CAUTION TO MALAYSIA

Excerpts from The Star (2 Nov 2009) :

While Malaysia is doing a great job in promoting Islamic finance, the adaptation process to some of its products will need a deeper look or “a second visit”, according to a renowned Muslim scholar. Dr Hatem El-Karanshawy, founding dean of the Qatar Faculty of Islamic Studies, has voiced caution over the need to quickly Islamise products just to be at par with other conventional instruments. “We should not rush to adopt products and Islamise them because we would like the products to be on the same footing as other western institutions or non-Islamic banking that are not based on Islamic principles,” he said.

I tend to agree with the statement above. In our efforts to tap into the lucrative business of Islamic finance and attract the Middle East’s petrodollars, we got carried away by “liberalizing” the Islamic financial products so that they are deemed to be Shariah compliant but in actual fact, they are exactly like their conventional counterpart.

There have been numerous calls from the Shariah scholars and finance academicians – if we do not curb such activities and continue with the replication that result in “direct mutation” of conventional products into Islamic products, the ummah as a whole is not generally better-off.

Malaysia has huge potential to be the main player in the Islamic finance arena because of the following reasons :

a) Bank Negara Malaysia is very supportive of the move to bring Islamic financial institutions into Malaysian soil. They have been aggressive in promoting Islamic finance opportunities with strong backing from the Government of Malaysia

b) The industry players are also strong advocates of the move initiated by BNM.

c) The HQ of IFSB is in Kuala Lumpur. It is hoped that more standards and guidelines can be issued to meet the needs of Islamic financial institutions and takaful operators in the near future

d) The setting up of INCEIF and ISRA in Kuala Lumpur – it is hoped that the graduates that are well versed in both Shariah and Finance fields can be produced to support the shortage of human resources in the Islamic finance field. On-going researches can be conducted to find ways and means to improve the current situation and promote new innovation

e) Various incentives and tax benefits

And the reasons can continue on. However, despite the above, we must not forget that there are other improvements that need to be looked at locally and internationally :

a) the local laws in Malaysia are still under civil laws and some of the Islamic commercial cases are not given due justice. Therefore, there must be amendments to the relevant Acts to cater for these cases.

b) here is a need for a paradigm shift in the thinking ways of the industry players. We acknowledge the fact that profit orientation is the motivation to run a business, however, having a 100% Shariah compliant product does not deny the businessman his profits. So there must be a clear understanding about the Islamic concepts in finance so that these businessmen/bankers etc do not only chase after “big bucks” but to ensure that the process and the financial product do not contravene any Shariah rules/guidelines. We should scrap the famous “tidak apa” or “never mind” attitude and sway away from the famous “darurah” reason. Islamic banking has been in Malaysia for more than 2 decades and since then, the industry players could have improved the way they are doing business and come with more innovative and accepted products and drop the “controversial and unacceptable” products like inah and arranged tawarruq.

c) improve the Islamic money market instruments so that the Islamic financial institutions can have the mechanism and platform to compete fairly with their conventional counterparts.

It is very disturbing to find out that despite Malaysia having the infrastructure and stable economic and political condition, we failed to attract enough FDIs (we even lost to Thailand – where politically is relatively less stable than our country, in fact we can see on TV, the riots between the Red Shirts and Yellow Shirts almost on weekly basis and yet able to attract more FDIs into their country).

Investors are generally looking for opportunity to make money for themselves and Islamic finance is a lucrative and huge business and Malaysia having been promoting itself as a hub for Islamic finance is still unable to attract investors into the country – well, there is surely something wrong somewhere.

Is it the Government?

Is it the regulators – too strict or too liberal?

Is it the incentives – not competitive?

Is it the infrastructure?

Is the financial products?

Hhmm, which is it, I wonder…..

ISSUE OF ISLAMIC RISK MANAGEMENT

Risk management for Islamic banking financial products and services is one of the greatest challenges that many westernized, as well as Islamic banks, are facing today.
As a result of this market growth in Islamic financial products there is a high demand to understand how to assess and manage the risks arising from applying these products and services. Credit, operational, market and liquidity risks together with the risk of non compliance with the Shariah are becoming very hot issues for financial institutions.

