054 ZI Islamic Finance Booklet R1 21oct10


2/44

About this PublicationTh prps this picti is

t ris pic rss Ismic

c t prmt pprtitis

r Ismic c gry. It

s t cstitt g pii

s t s t xmi i

ti ptti g, Shrih r tx

isss rtig t Ismic ciprcts r Ismic c siss

prctics. Rrs r vis t s

prssi vic r trig

r sscriig it y ci

ctrcts.

AcknowledgementZi Irhim & C ishs t

cg th spprt y th

Mysi Itrti Ismic FiciCtr (MIFC) cmmity trs this

picti.

CopyrightThis picti is cpyright y

Zi Irhim & C my t

pht-cpi r rprc i y

rm, i h r i prts, itht

th xprss prmissi Zi Irhim

& C.

FoRewoRd

PReFaCe

InTRoduCTIon

15 MoST FRequenT MISConCePTIonSabouT ISlaMIC FInanCe1. Trrrism Fic 2. Fr Msims oy

3. Rpic Cvti Fic 4. Primitiv

Mths dig Fic 5. n Stristi

bst Prctics 6. Mr/(lss) Risy th

Cvti Fic7.

lr/Highr Cst Fs 8. wr Fic 9. n Grt

10. driv Pry y oi bm

11. Imm rm ay uthic Prctic

ctt


3/44

12. Imm rm th G Fici Crisis 13. Gvr y y Shrih

14. Rirs Miim Chgs t lg & Rgtry Frmr 15. T Rpc

Cvti Systm, aim trs Isms wr dmiti

10 MaIn Value PRoPoSITIonS oF ISlaMIC FInanCe

1. ahrc t Shrih, Sscriig t Highr ethic Is 2. Prmtig Crss-

brr Tr F Fs 3. Fici Icsis th ursrv Sgmts

th Cmmity 4. expsi n asst Css 5. Mr divrsiicti Riss

6. ucig th Vs I assts 7. J Crti 8. S Ris Mgmt

9. Csr Spprt t R ecmy 10. Systmic Stiity

YouR lInk To ISlaMIC FInanCe1. Zi Irhim & C Ismic Fic Prctic Grp 2. ZI Shrih avisry Srvics

3. Th Mysi Itrti Ismic Fici Ctr (MIFC) Iititiv

GloSSaRY oF ISlaMIC FInanCe TeRMInoloGIeS

1


4/44

Th rct g ci crisis sms t ssig i

isgis r Ismic c. ovisy its impcts

hs icrsig itrst r th r i th

sss rsiic th Ismic c m.

This is piy vic y, mg thrs, iititivs

rt y vc cmis sch s Frc

th Rpic kr t itrc s tht

ccmmt th issc S (Ismic trst

crticts). w hv s s h, tithstig th

iiity crch, Isi hs sccssy ris s

thrgh its igr svrig S. w ct hp

t srv tht t this tim h 216 cvtis hv i sic 2008 p t Mrch 2010 i th uS

(Src: Fr dpsit Isrc Crprti, uS),

Ismic s sms t mshrmig vryhr

icig i Chi kzhst.

as ig rm i th r Ismic c ith

vst xpric i th mst r itrti

Ismic ci ctrs, Zi Irhim & C is vry

psiti t r its xprtis shr its xpricith vry h is itrst i Ismic c. I i

ith r rct rgi xpsi, r t xt

r srvics t gvrmts, mrt pyrs thr

sthrs g th n Si R hich strtchs

s r s di i th Mi est t Syy

Mr i astri. bsi r spciist yrs hm

r highy rgr ithi th Ismic c rtrity,

s hv sscit Shrih visry tt, ZI Shrih

avisry Srvics, hich hs impcc crtis i

prviig Shrih vic stis.

rr

as prt r sm ctriti t th sct istry,

r pr t rig t y this picti tht

rsss sm th sic (t t ss tt)

stis rgrig Ismic c.

Mz Hssi, r prtr y prs hi this

iititiv, rticts my his mtics srvtis

th istry ithi this cmpct picti. as

thrghr Ismic c prctitir h hs srv

th Ismic c istry thrght his c-

prssi crr, icig svr yrs t th Ismic

Fici Srvics br (th itrti str-sttig

y r prti rmr i Ismic c), Mz

is -trv hs p rst-h xpric

i my pirig r r th istry, icig t

th itrti v. I m sr rrs th

15 mst rt misccptis 10 mi v

prpsitis Ismic c s highight y Mz

i this picti t prticry rrshig

isight.

I i t t this pprtity t th vry t

Zi Irhim & C h hs py thir prts i pttig

tgthr this picti. o h th rm, I

s i t xprss r hrtt ths t th MIFC

cmmity h hs vry spprtiv i r

Ismic c iititivs.

YBhg Dato Dr Nik Norzrul Thani

Chirm

Zi Irhim & C


5/44

wh I rtr t Zi Irhim & C (ZICo) rcty t

ji its Ismic Fic Prctic Grp, it s iict

t m y th rship th rm tht my r i

, mg thrs, t rthr pths t ry

istris mgict tm; my t rst-css,

Hrvr-tri, highy-rgr prtrs Mgt Hizii

Hss dr ai othm. Primriy, I m xpct t

rig i my mst r itrti xpric gi

rig my 6-yr stit t th Ismic Fici Srvics

br (IFSb) t ciitt th rms miti s prmir

prvir g srvics i th r Ismic c

thrght th jrisictis hr th rm hs stish

prsc. Ths ic Isi, Mysi, Sigpr,

Thi, th uae, mst rcty astri.

I t py hr h I s giv th mt

t pt tgthr picti tht c s t pr

th rms crtis i Ismic c prctic, hi t

th sm tim prviig s vrvi gic

spciy t mrts tht r itrst t

t this yg t st-xpig istry.

atr ig sm rsrch ht c pttiy

sit ctt r sch picti, I tic tht

thr sti rmis vst mt misccptis t

thr t Ismic c, spciy rfct thrgh

pmics i sits, gs, ci pictis.

urtty, c hry y rrc tht pts

tgthr simp, ci, sy-t-th-y rsps

t mst th stis rty s t Ismic

c.

Frm my xpric, sm th cmm stis hv

ris t y y y sthrs th c

istry sch s rgtry sprvisry thritis,

mrt pyrs, ci ysts rprtrs, t

s yprss th csmrs mmrs th

pic. Fr m, it is imprtt tht ths stis

rss y misccptis t Ismic

c mysti, cs th g-trm viiity sstiiity th Ismic c istry i

vry mch pt h r it c cvic

vry (Msims -Msims i) tht Ismic

prc

c is gi thic siss thtic

v prpsiti im t simpy srvig th s

ms th mrts.

whi crtiy Msims csir sscri t Ismic

c s ri y thir ith i ccrc ith th

rs pricips st t i thir , th Shrih, it

sh pprcit y tht th spirit mts

si, Ismic c try hs tgi ts i trms

cmics sci vs r vry. I my

sggst simp gy, Ismic c c vi

jst i stig, r yg, r v my-Thi, hich hs

sm rms rits rigis mts cpstig

it. Hvr tithstig ths mts, i

rth thm, y rgrss his rc, ith

r ctr cgr, c cty r, prctic

t rm th xrciss. I, it is y y rig

thrgh sch rrir misrstig tht c

rmv y r r ccr t Ismic c.

This picti is my hm ttmpt t shrig ith th

rrs sm isights it Ismic c, i prticr

isss spcts tht mst t r s y ths

h r t Ismic c. It s y ith txt-

rrcs cmic iscssi, miimiss th

ss tchic jrgs, s gg sty tht

sh ctr r mst pp h t hv th tchic

g Ismic c.

nvrthss, it my tic tht sight mphsis is

giv t th g rgtry spcts i xpiig h

Ismic c rs, simpy cs this is th r tht

i Zi Irhim & C st.

It is r rvt hp tht this picti hps t

vit th gr rstig crrct th pic

prcpti this yg t scitig istry.

Madzlan Mohamad HussainPrtr

Zi Irhim & C

3


6/44


7/44

itrcti

Ismic c hs jyig rpi grth r th

pst cs is trig phs its vpmt, hr th siss hs cm mr

itrtiis. Th siz th istry hs gr

it ssttiy t rch trii r thrsh. Th

istry i hs sh rmr rsiic mist

vsttig g ci crisis.

ntithstig icrsig ri itrst,

rss rstig Ismic c, grt

sti s t i rr t sr sch itrst,rss rstig r s s

ccrt irmti. qit t, itrtrs Ismic

c t t ithr prti r is cs th

thr is tryig t s (r ) th ccpt, r is s

schry s tht th yprs ct rst

r it. w hp this picti is ithr ths

t.

withi th imit spc this cmpct picti, smmris th vris ccrs tht hv ys

ris mgst sthrs th ci srvics

istry vis--vis Ismic c, shr r thghts

vr ths ccrs.

Hr, thrgh rsrch s r xpric

srvig th Ismic c istry, hv iti

15 mst rt misccptis 10 mi v

prpsitis tht iv vry sh t

Ismic c. Th rvt stis r rss

i simp, ci mr ith th prmt im

prviig sic rstig isss rmvig

y iccrt r prjic gist Ismic

c.

Fr xmp, this picti highights tht Ismic

cig is t trrrism cig, is t mr rpic

cvti c, t r c s it

cmmy miscciv y sm rtrs. It s gts

th ti tht Ismic c is sprir is ihrty

imm rm thic prctics r rm th impct th

g ci crisis. Ist, it mphsiss tht Ismic

c s rirs strtgic pig, ctiv itr

xtr rgtis, ctrs t sgr its itgrity,

cs it c xps t xcssiv ris-tig, r

r thr misccts i pprprit ris mgmt gvrc rmrs r t pt.

w s rtict tht th v prpsitis Ismic

c my vry c tir ccrig t th

irt s jctivs th sthrs

hthr thy r rgtry sprvisry thritis

tht ish t pth t thir ci systm, ci

istittis tht ish t i thir cstmr s

ivrsiy thir prct rig ris prs, r

ptti ivstrs r sisss tht ish t tp

v r ivstmt risig. It is rg t

ssm, r xmp, tht Ismic c is t

S jst cs thr is shc triggr y S

ts i th Mi est, th th rst th Ismic

c r is i im. I, Ismic c is mr

th ht mts th y.

w pry tht this hm picti ts its rrs.

