As the World Turns ...

Salams, just wanna share some latest information on Islamic Finance. Credit to Islamic Finance News for this info. This is the real and crucial situation of IF now.

Promoters of Islamic finance love to trot out the figures. It is the fastest growing segment in the global financial industry. The size of assets under management may very well exceed US$1 trillion. It has maintained an average growth rate of 15 a year. New areas of business continue to show encouraging progress. Islamic mutual funds are growing at an average of 23% a year, the Takaful industry at 13%. Giant banking and insurance groups are now very much interested in Islamic finance as a way to grow their business.

The promoters' contention: Islamic finance is no more peripheral to the conventional banking system but has grown from being a novelty to be a viable and attractive alternative to its conventional counterpart. One claim is that interest in Islamic finance is no longer limited to Muslim nations and Muslim communities. "The world realizes that the economic clout of 1.5 billion people is a market that cannot be ignored," says one practitioner.

But if that is so, how come the penetration rate among Muslims remains low, creating a perception that in some jurisdictions, more non-Muslims than Muslims are drawn to Islamic finance? For Islamic finance to truly become a financial force, it has to be entrenched within the community that practices the faith it is based upon. For this to happen, the promotion of Islamic finance would need to lay greater emphasis on the religious aspects of the financial system. However, such prominence on its religious foundation could undermine its true characteristic — that it is a functioning system for all people everywhere, with money being used in a very productive and ethical manner.

This is a dilemma that scholars and regulators need to seriously look into. Yes, the remarkable growth momentum of the industry is real, but it is still a tadpole in a pond. Some see this situation as an opportunity to bring forth the true face of Islam, of moderation, acceptance of people of other beliefs, of living in harmony by focusing on the common strands of all beliefs — a truly tall order in a world that is presently plagued by negativity, meanness, spite and, in several instances, baseless hatred.

An alternative outlook is that the increasing competition will overshadow these issues. The race will see the emergence of non-traditional players, bringing with them superior systems, management skills, established R&D and risk management systems with proven track record globally. There will be more innovative products, new concepts and new structures, as the new players bring with them new value proposition to attract or entice their customers.

Demand will grow for services related to Islamic finance in consultancy, accounting, trust, Shariah, legal advice and IT services. New Shariah concepts will emerge and this will require scholars to rethink some of the structures that had been well established. In addition, new demand for standardization and harmonization of Shariah standards would intensify as cross border transactions increases. This will also result in an increase in demand for financial products that can be sold between markets.

The world has never remained static; hence there will always be agility and the commitment to bring positive change to the Islamic financial system such that it remains competitive and relevant. Therein lies the hope for better circumstances.IFN Rapid

Some info above mentioned need to ponder based on what I've highlighted. 

Islamic Finance - Road Ahead

In the Name of Allah, the Most Gracious and the Most Merciful.

Today is my second day staying at Istana Hotel. Since yesterday I have been invited by organizer CERT for the Kuala Lumpur Islamic Finance Forum 2008. I am very thankful to Allah and to those give me an opportunity to participate in this prestigious event. Even though this is my third time joining this such event. As for me, Islamic Finance is not a static subject that can be ignored. It's like growing and keep growing.

The KLIFF 2008 is officiated by YAB Dato' Sri Najib Tun Abd Razak, deputy prime minister of Malaysia. Approximately 300 participants attend to this event. As an observer, I am proud to be one of them and of course felt eagerly to join the forum. The topics discussed are more focus on the current issue like hedging in forward and futures market (for the yesterday discussion, sukuk, Malaysia as a centre of halal hub, roles of shariah scholars in the Islamic Finance.

Definitely tomorrow I will continue my writing on this event, what will be discuss tomorrow as well as the conclusion of two days forum. And I really hope by participating this such event will improve my little knowledge as well as to gain more and more ilmu that very substantial and important. After this two days forum I will attend another convention namely International Convention Takaful and Retakaful.

With that.. till then and be continued....

1145
833, Istana Hotel

Bay' al-Ma'dum

Bai Al Ma'dum is literally the non-existent. Technically it denotes the object, which is not seen nor sensorially perceived, by either party to the contract or where the object of the contract is present but hidden from view. DR Zaki Badawi, shariah consultant to Islamic Banker, gives the range of opinion within Muslim law specifying the contractual requirements for the sale unseen goods.

The Shariah Law of Contract is based on three fundamental principles:

• The principle of Justice; neither party to a contract may exploit the other. Hence the prohibition of riba (usury) the taking of which is branded by the Qu'ran as aggression against the debtor (AlBaqarah, verse 279)
• The principle of Transparency. Those concerned must share all available information. Withholding crucial information bearing on the transaction could render the contract invalid. Also contracts involving a high degree of gharar (ignorance) are illegal. Deception or ignorance of the nature of a transaction leads to disputation and lack of trust, which the Shariah rules are designed to prevent.
• The principle of Maslaha meaning the common interest supported by the spirit of the Shariah and not by a specific text. On the basis of Maslaha a particular form of transaction may be exempted from a general rule because it has been shown in common practice to facilitate business. The Shariah abounds with examples of such exemptions as will be cited below.

The above principles set the limits and also indicate the flexibility of the system. The student of the fiqh is seldom f with a unanimous judgment on issues conduct outside the area of worship. Scholars have always been well aware t the established rules could be set as through common practice" (Zeila' Tabyan Al-Haqiq. v. 5 p. 184 as quoted by M. M. Shalabi in Ta'lil Al Ahkam p. 344 Published by Dar Al Nahdah Al 'Aarabiyah, Beirut 1981) clearly this does not apply to fundamental rules like the prohibition of riba.

