November 12, 2008

Glossary of Islamic Banking Terms


Amanah This refers to deposits in trust. A person can hold a property in trust for another, sometimes by express contract and sometimes by implication of a contract. Amanah entails an absence of liability for loss except in breach of duty. Current Accounts are regarded as Amanah (trust). If the bank gets authority to use Current Account funds in its business, Amanah transforms into a loan. As every loan has to be repaid, banks are liable to repay the full amount of the Current Accounts. Arbun Down payment; a non-refundable deposit paid by a buyer retaining a right to confirm or cancel a sale. Al-‘Aariyah (Gratuitous loan of non-fungible objects) (Al-‘Aariyah means the loan of a particular piece of property, the substance of which is not consumed by its use, without anything taken in exchange, In other words, it is the gift of usufruct of a property or commodity that is not consumed on use. It is different from Qard in that it is the loan of fungible objects which are consumed on use and in which the similar and not the same commodity has to be returned. It is also a virtuous act like Qard. The borrowed commodity is treated as liability of the borrower who is bound to return it to its owner. Bai‘ Muajjal Literally this means a credit sale.Technically it is a financing technique adopted by Islamic banks that takes the form of Murabaha Muajjal. It is a contract in which the seller earns a profit margin on his purchase price and allows the buyer to pay the price of the commodity at a future date in a lump sum or in installments. The bank has to expressly mention the cost of the commodity and the margin of profit is mutually agreed. The price fixed for the commodity in such a transaction can be the same as the spot price or higher or lower than the spot price. Bai’ Salam Salam means a contract in which advance payment is made for goods to be delivered later. The seller undertakes to supply some specific goods to the buyer at a future date in exchange for being paid in advance a price fully paid at the time of contract. According to the normal rules of the Shariah, no sale can be effected unless the goods are in existence at the time of the bargain, but Salam sale forms an exception given by the Prophet himself to the general rule provided the goods are defined and the date of delivery is fixed. It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to potential disputes. The objects of this sale are goods and cannot be gold, silver or currencies because these are regarded as monetary values exchange of which is covered under rules of Bai al Sarf, i.e. mutual exchange which must be hand to hand without delay. Barring this, Bai’ Salam covers almost everything which is capable of being definitely described as to quantity, quality and workmanship. Bai’ bil Wafa Sale with a right in the seller, having the effect of a condition, to repurchase (redeem) the property by refunding the purchase price. According to the majority of Fuqaha this is not permissible. Daman 1) Contract of guarantee, security or collateral;2) Responsibility of entrepreneur/manager of a business; one of two basic relationships toward property, entailing bearing the risk of its loss. Dayn means Debt .A Dayn comes into existence as a result of any contract or credit transaction. It is incurred either by way of rent or sale or purchase or in any other way which leaves it as a debt to another. Duyun (debts) ought to be returned without any profit since they are advanced to help the needy and meet their demands and, therefore, the lender should not impose on the borrower more than what he had given on credit. Falah Falah means to thrive, to become happy or to have luck and success. Technically it implies success both in this world and in the Akhirah (Hereafter). The Falah presumes belief in one God, the apostlehood of Prophet Muhammad, Akhirah and conformity to the Shariah in behaviour. Fiqh Islamic law. The science of the Shariah. Gharar This means any element of absolute or excessive uncertainty in any business or a contract about the subject of contract or its price, or mere speculative risk. It has the potential to lead to undue loss to a party and unjustified enrichment of the other, which is prohibited. Al Ghunm bil Ghurm This provides the rationale and the principle of profit sharing in Shirkah arrangements. Earning a profit is legitimized only by engaging in an economic venture, applying risk sharing principles and thereby contributing to the economy. Hadith (see Sunnah) Halal Anything permitted by the Shariah. Haram Anything prohibited by the Shariah. Examples are wine and pork. Hawalah Literally, this means a transfer.Legally, it is an agreement by which a debtor is freed from a debt by another becoming responsible for it, or the transfer of a claim of a debt by shifting the responsibility from one person to another – contract of assignment of debt. It also refers to the document by which the transfer takes place. Hibah Gift. Ijara means letting on a lease. It refers to the sale of a definite usufruct of any asset in exchange for a definite reward. It refers to a contract of land leased at a fixed rent payable in cash and also to a mode of financing adopted by Islamic banks. It is an arrangement under which the Islamic banks lease equipment, buildings or other facilities to a client, against an agreed rental. Ijarah-wal-Iqtina‘ means a mode of financing, by way of hire-purchase, adopted by Islamic banks. It is a contract under which the Islamic bank finances equipment, building or other facilities for the client against an agreed rental together with a unilateral undertaking by the bank or the client that at the end of the lease period, the ownership in the asset would be transferred to the lessee. The undertaking or the promise does not become an integral part of the lease contract to make it conditional. The rental as well as the purchase price are fixed in such a manner that the bank gets back its principal sum alongwith with some profit, which is usually determined in advance. Ijtihad Refers to the endeavour of a qualified jurist to derive or formulate a rule of law to determine the true ruling of the divine law in a matter on which the revelation is not explicit or certain, on the basis of Nass or evidence found in the Holy Qur’an and the Sunnah. Express injunctions have no room for Ijtihad. Implied injunctions can be interpreted in different ways by way of inference from the accepted principles of the Shariah ‘Illah this is the attribute of an event that entails a particular Divine ruling in all cases possessing that attribute. ‘Illah is the basis for applying analogy for determining permissibility or otherwise of any act or transaction. Ijma‘ Consensus of all or a majority of the leading qualified jurists on a certain Shariah matter in a certain age. ‘Inah ( A kind of Bai): this is a double sale by which the borrower and the lender sell and then resell an object between them, once for cash and once for a higher price on credit, with the net result being a loan with interest. ‘Inan (A type of Shrikah): this is a form of partnership in which each partner contributes capital and has a right to work for the business, not necessarily in equal shares. Istihsan this is a doctrine of Islamic law that allows exception to strict legal reasoning, or guiding choice among possible legal outcomes, when considerations of human welfare so demand. Israf: this refers to immoderateness, exaggeration and waste and covers spending on lawful objects but exceeding moderation in quantity or quality; spending on superfluous objects while necessities are unmet; spending on objects which are incompatible with the economic standard of the majority of the population. See also Tabzir Istisna’a this is a contractual agreement for manufacturing goods and commodities, allowing cash payment in advance and future delivery or a future payment and future delivery. A manufacturer or builder agrees to produce or build a well described good or building at a given price on a given date in the future. Price can be paid in installments, step by step as agreed between the parties. Istisna’a can be used for financing the manufacture or construction of houses, plant, projects, and the building of bridges, roads and highways. Jahala Ignorance, lack of knowledge; indefiniteness in a contract, sometime leading to Gharar. Kali bil-Kali The term Kali refers to something delayed. It appears in a maxim forbidding the sale of al-Kali bil-Kali i.e. the exchange of a delayed counter value for another delayed counter value. Al-Kafalah (Suretyship) Literally, Kafalah means responsibility, amenability or suretyship. Legally in Kafalah a third party become surety for the payment of a debt. It is a pledge given to a creditor that the debtor will pay the debt, fine etc. Suretyship in Islamic law is the creation of an additional liability with regard to the claim, not to the debt or assumption only of the liability and not of the debt. Kharaj bi-al-Daman Gain accompanies liability for loss. This is a Hadith forming a legal maxim and is a basic principle of Islamic finance– see also Al-Ghunm bil Ghurm. Khiyar means an option or the power to annul or cancel a contract. Khiyar al-Majlis means the power to annul a contract possessed by both contracting parties as long as they do not separate. Khiyar al-Shart A right, stipulated by one or both of the parties to a contract, to cancel the contract for any reason for a fixed period of time. Mal-e-Mutaqawam Things the use of which is lawful under the Shariah; or wealth that has a commercial value. Legal tender of the modern age that carry monetary value are included in Mal-e-Mutaqawam. It is possible that certain wealth has no commercial value for Muslims. Examples would be pork or wine. Mithli (Fungible goods): Goods that can be returned in kind, i.e. gold for gold, silver for silver, US $ for US $, wheat for wheat, etc. Mubah means an object that is lawful (i.e. something which is permissible to use or trade in). Mudarabah a form of partnership where one party provides the funds while the other provides expertise and management. The latter is referred to as the Mudarib. Any profits accrued are shared between the two parties on a pre-agreed basis, while loss is borne by the provider(s) of the capital. Murabaha Literally this means a sale on mutually agreed profit. Technically, it is a contract of sale in which the seller declares his cost and the profit. Murabaha has been adopted by Islamic banks as a mode of financing. As a financing technique, it can involve a request by the client to the bank to purchase a certain item for him. The bank does that for a definite profit over the cost which is stipulated in advance. Musawamah Musawamah is a general kind of sale in which the price of the commodity to be traded is bargained between seller and the purchaser without any reference to the price paid or cost incurred by the former. Maisir An ancient Arabian game of chance played with arrows without heads and feathering, for stakes of slaughtered and quartered camels. It came to be identified with all types of hazard and gambling. Musharakah Musharakah means a relationship established under a contract by the mutual consent of the parties for sharing of profits and losses in a joint business. It is an agreement under which the Islamic bank provides funds which are mixed with the funds of the business enterprise and others. All providers of capital are entitled to participate in management, but not necessarily required to do so. The profit is distributed among the partners in pre-agreed ratios, while the loss is borne by every partner strictly in proportion to respective capital contributions. Qimar Qimar means gambling. Technically, it is an arrangement in which possession of a property is contingent upon the happening of an uncertain event. By implication it applies to a situation in which there is a loss for one party and a gain for the other without specifying which party will lose and which will gain. Qiyas Literally this means measure, example, comparison or analogy. Technically, it means a derivation of the law on the analogy of an existing law if the basis (‘illah) of the two is the same. It is one of the sources of Islamic law. Riba means an excess or increase. Technically, it means an increase over the principal in a loan transaction or in exchange for a commodity accrued to the owner (lender) without giving an equivalent counter-value or recompense (‘iwad) in return to the other party; every increase which is without an ‘iwad or equal counter-value. Riba Al-Fadl Riba Al-Fadl (excess) is the quality premium in exchanging low quality with better quality goods e.g. dates for dates, wheat for wheat, etc. – an excess in the exchange of Ribawi goods within a single genus. The Concept of Riba Al-Fadl refers to sale transactions while Riba Al-Nasiah refers to loan transactions. Qabul Acceptance, in a contract; see also Ijab. Qard (Loan of fungible objects): The literal meaning of Qard is ‘to cut’. It is so called because the property is really cut off when it is given to the borrower. Legally, Qard means to give anything having value in the ownership of the other by way of virtue so that the latter could avail of the same for his benefit with the condition that same or similar amount of that thing would be paid back on demand or at the settled time. It is a loan which a person gives to another as a help, charity or advance for a certain time. The repayment of the loan is obligatory. The Holy Prophet is reported to have said “…..Every loan must be paid……”. But if a debtor is in difficulty, the creditor is expected to extend time or even to voluntarily remit the whole or a part of the principal. Qard is, in fact, a particular kind of Salaf. Loans under Islamic law can be classified into Salaf and Qard, the former being loan for a fixed time and the latter payable on demand. (see Salaf) Riba Al-Nasiah Riba Al-Nasiah or riba of delay is due to an exchange not being immediate with or without excess in one of the counter values. It is an increment on principal of a loan or debt payable. It refers to the practice of lending money for any length of time on the understanding that the borrower would return to the lender at the end of the period the amount originally lent together with an increase on it, in consideration of the lender having granted him time to pay. Interest, in all modern banking transactions, falls under the purview of Riba Al-Nasiah. As money in the present banking system is exchanged for money with excess and delay, it falls, under the definition of riba. Ribawi Goods subject to Fiqh rules on Riba in sales, variously defined by the schools of Islamic Law: items sold by weight and by measure, foods, etc. Al- Rahn means pledge or collateral; legally, Rahn means to pledge or lodge a real or corporeal property of material value, in accordance with the law, as security, for a debt or pecuniary obligation so as to make it possible for the creditor to recover the debt or some portion of the goods or property. In the pre-Islamic contracts, Rahn implied a type of earnest money which was lodged as a guarantee and material evidence or proof of a contract, especially when there was no scribe available to put it into writing. Theinstitution of earnest money was not accepted in Islamic law and the common Islamic doctrine recognized Rahn only as a security for the payment of a debt. Salaf means loan/debt .The word Salaf literally means a loan which draws forth no profit for the creditor. In wider sense, it includes loans for specified periods, i.e. short, intermediate and long-term loans. Salaf is another name for Salam as well wherein the price of the commodity is paid in advance while the commodity or the counter value is supplied in future; thus the contract creates a liability for the seller. Amount given as Salaf cannot be called back, unlike Qard, before it is due. (see Qard) Al-Sarf Basically, in pre-Islamic times this was the exchange of gold for gold, silver for silver and gold for silver or vice versa. In Islamic law such an exchange is regarded as ‘sale of price for price’ (Bai al Thaman bil Thaman), and each price is consideration of the other. It also means sale of monetary value for monetary value – currency exchange. Shariah The term Shariah refers to divine guidance as given by the Holy Qur’an and the Sunnah of the Prophet Muhammad and embodies all aspects of the Islamic faith, including beliefs and practice. Shirkah means a contract between two or more persons who launch abusiness or financial enterprise to make profits. In the conventional books of Fiqh, the partnership business is discussed under the option of Shirkah and that may include both Musharakah and Mudarabah. Sunnah means custom, habit or way of life. Technically, it refers to the utterances of the Prophet Muhammad other than the Holy Quran. These utterances are known as Hadith, or his personal acts, or sayings of others, tacitly approved by the Prophet. Tabarru’ means a donation/gift the purpose of which is not commercial but is done to seek the pleasure of Allah. Any benefit that is given by a person to other without getting anything in exchange is called Tabarru’ It is absolutely at the lender’s own discretion and without any prior condition or inducement for reward. Tabzir Spending wastefully on objects which have been explicitly prohibited by the Shariah irrespective of the quantum of expenditure. See also Israf. Ujrah A contract of agency in which one person appoints someone else to perform a certain task on his behalf, usually against a certain fee

October 27, 2008

Islamic Banking Opertunities knoking Indian Subcontinet


Islamic finance in India is slowly beginning to take off, but it will be some time before Islamic banks are really able to make their mark in the booming economy as Mike Gallagher reports
The Middle East has long had trade links with India. Indian Muslims make up 13.4 per cent of the country’s 1.3 billion population and many of these have been going on pilgrimages to Mecca for centuries, so it is no surprise that Islamic banks have been eyeing India for quite some time, although none has a presence there.
This is easy to understand at a practical level. The central bank of India has had a tough time trying to keep up with the pace of the economic boom. It is fully aware of the economic benefits of Islamic finance from an institutional and retail point of view and knows that a number of regulatory changes need to be made, but is often hamstrung by corrupt or recalcitrant regional governments and political infighting amongst the various parties in the coalition government. The banking system is in dire need of reform, but this is unlikely to take place until at least after the general election which is due to take place. However, Islamic finance does exist in various states across India, but it tends to be through cooperative banks or Islamic finance companies such as The Amanath Cooperative Bank, Pune-based Muslim Cooperative Bank, Baitun Nasr Urban Cooperative Society in Mumbai, Al Ameen Islamic Financial & Investment and Al-Falah Investment. Many of these cooperative banks and Islamic finance institutions tend to operate in rural areas such as Kerala.
Islamic finance at a retail level has not been successful in India. Its development has largely been hampered by a lack of adequate central bank rules which would allow it to function alongside conventional banks, such as in the UK or the Middle East.
Islamic banks cannot fully participate in the banking system in India because in order to receive banking licences, they need to comply with central bank rules on capital adequacy ratios and statutory liquidity ratios. These rules mean that all banks have to maintain and deposit 8.5 per cent of their total cash reserves at the central bank.
They then receive interest on 5.5 per cent while 3 per cent does not receive any interest. This immediately puts them at odds with Shari’ah. The fact that they do not and cannot operate under central bank regulations means that the central bank cannot act as a lender of last resort, should the worst come to the worst. Hence the reason for their small scale and the difficulty they have to establish a presence in India. This has meant that conventional banks have also had difficulty opening Islamic windows.
The majority of Islamic finance institutions in India are registered under the Non Banking Finance Companies Reserve Bank Directives 1997 RBI (Amendment) Act 1997 which means they are unable to offer the kinds of services that conventional banks can offer such as credit cards or cheque books and subsequently cannot make use of the settlement and clearing system.
Opportunities exist for Islamic finance in India, but they have not yet reached a retail level. Chetan Mehra, regional head of private banking and NRI services (GCC and Africa) of ICICI Bank in Dubai said, “It would be high net worth or institutional investors that will initially be investing in Islamic finance in India and this will be through the fund route. There is also a lot of activity taking place on the Islamic real estate side in India, especially in development.”
A number of Islamic banks from the Middle East have also been looking to expand internationally and India is highly likely to be somewhere they will be looking seriously at. Taib Bank has Islamic mutual funds such as the Taib GCC Islamic Fund and Taib Everest Fund II and others have been offering Islamic mutual funds through deals with Indian banks. At least one company is looking at the Islamic capital markets as India struggles to build its infrastructure. Velcan Energy, a renewable energy company from France is planning to raise $200 million in a Sukuk offering in the first quarter of 2008 to finance the construction of a hydroelectric dam in India, a first for India. The Sukuk will list on the DIFX.
Baader Wertpapierhandelsbank, a trade finance bank from Germany is planning to launch an Islamic fund in India, while 2iCapital from Bangalore started a $250 million Shari’ah compliant infrastructure fund in 2007. Islamic brokerage, Parsoli Corporation is also planning to join forces with Baader to launch an asset management company within the next 18 months.
IJARAH
At the close of 2007 Kuwait-based Khaleej Finance and Investment, in conjunction with ICICI Bank of India, launched a $200 million private equity fund. The fund has minimum subscription of $250,000 for individuals and $1 million for institutions with a targeted internal rate of return of around 25 per cent. The objective of the fund is to invest in unlisted Indian companies that are involved in areas like real estate, telecommunications, IT and infrastructure.
There has been a tremendous amount of activity by private equity companies in India, with an estimated 400 private equity companies thought to be active and there is believed to be room for Islamic private equity to increase its share of the alternative investments arena.
Some banks expect that at least $1 billion will be ploughed into Indian-orientated Islamic funds over the next 12 months. Kotak Mahindra Mutual Fund, which is part of the giant India Kotak Mahindra conglomerate, has recently launched a $300 million Shari’ah compliant fund.
Meanwhile, Kuwait Finance House and HSBC recently joined forces to arrange what they say is the first Ijarah facility ever to originate from India, a $50 million transaction for an Indian company called SREI Infrastructure Finance.
Investors have plenty of choice if they are looking for Shari’ah compliant investments on Indian stock exchanges, according to Dr Shariq Nisar, a Mumbai-based investment consultant. He estimated that between one third and a half of all stocks on Indian stock exchanges could be Shari’ah compliant. He carried out a survey which showed that nearly 240 listed companies on the Bombay Stock Exchange (BSE) met Shari’ah standards, while 335 out of 1000 on the National Stock Exchange (NSE) also met the criteria for Shari’ah compliance. He added that at least 60 per cent of all Indian companies meet Shari’ah compliance standards, compared to 57 per cent in Malaysia, 51 per cent in Pakistan and just 6 per cent in Bahrain. India even has its own Islamic equity exchange. The Parsoli Islamic Equity Index is an Islamic equity benchmark index, which includes 41 stocks from top 100 companies on exchanges from the BSE Sensex and the NSE Nifty Indices.
ECONOMIC DEVELOPMENT
Majeed Zubair, the dean of the Institute of Islamic Banking and Finance in Hyderabad, believes that India could cater both to Malaysian and Middle Eastern investors and the differing Shari’ah standards. He also said that demand for courses in Islamic finance was far outstripping supply as banks anticipate increasing business from institutional investors looking for access to alternative forms of capital, particularly as the country’s infrastructure is being built up.
The biggest development of late featuring a Middle Eastern Islamic investment bank has been the $10 billion deal that Gulf Finance House (GFH) from Bahrain signed with the state of Maharashtra to develop an economic development zone near Mumbai. This deal was singed at the end of December 2007. The 1600-acre development comes a year after GFH had signed a similar agreement with the state for the development of India’s first energy business district, Energy City India.
Al Baraka from Bahrain, which owns 91 per cent of Al Baraka Islamic Bank, plans to expand into Asia with an initial investment of at least $300 million in the next couple of years and has identified India as one place it hopes to establish a presence, alongside Indonesia and Malaysia. ADCB, which has a Takaful and savings programme called ADCB Meethaq has been active in India since the early 1980s and will in all likelihood, be biding its time as the Indian government prepares to push through legislation to allow Islamic banks to operate under the same rules as conventional banks

October 17, 2008

Islamic bonds (Sukuk): Its introduction and application


Islamic bonds (Sukuk): Its introduction and application

The use of Sukuk or Islamic securities have become increasingly popular in the last few years, both as a means of raising government finance through sovereign issues, and as a way of companies obtaining funding through the offer of corporate sukuk.

