Answers To Whom Condemned Islamic Banks Practices

Even if the moral law has been strictly observed in every step of the process of acquiring wealth, our wealth still needs justification on another level and this is where the institution of wealth sharing or Zakah. One of Islam tenet is that wealth, once acquired ought to be shared with others in the same proportion. This is the requirement of charity and it is as old as humanity and always regarded as high moral value.
Thus, Islam sought to preserve charity as a critical element to moral values, which must be highlighted. Purposes of Zakah are as follows:-
a) To purify the physical well being and the soul of a man by inhibiting selfishness and materialistic from rooting in the heart of the rich, as well as spiritual training in one to create a noble, good and caring person, to others.
b) To encumber jealousy and uneasiness among the poor and needy towards the rich as a hadith had mentioned: “Once you have settled the Zakah upon your property, then you had put away the evil that might have risen from it.” (Narrated by Al-Hakim)
c) To convince the wealthy that the title to their wealth is mitigated by their fellow humans’ rights to life and subsistence,
d) To assure the needy that their fellow brothers will not passively see them suffer misfortune.
e) To take care of the unfortunate members in the society and build their personality to become a useful contributor to the society. This will automatically cleanse the unwanted feeling in them that leads to despair and unproductivity in life. The prophet said: “Men are like the organs of a body, when the organ suffers, the whole body responds to repel the cause of suffering” (Narrated by Muslim)

Being a form of tax on wealth, Zakah is incumbent on all liquid, existing, movable and immovable properties belonging to Muslims. It does not matter whether the owner is child (e.g. it is when he/she holds an inheritance wealth, zakah is obligatory on the wealth, and any of their close relatives could pay the Zakah on his/her behalf) or adult, male or female. Three principles govern the levying the Zakah are:-
• No Zakah is due on property intended for consumption, such as houses, gardens, clothing, or furniture. Jewelry of gold, silver. Taxable property is that which is intended for production, whether industrial, agricultural or commercial.
According to Malaysian standard, even though jewelries which are used by females will not be imposed to Zakah but, one must bear in mind that if a women wears jewelries which overall cost of the jewelries is higher than RM5000 i.e normal standard usage of jewelries for a woman in Malaysia, she has to pay Zakah (2.5 %) from the additional amount which is above the standard.
• Zakah is not an indiscriminate tax on all properties. Assessment of Zakah must take into consideration the net income produced by the property in question. If in a year, the company suffers a loss, no Zakah is levied on the property concerned.
• A reasonable amount necessary for the owner and his dependents’ subsistence must be deducted from the assessment.

One might have asked nowadays: “Do we have to pay Zakah on shares that we keep as savings?”
Shares which are permissible to buy and own may be purchased for either holding them and expecting their dividends or for participating in the management of the company, or for using them as tradable objects waiting for a good opportunity to realize a capital gain and sell. In this case, one is to pay Zakah at the same rate and net asset value on the due date of Zakah.

Holding shares for their dividend is usually done on a long-term vision, during which capital gains may also be realized but the owner usually keeps holding them for long period. There are three views on the Zakah in this case:-

a. The view of the majority, which came in a resolution of the OIC Fiqh Academy, maintains that one has to calculate the “Zakah able” part of the value of the stock, from the company’s balance sheet and pay Zakah on it in the due date at the rate of 2.5%. The “Zakah able” part is: cash+receivables+inventories of goods in process and ready for sale-short term debts.

b. The minority view, states that this investment is similar to trading in stocks, in the Shariah meaning of the word. Accordingly, the owner has to pay Zakah at the rate of 2.5% on the market value on the due date.

c. The third view is a subset of the first one; it actually adds to the first one that if it is difficult to calculate Zakah from the balance sheet, one may pay 10% on the net income of the stock, in analogy with agriculture. Actually, there is no strong and logical support in Shariah for this opinion.

In conclusion, Muslims must bear in mind that their reluctance to pay Zakah will only result in bad consequences, either spiritually or physically as follows: –
a) Losing Allah’s blessings over his/her properties.
b) Lead to greediness in oneself to accumulate as much wealth as one could without ignoring the lawfulness of the sources of income in the eyes of Islam.
c) Widening the gap between the rich and the poor. In this case, the rich becomes richer and the poor remains poor or even poorer without any help to improve the situation. As a result, this leads to social illnesses and civil crimes, which will even out the harmony and tranquility life in society.
d) The existence of envy and hatred between the rich and the poor.
e) The wealth, which has not been purified with Zakah, will bring disasters to its owner in the hereafter.

