isfire_december_2017 by Isfire Report

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Zitouna Tamkeen launches its consulting structure The International Center for Economic Empowerment â&#x20AC;&#x153;ICEEâ&#x20AC;? The International Center for Economic Empowerment "ICEE" is the first International consulting company offering advisory services to build and develop the Economic Empowerment business approach and promote Islamic Finance worldwide.

Mission

Vision

The mission of ICEE is the development of Economic Empowerment projects and programs and the expansion of Zitouna Tamkeen's experience in Islamic microfinance.

1- Leading technical assistance, training and advisory services related to Islamic Microfinance and Economic Empowerment on an international scale.

4-Constituting an excellent networking with local and international experts and consulting firms.

The vision of ICEE is to be the leading international consulting firm promoting the full spectrum of Islamic financial services and fostering a business environment that serves different layers of the economy and helps economic actors transform their biggest challenges into infinite solutions.

2-Producing customized development program proposals for global clients interested in leveraging Islamic Finance products.

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6- Creating business centers to train, reinforce and support entrepreneurs.

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NOTE FROM THE

EDITOR

IN CHIEF

It’s that time again. A new year is upon us; which means new beginnings, new experiences and for many of us a year full of promises of change. Some of us will vow to lose weight while others promise to save money. A number of us might even resolve to grow professionally. If you are a part of this latter group, we have some inspiring stories and advise by personalities in Islamic business and finance on how they have braved the world of business and banking to achieve a successful career. In this issue, we spoke to Salihin Abang, the Founder and Chairman of SALIHIN Shariah Advisory. In this exclusive interview, he shared how he rose from grass to grace. His story is an inspiring one for those who are looking for the secret to success. Salihin Abang has not only followed his passion but he has done so amid hard work and high moral values. Another personality featured in this issue is Adil Hussain, Partner and Global Head of Islamic Finance at Clyde & Co. He is an accomplished lawyer with wide-ranging familiarity of structuring Islamic financial transactions. Mohammed Hamed Nasser Al Hashimi, Head of Compliance at Bank Nizwa; who is an alumnus of Cambridge Islamic Finance Leadership Programme shared his personal thoughts on how to deal with pressure or stressful situations and his experience of attending the leadership programmes recently. True to our promise to publish industry relevant articles, we have several interesting readings including an article on mixed syndications, involving the Islamic and conventional structures. Suleman Muhammad Ali highlights the issues Islamic banks are tolerating so that attractive financing opportunities are availed with certain conditions. However, these issues need to addressed from both operational and Shari’a perspectives. Islam encourages entrepreneurship based on objectives of Islam such as unity (tauhid), trusteeship (khilafah) and worship (ibadah). Dr. Hendrati discusses an approach to create a conceptual model of Islamic social welfare system. Emanating from the belief system in Islam, trust as social capital has remained as an important working mechanism for waqf. Dian Masyita talks about a framework for good waqf management. Morality is one of the governing principles in the Islamic perspective. Islam stresses on ethics and morality to be the basis of any business activity. We asked professionals, what is in their opinion, the most critical moral challenge that businesses face today. Some deep insights on this subject were shared by our professionals under the column Perspectives. In ISFIRE Report, we are delighted to share 2 prestigious events that are considered the highlight of the Islamic finance yearly calendar. The prestigious 9th Global Islamic Finance Awards (GIFA) ceremony was recently held in the vibrant city of Cape Town, South Africa in September. We include a report on the awards ceremony, which was attended by Islamic financial fraternity from around the world. The 5th Cambridge Islamic Finance Leadership Programme saw the attendance of 50 delegates, industry leaders and mentors from over 14 countries, which was held from July 7 to 12, 2019. This 5-day residential programme offers new perspectives, new thinking and new ideas in Islamic finance. Programme highlights include unique mentoring opportunities, industry-specific case studies and networking with renowned industry leaders in Islamic finance. The most anticipated yearbook in the Islamic finance calendar was recently launched in Indonesia, with the theme of “Artificial Intelligence and Innovation in Islamic Finance”. An insight into the topics discussed in GIFR 2019 is also included for the benefit of our readers. As always, we hope this issue of ISFIRE satisfies your curiosity regarding the current trends in Islamic business and finance. Happy Reading!

Dr. Sofiza Azmi Editor-in-Chief

ISSN 2049-1905

An official publication of Cambridge Institute of Islamic Finance

FOUNDER Professor Humayon Dar

DECEMBER

EDITOR-IN-CHIEF Dr. Sofiza Azmi EDITORIAL ASSOCIATE Tabinda Hussain INTERNATIONAL EDITORIAL BOARD CHAIRMAN Stella Cox DDCAP Professor Mehmet Asutay Durham University Professor Dr. Mehmet Bulut Istanbul Sabahattin Zaim University, Turkey Dr. Jamshaid Anwar Chattha Risk Management and Banking Supervision Expert for Islamic Finance Dato’ Dr. Asyraf Wajdi Dusuki Islamic Finance Expert Professor Joseph Falzon University of Malta Dr. Mian Farooq Haq State Bank of Pakistan Professor Kabir Hassan University of New Orleans

TABLE OF

CONTENTS TALKING POINTS 22 TOWARDS AN ISLAMIC CREDIT GUARANTEE SCHEME KHALFAN ABDALLAH 62 INDONESIA WINS THE RACE TO BECOME LEADER IN

ISLAMIC FINANCE

Dr. Hylmun Izhar Islamic Development Bank Dr. Rizwan Malik Islamic Finance Expert Moinuddin Malim Alternative International Management Services Dr. Aishath Muneeza INCEIF Dr. Asmadi Mohamed Naim Universiti Utara Malaysia Professor Muhamad Rahimi Osman Universiti Teknologi MARA M. Saleem Ahmed Ranjha Wan Miana Rural Development Programme Dr. Irum Saba Institute of Business Administration, Karachi Dr. Mughees Shaukat College of Banking and Financial Studies, Muscat Dr. Usamah Ahmed Uthman King Fahd University of Petroleum & Minerals ADVERTISEMENTS, COMMERCIAL AND SUBSCRIPTION ENQUIRIES Faisal Mehmood E: fmehmood@cambridge-ifa.net T: +44 (0) 207 078 7297 PUBLISHED BY Cambridge IFA, United Kingdom

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

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

ISFIRE REVIEW

38 DYNAMICS OF TRUST FOR GOOD ‘WAQF’ GOVERNANCE DIAN MASYITA 44 ISLAMIC SOCIAL ENTREPRENEURSHIP: AN APPROACH

TO CREATE A CONCEPTUAL MODEL OF SOCIAL WELFARE SYSTEM

HENDRATI DWI MULYANINGSIH 72 GLOBAL ISLAMIC FINANCE INDUSTRY RECORDED A

6.58% GROWTH IN 2018

ISFIRE REPORT 26 5TH CAMBRIDGE ISLAMIC FINANCE

LEADERSHIP PROGRAMME 2019

50 9TH GLOBAL ISLAMIC FINANCE AWARDS 2019

ISFIRE PERSONALITY

68 ADIL HUSSAIN PARTNER AND GLOBAL HEAD OF ISLAMIC FINANCE AT CLYDE & CO

84 MOHAMMED HAMED NASSER AL HASHIMI HEAD OF COMPLIANCE, BANK NIZWA

PAUSE FOR THOUGHT

16 LIFE-CYCLE ZAKAT OBLIGATIONS AND

ACCELERATION OF ZAKAT PAYMENT FOR VALUE CREATION: A NEW PROPOSAL FOR ZAKAT MANAGEMENT PROF. HUMAYON DAR

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08 SALIHIN ABANG C.A.(M) FOUNDER AND CHAIRMAN OF SALIHIN SHARIAH ADVISORY

POINT OF VIEW

70 HOW NOT TO GIVE FEEDBACK DR. SOFIZA AZMI

80 ISSUES AND CHALLENGES OF MIXED

SYNDICATIONS

SULEMAN MUHAMMAD ALI

PERSPECTIVES 76 MORAL CHALLENGES OF BUSINESSES TODAY

TECHNICAL NOTE 86 STANDARDISATION OF NOTATION IN ISLAMIC

ECONOMICS, BANKING & FINANCE

CAMBRIDGE PROJECT

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

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SALIHIN ABANG C.A.(M)

FOUNDER AND CHAIRMAN OF SALIHIN SHARIAH ADVISORY

SALIHIN Advisory has developed a wholesome approach to business, based on ethical values, commercial excellence, and commitment to social responsibility and good governance. Would you care to share with our readers your vision of a twenty-first century business in a world dominated by tech revolution? SALIHIN was founded in 2002. SALIHIN has emerged as a brand under which independent group member firms of SALIHIN International LLP (SALIHIN International) operate and provide professional services in the areas of Shari’a advisory and education, audit and assurance, corporate finance, taxation, financial reporting, digital consultancy and corporate advisory. SALIHIN International is the entity with which all the member firms of SALIHIN Shariah Advisory are affiliated. Its headquarter is in Malaysia, with offices and network of partners across the globe. Since our founding, SALIHIN story has evolved to a level deep-rooted in Shari’a. This sets a strong foundation upon which we aspire to be the best global provider of Shari’avalue-based services and education. Alhamdulillaah, we are on course, as we internalise and implement human governance in accordance with Shari’a values to deliver quality services. Our diverse professionals deploy a wide array of holistic capabilities to unreservedly serve our clients locally and internationally. Our Shari’a advisory and education services are offered by SALIHIN Shariah Advisory Sdn. Bhd. (private limited company), a network member firm of SALIHIN International. It is an approved Shari’a advisory firm by the Securities Commission Malaysia. SALIHIN goes beyond conventional approaches to help organisations and individuals create sustainable and meaningful value. Leveraging on our experienced international and local Shari’a advisers as well as drawing on the global knowledge and resources of SALIHIN member firms, we provide Shari’a advisory and education services. This covers Islamic capital market advisory, Islamic banking, fund and wealth management, takaful, zakat, waqf, Islamic corporate reporting, Shari’a auditing and assurance, Shari’a review, Shari’a research and publication, fintech, and Islamic finance education and training.

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SALIHIN is cognizant of the impact of the exponential technological advancement on the present and future business landscape. Advancement in technology, such as artificial intelligence (AI), cloud computing, work processes automation and data analytics, can significantly alter service offering, business model, business process, and employee engagement among others. At SALIHIN, we embraced these disruptions. Currently, we are automating our work processes, self-developing systems and data analytics applications for customer and business intelligence. Our vision is to provide the Islamic finance industry with digital solutions relevant to the future ecosystem of the industry. For instance, SALIHIN Academy has recently launched its Islamic finance education mobile app to facilitate tapping into Islamic finance knowledge anywhere and at any time. In addition, we have an accounting system purposely designed to assist Muslim businesses in the Islamic finance ecosystem to accurately determine the zakat and waqf with ease. Moving forward, we continue to reimagine the future with cutting-edge technologies to provide solutions to the needs of stakeholders in the industry.

What are some of the challenges and opportunities in Islamic finance? How, in your opinion, can humans remain relevant despite the huge advancements in technology? The Islamic finance industry is gradually been driven by financial technologies (FinTech) affecting fundraising, payments systems, infrastructure, operation and risk management, data security, monetisation, and customer interface. These technological advancements are growing at a pace seemingly impossible to comprehend. Not only that, the displacement of human-related activities through automation and artificial intelligence raises questions about the relevancy of humans in the future. AI-related applications have begun codifying and automating Shari’a advisory roles. Robo advisors automates routine financial advisory services and tasks of Shari’a advisors. For me, these offer opportunities for such advisors to focus on high-value Shari’a advisory activities. However, the challenge is for the Islamic finance industry practitioners to embrace technology and build the necessary competence to remain future-fit. Notwithstanding the relevance of technology in Islamic finance, experienced scholars are required to provide further guidance to the industry to ensure Islamic finance operations and practices are in accordance with the principles and rules of Shari’a. Technology will help to spur development but human capital remains relevant to ensure that Shari’a issues are addressed with a proper ijtihad process (scholars deducing a fatwa in guiding practices). Hence, automation and robotism despite their importance does not make humans irrelevant. Rather, a better human-machine interaction is envisaged.

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SALIHIN Shariah Advisory has emerged as a premier provider of Shari’a advisory services in a fiercely competitive market. This is even more remarkable, given that you are based in Malaysia, which is arguably the most advanced Islamic financial market. How did you manage to achieve such a huge success in a very short span of time? We are proud to be recognised as one of the best Shari’a advisory firms. It is indeed a blessing from Allah SWT. As we aspire to be the best global Shari’a advisory services provider, it is a huge responsibility to prove ourselves to the world through providing high quality Shari’a advisory services. The key to success is the sincerity in promoting Shari’a-compliant way of doing business. We regard this as a form of jihad towards upholding the Islamic way of life in business and finance. Behind this success is the dedicated and competent team of SALIHIN, congratulations to all of them.

As a continuation of the previous question, won a GIFA at the last Global Islamic Finance Awards held in Cape Town. How have these achievements contributed to your company’s further success? Last year, we received the award of the Best Emerging Islamic Shari’a Advisory Firm. This year we received GIFA 2019 Award for the Best Islamic Finance Training Provider. Honestly, these awards were not consciously chased but rather came as a fruit of our genuine pursuit of excellence in whatever we do. However, the awards gave us additional motivation and boosted our confidence, to maintain our commitment and achievement to be the best at what we are offering. Also, the awards further strengthens our brand positioning through global recognition and awareness of our existence and capabilities. Finally, the awards have increased the stakeholders’ trust in us, especially our clients, as our track record is proven.

What are the short-term and long-term plans of, in the Islamic financial services industry? The short-term plan is to position ourselves in the Islamic financial industry locally and internationally. On the domestic scene, we are actively promoting our comprehensive advisory services, executive development programs and publications via our online bookstore (www.iqrakitab.com.my). As for the international market, we are currently focusing on advisory services and introducing professional qualifications in Islamic Finance to the targeted regions around the globe.

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For the long-term plan, we have actually a lot in the pipeline. We want to be one of the main players ensuring that Malaysia remains as one of the important hubs for Islamic finance development. We foresee more collaborations with other organisations worldwide especially with countries where Islamic finance is still at a growing stage. We also plan to introduce artificial intelligence and blockchain related products and services for the Islamic finance industry. On Islamic finance education, our plan is to establish SALIHIN Private Higher Learning Institution/University, for which the foundation is currently being built in the SALIHIN Academy and Salihin Business School.

On a personal note, would you care sharing with our readers the inspiring story of Salihin Abang? One of the most difficult things to do is seeing and writing one’s story as inspiring. Nevertheless, with all humility and humbleness, I will share mine from grass to grace journey. This covers my entrepreneurship and professional life. I hope this may be inspiring to others. I was born and raised in Kampung Lintang, a village in Kuching, Sarawak. We had no entrepreneur in the family, so you can imagine me thinking I cannot become one either. Shackled by that imagination, I enrolled into a religious school. I later found myself in an accounting degree stream without any initial idea of what I want to become. Importantly, the religious school inculcated in me, what I called a religious filtration system. It guided my thoughts, actions, and behaviour. It is only by seeing things based on that religious filter, that one can achieve success and happiness here and in the hereafter. Therefore, by the time I graduated, I made up my mind to become an entrepreneur in accountancy. An entrepreneur whose success hinges on his positive impact on those around him, the ummah and the society. After graduation, I obtained the needed practical experience required to begin the accountancy entrepreneurship journey in 2002. When I started SALIHIN in 2002, I did not have any financial capital, no employee, no office, just a very small shared office space, with my laptop and no printer. The most important asset I had was my brain. From that humble beginning, our firm is now one of the fastest growing and largest home-nurtured firms in Malaysia. The road was not easy. At some points, friends would boldly say to me, “you can never be good, you can never do great things, you can never succeed, and you will be bankrupt in six (6) months.” During that time, you can imagine how I felt. At that moment the filtration system crucially resonated in me that rizq is from Allah. As khalifa of Allah, I have to work hard with steadfastness to please Allah, not people. In the end, Allah’s will prevails, not the doomsayers’ wish. Allah never forsakes His khalifa. Alhamdulillaah, we have made it and soaring upwards. Today, the gains from that extend beyond the firm. From a Managing Partner of SALIHIN firm to steering the affairs of the entire accountancy profession, and being the President of the Malaysian Institute of Accountants (MIA), the sole regulator of the accounting profession in Malaysia. From SALIHIN to public listed companies and government agencies. I am contributing my expertise in the governance and management of both public listed and prominent nonpublic listed companies as well as government and state statutory bodies. I have been appointed as Independent and Non-Executive Director and Corporate Advisor. In these capacities, I assume the board and committee membership responsibilities in audit, risk, investment, sustainability and corporate reporting. For the progress of Islamic economy and finance, I am involved with the Malaysian Islamic Chamber of Commerce (DPIM). The professional story is tied with my vision to bridge the gap between the industry and academia. Accountancy related subjects

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are practical in nature. As such, graduates must be relevant to the industry. Consequently, I began contributing to academia as an industry advisor to universities covering bachelor, master and doctoral degree levels. I was appointed as an Adjunct Professor at the School of Maritime Business and Management of Universiti Malaysia Terengganu (UMT) and Tunku Puteri Intan Safinaz School of Accountancy at Universiti Utara Malaysia (UUM). To practically bridge the gap between theory and practice of accountancy, I led the establishment of Teaching Accountancy Firm (TAF) in four local universities, including UMT, Universiti Teknologi MARA (UiTM), Universiti Kuala Lumpur (UniKL) and Universiti Putra Malaysia (UPM). The TAF brings to light the concepts of 2u2i and 3u1i by the government and universities. This is the first time that TAF became part of the former Minister of Higher Educationâ&#x20AC;&#x2122;s initiative on how industry and universities can work together for the betterment of accounting students and achieve nation building. The TAF was eventually recognised by the Ministry of Higher Education as having one of the best and

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most innovative curriculum designs and study programmes in 2017 and won the Best Academia-Industry Collaboration Award 2017. In recognition of my leadership and significant national and international contributions to both industry and academia, especially in the areas of audit and assurance, accounting, taxation and business advisory, UMT conferred on me an Honorary Doctorate Degree in Management in 2018. All my initiatives and contributions are guided by the filtration system. The rewards are credited to Allah. My story indicates my journey from being a nobody to somebody. I hope this humble story is inspiring. The key message is to pursue your dreams in the shade of Allah; He will never forsake you.

Malaysia has obviously been on the forefront of the global Islamic financial services industry. However, lately other countries, especially

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SALIHIN is collaborating with STEI SEBI (School of Islamic Economics) in Indonesia on Islamic finance education, among others. We welcome such collaborations worldwide. As the saying goes, if you want to go fast, go alone. If you want to go far, go together. We believe in going together to elevate the industry worldwide for the benefit of close to 1.6 billion Muslim ummah worldwide.

SDGs are the talk of this decade. What in your view can be the role of FinTech, more specifically Islamic FinTech in achieving the SDGs? FinTech is getting better recognition lately as nowadays people are moving towards digitalisation in almost everything. Proven it is easier, faster, convenient and efficient. Fundamentally, advancements in Fintech are for a better world for all. Undoubtedly, the SDGs are in line with the Maqasid al Shariâ&#x20AC;&#x2122;a, upon which Islamic finance is built. Hence, Islamic Fintech. For the fact that most of the 17 SDGs relate to finance and money, Islamic Fintech plays critical role in the realisation of the SDGs. Therefore, for Islamic Fintech, I will focus on financial inclusion.

neighbouring Indonesia, have started playing significant roles in the development of Islamic banking and finance industry. Do you think Malaysia should feel threatened by the progress of other competing countries? Well, we have to acknowledge the competition not only from Indonesia specifically but also from around the globe. We do not feel threatened by this development. It is a healthy competition and we view it as a positive progression for Islamic finance as it is parallel with the principles of Maqasid al Shariâ&#x20AC;&#x2122;a, which ultimately promotes maslahah and benefits to the ummah. Malaysia has developed a robust Islamic finance framework, which is seen as one of the competitive edges that Malaysia possesses as compared to the other players. Nonetheless, we welcome other players to contribute to the continuous development to bring the industry on the same level as conventional finance. The future is all about collaboration to strategically tap into synergy. For example,

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Islamic Fintech makes it possible for us to reach both the unbanked and underbanked at an improved cost. Digital technologies drive operational and infrastructure costs, allowing the Islamic financial institutions to offer innovative products at lower or even zero costs. Also, with the rise of Islamic Fintech solutions such as mobile banking and fundraising related platforms, financial intermediation that does not add value for consumers are reduced and, in some cases, eliminated. This further makes it possible to include the financially excluded. With financial inclusion, Islamic Fintech plays a better role in poverty alleviation, reducing inequality in access to finance, empowering financial decision through improved information provision, among others. On our part, our SALIHIN intelligent accounting software (SPS) was developed to assist in poverty eradication. Its zakat feature ensures that the right amount of business zakat is determined and paid. On the other hand, the waqf feature sensitises and enables Muslim businessmen and women to create and make provisions for cash waqf. These two features enhance zakat and waqf collection by the various zakat and waqf organisations in Malaysia. Our Teaching Accountancy Firm (TAF) utilises our SPS Lite

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determine the kind of khalifah he or she would be. The ability to recognise this is crucial as everybody is born a leader, but with different leadership styles in different situations. My leadership styles evolved from one form to the other based on distinct situations, adopting the one that best meets the needs of the situation, ranging from visionary, affirmative to participative. As a visionary leader, I saw the need to setup the firm, thought about its direction and what opportunities could be tapped to move it beyond tomorrow. This style was necessary at a time when the firm needed a new direction with a sense of purpose to guide and move the dedicated staff towards a new set of shared vision and values. Presently, our leadership style is defused from top to middle and to the frontline with a special focus on acts and activities. The key to our success is to empower every team member as a leader. We believe that human endeavour needs a unifying and driving force for success and that driving force is ultimately traced to good leadership. Though every one of us in some capacity, sometimes, somewhere is a leader, what matters more is ensuring that each team member becomes a good leader.

with Bank Simpanan Nasional (BSN) for microfinance entrepreneurs, in the education sector. The TAF is a joint collaboration with four universities to produce industry-fit graduates. This makes it possible to reach out to student micro-entrepreneurs who could not have access to finance. Finally, we have also developed a mobile app to facilitate Islamic social finance through individualsâ&#x20AC;&#x2122; contributions in the form of sadaqah, infaq, zakat, and waqf. The app also facilitates our green-waqf initiative. These digital initiatives are instrumental in poverty alleviation and implementation of other SDGs.