The views of fuqaha on Bai Al Ma'dum provide a rich and varied diet derived from their diverse experiences or pre-occupations with certain aspects of the transaction. The strictest school is the Shafii, which declares that Bai Al Ma'dum is invalid whether the goods in question are some distance from the place of sale or present there but hidden from view. Description of the good s is no substitute for viewing. Imam Shafii did not always hold this view. Indeed in his early days he accepted Bai Al Ma'dum if the goods are fully described. The other three Sunni schools (Hanafi, Maliki and Hanbali) accept description as sufficient to make the sale legal, providing the buyer is given the right to withdraw from the contract once he examines the goods and finds them to be not as expected. This may, perhaps, be seen as an early trade descriptions act.

The Shafii School

Viewing the goods suffices, in the Shafii' view, to make the sale legal, even for goods which are assessed, like honey of perfume, by their scent or taste. They go even further and dispense with counting or weighing the goods once the buyer has seen them. Viewing of the goods does not have to occur at the time of sale if the buyer has seen the goods previously. This holds providing the goods property such as houses or furniture and not subject to other change. However, perishable goods, such as fruit and vegetables or goods subject to other sorts of change not necessarily deterioration such as livestock, would have to be seen at the time of sale. In general, viewing a sample of the goods may be taken as a good representation of the quality of the whole portion offered for sale. However, in some cases a thorough examination of the whole subject of the purchase is deemed necessary as for example the purchase of house, which requires examination of the interior as well as the exterior.

The Hanafi School

For the Hanafi School, if the goods are present but hidden from view, then the seller must identify them by pointing out, for example, which box contains them. If the goods for sale are in another place known to the buyer and are unique then the sale is valid an example of this kind of sale would be the selling of a certain book on a particular shelf. The goods can also identified by description or by ownership or similar specification. The rule is that the buyer must be made fully aware of what he or she is buying.

The Hanafi School permits Bai Al Ma'dum on two conditions:

• The sale goods are owned by the seller, in other words, he or she is entitled to sell them
• The seller describes them in such a clear way as to avoid an intolerable degree of lack of information (gharar). In all circumstances the buyer is entitled to reject the goods if they do not match the description.

The Maliki School

For the Maliki School, viewing the goods even when they are measured by weight, volume or number is sufficient. Buying melons, for instance on t he strength of being shown a sample is quite legal. If the buyer finds that what he bought differs slightly from the sample, the sale still remains valid. But if he discovers that the goods he bought differ grossly from the sample, then the buyer is entitled to return the goods and be reimbursed.

The above principles set the limits and also indicate the flexibility of the system. The student of the fiqh is seldom faced with a unanimous judgment on issues of conduct outside the area of worship. The scholars have always been well aware that the established rules could be set-aside through common practiced.

An interesting Maliki rule allows the buyer in a Bai Al-Ma'dum to sell the unseen object to a third party on condition of the immediate payment of the price. This applies if the object of sale is land or a building, and the third party purchaser is given its description by a person not party to the contract, and that the original sale was final and not subject to cancellation or variance.

The Maliki School in general differentiates between goods, which are present but hidden from view, and those far away from the parties. It invalidates the sale of the hidden goods unless the removal of their cover causes damage. If the goods are not present at the place of the contract, then the sale is valid if either they are adequately described, or the buyer is given the choice not to conclude the sale without viewing the goods. If both these conditions are disregarded the sale is invalid.

The Hanbali School

The Hanbalis classify the goods in Bai aI-Ma'dum into two categories:

• A specific object such as a book, a pen, a car or sacks of grain or suchlike. In such a case whether the buyer is present at the sale or absent, the goods are identified to the buyer. If the goods are covered, sugar in boxes, for example, or oil in barrels, the buyer is entitled to return his purchase if he discovers that the goods do not match the description given by the seller.

• Goods described as in the Bai Al Salam. As, for example, a white horse three years old, 16 hands in height, of particular descent, or a car of a given make, color, mileage, age and other specification, such a type other specification, such a type of sale is not a Bai AI Salam, but is similar to it. in this case if the goods delivered do not meet the description agreed, then they buyer may reject them, but the contract of sale remains in force and the seller is asked to provide an acceptable alternative.

The sale must be effected at the time and place of the contract with the price paid and the goods handed over, otherwise the contract is null and void.

The Hanbali School permits the Bai AI Ma'dum contract only if the goods are measurable by weight or volume. This excludes goods sold by number such as eggs, apples, pomegranates and suchlike, and precious stones. It demands that the seller must list clearly the qualities of the goods, especially those qualities directly affecting the price. This view is based on the Hanbali perception that this type of transaction is similar to Bai Al Salam. Full description and exact measurement of goods are prerequisite for the validity of both contracts.

To summaries, all the four Sunni schools permit Bai Al Ma'dum although in general Sham scholars tend to reject it. In all circumstances the schools demand for the validity of the Bai Al Ma'dum contract a strict observance of conditions to limit 'the possibility of dispute. Thus all of them accord the buyer the choice to cancel the sale once the goods are seen and found not to meet the description in the contract. Finally, for Bai al Ma'dum the goods would be considered seen or present if a sample when appropriate is examined by the purchaser, otherwise full examination may be required.

There is tolerance of a certain degree of gharar in this type of contract as a price of its due to business. . Just as Bai al Wafa' is also legalized by some scholars against the rules. Bai al Wafa' involves the sale of goods by a debtor to his creditor in settlement of the debt on condition that the debtor can recover the goods if he repays the debt. The scholars in Samarkand noticed that it was in common practice and therefore approved it.