Critical Issues on Islamic Banking and Financial Markets

To the layman who wishes to understand modern Islamic financial transactions, this book will prove friendly and helpful. It provides the underlying principles of Shariah financial instruments and presented them in actual and practical form. Since 1983, Malaysia has been making significant inroads into the Islamic financials landscape. Today Islamic financial transactions have made their presence felt in almost all financial institutions including banks, unit trusts, insurance, discount houses, fund management, factoring, pawn broking and project financing. And with more than USD200 billion Islamic funds available in global finance today, it is logical that the business of Islamic banking, insurance and fund management is fast expanding and encroaching into non-traditional financing. As the Holy Quran enjoins profit creation via trading and commercial transactions (al-bay') while forbidding profit earned from loans (riba), increasing Islamic consciousness among the Muslims today has opened up new business opportunities in Islamic finance, financial planning and wealth management. The Shariah not only condone interest as riba, but prohibits elements of gambling (maisir) in financial transactions. Ambiguities (gharar) in contractual agreements must be avoided at all cost while companies seeking Islamic capital must not engage with prohibited goods such as alcoholic beverages, pork and pornographic material. But current practices although unintentionally seem to out focus the real Quranic agenda for wealth creation and management. The Quranic alternative to riba is trade and commerce (al-bay'). The essence of trade and commerce is profit creation that implicates risk-taking (ghorm) and value-addition (kasb). Doing so promotes fairness and equitable transactions ('adl) and thus putting ethics and morality (akhlak) into the limelight of corporate business today. This book has attempted to venture into several issues of Islamic finance that incorporates the Quranic conception of trading and commerce (al-bay'). Profit created from financial instruments devoid of risk-taking (ghorm) and value addition (kasb) does not fit into the Quran's outlook of al-bay'. It critically examines current Islamic financial products offered by banks, mutual funds and insurance companies and help guide prospective customers to understand the underlying Shariah principles on which these products are structured. Products ranging from bank deposits/assets and capital market instruments are discussed based on prevailing practical experience in Malaysia as well as other Muslim countries. Divergent Shariah opinions on sale-buyback (bay' al-'inah) and debt trading (bay'al-dayn) are discussed with good intentions to harmonize global Islamic financial transactions. Of most significant is the push for equity financing (musyarakah/mudarabah) in the banking business with proper application of salam and istisna' contract as well. Widespread use of murabahah and al-bai-bithaman ajil (credit sale) contracts in Islamic finance is a worrying trend. This book tries to explore the place of Islamic financial contracts in modern financial markets, whether Islamic financial instruments actually reflect true label. Implication of trading (al-bay') is expected to invite venture capital application in Islamic banking and rationalizes universal banking model for Islamic banks. This book serves to guide banking customers, practitioners and investors over the range of Shariah products available in Malaysia's financial market and help impress how these products can impact their earnings and business.

Saiful Azhar Rosly is Professor of Economics at the International Islamic University Malaysia. As a teacher he has taught various courses, including Islamic economics, Islamic banking and finance, money and banking, economic development, microeconomics, macroeconomics and principles of economics. He obtained his undergraduate and masters degree from Northern Illinois University, DeKalb, USA and Ph.D from the National University of Malaysia. Professor Saiful has published his work in academic journals including International Journal of Social Economics, Arab Quarterly, Thunderbird Business Review and IIUM Journal of Economics and Management. He has also written for magazines and newspapers such as the KLSE Investors Digest, AmInvest, ZoomFinance, DataNiaga and the Sun. On the area of Islamic economics, banking and finance, Saiful as a consultant has advised several institutions, including Ministry of Finance, National Economic Advisory Council (NEAC), Permodalan Usahawan Nasional Berhad (PUNB), EON Bank, Commerce International Merchant bank (CIMB) and Silverlake Malaysia. He has also conducted courses on Islamic financial markets in Singapore, Brunei and Indonesia. In addition to his teaching, research and consultation, Saiful is currently an independent director for the Federation of Malaysian Unit Trust Management (FMUTM). Professor Saiful lives in Taman Tun Dr. Ismail, Kuala Lumpur with his wife, Faridah, and their children, Anas, Nur Iman, Ameen, Ariff and Nur Ilham. To unwind and relax, Saiful enjoys playing golf.