As a hands-on Chairman, how do you motivate your team? Please share with our readers some of the leadership secrets and your personal leadership approach. Personally, I see every team member as a leader. This goes back to our original status as â&#x20AC;&#x153;Khalifahâ&#x20AC;? on earth. The secret is to discover the khalifah prospects of each team member as we are made of distinct characters. This requires assessing the strengths, weaknesses, capabilities of the individual to

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It is said that outstanding organisational performances rests on the motivation and actions of the middle and frontlines. At SALIHIN, these leaders and their subordinates are empowered and always asked for their direct inputs. This provides valuable inputs to the top management in setting strategic directions and carving out policies to best serve clients and other stakeholders. The significance of seeing oneself as a leader instead of an employee motivates team members, as they feel they belong as leaders rather than mere followers.

Who has inspired you the most and how? How has this inspiration developed you in the Islamic finance industry? As Muslims, our role model is the Prophet (pbuh), his companions and Muslim scholars and leaders. Those are our sources of inspiration as they have demonstrated high level of value, ethics, competency, leadership and trust, with their compliance in behaviour and conduct. My next source of inspiration is my parents. My father was honest and meticulous in his duties. He never misused his position for selfish interest, withstanding peer pressure and the opportunities to do so. This further inspires me to deliver services without compromising my integrity and professionalism. From my surviving mother, I am inspired to keep striving in the industry. She does not give up on a cause worthy of pursuing for humanity. Her dedication and

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ISFIRE COVER STORY hardworking push me to never give up, to do my best, and to give the best to the Islamic finance industry. Finally, the current leaders in Islamic finance are also inspiring us in our Islamic finance journey. We learn from them goal setting, and dealing with the challenges and issues facing the industry. As mentioned elsewhere, I believe in healthy competition by complementing one another. Together, through joint effort and collaboration we can take the Islamic finance industry to the next level. At the end of the day, it is about learning and progressing for a meaningful growth of the Islamic finance industry.

Shari’a compliance or social responsibility? What would you pick and why? It is a tough question. As a khalifah of ALLAH SWT, we are responsible to take care of each other, as we are brothers and sisters in Islam. In doing so, we need to observe the tenets of Shari’a in every aspect of our daily life; i.e. conduct, thinking, speaking, intention etc. Once an individual practices and observes the Shari’a requirements, he or she has upheld the responsibility to himself or herself as well as to all of Allah’s creations. As such, I believe both are important, being a responsible member of society and a good Muslim. However, if I have to choose, I would go for Shari’a compliance because by default social responsibility is embodied in it as it is meant to realise Maqasid al Shari’a.

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What would be your message to the young professionals in the financial services industry as a whole? My message to the young professionals is to have a clear vision and mission in their life be it social or professional. Determination and hard work with high moral values in the industry are very important. We have seen banks collapsing in the conventional domain due to unethical conducts and behaviours. The young professionals are the future captains of the Islamic finance industry. It is therefore, imperative for them to uphold the trust bestowed on them with integrity and ethics. This industry is knowledge based. As such, the young generation should be well equipped with good education and professional qualifications relevant to the industry. With technology greatly affecting the industry, we need innovative ways of doing things, which requires new skillsets. To remain relevant and be the professionals who drive the industry, the younger generation must keep learning, unlearning and relearning to build their competencies and capabilities. They have to be self-directed learners and take advantage of technological advancements opportunities offered to build the necessary skills. Finally, I advise them to be consultative and always opt for the best because one day they will be making important decisions for the industry. They have to cultivate the spirit of teamwork and take ownership of their work. They have to be passionate and keep on learning from their leaders and mentors.

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PAUSE FOR THOUGHT

pa se

THOUGHT

LIFE-CYCLE OF ZAKAT OBLIGATIONS AND ACCELERATION OF ZAKAT PAYMENT FOR VALUE CREATION:

A NEW PROPOSAL FOR ZAKAT MANAGEMENT PROF. HUMAYON DAR

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ollection of payments through technology-based vehicles like crowdfunding platforms have now allowed product developers to structure innovative financial solutions that were not possible before the current era of Financial Technology (FinTech). Processing of micropayments (even smaller payments called nanopayments) with affordable transaction costs offers an opportunity to achieve economies of scale by aggregating small/micro payments for a large number of contributors. This has relevance to applying some innovative ideas to the collection and disbursement of Zakat and even more to the management of Zakat funds.

THE IDEA Every individual Zakat payer has to pay an annual amount as Zakat to fulfil their religious duty. These are small amounts for a vast majority of Zakat payers but may in fact be prohibitively large obligations for the mass affluent and the high and ultra-high net worth individuals (HNWIs and UHNWIs). For example, an individual with the lifecycle income of US$1 million, and the lifecycle savings of US$200,000, may be obliged to annually pay US$140 as Zakat. This is with the assumption that the individual consumes 80% of their lifecycle income and that the lifecycle is 35 years of productive economic life.

For a billionaire, on the other hand, the minimum annual Zakat obligation could be US$25 million. True that Zakat is a religious obligation and the rightly-motivated wealthy people will only be pleased to contribute large sums of money in this respect. However, they must appreciate any help in discharging a religious duty of such importance. Let us not focus on the HNWIs and UHNWIs for the time being. After introducing the principle of acceleration of Zakat, we shall revert to it.

ACCELERATION OF ZAKAT PAYMENTS Zakat is an annual contribution by the Muslims who possess the minimum threshold of assets1. The question arises if it is permissible to pay Zakat ahead of the time when it becomes due. The juristic opinions vary. Although it is permissible to pay Zakat in advance, it is preferred to pay it when it becomes due. The principle of acceleration suggests that it is permissible to pay Zakat in advance if it can be established that there are certain benefits associated with the acceleration, which cannot otherwise be realised. Thus the principle behind acceleration of Zakat demands a compelling need like meeting financial requirements in the wake of famine, war or any other catastrophe. I believe that there should be no serious objection to accelerating Zakat for any number of years, if the following conditions are met:

1. The Zakat obligor must pay Zakat in advance with an acknowledgement and commitment that any discrepancies (surplus or deficit) will be taken care of when the exact annual Zakat obligation is determined; 2. The accelerated amount of Zakat will be considered on account, payable only when it becomes due with certainty of its amount; 3. In case of investment of the accelerated amount of Zakat, the Zakat obligor must be aware of risk of loss of the invested amount and that they commit to pay their Zakat in subsequent years, with an additional contribution in case of partial or total loss; and 4. The acceleration of Zakat results in some material benefits that were otherwise not possible.

To be liable for Zakat, an individual must possess assets equivalent to or more than a threshold value. This is determined with respect to gold or silver. The relevant amount of gold is 3 ounces (87.48 grams) or its cash equivalent. The respective amount of silver is 21 ounces (612.36 grams) or its equivalent in cash. As the two amounts may vary depending on their market prices, it is recommended to choose the minimum of the two as Zakat threshold.

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PAU S E F O R T H O U G H T

PAUSE FOR THOUGHT

ECONOMIES OF SCALE If there are one million Zakat payers with minimum annual Zakat obligation of US$100, the aggregated annual amount of Zakat will be US$100 million. Assuming no change in income and wealth of this generation over a lifecycle of 35 years, their lifecycle Zakat obligation will be US$3.5 billion.

How can this amount be accelerated such that the individual Zakat payers are willing to contribute US$3,500 now rather than spread over 35 years? More importantly, why is there a need to do so?

Let us answer the second question first. The table below is a direct and brief answer. AMOUNT TODAY

FUTURE VALUE (AFTER 35 YEARS)

US$130 million

US$1 billion

US$650 million

US$5 billion

US$13 billion

US$100 billion

Based on 6% annual return over a period of 35 years. Applying the above formula, US$3.5 billion collected today will generate a future value of nearly US$27 billion, a mammoth total, which can not only be used for the welfare of the beneficiaries of Zakat but also be returned to the contributors or their nominated beneficiaries (children, relatives, etc.). Now returning to the first question. There will be only a few who would like to pay US$3,500 in a lump-sum now rather than enjoying the facility of

paying it annually over a period of 35 years. This is keeping aside the Shari’a complications. For someone to agree to accelerate Zakat payments the amount paid at present should be sufficiently less than the lifecycle Zakat obligations. Obviously, there are further Shari’a complications associated with assertion. Ignoring the Shari’a side for the time being, it is important that the Zakat payers are sufficiently incentivised to accelerate. The table below alludes to the required incentivisation.

PRESENT VALUE

AMOUNT IN 35 YEARS

US$3,000

US$23,000

US$650

US$5,000

Based on 6% annual return over a period of 35 years.

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PAU S E F O R T H O U G H T

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PAUSE FOR THOUGHT

This means that US$650 paid today will generate a value of US$5,000 over a period of 35 years, if it is invested and the compound annual return is 6%. However, during this period the Zakat payer must

meet their annual Zakat obligations. Assuming the annual Zakat obligations remain constant over the 35 years, an accelerated Zakat contribution of US$650 in Year 0 will last only for 7 years (see Figure below).

US$ 650

ACCELERATED AMOUNT OF ZAKAT

US$650

Annual Zakat

Investment Fund

Total Amount Available

100

550

583

100

483

512

100

412

437

100

337

357

100

257

272

100

172

183

100

583

Year

512

437 357 272 183 100

Year 0

Year 1

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Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

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PAU S E F O R T H O U G H T

PAUSE FOR THOUGHT This implies that the accelerated amount of Zakat should be such that it allows annual Zakat obligations to be made in such a way that the invested funds keep on growing. We have simulated this with US$2,000 as the accelerated amount of Zakat paid in Year 0. This is produced below. ACCELERATED AMOUNT OF ZAKAT (US$650)

YEAR

RATE OF RETURN

2000

0.06

Annual Zakat Obligation

Investment Fund

Total Amount Available

100

1,900

2,014

100

1,914

2,029

100

1,929

2,045

100

1,945

2,061

100

1,961

2,079

100

1,979

2,098

100

1,998

2,118

100

2,018

2,139

100

2,039

2,161

100

2,061

2,185

100

2,085

2,210

100

2,110

2,236

100

2,136

2,264

100

2,164

2,294

100

2,194

2,326

100

2,226

2,359

100

2,259

2,395

100

2,295

2,433

100

2,333

2,473

100

2,373

2,515

100

2,415

2,560

100

2,460

2,607

100

2,507

2,658

100

2,558

2,711

100

2,611

2,768

100

2,668

2,828

100

2,728

2,892

100

2,792

2,959

100

2,859

3,031

100

2,931

3,107

100

3,007

3,187

100

3,087

3,272

100

3,172

3,363

100

3,263

3,459

100

3,359

3,560

The above table is interesting, as the underlying model allows a Zakat payer to contributor US$2,000 as an accelerated amount of Zakat (which is less than their expected lifecycle Zakat obligation of US$3,500). During the 35 years period, the Zakat payer not only meets their annual Zakat obligations but also ends up receiving return on the excess amount invested. The above is just a pause for thought for those who are involved in Zakat collection and distribution. The author intends to extend the analysis to write a more comprehensive note in a subsequent issue of ISFIRE.

ISFIRE, DECEMBER 2019

PAU S E F O R T H O U G H T

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Credit Risk & IFRS 9

PAUSE FOR THOUGHT

A Forward-Looking Approach Into Impairments

Powering Islamic Financial Markets

This standalone credit risk scoring solution allows banks to set up scorecards and dynamic templates and manage the end-to-end process of expected credit loss (ECL) calculations. It provides banks the required tools for forward-looking impairment and risk management tools for beyond IFRS 9 compliance. The solution offers different methods for the quantification of ECL and is highly flexible in staging the bankâ&#x20AC;&#x2122;s exposure. Bahrain . Egypt . India . KSA . Kuwait . Lebanon . Malaysia . Morocco . UAE . UK

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PAU S E F O R T H O U G H T

TALKING POINTS

TOWARDS AN ISLAMIC CREDIT GUARANTEE SCHEME KHALFAN ABDALLAH, CIFE, CEZP MANAGER (HEAD), PDSC AT GULF AFRICAN BANK

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TALLKKIIN NG G PPO OIIN NTTSS TA

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TALKING POINTS

Micro, small and medium enterprises (MSMEs) referred to as the “backbone of the economy” due to their significant contribution in employment creation and national GDP, continue to face severe difficulties in accessing credit from the banking system. Mainstream financial intermediaries often view them as inadequately capitalized, lacking in collateral, led by inexperienced management or operators and thus too risky to provide credit. In cases where credit is offered, it comes with a high cost to MSMEs. Due to shortfalls in the banking system, government and non-government entities have taken initiatives to support the development and growth of MSMEs. One area of such support is access to credit as collateral seems to be the only barrier. This is achieved through the establishment of a Credit Guarantee Scheme (CGS). It is estimated that there are over 2,000 CGS in almost 100 countries, as reported by the World Bank. Role and Benefits of Credit Guarantee Scheme CGS acts as a third-party intermediary risk sharer and facilitator between a bank and MSME seeking financing. According to the World Bank, ‘CGS provides third-party credit risk mitigation to lenders (financiers) through the absorption of a portion of lender’s losses on the loans (credit facilities) made to SMEs in case of a default, typically in return for a fee.’ CGS has shown enormous potential to positively contribute towards increasing access to credit for MSMEs especially in a professional (non-politicised) institutional environment. However, CGS has been criticised on several counts such as higher costs of credit due to the guaranteeing party’s administration costs, increased danger of moral hazard and turn-around time, being subsidy-dependent, and the weakening of credit discipline. WW WW. W.IISSFFIIRREE..N NEETT W

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TALKING POINTS Shari’a Concerns on existing Credit Guarantee Schemes CGS is not only important for MSMEs to access finance, but also to issuers of Islamic bonds (sukuk). According to Reuters, the demand for credit guarantee is gaining attraction for the issuers of sukuk in markets where credit and political risks pose a greater challenge. For example, the Danajamin Nasional Berhad in Malaysia, GuarantCo and the Britain export credit agency have at different times issued a guarantee to facilitate Islamic bonds, particularly corporate sukuk. But were these Shari’a-compliant guarantees? What are the Shari’a concerns associated with the conventional credit guarantee schemes? In order to understand the Shari’a concerns, we have to examine the designs and associated elements of CGS. While most designs take into account several elements, below are only three of them. 1. Risk Sharing: While there are some CGSs that provide 100% coverage, majority provides guarantee coverage in the range between 60% and 80%, so that the credit risk is shared between the financier, customer and guarantor. This partial coverage is highly recommended as it limits moral hazards from the financier and the customer. However, there are Shari’a concerns with regards to the terms of contractual agreement designed to achieve this. Existing guarantees have been drafted conventionally by observing only the country’s laws rather than the Shari’a requirements. Thus, unless the agreement is crafted by avoiding invalidating factors of a contract from a Shari’a perspective, the whole guarantee design will not be suitable for Islamic financial institutions or issuers of sukuk. 2. Fees: In order to meet administrative costs and become sustainable, CGS usually charge specific fees. While the fees can differ from one CGS to another, a registration fee for processing the application is a common requirement. According to a discussion paper on CGS published by OECD, the fee is 1% of the loan amount in Europe and other developing countries. Other fees might include an annual or per loan fee of 1% to 2% as well as membership fees. These fees are largely paid by borrowers and a portion by financial institutions receiving the guarantees. Charging fees to customers for the guarantees is deemed impermissible in classical Shari’a schools of thought. However, there are divergent opinions among contemporary Shari’a scholars on charging fees due to the commercial nature in which these guarantees are requested by the beneficiary. However, some scholars don’t allow them, while others allow some of these fees with certain restrictions and modifications. Thus, unless the types of fees and the manner in which they are imposed are thoroughly evaluated and modified, participation in CGS with above fees becomes repugnant to Shari’a.

ISFIRE, DECEMBER 2019

TA L K I N G P O I N T S

3. Risk management: Majority of CGS use risk management tools such as reinsurance, loan sales or portfolio securitization. While Shari’a recognises the need to manage risks, the above mechanisms are problematic in Shari’a. Thus, risk management mechanisms should also consider Shari’a-compliant requirements. Shari’a-Compliant Alternatives Three models can be considered to structure CGS that satisfy the Shari’a requirements. 1. Takaful Insurance Model. At the corporate level, this model was adopted by the Islamic Corporation for Insurance of Investment and Export Credit (ICIEC). It can also be in the form of mutual credit guarantee whereby associations, groups or individuals come together in order to assist each other in the provision of guarantee to fellow members. 2. Islamic Social Finance Model. Islamic social finance contracts are employed to design the scheme. This ranges from using sadaqa or waqf or a combination of these contracts. 3. Partnership Model. This involves a guarantor partnering with Islamic financial institution to share profit or loss from financing MSME clients. In conclusion, CGS is becoming popular in both Muslim and non-Muslim countries and are thus beneficial to various business segments that lack access to finance due to a lack of collaterals or political risks, among others. Unfortunately, the conventional CGS fall short to attract partnerships with Islamic financial institutions due to the Shari’a concerns highlighted above. To resolve these concerns, we must pay attention to CGS designs and its elements, and adopt or design appropriate Shari’a-compliant models.

It is estimated that there are over 2,000 CGS in almost 100 countries, as reported by the World Bank.

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TALKING POINTS

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5 ISFIRE REPORT

TH CAMBRIDGE

ISLAMIC FINANCE

LEADERSHIP

PROGRAMME PREPARING LEADERS FOR TODAY’S

DYNAMIC & COMPLEX WORLD

The steady progress from niche to mainstream indicates the strong demand for Islamic financial instruments at a global level. With further internationalisation of the industry, the need for highly skilled staff is a significant challenge as the lack of qualified talent can impede the industry’s growth. What is more worrying, is the widening leadership gap that threatens the sustainability of the global Islamic financial services industry. Cambridge IFA launched its Islamic Finance Leadership Programme (IFLP) in 2013. Since then, every year, scores of leaders and professionals from various organisations and institutions have gathered at the historic University of Cambridge in a global effort to develop new leaders and role models to drive forward the Islamic finance industry. Now, in its fifth year, the Cambridge Islamic Finance Leadership Programme (Cambridge-IFLP) is the first and only global leadership programme for mid to senior-level managers who are working in Islamic financial institutions or simply preparing for a leadership role in Islamic finance. Designed and structured by Cambridge IFA, the programme is delivered by some of the most influential leaders in Islamic banking and finance. This 5-day residential programme offers new perspectives, new thinking and new ideas in Islamic finance. Designed to challenge the current perceptions and understanding of Islamic finance, Cambridge-IFLP encourages participants to think and lead differently. Programme highlights include unique mentoring opportunities, industry-specific case studies and networking with renowned industry leaders in Islamic finance.