Beginning modestly in 2000 with total three sukuk worth $336 millions the total number sukuk by the end of 2006 has reached to 77 with over US$ 27 billion funds under management. By the end of 2007 the total figure is expected to exceed US$35 billion.

Sukuk has developed as one of the most significant mechanisms for raising finance in the international capital markets through Islamically acceptable structures. Multinational corporations, sovereign bodies, state corporations and financial institutions use international sukuk issuance as an alternative to syndicated financing.

What are sukuk? how are they structured? and how they are different from the conventional bond and the conventional securitization processes is discussed in this paper in some detail.

What is Sukuk
Sukuk in general may be understood as a shariah compliant ‘Bond’. In its simplest form sukuk represents ownership of an asset or its usufruct. The claim embodied in sukuk is not simply a claim to cash flow but an ownership claim. This also differentiates sukuk from conventional bonds as the latter proceed over interest bearing securities, whereas sukuk are basically investment certificates consisting of ownership claims in a pool of assets.

Sukuk (plural of word sak) were extensively used by Muslims in the Middle Ages as papers representing financial obligations originating from trade and other commercial activities. However, the present structure of sukuk are different from the sukuk originally used and are akin to the conventional concept of securitization, a process in which ownership of the underlying assets is transferred to a large number of investors through certificates representing proportionate value of the relevant assets.

Sukuk and Bond
- A bond is a contractual debt obligation whereby the issuer is contractually obliged to pay to bondholders, on certain specified dates, interest and principal, whereas, the sukuk holders claims an undivided beneficial ownership in the underlying assets. Consequently, sukuk holders are entitled to share in the revenues generated by the sukuk assets as well as being entitled to share in the proceeds of the realization of the sukuk assets.

- A distinguishing feature of a sukuk is that in instances where the certificate represents a debt to the holder, the certificate will not be tradable on the secondary market and instead is held until maturity or sold at par.

Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) defines sukuk as being:

“Certificates of equal value representing after closing subscription, receipt of the value of the certificates and putting it to use as planned, common title to shares and rights in tangible assets, usufructs and services, or equity of a given project or equity of a special investment activity”.

In 2000 total size of the sukuk was only US$ 336 million with no sovereign sukuk in the market. We can see from the above table that the size of total sukuk issued in 2001 was only US$ 336 million and in a short span of just six year the total size of sukuk has crossed US$ 27 billion. The growth achieved in 2003 has been most impressive at 483%. In 2006 also total growth achieved by sukuk is 122%.

Benefits and Features
- Tradable shariah-compliant capital market product providing medium to long-term fixed or variable rates of return. Assessed and rated by international rating agencies, which investors use as a guideline to assess risk/return parameters of a sukuk issue.

- Regular periodic income streams during the investment period with easy and efficient settlement and a possibility of capital appreciation of the sukuk.
- Liquid instruments, tradable in secondary market.

Uses of Sukuk Funds
The most common uses of sukuk can be named as project specific, asset-specific, and balance sheet specific.

a. Project-specific Sukuk

Under this category money is raised through sukuk for specific project. For example, Qatar Global sukuk issued by the Government of Qatar in 2003 to mobilize resources for the construction of Hamad Medical City (HMC) in Doha. In this case a joint venture special purpose vehicle (SPV), the Qatar Global sukuk QSC, was incorporated in Qatar with limited liability. This SPV acquired the ownership of land parcel, that was registered in the name of HMC. The land parcel was placed in trust and Ijara-based Trust Certificates (TCs) were issued worth US$700 million due by October 2010. The annual floating rate of return was agreed at LIBOR plus 0.45 per cent.

b. Assets-specific Sukuk

Under this arrangement, the resources are mobilise by selling the beneficiary right of the assets to the investors. For example, the Government of Malaysia raised US$ 600 million through Ijara sukuk Trust Certificates (TCs) in 2002. Under this arrangement, the beneficiary right of the land parcels has been sold by the government of Malaysia to an SPV, which was then re-sold to investors for five years. The SPV kept the beneficiary rights of the properties in trust and issued floating rate sukuk to investors.

Another example of Asset-specific sukuk is US$250 million five-year Ijara sukuk issued to fund the extension of the airport in Bahrain. In this case the underlying asset was the airport land sold to an SPV.

c. Balance Sheet-specific Sukuk

An example of the balance sheet specific use of sukuk funds is the Islamic Development Bank (IDB) sukuk issued in August 2003. The IDB mobilised these funds to finance various projects of the member countries. The IDB made its debut resource mobilization from the international capital market by issuing US$ 400 million five-year sukuk due for maturity in 2008.

Types of Sukuk
Sukuk can be of many types depending upon the type of Islamic modes of financing and trades used in its structuring. However, the most important and common among those are ijarah, shirkah, salam and istisna. Among the fourteen eligible sukuks identified by the AAOIFI, following are more common:

1. Mudaraba Sukuk

These are investment sukuk that represent ownership of units of equal value in the Mudaraba equity and are registered in the names of holders on the basis of undivided ownership of shares in the Mudaraba equity and its returns according to the percentage of ownership of share. The owners of such sukuk are the rabbul-mal. (AAOIFI). Mudarba sukuk are used for enhancing public participation in big investment projects.

Salient Features:

Following are the salient features of mudarba sukuk:

I. Mudarba sukuk (MS) represent common ownership and entitle their holders share in the specific projects against which the MS has been issued.

II. The MS contract is based on the official notice of the issue of the prospectus which must provide all information required by shariah for the Qirad contract such as the nature of capital, the ratio for profit distribution and other conditions related to the issue, which must be compatible with shariah.

III. The MS holder is given the right to transfer the ownership by selling the deeds in the securities market at his discretion. The sale of MS must follow the rules listed below:
a. If the mudarba capital, before the operations of the project, is still in the form of money, the trading of MS would be like exchange of money for money. In that case the rules of bay al-sarf would be applied.
b. If muqarda capital is in the form of debt then it must satisfy the principles of debt trading in Islam.
c. If capital is in the form of combination of cash, receivables, goods, real assets and benefits, trade must be based on market price evolved by mutual consent.

IV. The Manager/SPV who receives the fund collected from the subscribers to MS can also invest his own fund. He will get profit for his capital contribution in addition to his share in the profit as mudarib.

V. Neither prospectus nor MS should contain a guarantee, from the issuer or the manager for the fund, for the capital or a fixed profit, or a profit based on any percentage of the capital. Accordingly;

a. The prospectus or the MS issued pursuant to it, may not stipulate payment of a specific amount to the MS holder,
b. The profit is to be divided, as determined by applying rules of shariah; that is, an amount access of the capital, and not the revenue or the yield; and
c. Profit and Loss account of the project must be published and disseminated to MS holders.

VI. It is permissible to create reserves for contingencies, such as loss of capital, by deducting from the profit.

VII. The prospectus can also contain a promise made by a third party, totally un-related to the parties to the contract, in terms of legal entity or financial status, to donate a specific sum, without any counter benefit, to meet losses in the give project, provided such commitment is independent of the mudarba contract.
On the expiry of the specified time period of the subscription, the Sukuk holders is given the right to transfer the ownership by sale or trade in the securities market at his discretion.

Steps involved in the structure:

-Mudarib enters into an agreement with project owner for construction/commissioning of project.
-SPV issues sukuk to raise funds.
-Mudarib collects regular profit payments and final capital proceeds from project activity for onward distribution to investors.
-Upon completion, Mudarib hands over the finished project to the owner.

Mudaraba Sukuk in practice
Shamil Bank of Bahrain raised 360 million Saudi Riyal investment capital through the Al Ehsa Special Realty Mudaraba, representing an investment participation in a land development transaction with a real estate development company in the Kingdom of Saudi Arabia. The investment objective of the Mudaraba is to provide investors with annual returns arising from participation in the funding of a land financing transaction Profits due to investors will be accrued on the basis of returns attained from investing the subscriptions.

2. Musharaka Sukuk

These are investment sukuk that represent ownership of Musharaka equity. It does not differ from the Mudaraba sukuk except in the organization of the relationship between the party issuing such sukuk and holders of these sukuk, whereby the party issuing sukuk forms a committee from the holders of the sukuk who can be referred to in investment decisions (AAOIFI).
Musharaka Sukuk are used for mobilizing the funds for establishing a new project or developing an existing one or financing a business activity on the basis of partnership contracts. The certificate holders become the owners of the project or the assets of the activity as per their respective shares. These Musharaka certificates can be treated as negotiable instruments and can be bought and sold in the secondary market.

“These are certificates of equal value issued with the aim of using the mobilized funds for establishing a new project, developing an existing project or financing a business activity on the basis of any partnership contracts so that the certificate holders become the owners of the project or assets of the activity as per their respective shares, with the Musharaka certificates being managed on the basis of participation or Mudaraba or an investment agency.” (AAOIFI Standard 17, 3/6)

Steps involved in the structure:

Corporate and the Special Purpose Vehicle (SPV) enter into a Musharaka Arrangement for a fixed period and an agreed profit-sharing ratio. Also the corporate undertakes to buy Musharaka shares of the SPV on a periodic basis.

-Corporate (as Musharik) contributes land or other physical assets to the Musharaka
-a & b. SPV (as Musharik) contributes cash i.e. the issue Proceeds received from the investors to the Musharaka
-The Musharaka appoints the Corporate as an agent to develop the land (or other physical assets) with the cash injected into the Musharaka and sell/lease the developed assets on behalf of the Musharaka.
-In return, the agent (i.e. the Corporate) will get a fixed agency fee plus a variable incentive fee payable.
-The profits are distributed to the sukuk holders.
-The Corporate irrevocably undertakes to buy at a pre-agreed price the Musharaka shares of the SPV on say semi-annual basis and at the end of the fixed period the SPV would no longer have any shares in the Musharaka.

Musharaka Sukuk in Practice
US$550 million sukuk transaction for Emirates airline, the seven-year deal was a structured on a Musharaka contract. The Musharaka or joint venture was set up to develop a new engineering centre and a new headquarters building on land situated near Dubai’s airport which will ultimately be leased to Emirates. Profit, in the form of lease rentals, generated from the Musharaka venture will be used to pay the periodic distribution on the trust certificates.

Sitara Chemical Industries Ltd, a public limited company, made a public issue of profit-and-loss sharing based term finance certificates (TFC’s) worth Rs 360 million which were subscribed in June 2002. The TFC’s had a fixed life tenor of five years and profit and loss sharing was linked to the operating profit or loss of the Chemical Division of the company.

Kuwait Finance House (KFH), Liquidity Management Center (LMC) and Al Muthanna Investment Company (MIC), the mandated lead arrangers launched US$ 125 million Lagoon City Musharaka sukuk to support the Lagoon City residential and commercial real estate development as part of Kheiran Pearl City project.

3. Ijara Sukuk

These are sukuk that represent ownership of equal shares in a rented real estate or the usufruct of the real estate. These sukuk give their owners the right to own the real estate, receive the rent and dispose of their sukuk in a manner that does not affect the right of the lessee, i.e. they are tradable. The holders of such sukuk bear all cost of maintenance of and damage to the real estate. (AAOIFI)

Ijarah sukuk are the securities representing ownership of well defined existing and known assets tied up to a lease contract, rental of which is the return payable to sukuk holders. Payment of ijarah rentals can be unrelated to the period of taking usufruct by the lessee. It can be made before beginning of the lease period, during the period or after the period as the parties may mutually decide. This flexibility can be used to evolve different forms of contract and sukuk that may serve different purposes of issuers and the holders.

Features of Ijarah sukuk

1. It is necessary for an ijarah contract that the assets being leased and the amount of rent both are clearly known to the parties at the time of the contract and if both of these are known, ijarah can be contracted on an asset or a building that is yet to be constructed, as long as it is fully described in the contract provided that the lessor should normally be able to acquire, construct or buy the asset being leased by the time set for its delivery to the lessee (AAOIFI, 2003: 140-157). The lessor can sell the leased asset provided it does not hinder the lessee to take benefit from the asset. The new owner would be entitled to receive the rentals.

2. Rental in ijarah must be stipulated in clear terms for the firs term of lease, and for future renewable terms, it could be constant, increasing or decreasing by benchmarking or relating it to any well-known variable.

3. As per shariah rules, expenses related to the corpus or basic characteristics of the assets are the responsibility of the owner, while maintenance expenses related to its operation are to be borne by the lessee.

4. As regards procedure for issuance of ijarah sukuk, an SPV is created to purchase the asset(s) that issues sukuk to the investor, enabling it to make payment for purchasing the asset. The asset is then leased to third party for its use. The lessee makes periodic rental payments t the SPV that in turn distributes the same to the sukuk holders.

5. Ijara sukuk are completely negotiable and can be traded in the secondary markets.

6. Ijara sukuk offer a high degree of flexibility from the point of view of their issuance management and marketability. The central government, municipalities, awqaf or any other asset users, private or public can issue these Sukuk. Additionally, they can be issued by financial intermediaries or directly by users of the leased assets.

Steps involved in the structure
-The obligator sells certain assets to the SPV at an agreed pre-determined purchase price.
-The SPV raises financing by issuing sukuk certificates in an amount equal to the purchase price.
-This is passed on to the obligator (as seller).
-A lease agreement is signed between SPV and the obligator for a fixed period of time, where the obligator leases back the assets as lessee.
-SPV receives periodic rentals from the obligator;
-These are distributed among the investors i.e. the sukuk holders.
-At maturity, or on a dissolution event, the SPV sells the assets back to the seller at a predetermined value. That value should be equal to any amounts still owed under the terms of the Ijara sukuk.

Ijara Sukuk in Practice
In December 2000, Kumpulan Guthrie Berhad (Guthrie) was granted a RM1.5 billion (US$400 million) Al-Ijara Al-Muntahiyah Bit-Tamik by a consortium of banks. The original facility was raised to re-finance Guthrie’s acquisition of a palm oil plantation in the Republic of Indonesia. The consortium was then invited to participate as the underwriter/primary subscriber of the Sukuk Transaction.

US$350 million sukuk Trust Certificates by Sarawak Corporate Sukuk Inc. (SCSI) Sarawak Economic Development Corporation (SEDC) raised financing amounting to US$350 million by way of issuance of series of trust certificates issued on the principle of Ijara sukuk. The certificates were issued with a maturity of 5 years and under the proposed structure, the proceeds will be used by the issuer to purchase certain assets from 1st Silicon (Malaysia) Sdn Bhd. Thereafter, the issuer will lease assets procured from 1st Silicon to SEDC for an agreed rental price for an agreed lease period of 5 years.

4. Murabaha Sukuk

In this case the issuer of the certificate is the seller of the Murabaha commodity, the subscribers are the buyers of that commodity, and the realised funds are the purchasing cost of the commodity. The certificate holders own the Murabaha commodity and are entitled to its final sale price upon the re-sale of the Commodity. The possibility of having legally acceptable Murabaha-based sukuk is only feasible in the primary market. The negotiability of these Sukuk or their trading at the secondary market is not permitted by shariah, as the certificates represent a debt owing from the subsequent buyer of the Commodity to the certificate-holders and such trading amounts to trading in debt on a deferred basis, which will result in riba.

Despite being debt instruments, the Murabaha Sukuk could be negotiable if they are the smaller part of a package or a portfolio, the larger part of which is constituted of negotiable instruments such as Mudaraba, Musharaka, or Ijara Sukuk. Murabaha sukuk are popular in Malaysian market due to a more liberal interpretation of fiqh by Malaysian jurists permitting sale of debt (bai-al-dayn) at a negotiated price.

Steps involved in the structure:

-A master agreement is signed between the SPV and the borrower
-SPV issues sukuk to the investors and receive sukuk proceeds.
-SPV buys commodity on spot basis from the commodity supplier.
-SPV sells the commodity to the borrower at the spot price plus a profit margin, payable on installments over an agreed period of time
-The borrower sells the commodity to the Commodity buyer on spot basis.
-The investors receive the final sale price and profits.

Murabaha Sukuk in Practice
Arcapita Bank, a Bahrain-based investment firm has mandated Bayerische Hypo-und Vereinsbank AG (“HVB”), Standard Bank Plc (“SB”) and WestLB AG, London Branch (“WestLB”) (together the “Mandated Lead Arrangers”), to arrange a Five Year Multicurrency (US$, € and £) Murabaha-backed Sukuk. Sukuk will have a five-year bullet maturity and proposed pricing three month LIBOR +175bps.

5. Salam Sukuk

Salam sukuk are certificates of equal value issued for the purpose of mobilising Salam capital so that the goods to be delivered on the basis of Salam come to the ownership of the certificate holders. The issuer of the certificates is a seller of the goods of Salam, the subscribers are the buyers of the goods, while the funds realized from subscription are the purchase price (Salam capital) of the goods. The holders of Salam certificates are the owners of the Salam goods and are entitled to the sale price of the certificates or the sale price of the Salam goods sold through a parallel Salam, if any.

Salam-based securities may be created and sold by an SPV under which the funds mobilized from investors are paid as an advance to the company SPV in return for a promise to deliver a commodity at a future date. SPV can also appoint an agent to market the promised quantity at the time of delivery perhaps at a higher price. The difference between the purchase price and the sale price is the profit to the SPV and hence to the holders of the Sukuk.

All standard shariah requirements that apply to Salam also apply to Salam sukuk, such as, full payment by the buyer at the time of effecting the sale, standardized nature of underlying asset, clear enumeration of quantity, quality, date and place of delivery of the asset and the like.

One of the Shariah conditions relating to Salam, as well as for creation of Salam sukuk, is the requirement that the purchased goods are not re-sold before actual possession at maturity. Such transactions amount to selling of debt. This constraint renders the Salam instrument illiquid and hence somewhat less attractive to investors. Thus, an investor will buy a Salam certificate if he expects prices of the underlying commodity to be higher on the maturity date.

Steps involved in the transaction:

-SPV signs an undertaking with an obligator to source both commodities and buyers. The obligator contracts to buy, on behalf of the end-Sukuk holders, the commodity and then to sell it for the profit of the Sukuk holders.
-Salam certificates are issued to investors and SPV receives Sukuk proceeds.
-The Salam proceeds are passed onto the obligator who sells commodity on forward basis
-SPV receives the commodities from the obligator
-Obligator, on behalf of Sukuk holders, sells the commodities for a profit.
-Sukuk holders receive the commodity sale proceeds.

Salam Sukuk in Practice
Aluminum has been designated as the underlying asset of the Bahrain Government al Salam contract, where by it promises to sell aluminum to the buyer at a specified future date in return of a full price payment in advance. The Bahrain Islamic Bank (BIB) has been nominated to represent the other banks wishing to participate in the Al Salam contract. BIB has been delegated to sign the contracts and all other necessary documents on behalf of the other banks in the syndicate. At the same time, the buyer appoints the Government of Bahrain as an agent to market the appropriate quantity at the time of delivery through its channels of distribution. The Government of Bahrain provides an additional undertaking to the representative (BIB) to market the aluminum at a price, which will provide a return to al Salam security holders equivalent to those available through other conventional short-term money market instruments.

