By Bunny Nooryani
Oct. 13 (Bloomberg) -- Bangladesh's Muhammad Yunus and the Grameen Bank won this year's Nobel Peace Prize for advancing social and economic development by giving loans to the poor.
Yunus, 66, founded the bank, which lends to the ``poorest of the poor'' in rural Bangladesh without asking for collateral. The bank's so-called microcredit system has spread to impoverished communities around the world since its conception in 1976.
``Lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty,'' said Nobel Committee director Ole Danbolt Mjoes in announcing the panel's choice of Yunus and the bank as this year's winners of the $1.4 million prize. ``Microcredit is one such means. Development from below also serves to advance democracy and human rights.''
Yunus started the microcredit system when he lent $27 to a bamboo-stool maker and 41 other villagers. The bank makes most of its loans to women and serves more than 71,000 villages in Bangladesh. More than a third of Bangladeshis live on less than $1 a day, according to the World Bank. ``Grameen'' means village or rural in Bengali.
``This is fantastic news for all poor countries around the world,'' Yunus said in an interview with Norway's NRK television minutes after the award was announced in Oslo. ``I can't believe that this has really happened. I am so grateful.''
Economics Doctorate
Yunus, who was born in Chittagong, earned a doctorate in economics from Vanderbilt University in Nashville in 1969 after receiving a Fulbright scholarship. He joined Chittagong University as head of its economics department in 1972. He served on various United Nations panels on women's health and finance, and met with world leaders including former U.S. President Bill Clinton and World Bank President Paul Wolfowitz.
A famine in Bangladesh in 1974, which killed about 1.5 million Bangladeshis, proved a turning point for Yunus, who began questioning why people who worked 12 hours a day, seven days a week, still didn't have enough to eat. The answer, he discovered, was a lack of capital and the burden of high interest rates charged by money lenders.
``I saw how people suffered for tiny amounts of money,'' Yunus said in a June 2005 interview with Bloomberg. ``The money lenders grabbed them and squeezed the blood out of them.''
Central Bank
Yunus's solution was to start a system of lending to the poor in which total interest charged can't exceed the amount of the loan, regardless how long it takes to be repaid, the bank said. In response to Yunus's lobbying, his microcredit system was adopted as a project under his country's central bank.
As of May this year, Grameen Bank had 6.61 million borrowers, 97 percent of them women.
Today, the bank's borrowers are formed into groups of five people providing ``mutual, morally binding group guarantees'' in place of the collateral usually demanded by banks, Grameen said. The initial two members are allowed to apply for a loan. Depending on their performance in making repayments, the next two can apply, and finally, the fifth.
The interest rate on loans is 16 percent, and 95 percent of the loans Grameen makes are repaid, the bank said.
``He has brought hope to the hopeless, giving them a cause to live,'' Zahirul Haque, a Bangladeshi Foreign Ministry spokesman, said in a phone interview after the prize was announced. ``He has made the country and its people proud.''
Poverty Declines
Some 63 million of Bangladesh's 133 million people live in deprivation, two-thirds of them in extreme poverty, the World Bank said in a report last month. Those living in poverty declined from 59 percent in 1990 to 50 percent in 2000, with rural areas accounting for almost four-fifths of this development, the World Bank said.
Bangladesh was known as East Pakistan until it seceded from the union in West Pakistan in 1971. Most of its population is Muslim.
The award may spur India to develop its rural banking system, said Pawan Kumar Bansal, India's junior finance minister in charge of banking. Half of India's 1.1 billion people have no access to finance from any source, whether it is banks or local money lenders, according to Bansal.
``It is a recognition of a banking approach that ensures inclusive growth, where everyone has access to finance,'' Bansal said. ``We welcome it.''
The Grameen name has offshoots including companies that produce knit shirts, write computer programs and offer mobile- phone services. The Grameen Foundation, a Washington-based nonprofit organization of which Yunus is a board member, works in 22 countries to support microfinance programs that lend small amounts of money, usually less than $200, to the poor.
`Proved Its Value'
``Thanks to Professor Yunus and the Grameen Bank, microfinance has proved its value as a way for low-income families to break the vicious circle of poverty, for productive enterprises to grow, and for communities to prosper,'' UN Secretary-General Kofi Annan said today in a statement.
The peace prize, worth 10 million kronor, was created in the will of Swedish industrialist Alfred Nobel more than a century ago. Past winners include Mother Theresa, the medical charity Doctors Without Borders and the 14th Dalai Lama. The prize was first awarded in 1901.
The five-member Nobel committee keeps nominations secret. Of the 191 nominees for this year's prize, 168 were for individuals and the rest for organizations. Yunus wasn't among the favorites identified this week by researchers and bookmakers in their annual predictions of the winner.
Bookmaker's Odds
Australian bookmaker Centrebet's top choice was former Finnish President Martti Ahtisaari. Ahtisaari, 69, was given an even chance of gaining the prize for brokering last year's Aceh peace accord, which ended 29 years of conflict in the Indonesian province. Indonesian President Susilo Bambang Yudhoyono, 57, had 3-1 odds, and the separatist Free Aceh Movement a 9-2 chance.
In his will, Nobel said the prize should be awarded to ``the person who shall have done the most or the best work for fraternity between the nations, for the abolition or reduction of standing armies and for the holding and promotion of peace.''
Last year's prize went to the International Atomic Energy Agency and its Egyptian director general, Mohamed ElBaradei, 64, for their work to stop the military use of nuclear energy.
The prize will be formally awarded at a ceremony in Oslo on Dec. 10, the anniversary of Nobel's death in 1896. Nobel also established prizes for achievements in physics, medicine, chemistry and literature, which are presented by the Stockholm- based Nobel Foundation. An economics award was established in memory of Nobel by Sweden's central bank in 1969.
Tuesday, October 17, 2006
Wednesday, August 30, 2006
Qualitative Aspects of Business Transactions: An Islamic Perspective
Mufti Abdulkadir Barkatulla
Senior Imam Finchley Mosque, London. Sharia Advisor to Banks
Part 2
Beyond Compliance
Moving on from Dos and Don’ts (halal and haram) of Sharia Law, there are certain implied etiquettes suggested by the ethos of Islamic tradition and indirect prophetic directives, which make integral part of Islamic corporate governance culture. These ethos extend beyond shareholders, financiers and management to suppliers, customers, competitors and employees, embracing the spiritual as well as the temporal needs of community and environment. Some of main cultural etiquettes and ethos are briefly examined. There are no official penalties for violation of these guidelines except long term dire consequence of corporate failure and unpleasant outcomes:
a) Baraka – Long term and ultimate progression and development. Prophet is reported to have said: transacting parties have option till they part. Then if they were transparent and truthful in their dealing they will experience baraka following their exchange. And if they were not completely transparent and less than truthful, the baraka of their exchange will be erased. (Bukhari, Muslim) .