CAMBRIDGE-IFLP FOCUSES ON EMPOWERING PARTICIPANTS WITH COMPETENCE TO LEAD IN THE FOURTH INDUSTRIAL REVOLUTION ERA, AND TRANSFORMING THEM INTO EFFECTIVE AND INFLUENTIAL LEADERS IN THEIR RESPECTIVE ORGANISATIONS AND IN THE GLOBAL ISLAMIC FINANCIAL SERVICES INDUSTRY,” EXPLAINED DR. SOFIZA AZMI, PROGRAMME DIRECTOR FOR CAMBRIDGE-IFLP

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ISFIRE REPORT She added that the objective of this programme is to nurture the right type of talent for the industry that is facing a shortage of quality human resources, especially at the leadership level. “Cambridge-IFLP aims to instil soft skills in the participants to develop them into effective and influential leaders in their respective organisations and in the Islamic financial services industry as a whole,” stressed Dr. Sofiza Azmi. This was echoed by Professor Humayon Dar, founder of the programme and the Director General of Cambridge Institute of Islamic Finance who added that “with practical guidance from seasoned corporate leaders within the Islamic finance industry, participants will expand their understandings of leadership and prepare them to take on the challenges that every senior leader must face.” “Cambridge-IFLP demands nothing less than exceptional performance in leadership activities, active participation in leadership interviews and outstanding contributions to leadership talks. The breadth and content of the programme are top of the class, as the diversity of delegates as well as the interviewees present an all-round approach to management and exposure to different leadership styles,” he added.

Held at the second oldest college of the University of Cambridge, which counts Sir David Attenborough and James Watson (founder of DNA) among its alumni, Clare College spans the River Cam and offers one of the most picturesque routes to the city as well as ornate gardens. This year a total of 50 delegates, industry leaders and mentors from over 14 countries participated in the programme, which was held from July 7 to 12, 2019. Notable speakers, leaders and mentors included Professor Humayon Dar (Director General, Cambridge Institute of Islamic Finance); Stella Cox, CBE (Managing Director, DDCAP Group); Adnan Ahmed Yousif (President & Chief Executive, Al Baraka Banking Group B.S.C.); Iqbal Khan (CEO, Fajr Capital); Khalid H. Al-Yahmadi (CEO, Muscat National Development and Investment Company S.A.O.C); Dr. Nabil Ghaleb (CEO & Chairman of Zitouna Tamkeen); Junaid Wahedna (Group CEO, Wahed Inc.); AbdulMohsen Abdulaziz Al-Fares (CEO, Alinma Bank); Suliman Noor Mohamed (Chairman and CEO Solly’s Group of Companies); Malcom Hayday (Social Finance Expert, Founder & Former CEO of Charity Bank); Ajmal Bhatty (Managing Director Masses Global LLP); Kamran Sherwani (Shari’a Advisor of Abu Dhabi Commercial Bank); Dr. Omar Kamal (Expert in Fintech); Richard Thomas, OBE (Managing Director of Sustainable Economy Limited); and Mian Muhammad Nazir (CEO of Dar Al Sharia). During his leadership talk, Professor Humayon Dar, Director General of Cambridge Institute of Islamic Finance shared his views on how to succeed in Islamic banking and finance, in reference to his upcoming book with the same title. One of his key messages was the importance of choosing the right mentor who will keep you grounded in your professional journey and provide direction that you may not be getting from your supervisor or other colleagues. He went on to emphasise that having a mentor not only impacts individuals’ sense of professionalism, but would also boost their self-confidence. Often people are plagued by self-doubt, anxiety and insecurity; but having a mentor that can help you navigate you through these barriers can go a long way to helping build confidence. Professor Humayon Dar went on to discuss the meaning of success and shared some success stories of leaders in Islamic banking and finance. But he cautioned that one cannot emulate someone else’s success fully. “We can only get implications from their success as success is not path dependent,’ he further explained. He presented the 5 pillars of success in Islamic banking and finance, which are professional excellence; commitment to Islamic banking and finance; promotion of social responsibility; Shari’a authenticity; and personal development. He stressed that unique to Islamic banking and finance is commitment and Shari’a authenticity, while promotion of social responsibility is key for sustaining success. W W W. I S F I R E . N E T

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I S F I R E R E P O RT

ISFIRE REPORT Junaid Wahedna, CEO and Founder of Wahed Invest Inc, delivered a leadership talk with a focus on Islamic Fintech. He started his presentation with a discussion on the trends in Islamic Fintech and went on to explain how the emergence of Fintech platforms has provided investors with innovative ways to manage their wealth via mobile or web-based applications. He also shared the motivation behind the decision to set up his own company Wahed Invest, an Islamic robo-advisory investment platform at the age of 22. “I was actually inspired by a Bangladeshi cab driver. At that time I was working at Wall Street and had just moved to the US. I got into the cab and started chatting with the driver. He asked if I was Muslim and that got us discussing different topics and ended up talking about his retirement savings,” explained Junaid. The driver shared his concern about how he was having a very hard time investing his money in a halal manner. “So he asked his local Imam who told him that Apple stock was Shari’a-compliant. The driver was about to put all his retirement savings into one single stock.” When asked why the driver did not go to an Islamic financial adviser, he said there was no such service willing to cater to him unless he had over a million dollars. “This got me thinking that Muslims needed an easy, accessible, and affordable halal investing platform. And this is what Wahed aims to do — make halal investing accessible to all,” said Junaid. “At Wahed,” he said, “we don’t want investors to think that this is a quick way of doubling their money, because it’s not. We want to raise awareness on the benefits of halal investing, and show global Muslims that there is a way to grow their wealth in a halal manner.” When it comes to the investment landscape, Junaid believes that it is the millennials that are driving the changes. “There is growing consciousness regarding ethical and sustainable investment choices, particularly from the millennial generation and I expect this sector to continue to grow in the coming years,” said Junaid. According to Junaid, existing Islamic banks still function as lending institutions by using Shari’a-compliant lending structures. “Our survey results show that 84% of the respondents do not trust existing Islamic banks as being truly Islamic. We want to provide a non-lending-based savings solution to over 1.5 billion Muslims worldwide and to play a lead role in fostering innovation in the growing Islamic Finance sector,” he said.

Another speaker who spoke at length on the dynamics of Fintech was Dr. Omar Kamal, who delivered a leadership talk on “Winning the Fintech Revolution: Changing Mindset”. He began his talk with an introduction to the world of Fintech, followed by a discussion about the dynamics of the industry and its impact. Dr. Omar Kamal then presented a few case studies and gave pointers as what to look for when investing in Fintech. In a separate leadership interview session, Dr. Omar Kamal shared his views on how to re-invent oneself. According to him, believing in yourself is the key. “Believe that you can make it and do it. If you feel you are prepared, go for it,” he said. But he cautioned delegates to make calculated decisions, especially when venturing into risky business. When asked on how do you push yourself and move out of your comfort zone, Dr.Omar Kamal replied that solitude gives you an opportunity to discover yourself and find your own voice. “This gives me the energy; this is the way I disconnect,” he elaborated. “With this energy, I feel like nothing can stop me. You need to be patient, dwell into your thoughts.”

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ISFIRE REPORT Stella Cox, CBE Managing Director of DDCAP Group presented a leadership talk on “Leading in a disruptive world: revolutionising Islamic finance” where she argued that technology, sustainable and responsible finance, and gender equality/ diversity plays a critical role in revolutionising Islamic finance. Undoubtedly, technology is disrupting the Islamic financial ecosystem where digitalisation has emerged across many different sectors of Islamic financial practice and is showing signs of transforming the industry, as it is the global financial system. “Traditional Islamic banks are looking for to digital capability to help them increase their existing footprint and penetrate new markets where effective outreach and efficient distribution has been challenged,” she explained. Within Islamic asset and wealth management, digitalisation and the development of platforms to improve investor access should assist in boosting the industry’s growth trajectory. Citing some examples of newly emerging robo advisors and digital asset managers; she explained that they are targeting mass affluent clients, as opposed to high next worth, and also retail investors. Akin to asset management, technology is bound to increase its impact in enabling new insurance business to build, mostly within the retail marketplace. The UK has seen quite a number of new digital Shari’a-compliant insurers evolving, with a particular focus on properly related requirements. “Even in terms of Shari’a oversight, there is a desire to explore and connect with new technology as our scholars review blockchain, cryptocurrency and take board positions with fintech start-ups and firms,” Stella Cox elaborated. Stella Cox continued her leadership talk by looking at how there is now a growing consensus that the objectives of generating profit and doing good (in whatever form, be it tackling environmental concerns, poverty alleviation, humanitarian crisis management or resourcing healthcare or education) are not mutually exclusive and, in fact can be achieved in tandem. “There are many principles of Islamic financing and investment that are complementary to sustainable investing. Both focus on creating financial systems and applications that are more responsive to the real economy and that provide a more holistic approach for all stakeholders,” she explained. The discussion then moved on to the topic of leading the engagement between Islamic finance and the wider SRI community where she cited some recent examples of thought leadership emanating from the Islamic financial marketplace that promotes engagement with the wider ethical and responsible financial communities.

Gender equality and diversity is another important area highlighted by Stella Cox in revolutionising Islamic finance. For the Islamic financial services industry, as in global financial services, the presence of women in the workplace has been gradual. Some 30 years ago, it was not commonplace in international banking for women to have senior relationship responsibility for multinational clients. But she said that the situation has since changed, and some would even say that it has improved. “There are numerous examples now of women working within the Islamic financial sector and contributing to its leadership. But in terms of percentages, growth in female participation has been steady, not exceptional, and there is still much to do,” she emphasised. But how do we accelerate progress and inclusivity? Stella Cox provided examples of private sector engagement initiatives including the WOMANi programme developed by Cambridge IFA to highlight enormously important roles that exceptionally talented women are playing in Islamic business and finance.

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ISFIRE REPORT A leadership talk on “Leading in a disruptive world” was presented by Dr. Ajmal Bhatty, where he shared his personal journey in the world of Islamic finance and some key takeaways on how to succeed in the industry. He asserted delegates to move away from the status quo and have an open and vibrant view of the world. “Change is continuous, so improvement should be too,” he stressed. He suggested that they take clue from the Kaizen culture, which is a continuum of small improvements. He also advised delegates to empty their minds from the noise and run-of-the-mill thoughts. “This will allow the fresh mind to think of new ideas,” he said. Dr. Ajmal Bhatty invited delegates to look at themselves with “a 360-degrees perspective”, which poses many questions such as: do you know yourself, are you confident about your strengths and weaknesses, what others think of you, feel about you, find comfortable about you? These questions gave rise to a reflective session that was different from other lectures, as it opens up new possibilities and insights. Talking about Islamic finance, he listed down some of the weakest links that are hindering the progress of the industry; including low consumer understanding of products and concepts, the ethical side is not clear to many, investing in socially and environmentally friendly ways is not active enough, sukuks are not widely available, and very little focus for low-income groups. Mir Faisal Talpur, CEO and Founder Cinch Group of Companies, spoke on “Reverse Engineering of Entrepreneurship”. Conventional thinking has us believe that businesses are building the confidence and premise that they will succeed and thrive. “Instead, start with the failure premise, then reverse engineer the business plan from that point of failure,” he said. When you do this, he explained, you will start developing a lot of contingencies, back up plans, and workarounds to make your business plan absolutely watertight. Reverse engineering consists of 5 building blocks: working backwards from the future, building business with failure in mind, building business on historical principles of success, building business on change and adaptability and building a business as if it was a human. He also said that the right approach to starting a business is to first establish the real market need. This involves identifying what is the biggest problem that the market is facing and will customers be happy to pay money to solve this problem. Next is to creating the silver bullet for the market, followed by putting together the right offering.

Richard Thomas, OBE, Managing Director Sustainable Economy Limited, presented his views on the subject of sustainability leadership. A sustainability leader views and carries out his work through an economic, social and environmental lens. He introduced the concept of agency where he defined it as the capacity of an actor to act in a given environment. “The capacity to act does not at first imply a specific moral dimension to the ability to make the choice to act, and moral agency is therefore a distinct concept,” he explained. Organisations heavily centralised in decision making create environments where their best-equipped team members actually have no capacity to act, no agency. Decentralised decision making means pushing decision making closer to the people who are solving problems. Simplistically, do you have the capacity to “act” within your environment? Who awards or allows you that capacity? How can you develop “leadership” within that framework? It sounds painfully obvious, yet organisations constantly make the mistake of taking agency away from the people who are the most capable of exercising it. He then looked at sustainability leadership through Sustainable Development Goals and how these goals can provide a workable Sustainability Matrix. Richard Thomas further discussed how the sustainability matrix can inform us on many things such as stakeholder’s platform, enterprise financial stability, education, achievable and measurable outcomes, and reputational representation and communications.

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ISFIRE REPORT Delegates also benefitted from leadership interviews with industry leaders who shared their own leadership experiences and insights, and provided some key lessons on how to succeed in Islamic finance. “Don’t underestimate how much you can learn from a single person as it could have a significant impact, so I highly urge you to learn from others even your work colleagues,” said AbdulMohsen Abdulaziz Al-Fares (CEO of Alinma Bank), while sharing his views on changing career paths multiple times until he found his passion in business. “If you see an opportunity, seize it fully and do not be afraid to fail as it is a part of life,” he advised. There was an underlying recognition that career paths don’t follow a pre-ordained route, and require an ability to respond to inevitable changes in circumstances. Whilst some people relied on structured planning and goal-setting, others were comfortable with a more emergent approach. But in both instances there was recognition of the need to take personal responsibility for shaping one’s career. He also emphasised that one of the few things that can be guaranteed is that everyone will experience failure at one time or another in their career – and AbdulMohsen underlined the importance of developing the kind of resilience that enabled one to tolerate setbacks, learn from rejections and be able to move on without wasting too much energy on regret. “Without the capacity to cope with failure, you won’t be in a position to take the kind of risks that could accelerate your career,” he said. Dr. Nabil Ghalleb, Chairman and Founding CEO of Zitouna Tamkeen, spoke at length on the topic of economic empowerment as opposed to merely financial inclusion during his leadership interview. “Zitouna Tamkeen was founded with the goal of promoting financial and economic inclusion of Tunisia’s youth and disadvantaged populations,” he said.

THROUGH AN INNOVATIVE APPROACH WE ARE COMMITTED TO OFFERING FINANCIAL AND NON-FINANCIAL SERVICES TO PROMOTE THE DEVELOPMENT OF PROJECTS OFFERING MAJOR SOCIO-ECONOMIC IMPACT.” He went on to explain that their economic empowerment approach is focused on value chain financing with economic empowerment projects focused in the areas of sustainable development, interventions in promising sectors and entrepreneurship capacity building programmes. Dr. Nabil Ghalleb shared his views on sustainability and what it means to him as a leader. “For me, sustainability is the development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Sustainability is also the duty care regarding how we operate,” he explained. He underlined the importance of sustainability because the health of any business is dependent on the health of the community that it serves. A leader, according to him, must recognise the leadership role they need to play to mend sustainability mindset and practice deep and wide in the organisation. Asked what advice would he give on being an effective leader, Dr. Nabil Ghalleb added, “be mindful about the leader or manager you choose to work for. While you may pose strong leadership attributes, these will either be amplified by a great leader or oppressed by a weak one.”

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ISFIRE REPORT The issue of glass ceiling was raised by Suliman Noor Mohamed (Chairman and CEO Solly’s Group of Companies), where he stressed on the importance of breaking this glass ceiling in all aspects of an individual’s life. Minorities in major countries around the world are still suffering on every level of the social spectrum. He shared his own personal experience living and working in South Africa back in his days when apartheid was still the law of the land and the many challenges other minorities like him faced during that time. While talking about events that made a huge impact on his life, Suliman Noor insisted that, “whatever happens, never be hesitant to take on change as you may touch the lives of many people (yourself included) and it is a huge opportunity, so never underestimate this.” He went on to discuss how we should not impose our will on others despite their race, and cultural background, and that we should follow in the ways of the Prophet Muhammad (P.B.U.H). He also advised delegates to never underestimate the influence of parents, and to always seek guidance from them. “The most important lessons learnt in a lifetime comes from them. They are the most important mentors and role models that shape your life and ignite your passion,” he reminded. When asked about the right time to grab an opportunity, his advice was that there is no particular time to grab an opportunity. “But, find out if this is what you want in life and if it makes you happy. When you take an opportunity, it is integral that you make a difference. Do not take opportunities that could potentially make you miserable.” The highlight of this session was his reminisces about Nelson Mandela. “It was not only an honour but also a privilege to have met him. I have not met anyone so humble yet so decisive,’ said Suliman Noor.

WE WERE ON A YACHT WITH SOME INFLUENTIAL FIGURES SUCH AS THE CLINTONS, KOFI ANNAN AND MANY MORE. NELSON MANDELA THEN STARTED TO SHARE HIS PAST STORIES. DESPITE ALL THE ADVERSITIES HE FACED, HE LOOKED AT THEM IN A POSITIVE MANNER. HE WAS A VERY FIRM MAN. HE WAS OFFERED RELEASE CONDITIONALLY, BUT HE REFUSED. NEVER COMPROMISE YOUR OWN PRINCIPLES, THIS IS WHAT HE SAID,” RECALLED SULIMAN NOOR. Khalid H. Al-Yahmadi, (CEO, Muscat National Development and Investment Company S.A.O.C), believes that the pillars of leadership starts at home as his parents played a pivotal role in how his leadership was formed. He emphasised that quality education starts from the Quran, alongside the sunnah of the Prophet Muhammad (P.B.U.H). “We can’t be smart and say we do not need these as Allah (S.W.T) has given us guidance and we should always refer back to this,” he stressed. For him, success is a matter of determination. Without determination, success is just a far away dream. “It is the force originating from within you that seeks to bring out the potential in you and drive you to your destiny,” explained Khalid Al-Yahmadi. He reminded delegates that it is important to utilise time effectively. Another important advice he shared was that one should never compromise on his values, and should treat others fairly. He also shared his decision to go into the airline business instead of becoming an engineer was motivated by his desire to be a valuable person in the community.

I HAVE MY OWN ENGINEERING FIRM, CREATING MANY JOB OPPORTUNITIES FOR OMANIS. WHEN I REALISED, I COULD ACCOMPLISH MORE WITH DIFFERENT OBJECTIVES, I DECIDED TO TAKE THAT OPPORTUNITY,” HE EXPLAINED.

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ISFIRE REPORT Adnan Ahmed Yousif (President & Chief Executive, Al Baraka Banking Group) provided valuable leadership insights with the delegates. According to him, a good leader is a hard worker that interacts with his or her team. “You should never have the mentality that you know everything, your mind should always be open as there is always something you can learn,” he stressed. Discipline, hard work, and willingness to learn are the main pillars of success. He stressed the need for a change in mindset among Islamic finance players to embrace Fintech. “Islamic banks have to cope with the changes. Education, training and awareness are needed to develop the right skills for dealing with the transformation,” he added. In order to keep up with globalisation and to serve the growing wealth of the rapidly increasing global Muslim population, he believed that the industry needs to invest in digitalisation, research and development to create new and innovative Shari’a-compliant products and services that go beyond simply matching those offered by conventional banks. He also shared his thoughts on the revolution fintech is creating in the delivery of traditional financial services and the reshaping of the financial landscape with customers demanding greater inclusiveness, ease, speed and affordability. On his vision for the next decade for Islamic banking., Adnan Ahmed Yousif said, “The primary growth drivers will be regionalisation, digital acceleration and innovative business models for emerging markets. Several potential markets with large Muslim populations remain largely untapped. In addition, overall banking penetration in many of the industry’s core markets is still low.” He added that as competition intensifies, Islamic banks will have to adopt more sophisticated, customer-centric sale approaches. Malcolm Hayday, Social Finance Expert, Founder & Former CEO of Charity Bank; shared his experience of establishing Charity Bank, which finances charities, social enterprises and community organisations. He said the bank had developed “a unique banking model that responds to real social needs by financing charities and social enterprises”. Talking about challenges faced, he explained that there were not as many restrictions back in the day, “but if the regulators do not understand how you operate, it could prove to be a difficult task to emerge within the financial market.” Admittedly he said that although the bank is not an Islamic bank, but it is part of social banking. He also stressed that they work with people where financial motive is not the main motive. “So when savers deposit with us, we send their money on a mission, only ever lending to organisations that benefit people and planet,” he explained. Malcolm Hayday went on to explain that Charity Bank measures social impact its lenders have made. “The bank is also transparent about the organisations to which it lends, sharing stories of change and social impact data from the charities and social enterprises that it supports.”

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ISFIRE REPORT With total Islamic finance assets expected to surpass US$3 trillion by 2020, our industry is built on strong foundations. But how do we progress Islamic finance in authenticity and reach, and create a global demonstration effect to drive our industry towards the next stage of its evolution? This question was posed by Iqbal Khan, CEO of Fajr Capital; during his keynote leadership speech. “In order to create a truly global demonstration impact, the Islamic finance industry’s future leaders – such as those participating in this programme – must build, maintain, and support our industry institutions through value-based and impact focused leadership,” he said. He went on to present 5 main leadership pillars that any leaders in Islamic finance should practice: • Faith: Placing our trust in Allah (S.W.T), the best of planners • Vision: Having the mindset, heart-set, and soul-set to succeed • Humility: Learning from the Prophet Muhammad’s (P.B.U.H) example • Competence: Leadership is not based on piety alone but excellence too • Resilience: Tackling adversity He added that businesses should move away from “trickle down” economics and ensure a more inclusive one from bottom up with a focus on equitable growth, greater wellbeing, and building the middle class. He argues that “markets need to enable and empower inclusive institutions that fuel long-term economic prosperity as well as inclusive and robust economic frameworks.” in this regards, he said that inclusive finance and impact investment offers Islamic finance a breakthrough opportunity to enhance its relevance, expand its size and scale, and demonstrate its authenticity.

