Karachi, Pakistan EDITION: April 2015 At a recent conference in Karachi, we were provided with a revised and updated edition of Meezan Bank’s Guide to Islamic Banking, first published by Darul Isha’at in 2002. The book is now entitled as Islamic Finance: Revised & Updated Edition of Meezan Bank’s Guide to Islamic Banking, to be referred as Islamic Finance in this review article. At the outset, ISFIRE Reviews maintains its verdict that the best book on Islamic finance written by a Shari’a scholar remains An Introduction to Islamic Finance written by Mufti Taqi Usmani, who happens to be father of the author of the book under review here. Muhammad Imran Ashraf Usmani (to be referred as MIA Usmani afterwards) has, however, attempted to bring details to the concepts in the context of product development for Islamic banks. As aresident Shari’a advisor at Meezan Bank, MIA Usmani’s in-depth knowledge of structuring issues in Islamic financial products is reflected in the book. The new edition has a couple of new chapters included to cover risk management, Shari’a audit and accounting treatment of major contracts used in Islamic banking. There are some other improvements in the form of inclusion of Arabic text of the quoted verses of Quran and sayings of the prophet (peace be upon him). Islamic Finance is divided into 11 parts, and arranged in 33 chapters. It covers all the important contracts used in Islamic banking (10 in total), 6 Islamic retail banking products (including treasury operations of Islamic banks), a few investment banking and fund management products, and takaful, etc. Other important topics include Shari’a audit, risk management and a brief on the standards issued by Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). At the start of the book, there is brief description of Islamic economic system, factors of production in Islam, and the importance of the prohibition of riba (interest) in the primary sources of Shari’a.

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BOOK REVIEW

Although comprehensive in scope, the book lacks consistency and accuracy in details. For example, meanings of tawarruq in chapter 19 are given as “to buy on credit and sell at spot value.” This is obviously only one aspect of tawarruq but it cannot be considered as correct and complete meanings of tawarruq. At the same time, it must also be admitted that the meanings are not entirely incorrect as well. References to juristic opinions are adequate and to the point. Nevertheless, it appears as if the book is written for the benefit of those who already have sufficient knowledge of Islamic banking and finance (IBF), the main contracts used therein and the Islamic financial products. If some lingual and stylistic issues are kept aside, the book provides almost all the information required from someone working in an Islamic bank. In fact, there are some contracts/arrangements that are not widely used in Islamic banking but these are included in the book for the sake of completeness. One such contractual arrangement is istijrar (described in chapter 16). Apart from point 2 on page 175 (which is at best confusing if not wrong), the information on this innovative contract should be of interest to those involved in product development and structuring for Islamic financial institutions.

Tawarruq BANK Sale for immediate payment. 100

COMMODITY SELLER

Sale for deferred payment. 110

CUSTOMER Under Murabaha contract

Sale for immediate payment. Sale 100 Cost 100

COMMODITY BUYER

example, meanings of tawarruq in chapter 19 are given as “to buy on credit and sell at spot value.” This is obviously only one aspect of tawarruq but it cannot be considered as correct and complete meanings of tawarruq. At the same time, it must also be admitted that the meanings are not entirely incorrect as well. References to juristic opinions are adequate and to the point. Nevertheless, it appears as if the book is written for the benefit of those who already have sufficient knowledge of Islamic banking and finance (IBF), the main contracts used therein and the Islamic financial products. If some lingual and stylistic issues are kept aside, the book provides almost all the information required from someone working in an Islamic bank. In fact, there are some contracts/arrangements that are not widely used in Islamic banking but these are included in the book for the sake of completeness. One such contractual arrangement is istijrar (described in chapter 16). Apart from point 2 on page 175 (which is at best confusing if not wrong), the information on this innovative contract should be of interest to those involved in product development and structuring for Islamic financial institutions. One should have expected a far more improved version of this revised edition of the book. Notwithstanding some additional chapters and topics, the book carries weakness in expression and style from the previous edition. In its present form, it can be used as a quick reference point for trainers in IBF, as the book seems to have evolved out of teaching notes of the author, or perhaps it is written keeping in mind the needs of trainers rather than trainees in IBF.

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