UK Budget 2009 Removes Tax Hurdles for Islamic debt

By Cecilia Valente (Available at: http://uk.reuters.com/article/businessNews/idUKTRE53L41A20090422?sp=true)

LONDON (Reuters) – The government will change its current tax regime to facilitate Islamic-debt issuance and encourage the growth of London as an Islamic finance hub, the government said on Wednesday. The budget 2009 report envisaged changes to the stamp duty land tax, provision of relief from tax on capital gains and capital allowance rules to remove fiscal penalties to UK companies willing to issue sukuks, or Islamic bonds.

The treasury said in the budget report that the three measures were part of the “ongoing drive to promote the UK as a centre for Islamic finance.” The changes will come into effect by the end of the third quarter and end a regime which would have double-taxed the transactions needed to set up a sukuk. A sukuk, unlike a mainstream bond, is not based on interest payments. Investors instead receive returns achieved on the underlying asset made available by the debt issuer. The global sukuk market thrived in 2007 but has since stalled. It is expected to recover partially this year. The UK has already made the most significant changes to accommodate Islamic finance in Europe and hosts five Islamic banks and one insurer. France is mounting a challenge though and plans to launch the continent’s first corporate sukuk this year.

ENCOURAGEMENT

The UK hosts sukuk listings but is yet to issue them, mainly because of the tax hurdles, said Norton Rose lawyers Davide Barzilai and Angela Savin. They said the changes are expected to encourage UK corporates to use sukuk to tap new investors. “We have been waiting and lobbying for these (changes). Now it is down to commercial forces, hopefully the economy is in a sufficient state to attract this sort of product,” Barzilai said. “It is an excellent move by the government. The relief they are introducing should mean that from a tax perspective issuing sukuk based on real estate is completely viable,” Savin said. Savin and Barzilai said a sukuk issuance could follow this year as a consequence of the new development.

The most likely sukuk form would be one based on a buy and lease-back structure that allows an issuer to sell an asset, such as a building, to a special purpose vehicle (SPV), leasing the property for the maturity of the bond and buying it back. Because under this structure a property changes hands, the company issuing sukuks has been liable to tax when it sells the property and when it buys it back. “It is a taxable sale and if you have made a gain, that is a also a taxable gain,” said Mohammed Amin, partner and Islamic finance head at PricewaterhouseCoopers. “These (tax changes) are very important because it has not been practical for a UK company to issue sukuk and it will be made possible,” he said.

Best Regards
ZULKIFLI HASAN
DUBAI, UAE

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  • Burj Arab, Dubai, UAE

    Universiti Sains Islam Malaysia dan “Markah Kasihan”: My Thought

    Assalamualaikum,

    Pembaca yang di rahmati Allah sekelian,

    Buat pertama kalinya saya memecah tradisi weblog ini dengan berbahasa melayu. Mungkin isu yang ingin dikongsi bersama kali ini begitu dekat dihati. Baru-baru ini terpampang di dada akhbar harian Malaysia mengenai tohmahan yang tidak berasas dan berunsur fitnah terhadap Universiti Sains Islam Malaysia (USIM) di mana seorang mantan pensyarah telah cuba untuk menjatuhkan imej USIM. Oleh kerana USIM merupakan institusi yang unik dengan visi dan misinya tersendiri tempat di mana saya menabur bakti mendidik pelajar-pelajar, maka saya rasa terpanggil untuk memberikan sedikit respons terhadap isu ini.

    Mungkin respons saya sedikit berbeza dengan maklumbalas dari perlbagai laman blog dan sebagainya. Pada saya, hanya ilmu yang dapat memberikan jawapan kepada tohmahan sebegini. Dengan ini, sebagai seorang ahli akademik saya ingin berkongsi artikel ringkas mengenai tanggungjawab seorang pendidik. Artikel ini sedikit sebanyak dapat bersama-sama memberikan renungan ke arah memiliki ciri-ciri ahli akademik unggul. Selamat membaca!!!!

    AKAUNTABILITI AKADEMIA

    1.0 PENGENALAN
    Peranan ahli akademik yang paling utama adalah untuk menyampaikan ilmu pengetahuan agar dapat membina rohani, jasmani, emosi, intelektual dan sosial pelajar yang seimbang. Dalam melaksanakan tanggunjawab ini ahli akademik yang baik mestilah mempunyai ciri-ciri tertentu seperti yang telah ditunjukkan oleh Rasulullah Sallallahu Alaihi Wasallam. Islam amat menitikberatkan ilmu pengetahuan dan meletakkan darjat yang tinggi kepada orang yang menyebarkan ilmu. Ini telah dirakamkan oleh Allah Subhanahu Wataala di dalam surah al-Mujadalah ayat 11 yang bermaksud: “Allah meninggikan darjat orang yang beriman dan di antara kamu, dan orang-orang yang diberi ilmu pengetahuan agama beberapa darjat”. Ayat ini menunjukkan bahawa orang yang berilmu mempunyai darjat yang lebih tinggi di kaca mata Islam[2] lebih-lebih lagi orang yang menyebarkan ilmu pengetahuan seperti ahli akademik sama ada di peringkat rendah mahu pun di institusi pengajian tinggi.

    Sebagai seorang ahli akademik yang diberkati Allah, mereka mestilah menjaga akauntabilitinya selaras dengan kesucian dan keberkatan profesion ini yang melibatkan proses transformasi ilmu pengetahuan. Secara umumnya, para sarjana Islam telah mengemukakan bahawa ahli akademik perlu memainkan fungsi seorang guru dan mencapai martabat sebagai pendidik (mudaris), penyampai yang benar (mualim), murabbi (pengasuh dan pendidik dengan kasih sayang, muaddib (pembentuk adab dan akhlak) dan mursyid (pembimbing ke arah kebaikan)[3].