Quite oten, literatures on

Islamic nance tend to be

either partial or biased because

the author is trying to sell (or

debunk) the concept, or is so

scholarly and dense that the

layperson cannot understand

a word o it. We hope this

publication is neither o

these two.

5


8/44

t Ismic Fic

It is mst rtt tht smtims i sm

ctris, Ismic c is simpy csir a political

hot potato. It s t srv t underrated and

undermined; Ismic c sh t r th

g cmmity t i rigs, t rrirs. It ght

t instrument o inclusion, not discrimination.

emrcig it c hp promote goodwill and

compassion; gctig it y spr rthr

misrstig prjics.

ntithstig its mst r cs vpmt,

th ct rmis tht cmpr t its cvti csi,

Islamic fnance is still an inant. a t mr rtrig

s t , pty mr ptic prsvrc

sh r.

Cti criticism r rrt cm,

t sh cstrctiv t ctrit psitivy t

th istrys -ig, rthr th gig

iiscrimity. Itct ts th ircti

th istry sh crri t i rspct mr,

i i ith ihti (rspctig ircs

piis). The ocus o any debate should be on

churning out easible solutions, rather than

fnger-pointing and ault-fnding.

whi th sthrs th Ismic c istry shr

th cmm im strig it t its tr pttis

chiv th highr is s ci

systm, sh s striv t rmv th rtt

misccptis t th istry.

15

Mst Frt Misccptis


9/44

TeRRoRISM FInanCe

Misccpti 1

The Shariah considers illegal use o violence

especially against innocent victims as a heinous

crime, and hence categorically condemns terrorism.

This ms tht, s mttr pricip, Ismic

ci istitti is stricty prhiit y th Shrih rm

igy ssistig, ht mr ctivy prticiptig, i

trrr-rt ctivitis.

urtty, sic 9/11, itrti pitics hv

s prjic imsity gist Ism sct t

hights. amist this cimt r sspici

i th wst gist ythig tht crris th r Ism

r Shrih, Ismic c hs iry rish

y crti rtrs s rt r trrrism c. ev

th scr igti Zt (ms) hs g s

trs trrrist rgistis.

whi th cmpx p tr itrti

c my xps v Ismic ci istittis t

riy cm t r ths ith crimi itt, it is

s t sy tht s r, tithstig th cspircy

thris g-i cctis ris t i Ismic

c ith trrrism, thr is hry scit vic

prc t jstiy sch gtis.

Vris sits sctis hv iitit gist

sm ci istittis y Ismic c grs

r g ivvmt ith trrr ctivitis, t mst hv

strc t. Ths ic, mg thrs mst

ty, sits i th uS gist Shih Sh km dh a-br Pric Mhmm i Fis a-S

dr -M -Ismi, th hm r csir

pirs thght-rs mr Ismic c.

Irrti phi gist Ism i gr Ismic c

i prticr ctis g tr 9/11, ith th uS Trsry

rcty s gttig tg i sit h G wr

vtr chg i crt th viity its cti t i-

t aIG rig th g ci crisis, simpy cs aIG

hs ivv i Ismic isrc (t) siss.

Th rity is, Islamic fnancial institutions just like any

other fnancial institutions in any jurisdictions are

subject to and bound by strict law and regulations,

including anti-terrorism and anti-money laundering

laws. I thr is y pr tht y Ismic ci

istittis r ivv i r r spprtig trrr

ctivitis, th prcss th sh t

t its crs i rr t sr th rspctiv cprits r

rght t jstic.

Trrrism vic r p htvr pitic,

rigis r cmm cs g t th

th y sti ifict hrm gist th i ig

ict victims; Msims -Msims i. Ismic

c hs thig t ith trrrism cig. It is

gi gitimt siss tht hs rgt

sprvis i my jrisictis, simpy s siss tht

rs Shrih cmpit ci prcts s trtiv

t xistig ci prcts.

TERRORISM

HAS NO

RELIGION

Terrorism and violence branded upon

whatever political, religious or communal

cause and agenda at the end o the day still

infict harm against the lie and well being o

innocent victims; Muslims and non-Muslims

alike. Islamic nance has nothing to do with

terrorism nancing.

7


10/44

There is no prohibition against non-Muslims rom

using Islamic nancial products or own institutions

oering Islamic nancial services. It is sy t srv

tht mg th rgst istittis rig Ismic ci

srvics r cvti ig grps sch s Citigrp,

HSbC, Str Chrtr, tc. This prvs tht th vs

sps y Ismic c r t r Msims y t

my shr y -Msims.

Frthrmr, it sh t tht prhiiti gist

sry is t y imps y Ism t s thr mjr

r rigis sch s Christiity, Jism, bhism

Hiism. Th thic prmtrs Ismic ivstmts

tht ri crti sctrs sch s ch, gmig,

prgrphy, tc. c simiry sscri t y sm

-Msim ivstrs s .

Islamic fnance is a value proposition; it rs y

cctig ci trsctis ccrig t crti

thic vs prmtrs irt rm ht

is prvt i cvti c. I t cs this

v prpsiti i Ismic c s t m

cmmrci ss, it iy r y -Msim

iivis r tity t prticipt i it. It is rth tig

tht th rst crprti t iss Ismic t scritis r

S is Sh MdS, mtiti cmpy, i 1992.

Sic th, thr mtitis sch s aeon, Ge, nst,

tc. hv simir tstp. whi th Ismic

dvpmt b (Idb) is crs t hv

ris s thrgh S, thr mtitr rgistis

sch s th asi dvpmt b (adb) th

Itrti Fic Crprti, mmr Th wr

b Grp hv s th sm. Th Fr Stt

Sxy-aht i Grmy is th rst i erp t hv

iss S.

Even the Vaticans ofcial newspaper Osservatore

Romano has some nice words to say about Islamic

fnance. Th thic pricips hich Ismic c

is s my rig s csr t thir cits t

th tr spirit hich sh mr vry ci srvic,

thrs lrtt npi ax Sp x icm

strtgist, Ci Sgr, si i th rtic. wstr s

c s ts sch s th Ismic s, s S,

s ctr. S my s t th cr istry

r th xt oympic Gms i l, thy si.

FoR MuSlIMS onlY

Misccpti 2


11/44

RePlICa oF ConVenTIonal FInanCe

Misccpti 3

Most critics o modern Islamic nance argue that

Islamic nance is nothing but a mirror o conventional

nance, oten due to the similarities between the two,

especially in terms o the economic objectives o their

users. I ct, it strgy, th st sch criticisms

sy cm rm mgst Msims thmsvs.

argmts tht Ismic c mry mphsiss rm vr

sstc is t cmm. ev mgst Shrih schrs

thr ppr t ht isgrmts

vr crti prcts, hich hv

pprv y sm schrs hi hrr

y thrs. as rst, hrsh gtis

sm Ismic ci istittis

prctisig Shrih ritrg r t

shppig t ti Shrih pprvs

hv sh t, spit c

mpiric vic sch prctics.

whi th critics my hv thir

sis r thir gtis, th ct

rmis tht Ismic c is gvr

y sm mt pricips tht r

ctrry t cvti c, sch s

prhiitis gist ri (sry/itrst),

misir (ttig/gmig)

ghrr (is migity). Hc, Ismic c prcts

r cscisy sig t rmv ths mts, hi

t th sm tim rtiig sm cmpts tht my

m it sy t rst h cmpr t cvti

ci prcts, hich r thir irct cmptitrs.

Jst i my t t y pprcit th

irc t Mcds rgr tht is

s h ith hich s t cs thy r sti

s Mcds hv simir tst (i t th

sm) yy smtims pp t t rmi th

irc t Ismic cvti ci

prct cs th isticti is t vry vis.

Hvr, i it mr tis s t th sig

cmic hvir sch prcts, th vty thisticti i cm pprt. Fr xmp, i Ismic

c is jst rpic cvti c, h c

it mr rsiit th its ctrprt rig th g

ci crisis? Simiry, v prir t th crisis, Shrih

cmpit stc iics hv prrm irty rm

-Shrih cmpit stc iics. Sry ths xmps

iict tht thr mst ircs t th t.

Hence, it is very important to realise that the Islamic

sense o proftable trade or tijaratun rabihah is a

business that brings blessings to those who conduct

it. ovisy, prts r imprtt s s, t th ms

y hich ths prts r r

r v mr imprtt. whthr

it is vis t s r t, sh

rst tht it is this ths hich

Ismic ci istittis sscri t

striv t trst it thir siss

m. whthr thir ttmpts r

sccss r t, ch s my h

r piis t t ir, sch

cs srvs spprt

crgmt, rthr th scr riic.

Annual Investment Return

2000-80

-60

-40

-20

0

20

40

60

(%)

2001 2002 2003 2004 2005 2006 2007 2008

Traditional unds

Islamic unds

Obviously, prots

are important as ends, but

the means by which those

prots are earned are even

more important. Whether

it is obvious to us or not,

we should understand

that it is this ethos which

Islamic nancial institutionssubscribe to and strive to

translate into their

business model.

Source: Korea Capital Market Institute

9


12/44

PRIMITIVe MeTHodS oF doInG FInanCe

Misccpti 4

While Sukuk probably is the most well-known Shariah

compliant product, it must be emphasised that Islamic

nance is more than just Sukuk.

ev h t t S, thr pprs t

misrstig tht S y cms i rm,

thgh i rity thr r mr th z ys

thrgh hich S c strctr.

urtty, simpy cs sm S issrs i

th Mi est rcty t, his hv

spsh crss mjr spprs s i S r t

ris. uir irrspsi rmrs hv spr,

stiig th itgrity S s ivstmt

istrmt. Th ct is, v cvti c is t

mch ttr h it cms t ig ith ts

ths sm trs. This is cs th prm is

mty ith th crity i th jici prcss th

isvcy rmr i th rspctiv jrisictis, t th

S strctr.

