I am always intrigued by the following : Shariah compliant versus Shariah based Islamic Finance Institutions. The fascination came to greater heights when there were reports floating around that said that the income from the operations of Al Rajhi Bank (Malaysia) Berhad (ARBM) was not consolidated with its parent company in Saudi Arabia (a very abnormal stand). This issue became a case study in my Accounting class last semester – very interesting indeed.
Let me start from the beginning…. ARBM was softly launched in October 2006 and was officially launched by Malaysia’s Prime Minister in February 2007. ARBM is posed to be a major retail bank (as opposed to KFH) like its parent company and targets retail customers and set up a lot of branches and ATMs in major cities in Malaysia. They focus on personal financing, before taking on home and vehicle financing. All types of financing are via Bai Bithaman Ajil, which followed the tawarruq concept.
It is a well known fact that most Middle East banks use the tawarruq concept and still maintain that the mode of financing is Shariah compliant, but what actually happened to the operations of ARBM until its parent company made a drastic decision as mentioned above?
Let us go back to the main issue here – what is the difference between shariah compliance and shariah based?
In order for a financial product to be Shariah compliant, it needs to satisfy, at a minimum, the criteria of Shariah law regarding the avoidance of Riba (interest), Maysir (gambling) and Gharar (uncertainty). Once these are satisfied and the bank obtains Shariah Supervisory Board approval, the product or structure can be marketed as Shariah compliant. As far as conventional banks are concerned, this is where Shariah compliance stops. It does not constrain the bank from employing non-Islamically raised funds to invest in Islamic structures.
A fully Shariah-based bank takes the compliance with Shariah law a step further. Not only do individual products have to meet all requirements but also all operations within the bank are required to be compliant with Shariah law. This extends to contracts with suppliers, rental contracts and labour contracts. The bank is completely set up to work in line with the ethical framework of Shariah, which makes it more likely to be able to structure all products to meet the requirements. In addition, there is no co-mingling of conventional and Islamically raised funds, since all funds are raised in line with Shariah requirements.
Going back to the ARBM’s case, those in Malaysia – you judge for yourself ……
Today, I am going to digress from Islamic finance for a while …. Last night, I watched a documentary in National Geographic on Honour Killing in Pakistan, which focused on a victim named Zahida Parveen, whose husband has tied her upside down, cut off both her ears, her nose and carved out both of her eyes and left her to bleed to death. Honestly, I had nightmares last night.
I have always been taught that when two people got married, it does not mean that the wife ceases to exist – it is supposed to be a partnership that should be filled with mutual respect, understanding and love. I am not naïve to realize that there is no such perfect couple/relationship but the least we could do is treat our other half with respect and honour as what we normally grant to a fellow human being.
It’s a well-known fact that Islam maintains the protection of life and does not sanction any violation against it. In the Holy Qur’an, Allah says, “Who slayeth a believer of set purpose, his reward is Hell for ever. Allah is wrath against him and He hath cursed him and prepared for him an awful doom.” (An-Nisa’: 93)
Abdullah ibn Mas`ud (r.a.) reported that the Prophet (s.a.w) said, "The blood of a Muslim may not be legally spilt other than in one of three [instances]: the married person who commits adultery; a life for a life; and one who forsakes his religion and abandons the community." (Reported by Al-Bukhari and Muslim)
Sheikh Ahmad Kutty, a senior lecturer and an Islamic scholar at the Islamic Institute of Toronto, Ontario, Canada, states:
“There is no such concept in Islam that is called “honour killing”. Islam holds every soul in high esteem and does not allow any transgression upon it. It does not allow people to take the law in their own hands and administer justice, because doing so will be leading to chaos and lawlessness. Therefore, based on this, Islam does not permit such killings.
First of all, in order to sanction killing, it must be through a binding verdict issued by an authoritative law. Individuals themselves have no authority either to judge cases or pass judgments. Therefore, a Muslim should not sanction such killing because doing so will be leading to the rule of the law of the jungle. A civilized society cannot be run by such laws.”
Recently, another victim named Aasiya Hassan was beheaded (allegedly by her husband) in America – my goodness, what is happening in the world today? Have we no feelings of compassion towards another human life form?
As it is, Islam has been viewed to be the religion of terrorists and now the issue of honour killing (which in actual fact is NOT permitted by the religion of Islam) has further tarnishes Islam. Something should be done against the criminals and I hope and pray that justice will prevail (if not now, they will pay the price in the Hereafter). Allahu Akbar!!!!
These facts (and figures) are extracted from Euromoney magazine (March 2009 issue) :
1 trillion the yen value ($10.6 billion) of the corporate bonds the Bank of Japan says it will buy to try to inject liquidity into the stagnating market. The bank will buy bonds rated A or better held by banks in an effort to increase lending from financial institutions.
671 billion the combined dollar value of the economic stimulus packages announced by leading Asian nations so far this year, counting China ($586 billion), Korea ($43 billion), Taiwan ($17 billion), Australia ($11 billion), India ($9 billion) and Indonesia ($5 billion). More announcements are expected within the next few months, with Japan in particular reported to be considering a plan worth several hundred billion dollars.
19.5 billion the combined dollar value of the mining assets ($12.3 billion) and convertible bonds ($7.2 billion) that Chinalco announced it would buy from Rio Tinto, making it the largest outbound M&A transaction by a Chinese company ever. The previous holder of the record? Step forward Chinalco, which last year together with Alcoa bought $14.3 billion-worth of Rio Tinto stocks.
1.4 billion the dollar value of Kirin’s bid for 49% of San Miguel Brewery in the Philippines, announced on February 20. The Japanese drinks company’s approach is the largest outbound deal from Japan so far this year, and the second largest ever from the country’s food and beverage sector after Kirin’s $2.6 billion acquisition of National Foods in 2007.
12.7% the annualized rate at which Japan’s GDP is shrinking, according to fourth-quarter data from 2008. The country’s new finance minister, Kaoru Yosano, will have to face the grim situation without a stiff drink: his predecessor, Shoichi Nakagawa, stepped down after denying allegations he had been drunk during a G7 meeting in Rome.
NEWS! NEWS! NEWS!
The Islamic Bank of Britain is operating in the red so far in 2009, after having posted a loss in 2008.
If you listen to some promoters of Shariah-Compliant banking, you’d have the impression that Islamic banks have all been untouched by the financial crisis. But, that certainly is not the case in Dubai, as we have noted recently. In Qatar, that country’s regime has just injected a huge sum of capital to shore up its banking sector, including two large Islamic banks.
Surprise? Well, I am not.
My main reasons are as follows :
1) Despite the fact that Islamic banks do not deal in interest, they are part of the global financial market that has tie up with interbank interest etc etc
2) They deal with real estate assets and everyone knows that during economic turmoil, the values of these assets are declining
3) Most of the Islamic banks mode of financing are murabaha-based (where profit rate has been fixed upfront), not profit and loss sharing like mudharaba and musyaraka
Therefore, these Islamic banks will be affected by the economic crisis, they are not invincible. However, the impact is not as great as their conventional counterparts.
It is hoped that people out there are interpreting the situation correctly and do not judge and conclude that if they are not dealing with interest, they are deemed to be invincible. One must remember that Islamic banks are still in its infancy stage (only been in business about 3-4 decades ago) as compared to the conventional banking. Despite the difference of philosophy behind each banking system, their paths are still intertwined one way or the other as Islamic banking has yet to develop to its true potential and according to its full Shariah requirement.