6. Istisna Sukuk

Istisna sukuk are certificates that carry equal value and are issued with the aim of mobilising the funds required for producing products that are owned by the certificate holders. The issuer of these certificates is the manufacturer (supplier/seller), the subscribers are the buyers of the intended product, while the funds realised from subscription are the cost of the product. The certificate holders own the product and are entitled to the sale price of the certificates or the sale price of the product sold on the basis of a parallel Istisna, if any. Istisna Sukuk are quite useful for financing large infrastructure projects. The suitability of Istisna for financial intermediation is based on the permissibility for the contractor in Istisna to enter into a parallel Istisna contract with a subcontractor. Thus, a financial institution may undertake the construction of a facility for a deferred price, and sub contract the actual construction to a specialised firm.

Shariah prohibits the sale of these debt certificates to a third party at any price other than their face value. Clearly such certificates cannot be traded in the secondary market.

Steps involved in the structure:

-SPV issues Sukuk certificates to raise funds for the project.
-Sukuk issue proceeds are used to pay the contractor/builder to build and deliver the future project.
-Title to assets is transferred to the SPV
-Property/project is leased or sold to the end buyer. The end buyer pays monthly installments to the SPV.
-The returns are distributed among the Sukuk holders.

Istisna Sukuk in Practice
Tabreed’s five-year global corporate Sukuk (on behalf of the National Central Cooling Company, UAE) provided a fixed coupon of 5.50%. It is a combination of Ijara Istisna and Ijara Mawsufah fi al dhimmah (or forward leasing contracts). The issue was launched to raise funds to retire some existing debt, which totals around US$136 million, as well as to finance expansion.

The Durrat Sukuk will finance the reclamation and infrastructure for the initial stage of a broader US$ 1 billion world class residential and leisure destination known as ‘Durrat Al Bahrain’, currently the Kingdom of Bahrain’s largest residential development project. The return on the Sukuk is 125 basis points over 3 months LIBOR payable quarterly, with the Sukuk having an overall tenor of 5 years and an option for early redemption. The proceeds of the issue (cash) will be used by the Issuer to finance the reclamation of the land and the development of Base Infrastructure through multiple project finance (Istisna) agreements. As the works carried out under each Istisna are completed by the Contractor and delivered to the Issuer, the Issuer will give notice to the Project Company under the Master Ijara Agreement and will lease such Base Infrastructure on the basis of a lease to own transaction.

7. Hybrid Sukuk

Considering the fact that Sukuk issuance and trading are important means of investment and taking into account the various demands of investors, a more diversified Sukuk – hybrid or mixed asset Sukuk – emerged in the market. In a hybrid Sukuk, the underlying pool of assets can comprise of Istisna, Murabaha receivables as well as Ijara. Having a portfolio of assets comprising of different classes allows for a greater mobilization of funds. However, as Murabaha and Istisna contracts cannot be traded on secondary markets as securitised instruments at least 51 percent of the pool in a hybrid Sukuk must comprise of Sukuk tradable in the market such as an Ijara Sukuk. Due to the fact the Murabaha and Istisna receivables are part of the pool, the return on these certificates can only be a pre-determined fixed rate of return.

Steps involved in the structure:

-Islamic finance originator transfers tangible assets as well as Murabaha deals to the SPV.
-SPV issues certificates of participation to the Sukuk holders and receive funds. The funds are used by the Islamic finance originator.
-Islamic finance originator purchase these assets from the SPV over an agreed period of time.
-Investors receive fixed payment of return on the assets.

Hybrid Sukuk in practice

Islamic Development Bank issued the first hybrid Sukuk of assets comprising 65.8% Sukuk al-Ijara, 30.73% of Murabaha receivables and 3.4% Sukuk al-Istisna. This issuance required the IDB’s guarantee in order to secure a rating and international marketability. The $ 400 million Islamic Sukuk was issued by Solidarity Trust Services Limited (STSL), a special purpose company incorporated in Jersey Channel Islands. The Islamic Corporation for the Development of Private Sector (ICD) played an intermediary role by purchasing the asset from IDB and selling it to The Solidarity Trust Services Limited (STSL) at the consolidated net asset value.

Conclusion
The market for sukuk is now maturing and there is an increasing momentum in the wake of interest from issuers and investors. sukuk have confirmed their viability as an alternative means to mobilise medium to long-term savings and investments from a huge investor base.

Different sukuk structures have been emerging over the years but most of the sukuk issuance to date have been ijara sukuk, since they are based on the undivided pro-rata ownership of the underlying leased asset, it is freely tradable at par, premium or discount. Tradability of the sukuk in the secondary market makes them more attractive. Although less common than Ijara sukuk, other types of sukuk are also playing significant role in emerging markets to help issuers and investors alike to participate in major projects, including airports, bridges, power plants etc. The sovereign sukuk issues, following Malaysia’s lead, are enjoying widespread and positive acclaim among Islamic investors and global institutional investors alike.
Source: Finance in Islam

March 14, 2009

London warms to Islamic finance


London warms to Islamic finance

The land of Adam Smith now teems with a vibrant Islamic banking sector, with even non-Muslims being lured by the model’s promise of transparency and stability.

London – Shabaz Bhatti is proud to be a devout Muslim – but his plans to remortgage the family home with one of Britain’s new generation of Islamic banks isn’t just about religion.

The 30-something driving instructor wants reliability, and believes Britain’s growing Islamic finance sector offers this in a way that myriad traditional main street banks no longer do.

“It’s simple and straightforward, which is great because … it seems as though interest rates right now could go ballistic,” says Mr. Bhatti, whose parents immigrated to England from Pakistan.

At a time of almost unprecedented financial volatility, Islamic banks are being hailed as bastions of stability. Growing numbers of individuals and companies are now embracing their workings, which are based on Koranic principles.

Using law changes and generous tax breaks, the British government is now attempting to transform London into the Western world’s center for Islamic finance. Conventional banks and financial institutions are also rolling out a range of Islamic finance products.

Globally, the market for Islamic financial services is estimated to have grown more than threefold over the past decade – from around $150 billion in the mid-1990s to $500 billion in 2006.

Keen to tap into this, Britain’s authorities are planning to become the first Western government to issue an Islamic bond – called a sukuk – structured to comply with the sharia law principles of Islamic finance, which forbids all forms of interest payments.

Sharia law also prohibits investing in any enterprises involved with alcohol, gambling, tobacco, and pornography – a fact that nicely dovetails with the growing number of Westerners seeking socially responsible investments.

According to a new study by International Financial Services London (IFSL), an independent organization representing Britain’s financial services industry, Islamic finance will emerge largely unscathed from the current global crisis, largely because its structures make little or no use of many of the complicated instruments blamed for the current problems in conventional finance, such as derivatives and short-selling.

Although Islamic finance does allow for risk-taking, it does not permit excessive uncertainty, known as gharar. All deals to buy or sell are invalid if the object dealt with is not certain and transparent.

When risks are taken, the Islamic financial model insists they are shared. In retail, this involves the customer and their bank sharing the risk of any investment on agreed terms, and dividing any profits between them. Products revolve around principles such as murabaha, a form of credit enabling customers to make a purchase without having to take out an interest-bearing loan. The bank buys the item and then sells it on to the customer on a deferred basis.

Bhatti, who lives in the leafy London suburb of Wimbledon with his wife and young daughter, is currently a customer of Abbey National, a traditional, Western bank. He has had no objection to using conventional Western financial products. However, in the past, the couple were customers of the Bank of Kuwait when they bought a home costing nearly $200,000 in the London district of Croydon.

The Bank of Kuwait valued the house at about $270,000, based on what it was expected to be worth at a later date, and arranged for the family to pay the money back in equal installments over the next 16 years. Now, Bhatti is planning to return to such an arrangement by transferring his conventional mortgage to an Islamic bank.

“With the current economic situation, our plans to go back to Islamic banking are not just about religion, they’re a financial decision. It’s more secure … and it’s clearer for the future,” he says.

More than 26 banks in the UK offer Islamic financial products, including major institutions such as HSBC. Six Islamic banks are wholly compliant with sharia law. A pioneer of Islamic retail banking has been the Islamic Bank of Britain, which has 64,000 account holders and branches in cities including London, Birmingham, and Manchester. The bank recently launched its most competitively priced sharia mortgage to date, offering terms that company executives hope will lure takers beyond its core market of Britain’s 2 million working Muslims.

This country’s growing Muslim community is helping broaden London’s reputation as a financial capital, says Patrick Lamb, an official who joined a British government delegation this week to the World Islamic Banking Conference in Bahrain, where the UK authorities and a range of London-based banks and firms showcased their expertise.

“We have by far the largest concentration of Islamic finance anywhere in Europe,” Mr. Lamb says.

Along with home and retail finance, increasing numbers of companies are also turning to Islamic finance to raise money for expansion, ranging from steel manufacturers to luxury gift firms, which are often owned by Muslims or have Muslim shareholders. Money from wealthy Gulf investors has been pouring into Britain in recent years. There is no more potent symbol of this than the skyline of London’s financial center, known as The City.

A fund from Kuwait spent more than $600 million recently to buy the Willis Building, one of the tallest in the district, while nearly $3 billion is coming from Qatar to finance the building of what will be Europe’s tallest building, a 1,000-foot-tall structure known as the Shard of Glass

By Ben Quinn | Correspondent of The Christian Science Monitor
from the November 28, 2008 edition

January 29, 2009

IBN KHALDUN, FATHER OF ECONOMICS


IBN KHALDUN, FATHER OF ECONOMICS
DR. IBRAHIM M. OWEISS

In his Prolegomena (The Muqaddimah), ‘Abd al-Rahman Ibn Muhammad Ibn Khaldun al-Hadrami of Tunis (A.D. 1332-1406), commonly known as Ibn Khaldun, laid down the foundations of different fields of knowledge, in particular the science of civilization (al-’umran). His significant contributions to economics, however, should place him in the history of economic thought as a major forerunner, if not the “father,” of economics, a title which has been given to Adam Smith, whose great works were published some three hundred and seventy years after Ibn Khaldun’s death. Not only did Ibn Khaldun plant the germinating seeds of classical economics, whether in production, supply, or cost, but he also pioneered in consumption, demand, and utility, the cornerstones of modern economic theory.

Before Ibn Khaldun, Plato and his contemporary Xenophon presented, probably for the first time in writing, a crude account of the specialization and division of labor. On a non-theoretical level, the ancient Egyptians used the techniques of specialization, particularly in the era of the Eighteenth Dynasty, in order to save time and to produce more work per hour. Following Plato, Aristotle proposed a definition of economics and considered the use of money in his analysis of exchange. His example of the use of a shoe for wear and for its use in exchange was later presented by Adam Smith as the value in use and the value in exchange. Another aspect of economic thought before Ibn Khaldun was that of the Scholastics and of the Canonites, who proposed placing economics within the framework of laws based on religious and moral perceptions for the good of all human beings. Therefore all economic activities were to be undertaken in accordance with such laws.

Ibn Khaldun was cognizant of these ideas, including the one relating to religious and moral perceptions. The relationship between moral and religious principles on one hand and good government on the other is effectively expounded in his citation and discussion of Tahir Ibn al-Husayn’s (A.D. 775-822) famous letter to his son ‘Abdallah, who ruled Khurasan with his descendants until A.D. 872. From the rudimentary thoughts of Tahir he developed a theory of taxation which has affected modern economic thought and even economic policies in the United States and elsewhere.

This paper attempts to give Ibn Khaldun his forgotten and long overdue credit and to place him properly within the history of economic thought. He was preceded by a variety of economic but elemental ideas to which he gave substance and depth. Centuries later these same ideas were developed by the Mercantilists, the commercial capitalists of the seventeenth century-Sir William Petty (A.D. 1623-1687), Adam Smith (A.D. 1723-1790), David Ricardo (A.D. 1772-1823), Thomas R. Malthus (A.D. 1766-1834), Karl Marx (A.D. 1818-1883), and John Maynard Keynes (A.D. 1883-1946), to name only a few-and finally by contemporary economic theorists.

Labor Theory of Value, Economics of Labor, Labor as the Source of Growth and Capital Accumulation

With the exception of Joseph A. Schumpeter, who discovered Ibn Khaldun’s writings only a few months before his death, Joseph J. Spengler, and Charles Issawi, major Western economists trace the theory of value to Adam Smith and David Ricardo because they attempted to find a reasonable explanation for the paradox of value. According to Adam Smith and as further developed by David Ricardo, the exchange value of objects is to be equal to the labor time used in its production. On the basis of this concept, Karl Marx concluded that “wages of labour must equal the production of labour” and introduced his revolutionary term surplus value signifying the unjustifiable reward given to capitalists, who exploit the efforts of the labor class, or the proletariat. Yet it was Ibn Khaldun, a believer in the free market economy, who first introduced the labor theory of value without the extensions of Karl Marx.

According to Ibn Khaldun, labor is the source of value. He gave a detailed account of his labor theory of value, presenting it for the first time in history. It is worth noting that Ibn Khaldun never called it a “theory,” but had skillfully presented it (in volume 2 of Rosenthal translation) in his analysis of labor and its efforts. Ibn Khaldun’s contribution was later picked up by David Hume in his Political Discourses, published in 1752: “Everything in the world is purchased by labour.”7 This quotation was even used by Adam Smith as a footnote. “What is bought with money or with goods is purchased by labour, as much as what we acquire by the toil of our body. That money or those goods indeed save us this toil. They contain the value of a certain quantity of labour which we exchange for what is supposed at the time to contain the value of an equal quantity. The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities.” If this passage which was published in A.D. 1776 in Adam Smith’s major work, is carefully analyzed, one can find its seeds in Ibn Khaldun’s Prolegomena (The Muqaddimah). According to Ibn Khaldun, labor is the source of value. It is necessary for all earnings and capital accumulation. This is obvious in the case of craft. Even if earning “results from something other than a craft, the value of the resulting profit and acquired (capital) must (also) include the value of the labor by which it was obtained. Without labor, it would not have been acquired.”

Ibn Khaldun divided all earnings into two categories, ribh (gross earning) and kasb (earning a living). Ribh is earned when a man works for himself and sells his objects to others; here the value must include the cost of raw material and natural resources. Kasb is earned when a man works for himself. Most translators of Ibn Khaldun have made a common mistake in their understanding of ribh. Ribh may either mean a profit or a gross earning, depending upon the context. In this instance, ribh means gross earning because the cost of raw material and natural resources are included in the sale price of an object.

Whether ribh or kasb, all earnings are value realized from human labor, that is, obtained through human effort. Even though the value of objects includes the cost of other inputs of raw material and natural resources, it is through labor and its efforts that value increases and wealth expands, according to Ibn Khaldun. With less human effort, a reversal to an opposite direction may occur. Ibn Khaldun placed a great emphasis on the role of “extra effort,” which later became known as “marginal productivity,” in the prosperity of a society. His labor effort theory gave a reason for the rise of cities, which, as his insightful analysis of history indicated, were the focal points of civilizations.

Whereas labor may be interpreted from Ibn Khaldun’s ideas as both necessary and sufficient conditions for earnings and profit, natural resources are only necessary. Labor and its effort lead to production, which is in turn used for an exchange through barter or through the use of money, that is, gold and silver. The process therefore creates incomes and profits which a man derives from a craft as the value of his labor after having deducted the cost of raw material. Long before David Ricardo published his significant contribution to the field of economics in 1817, The Principles of Political Economy and Taxation, Ibn Khaldun gave the original explanation for the reasons behind the differences in labor earnings. They may be attributed to differences in skills, size of markets, location, craftsmanship or occupation, and the extent to which the ruler and his governors purchase the final product. As a certain type of labor becomes more precious, that is, if the demand for it exceeds its available supply, its earnings must rise.

High earnings in one craft attract others to it, a dynamic phenomenon which will eventually lead to an increase in its available supply and consequently lower profits. This principle explains Ibn Khaldun’s original and insightful analysis of long-term adjustments within occupations and between one occupation and another. However, this point of view was attacked by John Maynard Keynes in his famous statement that in the long run we are all dead. Nevertheless, Ibn Khaldun’s analysis has not only proved to be historically correct but has also constituted the core thinking of classical economists.

Ibn Khaldun succinctly observed, explained, and analyzed how earnings in one place may be different from another, even for the same profession. Earnings of judges, craftsmen, and even beggars, for example, are directly related to each town’s degree of affluence and standard of living, which in themselves are to be achieved through the fruits of labor and the crystallization of productive communities. Adam Smith explained differences in labor earnings by comparing them in England and in Bengal along the same lines of reasoning given by Ibn Khaldun four centuries earlier as he compared earnings in Fez with those of Tlemcen. It was Ibn Khaldun, not Adam Smith, who first presented the contribution of labor as a means of building up the wealth of a nation, stating that labor effort, increase in productivity, and exchange of products in large markets are the main reasons behind a country’s wealth and prosperity. Inversely, a decline in productivity could lead to the deterioration of an economy and the earnings of its people. “A large civilization yields large profits [earnings] because of’ the large amount of [available] labor which is the cause of [profit].”

It was also Ibn Khaldun, long before Adam Smith, who made a strong case for a free economy and for freedom of choice.

Among the most oppressive measures, and the ones most deeply harming society, is the compelling of subjects to perform forced work unjustly. For labour is a commodity, as we shall show later, in as much as incomes and profits represent value of labour of their recipients…nay most men have no source of income other than their labour. If, therefore, they should be forced to do work other than that for which they have been trained, or made to do forced work in their own occupation, they would lose the fruit of their labour and be deprived of the greater part, nay of the whole, of their income.

To maximize both earnings and levels of satisfaction, a man should be free to perform whatever his gifted talents and skilled abilities dictate. Through natural talents and acquired skills, man can freely produce objects of’ high quality, and, often, more units of labor per hour.

Demand, Supply, Prices, and Profits

In addition to his original contribution to the economics of labor, Ibn Khaldun introduced and ingeniously analyzed the interplay of several tools of economic analysis; such is demand, supply, prices, and profits.

Demand for an object is based on the utility of acquiring it and not necessarily the need for it. Utility is therefore the motive force behind demand. It creates the incentives for consumer spending in the marketplace. Ibn Khaldun had therefore planted the first seed of modern demand theory, which since been developed and expanded by Thomas Robert Malthus, Alfred Marshall, John Hicks, and others. As a commodity in demand attracts increased consumer spending, both the price and the quantity sold are increased. Similarly, if the demand for certain crafts decreases, its sales fall and consequently its price is reduced.

Demand for a certain commodity also depends upon the extent to which it will be purchased by the state. The king and his ruling class purchase much larger quantities than any single private individual is capable of purchasing. A craft flourishes when the state buys its product. With his ingenious analytical mind, Ibn Khaldun had further discovered the concept known in modern economic literature as “derived demand.” “Crafts improve and increase when the demand for their products increases.” Demand for a craftsman is therefore derived from the demand for his product in the marketplace.

As is commonly known, modern price theory states that cost is the backbone of supply theory. It was Ibn Khaldun who first examined analytically the role of the cost of production on supply and prices. In observing the differences between the prices of foodstuffs produced in fertile land and of that produced in poor soils, he traced them mainly to the disparity in the cost of production.

[In] the coastal and hilly regions, whose soil is unfit for agriculture, (inhabitants) were forced to apply themselves to improving the conditions of those fields and plantations. This they did by applying valuable work and manure and other costly materials. All this raised the cost of agricultural production, which costs they took into account when fixing their price for selling. And ever since that time Andalusia has been noted for its high prices ….The position is just the reverse in the land of the Berbers. Their land is so rich and fertile that they do not have to incur any expenses in agriculture; hence in that country foodstuffs are cheap.