Mhi, thgh th Shrih rs pricips tht

ri ths ci prcts my hv vp

vr th crs 1400 yrs, this s t m tht

mictis pttis hv m i

ccrc ith th vt tchgy, g

srs s. Islamic fnance has developed and

currently oers a whole range o fnancial products

to cater or dierent users, whether in banking,

insurance, capital market or wealth management

segments o the fnance industry.

Today, Islamic fnancial institutions, just like their

conventional counterparts, are capable o oering

e-banking services including mobile banking, using

electronic trading platorms, taking advantage o

sophisticated sotwares and hi-tech solutions to

increase efciency in their operations.

I ct, Ismic c hs cm g y rm ig

t r y sm sic spig ccts cig

ciitis, t syict cig, tr scritis

v my mrt hgig istrmts. Ismic

c hs s i r rg s-sctrs, rm

micr-cig (t rict pvrty spprt c

trprrs) t pic irstrctr cig (icig

ms, prts, irprts, riys highys).

I trms riss, Ismic c prcts rm sst

css hc pths t th ivrsicti ris

r srs. Simpy cs smtims th xistig g

rgtry rmr, s s xistig ris mgmt

ts, my hv yt t rst pt t th

spcicitis Ismic c, Ismic c sh t

m th scpgt.


13/44

Concerns over the lack o standardisation, while

may be justied in view o the inancy o the Islamic

nance industry, is sometimes blown out o proportion

and over-exaggerated. Th rity is mjrity th

prcts srvics r y Ismic ci istittis

r ry vi r th r ith prtty mch

str pprch h thigs r . T ir

t Ismic c, cvti ig prctics r t

tiry stris crss th g ithr. Vritis ivrgc sti xist rm ctry t thr.

Fr xmp, i is t g t Ismic hthr i

Mysi, th GCC r i th uk ts t pt my

it svigs cct, h i s tht th ctrct r

svigs r ivrs; it is c wih (spig) r

Mrh (prt shrig) cct s thr r cty

irm sts ctrcts ccpt r th r. I

is t ti cig r xmp, h c gt it s

ithr Mrh (prt shrig), Ijrh (s--s

c), r Mrhh (s--y-c) sis.

Frthrmr, thr r itrti mchisms tht

r rig trs grtr chsi irmity i

sm rs Ismic c. Fr xmp, i th rs

prct stristi, cctig trtmt ci

rprtig, thr is th aitig acctig orgisti

r Ismic Fici Istittis (aaoIFI) tht st strs

ths. with rspct t prti rgti, sch s

cpit cy rirmt ris mgmt, ry

sm iititivs r rt y th Ismic Fici

Srvics br (IFSb). Mst rcty, th ItrtiIsmic Fici Mrts (IIFM) Itrti Sps

& drivtivs assciti (ISda) hv crt i

prcig str Mstr THt (Hgig)

agrmt, hich rthr rfct rpi prgrss trs

strisig st prctics i Ismic c.

athr crci r hich is prtty irm is th

Shrih itrprtti, t i s t th t r

th prcmts hich hv m vr th st

c i Ismic c, mr th 95% thm hv

i cmpt ccr crss th schs, ith y

t 5% hr thr r ircs piis.

It is s rity tht, th ci ctrcts si, my

prctics i Ismic c prtis r cpi rm r

chmr gist its cvti ctrprts. This

is spciy it strgy vic y th cctig

strs iss y aaoIFI, hich im t cmpmt

th Itrti Fici Rprtig Strs, th

prti strs iss y IFSb, hich r it

miy rm th strs iss y th bs Cmmitt

r big Sprvisi (bCbS), Itrti orgisti

Scritis Cmmissis (IoSCo) Itrti

assciti Isrc Sprvisrs (IaIS).

Thrr, th prciv c stristi r

ctrstig vriti prctics i Ismic c is

rgy mispc. o th h, it sh vi

s rm r y istry tht is sti i icy t -t

its st prctics, r ivtis t frish. o th

thr h, it sh rcgis tht th Ismic c

istry (spciy thrgh aaoIFI, IFSb IIFM, s

s thrgh xistig itrti strs tht t

ctrv th Shrih), is stiy mig g prgrss i

this r. I it is vry mch p t ithi th prs

th rvt rgtry sprvisry thritis i

vry jrisicti t t pr-ctiv stp i srig thtthir Ismic c istry hrs t high str

itrti st prctics.

no STandaRdISaTIon oF beST PRaCTICeS

Misccpti 5

ISLAMIC FINANCIAL

SERVICES BOARD

Accounting and Auditing Organization

for Islamic Financial Institutions

11


14/44

The maxims al-kharaj bil

dhaman and al-ghunm

bil ghurm, which basically

propagate the principle o

no risk no gain, very much

underline the recognition

o risk elements in

Islamic nance.


15/44

MORE/(LESS) RISKYTHAN CONVENTIONAL FINANCE

Islamic nance is usury-ree, but not risk-ree. as

Ismic ci ctrcts r sig t ctr r

irt ris pptit th srs, th trth is, it is

rrs tt gristi t

sy tht Ismic c is ithr mr r ss risy th

cvti c.

The maxims al-kharaj bil dhaman and al-ghunm

bil ghurm, which basically propagate the principle

o no risk no gain, very much underline the

recognition o risk elements in Islamic fnance.

Thrr, irt ci ctrcts, ivstmt

strtgis ris mgmt ts i ppic

t ccmmt th irt ris pptits srs

Ismic c, vry mch simir t its cvti

ctrprt. Hvr, rgy t strict Shrih

prhiiti gist misir (ttig/gmig), y

xcssiv spcti s zr-sm gm

ir ts pprch t ci trsctis isprhiit. This hs th ct iscipiig mrt

pyrs rm xpsig thmsvs t riss tht r y

thir cpcitis.

a sty rt y th Itrti Mtry F

(Cih Hss, 2008) prvis mpiric vics

hich vriy tht Ismic c is t cssriy mr

r ss risy th cvti c. Th sty pits

t, r xmp, tht y hvig prt-ss shrig

cig, this shits th irct crit ris rm s t

thir ivstmt psitrs. Hvr, it s icrss thvr gr ris th sst si s c

shts, cs it ms Ismic s vr t riss

rmy r y ity ivstrs rthr th hrs

t.

It s s pit t tht, cs thir cmpic

ith th Shrih, Ismic s c s r ris-

hgig tchis istrmts (sch s rivtivs

sps) th cvti s. Hvr, it is

itrstig t t tht cs this prhiiti

gist th s rivtiv prcts shrt-sig ctivitis i th rm s y its cvti

ctrprts, Ismic c r rgy shi rm

y xpsr t txic ssts sch s ths risig rm

ctris t igtis (Cdo) crit t

sps (CdS).

a t mr stis i t t y

rst th ris pr Ismic c prcts

prtis, vp th pprprit ris mgmt

ts t mg ths riss. Sprvisry thritis

spciy t ry th it

cscs ci prcts, hich my smtims

t gr pri t ris. Th IFSb Giig

Pricips Ris Mgmt hich s iss i 2005

prvis s rmr i itiyig rssig

th spcic riss i Ismic c, sh

primry rrc r y itrst th sjct.

Misccpti 6

13


16/44

Misccpti 7

loweR/HIGHeR CoST oF FundS

Islamic nance may be interest-ree, but certainly not

for-ree. Simpy cs itrst c imps r

Ismic c ctrct, this s t m tht th

cir is t itht y rights rig pprprit

prt rm his s. Simiry, simpy cs th Shrih

gry prhiits th impsiti pty r y

pymts, this s t m tht Ismic c s t

rcgis tim v my.

Pricig, rt cig r rt rtrs r Ismic c

prcts, jst i its cvti ctrprt, is csy

sscit ith th ris xpsrs ivv. whi r

bs II cvti s r m t xps t

crit ris, mrt ris prti ris, Ismic ci

istittis, t thir siss m, hv t s t

it csirtis thr riss tp crit, mrt

prti riss. Ths ic, r xmp, Shrih

cmpic ris; ispc cmmrci ris; ciry

ris risig rm prt-shrig ivstmt ccts. Hc,

Ismic ci istittis t ct cpit tcvr r ths riss, my t cssriy it chpr

t prt cmpr t thir cvti ctrprts.

as mti rir, Ismic c prcts c

tir ccrig t th ris-rtr pr hich mts

th s th srs. accrigy, i prcts hich th

cir hs t r mr ris, h xpct t ti

highr rt rtr, hi i prcts hr th ris

xpsr is r, th pricig my i vr th

c prty.

Hence, it goes without saying that Islamic fnance

can be a cheaper source o unds through design and

negotiation; but it is not automatic.

It is r xmp, rth tig tht i Mysi, risig s

thrgh S c sv th issrs t 1020 sis

pits, mg thrs t th ttrctiv tx ictivs

giv y th gvrmt t crg S issc

th cmptitiv pricig r y Ismic ci

istittis. Th cmprhsiv g, rgtry Shrih

rmr, s s th pth cicy its mrt

irstrctr, s ms Mysi ttrctiv jrisictir S issc rigs th cst risig s

thrgh S rtivy chpr cmpr t shr.


17/44

The Quran does recommend that one should give

orbearance to a debtor that is acing genuine

diculty to meet his obligations. However, this does

not mean Islamic nance is welare or charitable

nance.

Thr is s xpicit rig i th Sunnah th

Prpht s... tht y h irty ts

pymt his t itht y gi cs is tyrt.

Ismic ci istittis r prt-rit titis

hich r sr t thir shrhrs, ivstmt

cct hrs thr sthrs i trms mig

sr tht thy ivr rs rtrs i ccrc

ith th prmtrs st t r th Shrih. Th ty

hr is tht thr is ihrt mchism t crg

th Ismic ci istittis thir sthrs

t rt crprt sci rspsiiity, s i Ism

thr r istittis mtry Zt (ms); vtry

sh (ti) i (gits); s s him(rrc); tht c s r th Ismic ci

istittis thir sthr t ctrit t th sci

-ig th cmmity.