Another prophecy is that: vow and (untrue) guarantees, though promotes products but eventually wipes out barkah (Bukhari) . Anecdote to baraka is Mahq, which is to rub out the utility of transaction. This notion is explicitly mentioned in the verse of prohibition of riba in Sura Baqara:276.
b) Samaha altruistic and considerate. “May God bless persons of Samaha in business transactions and at settlement of receivables and payables. (Bukhari)
c) Ishraf – greed, excessive profiteering.
d) Nihla, Teeb-an-nafs - satisfaction, content of heart.
Seven Golden Principles
Islamic corporate governance culture is beautifully summarised in one narration by Muadh ibn jabal:
Best corporate business is where:
1.No under-representation / misrepresentation takes place (full disclosure and transparency)
2.No breach of trust ( false accounting/auditing)
3.No failed delivery undertakings
4.Suppliers are not unnecessarily smeared or de-valued
5.Products and services are not overstated
6.Accounts payables are not withheld unwarranted
7.Accounts receivable are not enforced cruelly.
Effect of non-conformity for Islamic Financial Institutions
Rating agencies, accounts and audit departments and valuers are good at crunching numbers and figure and vet documents and reports. However, Islamic financial institutions have unique characteristics. Measuring financial performance alone is not sufficient. Ethical performance targets and measurement mechanism have to evolve. Regulatory and Sharia non-compliance issues are apparent to deal with. Adherence to Islamic values and code of conduct does pose a daunting challenge. Non-conformity to ethical values poses risk factor unique to Islamic institutions.
There could be hardly any statistical data on scale of performance available in the short lifecycle of Islamic Financial institution. There may have been ups and down in life span of individual institution, but failure at massive scale has only been witnessed in sub-continent of India. As one news report puts it “The failure of Islamic financial institutions is an ideological and ethical challenge to the entire community”
The story goes on: A number of Islamic investment companies in Delhi, Mumbai, Hyderabad and Bangalore have either crumbled, collapsed, vanished or simply gone bust in the last two years. This is real bad news for all those who looked towards these companies or institutions as a halal (legitimate) avenue for investment of their hard-earned savings. If conventional banks fail, it is merely failure of individual institutions. But in case of Islamic investment companies, the very credibility of the concept has come into question.
It is estimated that nearly 100 Billion Indian Rupees deposited with these bodies have either been spirited away or gone into such investments that are not likely to return to those who expected them to yield profits. The rise and fall of several of these investment companies has coincided with the boom and bust of speculative businesses such as share market or real estates. A clutch of companies in Hyderabad acted in unethical style through an advertisement blitz in the local Urdu newspapers. Depositors were lured by expensive gifts, immediate dividends. In Mumbai and Bangalore the Islamic investors’ money fell victim to the artificial boom in real estates.
A detailed analytical study by Dr Rahmatullah of Mumbai concludes: it is pity for Islamic Institution in India to die the infant death or creep and crawl with lopsided growth features like a developing country without protective trade policy.
The study found four financial reasons for collapse and four non-financial factors, namely:
•Low Capital Base
•Low Capital Yield
•High Operational costs
•Non-performing Assets
Among other factors are:
•Poor Accounting Standards – Internal/external audit
•Non-professional Management
•Misappropriation of funds
•Lack of Crises Management Skills
Concluding Remarks
Human living conditions are constantly evolving so are interactive processes and practices. We have been on move gradually from barter economy to gold and silver based medium of exchange to bank notes to plastic cards to electronic funds and so on. Central to all modes have been relative negotiating powers and contractual terms and conditions of exchanging participants. Thus vital to various spheres of activity and modes has been human relational aspect. Fairness and justice are universal values. Gratitude and satisfaction of participants are delicate matters to deal with.
In quantum world of business transactions, whether in goods and services or financial instruments, new dynamics of qualitative aspects explained earlier, is to be part of equation. Islamic Business ethics must aim now beyond compliance to corporate governance excellence and socio-Islamic responsibilities. Concepts of barkah, samaha, and nihla are to be introduced into check list and audit trail of Islamic businesses and institutions. Adherence ensures the long term prosperity and well-being of participants going beyond lifespan of individuals and to future generations.
Senior Imam Finchley Mosque, London. Sharia Advisor to Banks
Part 2
Beyond Compliance
Moving on from Dos and Don’ts (halal and haram) of Sharia Law, there are certain implied etiquettes suggested by the ethos of Islamic tradition and indirect prophetic directives, which make integral part of Islamic corporate governance culture. These ethos extend beyond shareholders, financiers and management to suppliers, customers, competitors and employees, embracing the spiritual as well as the temporal needs of community and environment. Some of main cultural etiquettes and ethos are briefly examined. There are no official penalties for violation of these guidelines except long term dire consequence of corporate failure and unpleasant outcomes:
a) Baraka – Long term and ultimate progression and development. Prophet is reported to have said: transacting parties have option till they part. Then if they were transparent and truthful in their dealing they will experience baraka following their exchange. And if they were not completely transparent and less than truthful, the baraka of their exchange will be erased. (Bukhari, Muslim) .
Another prophecy is that: vow and (untrue) guarantees, though promotes products but eventually wipes out barkah (Bukhari) . Anecdote to baraka is Mahq, which is to rub out the utility of transaction. This notion is explicitly mentioned in the verse of prohibition of riba in Sura Baqara:276.
b) Samaha altruistic and considerate. “May God bless persons of Samaha in business transactions and at settlement of receivables and payables. (Bukhari)
c) Ishraf – greed, excessive profiteering.
d) Nihla, Teeb-an-nafs - satisfaction, content of heart.
Seven Golden Principles
Islamic corporate governance culture is beautifully summarised in one narration by Muadh ibn jabal:
Best corporate business is where:
1.No under-representation / misrepresentation takes place (full disclosure and transparency)
2.No breach of trust ( false accounting/auditing)
3.No failed delivery undertakings
4.Suppliers are not unnecessarily smeared or de-valued
5.Products and services are not overstated
6.Accounts payables are not withheld unwarranted
7.Accounts receivable are not enforced cruelly.