Risk traditionally means possibility of meeting danger or suffering, harm or loss. Risk is an element of life in this world for being ignorant of the future. It is also factor of investing that one should take time to understand prior to selecting any specific investment instruments or any new adventures.

The Holy Quran has presented stories of the previous prophets so that Muslims can take the lessons from their experiences. The story of Prophet Ya'qub as, tells us about the management of risks as Prophet Ya’qub as commanded his sons to enter Egypt from different gates. The Holy Quran states, "Further he said: "O my sons! Enter not all by one gate: enter ye by different gates. Not that I can profit you aught against God (with my advice): None can command except God: On Him do I put my trust: and let all that trust put their trust on Him" (Quran 12:67).

There are three basic types of Islamic risk management products and mechanisms:

a) those that are formally being standardized. There is a global trend towards the unification or de facto standardization of risk management products, which can be currently observed in the market

b) risk management methods directly based on the well-recognized Islamic financing modes and rules

c) the possibility to use formally Shariah compliant mechanisms to replicate conventional risk management products and risk profiles. Conventional financial instruments have been developed to solve "conventional" problems and needs, and it may well be that the needs of the Islamic industry differ from those faced by its conventional counterpart. Islamic banks must manage risks specific to themselves, which cannot be encountered in the same way and extent in non-Islamic institutions. This holds true both at the product-specific / individual level and on the portfolio / balance-sheet level for Islamic banks.

According to Siddiqui in his article “Risk Management in an Islamic Framework”, risk management in Islamic framework should ensure that :

a) debt proliferation is minimized. This implies that corporations raise additional funds via equity, not by issuing bonds

b) interest on debt is not practiced. This will in effect kill the bond market

c) debt is not traded

d) risks are shared between financiers and producers/businessmen

e) regulators should not allow purchase of business or financial risks by outsiders not involved in the business or supply of investible funds for the business but only taking chances on the outcome

We all know that the rating agencies (e.g. S&P, Moody’s, Fitch) do the ratings for Islamic financial institutions, however, as rightly (and timely) put by Amit Khandelwal in his article titled “ Risk Management in Islamic Finance”, Islamic financial institutions need to be rated by specific Islamic rating agency due to :

a) rigorous and consistent analysis of quantitative and qualitative factors

b) assessment of risk profile of institution or product

c) removal of asymmetry in information on the variety of business operations

d) investors in Islamic countries desire to know the credit worthiness of the institutions and products and the legitimacy, in terms of Shariah compliance, of institutions and products

Some of the conditions/guidelines of Basel II are deemed not appropriate/compatible for Islamic financial institutions and IFSB has tried to provide additional guides/principles to assist and streamline the risk management concerns, however, more needs to be done in view of the evolving nature of the Islamic products and contracts and the dynamic spur to innovate more Islamic products in the market.

THE END OF THE WORLD....

Last night I watched “Nostradamus 2012” on the History Channel – the programme is based on the Book of Nostradamus, where the so called “seer” predicts the apocalypse of the world. I was pulled to watch the programme until the end – where it is said that the end of time will happen on 21/12/2012 – well, not long from today….

It is said that on that particular day, the sun will be aligned with the centre of the universe called the “dark rift” which only happens every 26,000 years. The galactic alignment will bring about chaos to the planet where it will affect the earth’s magnetic fields etc, thus, the earth is unable to deflect the sun bursts (this phenomenon was portrayed convincingly in the movie – Knowing)

Well, the programme highlighted all the scientific explanations and compare them with the findings from ancient civilizations (e.g. the Mayans/Egyptians) etc, and they concluded, it is very weird that the Mayans had ended their calendar on 21/12/2012 (which they had earlier engraved on stones in the temples in central America long time ago).

Let us look at the matter from the Islamic perspective…

The belief in Doomsday/End of the World (qiyamah) is one of our pillars of faith and no one (even the prophets or angels) know the exact date of the D-day – only Allah swt knows exactly when is the final hour.