IMPACT INVESTING, FOR EXAMPLE, CALLS FOR INVESTMENT INTO COMPANIES AND FUNDS WITH THE INTENTION TO GENERATE A SOCIAL AND ENVIRONMENTAL IMPACT, AS WELL AS A FINANCIAL RETURN,” HE ELABORATED. In this regard, he suggested that leaders in Islamic finance should take the lead in transforming corporate and economic culture – from a paradigm of “ownership” to a paradigm of “stewardship”. Iqbal Khan also proposed to strengthen corporate governance to focus on fairness, transparency, and accountability by expanding the remit of Shari’a advisory boards. In one of the leadership activities conducted by Dr. Sofiza Azmi, the focus was on personal growth and why do people find it difficult to change. Change is challenging and it gives rise to anxiety, that can prompt a cycle of unproductiveness. Delegates of the Cambridge-IFLP programme shared their own personal experiences on the topic. The most common experience seemed to revolve around how venturing into the world of unknown could be a daunting task and most people tend to stay within their comfort zone. While others felt that we mostly do not self-reflect enough and most people feel like the change should occur in other people and not them. Failure was a common aspect highlighted by delegates as some felt that change is usually accompanied with failure and that fear of failing forces some of us to resist change. Harvard Graduate School of Education professors Robert Kegan and Lisa Laskow Lahey posit that the challenge isn’t due to lack of willpower. Rather, they argue that failure to meet our goals may be the result of an emotional immune system that helps protect us from the fallout that can come from change — namely disappointment and shame. A new addition to the programme was the Cambridge Islamic Banking Master or Cambridge IBM. This is a quiz programme that offers insights into Islamic financial concepts, products, institutions and markets. At the end of the programme two of the delegates - Haifa Abdulali Mohammed Al Lawati and Jaspar Crawley, were conferred the Cambridge IBM title for successfully answering all the questions correctly. During the 5 days, delegates took part in several social activities that are a must when one is in the historical University of Cambridge. These included punting on the River Cam and leadership walk around the campus. The delegates also enjoyed the British summer in the beautiful Fellow’s Garden while enhancing their leadership skills during the Cambridge-IFLP treasure hunt activity organised on the grounds of Clare College. At the end of the programme, all delegates received their certificates of which 6 outstanding delegates received the Cambridge Islamic Finance Leadership Awards. They were Zahid ur Rehman Khokher (Central Bank of Oman), Mohammed Hamed Nasser Al Hashimi (Bank Nizwa), Mohamed Ayaz Mohamed Ismail (CIMB Islamic), Angelia Chin Tsun Ping (BNP Paribas Asset Management), Haifa Abdulali Mohammed Al Lawati (Bank Nizwa) and Putu Rahwidhiyasa (Bank Syariah Mandiri).

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DYNAMICS OF TRUST FOR GOOD‘WAQF’ GOVERNANCE DIAN MASYITA

LECTURER AT THE FACULTY OF ECONOMICS AND BUSINESS UNIVERSITY OF PADJADJARAN

The phenomenon of philanthropy is dynamic and complex involving different values and activities brought together to produce such a system. Waqf is one example of Islamic philanthropies. Trust, emanating from the belief system in Islam, as social capital has remained as an important working mechanism for waqf to work efficiently. The static perpetuity, rigidity, and the mismanagement of awqaf with the decline in trust between individuals, and between individuals and institutions in the recent past had created inefficiencies and ineffectiveness. However, mismanagement and moral hazard can be avoided by a good governance system based on religion with the enhanced notion of trust among all stakeholders of a waqf. For this, in addition to the form oriented understanding of fiqh, ethical norms of Islam should reemerge to provide substance, such as through ethics, in making sure that the high objectives of Shari’a are achieved through activities of waqf based on the articulation of trust and good governance.

ALTRUISM - CONCEPT AND REALITY Altruism, as a universal concept, refers to the willingness to do things which benefits other people as part of human nature. In other words, altruism refers to selfless acts that put others welfare before one’s own. If the ultimate goal of benefiting another is to increase their welfare, then the motivation is altruistic. If the ultimate goal is to increase one’s own welfare, then the motivation is egoistic.

A FRAMEWORK OF WAQF MANAGEMENT Good waqf governance is purposed as an integrated system (figure 1). Every element in this system is supposed to support each other in order to achieve efficient waqf management.

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Figure 1. Good Waqf Governance

GOOD WAQF GOVERNANCE

Waqif/Founder/Donor • Identity • Motivation • Waqf assets/deeds

Knowledge Information

Mutawalli/Trustee

TRUST • Risk Management • Effectiveness • Credibility • Collaboration • Shari’a-Compliant

• Reputation • Accountability • Efficiently • Productivity

PERFORMANCE

Beneficiaries/Maukuf’alaih

• High benefits (services, fruits, facilities) • Return of Investment

Social

• Qard Hasan, benevolent

Economic Structure

Detailed explanations of the building blocks of the framework depicted in Figure 1 are explained below. Trust as Social Capital and Transparency Trust is recently considered as a social capital and also recognised as an important aspect of facilitating financial and economic transactions by reducing the transaction costs. In particular, due to the charitable nature of the waqf system, trust remains key to achieving the ultimate goal in the voluntary sectors. Trust between individuals, and between individuals and institutions is developed according to a general framework of the larger environment, including ethics and religion. Thus, religious values can help develop and perpetuate trust in a society, which then can develop into social capital. Akkermans states that when the modeller maps trust in a stocks-and-flows format, it makes sense that trust is an accumulation that grows slowly over time as seen in Figure 2. Interestingly, during the initial stages of a relationship, trust is more easily depleted than grown.1 Figure 2. Behaviour of Trust Trust

a. Gradual Process

Trust

Time

b. Destroyed Quickly

Time

Akkermans, H. (2008). ‘The 5th wave “Travail, transparency and trust”: Understanding the dynamics of buyer-supplier relations’, Supply Network Dynamics. Retrieved July 18, 2009.

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ISFIRE REVIEW Higher trust levels lead to lower costs. Trust is an important indicator of customer satisfaction within the Islamic financial institutions in general, and waqf institution in particular. Understanding the dynamics of trust in Islamic finance such as waqf seems pivotal for determining the ways to create managerial actions leading to adequate performances of waqf institutions. Creating a framework for understanding the dynamics of trust in an institution and how these influence the policy scheme is essential. Trust is produced through reputation acquired on the basis of consistent behaviour in terms of value and product of human actions over time. Trust as social capital creates efficiency and effectiveness thereby reducing transaction costs. If people can trust the other party, there is no need for additional energy and time to calculate the outcomes of the process due to nontrustable nature of the parties. There is then simple administrative work without the need for extensive contracts and guarantees. Thus, trust as a social capital further facilitates transparency and accountability, which are prerequisites to the success of the trust/endowment fund management. Lack of transparency results in nontrustable charitable organisations and hence produces an outcome where institutions are not trusted. This lack of transparency may also contribute to the attitude that directs donations are better, as compared to donations to an institution. For example, in Turkey, nearly 87% of donations are direct donations. This bypasses philanthropic organisation, and thereby excludes aid to the neighbourhood in which the donor resides. This model of giving stagnates capacity building.2 The effective collaboration among parties involve a great deal of openness and hence transparency needs trust. Transparency results in well informed individuals and stakeholders who want to know what benefits they bring to the community, implying the formation of trust between different stakeholders in the society. The real cost of lack of trust is the inability to share information openly. Therefore, the greater the trust among the parties, the higher their openness towards each other and the greater the focus on getting the work done. From a system dynamics perspective, trust and transparency are causally linked into a reinforcing cycle, which may operate as either a virtuous or a vicious cycle, depending on what directions things are moving. If a non-profit organisation, charity, waqf, trust fund or endowment fund is not transparent in its dealings with the sources and uses of fund, the donors will not trust them. Consequently, it will be difficult for them to donate their money to those institutions. Hence, building mutual trust and openness takes time, as Akkermans states trust “comes by foot but leaves on horseback.” There is another asymmetry to take into account in the development of trust, namely the differences between the processes of building trust versus destroying it (creating distrust). Empirical and theoretical analyses of trust are consistent in pointing out that while building trust is a gradual process, it can be destroyed quickly by a single event or a minor inconsistency in the trustee’s behaviour. Dynamics of Trust

Trust is dynamic by nature; and therefore, some researchers have endeavoured to classify the factors that influence how trust develops or changes over time, how it relates to the social processes, and how it links to the organisational and interorganisational relationships3. Trust is derived from various dimensions that are multi-aspects, cross-cultural, and range at different

Awad, N. and Carkoglu, A. (2008). Giving in tough times: Preserving legitimacy in a rapidly changing political environment. Paper presented at the 1st World Congress of Muslim Philanthropists: Facing Challenges and Finding Solutions, Istanbul, Turkey.

Luna-Reyes, Luis F., Laura J. Black, Anthony M. Cresswell, and Theresa A. Pardo. “Knowledge Sharing and Trust in Collaborative Requirements Analysis.” System Dynamics Review 24, no. 3 (June 2008): 265–297. doi: 10.1002/sdr.404.

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ISFIRE REVIEW times. Thus, trust incompasses a full range of social sciences from the economic models of transaction costs and negotiation to sociological theories of group and interorganisational behaviour, to psychological and culture-based models of interpersonal interactions. The enhancement and maintenance of trust have been identified as an important element in human relationships, whether at the interpersonal, business, or organisational level. These are challenging questions for researchers and practitioners. An increasing number of multidisciplinary researchers in the fields of philanthropy, endowment fund policy and trust firm strategy shows that the performance of the non-profit organisations cannot be viewed as an isolated phenomenon but has to be analysed as a part of a larger system. These fields inevitably deal with trust management. Trust is also described as a mental strategy that reduces the complexity of our environment and that allows us to make decisions even though their outcomes may potentially be harmful. These dynamic approaches to trust typically involve some form of learning or knowledge accumulation, or change as an important part of the trust dynamics. In transaction cost analyses, varying levels of trusts or hazards resulting from untrustworthiness influence the structure of interorganisational relationships. Higher trust levels lead to lower costs resulting from the need to protect against opportunism. Political approaches and institutional analyses have also shown that trust is an important factor in governance mechanism across organisations. But these structural approaches do not account for how trust develops.

Collaboration and Knowledge Create Trust Ostrom, as the Nobel laureate, emphasises that “Learning to trust others is central to cooperation”.4 Hence, trust is considered as a fundamental factor in cooperation among economic actors and institutionbuilding processes. However, in order to develop trust, knowledge and information on social and economic structures is essential to reduce uncertainty and reduce transaction cost. In other words, trust is difficult to gain without transparent information. As several studies have demonstrated, collaboration and knowledge are important factors, which influences the decisionmaking process. Collaboration and knowledge sharing can solve problems of trust, conflict, and risk among different parties. These are largely matters of perception and beliefs, about other participants in a network that can influence interactions and decision-making.5 Mutual understanding and collaboration in inter-organisation will create a trust that is related to transaction costs.6 Trust has consistently been found to be an essential feature in inter-organisational knowledge sharing relationships. The collaboration of cross-organisational sharing of knowledge inevitably raises risks and furthermore brings potential conflicts. The strength and value of committed resources, including knowledge, influence those risks.7 Some level of trust is both an initial condition for the formation of relationships as well as a result of positive interactions over time.8

4 Elinor Ostrom’s Prize Lecture, December 8, 2009, at the Novel Laureate’s Ceremony. The title of the presentation is “Beyond Markets and States: Polycentric Governance of Complex Economic Systems. http://nobelprize.org/nobel_prizes/economics/laureates/2009/ostromlecture-slides.pdf. Access date: Feb 21, 2010.

Elg, U., & Johansson, U. 1997. Decision Making in Inter-firm Networks as a Political Process. Organization Studies, 18(3): 361-384.

6 Williamson, O. E. 1991. Comparative Economic Organization: The Analysis of Discrete Structural Alternatives. Administrative Science Quarterly, 36: 269-296.

Burt, R. S. 1997. The Contingent Value of Social Capital. Administrative Science Quarterly, 42(June): 339-365.

Sheppard, B. H., & Sherman, D. M. 1998. The grammars of trust: a model and general implications. Academy of Management Review, 23(3): 422-438. 8

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Regarding the thirdsector management (trust/charity/endowment/waqf fund), the openness in sharing information between the trustee and donor or nazir/mutawalli and waqif/founder is crucial for flexibility. Openness, or transparency, requires a high level of trust among parties. Trust and transparency form a reinforcing loop, with either good or bad non-profit organisational performance as the link between them. Joint hard work, mapping out how things work out between parties, and an increased understanding of the other side, can over time lead to more trust. A long relationship among parties is an important thing in building a trustworthy behaviour. Each party has to pass some kind of a trust barrier, for if there were mistakes in the beginning, relations would end. This also makes it clear that people who work well together manage to do so for considerable amounts of time. In the voluntary sector context, once donors trust a charity organisation, they do not give their money to other organisations. The credibility of a nonprofit organisation is considered an important thing by donors. Credibility is not an easy thing to achieve, as it is built through expertise and trustworthiness.9 Performance of Waqf Management The inferior performance of an institution gives both sides all the more reason to distrust each other, which leads to less openness, more inferior performance and even less trust. However, reversing a vicious cycle into a virtuous one is always difficult in a business setting and especially so when such “soft” and cultural issues such as trust are involved. But, it can be done.10

Trust and Risk There is a close connection between trust and risk. If there is no risk, there is no need for trust and vice versa. However, “the willingness to take risks may be one of the few characteristics common to all trust situations”.11 Hence, trust can be seen as a mental mechanism that helps reduce complexity and uncertainty in order to foster development or maintenance of relationships even under risky conditions.12 Indeed, the absence of risk indicates confidence, i.e. certainty in positive outcomes. On the other hand, risk such as unpredictable future events, require trust to overcome uncertainty and enable constructive interpersonal relations. In terms of non-profit organisations, the ability to manage risk becomes a pivotal

Hovland, Carl I. and Walter Weiss (1951), “The Influence of Source Credibility on Communication Effectiveness,” Public Opinion Quaterly, 15, 635-50.

10 Akkermans, H. (2008). ‘The 5th wave “Travail, transparency and trust”: Understanding the dynamics of buyer-supplier relations’, Supply Network Dynamics.

Johnson-George, C., & Swap, W. C. (1982). Measurement of specific interpersonal trust: Construction and validation of a scale to assess trust in a specific other. Journal of Personality & Social Psychology, 43 (6), 1306–1317.

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matter for being considered by donors. The more professional the investment manager is in managing the risk of waqf fund portfolios, the more beneficial it can be for achieving the goals of non-profit organisations and waqf institutions. There are other dilemmas in the management of waqf institutions in order to create a waqf that has a huge impact to society, as a huge amount of money is required with a centralised way of mobilising waqf fund. Based on past experiences, the evidence shows that the centralisation of waqf institutions have created inefficiency and destruction of waqf assets.13 Mobilising a huge fund is only possible through the centralisation of waqf institutions by the government. On the other hand, it has been recognised that the government is a bad manager for the third sector. The ability of small waqf institutions to gather waqf fund is quite small and even if there are a lot of waqf institutions established, it is still difficult to reach the scale of economy. In addition, many waqf institutions have their own objectives and beneficiaries portfolio which weakens their ability to mobilise a huge fund. However, the scale of the economy is very important to reduce costs, be competitive and create significant impact on society.

CONCLUSION: INTEGRATING TRUST INTO WAQF MANAGEMENT Considering the historical experience in the Muslim world, one sees the impact of trust perpetuating in the Islamic civilisation. The very title given to Prophet Muhammad was Muhammad-ul Amin (the trustable Muhammad), which is considered as the cornerstone of the Muslim self. The contemporary economy has two major issues: welfare and development needs in the Muslim society; and the mistrust that marks the market economy and the behavioural norms of individuals. The first problem can be alleviated by the regeneration of the waqf system in the Muslim world in the case where states have failed. This role is historically played well by the waqf, which could be repeated. However, trust in some Muslim societies and communities is terribly low; as individuals do not trust each other nor do they trust the institutions and the state. Thus, the integration of trust in waqf management in the welfare system can be alleviated in society, which rationalises the importance of trust as social capital. Since transparency, reputation, accountability, credibility, good collaboration, productivity, risk management and Shariâ&#x20AC;&#x2122;a-compliance are the key-words for the sustainability of the waqf management, endogenising trust through the values and norms of Islamic economy can help develop an optimal outcome.

12 Luhmann, N. (1988). Familiarity, Confidence, Trust: Problems and Alternatives. In D. Gambetta (Ed.), Trust: Making and Breaking Cooperative Relations: Basil Blackwell Ltd.

13 Cizakca, M. (2000). A history of philanthropic foundations: Islamic world from the seventh century to the present. Istanbul, Turkey: Bogazici University Press.

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ISLAMIC SOCIAL ENTREPRENEURSHIP:

AN APPROACH TO CREATE A CONCEPTUAL MODEL OF SOCIAL WELFARE SYSTEM

DR. HENDRATI DWI MULYANINGSIH SENIOR LECTURER OF UNIVERSITAS ISLAM BANDUNG

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The term Islamic social entrepreneurship is relatively new within the social entrepreneurship and social enterprise literature as studies in these fields have long been dominated by Western scholars and perspectives. The term ‘Islamic’ here is adopted from specified unit analysis of social enterprise that contextually have the norms of Islam, i.e. Shari’a-based. In the domain of Islamic economics, entrepreneurship itself is a prominent part, blended between entrepreneurial activities and religion.1

for personal gains or self-interests but also for the common good so that it gives rise to mutual independence in the community. Islam is not a religion that denies the human desire for prosperity and wealth. Nevertheless, Islam also calls upon the people to manage their wealth prudentially in accordance to what has been subscribed in the Qur’an and Hadiths. Hence, entrepreneurs should seek to achieve a balance between profit motive and social motive at the same time.

The basic concept of entrepreneurship in Islam stands on a mutual relationship (partnership and participation), altruism and goodwill.2 Its concept is grounded on the objectives of Islam, such as unity (tauhid), trusteeship (khilafah) and worship (ibadah). Considered as Allah’s khalifah or person on duty, it is the duty of human beings to create prosperity and worth on this earth. Their role in the economy is to achieve economic prosperity together. They work not only

Conceptual Framework of Islamic Social Entrepreneurship Entrepreneurship in Islam is a prominent part of Islamic economics. There is an integration between entrepreneurial liveliness and religion. Islam encourages Muslims to be entrepreneurs, and this is established in several verses of the Qur’an and the sayings of our Prophet Muhammad. Abu Sa’id narrates that the Prophet said: “an honest and sincere businessman will be placed with the prophets, siddiqin and alshuhada” (Hadith Al-Tirmidhi 1987, no.1209, p.515). Based on this hadith, the highest recognition is given to sincere and honest entrepreneurs. Entrepreneurship from the Islamic perspective closely relies on principles of thought that are affirmed to the followings: •

Islam encourages entrepreneurial development and entrepreneurship as an integral part of its religious practices.

•

In the view of the ownership of resources and treasure, Muslims are khalifah (agents of trust) of Allah and therefore responsible for generating prosperity and should consider doing business as part of ibadah (worship) or good deeds.

•

While being successful in business, an important consideration of an entrepreneur is the usefulness of the person for the society (cooperation for existence) and ethical living that fits with the philosophy of belief in Allah the Almighty.

As Muslim entrepreneurs, their activities should be centred around people development and spiritual development (Figure 1). Under people development or habluminannas, Muslim entrepreneurs have to accentuate dual-construct motives, i.e. profit motive and social motive. In other words, they must be motivated to venture into profitable, creative and innovative economic activities that address social and economic needs.

Faizal PRM, Ridhwan AAM, Kalsom AW ( 2013) . The entrepreneurs Characteristic from Al-Qur’an and Al- Hadis. International Journal of Trade, Economics and Finance, Vol. 4, No. 4

Nurozi MR ( 2011). A quick look on Islamic Entrepreneurship. Interdisciplinary Journal of Contemporary Research in Business, vol. 2, No. 10.

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Second is the spiritual development or habluminallah. Humans were created by Allah to serve and worship only Him. It is imperative for human beings to carry out Allah’s command and have good relations with Him. In other words, habluminannas is for habluminallah as both are in line and should not be disputed. People who ignore habluminannas will not only face the wrath of Allah and the consequences in the hereafter, but will also suffer from the bad treatment from other human beings or punishment according to the laws or norms of the society.