Effect of non-conformity for Islamic Financial Institutions
Rating agencies, accounts and audit departments and valuers are good at crunching numbers and figure and vet documents and reports. However, Islamic financial institutions have unique characteristics. Measuring financial performance alone is not sufficient. Ethical performance targets and measurement mechanism have to evolve. Regulatory and Sharia non-compliance issues are apparent to deal with. Adherence to Islamic values and code of conduct does pose a daunting challenge. Non-conformity to ethical values poses risk factor unique to Islamic institutions.
There could be hardly any statistical data on scale of performance available in the short lifecycle of Islamic Financial institution. There may have been ups and down in life span of individual institution, but failure at massive scale has only been witnessed in sub-continent of India. As one news report puts it “The failure of Islamic financial institutions is an ideological and ethical challenge to the entire community”
The story goes on: A number of Islamic investment companies in Delhi, Mumbai, Hyderabad and Bangalore have either crumbled, collapsed, vanished or simply gone bust in the last two years. This is real bad news for all those who looked towards these companies or institutions as a halal (legitimate) avenue for investment of their hard-earned savings. If conventional banks fail, it is merely failure of individual institutions. But in case of Islamic investment companies, the very credibility of the concept has come into question.
It is estimated that nearly 100 Billion Indian Rupees deposited with these bodies have either been spirited away or gone into such investments that are not likely to return to those who expected them to yield profits. The rise and fall of several of these investment companies has coincided with the boom and bust of speculative businesses such as share market or real estates. A clutch of companies in Hyderabad acted in unethical style through an advertisement blitz in the local Urdu newspapers. Depositors were lured by expensive gifts, immediate dividends. In Mumbai and Bangalore the Islamic investors’ money fell victim to the artificial boom in real estates.
A detailed analytical study by Dr Rahmatullah of Mumbai concludes: it is pity for Islamic Institution in India to die the infant death or creep and crawl with lopsided growth features like a developing country without protective trade policy.
The study found four financial reasons for collapse and four non-financial factors, namely:
•Low Capital Base
•Low Capital Yield
•High Operational costs
•Non-performing Assets
Among other factors are:
•Poor Accounting Standards – Internal/external audit
•Non-professional Management
•Misappropriation of funds
•Lack of Crises Management Skills
Concluding Remarks
Human living conditions are constantly evolving so are interactive processes and practices. We have been on move gradually from barter economy to gold and silver based medium of exchange to bank notes to plastic cards to electronic funds and so on. Central to all modes have been relative negotiating powers and contractual terms and conditions of exchanging participants. Thus vital to various spheres of activity and modes has been human relational aspect. Fairness and justice are universal values. Gratitude and satisfaction of participants are delicate matters to deal with.
In quantum world of business transactions, whether in goods and services or financial instruments, new dynamics of qualitative aspects explained earlier, is to be part of equation. Islamic Business ethics must aim now beyond compliance to corporate governance excellence and socio-Islamic responsibilities. Concepts of barkah, samaha, and nihla are to be introduced into check list and audit trail of Islamic businesses and institutions. Adherence ensures the long term prosperity and well-being of participants going beyond lifespan of individuals and to future generations.
Qualitative Aspects of Business Transactions: An Islamic Perspective
Mufti Abdulkadir Barkatulla
Senior Imam Finchley Mosque, London. Sharia Advisor to Banks
Part 1
An Abstract:
In today’s fast turnaround business world, the qualitative aspects of transactions are given less priority. The manufacturing world is all too familiar with quality control of production and assembly lines. In the service sector of distribution, marketing and customer satisfaction, it is often overlooked and forgone, with unpleasant consequences. It is not just medium size enterprises with short-term revenue maximizing objectives - ignoring the importance of the quality aspect - but even the large corporate world is culpable. Collapse of corporate giants and stock bubble bursts’ are only a few examples.
Islamic Sharia not only provides manifest governance rules and guidelines for businesses, it also provides philosophical rational for good practices and long term prosperity. The modern day concept of CRM (Customer Relationship Management) is often perceived as a technical IT challenge. But CRM is primarily a strategic business philosophy and process issue rather than a technical issue.
Islamic concepts such as baraka (growth), samaha (generosity), nihla (happy heart giving), and ishraf (greed) are a few examples of an overall business philosophy. Inner intentions and emotional aspects of business entities are taken into account for profitability of transaction and success of overall business enterprise. Here Sharia is not only concerned with compliance to the letter of the law but spirit and philosophy of the system as well. Adherence ensures the long term prosperity and well-being of transacting parties going beyond lifespan of individuals and to future generations.
Introduction
Quality or quantity has always been contentious notion. In today’s business environment practical considerations take centre stage instead of philosophical rational. Islamic perspective is crystal clear: “God loves that when you do something, accomplish it to the perfection” as attention is drawn in the Qur’an to the level of perfection in the natural creation.
Sharia compliance business and financial services sector has come a long way in the last three decades in various parts of the world. It is growing both in volume and complexity at a steady rate. Research and development is intensifying into devising evermore Sharia compliance products and services.
We are well placed now to pay attention to the qualitative aspects of both providers and consumers of Sharia compliance services. Compliance is not only required at product inception, design and marketing, but the whole process of delivery, execution and conclusion, and maturity of transactions. Quality Assurance covers all activities from design, development, production, servicing and documentation. As it is observed in the following sections, not only actions are subject of compliance, but motivations and intent.
Business Process re-engineering
Notwithstanding classic and modern theories of general equilibrium, corporate world is indeed going through process of re-engineering business models and processes. Corporate social responsibility and ethical guidelines for corporate governance are steps in positive directions. CRM, Customer Relationship Management is strategic business philosophy and processes are rooted in Sharia. CCRM, Collaborative Customer Relationship Management, is equated to PRM or “Partner Relationship Management”.
Moreover, treatment of suppliers as partners or customers, and a range of approaches to accounting, marketing, public relations, operations, training, labor relations, and investment are steps to improve qualitative business atmosphere. Attempt is made to realize Islamic business ethics and rational underlying Sharia Compliance in letter and spirit.
Islamic Business Ethics and Ethos
The ethical foundations of Islamic businesses are:
Fairness and balance in exchange transactions
Transparency and clarity of terms of exchange
Mutuality of individual and social usefulness
Social and contractual justice
Realism and actual relations
Sharia Compliance
The very objective of Sharia is to promote the welfare of the people, which lies in safeguarding their life, their intellect, their faith, their posterity and their wealth. In other words whatever promotes physical security, physical and mental health, protection of wealth and property, freedom of belief, socio-economic justice, balanced satisfaction of both material and spiritual needs of all human beings is in line with Islamic Sharia. Thus all useful economic activity is lawful and encouraged except transactions involving:
1. Unfairness towards any person, entity, and environment (zarar)
2. Riba (interest, usury and commodity riba)
3. Maysir (uncertain and speculative transactions)
4. Gharar (Ambiguity, excessive risk)
5. Trade in sinful activities i.e. goods and service declared unlawful
6. No underlying physical assets
Apart from halal and haram, Qur’an describes all satisfactory business exchange of goods and services by entities as trazi thus lawful and all unlawful exchanges as batil and bakhs.