Besides individual and state demand and cost of production, Ibn Khaldun introduced other factors which affect the price of goods or services, namely, the degree of affluence and the prosperity of districts, the degree of concentration of the wealthy, and the degree of customs duties being levied on middlemen and traders. The direct functional relationship between income and consumption as presented by Ibn Khaldun paved the road to the theory of consumption function as a cornerstone of Keynesian economics.

Ibn Khaldun also made an original contribution in his concept of profits. In economic literature, a theory of profit as a reward for undertaking risk in a future of uncertainties is generally attributed to Frank Knight, who published his ideas in 1921. There is no doubt that Frank Knight substantially advanced a well-established theory of profit. Nevertheless, it was Ibn Khaldun, not Frank Knight, who originally planted the seed of this theory: “Commerce means the buying of merchandise and goods, storing them, and waiting until fluctuation of the market brings about an increase in the prices of (these goods). This is called profit (ribh).” In another context, Ibn Khaldun stated again the same idea: “Intelligent and experienced people in the cities know that it is inauspicious to hoard grain and to wait for high prices, and that the profit (expected) may be spoiled or lost through (hoarding).” Profit is therefore a reward for undertaking a risk. In the face of future uncertainties, a risk-bearer may very well lose instead of gain. Similarly, profits or losses may accrue as a result of speculation which is carried out by profit-seekers in the marketplace. To maximize profits, Ibn Khaldun introduced a gospel for traders, “Buy cheap and sell dear,” which has been widely quoted ever since. In his translation of the Muqaddimah of Ibn Khaldun, Franz Rosenthal stated in a footnote, “In 1952 a book by Frank V. Fischer appeared, entitled Buy LowSell High: Guidance for the General Reader in Sound Investment Methods and Wise Trade Techniques.”

If Ibn Khaldun’s gospel is applied to cost analysis, it becomes obvious that profit may be increased, even for a given price of a final product, when one reduces the cost of raw material and other inputs used in production by buying them at a discount or, in general, at a low price even from distant markets, as he indicated in his account of benefits of foreign trade. Nevertheless, Ibn Khaldun concluded that both excessively low prices and excessively high prices are disruptive to markets. It is therefore advisable that states not hold prices artificially low through subsidies or other methods of market intervention. Such policies are economically disastrous because the low-priced goods will disappear from the market and there will be no incentive for suppliers to produce and sell whenever their profits are adversely affected. Ibn Khaldun also concluded that excessively high prices will not be compatible with market expansion. As the high-priced goods sell less in the market, the policy of excessively high pricing becomes counterproductive and disrupts the flow of goods in markets. Ibn Khaldun had thus laid down the foundations of ideas which later led to the formulation of disequilibrium analysis. He also cited several factors affecting the upward general price level, such as increase in demand, restrictions of supply, and increase in the cost of production, which includes a sales tax as one of the components of a total cost. After his analysis of what stimulates overall demand in it growing economy, Ibn Khaldun stated the following:

Because of the demand for (luxury articles), they become customary, and thus come to be necessities. In addition, all labor becomes precious in the city, and the conveniences become expensive, because there are many purposes for which then, are in demand in view of the prevailing luxury and because the government makes levies on market and business transactions. This is reflected in the sales prices. Conveniences, foodstuffs, and labor thus become very expensive. As a result, the expenditures of the inhabitants increase tremendously in proportion to the civilization of (the city). A great deal of money is spent. Under these circumstances, (people) need a great deal of money for expenditures, to procure the necessities of life for themselves and their families, as well as all other requirements.

As to the impact of restricted supply on the price level, Ibn Khaldun summed it up thus: “When goods are few and rare, their prices go up.”

By carefully reading the above two passages, it becomes obvious that Ibn Khaldun discovered what is now known as cost-push and demand-pull causes of inflationary pressures. In fact, he was the first philosopher in history who systematically identified factors affecting either the price of a good or the general price level.

Macroeconomics, Growth, Taxes, Role of Governments, and Money

In macroeconomics, Ibn Khaldun laid the foundations of what John Maynard Keynes called “aggregate effective demand,” the multiplier effect and the equality of income and expenditure.25 When there is more total demand as population increases, there is more production, profits, customs, and taxes. The upward cycle of growth continues as civilization flourishes and a new wave of total demand is created for the crafts and luxury products. “The value realized from them increases, and, as a result, profits are again multiplied in the town. Production there is thriving even more than before. And so it goes with the second and third increase.” People’s “wealth, therefore, increases and their riches grow, the customs and ways of luxury multiply, and all the various kinds of crafts are firmly established among them.” The concept of the multiplier was later developed and expanded by several economists, in particular by John Maynard Keynes. However, it was discovered for the first time in history by Ibn Khaldun.

Modern national income accounts were also developed and expanded using the equality of income and expenditures. Expenditures of one citizen are income to others; therefore total expenditures are equal to total incomes. This equality was first discovered by Ibn Khaldun. In fact, he used both terms as synonymous to one another after having established the equality between them. “Income and expenditure balance each other in every city. If the income is large, the expenditure is large, and vice versa. And if both income and expenditure are large, the inhabitants become more favourably situated, and the city grows.”

Ibn Khaldun introduced the pioneering theory of growth based on capital accumulation through man’s efforts.

(Man) obtains (some profits) through no efforts of his own, as, for instance, through rain that makes the fields thrive, and similar things. However, these things are only contributory. His own efforts must be combined with them, as will be mentioned. (His) profits will constitute his livelihood, if they correspond to his necessities and needs. They will be capital accumulation it they are greater than (his needs).”

Ibn Khaldun gave his account of the stages of economic development, from nomadic to agricultural to more “cooperation in economic matters” which occur through an expansion of a town to a city, where demand increases and skilled labor congregates and expands production both ill quantity and in “refinement.” Economic growth continues so long as there is an extra effort which creates capital accumulation, which in turn, combined with effort, leads to more production and the development of crafts in the cities. As was presented earlier, wealth expands through labor and its efforts, whereas with less human effort there may occur a reversal to stagnation, followed by a downward trend in people’s standard of living.

Governments play an important role in growth and in the country’s economy in general through their purchases of goods and services and through their fiscal policy of taxation and expenditures. Governments may also provide an environment of incentives for work and prosperity or, inversely, a system of oppression which is ultimately self-defeating. Even though Ibn Khaldun regards governments as inefficient, “not so much calculation” is carried out by them of what is contemporarily known as cost and benefit; they still play an important role in the country’s economy through their big purchases. Government expenditures stimulate the economy by increasing incomes, which are further hiked through a multiplier effect. However, if the king hoards the amount he collects in taxes, business slackens and the economic activities of the state are adversely affected through the multiplier effect. In addition to its welfare program for the poor, the widows, the orphans, and the blind, provided there is no overburden for the treasury, the government should spend its tax revenue wisely to improve conditions of its “subjects, to safeguard their rights and to preserve them from harm.”

Ibn Khaldun was the first major contributor to tax theory in history. He is the philosopher who shaped the minds of several rulers throughout history. More recently his impact was evident on John F. Kennedy and later on Ronald Reagan. “Our true choice is not between tax reduction on the one hand and avoidance of large federal deficits on the other. An economy stilled by restrictive tax rates will never produce enough revenue to balance the budget, just as it will never produce enough jobs or enough profits.” John F. Kennedy said that back in 1962, when he was asking for a tax decrease, a cut in tax rates across the board. But when John Kennedy said those words, he was echoing the words of Ibn Khaldun, a Muslim philosopher back in the fourteenth century, who said the following: “At the beginning of the dynasty taxation yields large revenues from small assessments. At the end of the dynasty taxation yields small revenue from large assessments….This is why we had to have the tax program as well as the budget cuts, because budget cuts, yes, would reduce government spending.”

According to Ibn Khaldun, tax revenues of the ruling dynasty increase because of business prosperity, which flourishes with easy, not excessive taxes. He was therefore the first in history to lay the foundation of a theory for the optimum rate of taxation, a theory which has even affected contemporary leading advocates of supply-side economics such as Arthur Laffer and others. The well-known Laffer curve is nothing but a graphical presentation of the theory of taxation developed by Ibn Khaldun in the fourteenth century.

“When tax assessments and imposts upon the subjects are low, the latter have the energy and desire to do things. Cultural enterprises grow and increase, because the low taxes bring satisfaction. When cultural enterprises grow, the number of individual imposts and assessments mount. In consequence, the tax revenue, which is the sum total of the individual assessments, increases”; whereas with large tax assessments, incomes and profits are adversely affected, resulting, in the final analysis, in a decline in tax revenue. Ibn Khaldun made a strong case against any government attempt to confiscate or otherwise affect private property. Governments’ arbitrary interferences in man’s property result in loss of incentives, which could eventually lead to a weakening of the state. Expropriation is self-defeating for any government because it is a form of oppression, and oppression ruins society.

In macroeconomics Ibn Khaldun also contributed to the theory of money. According to him, money is not a real form of wealth but a vehicle through which it can be acquired. He was the first to present the major functions of money as a measure of value, a store of value and a “numeraire.” “The two mineral ‘stones,’ gold and silver as the (measure of) value for all capital accumulations … [are] considered treasure and property. Even if under certain circumstances, other things are acquired, it only for the purpose of ultimately obtaining [them]. All other things are subject to market fluctuations from which (gold and silver) are exempt. They are the basis of profit, property and treasure.” The real form of wealth is not money, however; wealth is rather created or otherwise transformed through labor in the form of capital accumulation in real terms. It was, therefore, Ibn Khaldun who first distinguished between money and real wealth, even though he realized that the latter may he acquired by the former. Yet money plays a much more efficient role than barter in business transactions in a society where man exchanges the fruits of his labor, whether in the form of goods or of services, with another to satisfy the needs which he cannot fulfill alone on his own. Money also facilitates the flow of goods from one market to another, even across the border of countries.

Foreign Trade

Ibn Khaldun also contributed to the field of international economics. Through his perceptive observations and his analytical mind, he undoubtedly shed light on the advantages of trade among nations. Through foreign trade, according to Ibn Khaldun, people’s satisfaction, merchants’ profits, and countries’ wealth are all increased.

The merchant who knows his business will travel only with such goods as are generally needed by rich and poor, rulers and commoners alike. (General need) makes for a large demand for his goods…it is more advantageous and more profitable for the merchants’ enterprise… (that he will be able to take advantage of) market fluctuations, if he brings goods from a country that is far away…merchandise becomes more valuable when merchants transport it from one country to another.

The italicized word, valuable, indicates Ibn Khaldun’s perception of the gains of trade. If a good becomes more valuable by being transported from country A to country B and still sells at a profit in B after the cost of transportation and all other costs are taken into account, then it is (1) cheaper than the same good produced internally, (2) of better quality, or (3) a totally new product. If the foreign good is cheaper than that produced internally, foreign trade will serve to economize labor and other resources by having them diverted from the high-cost good which cannot face competition to other low-cost products. The resources which are saved from this process of diversion may be used to produce other goods or may add another layer of capital accumulation. Foreign trade may therefore contribute positively to the country’s level of income as well as to its level of growth and prosperity. If the foreign good is of a better quality than that produced internally, the imported good will add to the level of satisfaction of those who purchase it. In the meantime, internal producers facing the competitive high-quality product must attempt to improve their production or accept a reduction in their sales and revenues. There will be a welfare gain in either case: a rise in the quality of internal products or a diversion of resources from the production of a high-cost good to a low-cost good, as in the first case. In the last case, when the imported good is a totally new product, the welfare gain from foreign trade may be expressed in terms of an increase in the level of satisfaction of those who purchase it or in terms of an increase in quantity or quality of production of other goods if the imported item is a new tool or a modification of an existing one. Furthermore, an introduction of a totally new product through foreign trade may attract internal producers, if it is feasible, to produce it once they are capable to compete with the foreign product.

Ibn Khaldun was conscious of what was later termed the “opportunity cost.” Applying valuable labor to improving poor soils means that the labor could have been better used in the production of other goods. Resources in general should be put to the best possible use. Otherwise there will be a cost which will surface in a loss in value. Foreign trade provides further incentives in the attempts to optimize the use of labor and other natural resources.

Ibn Khaldun’s originality in his perceptive observations and analysis of foreign trade deserves proper recognition in the field of international economics. The subject of gains from trade has been substantially developed and expanded, in particular, since the publication of Political Discourses by David Hume in 1752. But the first original seed of the subject was planted by Ibn Khaldun four centuries earlier.

Ibn Khaldun and Adam Smith

In spite of Ibn Khaldun’s overall contribution to the field of economics, it is Adam Smith who has been widely called the “father of economics.” Schumpeter’s view of Smith’s economics is more critical than admiring. “Personally, I do not share such a view, for I still consider Adam Smith one of the great philosophers who has significantly contributed to the field of economics even by having been a mere collector of previous economic thoughts. He eloquently presented these ideas in detail in an excellent new form and style. Nevertheless, by comparison, Ibn Khaldun was far more original than Adam Smith, in spite of the fact that the former had also restructured and built upon foundations laid down before him, such as Plato’s account of specialization, Aristotle’s analysis of money, and Tahir Ibn al-Husayn’s treatment of government’s role. Still, it was Ibn Khaldun who founded the original ideas in numerous areas of economic thought.

Despite Ibn Khaldun’s contributions, some economic ideas as well as some economic philosophy of the freedom of choice, as presented above, were later attributed to Adam Smith without giving due credit to the original thinker Ibn Khaldun. “Smith’s great economic treatise contains both his ‘preaching’ of the ‘gospel’ of economic liberalism, i.e., economic freedom for all individuals.”39 Since there is such a striking similarity in the economic thought of Ibn Khaldun and of Adam Smith, it must be left to the economic historian to ascertain direct or indirect links between these two great thinkers who were four centuries apart. However, I would like to suggest some possible and likely points of contact. Even though Adam Smith did not explicitly refer to Ibn Khaldun’s contributions, it may well be argued that there were several channels through which he may have encountered the latter’s pioneering and original economic thought.

Adam Smith graduated from Glasgow University, where he was influenced by his teacher Francis Hutcheson, who was in turn affected by Antony Ashley Cooper, known as Lord Shaftesbury in the late seventeenth century and early eighteenth century, and other philosophers who were concerned with “liberal enlightenment,” all of whom may have been directly or indirectly affected by Ibn Khaldun’s thought. After his graduation, Adam Smith devoted six years to research at Oxford University’s library, where he may have been exposed to Ibn Khaldun’s contributions even without having been aware of the author’s name. It was not uncommon in early times that ideas were circulated, discussed, and delivered from one generation to another without the name of an author. Furthermore, ever since the Crusades, which lasted from the eleventh to the thirteenth centuries, most Western philosophers attempted to discount the impact of Muslim scholars through a multiplicity of approaches, which included using Muslim ideas without mentioning the name of a Muslim author. The protracted war waged by the Crusaders to capture the Holy Land from the Muslims created a strong antagonistic feeling, well embedded in the Western mind, from which Western scholars were not immune and which lasted for centuries, probably until modern times. Another possible channel through which Adam Smith may have been directly or indirectly exposed to Ibn Khaldun’s economic thought was through his tour of Europe. During this tour he encountered Quesnsay, other Physiocrats in Paris, and other European intellectuals who may have been influenced by Ibn Khaldun in one way or another.

Adam Smith could also have been exposed to the economic contributions of Ibn Khaldun through the dominant influence of the Ottoman Empire. Ever since the Ottoman Empire rose in the fourteenth century-and vastly extended its boundaries at its peak in the sixteenth century to include much of southeast Europe, southwest Asia, and northern Africa-a new bridge was erected linking intellectuals in the Continent with their counterparts in the vast territories of the empire, of which Egypt became a part in 1517. It was in Egypt that Ibn Khaldun spent the latter part of his life revising manuscripts of his works which he had originally completed in Tunis in November of 1377. His thoughts were then transmitted from one generation to another, from one century to another, and from one country to another. Influenced by Ibn Khaldun’s idea that craftsmen and industrialists play a significant role in a country’s growth, prosperity, and power, Sultan Selim 1, after having successfully extended his domain of influence over Egypt in 1517, took back with him from Cairo to Constantinople the best-known artisans at that time. In modern terminology, this was a case of a “transfer of technology.”

The impact of Ibn Khaldun was extensive and profound, not only in the minds of some rulers and statesmen, but also among intellectuals and educators long before his books were even translated into other languages, In response to great interest in his works, his books were finally translated to the Turkish language in 1730, exactly forty-six years before the publication of Adam Smith’s The Wealth of Nations.

Concluding Remarks

Even if Adam Smith was not directly exposed to Ibn Khaldun’s economic thoughts, the fact remains that they were the original seeds of classical economics and even modern economic theory. Ibn Khaldun had not only been well established as the father of the field of sociology, but he had also been well recognized in the field of history, as the following passage from Arnold Toynbee indicates:

In his chosen field of intellectual activity [Ibn Khaldun] appears to have been inspired by no predecessors … and yet, in the Prolegomena … to his Universal History he has conceived and formulated a philosophy of history which is undoubtedly the greatest work of its kind that has yet been created by any mind in any time or place.

Through his great sense and knowledge of history, together with his microscopic observations of men, times, and places, Ibn Khaldun used an insightful empirical investigation to analyze and produce original economic thought. He left a wealth of contributions for the first time in history in the field of economics. He clearly demonstrated breadth and depth in his coverage of value and its relationship to labor; his analysis of his theory of capital accumulation and its relationship to the rise and fall of dynasties; his perceptions of the dynamics of demand, supply, prices, and profits; his treatment of the subjects of money and the role of governments; his remarkable theory of taxation, and other economic subjects. His unprecedented contributions to the overall field of economics should make him, Ibn Khaldun, the father of economics.

January 29, 2009

Global recession and promises of Islamic finance


Global recession and promises of Islamic finance

Dr. M. Mizanur Rahman

THE world economy is in the grip of a financial crisis. The crisis originated in the United States (US) with plunging house prices, stock price declines, and a severe credit crunch (falling credit availability), and then spread across Europe and major Asian countries. This financial crisis is far more serious than any experienced over the last four decades. International Monetary Fund (IMF) considers this financial crisis as more serious than the great depression of the 1930s. In spite of billions of dollars of bailout and liquidity injections by a number of developed countries, the crisis is showing no signs of abating. There is hence a call for a new architecture that would help minimise the frequency and severity of such crises in the future. But before we call a new architecture to redesign the financial market let us try to determine the primary cause of the financial crises.

Causes of present global crisis: It is very difficult to find out the causes of this financial crisis in one word but it is generally recognised that most important cause is excessive and imprudent lending by banks and financial institutions. There are several factors which make this possible for banks to resort to such unhealthy practice. Of them, the most important factor is the inadequate market discipline in the financial system resulting from the absence of profit and loss sharing (PLS). Mind-boggling expansion in the size of derivatives, especially credit default swaps (CDSs) is also an important factor as it claimed to provide protection to lenders against default. Another important factor is the “too big to fail” concept which tends to give an assurance to big banks that the central bank will definitely come to their rescue and not allow them to fail.

The false sense of immunity from losses introduces a fault line in the system. Banks do not, therefore, undertake a careful evaluation of the loan projects. This leads to an unhealthy expansion in the overall volume of credit, to excess leverage, and to an unsustainable rise to a steep decline in asset prices, and to financial frangibility and debt crisis, particularly if there is overindulgence in short sales. This can be justified by a comment “a bubble is more likely to develop when investors can leverage their positions by investing borrowed funds.”

The sub prime mortgage crisis in the grip of which the US finds itself at present, is also the result of excessive and imprudent lending. Securitisation of the “originate-to-distribute” model of financing has played a crucial role in this. Mortgage originators collateralised the debt by mixing prime and sub prime debt. By selling the collateralized debt obligations (CDOs), they passed the entire risk of default to the ultimate purchaser.