Figure 1. Islamic Social Entrepreneurship Conceptual Framework

ISLAMIC SOCIAL ENTREPRENEURSHIP

PEOPLE DEVELOPMENT “HABBLUMINANNAS”

PROFIT MOTIVE

SPIRITUAL DEVELOPMENT “HABBLUMINALLAH”

SOCIAL MOTIVE

(Mulyaningsih & Ramadani, 2017) In Islam, working or doing business is not just considered as an economic activity but rather a reflection of the activities of faith, a manifestation of monotheism and evidence of the height of morals and barometer of piety to Allah. Business in Islam is valuable when it is intended to gain the pleasure of Allah (QS 62:11). For an Islamic social entrepreneur, the purpose of doing business is twofold. Firstly, it is part of a religious obligation. Islam creates a direct relationship between work and one’s obedience to Allah so that work and doing business is also deemed as an act of worship (QS. 3:136). Hence, in Islam, entrepreneurship is regarded as a form of worship that brings Muslims closer to fulfilling their faith. Secondly, doing business is a means to serve the daily needs of the community. Islam views Muslim communities as an essential economic and social entity, having economic interdependence so that working and sharing can create economic value for

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themselves and their communities. Getting richer should be more beneficial and the noblest human being is the most useful person for their community. Therefore, every activity related to creating prosperity (profit motives) should also be balanced with usefulness and value to others (social motive). Islamic Social Entrepreneurship and Emergence of Social Welfare System Conceptual Model There are 3 basic principles of Islamic social entrepreneurship related to social justice and social welfare: 1. Fard al-Kifayah â&#x20AC;&#x201C; commitment Muslim entrepreneurs have a fard al-kifayah commitment, i.e. a responsibility towards their society to create social welfare with great solicitude. This concern for others is an intrinsic motivation based on religiosity (social motive upon profit motive). 2. Almsgiving model on zakat, infaq, sadaqah, and waqf (ZisWaf) â&#x20AC;&#x201C; voluntary sector Zakat, infaq, sadaqah and waqf are the almsgiving model of Islamic social entrepreneurship that has an important role in providing unmet needs of the society and as a tool in solving social and economic problems.3 Public ownership or waqf is also one of the social entrepreneurship models in Islam. As a public treasure that is owned by society legally, waqf is one of the economic resources that have proven to play a significant role in the economy. It has been earmarked for social welfare and social community development in many sectors such as economics, education, health, social and religious sectors. There are a lot of remarkable examples of waqf contribution for social value creation, such as Al-Azhar Islamic University in Egypt as a successful waqf model in education development, and other charity models like Oxford University (US) and charity foundations on property benefits in North America and around the world.4

3. Market Failure and Government Failure Social entrepreneurship or the third sector economics was introduced primarily as a makeup for the deficiencies of the private and public sector economics and was meant to meet the minimum unmet requirements for social wellbeing.5 Hence, social entrepreneurs tackle social problems that emerged due to failure of existing markets and the social welfare system6, by offering new, innovative ideas for widescale change. They tackle social problems affecting society due to the inadequacy of social policy or social welfare and the inability of the government in solving social problems in the areas of welfare, education, health, community development and the environment. Islamic Charitable Funds Islamic charity funds such as zakat, infaq, sadaqah and waqf (ZISWAF) are the cornerstone of Islamic economy. These are the main mechanisms for fair distribution and circulation of wealth in the Islamic society. All these Islamic charity funds are encouraged to be performed by Muslims in order to gain reward from Allah. However, the status of zakat differs from that of infaq, sadaqah and waqf. Zakat is an obligatory almsgiving and is the third pillar of Islam. It has the objective of achieving socio-economic justice in society and its distribution should be managed by one of the asnaf (amilin) that plays the role of a social worker. Infaq, sadaqah and waqf are, on the other hand, sunnah (voluntary) and are acts of righteousness done to help the poor and needy to please Allah. It can be nominal or infinite and must be managed by people who understand their potential. This is why they are more suitable to be managed by a social entrepreneur. By looking at the charity potentials of ZISWAF and social problems such as poverty, income distribution, inequality, and the challenge in managing voluntary sectors; Islamic social enterprise faces challenges in creating value for the society through its almsgiving model, as shown in Figure 2. Islamic social enterprise as an intermediary institution plays two main roles; as a social worker and social enterprise. Islamic social enterprise empowers people by using voluntary funds such as zakat, infaq, sadaqah and waqf.

Hoque N, Khan MA, Mohammad KD ( 2015). Poverty Alleviation by Zakah in a Transitional Economy: a small business entrepreneurial framework. Journal of Global Entrepreneurship Research 5:7

Salarzehi H, Armesh H, Nikbin D ( 2010). Waqf as a Social Entrepreneurship Model in Islam. International Journal of Business and Management. Vol. 5, No.7

Molla, R.I., Alam, M.M., Bhuiyan, A.B., and Alam, A.S.A.F. (2015). Islamic and Social Entrepreneurships for Social Justice: A Policy and Structural Framework for Social Enterprise Economics. Al-ijtihad: Journal of Islamization of Knowledge and Contemporary Issues. Vol. 13 (1), pp. 1-27

Mair, J. and Marti, I. (2006). Social Entrepreneurship Research: A Source of Explanation, Prediction and Delight. Journal of World Business, Vol. 41 No. 1, pp. 36-44.

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Figure 2. Social Value Creation Model of Islamic Social Enterprise

INTERNAL FUNDING

UNIT BUSINESS / ENTERPRISES ( SHARE PROFIT & ZAKAT, INFAQ AND SADAQAH )

SOCIAL INNOVATION PROCESS

EXTERNAL FUNDING

ISLAMIC SOCIAL ENTERPRISE AS INTERMEDIARY INSTITUTION

CHARITY FUND DISTRIBUTION EMPOWERMENT FUND DISTRIBUTION

ADD VALUE

BENEFICIARIES/ TOP OF BOTTOM PEOPLE

CREATING SOCIAL ENTREPRENEURSHIP PROGRAM

SOCIAL VALUE CREATION

EMPOWER PEOPLE ERADICATE POVERTY

DONORS ( ZAKAT, INFAQ, SADAQAH, WAQF )

(Mulyaningsih & Ramadani, 2017) There are two main types of distributions of this voluntary fund - charity fund distribution and empowerment fund distribution. Charity fund distribution from zakat to the poor or asnaf is aimed for the fulfilment of their basic needs such as food, clothes, education, and health care. At this point, Islamic social enterprise plays the role of a social worker (amilin). Empowerment fund distribution from infaq, sadaqah and waqf for the beneficiaries is aimed at the empowerment of social community. Here, the Islamic social enterprise plays the role of a social entrepreneur that should manage their business to sustain their organisation and support their social motive programmes. Through voluntary funds, Islamic social enterprise can create social value for the beneficiaries (individual or community) through social innovation as an effective strategy to achieve social impact and financial sustainability.7 Given the important role that social entrepreneurs can play in the economy, it is therefore necessary to develop a conducive ecosystem for Islamic social entrepreneurship to thrive in. The essential parts of the ecosystem would require proper tools for nurturing Islamic social entrepreneurs. Mulyaningsih, H D. Gatot Y & Bambang R (2014 ). Initial Conceptual Model of Knowledge-Based Social Innovation. World Applied Sciences Journal, Vol. 30, pp. 256-262, 2014

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6th ISLAMIC

RETAIL BANKING

AWARDS

2020 IRBA CELEBRATES EXCELLENCE AND BEST PRACTICES IN ISLAMIC RETAIL BANKING IN TWO BROAD CATEGORIES: STRONGEST ISLAMIC RETAIL BANKS – award winners are selected based on a path-breaking Islamic banking efficiency study conducted by Cambridge IFA, which ranks over 130 Islamic retail banks. CRITICS' CHOICE AWARDS – award winners are carefully selected by the Critic's Choice Committee, which comprises leading Islamic banking experts from around the world.

https://cambridge-ifa.net/events/irb_awards/irba_intro.php

CAMBRIDGE I N T E R N AT I O N A L F I N A N C I A L A DV I S O R Y

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GLOBAL ISLAMIC FINANCE AWARDS 2019 A PRESTIGIOUS LABEL OF EXCELLENCE

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The prestigious 9th Global Islamic Finance Awards (GIFA) ceremony was held in the vibrant city of Cape Town, South Africa and attended by heads of state and government, ministers, ambassadors and Islamic financial fraternity from around the world. The distinguished guests included H.E. Pravin Gordhan, Minister of Public Enterprises, The Republic of South Africa; H.E. David Maynier, Provincial Minister of Economic Opportunities; H.E. Kanat K. Tumysh, Ambassador of the Republic of Kazakhstan; H.E. Professor Humayon Dar, Chairman of Global Islamic Finance Awards; H.E. Shahid Malik, Co-Chairman of the GIFA Awards Committee; Mr. Suliman Noor, President, World Memon Organisation; Mr. Yaseen Vally, CEO of IAV Group of companies; Amman Muhammad, Tim Harris, Chief Executive Officer of Wesgro and Sheikh Khalid Abdullah Al Khalili, Chairman of Bank Nizwa. The awards ceremony and gala dinner, which was held on September 16, was attended by more than 300 guests from all over the world and hosted by Wesgro, the Official Tourism, Trade & Investment Promotion Agency for Cape Town and the Western Cape.

Founded in 2011 by Edbiz Corporation as part of its advocacy for Islamic banking and finance, GIFA has since established itself as the most prestigious Islamic finance awards programme in the world. In his welcome address, Professor Humayon Dar, Chairman of the Global Islamic Finance Awards (GIFA) said “When we started Global Islamic Finance Awards in 2011, we knew that it wasn’t just another awards programme but a movement that focused on promoting commitment to Islamic finance, Shari’a authenticity in product development and structuring and awareness of social responsibility and community development by Islamic banking and finance.” He added that when an individual or institution receives a GIFA, it is an expression of this commitment. “We are proud of the fact that by way of honouring the top political leaderships in a number of countries, we have actually contributed to the development of Islamic banking and finance in those countries,” stressed Professor Humayon Dar.

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GIFA Laureate 2019 His Excellency Matamela Cyril Ramaphosa President of the Republic of South Africa

(the award was received on his behalf by the Minister of Public Enterprises) A total of 63 awards were presented to Islamic financial institutions and individuals coming from 20 countries of the world during the awards ceremony with the top award – GIFA Leadership Award bestowed to His Excellency Matamela Cyril Ramaphosa, President of the Republic of South Africa and making him the 9th GIFA Laureate. This is in recognition of South Africa’s pioneering role in developing Islamic finance in the African region and the support of the successive governments to provide a level-playing field to Islamic banking and finance. The GIFA Leadership Award is given to heads of state or government (or equivalent) for their leadership and advocacy roles in promoting Islamic banking and finance in their respective jurisdictions or globally. Previous GIFA Laureates have included notable personalities such as Tun Abdullah Badawi, former Prime Minister of Malaysia (2011); His Royal Highness Sultan Nazrin Shah, Sultan of Perak, Malaysia (2012); Shaukat Aziz, former Prime Minister of Pakistan (2013); Muhammandu Sanusi II, Emir of Kano, Nigeria (2015); Joko Widodo, President of Indonesia (2016); Ismail Omar Guilleh, President of Djibouti (2017); and Bakir Izetbegovic, Chairman of the Council of Presidency of the Republic of Bosnia-Herzegovina (2018). At the institutional level, Astana International Financial Centre (AIFC), an emerging leading regional financial hub, was announced as the recipient of the Global Islamic Finance Leadership Award (Institutional) 2019. This year, 6 winners of the GIFA Market Leadership Awards were announced. These awards are presented to institutions and individuals who are movers and shakers in their respective fields. Zitouna Tamkeen was named recipient of the GIFA Market Leadership Award (Islamic Microfinance) 2019. Zitouna was founded in 2016 to promote the financial and economic inclusion of Tunisia’s youth and disadvantaged populations, Zitouna Tamkeen, through an innovative approach, is committed to offering financial and non-financial services to promote the development of projects offering major socio-economic impact, especially in the marginalised regions of Tunisia.

Global Islamic Finance Leadership Award (Institutional) 2019 Astana International Financial Centre (AIFC)

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Moody’s Investors Service took home the GIFA Market Leadership Award (Islamic Financial Intelligence & Ratings) 2019 for the 2nd year in a row. The same award was bestowed to them in 2016. In commenting on the win, Mr. Henry MacNevin, Associate Managing Director, Financial Institutions Group, Moody’s Investors Service; said “Islamic finance has seen strong growth over the past 10 years. While the extent of this varies from year to year Moody’s sees significant potential for further growth in the near future, across a wide range of markets.” W W W. I S F I R E . N E T

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GIFA Market Leadership Award (Islamic Microfinance) 2019 Zitouna Tamkeen

GIFA Market Leadership Award (Islamic Financial Intelligence & Ratings) 2019 Moody’s Investors Service

Other winners were International Turnkey Systems Group (ITS) for GIFA Market Leadership Award (Islamic Financial Technology) 2019; Alinma Bank for GIFA Market Leadership Award (Islamic Banking) 2019; and Faculty of Islamic Economics and Finance, Universiti Islam Sultan Sharif Ali (UNISSA) Brunei Darussalam for GIFA Market Leadership Award (Education in Islamic Banking & Finance) 2019.

“It is an honour to be recognised by GIFA, and to receive this award amidst so many other noteworthy accomplishments made by institutions within the Islamic finance industry over the past year. Our collective commitment to the idea of Islamic finance drives us to do better and to be better in service of this cause; and I remain optimistic for the future of the industry. However, it is my firm belief that Islamic finance needs to be felt at all levels of financial dealings. Islamic finance is not just an exercise in ideas; and Alinma Bank remains fully engaged and committed to putting theory into practice, showing the public the promise of Islamic finance through actual products and services that impact lives,” commented Mr. Abdulmohsen Al-Fares, CEO, Alinma Bank.

GIFA Market Leadership Award (Islamic Financial Technology) 2019 International Turnkey Systems Group

GIFA Market Leadership Award (Islamic Banking) 2019 Alinma Bank

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GIFA Market Leadership Award (Facilitation & Support) 2019 DDCAP Group™

GIFA Championship Award (Islamic Financial Ratings) 2019 S&P Global Ratings

DDCAP Group took home 2 awards of the night - GIFA Market Leadership Award (Facilitation & Support) 2019 and Best Islamic Finance Technology Product 2019 for ETHOS AFP™. DDCAP’s multi-award winning Asset Facilitation Technology Platform, ETHOS AFPTM, is a bespoke real-time trading platform with 24hour coverage and full Straight Through Processing (“STP”) functionality, enabling clients worldwide to purchase commodities and other assets via a secure, web-based portal as an alternative to traditional transactional processes.

Recipients of the GIFA Championship Awards, which are presented to the most outstanding and exceptional organisations and individuals in Islamic banking and finance, were S&P Global Ratings (GIFA Championship Award in Islamic Financial Ratings 2019); Kuveyt Türk Participation Bank (Championship Award in Islamic Wealth Management 2019); Principal Islamic Asset Management Sdn Bhd (GIFA Championship Award in Islamic Asset Management 2019); Malaysian Financial Planning Council or MFPC (GIFA Championship Award in Advocacy 2019) and Oasis Crescent Capital (Pty) Ltd. (GIFA Advocacy Award in Islamic Asset Management 2019).

The growth of takaful industry assets has shown a positive trend in recent years, although its contribution is very less but the global takaful industry has great potential to grow as a huge number of populations is yet untapped. This year Bryte Takaful was presented the Best Emerging Brand in Takaful award 2019, for its commitment to developing innovative and inclusive products for the disadvantaged South African community; while Prudential BSN Takaful Berhad won the Best Family Takaful Award of the Year 2019, for their commitment to the takaful industry and their continued efforts for the betterment of the social and economic status of the Malaysians.

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Best Islamic Leasing Fund 2019 Aircraft Leasing Islamic Fund (ALIF)

Best Islamic Bank for Transformation & Strategy 2019 Noor Bank

The award for the Best Lead Manager for Sukuk 2019 this year was conferred to Gulf International Bank, (GIB) Saudi Arabia, which is the first foreign domiciled bank to establish a local commercial bank in the Kingdom. The Best Islamic Leasing Fund 2019 was presented to Aircraft Leasing Islamic Fund (ALIF). This is the third consecutive year that ALIF has received GIFA awards after the “Best Islamic Fund” award in 2017 and 2018. Siraj Finance PJSC was named the Best Non-Bank Islamic Financial Institution of the Year 2019.

This year the award for the Best Islamic Bank 2019 was conferred to Emirate Islamic for their outstanding performance in the IBF sector. Noor Bank, a full-service Shari’a-compliant bank was the recipient of this year’s Best Islamic Bank for Transformation & Strategy 2019. Bank of Khartoum was named the Most Innovative Islamic Bank 2019 by the GIFA awards committee, for its Shari’a-compliant products and services and Islamic microfinance. Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) won the Best Islamic Finance Infrastructure Development Institution 2019 for the comprehensive approach it has adopted to promote, advocate and govern Islamic banking and finance.

The Shari’a Authenticity Award 2019 went to Meezan Bank Limited. In terms of infrastructure and assets, the bank is the 7th largest in Pakistan. To ensure that all bank initiatives and products are Shari’a-compliant, the bank has a dedicated Shari’a department comprising of internationally renowned scholars. Meezan Bank bagged two more awards that night, i.e., the GIFA Special Award for its Shari’a Advisory Role and the Shari’a Auditor of The Year 2019.

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OTHER NOTABLE WINNERS WERE

GIFA Excellence Award (Islamic Finance Training & Education) 2019 Centre For Islamic Banking, Finance And Management (CIBFM)

Islamic Finance Advocacy Award (Capital Markets) 2019 Cagamas Berhad

Best Islamic Bank for Transformation & Strategy 2019 Noor Bank

Best Islamic Bank for SME Banking 2019 BTPN Syariah

Best Islamic Banking Window 2019 FNB Islamic Banking

GIFA Human Capital Development Award 2019 Bank Nizwa

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GIFA Investors in Society Award 2019 Bank Nizwa

Best Islamic Finance Solutions Provider 2019 Silverlake Axis

Best Islamic Finance Law Firm 2019 Clyde & Co LLP

GIFA Humanitarian Award 2019 BAZNAS (Badan Amil Zakat Nasional)

Best Zakat Distribution Programme 2019 BAZNAS (Badan Amil Zakat Nasional)

Best Islamic Finance Qualification 2019 Bachelor of Business Administration (Hons.) Islamic Banking

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Best Shari’a Compliant Commodity Broker 2019 Eiger Trading Advisors Ltd.

Best Islamic Balanced Fund 2019 Old Mutual Albaraka Balanced Fund

Best Islamic Fund Manager 2019 Oasis Global Management Company (Ireland) Ltd.

Best Islamic Rating Agency 2019 Malaysian Rating Corporation Berhad (MARC)

GIFA Critics’ Choice Award (Islamic Asset Management) 2019 Sentio Capital Management

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The 9th GIFA also honoured a number of individuals who have been instrumental to the development of Islamic REPORT banking and finance in their respective countries as well as in the international arena. They were:

GIFA Lifetime Achievement Award 2019 Professor Dr. Normah Omar

GIFA CEO of the Year 2019 Mohammed Ibraheem Khan

Best Emerging Leader in Islamic Finance 2019 Kashif Mohammed Naeem

GIFA Special Award (Leadership Role) 2019 Charles Haresnape

GIFA Special Award (Promotion of Islamic Economics and Finance in Academia) 2019 Dr. Hussain Mohi-ud-Din Qadri

Upcoming Personality in Global Islamic Finance (Risk Management) 2019 Anita Menon

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NOTABLE INDIVIDUAL GIFA WINNERS INCLUDE:

•

Minhaj University Lahore for GIFA Excellence Award for Islamic Research & Development 2019.

•

AIM Solutions Group Berhad for GIFA Best Micropayments and Digital Technology Award 2019.

•

Amanah Ikhtiar Malaysia for Best Islamic Microfinance Institution 2019.

•

BNP Paribas Asset Management Malaysia Sdn. Bhd. For Best ESG Investor 2019.

•

Path Solutions for Best Islamic Finance Technology Provider 2019.

•

Almarai Company for Best Global Sukuk Programme of the Year 2019.

•

Shariah Registered Financial Planner (Shariah RFP) for Best Islamic Wealth Management Qualification 2019.

•

AmInvestment Bank Berhad for Best Islamic Project Finance House 2019.

•

PayHalal for Best Islamic FinTech Programme 2019.

•

MUFG Bank, Ltd. for Best Wholesale Islamic Banking Award 2019.

•

John Iossifidis, CEO of Noor Bank - GIFA Transformation Leader Award 2019.

•

Sheikh Dr. Khalid Bin Thani Bin Abdullah Al Thani – Islamic Finance Personality of the Year 2019.

•

Eqhwan Mokhzanee – Islamic Banker of the Year 2019.

•

Stefano P. Bertamini - GIFA Most Outstanding Leader in Islamic Finance 2019.