Senior Imam Finchley Mosque, London. Sharia Advisor to Banks
Part 1
An Abstract:
In today’s fast turnaround business world, the qualitative aspects of transactions are given less priority. The manufacturing world is all too familiar with quality control of production and assembly lines. In the service sector of distribution, marketing and customer satisfaction, it is often overlooked and forgone, with unpleasant consequences. It is not just medium size enterprises with short-term revenue maximizing objectives - ignoring the importance of the quality aspect - but even the large corporate world is culpable. Collapse of corporate giants and stock bubble bursts’ are only a few examples.
Islamic Sharia not only provides manifest governance rules and guidelines for businesses, it also provides philosophical rational for good practices and long term prosperity. The modern day concept of CRM (Customer Relationship Management) is often perceived as a technical IT challenge. But CRM is primarily a strategic business philosophy and process issue rather than a technical issue.
Islamic concepts such as baraka (growth), samaha (generosity), nihla (happy heart giving), and ishraf (greed) are a few examples of an overall business philosophy. Inner intentions and emotional aspects of business entities are taken into account for profitability of transaction and success of overall business enterprise. Here Sharia is not only concerned with compliance to the letter of the law but spirit and philosophy of the system as well. Adherence ensures the long term prosperity and well-being of transacting parties going beyond lifespan of individuals and to future generations.
Introduction
Quality or quantity has always been contentious notion. In today’s business environment practical considerations take centre stage instead of philosophical rational. Islamic perspective is crystal clear: “God loves that when you do something, accomplish it to the perfection” as attention is drawn in the Qur’an to the level of perfection in the natural creation.
Sharia compliance business and financial services sector has come a long way in the last three decades in various parts of the world. It is growing both in volume and complexity at a steady rate. Research and development is intensifying into devising evermore Sharia compliance products and services.
We are well placed now to pay attention to the qualitative aspects of both providers and consumers of Sharia compliance services. Compliance is not only required at product inception, design and marketing, but the whole process of delivery, execution and conclusion, and maturity of transactions. Quality Assurance covers all activities from design, development, production, servicing and documentation. As it is observed in the following sections, not only actions are subject of compliance, but motivations and intent.
Business Process re-engineering
Notwithstanding classic and modern theories of general equilibrium, corporate world is indeed going through process of re-engineering business models and processes. Corporate social responsibility and ethical guidelines for corporate governance are steps in positive directions. CRM, Customer Relationship Management is strategic business philosophy and processes are rooted in Sharia. CCRM, Collaborative Customer Relationship Management, is equated to PRM or “Partner Relationship Management”.
Moreover, treatment of suppliers as partners or customers, and a range of approaches to accounting, marketing, public relations, operations, training, labor relations, and investment are steps to improve qualitative business atmosphere. Attempt is made to realize Islamic business ethics and rational underlying Sharia Compliance in letter and spirit.
Islamic Business Ethics and Ethos
The ethical foundations of Islamic businesses are:
Fairness and balance in exchange transactions
Transparency and clarity of terms of exchange
Mutuality of individual and social usefulness
Social and contractual justice
Realism and actual relations
Sharia Compliance
The very objective of Sharia is to promote the welfare of the people, which lies in safeguarding their life, their intellect, their faith, their posterity and their wealth. In other words whatever promotes physical security, physical and mental health, protection of wealth and property, freedom of belief, socio-economic justice, balanced satisfaction of both material and spiritual needs of all human beings is in line with Islamic Sharia. Thus all useful economic activity is lawful and encouraged except transactions involving:
1. Unfairness towards any person, entity, and environment (zarar)
2. Riba (interest, usury and commodity riba)
3. Maysir (uncertain and speculative transactions)
4. Gharar (Ambiguity, excessive risk)
5. Trade in sinful activities i.e. goods and service declared unlawful
6. No underlying physical assets
Apart from halal and haram, Qur’an describes all satisfactory business exchange of goods and services by entities as trazi thus lawful and all unlawful exchanges as batil and bakhs.
Tuesday, August 22, 2006
The Importance Of Zakah
(Excerpted from Hj Zaharudin article)
Islam regards all wealth, as belonging to God and it is an “amanah” (a trust that is entrusted to the individual) from Allah. We will have to account for the wealth that Allah has entrusted to us in this life and hereafter.
One may accumulate as much as one pleases as long as such means do not violate the law of law. Wealth gathering is a legitimate activity as long as it entail theft, cheating, coercion, riba(usury), harming others.
Indeed, the pursuit of wealth is one of the man’s primal concerns and demands for survival (consisting of food, shelter and clothing). Wealth gathering is vital for living, but it must be subjected to the moral law. Without this law, human life sinks to the level oriented around money and could lead to moral decadence.
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.
Islam regards all wealth, as belonging to God and it is an “amanah” (a trust that is entrusted to the individual) from Allah. We will have to account for the wealth that Allah has entrusted to us in this life and hereafter.
One may accumulate as much as one pleases as long as such means do not violate the law of law. Wealth gathering is a legitimate activity as long as it entail theft, cheating, coercion, riba(usury), harming others.
Indeed, the pursuit of wealth is one of the man’s primal concerns and demands for survival (consisting of food, shelter and clothing). Wealth gathering is vital for living, but it must be subjected to the moral law. Without this law, human life sinks to the level oriented around money and could lead to moral decadence.
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.
Ramadhan and Wealth
(Excerpted from Hj Zaharudin article)
All Muslims are duty-bound to fast during the whole month of Ramadhan based on the evidence from the Qur’an in Surah al-Baqarah, verses 183 and 185. We must have faith in the hereafter life and thus, to observe the Islamic conduct of our daily life as a preparation for the next eternal destiny.
One must understand that human life has two elements:- the first is the physical body or the outer part of man and the second is the spiritual side i.e. the inner part of man that cannot be physically touched or seen through our bare eyes. The first can be equated to this worldly life. In Islam, the spiritual part is the most important where it will determine one’s thought and action in his/her life. Therefore, fasting in Ramadhan will lead to the purification of this crucial element.