They had, therefore, less incentive to undertake careful underwriting. Consequently, loan volume gained greater priority over loan quality and the amount of lending to sub prime borrowers and speculators increased steeply. The lenders are not confident of repaying this excessive and imprudent lending which results and excessive resort to derivatives like credit default swaps (CDSs) to seek protection against default. The buyer of the swap (creditor) pays a premium to the seller (a huge fund) for the compensation he will receive in case the debtor defaults. If this protection had been confined to the actual creditor, there may not have been any problem. The problems arise when the hedge funds sold the swaps not to just the actual lending bank but also to a large number of others who were willing to bet on the default of the debtor. These swap holders, in turn resold the swaps to others. The whole process continued several times. While in genuine insurance contract only the one actually insured claims compensation, in the case of CDSs several swap holders will claim compensation. This accumulates the risk and makes it difficult for the hedge funds and banks to honour their commitments.

Although many Americans are blaming the Jewish lobby and Israel for the current catastrophic financial crisis affecting the USA and the world (Abrahamam Foxman, New York Times, October 7, 2008), there is still no proof that anyone can blame the global markets crisis on any one group nor can one blame it on any other country. Therefore, it may not be anything to do with religion or ethnic groups rather this global economic crisis driven by greed. But without making any debate of putting responsibilities on any body’s shoulder nor even blaming any religion or ethnic groups we will broadly discuss the feature of the financial system and will see if the Islamic financial system can be an alternative of the conventional financial system.

The Islamic financial system: Allah says in the Holy Qur’an that a society where there is no justice will ultimately head towards decline and destruction (Al-Qur’an 57:25) which implies that the most important objective of Islam is to realise greater justice in human society. Justice requires a set of rules or moral values, which everyone accepts and faithfully complies with. The financial system may be able to promote justice, if it satisfies at least two conditions based on moral values. One of these is that the financier should also share in the risk so as not to shift the entire burden of losses to the entrepreneur, and the other is that an equitable share of financial resources mobilised by financial institutions should become available to the poor to help eliminate poverty, expand employment and self-employment opportunities and, thus, help reduce inequalities of income and wealth.

To fulfill the condition of justice, Islam requires both the financier and the entrepreneur to equitably share the profit as well as the loss. For this purpose, one of the basic principles of Islamic finance is: No risk, no gain”. This should help motivate the financial institutions to assess the risk more carefully and to effectively monitor the use of funds by the borrowers. The double assessment of risk by both the financier and the entrepreneur should help inject greater caution into the financial system, and go a long way in reducing excessive lending. Islamic finance should, in its ideal form, help raise substantially the share of equity and profit-and -loss sharing (PLS) in business. Greater reliance on equity finance has supports even in mainstream economics. This is because all the financial needs of individuals, firms, or governments cannot be made amenable to equity and PLS. Debt is, therefore, indispensable, but should not be promoted for inessential and wasteful consumption and unproductive speculation. For this purpose, the Islamic financial system does not allow the creation of debt through direct lending and borrowing. It rather requires the creation of debt through the sale or lease of real assets by means of its sales- and lease-based modes of financing (murabaha, ijarah, salam, istisna and sukuk). The purpose is to enable an individual or firm to buy now the urgently needed real goods and services in conformity with his/her ability to make the payment later.

Prospects of Islamic Finance over Conventional Finance: The current financial turmoil has provided an opportunity for Islamic finance to position itself as a viable alternative to conventional finance by providing investors with other asset classes and markets that provide stability. Under current political crisis, there is much talk about the creation of a new international economic order. There is a growing consensus that the unregulated capitalism that has led us to this crisis needs to be reconfigured to provide greater resilience and stability to the financial system.

The strengths of Islamic finance are derived from shariah principles, which also happen to be sound business principles. The shariah injunctions require that financial transactions be accompanied by an underlying productive activity thus giving ride to a close link between financial and productive flows. The shariah principles prohibited excessive leverage and speculative financial activities thereby insulating the parties involved from too much risk exposure.

It is worth speculating to what extent the world financial crisis could have been averted, or at least its impact considerably reduced, if the principles of Islamic finance had been more widely practiced. There is now a greater awareness and interest among the world financial community about the merits of Islamic finance. Literature shows that there is already a growing demand for Islamic financial products in the global market, far exceeding their supply. In recent years we have witnessed a rapid expansion of the Islamic financial services industry. Today Islamic finance is fast becoming an accepted component of the global financial system.

Bangladesh’s direct involvement in the development of Islamic banking and finance has significantly transformed the financial landscape at both the national and international levels, making the country a leader in the Asian as well as international race to become a important Islamic financial centre.

It is observed that the vibrancy and dynamism of Bangladesh’s Islamic financial system today is reflecting in its continuous product innovation, diversity of Islamic financial institutions, as well as the availability of Islamic finance talent and expertise which demands the comprehensive regulatory and legal infrastructure in the country.

It can be hoped that the Islamic capital market in Bangladesh can function as well as offer a wide range of products such as shariah-compliant stocks, Islamic unit trust funds, Islamic exchange-traded funds, shariah-compliant real estate investment trusts, structured products and derivatives.

The country can offer sukuk bond which will be able to establish several industries and also develop a deep and liquid market. In this regard, we can follow the model of Malaysian sukuk market which is one of the world’s largest and most innovative sukuk market. For establishing the sukuk market, Bangladesh may have to liberalise its foreign exchange administration rules so that different foreign development banks and multinational corporations can join in growing the sukuk markets.

Conclusion: Therefore, from the above discussion it can be concluded that the Islamic financial system is capable of minimising the severity and frequency of financial crisis by getting rid of the major weakness of the conventional system. It introduces greater discipline into the financial system by requiring the financier to share in the risk. It links credit expansion to the real goods and services which the seller owns and possesses and the buyer wishes to take delivery of. It also requires the creditor to bear the risk of default by prohibiting the sale of debt, thereby ensuring that he evaluates the risk more carefully.

In addition, Islamic finance can also reduce the problem of subprime borrowers by providing credit to them at affordable terms. This will save the billions of bailout dollars spent for the crisis-ridden bank. This does not help the poor because their home may have already become subject to foreclosure and auctioned at a give-away price.

The problem is that Islamic finance has at present a very small share of global finance. However, it is the ability of the system to solve a problem that matters. If Muslims themselves establish the system genuinely and successfully with proper checks and controls, the whole world will ultimately come around to it and the financial sector of Bangladesh will also be benefited out of it.

The writer is an economist and researcher. He can be reached at Email: mizan12bd@gmail.com

December 28, 2008

Beating That Bulging Belly


 

 

 

Beating That Bulging Belly

 

 

 

By  Mohammed Yahia

Editor – IslamOnline.net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Man with large belly

A large tummy, sometimes called a beer belly, is one form of obesity.

Remember the time you looked in the mirror while brushing your teeth and realized that your belly was jiggling unusually? That was probably the first time you noticed that your belly was starting to bulge a little, or a lot. That was, and usually is, also the time when you decided that you need to hit the gym again.

A large tummy, sometimes called a beer belly, is one form of obesity. It is a result of increased fat disposition in the belly area. This is more common in men than in women. Women tend to have more fat in the hip and thigh areas. However, that does not mean that women cannot get beer bellies.

Losing the fat on the tummy is not just important for you to look good, but it is also important for you to be healthy. Obesity in general makes a person more susceptible to several diseases such as diabetes and hypertension. But localized obesity, such as beer bellies, makes a person even more susceptible to certain diseases.

Fat Myths

If you want to lose that extra fat on your tummy, you need to clear up some common misconceptions. First and foremost, there is no “magical pill” or “incredible device” that will allow you to burn the fat faster. It is a long process that requires commitment in order to achieve results.

The second thing to know is that no amount of sit-ups are going to make you lose the fat. You can be doing hundreds of sit-ups every day, but the end result will be rock-hard abs muscles hidden under layers and layers of fat. That is not what we want to achieve. That is not to say that exercise is not important, but alone, it is not enough.

The only way to lose fat is to burn more energy than you are eating. That is the only time the body will tap into the energy stored in fat cells. In order to achieve this, you will need to change several bad habits and make improvements to your lifestyle. If you can keep it up, you will be surprised at the positive results that a few small changes can achieve.

To make this task easier for you, here are several tips that you can follow to achieve the desired results.

Watch What You Eat

Junk food is one of the leading causes of obesity around the world.

Evade foods rich in fats. You should also decrease your total caloric intake because, as we mentioned before, if you do not burn more than you eat, then you will never lose any fatty cells.

Try to divide your meals into five to six smaller meals instead of just three big ones. When the body does not receive food for prolonged periods, it enters into starvation mode. During this period, all body functions drastically decrease caloric burning. The regular food intake will increase metabolism since the body will never enter into starvation mode. This will help burn more fat throughout the day. Try to eat breakfast early, as soon as you wake up. This is to compensate for the long period of starvation while you are sleeping at night.

Eat larger meals in the morning and smaller meals toward bedtime. This is important because the food eaten in the morning will be used throughout the day to generate energy. However, if you eat heavy meals in the evening then most of it will be stored as fat while you are sleeping since it is not used up.

Cut down on junk food. Switch to nutritious, healthy foods. Junk food is one of the leading causes of obesity around the world. Also, try to cut down on refined sugars and processed food. You also need to develop the most important habit; stop eating when you are full. Do not overeat and stuff yourself. It is unhealthy, increases the fats in your body, and gives you stomachaches!

Watch What You Drink

It is best to evade soft drinks altogether.

Quit drinking beer. If you drink alcohol, now would be a great time to quit. There is, after all, a reason belly fat is called a “beer belly.” There is no clear understanding of how beer can increase fat around the tummy. However, most doctors agree there is a strong relationship between drinking beer and increased belly fat. This could be due to the fact that beer is very high on caloric value.

Do not drink soft drinks either. They have a caloric value of around 150 per can. Count how many you drink every week, do the math, and you will realize they add up to thousands of calories. Diet soft drinks, while low on calories, have other health problems. It is best to evade them altogether. Go for fresh juices instead. They taste great and are a much healthier option. They act as a fun and filling snack between meals.

Try to drink a lot of water throughout the day, especially when you wake up and before you sleep. Water is king. That is the golden rule. Water helps streamline the fat burning process as well as detoxify the body. If your body is low on water at anytime during the day, the body reduces energy burning. This translates into lower fat loss. If you are exercising, make sure you are well hydrated because you will lose a lot of water to sweat.

Try green tea. Green tea is also a great substitute for coffee or black tea. It is rich in substances called catechins. A study published in 2005 in the American Journal of Clinical Nutrition indicates that catechins may trigger weight loss by stimulating the body to burn calories and decreasing body fat. Green tea also has antioxidant, antiviral, and anticancer properties.

Implement Activity Into Your Life

Try to take the stairs rather than the elevator or escalator. Think of it as an exercise that needs neither special equipment nor dedicated time.

Get in the habit of a brisk walk every day, may be by parking your car a few blocks away from work in the morning. If you usually take public transportation, get off a station or two away from your target and walk the remaining distance. Besides being refreshing, it will burn some energy. Coupled with lower calories intake, this will lead the body to burn fat cells.

Exercise the Right Way

In less than 10 weeks, you are bound to see signs of your stomach fat receding.

As mentioned before, sit-ups and crouches are the biggest belly fat loss myth. To lose fat, you have to work up a sweat. Cardiovascular exercises, also called aerobic exercises, are the best way to do that. These include a vast array of workouts such as running, power walking, swimming, cycling, and rope jumping. There are also trendy new options such as aerobic dancing, which can be fun and exciting besides helping you lose weight.

Most experts recommend aerobic exercising for 20 to 50 minutes three to five times a week. Besides raising your metabolism, and thus burning more calories to release energy, cardio exercises have great health benefits such as reducing cardiovascular diseases, which is the leading cause of death around the world.

Anaerobic exercises, such as weight-lifting, can have a beneficial effect by raising your basal metabolic rate (BMR). Simply put, this refers to the amount of energy your body burns when not exercising to maintain its functions. Anaerobic exercises increase your muscle mass, which require more energy uptake. Raising your BMR means that your body will constantly be burning more calories, which will lead to reducing fat deposits all over.

Activate your core. This term refers to one of the most effective yet simple ways of having a flat tummy. All you have to do is draw your bellybutton into your spine and hold it there while breathing naturally. See how long you can hold, and try to better your time every day. The best thing about this is that you can do it while sitting at your computer, standing, or walking. Try to set alarms on your computer or phone several times throughout the day to remind you to “activate your core.”

Mental State

While this may all sound too overwhelming, it is not impossible to be able to achieve these changes in your lifestyle if you have the right mindset. By time, you will be able to naturally know what foods are not good for you. Even better, you will not be craving them anymore.

Incorporating exercise into our busy lifestyles can be tricky. But if you try to make exercise a fun family activity, or a friends get-together activity, then it will be much easier to maintain on the long run.

And the secret lies in the idea of the long run. You have to take the decision that losing belly fat is going to take time. There is no easy way or shortcut. However, the gradual change in your life will ensure that you are able to keep your new lifestyle. And this will eventually improve the quality of life for you. And in less than 10 weeks, you are bound to see signs of your stomach fat receding. And you will be wearing those clothes that you stuffed in the back of the closet in no time!

Source: http://www.islamonline.net/servlet/Satellite?c=Article_C&cid=1213871401451&pagename=Zone-English-HealthScience%2FHSELayout

December 28, 2008

Lose Weight, the Natural Way


 

 

Lose Weight, the Natural Way

 

 

Interviewed By  Aisha El-Awady

 

 

 

 

 

 

 

 

 
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Natural weight loss is the best, healthiest and longest lasting weight loss method around.

These days losing weight seems to be on everyone’s mind, whether you want to lose a few pounds or are clinically obese. Ads promoting fad diets or magic weight loss pills are everywhere. We are bombarded everyday with these ads on television, the internet and in our e-mail. But the real secret to weight loss is that the best weight loss program doesn’t cost a thing and you do not need to starve yourself or even feel hungry. Natural weight loss is the best, healthiest and longest lasting weight loss method around.

IslamOnline.net (IOL) conducted this interview with Anisa Abeytia, an integrative health specialist and Clinical Nutritionist, to discuss the best way to lose weight and how to make a few small changes to your lifestyle that will help you shed the pounds and keep them off for good.

IOL: If you were to suggest one food/drink to cut out of our diets in order to lose weight, what would it be?

Abeytia: Soda. One can of soda contains an average of 5 tablespoons of sugar and a host of artificial additives that can stress the liver and adrenal glands. Sugar promotes weight gain because it sets up a situation where blood sugar fluctuates all day. We can see this in the extreme with diabetic people who can gain excessive amounts of weight. When blood sugar spikes and falls several times a day, the body will hold onto fat because it thinks the body is starving.

IOL: Are there any foods that can actually help weight loss?

Many people do not consume enough healthy lipids (fats).

Abeytia: I love coconut oil. It may seem like a strange thing to recommend, but I find that in my private practice that many people do not consume enough healthy lipids (fats). Currently consumption of corn and canola oil is excessive. It causes inflammation and is rancid (rotten). Hydrogenated oils are another health hazard and are really what gave saturated fats (solid at room temperature) a bad name. Hydrogenated oils do not occur in nature and there is some evidence that they alter the cell membrane by making it impermeable so waste cannot exit and nutrients cannot enter. This can lead to weight gain because it literally can get “stuck” in your body.

If you are interested in learning more about the role of fats in maintain weight balance, please visit the site for the Weston A Price Foundation or read the excellent books by Sally Fallon “Nourishing Traditions, Eat Fat Lose Fat” or Mary G. Enig “Know Your Fats , Eat Fat Lose Fat.” A great website that discusses and gives recipes for foods great for losing weight and just being healthy, go to The World’s Healthiest Foods  website. There is also a companion book.

IOL: We hear that nuts are high in calories but also high in nutrients. If a person is trying to lose weight, would you recommend that they consume nuts or cut them out of their diet due to their high calorie content?

Abeytia: Nuts are a wonderful food because they are filling and they are easy to take with you. A small amount can keep you full, so they offer more bang for their size. The problem that arises is when we over consume nuts. This is an easy thing to do when we do not have to shell them ourselves. A serving of nuts is one handful (your hand).

IOL: For weight loss plans, are there any fruits or vegetable that you would recommend one NOT to eat?

Some vegetables that can cause problems are potatoes, peas and carrots eaten in excess.

Abeytia: Most people do not eat enough fruits or vegetables, period. Some vegetables that can cause problems are potatoes, peas and carrots eaten in excess, but when they are part of a balanced and varied diet they are very nutritious. You want to purchase the most nutrient-dense foods you can buy. Organic foods usually have many more nutrients because the way the soil is maintained, but if it is coming from far away, like from Brazil to California or Florida to New York, the distance is too great and the food loses its nutrients. In that case you want to go for local, but be sure to wash your fruits and vegetables well. Keep in mind though that some pesticides do not wash off. There is a list you can find online titled “The Dirty Dozen.” You want to purchase the fruits and vegetables on this list organic whenever possible.

Eating nutrient-rich foods is also a key to maintain proper weight balance. When we eat nutrient-dead food our bodies can become malnourished, even if we look over nourished, because our bodies are not receiving what they need. As a result, our bodies think we are starving so they hold onto calories instead of burning them, then we become fat, even though we are malnourished.

IOL: What is the ideal amount of weight an overweight person should lose during a month’s period that would allow him/her to keep the weight off for an extended period of time?

Abeytia: I have worked with people who lost 25 lbs (11.3 kg) in one month and that was healthy for them because it was an issue of inflammation or food sensitivities. Also people who are involved with receiving different types of body work can also experience a large initial weigh loss in the first few months. I can recall one woman that I worked with using a body work I developed called Noor-al-Tawheed, who lost 3 lbs (1.4 kg) after two sessions (1 lb/0.45 kg a day for three days).

It is not about the amount of weight, but about making the appropriate lifestyle adjustments to allow your body to find the appropriate weight. Weight loss can be a tricky thing because so many factors come into it that it is easier and, yes, cheaper to work with a health care practitioner. Weight balance is more of a result of good health than anything else.

Now on the other hand, if someone is starving themselves by only eating grapefruits or by taking diuretics for short term weight loss, then that is dangerous. Fad diets that promise an amount of weight loss by limiting a food group can also be dangerous and not long term and typically the person gains all the weight back and more. These yo-yo diets are unhealthful. They can boast that you can lose 25 lbs in one month, but it is usually water weight that will all come back. If a person loses that much that quickly, I would suspect food allergies.

With all that said, 5-10 lbs (2.3 – 4.5 kg) is a “healthy” goal to set. You can also look at it from a prospective of inches. You might measure yourself at the chest, waist, hip, upper thigh and see how many inches you lose as well. You may find that you lose inches before pounds. I have also noticed that some women experience a shift in where their excess weight is before they see a loss of any kind.

IOL: What is the best food to start the day with for people trying to lose weight?

When your body receives what it needs, it tends to drop the pounds, sometimes effortlessly.

Abeytia: There is a great book titled “The Metabolic Typing Diet” by William L. Wolcott and Trish Fahey. Not everyone does great on a high protein diet and some people do great as vegetarians and have you ever wondered why? This book discusses why different eating styles work for different people and it has a very useful questionnaire to help determine what type you are. This is important to weight loss because if you are forcing someone to eat a salad for breakfast and they are starving in a few hours, the dietary habit is not working for that person. And it is not going to promote health.

Weight loss is a “side-effect” of good health. When your body receives what it needs, it tends to drop the pounds, sometimes effortlessly. The “perfect” meal for someone will vary, but what you do not want to eat is something sweet. Doctors of Traditional Chinese Medicine feel very strongly about this and it may have to do with insulin and the metabolic drag it exhibits on the body first thing in the morning. Now, the prophet (peace be upon him) did eat dates in the morning, but he combined it with water or milk, which would help counter the sweetness. Also, dates are a whole food (they are not processed or have something added or removed) and are not like doughnuts, breakfast bars or breakfast candy (most breakfast cereals).