Commenting on the Awards Ceremony, Professor Humayon Dar said: “We are delighted to see so many luminaries and proponents of Islamic finance here with us this evening as well as a large number of foreign guests from so many different parts of the world. Their attendance tonight reflects not only the significance of this prestigious GIFA Award but also the universality and diversity of Islamic finance today.” As for the choice of Cape Town to host the 9th Global Islamic Finance Awards is strategic, Professor Humayon Dar commented that “The GIFA Awards Committee decided in favour of Cape Town because we believe that Islamic banking and finance in the African continent can best be promoted through South Africa. The burgeoning Islamic asset management industry in Cape Town has global relevance.”

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Published by:

Global Islamic Finance Report (GIFR) 2020 All GIFR editions revolve around a specific theme. The theme for the 2020 edition is “Islamic Social Finance”. While social finance is emerging as a global phenomenon, Islamic Social Finance lends a fresh perspective to the trend. Community or Social welfare is at the core of Islamic Shari’a and this issue of GIFR explores how the trend is unfolding in real-time. GIFR 2020 will shed light on social finance topics such as microfinance, philanthropy, grants, social enterprises, and sustainable businesses among others. Aiming to continue as an industry building initiative and enhancing the quality and authenticity of information and analysis provided, GIFR 2020 is expected to scale new heights in terms of audience, reach, and content.

Previous GIFR Issues

+44 (0) 207 078 7297 W W W. I S F I R E . N E T

gifr@cambridge-ifa.net |

www.gifr.net

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INDONESIA WINS THE RACE TO BECOME LEADER IN ISLAMIC FINANCE GLOBAL ISLAMIC FINANCE REPORT 2019 Dubbed as the rising star in Islamic finance, Indonesia has now asserted a leadership role in the world of Islamic finance. As the fourth most populous country in the world with the biggest Muslim nation; coupled with favourable demographics, transition to a middleincome country and unwavering support from the government; Indonesia is now the number 1 Islamic financial market in the world as ranked by Islamic Finance Country Index (IFCI) 2019. The IFCI is the oldest index for ranking different countries with respect to the state of Islamic banking and finance and their leadership role in the industry on a national level and benchmarked internationally. The Index was first published in the Global Islamic Finance Report (GIFR) 2011, which is the oldest yearbook in Islamic finance, and is now regarded as the gold standard for intelligence in Islamic finance. Indonesiaâ&#x20AC;&#x2122;s huge leap from number 6 in 2018 to pole position this year on IFCI 2019, makes Indonesia the top ranked country in terms of its leadership and potential in global Islamic banking and finance. With Indonesia taking the leadership position as the most influential country in the global Islamic finance industry, Malaysia is now placed 2nd on the IFCI 2019 rank, followed by Iran at number 3 (see Table for the Top 10 Islamic financial markets).

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Table: Top 10 Islamic Financial Markets in the World Rank

Country

Indonesia

Malaysia

Iran

Saudi Arabia

Sudan

Brunei Darussalam

United Arab Emirates

Bangladesh

Kuwait

Pakistan

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THE GIFR 2019 ESTIMATES THAT THE GLOBAL SIZE OF ISLAMIC BANKING AND FINANCE (IBF) STOOD AT US$2.6 TRILLION AT THE END OF 2018 FROM US$2.4 TRILLION AT THE END OF 2017. Several factors led to its elevation to the top rank including regulatory developments with improved ecosystem for Islamic banking and finance, strong political support from the government and the huge potential that Islamic economy offers.

STATE OF THE GLOBAL ISLAMIC INDUSTRY Islamic finance as an industry, has been witnessing substantial growth in the past decade, but its growth rate had steadily declined since 2013 from 11.16% to 6.02% in 2017. After five years of declining trend, the industry has once again picked up to register annual growth in assets of 6.58% during 2018. The GIFR 2019 estimates that the global size of Islamic banking and finance (IBF) stood at US$2.6 trillion at the end of 2018 from US$2.4 trillion at the end of 2017. In dollar terms, there was a net increase of US$160 billion in the global stock of Islamic financial assets. As reported in previous GIFRs (2016 and 2018), the slowdown in growth was attributed to several factors such as historically low oil prices, a natural slowdown in IBF due to maturity of the industry and political conflicts in a number of Muslim countries. However, structural issues and stifled innovations have also contributed to this phenomenon. In some of the

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vibrant markets for IBF, Islamic financial institutions have fast exhausted the captive Shariâ&#x20AC;&#x2122;a-sensitive market (those who patronise Islamic financial services purely for religious reasons) that they have relied on to remain profitable. The report also recorded a growing gulf between the potential and actual size of the global Islamic financial services industry as the gap has now more than doubled. With the potential size of US$9.4 trillion against US$2.6 trillion, the catchup time required for the industry to realise its potential is ever-increasing from an estimated 17 years (as reported in GIFR 2014) to well beyond 40 years at the present state of the industry. With the growth in Islamic banking and finance declining year-on-year, a fresh solution is required with emphasis on the adoption of new business models that will ensure sustainable growth. This is expected to come in the form of Islamic financial technology (Fintech), which can provide the means in boosting interest in Islamic finance and in increasing its accessibility to the wider Muslim world. Another area that Islamic finance can tap into for future growth is Islamic social finance. These are amongst some of the factors that have elevated Indonesiaâ&#x20AC;&#x2122;s ranking as a leader in the global Islamic finance market.

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HOW INDONESIA IS LEADING THE GLOBAL ISLAMIC FINANCIAL MARKET The new wave of development, backed by strong political support, lends consideration to the building of a robust legal and regulatory framework for the development of a comprehensive Islamic finance ecosystem in Indonesia. For example, the government of Indonesia has established the National Islamic Finance Committee known as KNKS, which is mandated to lead, coordinate and synergise the efforts of all stakeholders within the Islamic economy. Given the important role that the committee plays, KNKS is directly chaired by His Excellency President Joko Widodo himself. The establishment of KNKS is evident of the strong commitment from the government to support Islamic finance advancement. In another development that showcased the strong political support from the government was the launch of the Indonesian Islamic Economy Masterplan 2019-2024 by the National Development Planning Agency or BAPPENAS and KNKS. The masterplan recommends four strategic steps for the development of the Islamic economy in the country, with the goal of elevating Indonesia’s leadership role as a major producer in the global halal industry by 2024. The formation of Badan Pengelola Keuangan Haji

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(BPKH) or Hajj Financial Management Board is viewed as a boon for Shari’a investments and considered as the growth driver to propel Islamic fi-nance in Indonesia to its next stage of growth. The establishment of BPKH is expected to create tectonic shifts across the capital markets as BPKH primes itself to become the world’s largest Hajj fund manager within the next decade. BPKH, which manages about IDR100 trillion (US$6.57 billion), is now mandated to invest 50% of this outside of the banking industry. Indonesia has in placed a robust Islamic finance regulatory ecosystem. The ecosystem for Islamic banking and finance has improved significantly in the country. Halal tourism, zakat collection and distribution, waqf, sukuk and related regulatory framework are just a few examples of the impressive recent track record of Indonesia in Islamic finance. Regulatory developments in the field of Islamic banking and finance have also greatly helped the country in becoming the top Islamic finance market. Financial Services Authority (Otoritas Jasa Keuangan or OJK) has announced various new regulations, including on sukuk, fintech, takaful and asset management. Both regulators — OJK and Bank Indonesia, have closely worked to create a levelplaying field for Islamic banking and finance in the country.

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The digitisation of Islamic banking in the country has borne witness to significant progress. For example, the government has announced plans to digitise the traditional sadaqah donation system used by mosques, and develop a digital platform for zakat and waqf payments to help Islamic finance cooperatives better manage and distribute funds. In this space, KNKS plans to connect the mosque sadaqah database to a new zakat and waqf platform it is developing to better manage and distribute Islamic social finance funds. The planned zakat and waqf databases will be integrated into the management of Islamic financial cooperatives, or the Baitul Maal wat Tamwil (BMT). These initiatives, once implemented fully, are expected to boost the market share of Islamic banking in the country. Jakarta is also leading the world in the issuance of sovereign Green Sukuk. In February 2019, Indonesia returned to the global sukuk market when it raised US$2 billion through a dual tranche Global Green Sukuk and a regular Global Sukuk. The two sukuk issuances comprised of US$750 million Global Green Sukuk with a tenor of 5.5 years maturing on 20 August 2024, and a US$1.25 billion regular Global Sukuk with a tenor of 10 years maturing on 20 February 2029, respectively. Islamic social finance has seen expansion and significant development in recent years. The Indonesian government introduced sukuk waqf, a facility linked to Islamic endowments, which will return funds to donors upon maturity but reinvest the proceeds to manage waqf assets. This follows the release of the Waqf Core Principles, a joint work of the Indonesian government with Islamic Research and Training Institute (IRTI), the research arm of the Islamic Development Bank (IsDB), providing clarity and guidance on how Islamic endowments should be managed and how they can be utilised to meet public needs. Similarly, launch of the Zakat Core Principles are a starting point for the frameworks and standards of the best practices of zakat-based governance. These two core principles are Indonesiaâ&#x20AC;&#x2122;s contribution to the development of Islamic social finance and better zakat and waqf regulation standards in the world. One of the main variables in IFCI is the presence of an educational environment conducive to the operations of Islamic banking and financial institutions. In the areas of education, various initiatives have been implemented and planned to strengthen research and education related to Islamic finance and economy, in particular, integrating them with the requirements of the industry. The recent announcement on the establishment of the Indonesian Network for Islamic

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Economic Studies (INIES) by KNKS is indeed commendable. Aimed at streamlining research efforts and boosting their relevance to policymakers and other industry stakeholders, the centre will facilitate links and synergies between existing research centres and the government, regulators, as well as market players. Qualified and competent human resources remains vital to Indonesia in cementing its leadership role within the global Islamic finance community. In this regard, the quality assurance and standardisation of Islamic finance curriculum is critical for industry growth. Realising this importance, KNKS has formed a working group committee comprising representatives from 10 universities across the country to develop a standardised curriculum in Islamic economy. This initiative signifies a positive development for future growth in the countryâ&#x20AC;&#x2122;s Islamic finance industry as lack of standardised curriculum and education in Islamic finance present in many countries has resulted in a mismatch between the graduates produced and the skills required by the industry. Such initiative by KNKS is the right step in the right direction in the development of skilled and sustainable talent for the industry.

RETAINING LEADERSHIP Indonesia faces tough competition from Malaysia and Iran (and to some extent from Saudi Arabia) to retain its leadership position in Islamic banking and finance. In particular, neighbouring Malaysia has remained a very competitive market for Islamic finance. Indonesia, however, is arguably the best market for Islamic social finance in the world. Developing a global Centre of Excellence for Islamic social finance is something where no other country will be able to compete with Indonesia. Setting up something like Jakarta Islamic Financial Centre, developed around the concepts of Dubai International Financial Centre, Astana International Financial Centre and Qatar Financial Centre; may also help Indonesia cement its leadership position in the world of Islamic finance. The proposed Islamic Financial Centre for Indonesia may very well be incorporated in the development plans of the new capital city to be built in Kalimantan. But the key is to retain the momentum of all the good things Indonesia has initiated, which should ensure that Indonesia continues to rise in the global Islamic financial services industry.

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TA L K I N G P O I N T S

TALKING POINTS

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TA L K I N G P O I N T S

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TA L K I N G P O I N T S

ISFIRE PERSONALITY

ADIL HUSSAIN Partner and Global Head of Islamic Finance at Clyde & Co

Adil Hussain, Partner and Global Head of Islamic Finance at Clyde & Co, is the ISFIRE Personality of the December issue. He is an accomplished lawyer with wide-ranging experience of structuring Islamic financial transactions. Clyde & Co was the proud winner of the Best Law Firm in Islamic Finance for the Year 2019 at the recently held 9th Global Islamic Finance Awards held in Cape Town, South Africa. In this brief interview, we ask him some personal and Islamic finance related questions.

PLEASE SHARE WITH OUR READERS HOW DID YOU GET INVOLVED IN ISLAMIC FINANCE. My route into Islamic finance was slightly unconventional, although in recent years I have seen many other lawyers take a similar path. I actually qualified into the real estate department of a City law firm and had no knowledge about the Islamic finance world. I first discovered Islamic finance two-years post qualification when I was required to assist with conveyancing work where the purchaser was taking out an Islamic mortgage. I was immediately fascinated by the structure, documentation and the Islamic finance sector as a whole. Discovering Islamic finance came at the perfect time for me, as I was losing interest in the real estate work that I was doing at the time. I decided to apply for junior Islamic finance roles, which all happened to be in the Middle East. At the time, I thought that it was going to be impossible for me to find a suitable

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I S F I R E P E R S O NA L I T Y

role, as each position advertised required prior Islamic finance experience and my experience was limited. However, perseverance paid off and I was eventually offered an Islamic finance associate role in Bahrain at a leading international law firm.

IF YOUR 18-YEAR-OLD SELF FINDS YOU DOING WHAT YOU ARE DOING NOW PROFESSIONALLY, WHAT WOULD HAVE BEEN HIS REACTION? Wow, this is a difficult question. I am not quite sure if I can remember what I was like at 18. It was so long ago! However, I was not in a good place. My mother, who was only in her early forties, had just suffered a severe stroke, and I had decided not to take my A levels that year. I wanted to spend as much time as possible with her and to assist in her recovery. With this context in mind, I hope the 18-year-old Adil, would also be as grateful as I am

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today, for all that I have been blessed with. Back then, I wasn’t even sure whether I would be able to sit my A levels the following year, let alone go on to pursue a career in law.

YOU ARE A SUCCESSFUL PROFESSIONAL. WHAT FACTORS (PERSONAL, FAMILY, EDUCATION, MENTORS, ETC.) HAVE CONTRIBUTED TO YOUR SUCCESS? First of all, Alhumdulilah (all praise is to God). I firmly believe that, as individuals, all we can do is try our best and put in as much effort as possible. Whether we succeed or not (success being relative to our own circumstances), this is from God. This belief and strength in faith has enabled me to enjoy the professional success that I have been gifted with and also deal with setbacks. There have been many other factors that have contributed to my professional success. Not sure I would be where I am today without the prayers of my parents and the understanding of my wife and children. In order to achieve success, you have to sacrifice and your family sacrifices just as much, if not more. I have an incredibly supportive family who understand how passionate I am about my work and allows me to focus one hundred and ten per cent on it.

IF YOU ARE GIVEN ONE WEEK TO FIX PROBLEMS WITH ISLAMIC FINANCE, WHAT WOULD BE ON YOUR TO-DO LIST? 1. Implement all regulatory, tax and legal changes required across the globe to create a level playing field for Islamic finance to flourish; 2. Increase awareness of Islamic finance (at grassroots level) across the Muslim world in particular as a viable alternative to conventional finance; 3. Create a global Islamic leadership committee comprising of elected representatives of Shari’a scholars, bankers, lawyers, economists, academics and government officials to drive the global Islamic finance agenda.

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WHO SHOULD LEAD THE GLOBAL ISLAMIC FINANCE AGENDA? As alluded to above, it has to be a combination of Shari’a scholars, banking and legal practitioners, academicians, economists and governments. All stakeholders must be represented and should work together in order to develop substance based Islamic finance products and create an equal playing field globally for Islamic finance to flourish even further.

QUALIFICATION OR EXPERIENCE, WHAT IS MORE IMPORTANT FOR A SUCCESSFUL CAREER IN ISLAMIC FINANCE? Both are important but as a lawyer, I would say experience. There are some things that you just cannot learn from books.

WHERE WOULD ADIL HUSSAIN BE AT AGE 65? God willing, I hope that I will be passing down some of my experiences and knowledge through teaching or coaching students, junior lawyers, or other Islamic finance practitioners. Also, I hope to travel across the globe doing charity work.

WHO IS MORE IMPORTANT FOR SUCCESS: FAMILY, FRIENDS OR PROFESSIONAL COLLEAGUES? I cannot underplay the importance of the contribution that professional colleagues play towards the success of an individual. I have been blessed to have worked with some truly outstanding professionals and team players. In a funny sort of way, your professional colleagues become your family too. So “family” in this broader sense has to be more important.

ISLAMIC FINANCE IS A SHAM. WHAT DO YOU SAY TO THESE CRITICS? Islamic finance is not perfect, but calling it a sham is disrespectful to all those scholars, market participants including end-users who genuinely believe that Islamic finance is a better alternative to conventional finance.

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POINT OF VIEW

HOW NOT TO GIVE

FEEDBACK DR. SOFIZA AZMI

“The staff is saying you are always insulting them,” said Hendry to Shaun. This is not the first time Shaun has heard such remarks from his CEO and he knows it won’t be the last as well. “Don’t get me wrong,” Hendry explained. “I’m just telling you what your team is saying about you.” “Thanks for the feedback Hendry, but could you be more specific as to a situation that I was said to have insulted them or what were the words I used that made them feel insulted,” asked Shaun. Hendry pondered for a while. “I don’t have the specifics. They didn’t say and I didn’t ask”. “Look Shaun,” continued Hendry. “This is what your team has told me and this is what I am telling you right now”. In fact, they say you take donkey years to review and sign off any document they submit. They also say you create problems than solutions.” Shaun felt offended. He had always valued feedback but he felt that Hendry wasn’t giving him the opportunity to clarify as Shaun believed that the feedback he received was rather vague. Feedback is an integral tool for communication and facilitates productivity of a team. Giving feedback to your colleagues and employees provides them with an observer’s insight into how their performance is progressing. But when giving feedbacks, more often than not we find that we don’t get the results that we are hoping for. The first thing to realise is that people generally respond more strongly to negative events than positive ones. In this situation Hendry was right in giving his feedback to Shaun, but the problem was that it was not specific enough to allow Shaun to work on improvements. In fact it was too ambiguous and had left the door wide open for his feedbacks to be interpreted in a lot of personal ways. Hendry’s case is not unique. Most of us don’t know how

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to give effective feedback. Truth to be told, we are just as bad at accepting feedback as giving them. Bad feedback is not only ineffective but can be destructive. However, giving good feedback depends upon our ability to effectively and constructively present our opinions to others. Feedback is more than a routine part of working life; it’s a form of art. When giving feedback, especially a negative one, it should be reminded that people generally respond better to specific feedback. Don’t beat around the bush. Specific feedback is important to avoid any misinterpretation. In this case, Hendry told Shaun that he insulted his team members. But what does that exactly mean? Was Shaun abusive, rude or made some offensive remarks? Opinions or remarks are not always positive, but that does not mean they are insults. Many times, negative comments have constructive criticism behind them yet the person receiving them feels like they have been personally attacked and insulted. When providing feedback to Shaun, Hendry should avoid any general comments that may be of limited use to Shaun. Instead Hendry should be more specific in his comments by giving real and recent examples of a situation(s) when Shaun was being insulting. By doing this, Hendry is giving Shaun a much better chance of improving the way he communicates with his team. Also citing a specific behaviour that was observed allows the receiver to place your feedback in context, making it more understandable and therefore more likely to be acted upon. If you are passing feedback from one person to another (as in the case of Hendry) make sure that you have enough information to make it meaningful and accurate.

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When providing feedback, get the wording and delivery right. The right words can have a positive effect on the receiver. But the wrong choice of words can make feedback come across as more negative and less supportive than intended. In the earlier conversation Hendry had with Shaun, he used the expression â&#x20AC;&#x153;donkey yearsâ&#x20AC;? to describe the length of time it took Shaun to review documents submitted by his team members. Again this was a general comment with no specific details shared. Prior to delivering feedback, we rarely plan exactly what we want to say and how we want to say. The words we choose to use are important. Not only that, but your tone and delivery of the feedback can also have a huge impact on how feedback is received. Without good, quality feedback, team members and organisations are not in sync and are not performing at their best. Honest, constructive, specific, actionable, and timely feedback is the only way to go if you want to drive outstanding results.