One must have in mind that, it is impossible for one to acknowledge and to explore the secrets of Ramadhan if he/she is still in doubtful about the basic element above, eventually he/she neither have the passionate feeling of welcoming Ramadhan nor feels any special value for it.
It is just like one who does not have any interest in screening his/her income and flow of his money, he/she just do not bother whether it involved in Riba or unlawful investments, this is due to the lack of his/her basic spiritual foundation and awareness in the strict prohibition of Riba. Therefore, we hope the ibadah performed in Ramadhan could purify our basic spiritual foundation.
Thus, in tandem with Ramadhan al-Mubarak, this writing will try to explain on how to increase our ibadah and purify our income and wealth, as follows:
1) Enhancing the efforts of alms giving or sadaqah in which will help eliminating the previous sinful wealth, other than helping the needy and unfortunate peoples. Only by multiplying sadaqah, one life would be more blessed by Allah. Allah stated: “Allah will destroy Riba (usury utilizer) and will give increase for Sadaqat (deeds of charity, alms)” ( Al-Baqarah : 276)
2) Generally, Muslims are much more responsible towards executing his/her Deen duties in Ramadhan. This can be clearly seen from the lively atmosphere in all mosques in this month than in others. Therefore, Muslims should maximize this thoughtful sense of Ramadhan to evaluate their sources of income and wealth, and also to observe their daily expenditure. It is mostly advisable that Muslims pay attention to the following points:-
• Does our income or business profit come from Shariah approved sources?
Have we ever check (and wanted to check) on our investment whether it is prohibited or permissible by Shariah. The profits which rooted from the Shariah prohibited investments are also unlawful in Islam.
Allah had mentioned in Surah Al-Maidah, verse 2:
“Help ye one another in righteousness and piety, but help ye not one another in sin and rancor”.
Moreover, based on the Islamic legal maxims and concept:
“Whatever leads to prohibition, thus it will be prohibited” and,
“Every matters that would open way to prohibitions are prohibited”.
Therefore, we hope that Ramadhan will gives us more awareness and strength to look for lawful profits in Islam rather than putting efforts to gain profits without giving any consideration to the Shariah ruling on it.
• Muslims must ensure that all items sold and bought are lawful in the Shariah views, besides the “Halal” signs provided by JAKIM for all the foodstuffs, Muslim sellers should be mindful to items without any “Halal” signs on it e.g. clothes, reading and entertainment materials etc, where they should be more conscious on the effects of all the sold items to the community at large, and thus be responsible of it. Muslim should never let self-indulgence stay in his/her heart and let difficulties occur in the society because of his/her sales.
• How about all the deceitful elements happening today in our society such as hiding the defects of sales items, purposely late delivery, lying on the quality of commodities, foods and etc?
• As muslim, we are obliged to have great concern to our duties towards Allah by performing five times prayers a day without any excuses. By ignoring these duties, any profit generated will be lack of Allah blessing. No one should give excuses that they are too busy in handling the business or entertaining customers to justify the ignorance.
One must be aware that when the good deeds is multiplied in Ramadhan as narrated in the hadith:- “ (Allah Says about the fasting person) He has left his food, drink and desires for My sake, The Fast is for Me, so I reward (the person ) for it and the reward of good deeds is multiplied ten times” ( Narrated by Al-Bukhari); the evil deeds is also multiplied in this blessing month.
• Muslim must get away from extravagant lifestyles in Ramadhan by controlling themselves from spending a lot of money in buying various foods, clothes etc unnecessarily. Therefore, it is advisable for Muslims to spend more on sadaqat (giving charity) to others and not to engage in a big feast with the whole lots of food varieties during the break fasting hour, as it could be wasted away and also dissociated Muslim from Ramadhan objectives.
In welcoming this blessed month of Ramadhan, all these practices must be put to an end. Muslims must turn into a new leaf and thus search only for lawful (halal) wealth.
In conclusion, Muslims must be more responsible in ensuring that all the wealth earned is lawful, and not causing injustice to others such as usury (Riba), betrayal of trust/mistrust, fraud, investments that lead to bad effects in society and etc. We pray that Ramadhan will increase our wills to purify the wealth that we earn and spend for the sake of Allah. We also pray that Ramadhan will lighten our heart to become a good Muslim not only in this blessed month, but continuously forever.
All Muslims are duty-bound to fast during the whole month of Ramadhan based on the evidence from the Qur’an in Surah al-Baqarah, verses 183 and 185. We must have faith in the hereafter life and thus, to observe the Islamic conduct of our daily life as a preparation for the next eternal destiny.
One must understand that human life has two elements:- the first is the physical body or the outer part of man and the second is the spiritual side i.e. the inner part of man that cannot be physically touched or seen through our bare eyes. The first can be equated to this worldly life. In Islam, the spiritual part is the most important where it will determine one’s thought and action in his/her life. Therefore, fasting in Ramadhan will lead to the purification of this crucial element.
One must have in mind that, it is impossible for one to acknowledge and to explore the secrets of Ramadhan if he/she is still in doubtful about the basic element above, eventually he/she neither have the passionate feeling of welcoming Ramadhan nor feels any special value for it.
It is just like one who does not have any interest in screening his/her income and flow of his money, he/she just do not bother whether it involved in Riba or unlawful investments, this is due to the lack of his/her basic spiritual foundation and awareness in the strict prohibition of Riba. Therefore, we hope the ibadah performed in Ramadhan could purify our basic spiritual foundation.
Thus, in tandem with Ramadhan al-Mubarak, this writing will try to explain on how to increase our ibadah and purify our income and wealth, as follows:
1) Enhancing the efforts of alms giving or sadaqah in which will help eliminating the previous sinful wealth, other than helping the needy and unfortunate peoples. Only by multiplying sadaqah, one life would be more blessed by Allah. Allah stated: “Allah will destroy Riba (usury utilizer) and will give increase for Sadaqat (deeds of charity, alms)” ( Al-Baqarah : 276)
2) Generally, Muslims are much more responsible towards executing his/her Deen duties in Ramadhan. This can be clearly seen from the lively atmosphere in all mosques in this month than in others. Therefore, Muslims should maximize this thoughtful sense of Ramadhan to evaluate their sources of income and wealth, and also to observe their daily expenditure. It is mostly advisable that Muslims pay attention to the following points:-
• Does our income or business profit come from Shariah approved sources?
Have we ever check (and wanted to check) on our investment whether it is prohibited or permissible by Shariah. The profits which rooted from the Shariah prohibited investments are also unlawful in Islam.
Allah had mentioned in Surah Al-Maidah, verse 2:
“Help ye one another in righteousness and piety, but help ye not one another in sin and rancor”.