Ismic ci istittis sh t xpct t

ssiis th cmmity hi givig ccss t cig. It

is s ir r cstmrs t t vtg s

th -mig gstr Ismic ci istittis

y irty tig ci igtis

t thm. a ci istitti hich is prt c

ctrit ttr t th cmmity; hc Ismic ci

istittis sh t st ccr ith pprprit

mr spprt ccssi r it t cm prt,

sciy rspsi siss.

Most Islamic fnancial institutions, besides actively

perorming their corporate social responsibilities, also

accommodate customers that have genuine difculty

to repay debts and exercise restraints in undertaking

legal recourse or recovering debts. They also aord

qard al-hassan (benevolent loans) as part o their

service to the society.

I smmry, Ismic ci istittis striv t stri

c t rig prts srvig th rr

sci cmic s th cmmity. Sch rspsi thic crprt ctr sh ,

pprcit mrc y .

welFaRe FInanCe

Misccpti 8

15


18/44

rirs strg trst mg th prtrs, trsprcy

i iscsrs pprprit gvrc strctr, i

rr t rmv irmti symmtry thr mr

hzr prms. as rst, mjrity Ismic c

trsctis hv rrg s s r sig ctrcts,

ths miimisig th mr hzrs th high mitrig

cst. Oten, a charge or caveat will be registered on

the subject matter o the sale or lease, as a collateral

to saeguard payments. To this extent, Islamic fnanceprovides the same protection to the fnancier just like

in conventional fnance.

Thrr, simpy cs Ismic c ppis sm

irt tchis t prsrv th rights th cir

cmpr t cvti c, this s t m tht

Ismic c is risir tty p t s.

no GuaRanTee

Misccpti 9

It is true that there is a general rule in Shariah that

prohibits the nanced party rom providing to the

nancier a guarantee o capital or returns. This is t

y t sr tht thr is mt ri (sry) tht

c pprssiv t th c prty. Rmmr s

tht th mxims -hrj i hm -ghm i

ghrm hich sicy ri tht rrs/gis c y

jsti y th riss t, gi mphsis th prhiiti

prsig y gi thrgh ctrct grt.

However, the Shariah does permit or a guarantee to

be provided by a third party to the transaction, i given

at no consideration. This is th r r th pricip

h (grt r srty). This is s i i ith th

pricip t (mt ssistc r sirity mg

Msims) hich is vry mch crg y th rigi.

I, it is t th pricips h t tht

th ccpt t (Ismic isrc) is riv. Hc,

it is t cmm i y ci trscti tht th rissr mitigt thrgh th istrmt t.

It is rcgis i Ismic c prctic tht prt-

shrig rrgmts sch s Mrh Mshrh


19/44

While it is true that the petro-dollars have been a

catalyst or the growth o Islamic nance especially in

recent years, it has to be acknowledged that it is not

the only driver o the industrys success. ev r th

r ptr pric s sy-rctig, th Ismic ci

srvics istry hs jyig sty 1520%

grth sic its rst icpti i th 1970s.

Vris rprts, sch s y Str & Prs, ths

cmmissi y th gvrmt thritis i astri,

Frc, th uk, mg thrs iti tht th rpi

grth Ismic c is riv y th ig ctrs:

anincreasingawarenessamongsttheMuslim

ppti th viiity siiity Ismic

ci prcts tht hr t th Shrih itht

cmprmisig cit th grti ris

mgmt

developmentofinnovativeShariahcompliantinstruments icsig mrt pyrs tht pths

chics t ctr r irt sgmts th mrt

taxandscalincentivesfromthegovernment,that

s cmptitiv pricig r Shrih cmpit

cig ivstmt strctrs

intensiverestructuringanddiversicationofthe

cmy, hry ctris strt mrig

mssiv irstrctr prjcts tht r c thrgh

Shrih cmpit ms

globalisationcontributedtoIslamicnancialinstitutionsxpig thir prtis y thir triti

rrs

resilienceofIslamicnanceinsurvivingthenancial

tsmi, thgh t tiry scth, hs ttrct

itrst i its mt pricips siss

ms

by ryig ss th i m, Ismic c c cs

tppig thr srcs s ivstmts, spciy

i thr grig istris sch s hspitity srvics,cmmity mirs, mctrig vc

tchgy, tc. This ivrsicti grr ttr

stiity it its rmr.

dRIVen PuRelY bY oIl booM

Misccpti 10

The Islamic nancial

services industry

has been enjoying

a steady 15-20%

annual growth since

its rst inception in

the 1970s.

17


20/44

Simply because a nancial product, a nancial

institution or a banker wears the label or brand

Islamic does not automatically ensure that such

product, institution or banker will be pristinely pious

and incorruptible. Th pic mst ys rmmr tht

s mch s it hs prv tht no fnancial institution

is too big to ail, similarly there is no institution

that is too pious or too virtuous to ail. Th pic

mst ys iigt gist cit chrctrs scrps prtis hm might missig sig

th r r Ism jst r ic gi y pryig

vr th gi pic. Sch chrctrs t cr i

thrs sr rm thir crim r th rptti th

istry is mg y thir gr.

Sthrs th Ismic c istry, spciy th

sprvisry thritis ivstrs, mst vigit t

r rm vris css rs, rch trst

mismgmt tht hv ccrr, mst rtty, i

th m Ismic c. amg thrs:

1987Al-Rayyan,anIslamicInvestmentCompany

stish y rthrs Fthi T a-Ryy, s

t pyrmi schm, csig rprt ss

e 1 ii t mr th 400,000 ivstrs. Th icit

rght thr simir cmpis sch

s -Shri, -S,

H Misr, br -Hi, rc th ctmt

gisti t rstrict t -m (rcivig

s). Th cs rmis ims mg th pic i

egypt, t th xtt tht rct simir rs hv

Ryy

a-qyi (2007) Ryy nsr City (2008).

1997TheBankofCredit&CommerceInternational

(bCCI), hich is cvti , ccpt srm sm ivstrs thrgh its Ismic big uit

s i l. a mr Ismic s pc

s ith bCCI ith th rstig tht th my

i ivst it cmmity ctrcts i ccrc

ith Shrih. wh bCCI tr cps, th itrs

rprt rv tht bCCI i t m sch Shrih

cmpit ivstmts h its cits.

2001IhlasFinans,thenthelargestIslamicbankin

Try ith vr 40% th sctr psits, s

iit y th Trish big Rgti Sprvisi agcy cs it s t hv igy

pprprit mst $1ii, virty th tir v

th psit s, thrgh cct ig t

shrhrs.

Mhi, di Ismic b hs tic sr rm t

mjr mzzmt css, c i 1997 th rcty

i 2008.

Th vpmt vris gvrc strs y th

th aaoIFI th IFSb r cty i rcgiti thtIsmic c is t ihrty imm rm thic

prctics gvrc irs. Besides adhering to the

highest standards o governance and risk management

best practices, Islamic fnancial institutions must

particularly adopt a stringent recruitment

and training requirement to

ensure that their sta continue

to uphold integrity and observe

their fduciary duties.

IMMune FRoM anY uneTHICal PRaCTICe

Misccpti 11

No nancial institution is too big to ail,

similarly there is no institution that is too pious

or too virtuous to ail.


21/44

A lot has been said about Islamic nance being

resilient in the wake o the global nancial crisis,

but once the dust o the nancial crisis has settled, it

becomes clear that not necessarily everything is well in

Islamic nance.

Fr xmp, mr r pyrs i th

mgmt Ismic s, sch s Th Ivstmt dr

(TId) G Ivstmt Hs (GIH), th s i

kit, hv sr mjr sss rig th crisis

hv cm tchicy isvt. Thy hv t rt

pi rstrctrig prcss th g tts r sti

t ght. Th g S mrt is sig smr

issc icrsig ts, y th rptcy

th uS-s S issr est Cmr Gs,

y th shr vhic i t a-S Grp Si

ari, tr s TId GIH. as mr Ismic

ci istittis rs thir tst ci rprts,

mr thm prv t sr hg sss, it sti

ssr cmpr t ths r y thir cvtictrprts.

Ismic ci istittis sh thrr sr tht

thy t vr th sss t rt rm th

ci crisis. Sic th g cmy is sti rcvrig

grth rt is mch sr, thy sh t this

pprtity t c p th hs tight p th

s s, hrvr cssry. Fr xmp, th tcy

y sm Ismic ci istittis t iy rpict

rpcg sm xtic prcts cvti

c thrgh csmtic chgs t m thm Shrih-cmpit sh prticry cr. It is rrism

t t tht iititivs t sig sm rms Shrih-

cmpit sprim istrmt hv rt

r th crisis hpp rtty thr r gh

ism mg gtprs th istry tht ths

istrmts i t ry s th ight th y.

w sh s rmmr tht this is t th rst tim

Ismic ci istittis r tst ith systmic crisis.

Th xprics kit Fic Hs i srvivig th

kit S -Mh crisis i 1982, b Ism i

vigtig thrgh th asi ci crisis i 19971998,

Trish prticipti s i cmig t th

cmic crisis (20002001), sh cvy cr

mssg tht Ismic c s hv sm ihrt

itis tht ctrit t its rsiic. nvrthss, it

sh s cg tht ths ihrt

itis mst spprt y s gvrc, prt

ris mgmt, ctiv rgtry rmr

strtgic rship. a ths trs mst icct

rtr vr tim ith cmmitmt icti

mg y sthrs th istry, spciy th

shrhrs th sprvisry thritis.

I, th Prpht s... hs strgy rmi s t ti

p th cm r c t r t trmi y

ah, th qr s r s tht ah i t hp

y h s t hp hims. Jst i tr isstrs

sch s rths, fs vc rpti my stri

y m rgrss his ith r rigi, simiry ci

cmic criss t chs its victims hthr

Ismic r cvti istittis. oy ths h rmi

prt, stst -prpr r mr iy t

srviv y sch tsts.

IMMune FRoM THe Global FInanCIal CRISIS

Misccpti 12

19


22/44

A number o recent court decisions have proven that

when it comes to resolving disputes arising rom

Islamic nance contracts, Shariah rules and principles

do not necessarily apply.