However certain events are going to take place prior to the coming of the final hour. These events are known as the Signs of Qiyamah. All the Prophets informed their people of the signs of the final hour.

Our Prophet Muhammed saw being the last and the seal of Prophets, knowing that Doomsday is to come upon this very ummah, explained clearly and in considerable detail the signs of the final hour to the extent that sometimes he would lecture his companions all day on this subject :

Abu Zaid (ra) says, 'The Prophet saw sat down on the pulpit after fajar prayer and began a deliver a long sermon until the time of Dzuhur prayer came. After saying the Dzuhur prayer he again sat on the pulpit and began the sermon, which continued till Asr prayer. After the Asr prayer he resumed the sermon so much so that the sun set. he related whatever happened in the past and also related in detail whatever is to happen in the future. Those amongst us who had good memories retained many things.' (Sahih Muslim)

The signs of the final hour can be divided into two groups.

1) Minor signs

Minor signs are events of normal nature prophesised by our Prophet Muhammed saw to take place before Qiyamah like the consumption of alcohol, lifting of knowledge and prevalence of ignorance and immorality and signs of this nature. The majority of the minor signs have appeared while some are occurring and some will appear with major signs.

2) Major signs

Major signs are events of extraordinary nature prophesied by our Prophet saw to take place before Qiyamah like all the events mentioned in the following hadith narrated by Hudhaifa ibn Usayd that the Prophet saw said, 'The last hour will not arrive till you have seen ten signs. He then mentioned the Smoke, Dajjal, Beast, Rising of the Sun from the place of it's setting, the Descent of Isa, Ya'juj Ma'juj, Three Landslides, one in the East, one in the West and one in the Arabian Peninsula after that a Fire would spread from Yemen and drive the people to their place of gathering".

Smoke

Smoke will appear all over the earth that will cause believers to catch something similar to the common cold, whereas disbelivers will be hit harder by it. Finally, a cool wind will cause all the believers to die. This all the unbelievers left on earth to experience the last hour of the day of judgement

Beast

The Dabbah is a strange beast who will have the Rod of Moses and the seal of Solomon. He will call people back to Islam. Some will heed to the call while others will reject it. The believers will then have a sign that says: "Believer" while the disbelievers will have a "Disbeliever" sign. The exact description of the animal is unknown.

Earthquake/landslide

Three major earthquakes will occur on the day of judgement and they will damage a great deal of the earth. One earthquake will occur in the east, another in the west, and the third will be in the Arabian Peninsula

Rising of the sun from the west

This will be a major sign indicating that the world has reached its end. Allah has created the sun and He always made it rise in the East, however, at the end of time He will reverse this process by making it rise from the West. Once this happens, Allah will not accept the repentance of the disbelievers, it will be too late for them

Dajjal

Ad-Dajjal is said to be a beast who will come claiming to be God holding heaven and hell. His sole purpose is to deceive people and lead them away from the remembrance of Allah, and the unbelievers will follow him. He will have only one good eye and he will be blind in the other eye. On his forehead there will be a sign saying "Kafir," or disbeliever. He will perform some miracles which will serve to deceive some people.

The Prophet Muhammed saw warned,

Whoever hears about the coming of Ad-Dajjal should stay away from him because by Allah, a man could come to him thinking of himself a strong believer but then he will follow Ad-Dajjal because of the doubts he will spread

Ya’juj Ma’juj

Ya'juj and Ma'juj are two hidden tribes of people. These tribes were disbelieving descendants of Prophet Adam as. They will come in enormous numbers and will outnumber all the believers of the world. They will break through a barrier that Allah swt created to hold them back and ravage the earth. They will drink all the water, destroy plants and animals and kill people. This will occur roughly around the time of the second coming of Prophet Isa as (Jesus). Finally, Allah swt will send a type of worm or insect that will wipe them out.

Are the signs already there? Humans are just to oblivious to them as we are too busy with our pursuits of worldly affairs…

There is a book which I read a couple of months ago with regards to past, present and future signs of Qiyamah :

Past

1. Splitting of the Moon.

2. Death of the Prophet Muhammad saw.

3. A form of death which will kill thousands of Muslims. (Understood to refer to the plague of Amwas during the caliphate of ‘Umar ibn al-Khattab.)