This Ramadhan al-Mubarak is a perfect time to be reminded of the duty to pay “Zakah al-Fitr”, which is obliged to all Muslims of man, woman, young and old. Accordingly, cash value of one saa’ (or one “gantang” or 2.3 kg) can be paid as “Zakah al-fitr” and it equivalent to a very small amount of money (below RM 5.00). It must be settled before the ‘Idul Fitr sunnah prayer is performed. In the event of later than this, it will not be regarded as Zakah fitrah anymore but is merely regarded as an ordinary sadaqah. Therefore, Muslims should not hesitate in carrying out this duty at the due time in which will also helps to enlighten the Hari Raya celebration of the unfortunate members in society.

By: Ust Hj Zaharuddin Hj Abd Rahman *

Thirty years ago, when outsiders began looking at Islamic Banking on the International level, they were incredulous. “ How can you run bank, “they asked, “without interest?”. The very notion seemed absurd, at the time; there were no more than a handful of Islamic banks in operation worldwide. Most industry professionals thought that they would either disappear as quickly as they had come along, or that they would continue to plod along in a marginalized manner. Since then, despite the pessimism of the conventional industry, Islamic banking has mushroomed over the last three decades, so that today there are about 200 Islamic Banks in nearly 50 countries. (Yusof DeLorenzo, 2004, Islamic Finance, p19)

In fact, Islamic banks have been responsible for major innovations in the banking sector. Just take a look at the Islamic Bank products, which have been offered worldwide to the public, such as: –

a) Automobile and Home Financing : innovative products such as Ijarah (Leasing), Ijarah Thumma al-Bai’ (Leasing Ending With Purchase), Ijarah al-Muntahiyah bit Tamleek (Leasing ending with ownership), Musyarakah Mutanaqisah (Diminshing Musharakah) and Murabahah Lil Ameer Bishira’ (Three party Murabahah).

b) Working Capital and Industrial Financing: purchasing machine, asset construction including manufacturing plant, construction of a building or house; Islamic products such as Istisna’ (Manufacturing Contract), Istisna’ cum Ijarah, Ijarah Muntahiyah bit Tamleek (Lease ending with ownership), Musyarakah Mutanaqisah (Diminishing Partnership) can be used. Additionally, Murabahah Lil Ameer Bishira’ is also applicable.

c) Depository Product; there are Mudarabah Account, Wadi’ah Account, Mudrabah Moqayyadah (Restricted Mudarabah), Commodity Murabahah, Wadiah Multi Currency Account and Mudarabah Multi Currency account as well.

d) Medium and Long Term Investment ; Such as; Capital Adjusted Investment (for example ; a 5 year principal adjusted structure linked to Global Equity Builder index and structured with CPPI with Lock in feature of 80% or 90% of highest NAV level reached etc). There are also innovative products from Deutshe Bank (Islamic) such as Islamic Hedge Fund Tracker, Principal Protected CCO, Islamic CROCI and many more worldwide, which are very competitive.

e) Corporate and Project Financing; there are several Shariah compliant products and financing structures that may be employed to cover the needs of corporate and project financing. The contract of Murabahah allows for the financing of inventory and fixed assets. Likewise ‘Ijarah’ makes possible the leasing of business essentials such as factory and warehouse space, and all manner of equipment to a certain degree intangibles assets such as Intellectual properties, services, workmanship etc. Furthermore, specialized contracts such as ‘Salam’, a sort of forward purchase of relevance to commodities, and Istisna’, a contract for manufacture, allow for a wide range of possibilities when these are structured creatively. Islamic law has made every provision in dealing with debt in an efficient and responsible manner. Debt may be transferred or assigned through a contract called ‘hawala’ (Debt Transfer). Through another contract, known as Kafalah (guarantees). Through ‘Suftaja’, debt may be safely repaid at another location. Through the creative use, or structuring of these and other contracts, Muslim investors and entrepreneurs can compete and excel in the modern financial world.

In relation to the above, it is learnt that Islamic banks have changed the nature of the relationship between bank and depositor. The conventional relationship based on a lending contract has given way to partnership and cooperation in which the element of commitment is clearly present. Such a relationship, essentially a sharing approach, creates a performance incentive. A prominent Economist and Shariah Scholar, Dr Monzer Kahf said: “ a matter that requires more careful planning than quick overnight changes in interest rate offered to the depositors”.

He also said that the Islamic Bank innovation also could be realized in the integration of financial and real markets. Again, using the share principle in the modes of financing they offer to their clients, Islamic Banks share returns. If a client loses money, the bank loses money. In this manner financing is linked to the processes of the production and exchange of real goods or assets. The other Islamic Bank innovation is the incorporation of ethics and moral values in the investment decisions taken by the bank. Obviously, the observance of moral values is a clear Shariah imperative.

In summary then, Islamic Banks have flourished without interest. Not only that, they have promoted practices within the banking sector that can only be viewed as beneficial. All of this is the result of the prohibition against Riba.