This is simpy cs, mst t, th isss i ispt

r t Shrih i tr, t rthr spcic t th

civi cmmrci rights igtis s ctrct

y th prtis. Fr xmp, t rc chrg vr

th ctris sst/prprty, try th rmy

vi sght is rmy prvi r s.

Simiry, prcigs sch s r itrim ijcti, Mrv

ijcti, at Pir rr, grish, tc. r prcigs

stish r civi ircty rt t rcmt

ctrct rights igtis. Smtims th g

th ispts my ris rm tx, isvcy r ihritc

prspctivs, i hich cfictig prtis t ris y

Shrih-rt stis.

Sic egish hs iy chs s th gvrig r my itrti Ismic c s icig

S, svr css sch s Shmi b v bximc

Phrmctic, Ismic Ivstmt Cmpy th G

(bhms) v Symphy Gm, TId v bm dvpmt

b, hv rrr t egish crts. Mhi th

rptcy est Cmr Gs is tri i uS crt i

lsi, rigig its S hrs t cim r thir

rights thr. I Mysi, th cstitti spcicy ists

ig mrcti mttrs s ithi th jrisicti

th civi crts t Shrih crts; ths

rstig i mrs Ismic cispts t ci y jgs tri

r cmm t prticry

r Ismic jrisprc. Ths

vpmts, mg thrs, prv

tht th itrc t Shrih

civi r cmm systms

r t hpp spciy

i itrti s, ths

ririg itrict g sis.

a icrsig mr Ismic c ts

ispts ig th rct g ci crisis sh

prst th istry ith pprtity t hv grtr

crity crtity i its ispt rsti prcss. Jgs

yrs hv crci r t py, i rr t

sr tht th rgmts pt rr cisis rriv

t timty isti pic cc i th systm.

Cti hs t thr i tht ssssig th cmptiiity

rciity Ismic c ctrcts ithi g

systm hich is t primriy s Shrih c

tig chg r th crt. Th crt my hv t

ssitiv, t y t th mrits th cs, t s th

rr pic itrsts. amg thrs, th crt sh

cr t sr tht its cisi t rig t

it cscs tht riv pic i th ci

systm r ris ir prjic gist Ismic c.

Hc, th rvt thritis t sr tht th

crt is spprt ipp ith th cssryxprtis g irstrctr t prc vr Ismic

c ispts. bsis t triig xpsrs

t vp th rvt sis, th crt sh hv ccss

t xprt piis sch s rm mg Shrih schrs

r ci sprvisrs. othris, th sss th

cisis, hthr i crt r thr trtiv ispt

rsti rm, might py sti.

I virmt hry th cmy is sti rgy

vr vry Ismic c ispt i

pc r micrscpic scrtiyt s hich ircti it gs, th

istry c ry t rm

ispt rsti mchism tht c

ctivy rirc pic cc.

GoVeRned onlY bY SHaRIaH

Misccpti 13


23/44

RequIReS MInIMal CHanGeS To leGal &

ReGulaToRY FRaMewoRk

Misccpti 14

Islamic nance does not exist in a vacuum; it rirs

igmt ith spprt rm th h g

rgtry rmr. This ms, hi it is imprtt r

th ig ci s ctry t rcgis

ccmmt Ismic c, r xmp, thrgh

spcic gisti, this is r rm scit i srig tht

th Ismic ci ctrcts i ctivy rc.

at th miimm, thr rs tht my hv t

m t ccmmt Ismic c ic

tax laws (r trity tx trtmt), property laws

(r iity t rt trsctis ivvig r stts

crt vi ctrs thm), insolvency laws (t

Ismic ci istittis t rc its cims

gist trs its gist critrs s my

), securities laws (r th Ismic ci

istittis t t r r tr istrmts tht r

Shrih-cmpit).

as Ismic c trsctis cms mr

itrtiis, prpr s t pt i

pc t stish reciprocal enorcement o oreign

judgments rm crss irt jrisictis. Crity i th

ctrit immsy i trms istiig pic

cc i th ci systm, rmv crtity

s t hthr Ismic ci ctrct i vty

rc i crt i cs thr is ispt.

Frthrmr, it mst y rcgis tht th rm r

rsvig ispts risig rm Ismic c ctrcts,

hthr crt jictr r crt ritrti, mst

ty ipp ith cmptt prs s

s cmprhsiv g irstrctrs t it t

prc vr sch css smthy city. Th jgs,

ritrtrs, ttrys, tc. hig sch ispts mst

vry -tri i rr t sr t cmptc

prssiism.

It mst r i mi tht th r tst th

ctivss is i its rcmt. Thrr, sis

ctig mig s, thritis sh giv t

ttti i building capacity or law enorcement.

Hc, it is icrrct t ssm tht Ismic c rirs

y miim chgs t th ci s rgtis,

s i this is y th rst stp i ht sh g

jry. at mst, Ismic big act r Ismic Fic

l c csir s th impts r ctrys Ismic

c istry, t i th h rmr c y

si i igmt ith spprt rm th rst

th g systm r s stitch tgthr.

I ctris hr cmprhsiv rvi rrm

th h g rgtry rmr is t

rt, thy i thir Ismic c istry t

rmi srr y g mis.

It must be borne in mind that the

real test o the eectiveness o law

is in its enorcement. Thereore,

besides enacting and amending

laws, authorities shall giveadequate attention in building

capacity or law enorcement.

21


24/44

Some Islamophobic websites are so earul o Islamic

nance; it has been described as a th generation

warare aimed towards replacing the conventional

nancial system and pursuing world domination by

Islam. H this pssi h th h Ismic

ci systm ccts r ss th 1% th g

ci systm, Msim tis rmi rgy th

prst r-vp? Ths rgmts r it

mi-ggig. I rity, th 56-mmr ctris th

orgisti Ismic Crc (oIC) cctiv grss

mstic prct is ss th 5% tht th r,

its itr-tr vm (t t uS$800 ii) is y

67% th tt g tr. as mch s Msims

vry mch i t s Ismic c ris t grtr hights,

th hrsh rity is tht th h mmh is jst t

ivi t v rm prsig sch rms

g.

My Ismic ctris cti t rgy sgrgt

sr rm prg pitic rst, smtims

v t th xtt ggig i civi rs. ur sch

circmstcs, mst Msim tis t gg

y isss hich r csr t thir hrts hms,

sch s ti ity, cmic srviv miy

ivih. Svr Msim tis rmi hviy it

t th itrti cmmity, v p

itrti i r ti scrity. I, h

c pc r miti i th vcry mjrity Msims, hi th rigi its tchs tht this

r is tmprry th Hrtr is ht is prmt.

I iih, mst Msims jst grt

ctt ith ht thy hv, s ss y ah.

Th sm mirity Msims h hv s

prcimig tht Ism is sti r r miti

Ismic c sh th vhic r ci jih,

hsty, r t i th mistrm. Thy t sp r

th rst Msims.

There are more than 1.57 billion Muslims living on

this planet, according to a 2009 study undertaken by

Forum on Religion and Public Lie, a unit o US-based

think tank Pew Research Centre. As such they are too

heterogeneous to speak in one voice and agree on a

common agenda, despite sharing the same aith.

dr. Rph briti, emrits Prssr Pitic Scic

t d uivrsity ty scri i Th ntr

Strctr th Ismic wr (2000) tht Th

ii pp h prss Ism r t cctrt i

sig, r mss. This irs rm th i i

Chis r th r-ii cctrti ppti

th sctit Ii. ay imgry grt gr

hr, ctr y sig gvrmt, cp risig

rms rmis, is cis.

Thr is g histric s s ctmprry vics

t spprt this, ths prhps it is s t sy tht th cts

sp r thmsvs. o sh prhps pr, it

h hs r thrght th 1400 yrs

histry Ism is ty vi vryhr icig

i -Msim ctris; hs vr si tht this i

mr th mis -h th strt Isms

r miti. Hc, simiry h c sh

vr s s thrt.

To RePlaCe ConVenTIonal SYSTeM, aIMedTowaRdS ISlaMS woRld doMInaTIon

Misccpti 15


25/44

10o Islamic Finance

Main Value Propositions

23


26/44

Iitiy, mr Ismic c s chmpi y

pitic Ism s prt th Ismic rvivism tht

th ipc Msim tis rm ci prs.

Gry, th h ccpt cm mr ppig t

sm sgmts th scity spciy ths h iv

tht th cpitist sciist systms r gr

ith fs. My i prticr hr th xcssiv gr

i rich-pr ivi tht r prciv s ihrt

trs cpitism. at th sm tim, thy isi th

tpi i sciism hry tis th is

tiis th gvrmt ictts h it sh

istrit, ith rights r privt rship. Ismic

c sicy rs mi gr t th t.

Privt trpris is crg, t ith

hvy mphsis mr thic ys prsig

th.

Cmpsry zt (ms) r xmp, hs t pi

y ths csir t hv mt th miimm th

rct, hich ctivy srs thr i sm

it istriti th, spciy t ths i

. bsiss ctivitis m t t rm thr

pps mr ci my hrm pic mrity,

sch s ir, prgrphy gmig r prhiit.

lig t itrst, hich systmticy crg

vr-ig vr-rrig th i tht my

rs my iity, is ri. Th cr v

Ismic c ms r gi prctiv

cmic ctivitis thrgh trs ivstmts.

Sic mst gr tht th mr thic vs

sps y Ismic c c ivrsy pprcit

y y, rgrss his ith, th sry it is rth

highightig th mjr v prpsitis i Ismic c.


27/44

1Value

Proposition

adHeRenCe To SHaRIaH, SubSCRIbInGTo HIGHeR eTHICal IdealS

All moral and ethical value systems would naturally

promote higher ideals such as airness and justice or

all mankind. However, it is ascinating to note that the

primary source or Shariah rules and principles, namely

Quran (the Holy Book) and Sunnah (the acts and

sayings) o Prophet Muhammad s.a.w, more than 1400

years ago have explicitly ordained in a comprehensive

and concise manner certain code o ethics that canbe universally applied even in the modern day,

undeterred by time, space or race.