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GLOBAL ISLAMIC FINANCE INDUSTRY RECORDED A 6.58% GROWTH IN 2018 TO REGISTER US$2.6 TRILLION IN GLOBAL ASSETS

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“Islamic finance as an industry has been witnessing substantial growth in the past decade, but its growth rate has steadily declined since 2013 from 11.16% to 6.02% in 2017. After five years of declining trend, the industry has once again picked up to register annual growth in assets of 6.58% during 2018.” Professor Humayon Dar

According to the 10th Global Islamic Finance Report (GIFR) 2019, the estimated figure for the global Islamic financial industry at the end of 2018 was US$2.6 trillion after recording a growth of 6.58%. “Islamic finance as an industry has been witnessing substantial growth in the past decade, but its growth rate has steadily declined since 2013 from 11.16% to 6.02% in 2017. After five years of declining trend, the industry has once again picked up to register annual growth in assets of 6.58% during 2018,” explained Professor Humayon Dar, Director General of Cambridge Institute of Islamic Finance and Founder of GIFR. The report also recorded a growing gulf between potential and actual size of the global Islamic financial services industry as the gap has now more than doubled. With the potential size of US$9.4 trillion against US$2.6 trillion, the catch-up time required for the industry to realise its potential is ever-increasing from an estimated 17 years (as reported in GIFR 2014) to well beyond 40 years at the present state of the industry. Professor Humayon Dar presented the findings of the report at the launching ceremony of GIFR 2019 on October 17, 2019 in Jakarta, Indonesia. The GIFR 2019 was launched by Professor Bambang Brodjonegoro, Minister of National Development Planning of Indonesia (BAPPENAS) − in an event organised by the National Islamic Finance Committee (KNKS) and hosted by BAPPENAS. The event was attended by more than 300 distinguished government representatives, policy makers and industry players. GIFR, the oldest yearbook in Islamic banking and finance, was first published in 2010 and is recognised as the most authentic source of market intelligence for the global Islamic financial industry. The report is published by Cambridge Institute of Islamic Finance (Cambridge-IIF) and produced by Cambridge IFA. “With the growth in Islamic banking and finance declining year-on-year, a fresh solution is required with emphasis on the adoption of new business models that will ensure sustainable growth. This is expected to come in the form of Islamic financial technology (Fintech), which can provide the means in boosting interest in Islamic finance and increasing its accessibility to the wider Muslim world,” said Dr. Sofiza Azmi, Editor-in-Chief of GIFR 2019 and CEO of Cambridge IFA. The focus of GIFR 2019 is on “Artificial Intelligence and Innovation in Islamic Finance”. This theme was chosen to highlight the transformative potential of Artificial Intelligence (AI) in Islamic finance and how the industry can harness innovation to drive sustainable development. “The GIFR 2019 focuses on the opportunities, innovations and challenges, and possible policy measures to promote the adoption of AI,” added Dr. Sofiza Azmi.

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“With the growth in Islamic banking and finance declining year-on-year, a fresh solution is required with emphasis on the adoption of new business models that will ensure sustainable growth.” Dr. Sofiza Azmi The highlight of GIFR is the Islamic Finance Country Index or IFCI, which has been published annually in the report since 2011. As the oldest index for ranking different countries with respect to the state of Islamic banking and finance, IFCI was initiated with the aim to capture the growth of the industry and to provide an immediate assessment of the state of Islamic banking and finance in each country. During the launching ceremony, Professor Humayon Dar announced the latest IFCI ranking that ranked Indonesia number one on the IFCI 2019, with a score of 81.93. Thus, making Indonesia the top ranked country in terms of its leadership position and potential in global Islamic banking and finance. With Indonesia taking the leadership position as the most influential country in the global Islamic finance industry, Malaysia is now placed 2nd on the IFCI 2019 rank, followed by Iran at number 3 and Saudi Arabia and Sudan are at number 4 and 5, respectively. At number 6 is Brunei Darussalam, UAE is at number 7, Bangladesh at 8, Kuwait at 9 and Pakistan at number 10. Last year, Indonesia was ranked at 6th position in IFCI 2018. “Several factors led to its elevation to the top rank including regulatory developments with improved ecosystem for Islamic banking and finance, strong political support from the government and the huge potential that Islamic economy offers,” explained Professor Humayon Dar. Professor Humayon Dar shared several factors that had contributed to the jump in Indonesia’s ranking on IFCI 2019. “The new wave of development, backed by strong political support, lends consideration to the building of a robust legal and regulatory framework for the development of a comprehensive Islamic finance ecosystem in Indonesia,” he said. He cited the establishment of KNKS by President Joko Widodo, which is mandated to lead, coordinate and synergise the efforts of all stakeholders within the Islamic economy.

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POINT OF VIEW In another development that showcased the strong political support from the government was the launch of the Indonesian Islamic Economics Masterplan 2019-2024 by BAPPENAS and KNKS. The masterplan recommends four strategic steps for the development of the Islamic economy in the country, with the goal of elevating Indonesia’s leadership role as a major producer in the global halal industry by 2024. “Indonesia has in placed a robust Islamic finance regulatory ecosystem,” added Professor Humayon Dar. “The ecosystem for Islamic banking and finance has improved significantly in the country. Halal tourism, zakat collection and distribution, waqf sukuk and the related regulatory framework are just a few examples of the impressive recent track record of Indonesia in Islamic banking and finance.” In recent years, Islamic social finance in the country has seen expansion and significant development. The introduction of sukuk waqf and the release of the Waqf Core Principles by the government have already unlocked tremendous potential and offers a greater opportunity in bridging the financing gap to meet the UN’s Sustainable Development Goals. “The results of the GIFR 2019 further strengthen the real role of Indonesia in the Islamic financial banking industry, revealing several factors that have pushed Indonesia’s position to the top of the list. These include the development of regulations, strong political support from the government, and also the great potential offered by Islamic economy,” said Professor Bambang Brodjonegoro in his address. He further added that this is an acknowledgment of the joint efforts of all parties, including the government, market players, academics, and the community in realising the Indonesian Islamic Economic Master Plan (MEKSI). “All of these efforts and achievements require a strong and integrated commitment from stakeholders in realising Indonesia’s vision to become the world’s leading Shari’a economic centre,” explained Professor Bambang Brodjonegoro. The GIFR 2019 is supported by Bank Syariah Mandiri, Silverlake Group and DDCAP Group. Minhaj University Lahore serves as the Knowledge Partner and The Islamic Corporation for Development of the Private Sector (ICD), a member of the Islamic Development Bank Group, is the Multi-lateral Strategic Partner.

“With Indonesia taking the leadership position as the most influential country in the global Islamic finance industry, Malaysia is now placed 2nd on the IFCI 2019 rank.”

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PERSPECTIVES

MORAL CHALLENGES OF BUSINESSES TODAY Morality is one of the principles governing human lives. It is the compass that points us to our north, to the truth of life. Morality means doing something that benefits others, without losing regard for oneâ&#x20AC;&#x2122;s self and expecting anything in return. In the late 1970s, businesses started realising that they could benefit from lower costs of labour and environmental standards by shifting their operations to developing countries. The moral and social decay that resulted from the relentless pursuit of wealth brought the ethical conundrum to broad daylight, as they exploited the weak infrastructure and plentiful human resources. This lack of morality led to a rise in the discipline of

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business ethics. However, it was not as simple as theoretically explained. From an Islamic perspective, ethics should form the basis of any business activity. Islam encourages truthfulness and condemns exploitation in any form. Islam reinforces the idea that ethics and morality in business dealings is the key to a sustainable profitable growth rather than the other way around. We asked professionals their views on what is the most critical moral challenge that businesses face in this day and age.

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DR. MUHAMMAD IMAN SASTRA MIHAJAT

HEAD OF SHARIA – OMAN ARAB BANK The remarkable achievement of the global Islamic banking sector is likely to continue over the next five years. The rapid development of Islamic Banking Entities (IBEs) is not only getting applause from the stakeholders but also calls for a critical evaluation of the roles of major stakeholders in the industry. Since there are a number of people and nations embracing the Islamic financial system, stakeholders need to collectively address the ethical and moral issues to safeguard the integrity and viability of IBEs. The challenges faced by IBEs globally, in the next few years, lie in the area of lack of awareness about Islamic banking transactions and activities among the stakeholders, limited supply of qualified human capital, insufficient liquidity instruments in Islamic money market as well as ethical and moral challenges. These challenges need to be addressed collectively by the stakeholders of Islamic banking in order to achieve sustainable growth of the industry. Especially in the area of Shari’a major players in the IBEs need to incorporate Shari’a governance in their good corporate governance framework. All the products and services of IBEs are Shari’a-compliant as per the guidance and Fatwa of High Sharia Supervisory Authority (at the Central Bank level) and Sharia Supervisory Board (at the Bank level). Since majority of the contracts in Islamic banking and finance is trusteeship contract, such as Mudharabah, Musharakah, and Wakalah, therefore, the most critical

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moral and ethical challenge for businesses in our time is the untrustworthiness of the business partner. This issue has been elaborated by the Quran thousands of years ago and is still relevant today. Allah said in Surah Saad 24: “Many partners wrong one another, except those who believe and do righteous deeds— but these are few.” Therefore, in many cases when financee gets financing from the financier, they have an obligation to be transparent in business dealings including in financial statements, and protect their client’s data. Another challenge is that, the management and employees in Islamic banking and finance need to ensure minimum professional standards in the industry so that the objective of Shari’a can be realised. For the Shari’a governance tools such as the High Sharia Supervisory Authority, the Shariah Supervisory Board, and the Internal Shariah Management should have a minimum Shari’a professional degree from a reputable university as well as Shari’a (fiqh-muamalat) Certification from reputable institutions. Other elements such as CEO, Head of Islamic Banking, and element of Islamic Banking Entities should also be required to have minimum professional requirements such as Certificate of Islamic Banking Professional. As part of the IBEs economic responsibility, IBEs should provide provisions of their goods and services in order to earn profit, and distribute 2.5% from their net profit to charitable institutions.

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FOZIA AMANULLAH

CHIEF BUSINESS DEVELOPMENT OFFICER – ALLIANCE BANK BERHAD I think the lack of morality is prevalent in our everyday lives. In fact, there is plenty of it, and these practices affect the way we run our businesses. From the perspective of Islamic banking, the moral challenge we encounter today is probably the biggest stumbling block to the industry growth. Islamic banking should be about promoting the greater good (as per Maqasid al-Shari’a), which includes the manner in which we service our customers and recommend products that are in their best interest. It should not be fixated on making profit as it would inevitably results in the promotion of unethical trends in product development. As long as the bank measures success based on the year-on-year financial improvement achieved, there will constantly be conflicts within. Today however, there has been a shift in the way banks think about profitability and sustainability. Customer satisfaction seems to be the key in achieving loyalty and customer retention. Herein lays the biggest opportunity for Islamic banks to live up to its promise of adopting the Islamic moral framework. Banks should develop products that meet the needs of the customers, encourage the creation of job opportunities and eradicate poverty. These products can be part of the Sustainable Development Goals promoted by many institutions globally. Moving forward in this manner will allow us to catch up with the world on addressing sustainability and social problems.

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ESSAM AL-KHASHNAM

CHIEF EXECUTIVE OFFICER – ITS We are living in a data-first digitally interconnected world, so it is not surprising that Digital Ethics and Privacy is one of the top business trends for 2019. Customer expectations of an ever faster, personalised and seamless consumer experience have businesses fighting to achieve competitive advantage through gaining customer insights to create innovative products and services. However, businesses must be guided by an ethical and moral compass when it comes to data and customer privacy. Data ethics must be translated into sound business practices and sustainable data ethics codes into enforceable rules. Privacy by Design (PbD) or embedding privacy into the design of the product and not just as an ‘add on’ is also important. With the advent of revolutionary technologies such as Artificial Intelligence (AI), machine learning models, and connected Internet of Things (IoT), it is more important than ever to know where your information is and how it is being used in today’s digital generational shift.

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MAUREEN BADJOERI

CHIEF EXECUTIVE OFFICER â&#x20AC;&#x201C; TRUSTBANK AMANAH Morals and values are the guiding principles to organise and motivate group attitudes and actions in all areas of human lives, including businesses. Respecting morality and ethics in business could ensure sustainable economic growth in the medium and long term. We think that equitable distribution of wealth, real economy financing and the respect of the environment are the most critical moral challenges of our times. These are also fundamental ethical rules of Islamic finance. Trustbank Amanah as the first full-fledged primary Islamic bank in Suriname, the Caribbean and Latin America, focuses on sustainable financial growth through ethical banking. In Suriname, the business environment involves different cultures, where Muslims are only approximately 10% of the total population This requires a creative approach to vehicle a new way of banking. Aside from being an ethical bank, our strategy is to be universal and target the whole market with competitive and innovative products and services. Islamic banking is facing important challenges in applying moral and ethical rules enunciated in the Islamic law. For example, Islamic banking principles based on the profit sharing models are generally replaced by fixed return and capital guaranteed modes of financing due to some regulatory and profitability constraints. We think that research, innovation and courageous decisions, combined with dedicated regulatory framework, are required in order to guarantee more efficient implementation of the ethical principles in businesses.

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MOHAMMED IBRAHEEM KHAN

CHIEF EXECUTIVE OFFICER â&#x20AC;&#x201C; ONEGRAM I have been intrigued by the question posed in this piece and it has required self-reflection in order to truly be fair to the statement that follows. Moral conscience in business is something I believe is the hardest challenge that can face a startup all the way up to a global conglomerate. The challenge is to make profit, achieve growth and at the same time remain sustainable whilst being morally right, as deemed by the consumers. My personal interpretation of business morality is the ability to deliver on the promises and pledges that define our business existence. Whatever the business sector maybe delivering on, the product and services to be of the highest standard is perhaps the biggest test of our time. We live in an instant digital world that is transforming at a pace that puts all businesses at edge and with this digital transformation arise the challenges of delivery, cost and time. These factors can catch unprepared businesses off guard, which would then result in the moral dilemma of how do we compete, remain competitive, and keep pace? These questions usually result in either a cost-cutting lack-luster performance or investment in transformation. I believe evolution is the key for all businesses and evolving in a timely manner can eliminate the need for panic transformations, which can result in loss in business or credibility.

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ISSUES AND

CHALLENGES

OF MIXED

SYNDICATIONS

Loan syndication is the loan process involving multiple lenders in funding a single project. This usually happens when the borrower requires a loan that is too large for a single lender to provide or when the loan is outside the scope of a lenderâ&#x20AC;&#x2122;s risk exposure levels. Mixed syndications involve one syndication financing with two underlying structures, one is Islamic and the other conventional. The terms and conditions such as profit rates, security packages, payment intervals etc. for both the syndicates need to be the same. The legal documentation of such a transaction requires two sets of documentation, Islamic as well as conventional, albeit having the same terms and conditions.

SULEMAN MUHAMMAD ALI HEAD OF PRODUCTS AND SEGMENTS AT AN ISLAMIC BANK IN OMAN

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POINT OF VIEW A typical mixed syndicate transaction involves the following documentation set:

1. Common Terms Agreement: The Common Terms Agreement or CTA is signed by all parties of the syndicate that is, the Islamic financiers, the conventional financiers and the customers. It sets out common definitions to be used in both sets of documents. Detailed information of the terms and conditions of the financing is also included, but not limited to the security structure, the financing rate, covenants, the amount of financing, events of default, conditions precedent, terms of enforcement, etc. The purpose is to outline the transaction along with its details and various other legal documentation that will be executed pursuant to and subject to the terms of the CTA.

2. Transaction Documents: These include the documents, which are required to execute the actual financial transaction of the two structures in the syndicate. For instance, an Istisna cum Ijarah transaction under the Islamic structure and a loan transaction under the conventional structure will typically involve the following contracts: a)

Investment Agency Agreement

b) Istisna Agreement c)

Ijarah Mawsufa Fi al-Dhimmah Agreement

d) Purchase Undertaking The conventional structure will typically entail the following contracts: a)

4. Other documents: Other documents such as Security Trust Deed or Intercreditor agency agreement may be signed by all conventional and Islamic syndicate financiers depending on the requirements of the transaction. The purpose of such agreements is to appoint one agent bank, which shall deal with the customer in terms of communication, enforcement, receiving of payments, distributing payments to all financiers, termination, or act as the security trustee for upholding the security for the benefit of all participating banks.

Technical issues in Mixed Syndications The use of joint documentations, and terms and conditions in transactions involving mixed syndicated loans give rise to tricky issues, which needs to be resolved while entering into such transactions. i)

The use of CTA

The use of CTA has some major referencing issues given the basic Shari’a requirement of contracts that says, ‘two contracts cannot be executed within one contract’ or that ‘one contract cannot be made conditional to the other contract’. The CTA outlines the transactions including the terms and conditions under which each subsequent contract shall be executed and implemented. For instance, in case of an istisna structure, the CTA will mention the terms under which the asset is constructed through an Istisna agreement, its subsequent lease through the ijarah contract, and the use of Purchase Undertaking at the end of the term and in cases of events of default enforcement.

Syndicate Agency Agreement

b) Syndicate Term Loan Agreement

3. Security Documents: These are the documents signed between the financiers and the customer to create the security in favour of the financiers. These are one set of documents, executed by both conventional and syndicate financiers. Since the security is the same, the same set of security documents are signed by both types of syndicate financiers. Typically, the following types of agreements are signed for this purpose, a)

Mortgage Deed

b) Hypothecation Agreement c)

Lien

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The common understanding is that the CTA being in the form of an MOU or a general outline of terms covering all contracts does not cause the issue of ‘contracts in contracts’ on its own. However, the problem arises when all the subsequent agreements are executed as per the terms and conditions of the CTA in general as a whole. For instance, when the ijarah agreement is signed it refers to the terms of the CTA, which includes the enforcement clauses referring to the Purchase Undertaking requiring the customer to purchase the leased asset in case of an Event of Default or at maturity. This defeats the purpose of having a separate Purchase Undertaking from the lease agreement that was done originally to keep the lease contract and the sale contract separate at maturity and not conditional to one another, as is the case in conventional lease contracts. Does the Lease Agreement and the Purchase Undertaking referring to CTA results in the issue of ‘contracts in contract’? This depends on the language used to refer to the CTA. In some instances, as a solution, the reference is limited to particular sections of the CTA, which supposedly does not link it to other sections of the CTA and hence does not make the lease conditional to sale. However, in most syndicate transactions there is a general reference to the whole of the CTA. Whether this results in the issue of contracts in contract, or whether the restrictive referencing resolves this issue requires further review, research and collaboration between Shari’a scholars and law experts.

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ii)

Sharing of security

Under the above-mentioned mechanism of mixed syndications, Islamic banks have to share security with conventional banks and sign the same security documents. In most of the cases, the conventional security documents contain non-compliant clauses, for instance, liquidated damages, which would result in interest payments in case the customer does not settle on time. Hence, Islamic banks need to be extra cautious when executing such documentation. However, it can be resolved by carving out Islamic banks from such clauses or limiting these clauses for conventional syndicate partners only and making a separate charity clause for Islamic banks. This would still lead to Islamic banks signing an agreement, which is recording the client’s obligation to make interest payments. Hence, for this purpose as a wayout, scholars have suggested writing a disclaimer clause stating that ‘any mention of interest payments in this agreement does not relate to Islamic banks and such interest payment shall not be made to Islamic banks. iii) Cross Default Syndication agreements normally have cross-default clauses in the event of termination and default. This means that in the case that the customer defaults the payment of interest to a conventional bank in the syndicate, the whole syndicate facility will issue a notice of termination to terminate the

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facility and go for settlement or enforcement. This means that the Islamic syndicate partners would also have to terminate their part of the syndicate even though there may be no default by the client under the Islamic structure or documentation. Cancelling a Shari’a-compliant facility due to this reason does not seem appropriate. However, such issues have been allowed based on the necessity for the Islamic financial industry to grow to a point where they are able to arrange Islamic syndications on their own. iv) Underlying Assets as Shared Security The above two issues become more drastic when the underlying assets used for the Islamic structure are part of the security package. This means that the project assets, real estate, plants etc. owned and leased by Islamic banks under the Islamic syndicate structure are part of the mortgaged assets shared between the Islamic and conventional syndicate financiers. This would result in a scenario that in case of a default in the conventional part of the syndicate, Islamic banks would have to liquidate their owned leased assets as well to make the outstanding interest payments on the conventional facility, even though there may be no default on the Islamic part of the syndicate. The above issues are tolerated in mixed syndications to allow Islamic banks to grow and not reject an attractive financing opportunity with certain conditions. However, these issues should not be ignored and need to be tackled from an operational and Shari’a perspective. Ideally, Islamic syndication finance should not include any conventional bank because of various Shari’a issues, which are mentioned above. However, due to the small size of Islamic banks as compared to conventional banks in many jurisdictions, it is not possible for Islamic banks to make syndication of a group of Islamic banks to carry out the funding on their own. Deciding not to finance would mean losing an opportunity to fund an attractive project and hampering the overall growth of Islamic banking. As a solution, Islamic banks have the option to involve conventional banks in such syndications while ensuring that the underlying transaction involves an Islamic structure for all participants of the syndicate including the conventional banks. However, in most cases either the conventional banks do not agree to such an arrangement or they are restricted by regulations to do any form of Islamic banking business without appropriate licensing from the regulators, which in turn leaves the participants with only one option that is to have mixed syndications having Islamic and conventional legs. The author is the Head of Products and Segments at an Islamic Bank in Oman. He has been involved in the structuring of various sukuk issues and syndications. He may be contacted at sulemanmuhammadali@gmail.com. The views expressed by the author are personal.