In fact, it has now become apparent that interest free business is better business, more attuned to the needs of clients and of society in general. Finally, with regard to profitability, the sector has clearly demonstrated that it can perform at the bottom line. Even so, it is equally clear that the bottom line in a truly Islamic business will have more to show than numbers. In addition, to those numbers in either black or red, the bottom line will be about commitment and responsibility, about stewardship of the trust given to us by the Almighty, and about caring for one another’s need and concern.

We realized that nowadays, there are some parties seem very eager to condemn Islamic Banks and its business. Firstly, I think that it is due to the numbers and the financing or mark-rates up charged by the Islamic Banks, which is slightly higher (as they said) as compared to what Conventional Banks had charges. Secondly, questions from the operation sides and concepts’ implementation (which they said as non-Islamic as their Islamic names).

Frankly speaking, most of these parties forgot to analyze some of the simple crucial facts, which are very important to be in their consideration before continuing to downgrade Islamic Banks operations. These points are: –

Differences between ‘halal’ profit (between buying and selling transaction which is applied by Islamic Banks) and the prohibited interest (from loan agreement by Conventional Financial Institutions). Do not just focus on the numbers in judging things but also have to give an absolute consideration on ‘halal’ and ‘haram’ income.

Do not evaluate an “oppression” and “coercion” element in a product by its numbers and rates. ‘Zulm’ or ‘oppression’ is not necessarily coming out from the numbers, but it comes from the underlying transaction used. For instance, someone might sell its asset at a higher price than the market but there is no element of oppression as long as the customer is willing to buy it. Indeed, the underlying selling and buying with an asset contract makes a lot of different with the loan contract. It is called “Taradhi” or “mutual agreement” in Shariah as stated in Surah An-Nisa’: 29. In contrast, the small amount of interest or Riba, which arise from a loan contract, is still prohibited by Shariah as it has coercion elements to the customer although the payback seems to be low but the unlimited liability under a compounded “interest” rate scenario is very high.

Differences between disputable Islamic concepts (which is used in some of the Islamic Banks products) and the clear-cut Riba of the conventional products. The Islamic Legal Maxim said: “(Take) the lesser of two harms”. It has to be in mind, we are always trying to move gradually from disputable concept to globally accepted ones.

Understanding an undisputed Islamic concept of “Bringing good and beneficial things progressively” or “ at-Taddaruj Fi Jalb al-manfa’ah”. There is also Islamic Legal Maxims that state: “Dar’ul Mafasid Muqaddamun ala Jalb al-Masaleh” means “Avoiding or put an effort to keep away from evil (in the Banking context; it is a Riba) must be given priority to propagate good deeds”. These concepts are very popular among the Islamic preachers. From here, it is understood that, it is agreed that some Islamic requirements or elements are still not orderly in place in the offerings of Islamic banking products. In fact, we also have a very strong-will towards the perfection but it has to be recognized that it need times especially when it involves parties like staff within the banking Institutions, public, judges, lawyers and the regulators as well.

Restrictions and limitations from many angles; such as an existing law in which is obstructing the smooth implementation for Islamic concepts in the products (for example; Rules of the High Court, 1980 which not cover the Islamic Banking needs and some clauses in the National Land Code etc). Therefore, one has to bear in mind that, some of the limitations are beyond the Islamic Banks’ capacity. Because of that, we advise that who ever wanted to criticize Islamic Banks to have in their mind the Islamic concept of “al-Hukm ‘ala Sha’in Far’un ‘An Tassawurihi” means: “Judgment on a matter is sought to be acquainted with the background of the subject”. It is crucial to understand these limitations before launching attacks toward Islamic Banks and its products.

The Islamic Banks assets and its financial status. We are humble to say that Islamic Banks still have a long way to go, and they are still at an infant level as compared to conventional banks in term of assets and financial strength. Therefore, these might limit the Islamic banks from providing some Shariah necessities such as to have its own warehouse to store cars before selling it to the customers or to have special staffs who are fully in-charge in doing Musyakarah with the customers etc.

The Malaysian Reality; Majority of Malaysian public understanding of Islamic Banking Majority need to be continuously reinforced and enhanced. There is no doubt that, implementation of Islamic products need full awareness from customers and the Banks staff as well. Unfortunately, it is well known that, a lot of customers are only focusing in gaining low rates without consideration on whether it is “halal” or “haram”, they also do not give any interest in understanding the underlying transaction, which is being used. Therefore, to make sure that the creation of all Islamic products and its application is well created and implemented, all relevant parties must have clear understanding on how the Islamic products work. These need efforts from all parties especially the government.

The above mentioned facts are only some points that needed to be considered by everyone who wants to study Islamic Banks products and its operations, or otherwise he/her will be only an idealistic person and there is no way no practice their ideas.

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