Fr xmp, thr r spcic qric ijctis tht cs

r hst mt ctrcts (a-Mih: 1); prhiits

th try y trst (a-a: 27); ris th rig

icm rm chtig, pric mipti, ishsty

r r (a-nis: 29); shs th s riry t riv

vtg (a-brh: 188); s s prmts

crity i ctrcts t miimis mipti rm is

migity (a-brh: 282).

Th qr pty rticts tht sh t

jsty i h s t t t t ith jsty

(a-brh:279).

by hrig t Shrih rs pricips, th ci

systm i hrss ith strgr cscic

itgrity, hich it s .

This s t sggst tht th v systm i cvti

c is sss tht Ismic c is tright prct,

t th rity rmis tht m rmirs,

ictivs mtivti, smtims i th rm

spirit gic spirti. Th Shrih prvis

xcty tht. Sic thr r 1.57 ii Msims hm

r y th Shrih v systm, its sigicc

imprtc thrr ct vrmphsis.

I smmry, th Shrih prvis rmr tht c hp

strgth th cscic itgrity i th mrt pc.

whrvr th gvrc systm, rgti, s

s mrt iscipi, my t rch r i r rst

st i c gist misccts hs t s-

rstrit hm cscic.

The Quran aptly articulates that one should not deal

unjustly i he does not want to be dealt with unjustly

(Al-Baqarah:279). By adhering to Shariah rules and

principles, the nancial system will be harnessed with

stronger conscience and integrity, which it does need.

25


28/44

H.E. the Governor o Bank Negara Malaysia, Tan Sri

Dr Zeti Akhtar Aziz has lucidly expressed that Islamic

nance has the potential to become the New Silk

Road that will enhance economic and nancial

linkages not only between Asia and the Middle East

but also the rest o the world. Sh rst m rrc t

th n Si R t th 2 wr Ismic ecmic Frm

(wIeF) i nvmr 2006, hs rthr highight this

tr i sm hr sst spchs.

Sh visis tht Ismic c c ctrit trs th

cit miisti cti s crss rgis

hry rgis ith srps svigs my ch s t

rgis ith cit svigs, t rig t g ci

itgrti. Sigs tht n Si R is frishig r

t th cmic ci igs t

asi th Mi est r grig. whi th r

tr hs th vrg xp y 10% vr th pri

20012005, asis tr ith th Mi est hs icrs

th vrg y 24%. Mr th h th xprts rm

th G stts g t asi, mr th -th its

imprts r rm asi. Th G is th mjr sppir

t asi, hi asi i tr sppis mctr gs

t th G.

Rct trs i ivstmt ctivitis hv y

sigict. Ivstmt prjcts mtig t mr th

uS$160 ii t c y th G stts i asi hv

c sic 2005. I 2006 , mg-sivvig crprt cisitis r stt prchss

rm th G t asi, r stimt t tt mr th

uS$18 ii, icig mti-ii r IPo prchss i

ci istittis i Chi, rg i rris tcm

cmpis. Th v ivstmts s stimt t hv

rch r uS$30 ii i 2007.

Ismic c hs mstrt its viiity

cmptitivss i mr iris gis ci

virmt hs cm imprtt i strgthig

th igs t th t rgis. whi th siz

Msim pptis i th rgis hv ttrct t

th i trs Ismic c, it hs s ttrct

itrst prticipti rm -Msims ithi ths

rgis.

b Simprr scris i Th n Si R (2009)

tht th rct ris th ar r hich is mtch y

mrgig Chi is t jst cicic, sic th t

r histric prs c cct y th rs

grtst tr crrirs.

Th icrsig mr ctris xprig

itrcig s tht ccmmt Ismic c,

spciy ctris hich r prmity -Msim

sch s Chi, Jp kr i th Fr est, astri

i th Sth, s s Frc, lxmrg th uk

i erp, rthr prvs th v prpsiti Ismic

c i prmtig crss-rr tr f s.

2Value

Proposition

PRoMoTInG CRoSS-boRdeR TRade

and Flow oF FundS


29/44

In countries where Islamic nance does not have a

presence, it is common to observe that a substantial

segment o the Muslim population would rerain rom

using the conventional banking acilities in order to

avoid dealing with interest, and as a result they are

isolated, albeit by their own choice, rom participating

in the nancial system. Th Msim miritis scttr

r erp r istc, is pttiy vst rsrv

mrt itig t c, s my thm r

prssis sissm ith rs icm

strm sry i ccss t ci prcts

srvics t mt thir s.

I sm prts th r, th stishmt Ismic

s is prt th pc prcss i ccmmtig

Msim mirity isrgts, sch s i Thi th

Phiippis.

I th uk, th t rmr Gvrr th b eg,

Sir er Grg, is rmmr r his spprtiv

picy Ismic c s ms r ci icsi,

s h h ris sic th ry 90s tht rg scti

th Msim cmmity thr r xc rm th

ci systm t thir rigis pricips hich

prvt thm rm y sig th ci srvics, i

prticr hs mrtggs. Ty th uk hs rti Ismic

r Ismic ivstmt s, psitiig its s

ig h r Ismic c i erp.

Simir t th uk, ctris i Sigpr, Sri l

Sth aric hv g rgtry rmr tht

ccmmts Ismic c, ig thir Msim

mirity t t.

It is rth tig tht sm ctris sch s Chi, Ii,

Grmy, Frc, Rssi th uit Stts hv

mirity Msim ppti siz hich is rtivy iggr

th my Msim-mjrity ctris. I ch thm

pts mr icsiv ci rmr y ig

Ismic c t r i thir mrts, hg

sgmt th cmmity hich crrty is mst iy

t rsrv c prticipt i th ci systm.

Chi cry hs mr prt i xprig this

pprtity rthr y th pprv th rst Ismic

t prt i nigxi. Hvr, it i mst xcitig t

srv i Ii, ith its 160 mii Msim ppti

ig th thir rgst i th r tr Isi (202

mii) Pist (174 mii), is t p p t th i.

This is spciy sic it is mmr th bRIC (brzi-

Rssi-Ii-Chi) grp prict t cm tr r

ig cmis.

3Value

Proposition

FInanCIal InCluSIonS oF THe

undeRSeRVed SeGMenTS oF THeCoMMunITY

It is worth noting that some countries such

as China, India, Germany, France, Russia and

the United States have a minority Muslim

population size which is relatively bigger

than many Muslim-majority countries. I each

o them adopts a more inclusive nancial

ramework by allowing Islamic nance to be

oered in their markets, a huge segment o

the community which currently is most likely

to be underserved can participate in the

nancial system.

27


30/44

The innovation brought about by Shariah-

compliant nancial engineering has contributed

to the introduction o a new asset class, that is

now raising the appetite o investors. Fctrs tht

istigish Ismic ci prcts s irt sst

css rm th cvti ic, mg thrs, th

ig:

asahalalproduct,itcanbeofferedtoandusedby

y, s pps t cvti prcts hich

r hrm r Msims t s ths rgy, is p

t iggr ivstr/cstmr s

itoftencarriesadifferentrisk-returnprolecompared

t its cvti ctrprt. Th IFSb Giig

Pricips Ris Mgmt (2005) xpi i

ti th ircs t th riss i typic

Ismic ci istitti cvti

asIslamicnanceproductsusuallyareunderlined

y sst, prjct r siss vtr, ivstrs i

tig mr xpsrs t prtis sch s r

stt, cmmity, irstrctrs (i m, prt,

irprt, pr pt, tc.), thr trtiv

ivstmts

instrumentslikeSukukforinstance,canbe

strctr i mr th z ys, ith pr

ity r si-ity/si-t ris trs. It

ps p pprtity t rt xpsrs

t stricty Shrih-cmpit titis i th Ismic

dvpmt b thr Ismic ci

istittis

thepricingmechanismmaydepartfrominterest-

s chmrs sch s lIboR

Th xpsi this sst css mr

pth ith it th ci systm, spciy

s ris ivrsicti cms icrsigy imprtt

ig th ci crisis.

4Va

lue

Proposition

eXPanSIon oF a new aSSeT ClaSS


31/44

5As aorementioned, Islamic nance oers a new asset

class, thus allowing more diversication o risks. It is

itrstig t srv h Ismic c hs cm g

y sic its ry icpti, t t r i

rg ci prcts t ctr r vris s.

Fr xmp, rig th ry ys Ismic c, mst

Ismic ci istittis y miis s s

Mrh, wih r qr Hss pricips, t

ty icrsig mr thm r t r simir

prcts r Mrhh r wh pricips. Simiry,

th rist typs S r miy strctr r

qr, Mrhh r by bithm aji pricips, t ty

s mr S Ijrh, Mrh, Mshrh,

Sm, Istis, Istithmr, tc. Hm-cig prcts

hich strt ith Mrhh by bithm

aji c ry Mshrh Mtish. a thsiict h th istry is st vpig mtrig

ith mir ssitivity t th cmic rity mrt

ms.

I th t (Ismic isrc) sctr, ivtis r s

tig pc ith th mvmt rm Mrh m

t th ry stg t wh w ms i rct

yrs. R-t cmpis hv icrs, ig mr

pths ttr cpcity r th Ismic c istry t

mg its riss.

I th cpit mrt, sis th ivti i vris

scritis istrmts, mr stc xchgs hv its

Shrih cmpit ixs, ijctig rthr trtivs

i trms ivstmt chics. Ivstrs r t tp

vst p Shrih cmpit prtis rm th d

Js i th uS t th nii i Jp.

witht t, Ismic c try rs v

prpsiti i th rm mr ris ivrsicti i th

mrt.

5Va

lue

Proposition

MoRe dIVeRSIFICaTIon oF RISkS

29


32/44

6Value

Proposition

unloCkInG THe ValueS oF Idle aSSeTS

Th Shrih prhiiti gist itrst ms tht Ismic

ci istittis ct m my t my, t

rthr mr trs (i.. thrgh ss /r sig

ctrcts) r prticiptry cig (i.. thrgh jit

vtr r prt-shrig rrgmts) t xp th.

bth typs vtrs t rir sm ryig

ssts t ttch t th trscti.