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POINT OF VIEW

ISFIRE PERSONALITY

CAMBRIDGE-IFLP ALUMNI

MOHAMMED HAMED NASSER AL HASHIMI

HEAD OF COMPLIANCE, BANK NIZWA

Mohammed Al Hashimi is currently heading the Compliance Department of Bank Nizwa SAOG in Oman. Mohammed’s professional career spans over 10 years, including six years as a bank examiner at the Central Bank of Oman. His examination portfolio as an external examiner includes conventional and Islamic banks as well as leasing companies, with expertise in areas including Financial & Regulatory Reporting, Risk Management, Investment Banking, Treasury, Corporate Governance, Anti-Money Laundering, Financings and Deposits. Mohammed holds a Bachelor’s degree in Accounting from Sultan Qaboos University, and professional certifications, including from Federal Deposit Insurance Corporation (FDIC) in the US on Banks Examination and Financial Analysis, and in Islamic banking by Islamic Financial Services Board (IFSB). He is the recipient of the Cambridge Islamic Finance Leadership Award in recognition for his outstanding performance during the Cambridge Islamic Finance Leadership Programme, held at Clare College, University of Cambridge, UK.

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ISFIRE PERSONALITY WHAT DRIVES YOU IN YOUR PROFESSIONAL LIFE? My consistent desire to achieve more is the key factor that drives me professionally. Though I celebrate what I achieve, I don’t forget to evaluate where I fell short and why that happened. If I don’t achieve my goal, I learn from my mistakes and don’t repeat them. Another factor that has contributed to my professional development is that I idolize successful people and try to follow in their footsteps. The CEO of Unilever, Keith Weed, is one such inspiring personality that I have been reading about these days. His concepts about sustainability and risk obsolescence in marketing has taught me the importance of ethics in marketing and why fraudulent channels should be avoided even if they are profitable to the organisation, and that is what compliance is all about.

WHAT SERVES AS A GUIDING PRINCIPLE IN YOUR LIFE? I always tell my staff and colleagues that hard work never goes wasted and they should be smart while doing it. Combining hard work and at the same time working smart would always lead you to achieve your goals and deliver the desired results.

IN ONE WORD, DESCRIBE YOURSELF. Passionate

HOW DO YOU MEASURE SUCCESS? For me, success is the recognition of my work. When my work is recognised, and praised, and when my opinions are implemented, it gives me a sense of achievement. It shows that I am successful in what I am doing and how I am doing it.

snapshot of the performance of the entity, financially and non-financially. It also engages me with recent updates in both local and international markets vide regulators correspondences. The nature of my job allows me to function independently and report to the Board of Directors, which gives me great exposure in dealing with the top hierarchy, both the Board and the CEO. It also gives me an opportunity to deal with senior officials at the Central Bank of Oman, the Capital Market Authority and the Financial Intelligence Unit at Royal Oman Police. It is noteworthy to mention here that as the Head of Compliance I have the opportunity to gain access to all bank’s files and records, thus providing me with good exposure of business insights in all dimensions.

YOU ARE AN ALUMNUS OF THE CAMBRIDGE ISLAMIC FINANCE LEADERSHIP PROGRAMME. HOW WAS YOUR EXPERIENCE OF ATTENDING THE PROGRAMME? Attending the Cambridge Islamic Finance Leadership Programme in the UK was one of the most enriching experiences I have had of learning abroad. Leaders from different fields and countries were invited to speak about their success stories, such as chairmen, CEOs, and entrepreneurs of banks and high-tech enterprises. They discussed market behaviour, how to be resilient to failures, how to balance professional and social life, and other important keys to success. One of the best memories of the programme was when my team won the treasure hunting enigma after exerting great efforts to pass through all levels with the required speed. At the end of the programme, I was one of the five participants who was awarded the Cambridge Islamic Finance Leadership Award for being one of the top best performers. That was a really proud moment for me.

HOW DO YOU DEAL WITH PRESSURE OR STRESSFUL SITUATIONS? Most of my work is demanding and requires extensive reading, research, analysis and includes deadlines. It also involves making decisions under the law, which may not always be appreciated by the Management. Therefore, my formula to handle such situations is to calm myself with a cup of coffee and stay focused on my objectives, rather than the negativity around me. My love for football has helped me to develop a sportsman spirit, to keep trying until I score a goal, to keep thinking while playing or working and not get distracted by my opponents, but to learn from them.

WHICH IS MORE IMPORTANT, CREATIVITY OR EFFICIENCY? Creativity is more important to me. However, efficiency is equally important as it is the way of channeling creativity into reality in the best possible manner. Creativity reduces time and efforts to reach to the same conclusion or even a better one as compared to the traditional approach.

WHAT DO YOU FIND MOST REWARDING IN YOUR CURRENT ROLE? My current role as Head of Compliance is rewarding but also challenging at the same time. It gives me a broader

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I S F I R E P E R S O NA L I T Y

TECHNICAL NOTE

CAMBRIDGE PROJECT

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 notation in Islamic economics, banking and finance (IEBF). This has emerged as a major project since then, as a number of universities engaged in the instruction of IEBF have started to adopt what were initially named as ISFIRE Notes, and subsequently renamed as Cambridge Notes. So far, we have issued 10 Cambridge Notes: •

Cambridge Note 1 on Bai’ (issued in February 2018)

•

Cambridge Note 2 on Riba (issued in June 2018)

•

Cambridge Note 3 on Murabaha (issued in August 2016)

•

Cambridge Note 4 on Salam (issued in October 2016)

•

Cambridge Note 5 on Mudaraba (issued in December 2016)

•

Cambridge Note 6 on Ijara (issued in February 2017)

•

Cambridge Note 7 on Musharaka (issued in February 2018)

•

Cambridge Note 8 on Istisna’ (issued in April 2018)

•

Cambridge Note 9 on Sukuk (issued in June 2019)

•

Cambridge Note 10 on Wa’ad (issued in August 2019)

3. The notation must also help standard setting bodies, especially Accounting & Auditing Organisation for Islamic Financial Institutions (AAOIFI), which are involved in issuing Shari’a Standards; and 4. Disciplines of Islamic Economics and Islamic Banking & Finance must benefit from the standardised notation, as a wider body of literature will notate the contracts consistently. Once Cambridge IIF has issued a sufficient number of notes, we aim to hold a special workshop on Standardisation of Notation in IEBF, to finalise all these notes into standards. 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@cambridge-iif.com.

Cambridge Note 1 on Bai’

WHY IS THERE A NEED FOR STANDARDISATION OF NOTATION IN ISLAMIC FINANCIAL EDUCATION? There is no standard notation in the books written on Islamic economics and finance. In the absence of a standard, authors use their discretion to notate different Islamic financial contracts.

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1. It will help develop consistent pedagogical tools to be used for education and training in IEBF; 2. Precise notation will also help in understanding the true nature of the contracts, their elements and their implications for product development and structuring;

In the last issue of ISFIRE, we revised Cambridge Note 1 on Bai’ in light of feedback from the readership of ISFIRE and academia. In this issue, we have revised Cambridge Note 2 on Riba to seek further feedback from the relevant stakeholders in the industry.

This has not only created pedagogical confusion but has also hampered true understanding of Islamic financial contracts. We believe that the standardisation of notation will bring the following benefits to IEBF:

1. (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|T0), explicitly mentioning the time, T0, when the exchange of object of sale and its price be affected. 1a. (B.X.A; P) represents a spot sale contract between B (seller) and A (buyer) to buy/sell a commodity X for the price P. Note: The first party in these Notes must always be a seller and the second party shall be a buyer. 2. (A.X.B; Y) is a barter exchange between A (seller, i.e. owner of the commodity X) and B (buyer, i.e. owner of the commodity Y) on a spot basis, whereby the commodity Y is deemed as the price of the commodity X. Another possible way of notating the barter exchange is (A.X.Y.B), whereby A W W W. I S F I R E . N E T

TECHNICAL NOTE exchanges a commodity X that they own, for a commodity Y owned by B. Note: The first commodity in these Notes must always be owned by the seller and the second commodity shall be owned by the buyer. 3. (A.X.B; P|T1, T0) 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. 3a. (A.X.B; P|T1, T0) is essentially bai’ mu’ajjal or what is also known as bai’ bithaman ‘aajil, or a deferred payment sale contract. 4. (A.X.B; P|T0, T1) represents a sale contract between A (seller) and B (buyer) to buy/sell a commodity X for the 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. 4a. (A.X.B; P|T0, T1) is essentially a salam contract as per Cambridge Note 4 on Salam. 5. ([A.X.B; P1|T1],[B.X.A; P2|T2]) is an arrangement that combines two sale contracts such that A sells a commodity X to B for a price P1 at time T1 and B sells the same commodity X to A for price P2 at time T2. This may be a notation for bai’ al-‘ina whether P1 = P2 or P1 ≠ P2 and T1 = T2 or T1 ≠ T2.

amount X2 of X to A; such that X1 ≠ X2. 6. (A.X1,B; B.X2.A |T0) is an agreement between two independent parties, A and B, which may lead to riba if A transfers ownership of an amount X1 of X to B who also simultaneously (at time T0) transfers an amount X2 of X to A; such that X1 ≠ X2. 7. (A.X1,B; B.X2.A |T0, T1) is an agreement between two independent parties, A and B, which may lead to riba if A transfers ownership of an amount X1 of X to B at time T0, and B transfers an amount X2 of X to A at another time T1; such that X1 ≠ X2. 8. (A.X1,B |B.X2.A |T0, T1) is definitely and unambiguously a riba agreement between two independent parties, A and B, if A transfers ownership of an amount X1 of X to B in exchange for B transferring an amount X2 of X to A, such that X1 ≠ X2, irrespective of whether T0 = T1 or T0 ≠ T1. 9. (A.X.B; B.X.A; P1, P2|T0) may represent two mutually exclusive trades whereby party A sells (an amount of) a commodity X to a party B for price P1 and simultaneously party B sells (an amount of) a commodity X to party A for price P2. The two trades take place at time T0. 10. (A.X.B; B.X.A; P1, P2|T0) shall not lead to riba as long as the two trades are mutually exclusive and are not conditional upon each other, even if P1 ≠ P2. 11. (A.X.B; B.X.A; P1, P2|T0) shall lead to bai’ al-‘ina if the two trades are not mutually exclusive or are conditional upon each other, if P1 ≠ P2.

Cambridge Note 2 on Riba

Cambridge Note 3 on Murabaha

1. (A.X.B) represents an (unconsidered) exchange of an asset X between two parties, A and B, whereby A transfers ownership of X to B, without any reference to a consideration or price. This may also be known as an

1. (A.X.B; PMUR ,∏MUR , T) represents a classical murabaha arrangement between A (seller) and B (buyer) to buy/sell a commodity X for the murabaha price PMUR and murabaha profit of ∏MUR for T as the date of payment of the price.

exchange of gift. 2. (A.X.B; B.X.A) represents exchange of an asset X between A and B, whereby A transfers ownership of (an amount of) X to B, while B also simultaneously transfers ownership of (an amount of) X to A. 3. (A.X.B; B.X.A |T0, T1) represents exchange of an asset X between A and B, whereby A transfers ownership of (an amount of) X to B at time T0, and B transfers ownership of (an amount of) X to A at time T1. 4. (A.X1,B; B.X2.A) represents exchange of an asset X between A and B, whereby A transfers ownership of an amount X1 of X to B, while B also simultaneously transfers an amount X2 of X to A; such that X1 = X2 or X1 ≠ X2. 5. (A.X1,B; B.X2.A) is an agreement between two independent parties, A and B, which may lead to riba if A transfers ownership of an amount X1 of X to B who also transfers an W W W. I S F I R E . N E T

2. (A.X[1].B; PMUR, ∏MUR, T) represents a commodity murabaha arrangement between A (financier) and B (financee) arranged by a single commodity broker 1; whereby PMUR is the murabaha price, ∏MUR is the murabaha profit, and T is the duration of the financing period (in years, months, or days, etc.). 3. (A.X[1.2]X.B; PMUR, ∏MUR, T) represents a commodity murabaha between two commodity brokers, 1 and 2. 4. (A.X[1].B; PMUR, ∏MUR, T, D(.), R(.)) represents a commodity murabaha arrangement between A (financier) and B (financee) arranged by a single commodity broker 1; whereby PMUR 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:

Default Penalty = a Xi; and

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Rebate amount = b Xj whereby Xi = amount outstanding at the time of default; Xj = amount outstanding at the time of early settlement date; and 0 ≤ a ≤ 1 and 0 ≤ b ≤ 1.

5. (A.X[1].B; PMUR, ∏MUR, PMURIK, T / N, PEX) represents a commodity murabaha based Islamic mezzanine financing arrangement between A (financier) and B (financee) arranged by a single commodity broker 1; whereby PMUR is the murabaha price, ∏MUR is the murabaha profit, PMURIK 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 PEX.

Cambridge Note 4 on Salam 1. (A.X.B; PSAL|T0, T1) represents a classical salam contract between A (seller) and B (buyer) to buy/sell a commodity X for the salam price PSAL|T0 to be paid upfront by B at time T0, allowing the seller to deliver the commodity during time period T1 or on a specific date at the end of T.

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. 3. 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).

Cambridge Note 6 on Ijara 1. (A, X, B; R = r1+ r2 + ... + rt, 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, r2, ..., rt, for a period of T. 2. (A, X, B; R = r1 + r2 + ... + rt, T; P1, P2) 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, r2, ..., rt, for a period of T; with an understanding that B will have to buy the asset for a price, P1, 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, P2. 3. (A, Y, B; R = r1 + r2 +...+ rt , 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, r2, ..., rt, for a period of T (which may coincide with the time that Y must take to come into existence).

2. ([A.X.B; PSAL1|T0], [B.X.C; PSAL2|T1], T2) represents a salamparallel-salam arrangement, involving three independent parties, A, B and C, whereby A sells a commodity X to B for a salam price, PSAL1|To, paid by B upfront at T0, to receive the delivery during time period T2 or on a specific date at the end of T2. The salam-parallel-salam arrangement also involves B selling the commodity X to another independent party C that pays salam price, PSAL2|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 T2 or on a specific date at the end of T2.

4. If an ijara contract 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.

3. (A.X.B.X.C; PSAL1|Ti, PSAL2|Tj, T) represents a three-partite salam-parallel-salam contract, whereby A sells a commodity X to B for a salam price, PSAL1|Ti, paid by B upfront at Ti, and B sells the commodity X to C for a salam price, PSAL2|Tj, whether Ti = Tj or Ti ≠ Tj; 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.

Cambridge Note 7 on Musharaka

Cambridge Note 5 on Mudaraba 1. (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. 2. A.K.B; ∏0, α; ∏1, 0; -∏, 1; T) is a mudaraba contract that stipulates that the capital providing party (Party A) will receive α 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

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5. An ijara contract notated with (A, X, B; R0, 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; Rt, 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.

1. (A.KA.KB.B, Π, α; -Π, βi; T) is a musharaka contract between Party A and Party B whereby both parties contribute capital, KA and KB, 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 withβi, whereby i = A or B; βA = KA/K and βB = KB/K, and K = KA + KB. T is the time period for musharaka; and α and β may differ. 2. (A.KA.KB.B, Π, βi; T) is a simple musharaka contract between Party A and Party B whereby both parties contribute capital, KA and KB, respectively, to a venture, in such a way that A receives βA percentage of the profit, Π, whether positive or negative, and B receives βB percentage of the profit. In other words, β = α. 3. If a musharaka contract is notated with (A.KA.KB.B; α, β; T), it W W W. I S F I R E . N E T

TECHNICAL NOTE shall always be deemed as a short version of (A.KA.KB.B, Π, α; -Π, βi; T).

Cambridge Note 8 on Istisna’ 1. (A.X.B; P1|T1, P2|T2, … Pn|Tn; ΡIST=∑ni=1 Ρi,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 PIST, payable in instalments P1, P2, … Pn, until the time of the delivery Tn, by when the whole price must have been paid. 2. ([A.X.B; P1|T1, P2|T2, … Pn|Tn; ΡIST1=∑ni=1 Ρi,Tn], [B.X.C; P1|T1, P2|T2, … Pn|Tm; ΡIST2=∑mj=1 Ρi,Tm) represents an istisna’-parallelistisna’ arrangement, involving three independent parties, A, B and C, whereby A sells a commodity X to B for price, PIST1, 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 PIST2, to B in instalments ∀ i ≠ j and/or PIST2≥PIST1, to receive the commodity X on a specific date at the end of T ∀ Tm≥Tn. 3. A short version of the istisna’ contract stated in (1) can be written as IST(A.X.B; ΡIST=∑ni=1 Ρi,Tn). 4. A short version of the istisna’-parallel-istisna’ arrangement stated in (2) can be written as IST1(A.X.B; ΡIST1=∑ni=1 Ρi,Tn ), IST2(A.X.B; ΡIST2=∑mj=1 Ρi,Tm).

Cambridge Note 9 on Sukuk 1. (A.X.B, C; N, α, Ρ|Ρ = αN; T, ti|i = 1,2,3,…n) is a sukuk issued by an issuer A on asset to be bought by investor B, with a notional price of N. The return on the sakk will be determined by the net revenue Ρ, generated by the asset X by way of dealing with a party C. The issuer will ensure that Ρ is equivalent to an amount added to notional N in such a way that Ρ = αN ∀ 0>α>0. The sakk is issued for a time period T and the return may be distributed in instalments on dates ti. The notional N must be returned at the end of the sukuk period T. 2. (A.X.B, C; N, α, Ρ|Ρ = αN; T, ti|i = 1,2,3,…n) is a general notation for sukuk and may be specified for different types of sukuk. 3. For example, for sukuk al-ijara, (A.X.B, C; N, α, Ρ|Ρ = αN; T, ti|i = 1,2,3,…n) will represent a sakk issued by an issuer A on an asset X to be bought by investors B, with a notional price of N. The return on the sakk will be determined by the rental Ρ, which will be generated by leasing the asset to the party C involved in the structure (normally an obligor). 4. The relationship between A, B and C will be determined by sale contracts (C.X.A; P|T0) and (A.X.C; P|Tn) as per Cambridge Note 1 on Bai’, and lease contract (A, X, B; R = r1 + r2+...rn, T)) as per Cambridge Note 5 on Ijara. 5. Thus, a sukuk al-ijara may be notated like ((A.X.B, C; N, α, Ρ|Ρ = αN; T, ti|i = 1,2,3,…n)| (C.X.A; P|T0), (A, X, B; R = r1 + r2 W W W. I S F I R E . N E T

+... + rn, T), (A.X.C; P|Tn); Ρ = R)).

Cambridge Note 10 on Wa’ad 1. <A.X.B, P|b> represents a promise or undertaking (wa’ad) between A (promisor) and B (promisee) to buy a commodity/ asset X for the price P. Both the object of purchase/sale X, and price P, may be exchanged at a future date when a Bai’ or a sale and purchase agreement may be executed pursuant to the promise. <B.X.A, P |b> represents a promise or undertaking (wa’ad) between B (promisor) and A (promisee) to buy a commodity/asset X for the price P. 2. <A.X.B, P|s> represents a promise or undertaking (wa’ad) between A (promisor) and B (promisee) to sell a commodity/ asset X for the price P. Both the object of purchase/sale X, and price P, may be exchanged at a future date when a Bai’ or a sale and purchase agreement may be executed pursuant to the promise. <B.X.A, P|s> represents a promise or undertaking (wa’ad) between B (promisor) and A (promisee) to sell a commodity/asset X for the price P. 3. The notation <•> implies a non-binding arrangement as opposed to the notation (•) that refers to a binding contract. 4. <A.X.B, P|b; To, T1> represents a promise or undertaking (wa’ad) between A (promisor) and B (promisee) at time T0 to buy a commodity/asset X for the price P at a future date T1. Both the object of purchase/sale, X, and price, P, may be exchanged at the future date T1 when a Bai’ or a sale and purchase agreement may be executed pursuant to the promise. This also applies to a promise to sell, i.e., <A.X.B, P|s, To, T1>. 5. [<A.X.B, P|b>, <B.X.A, P|s>] is an arrangement in which A promises to buy X for a price P, and B simultaneously promises to sell X for the same price P. 6. <A.X.B, P ∀ P = Pm1 + ∆ |b; To, T1> represents a promise or undertaking (wa’ad) between A (promisor) and B (promisee) at time T0 to buy a commodity/asset X for the price P = Pm1 + ∆, where Pm1 is the future market price of the commodity/ asset X at a future date T1 and ∆ is an incremental which may be positive, negative or even zero. The same holds for a promise to sell, i.e., <A.X.B, P ∀ P = Pm1 + ∆ |s; To, T1>. 7. A promise to purchase between A (promisor) and B (promisee), i.e., <A.X.B, P |b; To, T1>, and a promise to sell between B (promisor) and A (promisee), i.e., <B.X.A, P |s; To, T1>, are considered equal and opposite promises. 8. Two promises will be considered as equal and diagonal promises if they must affect a binding arrangement in future. For example, <A.X.B, P ∀ P ≥ Pm1 |b; To, T1> and <B.X.A, P ∀ P < Pm1 |b; To, T1> are two equal and diagonal promises, as B will call upon the first promise to purchase (given by A) if the promised price P is actually greater than the future market price Pm1. Also, A will call upon the second promise (given by B) if the promised price P is less than the future market price Pm1.

I SIFSIFRI E EC R ,E D , O CETM OBER 2019

TECHNICAL NOTE

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