Moreover, based on the Islamic legal maxims and concept:
“Whatever leads to prohibition, thus it will be prohibited” and,
“Every matters that would open way to prohibitions are prohibited”.
Therefore, we hope that Ramadhan will gives us more awareness and strength to look for lawful profits in Islam rather than putting efforts to gain profits without giving any consideration to the Shariah ruling on it.
• Muslims must ensure that all items sold and bought are lawful in the Shariah views, besides the “Halal” signs provided by JAKIM for all the foodstuffs, Muslim sellers should be mindful to items without any “Halal” signs on it e.g. clothes, reading and entertainment materials etc, where they should be more conscious on the effects of all the sold items to the community at large, and thus be responsible of it. Muslim should never let self-indulgence stay in his/her heart and let difficulties occur in the society because of his/her sales.
• How about all the deceitful elements happening today in our society such as hiding the defects of sales items, purposely late delivery, lying on the quality of commodities, foods and etc?
• As muslim, we are obliged to have great concern to our duties towards Allah by performing five times prayers a day without any excuses. By ignoring these duties, any profit generated will be lack of Allah blessing. No one should give excuses that they are too busy in handling the business or entertaining customers to justify the ignorance.
One must be aware that when the good deeds is multiplied in Ramadhan as narrated in the hadith:- “ (Allah Says about the fasting person) He has left his food, drink and desires for My sake, The Fast is for Me, so I reward (the person ) for it and the reward of good deeds is multiplied ten times” ( Narrated by Al-Bukhari); the evil deeds is also multiplied in this blessing month.
• Muslim must get away from extravagant lifestyles in Ramadhan by controlling themselves from spending a lot of money in buying various foods, clothes etc unnecessarily. Therefore, it is advisable for Muslims to spend more on sadaqat (giving charity) to others and not to engage in a big feast with the whole lots of food varieties during the break fasting hour, as it could be wasted away and also dissociated Muslim from Ramadhan objectives.
In welcoming this blessed month of Ramadhan, all these practices must be put to an end. Muslims must turn into a new leaf and thus search only for lawful (halal) wealth.
In conclusion, Muslims must be more responsible in ensuring that all the wealth earned is lawful, and not causing injustice to others such as usury (Riba), betrayal of trust/mistrust, fraud, investments that lead to bad effects in society and etc. We pray that Ramadhan will increase our wills to purify the wealth that we earn and spend for the sake of Allah. We also pray that Ramadhan will lighten our heart to become a good Muslim not only in this blessed month, but continuously forever.
Friday, April 14, 2006
Family Takaful
(Source: The Star, Malaysia, Contributed by Bank Negara Malaysia.)
A family takaful plan is a long-term savings and
investment programme with a fixed maturity period.
Apart from enjoying investment profit, the plan
provides mutual financial assistance among its
participants.
The family takaful plan is a financial programme that
pools efforts to help the needy in times of need due
to untimely death and other mishaps resulting in
personal injury or disablement.
The takaful plans designed by the takaful company
would enable participants to participate in a takaful
scheme with the following aims:
(a) To save regularly;
(b) To invest with a view of earning profits which are
syariah-compliant; and
(c) To avail of cover in the form of payment of
takaful benefits to heir(s) should a participant die
before the maturity date of his takaful plan.
The operations of family takafu·
A person who participates in any family takaful plan
is called a participant. A participant may choose any
one of the plans offered by the company. The family
takaful plans have a defined period of participation.
The takaful company and the participant will enter
into a long-term takaful contract, which is based on
the principle of Al-mudharabah (profit-sharing).
The takaful contract spells out clearly the rights and
obligations of the parties to the contract. The
participant is required to pay regularly the takaful
instalments in consideration for his participation in
the takaful plan.
The participant will decide the amount of takaful
instalments that he wishes to pay, but such an amount
shall be subject to the minimum sum as determined by
the company.
Each takaful instalment paid by the participant shall
be divided and credited by the takaful company into
two separate accounts, namely the participant’s
account and the participant’s special account. A
substantial proportion, for example, such as 93% of
this instalment is credited into his participant’s
account solely for the purpose of his savings and
investment.
The balance is credited into his participant’s special
account as tabarru’ for the purpose of mutual help.
Mutual financial assistance such as takaful death
benefits to fellow participants is paid from the
participant’s special account. What proportion of the
takaful instalment to be relinquished as tabarru’ and
credited into the participant’s special account is
determined based on sound actuarial principles.
The takaful instalment credited into these two
accounts will be pooled as a single fund for the
purpose of investment activities undertaken by the
takaful company in a manner permitted by the Syariah.
Any profits generated from the investment shall be
shared between the participant and the company in a
ratio to be mutually agreed between the participant
and the company in accordance with the contract of
Al-Mudharabah. For instance, if the ratio agreed is
7:3 then the participant shall be entitled to 70% of
the profits whilst the company shall be entitled to
30%.
The participant’s share of the profits shall be
credited into his participant’s account. With the
accumulation of such profits, the balance in the
participant’s account will increase over a period of
time.
Family takaful benefits
In the event that a participant should die before the
maturity of his family takaful plan, the following
takaful benefits shall be paid to him:
(i) The total amount of the takaful instalments paid
by the participant from the date of inception of his
takaful plan to the due date of the instalment payment
prior to his death and his share of profits from the
investment of the instalments which have been credited
into his participant’s account;
(ii) The outstanding takaful instalments which would
have been paid by the deceased participant should he
survive. This outstanding amount is calculated from
the date of his death to the date of maturity of his
takaful plan which shall be paid from the
participant’s special account as agreed upon by all
the participants in accordance with the takaful
contract.
If a participant survives until the date of maturity
of his takaful plan, the following takaful benefits
shall be paid to him:
(i) The total amount of takaful instalments paid by
the participant during the period of his participation
plus his share of profits from the investment of the
takaful instalments credited into his participant’s
accounts.
(ii) The net surplus allocated to his participant’s
special account as shown in the last valuation of the
participant’s special accounts.
In the event that a participant is compelled to
surrender or withdraw from the takaful plan before the
maturity of his takaful plan, he shall be entitled to
the surrender benefits.
The participant is entitled to receive the proportion
of his takaful instalments that have been credited
into the participant’s account including his share of
investment profits. However, the amount that has been
relinquished as tabarru’ will not be refunded to him.