Fr xmp, it is siy srv tht S issc,prticry i th GCC, h mit y r stt

vprs r rgi cstrcti m cm t

i 2008 s th crisis shc mrt cc

i prics smp. This is cs th S ry

rtrs rm tgi ssts sch s rts rm prprtis t

prc csh fs - t itrst - t py ivstrs.

Th ris Ismic c i gr th S mrt

i prticr, prvis v r cig th vs

sm i ssts simpy cs (i) thy my cmpy s

Shrih cmpit ssts; (ii) r stt s sy

sst css t strctr r cs its viiity

th pptit r it.

Th s r stt s ryig sst i cti t

py r i th sctr, thgh t th mmt tht my

hv t t shrt r, t th rst r stt

s i th uS, erp th GCC.

I th mtim, th istry c trtivs

icig ship cig, ship ircrt ss, s

ths ssts r vi thr r Ismic prcts

t thr tht r s sch ss. Thr c

cs ths ryig ssts gig rr. othr

ptis c ic th scritisti rcivs y

cmpis i th tcm, rgy srvics sctrs.

Cmmitis r thr typ sst tht ryris trsctis crri t i Ismic c.

Thrr cmmity sppirs cmmity mrts

c thr src m, i.. mgst Ismic

ci istittis tht hv th pptit r cmmity

t ri thir ci ctrcts.

Thr c thr typs i ssts tht c iy s

Shrih cmpit ths c t rm Ismic c

rirmts ryig ssts. It is p t th mrt t

itiy vrg ths ssts, s Ismic ci

istittis cm trtivs tht c pths

iths it th prct m sctis.


33/44

It has been widely reported that the Islamic nancial

services industry suers rom a dire shortage o

proessionals specically trained and qualied or

this industry. whi it is vis tht Shrih visry

sprvisry sis r th rs tht hv th

highst m ithi th istry, thr is sti vst

scp pprtitis r thr js. ait sry r rm

xhstiv, th ig r mgst th typs srvics

rir s th istry ctis t gr:

Trust administration services

Trst miistrti stishs vris typs trsts ith

cc, s trsts c s r vrity prpss,

sch s pssig th t sccssiv grtis r

stishig chrit tis. Trsts c rprst

th mst tx-cit ys t prsrv th v

ssts. ectiv trst pig, mgmt

miistrti c xtrmy cmpx mttr, s

spciis visr is rir t p, impmt mg high-v trst s r yrs t cm. Th

ipt visr is s sigict phithrpic

trst i miistrti thrgh th g tis

sig t rss mjr sci ctr isss.

Business succession and corporate wealth

management

Fmiis csir t rth t miti rry

higs rm r stt siss ssts t trst

s thr ivstmts i my irt ctris.

Sprvisi ths ssts hs t gt t

prti mgrs is smtims mst s ivrs s

th ssts thmsvs.

Inheritance and estate planning

Ismic stt, ihritc git pig ims t s tht

iivi chrit ciris rciv ptimm

gcy, ccrig t Shrih ihritc . It rirs

cr pig vis--vis tx, crprti ci s

ppic i ch ctry.

Philanthropy and wealth with responsibility

Th Ismic ci istittis thy ivstrs t

ish t hv prgrmms t ctrit r th grtr

g, t stish ctr rspsiiity mg

th cits hirs sccssrs. Spciists tri ith

g Zt, hih, sh i thr

chrit istrmts rir.

Independent Financial Advisors (IFAs)

IFas my t hp rss cit s vr

vrity ctis, icig:

Selectinvestments

Mutualfunds

Foreignexchangeandcommodities

Hedginginstruments

Privateequity

Realestate

Financingfacilities

It is itrstig t t tht i th r Shrih vic

sprvisi i prticr, th Ismic ci srvics

istry hs ctrit i crtig hy ich

prssi c Shrih visrs. It hps t chg

th prigm Shrih cti triig rm

prcig imm mtis tht pryrs cct

mrrig crmis, t highy si Shrih xprts tht

r miir ith ci girig sphistict

cmic ysis, ths cmmig rspct jst i

thir ctrprts i thr prssis sch s yrs,

cctts rs.

Th Itrti Ismic uivrsity Mysi stimts tht

th mr prssis rir y th Ismic c

istry rch 2 mii pp y 2020. ev i

csrvtivy rc tht y 50%, thr is sti t js

t ticipt.

7Value

Proposition

Job CReaTIon

31


34/44

A quick reerence to the IFSB Guiding Principles on

Risk Management (2005) will highlight that Islamic

nance has some specic risk components that

dier rom conventional nance, and additional risk

management structure and ramework would be

needed to manage these risks. Th iti yrs

ris mgmt strctr rmr stish

mr s ris mgmt ctr i Ismic ci

istittis.

Fr xmp, t ith Shrih cmpic riss, hich

is prt th prti rptti riss Ismic

ci istittis, pprprit Shrih gvrc

rmr i hv t pt i pc.

I thr xmp, i rr t rss th ispc

cmmrci ris (dCR) risig rm cmptitiv prssr t

istrit rt ivis tht is cmpr t ht

is pi i th mrt r its ivstmt cct hrs

(IaH), Ismic ci istittis sy stish prtisti rsrv (PeR) ivstmt ris rsrv

(IRR). Th PeR IRR sicy r it rm th grss

prts r rm th ivstmts m h th

IaH, i s t smth th priic ivi

istritis t th IaH, s tht thy mtch th rtrs

giv y th mrt.

as hv cg, th Ismic c

rsistc t cvti rivtivs thr simir

txic ssts hv mjr svir i miimisig th

impct th ci crisis Ismic ci istittis.

br th crisis, t this hs scri s th Ismic

cs achis h, cs it ct ry hg its

riss sig rivtivs istrmts. Ty, this tr hs

prv t try ssig i isgis.

ev i trms stc ix prrmcs, Ismic stc

ixs hv prrmig ttr t 34%

cmpr t thr stc ixs, simpy y viig th

itrst-s ci istittis tht sr hg sss

rig th crisis s thir stc prics pmmt.

Hc, Ismic c rs gi v prpsiti i

trms s ris mgmt.

8Value

Proposition

Sound RISk ManaGeMenT


35/44

Shariah rules and principles require that an Islamic

nancial transaction be supported by an underlying

economic activity, thus ensuring that there is a close

link between nancial and productive fows. This

pricip mty rfcts th sic ig cti

prviig ci srvics tht s v t th rcmy. Fici fs i Ismic c r thrr

ccmpi y th xpsi gi prctiv

ctivity. ur this rrgmt it s vis vr-xpsr

t riss sscit ith xcssiv vrg.

whi th ppicti sst-c sst-s

s s ctrcts prvi ttr cmrt v

r ths h my hv mrt ris pptit, s thir

ris xpsrs r cshi y th ryig sst, th

prt-shrig jit-vtr rrgmts c s

y ths ith highr ris-trc. This sh vry mch

srv th s ths ith ivtiv trprisig

is, s thy c sti hv ccss t cpit ig spit

c ssts t pg s ctrs.

Th gr prhiiti imps y Shrih gist highy

spctiv ctivitis sch s sig t t iscts,

shrt-sig, hrig, tc., sis chig s/

rsrcs t tiis r prctiv vtrs, s hp

t prtct th cmy rm ss istrtis.

ovrvrgig, tht hv s sm ci systmstgrig th r cmy y svr hr prct,

t t hpp i Ismic c.

ecit cti cpit rsrcs spr

ivti trprrship, rr th isprity

t th rich th pr. This is miy cs

cmptiti r cpit rsrcs i s

viiity th siss/prjct rt t mch

s ssts vi s ctrs.

9Value

Proposition

CloSeR SuPPoRT To Real eConoMY

33


36/44

The IDB-IFSB Task Force on Islamic Finance and Global

Financial Stability, chaired by H.E. Governor o Bank

Negara Malaysia, Tan Sri Zeti Akhtar Aziz, in its report

conrms that Islamic nance can contribute to global

nancial stability.

Th Ts Frc iti th ig ihrt trs

th Ismic ci m, hich is s cmpic

ith Shrih rs pricips, s y t its pttis i

ctritig t g ci cmic stiity:

10Value

Proposition

SYSTeMIC STabIlITY

P Fic c y xt t prjcts, tr,

cmic cmmrci trsctis. Fici

ssts c thrr y gr i prprti t

th grth i r cmic ctivitis , hc,

th pssiiity xcssiv vrg ts t

rmt.

P dt s ht y t hv is thmt pricips th mgmt i

Ism, hich rstricts th pssiiity hthy

xcssiv spcti.

P S t is iscrg rschig

t th sis rig itrst is prhiit.

Hc, th crti ivrt pyrmi

ts, hich is mjr src ci criss, is

vi.

P Ivstmts i pic privt itis hvt pss st scrig prcsss. This ms

sci thic rspsiiitis itgr prt

ivstmt cisis.

P Prsrvig gi iiity, rthr ig t th

stiity th IIFS.

P Prviig strg ictivs r Ismic ci

istittis t sr th sccss th prjcts

ctivitis tht thy c.

P emphsisig trsprcy, iscsr

cmtti ctrcts.

Th Ts Frc rcmms th stishmt Ismic

Fici Stiity Frm, hich ims t cmpmt th

G-20 iitit Fici Stiity br, i prmtig g

ci stiity.

I vi th 9 mjr v prpsitis highight rir

i this cmt, th igs th Ts Frc, it is

ivit t cc tht Ismic c is vit

s cmpt ithi y ci systm.