4. A major fighting in Madinah (understood to refer to the battle of al-Harrah during the caliphate of Yazid, 63 AH).

5. The Muslim conquest of Jerusalem.

6. The Muslim conquest of Constantinople.

7. Two large groups of Muslims will fight in war.

8. A war between the Muslims and a reddish people with small eyes, wearing sandals made of hair (understood to refer to the Mongol Tatar invasion of the Islamic lands.)

9. A peace agreement between the Muslims and non-Muslims from the yellow race (Chinese, Mongols, etc.)

10. Thirty impostors (Dajjal) will appear, each thinking he is a prophet.

Present?

11. Naked, destitute, barefoot shepherds will compete in building tall buildings.

12. The slave-woman will give birth to her master or mistress.

13. A trial (fitnah) which will enter every Arab household.

14. Knowledge will be taken away (by the death of people of knowledge), and ignorance will prevail.

15. Wine (intoxicants, alcohol) will be drunk in great quantities.

16. Illegal sexual intercourse will become widespread.

17. Earthquakes will increase.

18. Time will pass more quickly.

19. Tribulations (fitan) will prevail.

20. Bloodshed will increase.

21. A man will pass by the grave of another and wish he was in the latter’s place.

22. Trustworthiness will be lost, i.e. when authority is given to those who do not deserve it.

23. People will gather for prayer, but will be unable to find an imam to lead them.

Future

24. The number of men will decrease, whilst the number of women will increase, until for every man there are 50 women.

25. The Euphrates will reveal a treasure of gold, and many will die fighting over it, each one hoping to be the one who gains the treasure.

26. The Romans (Europeans) will come to a place called A’maq or Wabiq, and an army of the best people will go forth from Madinah to face them.

27. The Muslim conquest of Rome.

28. The Mahdi (guided one) will appear, and be the Imam of the Muslims.

29. Jesus Christ (Prophet Isa as) will descend in Damascus, and pray behind the Mahdi.

30. Prophet Isa as will break the cross and kill the swine, i.e. destroy the false Christianity.

31. The Antichrist (al-masih al-dajjal, the false christ) will appear, with all his tools of deception, and be an immense trial. He will be followed by 70,000 Jews from Isfahan (present-day Iran).

32. The appearance of Ya’juj and Ma’juj (Gog and Magog), and the associated tribulations.

33. The emergence of the Beast from the Earth, carrying the Staff of Moses and the Seal of Solomon, who will speak to the people, telling them they did not believe with certainty in the Divine Signs.

34. A major war between the Muslims (including Jews and Christians who truly believe in Prophet Isa as after his return) led by the Imam Mahdi, and the Jews plus other non-Muslims led by the Antichrist.

35. Prophet Isa as will kill the Antichrist at the gate of Ludd (Lod in present-day Israel, site of an airport and a major Israeli military base).

36. A time of great peace and serenity during and after the remaining lifetime of Prophet Isa as.

37. Wealth will come so abundant that it will become difficult to find someone to accept charity.

38. Arabia will become a land of gardens and rivers.

39. Society will then decay.

40. The buttocks of the women of the tribe of Daws will again sway in circumambulation (tawaf) around the idol Dhul-Khulsah.

41. A great fire in the Hijaz, seen by the inhabitants of Busra.

42. Three major armies will sink into the earth: one in the east, one in the west, one in Arabia.

43. An Abyssinian leader with thin shins will destroy the Ka’bah.

44. The huge cloud of smoke.

45. The sun will rise from the west (its place of setting).

46. A gentle wind which will take the souls of the believers.

47. There is no-one left on the earth saying, "Allah, Allah" or "There is no god except Allah."

48. Eventually the Day of Judgment is established upon the worst of the people, who copulate like donkeys in public.

49. The blowing in the Trumpet by the Angel Israfil, upon which everyone will faint except as Allah wills.

50. The second blowing in the Trumpet, upon which everyone will be resurrected.

Wallahu alam….