Starting your day with a metabolically appropriate meal can be the best gift you give to you and your family. When I work with someone, I find it very useful to do a complete metabolic profile.

 

Original source : http://www.islamonline.net/servlet/Satellite?c=Article_C&cid=1230121227158&pagename=Zone-English-HealthScience%2FHSELayout#

December 28, 2008

Riding the Islamic Finance & Banking Tide


HONG KONG,  (Bernama) — Last October, Hong Kong Chief Executive, Donald Tsang, announced the island’s financial hub would establish itself as an Islamic finance centre.

Last week, the Hong Kong Monetary Authority (HKMA) underlined that, despite the global financial crisis, the plan was still much on track and “considerable resources” would be devoted.

“Our priority is to push ahead with the development of an Islamic bond market. There should be no doubt about our determination to establish a platform for Islamic finance in Hong Kong,” HKMA deputy chief, Eddie Yue, told an Islamic finance forum.

Hong Kong is looking beyond the current crisis which has reduced sukuk, or Islamic bond issuance, by 40 per cent in the first three quarters of the year, a development Yue called “a temporary setback.”

What beckons not only Hong Kong but also conventional finance hubs like Singapore and London is the estimated Islamic assets of US$1 trillion (US$1=RM3.60) by 2010 and growing annually between 15 and 20 per cent.

Standard & Poor said in September that sukuk issuance was still expected to exceed US$20 billion this year.

“Although there is an economic crisis, it is comforting to know that prospects of the Gulf economies remain positive, given the surplus liquidity created by the huge oil earnings in the past,” Datuk Salman Younis, managing director of Kuwait Finance House (M) Bhd, said.

Malaysia’s CIMB Islamic chief executive officer, Badlisyah Abdul Ghani, brushed aside suggestions of competition, saying that it was overly-emphasised.

“The pie is big enough for more players and it will get even bigger with the Islamic economy demanding huge Islamic financing and a global Muslim population of 1.8 billion.

“You might want to look from a different perspective on how each centre will complement each other in developing this greater Islamic market across the globe, rather than concentrate on competition,” he said.

Without Hong Kong, the Islamic financial jigsaw would not be complete, Badlisyah added.

KFH’s Salman said it would be “very difficult” for any country to follow Malaysia which set up its first Islamic bank in 1983 and now has a full range of financial products for its Islamic populace.

Hong Kong could leverage on forming strategic alliances with Malaysia, he added.

Sani Hamid, director for wealth management of Financial Allianc Pte Ltd in Singapore, also sees plenty of room.

“Hong Kong will be the gateway for Chinese companies to access Middle East funds, Malaysia is very strong in corporate sukuk, Singapore’s venture into Islamic finance is more towards wealth management and as for Indonesia, it is more for the domestic market,” he said.

Hong Kong has made no secret that just across its borders, China, which would still grow albeit slower amid the global crisis, would be the hinge factor.

Hong Kong has also cast its sights on the Gulf region where the International Monetary Fund estimated some US$800 billion worth of projects were under way or in the pipeline.

“There are opportunities for us to extend our reach to potential Islamic investors and financiers in the Middle East and Asia. The addition of Islamic finance as a new asset class in our financial system will add value to Hong Kong as a thriving financial centre,” Yue said.

CIMB Islamic and another Malaysian bank, Hong Leong, are getting the headstart to stick a foot into the doorway.

The two are the first institutions in Hong Kong to set up Islamic banking operations this year, via their local branches, and have signed a memorandum of understanding for an inter-bank facility known as the Commodity Murabahah Deposit.

Badlisyah said: “We believe we can contribute our knowledge and skills as a leading global Islamic finance expert to Hong Kong. We must remember Islamic finance is not just about the sukuk market, there are many other industry activities.”

KFH too had moved to build a presence in China. It recently signed a US$275 million real estate contract with Hong Kong-listed Nan Hai Ltd for a project in the southern Shekou and Shenken areas in China.

Yue said HKMA was paying attention to four major areas, namely, to raise its profile in the Middle East, to establish infrastructure and conducive policies, build human capital and encourage the development and launch of Islamic finance products.

A key priority is to level the tax playing field for Islamic money transactions.

“The authorities have made a big effort and come on strongly with the message to tell players that we are going to put in the mechanism to facilitate you,” said Badlisyah, whose bank is the largest sukuk issuer in the world with a 20 per cent share.

The past year has seen the launch of a Dow Jones Islamic Market Index to track China-linked equities listed on the Hong Kong bourse and an exchangeable sukuk for a 9.9 per cent stake belonging to Khazanah Nasional Bhd in Hong Kong-listed Parkson that was 10 times oversubscribed.

Khazanah, the sovereign investment arm of the Malaysian government, generated US$647 million from the combined issuance of the sukuk, with more than half snapped up by Middle East investors, and a placement of shares.

 original source :  http://muamalat.net/modules/AMS/article.php?storyid=84  

December 11, 2008

Prophet Mohammed (PBUH): A short history


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Dr. Iam ]mj M.A. Ph.D

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`bs¸«p hnd¨psImWvSv apl½Zv ho«ntet¡mSn aqSn¸pX¨p InS¶p. At¸mÄ hoWvSpw B i_vZw At±lt¯mSmÚm]n¨p.Hm hkv{Xw sImWvSp aqSn¸pX¨p InS¡p¶ht\, Fgpt¶Â¡pI. F¶n«v (Zpjn¨ \S]SnIsf¡pdn¨p a\pjyÀ¡p) Xm¡oXp \ÂIpI, \nsâ c£nXmhnsâ alXzs¯ {]IoÀ¯n¡pI, \nsâ hkv{X§Ä ip²oIcn¡pI, Aip²nsb hn«v AI¶p \n¡pI, em`w t\Sm³ thWvSn HuZmcyw sN¿cpXv. \nsâ \mY¶p thWvSn £a ssIs¡mÅpI, Imlf¯n DuXn¡gnªm (temImhkm\w h¶pIgnªmÂ) AXv, B Znhkw kXy\ntj[nIÄ¡p hfsc sRcp¡apÅXpw eLphÃm¯Xpamb Hcp Znhkambncn¡pw.' (JpÀB³ 74: 1þ10)

A§ns\ apl½Zp\_n (k) sb P\§sf D²cn¡m\pw Xm¡oXp \ÂIm\pw ssZhw \ntbmKn¨p. At±lw {]hmNI\mbn. {]hmNI\mbn \ntbmKn¡s¸« tijw At±lw {]t_m[\w Bcw`n¨p. apl½Zv \_n (k) bpsS BßmÀ°Xbn ASp¯dnbp¶hÀ¡mÀ¡pw kwibapWvSmbncp¶nÃ. BZyambn JZoP At±l¯nsâ ktµiw kzoIcn¨p. A[nIw XmaknbmsX Aen, A_q_¡À, Dkvam³,A_vZpdÒm³, kAvZv, kpss_À, XÂlm F¶nhcpw "apl½Zp \_n (k) ssZh¯nsâ ZqX\pw ASnabpamsW¶v' hnizkn¨p.

]n¶nSt±l¯n\v ]ckyambn aX{]t_m[\amcw`n¡m³ \nÀt±iw e`n¨p. At¸mÄ At±lw a¡¡p sXm«pÅ k^m F¶ Ip¶n Ibdn \n¶p sImWvSv P\§sf hnfn¨pIq«n. Rm³, Cu aebpsS A¸pd¯v \n§sf B{Ian¡m³ Hcp i{Xp ssk\yw X¿mdmbn \nÂ]pWvSv F¶p ]dªm \n§Ä hnizkn¡bntÃ? F¶p tNmZn¨p. \n§Ä Ifhp ]dªXmbn R§Ä¡dnbnÃ’ AhÀ D¯cw ]dªp. At¸mÄ At±lw ]dªp. Rm³ \n§Ä¡v Xm¡oXp \ÂIp¶p. F\n¡v ssZh¯nÂ\n¶pw Hcp ktµiw e`n¨ncn¡p¶p. Hcp `bm\Iamb in£sb¡pdn¨v ap¶dnbn¸v \ÂIp¶h\mbmWv Rm³ h¶n«pÅXv. F\n¡v Cu temI¯v \n§sf kwc£n¡m³ IgnbpIbnÃ. acWm\´c PohnX¯nepw \n§Ä¡v kwc£Ww hmKvZ¯w sN¿m³ F\n¡v IgnbnÃ. bYmÀ° ssZhaÃmsX aÁp ssZh§fnà F¶v \n§Ä hnizkn¨meÃmsX CXp tI«t¸mÄ CXp ]dbm\mtWm \o R§sf hnfn¨Xv F¶pw ]dªhÀ ]ncnªpt]mbn.

apl½Zp\_n (k) Xsâ ZuXyw XpSÀ¶psImWvSncp¶p. ]ecpw CÉmw kzoIcn¨p. a¡bnse {][m\nIÄ¡v CsXmcp XethZ\bmbn. AhÀ D¯v_¯v F¶ t\Xmhns\ apl½Znsâ ASpt¯¡b¨p. D¯v_¯v apl½Zp\_n (k)sb kao]n¨p ]dªp. \n§Ä¡p `cWm[nImcnbmhm\mWv B{Klsa¦n \n§sf R§Ä `cWm[nImcnbm¡mw. \n§Äs¡mcp [\nI\mIm\mWv B{Klsa¦n \n§sf R§fn sht¨Áhpw henb [\nI\m¡mw, GsX¦nepw kv{Xosb hnhmlw Ign¡m\mWv B{Klsa¦n R§Ä AXpw \S¯n¯cmw. Cu ]pXnb {]Øm\w Dt]£n¨m am{Xw aXn. AXn\p adp]Snbmbn {]hmNI³ Cu JpÀB³ hmIy§Ä D²cn¡pIbmWv sNbvXXv. “]dbpI, XoÀ¨bmbpw Rm³ \n§sft¸mepÅ Hcp a\pjy³ am{XamWv. \n§fpsS ssZhw Htcsbmcp ssZhw am{XamsW¶v F¶nte¡v t_m[\w \ÂIs¸«ncn¡p¶p. AXpsImWvSv Ah¦te¡v t\Àhgn t]mIphn³. Aht\mSp ]¦ptNÀ¡p¶ _lpssZhhnizmknIÄ¡v \miw.’ (JpÀB³ 41:6). asÁmchkc¯n {]hmNI³ hyàam¡n. AÃmlphmtW, Fsâ hewssI¿n kqcyt\bpw CS¦¿n N{µt\bpw sh¨p X¶n«v Cu {]Øm\apt]£n¡m³ Ahsct¶mSp Bhiys¸«m t]mepw Rm\Xp sN¿nÃ. H¶pIn AÃmlp Cu aXs¯ hnPbn¸n¡pI. Asæn Cu {]Øm\w hnPbn¸n¡m³ thWvSnbpÅ ]cn{ia at²y Rm³ acWaSbpw CXv cWvSnsem¶v kw`hn¡pw htc¡pw ]n·mdp¶ {]iv\ta CÃ.

apÉo§fpsS F®w hÀ²n¨psImWvSncp¶p. apl½Zv \_n (k) bpsS ZuXyw kzoIcn¨hÀ, apÉow§Ä AYhm ssZh¯n\v ]qÀ®ambn Iogvs¸«hÀ F¶ t]cnemWv Adnbs¸«Xv. AhcpsS aX¯n\v ssZh¯n\pÅ ]qÀ®amb hnt[bXzw F¶À°apÅ "CÉmw' F¶pw ]dbp¶p. apl½ZobÀ F¶pw apl½Zp aXw F¶pw ]dbp¶Xv sXÁmWv. BZys¯ a\pjy\mb BZw (A) Hcp {]hmNI\pw IqSnbmbncp¶p. At±lw apX A´y{]hmNI\mb apl½Zv \_n (k) hsc e£¡W¡n\pÅ {]hmNI³amÀ {]t_m[\w sNbvX aX kn²m´§Ä H¶pXs¶bmbncp¶p. AhscÃmw {]t_m[\w sNbvX aX¯nsâ t]cmWv CÉmw. CÉmwaX Øm]I³ apl½Zv \_n (k) AÃ. At±lw Ahkm\ {]hmNI³ am{XamWv. {]hmNI³amÀ X½n hyXymkw I¸n¡mXncn¡m³ apÉow§Ä BÚm]n¡s¸«ncn¡p¶p. (Jp. 2:285)

apÉo§fpsS F®w hÀ²n¡p¶Xv IWvSt¸mÄ a¡bnse AapÉow {][m\nIÄ¡v Acniw hÀ²n¨p. AhÀ {]hmNIt\bpw A\pbmbnItfbpw aÀ±n¡m³XpS§n. {]hmNI³ \S¡p¶ hgnbn apÅpIÄ hnXdn, Nfnbpw Noª hkvXp¡fpw At±l¯nsâ tasednªp. apÉowIsf Np«p]gp¯ aWen aeÀ¯n¡nS¯n, s\©n ]md¡ÃpIÄ IbÁnsh¨p. Nnesc Nm« sImWvSSn¨p. aÀ±\w kln¡h¿mXmbt¸mÄ {]hmNI³ Xsâ Nne A\pbmbnItfmSv A_vko\nb (FtXym]y) bnte¡v ]memb\w sN¿m³ \nÀt±in¨p. A¶v FtXym]ybn Hcp {InkvXy³ cmPmhmb s\Kkv (\Ömin) BWv `cn¨ncp¶Xv. A§s\ {]hmNIZuXy¯nsâ 5þmw hÀjw 11 ]pcpj·mcpw 4 kv{XoIfpw AS§p¶ Hcp kwLw FtXym]ybnte¡v ]memb\w sNbvXp.

apÉnwIÄ ]memb\w sNbvXXdnª a¡³ {][m\nIÄ Hcp ZuXy kwLs¯ FtXym]ybnse cmPmhnsâ ASp¡te¡b¨p. AhÀ cmPmhns\ kao]n¨v X§fn \n¶pw HmSnt¸m¶ ASnaIfmWv apÉnwIÄ F¶pw Ahsc X§Ä¡v hn«pXcWsa¶pw At]£n¨p. cmPmhnsâ ap¶n lmPcm¡s¸« apÉnwIÄ C§s\ t_m[n¸n¨p. "cmPmth, R§Ä AÚXbnembncp¶p. hn{Klmcm[\bnepw A[À½ PohnX¯nepw apgpIn Pohn¡pIbmbncp¶p R§Ä. R§fn iànbpÅhÀ iàn Ipdªhsc t{Zmln¨p. R§Ä IÅw ]dbmdpWvSmbncp¶p. AXnYnacymZ R§Ä ]men¨ncp¶nÃ. A§s\bncns¡, R§fn Hcp {]hmNI³ h¶p. sNdp¸w apXte At±l¯nsâ kz`mhs¯¡pdn¨pw [mÀ½nI PohnXs¯¡pdn¨pw R§Ä¡v \¶mbdnbmambncp¶p. R§ft±l¯n hnizkn¡pIbpw At±ls¯ A\pKan¡pIbpw sNbvXp. F¶m R§fpsS \m«pImÀ R§sf aÀ±n¡pIbpw R§fpsS aXs¯ Dt]£n¡phm³ \nÀ_Ôn¡pIbpw sNbvXp.’ CXp tI«t¸mÄ cmPmhv apÉnwIfpsS Imcy¯n XÂ]c\mhpIbpw AhÀ¡v e`n¨psh¶v ]dbp¶ thZ¯nsâ Nne `mK§Ä tIĸn¡m³ Bhiys¸SpIbpw sNbvXp. apÉnwIfnÂs¸« PAv^À JpÀB\nse Hc²ymbw hmbn¨p tIĸn¨p. cmPmhv, FtXym]ybn Xmakn¨psImÅm³ Ahsc A\phZn¨p. A[nIw Ignbp¶Xn\pap¼v asÁmcp kwLw IqSn FtXym]ybnte¡v ]memb\w sNbvXp. B kwL¯n 101 t]cpWvSmbncp¶p. AXn 18 kv{XoIfmbncp¶p.

apÉowIfpsS AwKkwJy A\pZn\w hÀ²n¨p sImWvSncp¶Xv a¡³ {][m\nIsf Atemkcs¸Sp¯n. AhÀ H¶mbn kt½fn¨v {]hmNIsâ IpSpw_¯ns¶Xncn D]tcm[w GÀs¸Sp¯m³ \nÝbn¨p. AhÀ¡v [m\y§tfm, aÁhiykm[\§tfm \ÂIm³ ]mSnsöv Xocpam\n¨p. CXv {]hmNIsâ IpSpw_s¯ hfscb[nIw hnjan¸n¨p. Cu AhØ GXmWvSv aq¶psImÃw XpSÀ¶p. {]hmNI ZuXy¯nsâ ]¯mw hÀj¯n AapÉowIfnÂs¸« Nne sNdp¸¡mÀ Xs¶ a\pjyXzlo\amb Cu D]tcm[w ]n³hen¡m³ t\Xm¡³amsc \nÀ_Ôn¨p. A§s\ D]tcm[w \o§n. AtX hÀjw Xs¶ JZoPbpw ]nXrhy³ A_pXzmen_pw A´cn¨p. apÉowIÄs¡XnscbpÅ aÀ±\w XpSÀ¶psImWvSncp¶p. ASp¯ Hcp \Kcamb XzmC^nse P\§Ä CÉmw kzoIcnt¨¡psa¶ {]Xo£bn {]hmNI³ At§m«pt]mbn. F¶m AhnsSbpÅ P\§Ä At±ls¯ Iq¡n hnfn¡pIbpw IsÃdnªpsImWvSv D]{Zhn¡pIbpw sNbvXp. {]hmNI³ a¡bnte¡pXs¶ aS§n.

a¡bn Hcp DÕhw \S¡mdpWvSmbncp¶p. B DÕh¯n\v kao]{]tZi§fn \n¶v BfpIÄ hcmdpWvSmbncp¶p. A§s\ hcp¶ P\§tfmSv {]hmNI³ ssZhw GI\msW¶pw, Ahs\ am{Xta Bcm[n¡mhq F¶pw acWm\´cw Cu temIs¯ {]hÀ¯\§Ä¡\pkcn¨v c£m in£IÄ \ÂIs¸Spsa¶pw D]tZin¨p sImWvSncp¶p. bkvcn_nÂ(aZo\) \n¶pw h¶ NneÀ {]hmNIsâ kw`mjW¯n BIrjvScmIpIbpw X§fn\n ssZh¯nsâ A[nImcmhImi§fn Bscbpw ]¦p tNÀ¡pIbnsöpw, X§fn\n hy`nNcn¡pItbm, Ifhp\S¯pItbm, Ipªp§sf sImÃpItbm, ]cZqjWw ]dbpItbm, IÅhmÀ¯IÄ {]Ncn¸n¡pItbm sN¿pIbnsöpw, kpJZpxJ§fnseÃmw {]hmNIs\ A\pkcn¨v sImWvSv Pohn¡psa¶pw {]XnÚ sNbvXp. AhÀ ]{´WvSv t]À DWvSmbncp¶p.

Cu ImeL«¯n Hcp cm{Xnbn AÃmlp {]hmNIs\ Xsâ k¶n[m\¯nte¡pbÀ¯n. CXns\ CÉmansâ kmt¦XnI `mjbn anAvdmPv F¶p ]dbp¶p. Cu Ahkc¯nemWv apÉowIÄ Zn\w{]Xn A©p{]mhiyw \akvIcn¡Wsa¶v AÃmlp BÚm]n¨Xv. ASp¯sImÃw bkvcn_nÂ\n¶pw Fgp]¯naq¶pt]À DÕhthfbn a¡bn hcnIbpw ssZhs¯bpw {]hmNIt\bpw A\pkcn¨v Pohn¡msa¶v {]XnÚsbSp¡pIbpw sNbvXp. AhÀ {]hmNIs\ X§fpsS ]«W¯nte¡v £Wn¡pIbpw sNbvXp.