37/44

Your Link to Islamic Finance

35


38/44

ZICO has garnered a reputation or being a leading

regional legal rm in Islamic nancial services,

with its highly regarded credentials and depth o

expertise.

as th g rms ivv i pirig th

istry i Mysi, prmir itrti Ismic

c h, r miir ith r rg

mstic rgi Ismic c trsctis. w

s hv xtsiv xpric crss spcts Ismic

c, icig th g rgtry rmr,

cmpic, prct sig strctrig s s

cmtti prti. w r thrr vry

psiti t vis y i xprig rtirs

gtitig th cmpx g, ctr prctic

scps Ismic c crss asi, hthr y

r gvrmt thrity, ci istitti, ivstr

r cstmr ctmptig t prticipt i this thrivig

istry.

or cr strgth is i r itct cpit

pr isight it th istry, s r yrs

hv ivv i prpsig rgtry

rrms, cmpx trsctis, prct ivti

Shrih-cmpit stis r my jrisictis

istittis. w csir rsvs s gi

srvt prtr th istry, cmmitt t t

ZICO Islamic Finance Practice Group


39/44

y t rm its xpsi t mr imprtty t

ctrit t its vpmt thrgh high ity g

srvics g schrship.

Th ci srvic sctr mst ri y thic

pricips srv t prmt prctivity vs i

th cmy, t stry thm. Th g ci crisis

prvs, mg thrs, th vstti tht c hpp i

ths mts r rmi.

I Ismic c, this is m s prt th

jctivs (msi) th Shrih. Zi Irhim &

C ts pri i srvig th istry ith thics

itgrity, t y y visig hpig t rig it

th mrt iis riggit rth ci prcts,

t srvig tht ivrs prctiv sctrs th

cmy icig rgy, irstrctr, ptti

mctrig t rm Ismic c. or r hs

hp cits i prtctig thmsvs rm cmpx

riss, icig g Shrih -cmpic

riss, ssist thritis i sgrig th istrys

sss rsiic.

w r vt t pyig r prt i ssistig cmis

i tig rm Ismic c th istry its t

ris its tr pttis. or spciis tm yrs

is cg s prmit prctitirs i th

Ismic ci srvics, ith th xpric tht

is rspct y prs cits i. with r xprtis

i th g rgtry rmr, Ismic strctrs,

trsctis prcts th sttig-p Ismic

ci istittis, r tm is ipp t rss

ris itrsts rm rgrig y sgmt

th istry.

37


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ZI Shariah Advisory Services


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ZI Shariah Advisory Sdn Bhd is a provider o Shariah

advisory services in Islamic banking and nance,takaul, Islamic unds, wealth management and

Islamic law in general.

w gi rgtry thritis, ci istittis

s iivis rm vris jrisictis r th

g cctig siss i ccrc ith Shrih

pricips. w prvi vic s thrittiv

strs, crtictis rgtis, hv ssist

cits i grspig cmpx Shrih isss i tm ithth rpi vti th Ismic c istry.

biig r tm mmrs ictis i Ismic

c g xpric i Ismic c,

r iy ipp t pprcit th cs th

Shrih visry scp. or ccss t th mst rit

ccmpish Shrih schrs rig i th

ty tgthr ith r strg cmmitmt t rsrch

schrship s t xp r g s

h r sis i th thry prctic. big

rst-i-mrt ith spciis Shrih-rt srvics,

hv prv r cpiitis r irm Shrih vic tiscrig cits. This hs r s th rcgiti rm

th Scritis Cmmissi Mysi s pprv

Shrih visr r S isscs, Ismic s

thr pprv Ismic cpit mrt prcts.

or tm mmrs hv cir prctic g

g isight gi rm rig cmpx

Shrih isss mjr crss rr trsctis. w

s hv ccss t istigish Shrih cstts rmth cmic siss rs. w r ths t

giv cits iv ipt rm th st mis i th

istry.

ZIShariahP r g r s s T h r g h k g

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The Malaysia International IslamicFinancial Centre (MIFC) Initiative

I agst 2006, th Mysi Itrti Ismic Fici Ctr (MIFC) iititiv s ch t

psiti Mysi s h r itrti Ismic c.

Th MIFC iititiv cmpriss cmmity tr th ctrys ci mrt rgtrs,

Gvrmt miistris gcis tgthr ith istry prticipti rm th ig, t,

cpit mrt istittis, hm cpit vpmt istittis prssi srvics cmpis

hich r prticiptig rig crtivy i th Ismic c.

Th MIFC iititiv is spprt y g g, rgtry Shrih st prctics tht s

istry prctitirs t cct itrti siss i Ismic c ctivitis yhr i Mysi

i th rs s rigiti, Ismic th mgmt, itrti Ismic ig,

itrti t hm cpit vpmt, hi jyig ttrctiv ictivs.

Mysi cms g tts, ig pyrs, issrs ivstrs t shp th tr Ismic

c tgthr thrgh th MIFC iititiv, vrgig tig rm Mysis mr th

30 yrs xpric i Ismic c i virmt ivti thght rship.

Fr mr irmti, g twww.mic.com


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Glossary o Islamic Finance Terminologies

Bay Bithaman Ajil (BBA) : a ctrct hich rrs t th s

prchs trscti r th cig ssts rr

istmt sis ith pr-gr pymt pri. Th s pric i

ic prt mrgi.

Bay al-Salam : a ctrct hry pymt is m i csh t

pit ctrct t ivry sst prchs is rr t pr-

trmi t.

Dhaman : a ctrct grt hry grtr rrits

y cim igti tht sh y th r

sst. This ccpt is s ppic t grt prvi

t trscti i th vt tr is t his t igti.

Gharar :Ghararis mt cpti ithr thrgh igrc

ssti mt th gs, th pric, r thrgh ty

scripti th gs, i hich r th prtis st t

civ. e.g. gmig is rm ghararcs th gmr isigrt th rst th gm.

Ghararis ivi it thr typs, mygharar fahish (xcssiv),

hich vitits th trscti,gharar yasir(mir) hich is trt

gharar mutawassit(mrt) hich s t th thr t

ctgris. ay trscti c cssi s ri ctivity

cs xcssivgharar.

Hibah : a git r t prs.

Hilm : Frrc r ivr.

Ijarah : a manfaah (srct) typ ctrct hry ssr

(r) ss t sst r ipmt t cit t gr

rt pr-trmi s pri p th aqd(ctrct).Th rship th s ipmt rmis i th hs

ssr.

Ijarah Thumma Bay : a ctrct hich gis ith ijarahctrct r th prps sig th ssrs sst t th ss.

Csty, t th th s pri, th ss i prchs

th sst t gr pric rm th ssr y xctig prchs

(y) ctrct.

Inaq : It hs th sm mig s hibah.

Istisna :a prchs rr ctrct ssts hry yr pcs

rr t prchs sst t ivr i th tr. Th yr

rirs th sr r ctrctr t cstrct th sst ivri th tr ccrig t th spcictis giv i th s

prchs ctrct. bth prtis ci th s prchs prics

th sttmt c y r rrg s sch

r cmpt.

Kaalah : It hs th sm mig s dhaman.

Maisir :ay ctivity tht ivvs ttig hry th ir ts

th t th sr ss his t. This is prhiit ccrig t th

Shrih.

Mudarabah : a ctrct m t t prtis t c siss vtr. Th prtis r rabb al-malr ivstr h

sy prvis th cpit mudarib r trprr h

sy mgs th prjct. I th vtr is prt, th prt i

istrit s pr-gr rti. I th siss is ss, it

i r sy y th prvir th cpit.

Murabahah : a ctrct rrrig t s prchs trsctir th cig sst hry th cst prt mrgi

(mr-p) r m gr t y prtis ivv. Th

pymt th prchs pric c stt ithr rrmp sm sis r istmt sis, is spci i th

grmt.

Musharakah : a prtrship rrgmt t t prtis r

mr t c siss vtr hry prtis ctrit

cpit ithr i th rm csh r i i. ay prt riv rm

th vtr is istrit s pr-gr prt shrig rti

ss is shr th sis cpit ctriti.

Qard Hasan : a ctrct t t prtis th sis sci r r t shrt-trm ci th rrr.

Th mt rpymt mst ivt t th mt

rr. It is, hvr gitimt r rrr t py mr th

th mt rr s g s it is t stt r gr t th pit ctrct.

Riba : a icrs, i trscti r i xchg

cmmity, ccr t th r (r) itht givig

ivt ctr v r rcmpsti i rtr t th thr

prty. It cvrs itrst th cmmrci csmr s,

is prhiit ccrig t th Shrih.

Sadaqah : dti.

Sukuk : a cmt r crtict, cmtig th ivi pr-

rt rship ryig ssts. Thsak(sigr sukuk) is

ry tr t pr, prmim r isct.

Shariah : Ismic , rigitig rm th Quran (th hy

Ism), its prctics xptis rr y th prpht

Mhmm (peace be upon him) ijtihad ulamak(prs

rt y i Shrih schrs t trmi th tr rig th

ivi mttrs hich rvtis r t xpicit).

Takaul :a rm Ismic isrc s th pricip

taawun r mt ssistc. It prvis mt prtcti ssts

prprty rs jit ris shrig i th vt ss icrr

y its mmrs. T is simir t mt isrc i tht

mmrs r th isrrs s s th isr.

Wakalah : a ctrct hich givs prs th pr t mit

sm t ct his h, s g s h is iv, s thgr trms citis.

Wadiah Yad Dhamanah : Gs r psits pt r spig

ith thr prs, h is t th r. as wadiah is trst, th

psitry cms th grtr grts rpymt th

h mt th psits, r y prt thr tstig i th

ccts th psitrs, h m. Th psitrs r t

tit t y shr th prts t th psitry my prvi

rtrs t th psitrs s t pprciti.

Zakat : a tx, hich is prscri y Ism prss hvigth v crti mt t rt x y th Shrih.

accrig t th Ismic i zt pris th ss. Th

jctiv is t t y prt th th th -t- tistrit mg ight ctgris pp stt i th qr.

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Ctct dtis

YBhg Dato Dr Nik Norzrul Thani

emi : [email protected]

Madzlan Hussain


Megat Hizaini Hassan


Dr Aida Othman


Zaid Ibrahim & Co

lv 19 Mr Miim

Pst br dmsr

50490 k lmpr

Mysi

T : + 603 2087 9999

Fx : + 603 2094 4666/4888

emi : i@ ziirhim.cm

054 ZI Islamic Finance Booklet R1 21oct10

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