The various types of family takaful plans available in
the market are:
(a) Family takaful plan for education
(b) Family takaful mortgage plan
(c) Group family takaful plan
(d) Group hospitalisation and medical benefit
The operations of general takaful
General takaful schemes are basically contracts of
joint-guarantee, on a short-term basis (normally one
year), between groups of participants to provide
mutual compensation in the event of a defined loss.
The schemes are designed to meet the needs for
protection of individuals and corporate bodies in
relation to material loss or damage resulting from a
catastrophe or disaster inflicted upon properties,
assets or belongings of participants.
In the event of a catastrophe or disaster resulting in
a loss or damage to a property or bodily injuries or
other physical disability to a person, the owner of
the property or the person concerned may suffer
substantial financial losses.
For instance, if a house is destroyed or damaged by
fire, the owner would certainly require a sufficient
sum of money to repair the house, or rebuild a new one
as well as enough money to replace the damaged
furniture, fixtures and fitting.
Similarly, a person being injured in an accident would
require an adequate sum of money to pay for the
medical treatment.
With the various general takaful schemes offered in
the market, that person would be assured of takaful
benefits in case of misfortune resulting from such
loss or damage.
Participants of a general takaful scheme shall also
enter into a contract with the company on the basis of
the contract of Mudharabah. The contract stipulates
the right and obligations of the participants as well
as the company.
In consideration for participating in the various
schemes, the participants agree to pay the takaful
contributions as tabarru’. The company manages the
general takaful business including managing the
investment of the general takaful fund assets.
As the al-Mudharib, the takaful company will invest
the general takaful fund in line with Syariah
principles and all returns on the investment will be
pooled back to the fund.
In line with the virtues of cooperation, shared
responsibilities and mutual help as embodied in the
concepts of takaful, the participants agree that the
company shall pay from the general takaful fund,
compensation or indemnity to fellow participants who
have suffered a defined loss upon the occurrence of a
catastrophe or disaster.
The fund shall also pay for other operational costs of
general takaful business such as for the retakaful
arrangements and the setting up of technical reserves.
Should there be a surplus (profits) in the general
takaful fund after deducting all the operational costs
of general takaful, that surplus will be shared
between the participants and the company – provided
the participants have not incurred any claims, and
that no takaful benefits have been paid to them.
This sharing of the surplus will be in a ratio agreed
in accordance with the contract of Al-Mudharabah. If
the ratio agreed is 6:4, then 60% of the surplus will
be shared among such participants whilst the balance
40% is the share of the company.
A family takaful plan is a long-term savings and
investment programme with a fixed maturity period.
Apart from enjoying investment profit, the plan
provides mutual financial assistance among its
participants.
The family takaful plan is a financial programme that
pools efforts to help the needy in times of need due
to untimely death and other mishaps resulting in
personal injury or disablement.
The takaful plans designed by the takaful company
would enable participants to participate in a takaful
scheme with the following aims:
(a) To save regularly;
(b) To invest with a view of earning profits which are
syariah-compliant; and
(c) To avail of cover in the form of payment of
takaful benefits to heir(s) should a participant die
before the maturity date of his takaful plan.
The operations of family takafu·
A person who participates in any family takaful plan
is called a participant. A participant may choose any
one of the plans offered by the company. The family
takaful plans have a defined period of participation.
The takaful company and the participant will enter
into a long-term takaful contract, which is based on
the principle of Al-mudharabah (profit-sharing).
The takaful contract spells out clearly the rights and
obligations of the parties to the contract. The
participant is required to pay regularly the takaful
instalments in consideration for his participation in
the takaful plan.
The participant will decide the amount of takaful
instalments that he wishes to pay, but such an amount
shall be subject to the minimum sum as determined by
the company.
Each takaful instalment paid by the participant shall
be divided and credited by the takaful company into
two separate accounts, namely the participant’s
account and the participant’s special account. A
substantial proportion, for example, such as 93% of
this instalment is credited into his participant’s
account solely for the purpose of his savings and
investment.
The balance is credited into his participant’s special
account as tabarru’ for the purpose of mutual help.
Mutual financial assistance such as takaful death
benefits to fellow participants is paid from the
participant’s special account. What proportion of the
takaful instalment to be relinquished as tabarru’ and
credited into the participant’s special account is
determined based on sound actuarial principles.
The takaful instalment credited into these two
accounts will be pooled as a single fund for the
purpose of investment activities undertaken by the
takaful company in a manner permitted by the Syariah.
Any profits generated from the investment shall be
shared between the participant and the company in a
ratio to be mutually agreed between the participant
and the company in accordance with the contract of
Al-Mudharabah. For instance, if the ratio agreed is
7:3 then the participant shall be entitled to 70% of
the profits whilst the company shall be entitled to
30%.
The participant’s share of the profits shall be
credited into his participant’s account. With the
accumulation of such profits, the balance in the
participant’s account will increase over a period of
time.
Family takaful benefits
In the event that a participant should die before the
maturity of his family takaful plan, the following
takaful benefits shall be paid to him:
(i) The total amount of the takaful instalments paid
by the participant from the date of inception of his
takaful plan to the due date of the instalment payment
prior to his death and his share of profits from the
investment of the instalments which have been credited
into his participant’s account;
(ii) The outstanding takaful instalments which would
have been paid by the deceased participant should he
survive. This outstanding amount is calculated from
the date of his death to the date of maturity of his
takaful plan which shall be paid from the
participant’s special account as agreed upon by all
the participants in accordance with the takaful
contract.
If a participant survives until the date of maturity
of his takaful plan, the following takaful benefits
shall be paid to him:
(i) The total amount of takaful instalments paid by
the participant during the period of his participation
plus his share of profits from the investment of the
takaful instalments credited into his participant’s
accounts.
(ii) The net surplus allocated to his participant’s
special account as shown in the last valuation of the
participant’s special accounts.
In the event that a participant is compelled to
surrender or withdraw from the takaful plan before the
maturity of his takaful plan, he shall be entitled to
the surrender benefits.
The participant is entitled to receive the proportion
of his takaful instalments that have been credited
into the participant’s account including his share of
investment profits. However, the amount that has been
relinquished as tabarru’ will not be refunded to him.
The various types of family takaful plans available in
the market are:
(a) Family takaful plan for education
(b) Family takaful mortgage plan
(c) Group family takaful plan
(d) Group hospitalisation and medical benefit
The operations of general takaful
General takaful schemes are basically contracts of
joint-guarantee, on a short-term basis (normally one
year), between groups of participants to provide
mutual compensation in the event of a defined loss.
The schemes are designed to meet the needs for
protection of individuals and corporate bodies in
relation to material loss or damage resulting from a
catastrophe or disaster inflicted upon properties,
assets or belongings of participants.