CÉmansâ kzm[o\w hÀ²n¡p¶Xp IWvSv hndfn ]qWvS a¡³ t\Xm¡Ä aÀ±\¯n\v cq£X hÀ²n¸n¡pIbpw {]hmNIs\ h[n¡m³ ]cn]mSnbnSpIbpw sNbvXp. aÀ±\w kln¡h¿mXmbt¸mÄ {]hmNI³ Xsâ A\pbmbnItfmSv bkvcn_nte¡v ]memb\w sN¿m³ \nÀt±in¨p. {]hmNIs\ h[n¡phm³ a¡³ {][m\nIÄ ]cn]mSnbn«v hoSphfª Znhkw cm{Xn ssZhoI I¸\{]Imcw {]hmNI³ Xâ i¿bn ]nXrhy]p{X\pw CÉmanI {]hÀ¯I\pamb AentbmSp InS¡m³ \nÀt±in¨ tijw Xsâ k´XklNmcnbmb A_q_¡tdmsSm¸w bkvcn_nte¡v bm{X Xncn¨p. ]I kab¯v kuÀ F¶ Kplbn AhÀ A`bw tXSn. {]hmNI³ c£s¸«p F¶dnªp a¡bnse {][m\nIÄ {]hmNIs\t¯Sn ]e `mKt¯¡pw BÄ¡msc ]dªb¨p. Ahcnsemcp kwLw {]hmNI\pw A_q_¡dpw Hfn¨ncn¡p¶ KplmapJs¯¯ns¸«p. AXpIWvSp A_q_¡À `b¶p. {]hmNI³ At±ls¯ km´z\s¸Sp¯n. “`bs¸tSWvS, ssZhw \½psS IqsSbpWvSv’ Jpssdin {]apJÀ {]hmNIs\ ImWmsX Xncn¨pt]mbn. AhÀ cWvSpt]cpw bkvcn_nte¡v bm{X XpSÀ¶p.

bkvcn_n {]hmNI\v lmÀ±hamb kzoIcWamWv e`n¨Xv. \_n (k) bkvcn_nse¯nbtXmsS CÉmanI kaql¯n\v Hcp \ho\ cq]w ssIh¶p. Hcp amXrImcmjv{Sw sI«n¸Sp¡pIbmWv \_n (k) AhnsS sNbvXXv. Hcp \nba{KÙhpw Hcp t\XrXzhpw Hcp ssZh¯nepÅ hnizmkhpw \ÂIns¡mWvSv apÉowIsf At±lw GIoIcn¨p. aZo\mhmknIÄ¡v Hcp ]pXp\maw At±lw \ÂIn. A³kmdpIÄ AYhm klmbnIÄ. a¡bn \n¶v h¶hÀ almPndpIÄ AYhm A`bmÀ°nIÄ F¶ t]cnednbs¸«p. kXyhnizmknIÄ ktlmZc³amcmWv F¶ JpÀB³ hmIyw D²cn¨psImWvSv {]hmNI³ A³kmdpIsfbpw aplmPndpIsfbpw H¶n¸n¨p. A³kmdpIfpw aplmPndpIfpw X½nepÅ kvt\l_Ôw ktlmZc³amÀ X½nepÅXnt\¡mÄ kpZrVambncp¶p. ImcWw AXv AÃmlphn¶p thWvSnbpÅ kvt\lambncp¶p. A³kmdpIÄ A`bmÀ°nIsf X§fpsS hoSpIfnse AwK§fmbn kzoIcn¡pIbpw AhÀ¡pthWvSn klmbklIcW§Ä sN¿pIbpw sNbvXp. ]e aZo\ \nhmknIfpw X§fpsS kz¯n ]IpXn a¡bnÂ\n¶p h¶hÀ¡p sImSp¯p. AhcpsS Irjnbnepw I¨hS¯nepw aqlmPndpIsf ]¦mfnIfm¡n. aplmPndpIfpw A³kmdpIfpw CgpInt¨À¶psImWvSpÅ kpJZpxJ§Ä ]¦ns«Sp¯psImWvSpÅ B PohnXw Ncn{X¯n XpeyXbnÃm¯XmWv. CXns\¡pdn¨v JpÀB³ ]dbp¶p. “(a¡bn \n¶v lnPvd t]mbhÀ¡v) hoSpw kXyhnizmkhpw, AhÀ F¯pw ap¼pXs¶ Hcp¡nsh¨hcmhs«, AhcpsS ASp¡te¡v kztZiw shSnªpsNÃp¶hsc kvt\ln¡p¶p. lnPvd t]mbhÀ¡v e`n¡p¶ [\s¯ kw_Ôn¨p a\Ên bmsXmcm{Khpw AhÀ¡v tXm¶nbncp¶panÃ. (am{XaÃ) AhÀ¡v km¼¯nI t¢iapWvsS¦n t]mepw X§tf¡mÄ (aplmPndpIÄ¡v) AhÀ ap³KW\ IÂ]n¡p¶p. a\Ênsâ ]nip¡nÂ\n¶pw AXym{Kl¯nÂ\n¶pw hÃhcpw kpc£nXcmbm AhÀ Xs¶bmWv hnPbnIÄ’ (JpÀB³ 59 : 9)

aZo\bn F¯nbtijw {]hmNI³ BZyambn sNbvXXv Hcp tI{µw \nÀ½n¡pI F¶Xmbncp¶p. At±lw aZo\bn Hcp ]Ån Øm]n¨p. AXp Xs¶bmbncp¶p ]pXnb CÉmanI cmjv{S¯nsâ tI{µhpw. CÉmanI cmjv{S¯nsâ sk{I«dntbÁpw tImSXnbpw A`bmÀ°nIfpsS tI{µhpw FÃmw AXp Xs¶bmbncp¶p. tI{µw Øm]n¨tijw AXnsâ `{ZX {]hmNI³ Dd¸phcp¯n. B`y´c kam[m\hpw cmPyc£bpw Dd¸phcp¯p¶ Hcp DS¼Sn {]hmNI\pWvSm¡n. apÉnwIfpw AapÉnwIfpamb aZo\bnepw aZo\¡p NpÁpapÅ FÃm tKm{X§Ä¡nSbnepw kam[m\]camb klhÀ¯nXzw t\SnsbSp¡pI F¶Xmbncp¶p DS¼SnbpsS e£yw. Xpeyamb AhImi§fpsSbpw _m[yXIfpsSbpw ASnØm\¯nepÅ B DS¼Snbn PpX tKm{X§fpw AapÉnw tKm{X§fpw H¸psh¡m³ HuÂkpIyw ImWn¨p. `cWm[nImcn `cWobÀ¡v sImSp¯ FgpXs¸« `cWLS\ F¶ \ne¡v cmjv{SX{´Ú³amÀ CXn\v {]m[m\yw IÂ]n¡p¶p. hneywaqÀ FgpXp¶p. Cu DS¼Sn At±l¯n DÄsImWvS alXzw hyàam¡p¶p. At±l¯nsâ ImeL«¯nse am{XaÃ, FÃm bpK§fnsebpw Hcp almßmhmbncp¶p At±lw. \Pvdm\nse {InkvXym\nIfpw {]hmNI\pambn DS¼SnbnteÀs¸«p. aZo\bn cq]wsImWvSXv {]hmNIsâ t\XrXz¯nepÅ HcmZÀi cmjv{Sambncp¶p. ssZthXc§fmb FÃm ASna¯¨§eIfnÂ\n¶pw a\pjys\ tamNn¨mWv {]hmNI³ `cWw \S¯nbncp¶Xv. A§ns\ sN¿Wsa¶v JpÀB\nsâ \nÀt±iapWvSmbncp¶p. knhn {Inan\ \nba§fpw JpÀB³ \ÂInbncp¶p. CÉmanI ho£W¯n kz¯v kaql¯n NpÁn¯ncnªpsImWvSncn¡Ww. AXvsImWvSv ‘k¡m¯v’ F¶ t]cn ]WambpÅ kz¯nsâ 2.5% Dw ImÀjnI hcpam\¯nsâ 10% Dw Zcn{Zhn`mK§fn am{Xw Hmtcm hÀjhpw hnXcWw sN¿s¸«p. AXns\ Zcn{ZcpsS AhImiw F¶mWv JpÀB³ hntijn¸n¨Xv. AXvt]mse sXmgnÂclnXÀ¡pw Zcn{ZÀ¡pw s]mXpJP\mhn AhImiapWvsS¶pw AhcpsS kwc£Ww Kh¬saânsâ _m²yXbmsW¶pw `cWIqSw AwKoIcn ‘Hm \_o a\pjytcmSp ]dbpI. (BcpsS Xr]vXn e£yw sh¨psImWvSv R§Ä Pohn¡p¶pthm) Ah³, AÃmlp, GI\mWv. (kÀÆNcmNc§Ä¡pw) A`bw \ÂIp¶h\pw, BcpsSbpw B{ibw BhiyanÃm¯h\pambn \nesImÅp¶h³ AÃmlp am{XamIp¶p. Ah\v k´m\w P\n¨n«nÃ. Ah³ BcptSbpw k´m\hpaÃ. (Npcp¡¯nÂ) Ah¶p Xpeyambn BcpwXs¶ CÃ.’ (JpÀB³ 112 : 1þ4)

apl½Zv\_n (k) ssZhZqX\pw Zmk\pamsW¶v km£yw hln¡pI F¶XpsImWvSv Dt±iw apl½Zp\_n (k) ImWn¨p X¶ coXnbn Pohn¡pI F¶XmWv. {]hmNI³ ]dª Imcy§fn hnizkn¡pIbpw thWw. {]hmNI³, temI¯ns\mc´yapWvsS¶pw AXn\ptijw Cu temIPohnXs¯¡pdn¨v ssZhw IW¡p tNmZn¡psa¶pw ssZhs¯ Adnªv A\pkcn¨hÀ¡v kzÀ¤hpw, [n¡cn¨hÀ¡v ITn\amb \cIhpw e`n¡psa¶pw ]dªXp hnizkn¡pIbpw thWw. (2) A©p{]mhiyw \akvIcn¡pI. (3) \nÀ_ÔZm\w (4) dafm³ amkw apgph³ {hXa\pjvTn¡pI. (5) IgnhpÅhÀ a¡bn t]mbn lÖv \nÀhln¡pI. apl½Zp\_n(k) Xm³ Hcp a\pjy³ am{XamsW¶pw {]hmNI\pw a\pjy\pamb tbiphn\p ssZhoIXzw I¸n¨ t]mse X\n¡mcpw ssZhoIXzw I¸n¡cpsX¶pw Xd¸n¨p ]dªncp¶p.

]pXpXmbn cq]w sImWvS CÉmanI kaqls¯bpw cmjv{Ss¯bpw \ne\n¡m³ a¡³ {][m\nIÄ A\phZn¡pIbnà F¶v hyàambncp¶p. AhÀ¡v apl½Zn\`bw \ÂInb bkvcn_v (aZo\) \nhmknItfmSv ISp¯ AaÀjw DWvSmbncp¶p. AhÀ CS¡nS¡v aZo\ \nhmknIsf ieys¸Sp¯nsImWvSncp¶p. BbnsS kndnbbnÂ\n¶pw aS§p¶ Hcp Atd_y³ I¨hSkwLs¯ apl½Zpw Iq«pImcpw B{Ian¡m³ ]cn]mSnbn«n«pWvSv Fs¶mcp hmÀ¯ a¡bn ]c¶p. A§ns\bpWvsS¦n AXp XSbm\pw aZo\¡msc Hcp ]mTw ]Tn¸n¡m\pw a¡³ \nhmknIÄ Hcp§n. AhÀ 1000 Bbp[[mcnIsf Hcp¡n h¼n¨ k¶ml§tfmsS aZo\bpsS `mKt¯¡p Xncn¨p. B hmÀ¯ Adnª {]hmNI³ aZo\bn sh¨pÅ Hcp kwL«\w Hgnhm¡m³ aZo\¡p ]pdt¯¡p h¶p. At±l¯nsâ IqsS 313 t]sc DWvSmbncp¶pÅp. At±l¯n\p shdpw 2 IpXncIfpw 70 H«I§fpamWpWvSmbncp¶Xv. km[mcWKXnbn apÉn§Ä ]cmPbs¸Spsa¶v XoÀ¨bmbncp¶p. F¶m FÃmw ssZh¯neÀ¸n¨v cWm¦W¯nend§nb apÉowIÄ hnPbn¨p. XShpImcmbn ]nSn¨hsc tamN\ aqeyw hm§n hn«b¨p. tamN\aqeyw \ÂIm³ Ignbm¯hÀ¡v aZo\bnse 10 t]sc Fgp¯pw hmb\bpw ]Tn¸n¡pI F¶ tamN\aqeyw \nÝbn¨p. ssZhklmbwsImWvSmWv _Zdn Pbn¨sX¶v apÉowIÄ hnizkn¨p. kXyhpw AkXyhpw X½nepÅ kac¯n AwKkwJy Hcp {]iv\aà F¶v Hcn¡Â IqSn Ncn{Xw sXfnbn¨p. _Zdn\p tijhpw a¡³ {][m\nIÄ aZo\sb B{Ian¨p IogS¡m³ ]eXhW {ians¨¦nepw AhÀ hnPbn¨nÃ.

{]hmNI³ aZo\bnse¯nbXnsâ 6þmw hÀjw XoÀ°mS\¯n\p a¡bnse tZhmeb¯nte¡v ]pds¸«p. bp²w \njn²amsW¶v Ad_nIÄ hnizkn¡p¶ amk¯nembncp¶p kw`hw. {]hmNI\p bp²w sN¿m\pÅ ]cn]mSn Cà F¶dnªn«pw {]hmNIs\ a¡bnte¡p {]thin¡m³ k½Xn¨nÃ. ZqX³amÀ ]ckv]cw _Ôs¸«Xnsâ ^eambn Ahkm\w Hcp kÔnbpWvSm¡n. kÔn {]YaZrjvSym apÉnwIÄ¡p A\pIqeaÃmbncp¶p. {]hmNI³ hn«phogvN sN¿pIbmWv sNbvXXv. apÉnwIÄ B sImÃw tZhmebw kµÀin¡msX aS§Wsa¶pw ASp¯ sImÃw kµÀin¡msa¶pw a¡¡mcn Bsc¦nepw t\Xm¡·mcpsS k½Xw IqSmsX aZo\bn h¶m Ahsc Xncn¨b¡Wsa¶pw aZo\bn \n¶pw Bsc¦nepw a¡bn h¶m Xncn¨b¡nà F¶pambncp¶p DS¼Snbnse {][m\ \n_Ô\IÄ. ASp¯ 10 hÀjt¯¡v ]ckv]cw bp²w sN¿pIbnsöpw lpssZ_nb kÔn F¶ t]cnednbs¸Sp¶ Cu DS¼SnbnepWvSmbncp¶p.lqssZ_nb kÔn¡p tijw e`n¨ kam[m\m´co£¯n {]hmNI³ t]Àjym, tdmw, CuPn]vXv, kndnb, ba³ XpS§nb cmPy§fnse cmPm¡³amÀ¡v CÉmante¡v £Wn¨psImWvSv I¯pIfb¨p. NneÀ AXp kzoIcn¨p.

lnPvd 8þmw hÀjw a¡bnse JpssdinIÄ lpssZ_nb DS¼Sn ewLn¨p. {]hmNIsâ Iq«¯nepÅ _\qJpÊ tKm{Xs¯ B{Ian¨p. At¸mÄ {]hmNI ³ a¡bnse {][m\nItfmSv _\pJpÊ tKm{X¯n\v \jvS]cnlmcw \ÂImt\m Asæn lpssZ_nbm DS¼Sn d±v sN¿mt\m Bhiys¸«p. a¡bnse {][m\nIÄ cWvSmas¯ amÀ¤amWv kzoIcn¨Xv. At¸mÄ {]hmNI³ ]Xn\mbncw A\pbmbnItfmSpIqSn a¡bnte¡v Xncn¨p. At¸mgpw apÉowIÄ Hcp iànbà F¶ [mcWbmWv a¡¡mÀ¡v DWvSmbncp¶Xv. \_nbpw A\pbmbnIfpw a¡¡p kao]w XmhfaSn¨ thfbn Ahsc clkyam¡n \nco£n¡m³ sN¶ a¡³ t\Xmhmb A_qkp^ym³ apÉnw tbm²m¡fpsS ssIIfneIs¸«p. Ahct±lt¯mSv am\yambn s]cpamdpIbpw At±ls¯ hn«b¡pIbpw sNbvXp. \_nbpsS kz`mhalna Iv BIrjvS\mb A_qkp^y³ CÉmw kzoIcn¨p.

\_nbpw klNc·mcpw a¡bn {]thin¨t¸mÄ Ahsc FXnÀ¡m\mcpapWvSmbnÃ. At±ls¯bpw A\pNc·mtcbpw {Iqcambn aÀ±n¡pIbpw P·\m«n \n¶pw ]pd¯m¡pIbpw sNbvX B ]«W\nhmknIÄ {]hmNI³ F´psN¿psa¶dnbmsX At±l¯n\p ap¼n BImw£tbmSpw `oXntbmSpw IqsS \n¶p. At¸mÄ Ahsc A`nkwt_m[\ sNbvXpsImWvS {]hmNI³ ]dªp. ‘bqk^v\_n (A) Xsâ ktlmZc³amtcmSv ]dªXpt]mse C¶v Rm\pw CXm \n§tfmSv ]dbp¶p. C¶p \n§fpsS t]cn IpÁsam¶panÃ. \n§Ä kzX{´cmWv. a¡m hnPbt¯mSpIqSn {]hmNI³ Atd_ymbnse A\ntj[y`cWm[nImcnbmbn. a¡bnse tZhmebamb IAv_ kµÀin¨ tijw At±lw X\n¡`bw \ÂInb aZo\bnte¡p Xs¶ Xncn¨p t]mIpIbmWv sNbvXXv.

lnPvd 10þmw hÀjw {]hmNI³ a¡bnte¡v hoWvSpw XoÀ°mS\¯n¶v t]mbn. B lÖv thfbn Hcp e£t¯mfw hcp¶ A\pbmbnIsf A`nkwt_m[\ sNbvXpsImWvSv At±lw ]dª hm¡pIÄ {it²b§fmWv.

‘a\pjytc! Fsâ hm¡pIÄ {i²n¨p tIÄ¡pI. Cs¡mïn\ptijw Cu Øe¯psh¨v \n§sf ImWm³ km[n¡ptam CÃtbm Fs¶\n¡dnhnÃ. a\pjytc, \n§fpsS Cu \m«n\pw Cu amk¯n\pw Cu Zn\¯n\pw GXp{]Imcw \n§Ä BZchv I¸n¡p¶pthm, AtX {]Imcw \n§fpsS \mY\pambn IWvSpap«pw htc¡pw A`nam\hpw [\hpw ]ckv]cw It¿dp¶Xv \n§Ä¡nXm \njn²am¡nbncn¡p¶p. HmÀ¯ncn¡pI. \n§Ä ]ng¨v ]ckv]cw Igp¯psh«m³ apXnccpXv. \n§fpsS \mY\pambn \n§Ä IWvSpap«pw. At¸mÄ \n§fpsS {]hÀ¯\§sf¡pdn¨v Ah³ \n§sf tNmZyw sN¿pw. AÚm\Ime¯v \S¶ Poh\mi§Ä¡pÅ FÃm {]XnImc\S]SnIsfbpw Rm\nXm ZpÀºes¸Sp¯nbncn¡p¶p. a\pjytc, \n§fpsS ssZhw GI\mWv. \n§sfÃmhcpsSbpw ]nXmhpw GI³ Xs¶. \n§sfÃmhcpw BZan \n¶pw P\n¨p. BZw a®nÂ\n¶pw. \n§fn sh¨v PohnX¯n IqSpX kq£vaXbpÅh\mtcm Ah\s{X AÃmlphn¦Â GÁhpw am\y³. Ad_n¡v A\d_ntb¡mtfm, A\d_n¡v Ad_ntb¡mtfm bmsXmcp t{ijvSXbpanÃ. t{ijvSX¡SnØm\w PohnX¯nepÅ kq£vaXbt{X. \n§Ä JpÀB³ ASnØm\am¡ns¡mWvSv Pohn¡p¶ Imea{Xbpw \n§Ä hgn]ng¡pIbnÃ. AÃmlphnsâ {KÙas{X AXv. P\§sf! kXyhnizmknIÄ ]ckv]cw ktlmZc§fmWv. Xsâ ktlmZcsâ kwXr]vXntbmSpIqSnbÃmsX Ahsâ [\w IcØam¡phm³ HcmÄ¡pw ]mSnÃ. AÚm\Imes¯ ]eni CS]mSpIsfÃmw Rm\nXm ZpÀºes¸Sp¯nbncn¡p¶p. B C\¯n H¶maXmbn Rm³ ZpÀºes¸Sp¯p¶Xv Fsâ ]nXrhy³ Aºmkn\v In«m\pÅ ]enibmWv. a\pjytc! \n§tfmSv \n§fpsS ]Xv\namÀ¡pÅ t]mse Xs¶, \n§Ä¡v AhtcmSpw Nne _m²yXIÄ DWvSv. \n§Ä kv{XoItfmSv \à \ne¡v s]cpamdns¡mÅpI. AÅmlphnsâ Hcp Aam\s¯¶ \ne¡mWv Ahsc \n§Ä GsÁSp¯ncn¡p¶Xv. \n§fpsS `rXysc {i²n¡pI. \n§Ä `£n¡p¶Xv Xs¶ AhÀ¡pw `£n¡m³ sImSp¡pI. a\pjytc, F\n¡v tijw Hcp \_nbpw hcm\nÃ. AXpsImWvSv {i²tbmsS tIÄ¡pI. \n§fpsS \mYsâ ]cpip²ldan h¶v lÖv sN¿pI. \n§fpsS taem[nImcnIsf A\pkcn¡pI. At¸mÄ \n§fpsS \mYsâ kzÀ¤¯n {]thin¡mw.’ {]kwK¯nsâ Ahkm\¯n B h¼n¨ P\kaqls¯ A`napJoIcn¨psImWvSv AhnSp¶v tNmZn¨p. ‘\n§tfmSv ssZhk¶n[nbn sh¨v Fs¶¡pdn¨v tNmZn¡s¸Spw. At¸mÄ F´mWv \n§Ä ]dbpI?.’P\kaqlw Htc kzc¯n adp]Sn \ÂIn. ‘A§p¶v AÃmlphnsâ ktµiw R§sf Adnbn¡pIbpw A§bpsS FÃm _m[yXIfpw \ndthÁpIbpw sNbvXn«pWvSv F¶v R§Ä adp]Sn \ÂIpw.’ At¶cw BImit¯¡v I®pw ssI¿pw DbÀ¯nsImWvSv AhnSp¶v {]mÀ°n¨p. ‘AÃmlpth \o km£yw hlnt¡Wta! AÃmlpth \o km£yw hlnt¡Wta!’ C§s\ aq¶p{]mhiyw BhÀ¯n¨v {]mÀ°n¨psImWvSv {]kwKw Ahkm\n¸n¨p.

Cu kab¯v AÃmlphnÂ\n¶pw am\hIpe¯n\pÅ A\p{Klamb CÉmans\ ]qÀ¯oIcn¨Xmbn Adnbn¡p¶ ssZhoI ktµiw AhXcn¨p. ‘Cu Znhkw \n§fpsS aXs¯ \n§Ä¡p Rm³ ]qÀ¯oIcn¨p XcnIbpw Fsâ A\p{Kls¯ \n§fn ]qÀ®am¡pIbpw sNbvXncn¡p¶p. CÉmans\ \n§fpsS aXambn Rm³ Xr]vXns¸SpIbpw sNbvXncn¡p¶p.’ (JpÀB³ 15:4). CtXmSpIqSn {]hmNIXzw ]qÀ¯nbmbn. B[p\nIIme¯v amÀ¤ZÀiI {KÙambn JpÀB³ \ne\n¡p¶p. AXv AÃmlp Xs¶ kwc£n¡psa¶v JpÀB\n ]dªn«pWvSv. C\nsbmcp {]hmNIt\m thZ{KÙtam hcm\nÃ. temImhkm\w htc¡pÅ amÀ¤ZÀiI{KÙamWv JpÀB³.

hnShm§Â {]kwK¯n\v tijw 3 amkta \_n (k) Pohn¨pffp. ln. 12þmwhÀjw d_n D AÆp 12þmw Xn¿Xn Xn¦fmgvN {]hmNI³ A´cn¨p. At±l¯nsâ amÀ¤ZÀi\w A\pkcn¨v Pohn¡m\pw A§ns\pohnX hnPbw t\Sphm\pw ]ctemI¯v At±lt¯msSm¸w Pohn¡m\pw ssZhw \s½ A\p{Kln¡s«.

http://www.quranmalayalam.com/program/nabi.htm

October 27, 2008

Islamic finance the core concepts


Islamic finance the core concepts

What is Islamic Finance?
At its broadest, Islamic finance covers all financial activity that enables Muslims to invest in conformity with Islamic law, or Sharia. In practice, Islamic finance involves using traditional investment techniques and structures that comply with Sharia to create arrangements that work in ways that are analogous to modern conventional finance.

Islamic banks and conventional banks that invest some of their capital in Islamic finance through an Islamic finance “window” have a religious board or committee composed of Sharia scholars (the Sharia committee). The Sharia committee examines proposed transactions and, in the case of Islamic banks, reviews the overall activities of the bank, for compliance with Sharia.

Key Principles
Key principles of Sharia relevant to finance transactions include:
Interest (Riba). Sharia regards money as simply a means of exchange, without intrinsic value and holds that money cannot be used to make money. Interest is the classic example of Riba. Payment or receipt of interest is strictly prohibited, and any obligation to pay interest is considered void under Sharia.

Speculation (Maisir). Sharia prohibits and treats as void transactions that rely on chance or speculation, rather than effort, to produce a return. This can create problems in relation to contracts that are seen as tantamount to gambling, which includes some conventional derivative transactions such as swaps, futures and options.

Uncertainty (Gharar). Sharia prohibits and treats as void contracts that are uncertain. All the fundamental terms of a contract (such as subject matter, price and time of delivery) must be absolutely certain at the outset.

Unjust enrichment/unfair exploitation. Sharia prohibits and treats as void contracts under which one party unfairly exploits the other or gains unjustly at their expense.

Unethical purpose. Sharia-compliant finance can be raised only for purposes that are permitted by Sharia and for the benefit of society.

Basic Transaction Structures
The main transaction structures used in Islamic finance are considered below.
In practice, commercial transactions will often combine a number of different techniques to produce the desired economic result and it is not uncommon for large fund-raisings (such as significant infrastructure projects) to incorporate both Sharia-compliant and conventional tranches.

Murabaha
Murabaha techniques are often used for trade finance and are analogous to conventional loans. Like conventional loans, they can be syndicated.

In a basic Murabaha, the financier buys an asset from a supplier and sells it to the customer at a premium. The purchase price is typically payable in installments. The premium is generally based on a benchmark figure, such as LIBOR, plus a margin. The economic effect is similar to a conventional asset finance facility.
Reverse Murabaha can be used where the customer requires a cash lump sum.
The customer buys an asset from the financier as in Murabaha but rather than retaining the asset for use in its business, the customer then sells it, either back to the original supplier or on to a third party.

It is possible to create a “revolving” reverse Murabaha, analogous to a conventional revolving loan facility (that is, a facility which allows a borrower to draw down, repay and re-borrow amounts throughout the life of the facility).
However, the methods for achieving this vary and the techniques are not universally accepted.

It is fundamental to Murabaha and reverse Murabaha arrangements that the financier actually acquires title to the asset in question, taking some commercial risk in relation to it. However, in practice this may be only for a very brief period.

Bai al Salam
Bai al Salam can be used to provide working capital. The key difference to Murabaha is that, while the financier still buys an asset, delivery is deferred.
Usually, the financier will receive a discount for advance payment, typically calculated by reference to a benchmark, such as LIBOR, plus a margin. Financier may at the same time enter into a parallel but separate Bai al Salam with a third party to resell the asset for an increased price (also calculated by reference to a conventional benchmark such as LIBOR), as illustrated in the diagram, or it may simply sell the asset on delivery.

Istisna’a
Istisna’a is a technique similar to Bai al Salam and is used to provide advance funding for construction and development projects.

The key practical difference to Bai al Salam is that, instead of buying a finished asset with delivery deferred, the financier pays an amount to fund the manufacture, development, assembly, packaging or construction of an asset to an agreed specification. On completion, it will typically sell the asset to the customer or lease it back to the developer under an Ijara (see below).
The financier’s return usually takes the form of a premium on resale, typically calculated by reference to a benchmark, such as LIBOR, plus a margin.

Ijara
An Ijara is a lease, often used to provide asset finance. In a financing context an Ijara is invariably preceded by an asset sale or Istisna’a.

In a simple financing Ijara, the financier buys an asset from a supplier and leases it to the customer. The customer pays rent representing an agreed profit, typically calculated using a benchmark, such as LIBOR, plus a margin.
One feature that distinguishes an Ijara from a conventional finance lease is the increased and ongoing risk the financier takes in relation to the asset. In an Ijara, the financier must take responsibility for insurance and major (as opposed to day to day) maintenance of the asset.

Mudaraba
Mudaraba is an investment arrangement under which an investor or group of investors (Rab al Maal) place funds in the hands of a fund manager, usually a bank or financial institution (Mudareb), which provides expertise and manages the fund by investing in Sharia-compliant investments in return for a fee, typically based on a share of the profits.

In a commercial context, Mudaraba can be used as a tool to syndicate other Sharia-compliant financing arrangements (although conventional investment agency agreements are usually also Sharia-compliant). More commonly, Mudaraba is used to establish investment funds and Sharia-compliant retail bank accounts.

Musharaka
Musharaka is similar to a conventional partnership or joint venture and is often used in long-term investment projects.

The financier will usually contribute cash and the customer will contribute assets into a joint venture or enterprise. They share in the profits of the enterprise in agreed proportions but must share the losses in proportion to their initial investment. In a financing context, the profit-sharing arrangement is usually structured so that the financier receives his initial investment plus a return based on a benchmark, such as LIBOR, plus a margin.
A variation is the diminishing Musharaka, so called because the financier’s participation diminishes over time as the customer essentially buys out the financier’s share of the joint enterprise. Residential mortgages sometimes use structures that include a diminishing Musharaka.

Sukuk
Sukuk (singular Sakk) are financial instruments, such as certificates, that can be bought and sold on the capital markets.

Sukuk represent an undivided ownership share in an underlying asset or interest held by the issuer. This distinguishes them from both conventional bonds (which represent debt obligations of the issuer) and conventional equities (which represent ownership interests in the issuer itself).
The basic principle is that an ownership share in the underlying asset entitles the Sakuk holder to a proportionate share of the returns generated by the asset. The overall economic effect is similar to a conventional bond.
Sukuk are used in combination with other Sharia-compliant financing echniques to give rise to a Sharia-compliant return on an underlying asset.
Many different structures can be used for Sukuk, but Sukuk al Ijara and Sukuk al Musharaka are the most common.

Key features
In a typical structure, the entity looking to raise funds (the originator) will establish a special purpose vehicle (the issuer) in a suitable tax neutral jurisdiction. The originator will sell the underlying assets to the issuer, which will hold them under an English law trust in favor of the Sakk holders, to whom it issues certificates. The issuer funds the purchase of the assets with the issue proceeds.

While Sukuk are based on assets, the Sakk holder does not necessarily have any claim over the underlying assets in the event that the issuer fails to distribute the holder’s profit share: that will depend on whether the issuer’s obligations are secured on those assets in such a way that they can be made available to satisfy the holder’s claim in the event of the issuer’s default.

This is not typically the case, and the Sakk holder normally relies instead on an undertaking given by the originator to re-purchase the underlying assets at an agreed price on maturity or earlier in the event of default (the purchase undertaking).

This feature distinguishes the asset-based Sukuk that have been issued to date from the asset-backed securities issued by a conventional securitization vehicle. In practice, this means that, unless some additional credit enhancement element is included to improve the rating, Sukuk tend to have the same credit rating as the originator because repayment relies on the robustness of the purchase undertaking.
As might be expected, credit rating agencies do not verify Sharia compliance of rated Sukuk and do not take Sharia compliance into account as a relevant factor in rating Sukuk, unless non-compliance constitutes an event of default.

The terms and conditions of Sukuk are typically governed by English or New York law and are subject to the jurisdiction of the English or New York courts to help create legal certainty within the international financial community as to the nature and effect of the certificates.
However, in practice, some legal uncertainty can remain where judgment has to be enforced elsewhere (for example, in the jurisdiction in which the originator is domiciled). In addition, some of the underlying documents, such as sale and purchase agreements, may be governed by local law.

The Future
Sukuk issuance is the fastest-growing segment of the Islamic finance market and the volume out of the Middle East this year is expected to be phenomenal. However, the Islamic finance industry faces a number of challenges, including: Skills shortage. There are very few appropriately qualified Sharia scholars: it can take up to 30 years before a person is considered qualified, and there is no universal agreement on what makes a person “qualified” in this context.
No global consensus on Sharia. There is no international consensus on Sharia interpretations, especially in relation to innovative products. There are, however, some signs that the market may be settling.

Lack of standardization. Lack of consensus on Sharia, a high level of innovation and low transaction volumes mean that documents for the Islamic finance market (and the Sukuk market in particular) tend to be tailor-made for individual transactions, leading to much higher transaction costs than conventional finance alternatives. These costs should diminish as transaction volumes increase, and various industry bodies are taking steps to speed up the standardization process. Limited secondary market. Until very recently, there has been only a shallow and limited secondary market for Islamic finance products (again, Sukuk in particular) as most traditional investors have tended to hold their investments until maturity.

Need for assets. Much Sharia-compliant finance is assets-based, relying in some way on an income stream generated from assets. In practice, this can limit fund-raising to the assets available.

Restrictions on hedging. Traditional hedging techniques using derivatives are not always Sharia-compliant (for example, some derivatives fall foul of the prohibition of gambling). This means that hedging risks relating to currency, fair value or profit volatility is not easily achieved in Sharia-compliant finance. This can take up to 30 years before a person is considered qualified, and there is no universal agreement on what makes a person “qualified” in this context.

No global consensus on Sharia. There is no international consensus on Sharia interpretations, especially in relation to innovative products. There are, however, some signs that the market may be settling.

Tax disadvantages. The tax treatment of Sharia-compliant structures may not follow the treatment of their conventional finance alternatives. For example, where the financier’s return is structured as a profit share rather than interest, a tax deduction may not be available for the Islamic funding cost. In practice, this can necessitate careful structuring to ensure that Sharia-compliant finance does not become a more expensive fund-raising method than conventional finance.

Sara Catley is an analyst with PLC (Practical Law Company), the UK’s preeminent provider of legal know-how, transactional analysis and market intelligence for business lawyers. Catley would like to thank Andrew Calderwood and Natalya Pilbeam of Herbert Smith LLP, Luma Saqqaf of Linklaters LLP, Simon Sinclair of Clifford Chance LLP and Farmida Bi of Denton Wilde Sapte for their assistance with this article.

Source: zawya.com

October 27, 2008

Islamic Funding Structures And Financing Vehicles


[This article was published in the 10th issue of Nida'ul Islam magazine, November-December 1995]

Islamic banks around the world have devised many creative financial products based on the risk-sharing, profit-sharing principles of Islamic banking. For day to day banking activities, a number of financial instruments have been developed that satisfy the Islamic doctrine and provide acceptable financial returns for investors. Broadly speaking, the areas in which Islamic banks are most active are in trade and commodity finance property and leasing. Some of the basic financial techniques of Islamic banking are the following:

Murabaha: This is the sale of a commodity at a price which includes a stated profit known to both the vendor and the purchaser. This can be called a cost plus profit contract. The price is usually paid back by the buyer in deferred payments. Under Murabaha, the Islamic bank purchases, in its own name, goods that an importer or a buyer wants, and then sells them to him at an agreed mark-up. This technique is usually used for financing trade, but because the bank takes title to the goods, and is therefore engaged in buying and selling, its profit derives from a real service that entails a certain risk, and is thus seen as legitimate. Simply advancing the money to the client at a fixed interest rate would not be legitimate. It is important to note that only a legitimate profit in addition to the actual price is considered lawful under Islamic law. Any excessive addition on account of deferred payments will be disallowed as it would amount to a payment based on the value of money over time i.e. interest.

Mudaraba: This implies a contract between two parties whereby one party, the rabb al-mal (beneficial owner or the sleeping partner), entrusts money to the other party called the mudarib (managing trustee or the labour partner). The mudarib is to utilise it in an agreed manner and then returns to the rabb al-mal the principal and the pre-agreed share of the profit. He keeps for himself what remains of such profits. The following characteristics of mudaraba are of significance:

* The division of profits between the two parties must necessarily be on a proportional basis and cannot be a lump-sum or guaranteed return.
* The investor is not liable for losses beyond the capital he has contributed.
* The mudarib does not share in the losses except for the loss of his time and efforts.

Briefly, an Islamic bank lends money to a client – to finance a factory, for example – in return for which the bank will get a specified percentage of the factory’s net profits every year for a designated period. This share of the profits provides for repayment of the principal and a profit for the bank to pass on to its depositors. Should the factory lose money, the bank, its depositors and the borrower all jointly absorb the losses, thereby putting into practice the pivotal Islamic principle that the providers and users of capital should share risks and rewards.

Musharaka: This is a partnership, normally of limited duration, formed to carry out a specific project. It is therefore similar to a western-style joint venture, and is also regarded by some as the purest form of Islamic financial instrument, since it conforms to the underlying partnership principles of sharing in, and benefiting from, risk. Participation in a musharaka can either be in a new project, or by providing additional funds for an existing one. Profits are divided on a pre-determined basis, and any losses shared in proportion to the capital contribution.

In this case, the bank enters into a partnership with a client in which both share the equity capital- and perhaps even the management – of a project or deal, and both share in the profits or losses according to their equity shareholding.

Ijara Wa Iktina: Equivalent to the leasing and installment-loan, hire-purchase, practices that put millions of drivers on the road each year. These techniques as applied by Islamic banks include the requirement that the leased items be used productively and in ways permitted by Islamic law.

Muqarada: This technique allows a bank to float what are effectively Islamic bonds to finance a specific project. Investors who buy muqaradah bonds take a share of the profits of the project being financed, but also share the risk of unexpectedly low profits, or even losses. They have no say in the management of the project, but act as non-voting shareholders.

Salam: A buyer pays in advance for a specified quantity and quality of a commodity, deliverable on a specific date, at an agreed price. This financing technique, similar to a futures or forward-purchase contract, is particularly applicable to seasonal agricultural purchases, but it can also be used to buy other goods in cases where the seller needs working capital before he can deliver.

Besides their range of equity, trade financing and lending operations, Islamic banks world-wide also offer a full spectrum of fee-paid retail services that do not involve interest payments, including checking accounts, spot foreign exchange transactions, fund transfers, letters of credit, travellers’ cheques, safe-deposit boxes, securities safekeeping investment management and advice, and other normal services of modern banking.

Almost every Islamic bank has a committee of religious advisers whose opinion is sought on the acceptability of new instruments and who have to provide a religious audit of the bank’s end of year accounts.

The concepts of equity and morality are at the root of Islamic banking. In Islam moral and equitable values form an integral part of the rules of law governing contractual and financial relations to such an extent that the relationship which exists between equity, law and religion is an organic rather than supplementary relationship. The importance of Islamic banking has increased dramatically over the past 10 years. The main difference between Western and Islamic-style banking is the concentration on people and their businesses rather than on accounts- it is a much more ‘grass roots’ banking according to one expert.

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