In the event of a catastrophe or disaster resulting in
a loss or damage to a property or bodily injuries or
other physical disability to a person, the owner of
the property or the person concerned may suffer
substantial financial losses.
For instance, if a house is destroyed or damaged by
fire, the owner would certainly require a sufficient
sum of money to repair the house, or rebuild a new one
as well as enough money to replace the damaged
furniture, fixtures and fitting.
Similarly, a person being injured in an accident would
require an adequate sum of money to pay for the
medical treatment.
With the various general takaful schemes offered in
the market, that person would be assured of takaful
benefits in case of misfortune resulting from such
loss or damage.
Participants of a general takaful scheme shall also
enter into a contract with the company on the basis of
the contract of Mudharabah. The contract stipulates
the right and obligations of the participants as well
as the company.
In consideration for participating in the various
schemes, the participants agree to pay the takaful
contributions as tabarru’. The company manages the
general takaful business including managing the
investment of the general takaful fund assets.
As the al-Mudharib, the takaful company will invest
the general takaful fund in line with Syariah
principles and all returns on the investment will be
pooled back to the fund.
In line with the virtues of cooperation, shared
responsibilities and mutual help as embodied in the
concepts of takaful, the participants agree that the
company shall pay from the general takaful fund,
compensation or indemnity to fellow participants who
have suffered a defined loss upon the occurrence of a
catastrophe or disaster.
The fund shall also pay for other operational costs of
general takaful business such as for the retakaful
arrangements and the setting up of technical reserves.
Should there be a surplus (profits) in the general
takaful fund after deducting all the operational costs
of general takaful, that surplus will be shared
between the participants and the company – provided
the participants have not incurred any claims, and
that no takaful benefits have been paid to them.
This sharing of the surplus will be in a ratio agreed
in accordance with the contract of Al-Mudharabah. If
the ratio agreed is 6:4, then 60% of the surplus will
be shared among such participants whilst the balance
40% is the share of the company.
Thursday, January 05, 2006
Muslim investors top 2005 faith funds table
In a year when the Standard & Poor's 500 index has nudged up barely 5 per cent, investors would have done better by investing according to the principles of the Koran.
Among the small but rapidly growing band of faith-based mutual funds, the main US Muslim fund has beaten funds run according to the principles of the Catholics, the Mennonites, the Presbyterians, and the evangelical Christians. In fact, with the $100m (£58m, €84m) Islamic Amana Growth fund posting a 22 per cent return for the year, they have pretty much beaten everyone, according to data provided by Lipper.
Amana Growth and its sister fund, Amana Income, avoid investing in any company that derives more than 5 per cent of its revenue from alcohol, tobacco, pornography, gambling or the sale of pork. It sold stock in Albertson's, a grocery chain, when alcohol sales began to edge close to 5 per cent of revenue. The Koran's ban on money lending also eliminates most financial institutions. Morningstar, the fund tracker, notes that Amana keeps stock turnover low because the Koran warns against speculation. Apple, Qualcomm and Adobe are big holdings.
Another small fund aimed at the large US Muslim community, the Allied Dow Islamic index, has reaped only 6.9 per cent for the year. It invests 80 per cent of money in various Dow Jones Islamic indices, with the remainder actively managed.
The Timothy Plan, which appeals mainly to evangelical Christians, has a clutch of funds that avoid alcohol, tobacco, gambling, abortion, pornography and also any companies that advertise on shows which feature sex or violence. Its biggest, the Large to Midcap Value Fund, has scored a return of 17.5 per cent, this year after underperforming for some time.
Among the rest of the pack, the Ave Maria Catholic Values fund - the flagship of four Ave Maria funds which hold a total of $400m - has returned 6.3 per cent for the year. It avoids investing in companies that facilitate abortion, donate to Planned Parenthood, are involved in pornography or offer same-sex partner benefits. That last requirement eliminates about 200 of the 500 companies in the S&P.
New Covenant, the Presbyterian mutual fund which, with $2bn under management, is the heavyweight of the faith-based world, and MMA Praxis, the mutual fund arm of the Mennonite Church, have performed largely in line with the market. Both have more in common with socially responsible investing, avoiding companies that make firearms or that cause environmental damage as well as screening out gambling and alcohol-related companies.
The tiny Vice Fund - which actively invests in alcohol, tobacco, gambling and so on - has returned less than 5 per cent.
Among the small but rapidly growing band of faith-based mutual funds, the main US Muslim fund has beaten funds run according to the principles of the Catholics, the Mennonites, the Presbyterians, and the evangelical Christians. In fact, with the $100m (£58m, €84m) Islamic Amana Growth fund posting a 22 per cent return for the year, they have pretty much beaten everyone, according to data provided by Lipper.
Amana Growth and its sister fund, Amana Income, avoid investing in any company that derives more than 5 per cent of its revenue from alcohol, tobacco, pornography, gambling or the sale of pork. It sold stock in Albertson's, a grocery chain, when alcohol sales began to edge close to 5 per cent of revenue. The Koran's ban on money lending also eliminates most financial institutions. Morningstar, the fund tracker, notes that Amana keeps stock turnover low because the Koran warns against speculation. Apple, Qualcomm and Adobe are big holdings.
Another small fund aimed at the large US Muslim community, the Allied Dow Islamic index, has reaped only 6.9 per cent for the year. It invests 80 per cent of money in various Dow Jones Islamic indices, with the remainder actively managed.
The Timothy Plan, which appeals mainly to evangelical Christians, has a clutch of funds that avoid alcohol, tobacco, gambling, abortion, pornography and also any companies that advertise on shows which feature sex or violence. Its biggest, the Large to Midcap Value Fund, has scored a return of 17.5 per cent, this year after underperforming for some time.
Among the rest of the pack, the Ave Maria Catholic Values fund - the flagship of four Ave Maria funds which hold a total of $400m - has returned 6.3 per cent for the year. It avoids investing in companies that facilitate abortion, donate to Planned Parenthood, are involved in pornography or offer same-sex partner benefits. That last requirement eliminates about 200 of the 500 companies in the S&P.
New Covenant, the Presbyterian mutual fund which, with $2bn under management, is the heavyweight of the faith-based world, and MMA Praxis, the mutual fund arm of the Mennonite Church, have performed largely in line with the market. Both have more in common with socially responsible investing, avoiding companies that make firearms or that cause environmental damage as well as screening out gambling and alcohol-related companies.
The tiny Vice Fund - which actively invests in alcohol, tobacco, gambling and so on - has returned less than 5 per cent.
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