    2.0 Akauntabiliti Akademia
    Akauntabiliti akademia merupakan perkara yang amat penting untuk dipelihara oleh setiap ahli akademik. Secara umumnya akauntabiliti akademia merujuk kepada tanggungjawab seorang ahli akademik kepada setiap perkara mahu pun hasil kerjanya. Sebagai seorang yang profesional, ahli akademik perlu memelihara dan melaksanakan tanggunggjawabnya dengan penuh ikhlas dan sebaik mungkin. Ini adalah kerana ahli akademik merupakan pihak yang bertanggungjawab menghasilkan sumber manusia yang baik dalam pelbagai bidang demi keperluan negara bahkan umat seluruhnya. Secara ringkasnya akauntabiliti akademik ini boleh dibahagikan kepada tiga aspek utama iaitu kepimpinan, profesionalisme dan ketelusan serta kerahsiaan sama ada dalam hal ehwal pengajaran, penyelidikan, persidangan, penerbitan dan khidmat masyarakat.

    2.1 Kepimpinan
    Aspek kepimpinan ini merangkumi pengajaran, penyelidikan, persidangan, penerbitan dan khidmat masyarakat. Kepimpinan yang dimaksudkan adalah keupayaan mencorak, mengemudi dan memandu dalam proses pencapaian matlamat kecemerlangan institusi. Ahli akademik yang mempunyai ciri kepimpinan yang baik akan dapat mengatur strategi institusi dan berusaha mempertingkatkan kualiti, berusaha penambahbaikan kecekapan dan kejituan ilmu dan proses penyebaran ilmu pengetahuan.

    2.2 Profesionalisme
    Profesionalisme juga merangkumi aspek pengajaran, penyelidikan, penerbitan, persidangan dan khidmat masyarakat. Profesionalisme dalam konteks ahli akademik merujuk kepada keupayaan dan kecekapan melaksanakan sesuatu tanggungjawab berdasarkan kepada panduan ilmu dan latihan, serta kepakaran. Di dalam melaksanakan sesuatu perkara seorang ahli akademik yang profesional adalah terikat dengan etika profesion yang merangkumi etika dalam keilmuan, etika sikap dan etika kemahiran.

    Sebagai contoh seorang ahli akademik perlu menyerlahkan elemen-elemen penjagaan tingkahlaku seperti, cara berpakaian, berkomunikasi, tidak mengadakan hubungan dengan pelajar, mematuhi masa, menghormati rakan sejawat, mengelak plagiarisme, kerja berpasukan dan menjaga kerahsiaan. Para ahli akademik juga menjaga amanah ilmu bukan sahaja bertindak untuk memperkayakan ilmu dalam diri sebaliknya sentiasa menyalurkan idea-idea dan ilmu yang ada pada mereka baik kepada pelajar mereka disamping mempunyai integriti yang tinggi

    Profesionalisme juga menitikberatkan aspek ketelusan dan kerahsiaan. Ahli akademik mesti sanggup menerima teguran-teguran dan ini akan dapat meningkatkan lagi proses pengajaran dan pembelajaran. Dari aspek kerahsiaan, ahli akademik perlu menjaga hal kerahsiaan ini umpamanya soal penyediaan soalan peperiksaan dan juga maruah pelajar yang mempunyai masalah peribadi.

    2.3 Pembudayaan Kualiti
    Adalah menjadi kewajipan seorang ahli akademik untuk memastikan setiap hasil kerja mereka sesuatu yang berkualiti dalam semua aspek pengajaran, penyelidikan, penerbitan, persidangan dan khidmat masyarakat. Kualiti ini dapat dinilai melalui penerimaan hasil penyelidikan, persidangan dan penerbitan sama ada diperingkat tempatan mahu pun antarabangsa. Oleh itu ahli akademik perlu mempergiatkan aktiviti ilmiah dalam perkongsian ilmu, perluasan ilmu dan rangkaian tokoh-tokoh keilmuan, diinstitusi tempatan dan luar negara.

    3.0 CIRI-CIRI AHLI AKADEMIK UNGGUL
    Secara umumnya para ilmuan Islam telah menggariskan beberapa ciri ahli akademik unggul. Adalah menjadi kewajipan kepada semua ahli akademik untuk berusaha memenuhi kesemua ciri ini dan seterusnya mendapat keberkatan dari Allah Subhanahu Wataala pada setiap perkara yang dilakukan. Ciri-ciri ini dapat disimpulkan seperti berikut:-

    a) Mudaris.
    Mudaris berasal dari perkataan arab yang bermaksud mengajar ataupun pengajaran. Ahli akademik hendaklah bertanggunjawab menyampaikan ilmu yang ada padanya kepada pelajarnya yang boeh membina pemikiran, rohani, jasmani,emosi dan juga sosial. Apa yang diketahuinya hendaklah disampaikan kerana kerja pengajaran adalah sebahagian daripada amal soleh. Manakala enggan menyampaikannya adalah merupakan satu kesalahan.
    b) Mualim.
    Ahli akademik sebagai mualim boleh didefinasikan sebagai mengajar atau menyampaikan limu kepada orang lain dan mengamalkan apa yang disampaikan di samping berusaha menambah ilmu pengetahuan. Mualim mempunyai rasa belas kasihan kepada pelajar dan menganggap mereka seperti anak sendiri. Mualim mengajar kerana Allah Subhanahu Wataala dan bukannya kerana ganjaran dan tidak mengharapkan balasan daripada pelajar.
    c) Murabbi.
    Murabbi bermaksud memperbaiki, memimpin dan mentadbir. Ahli akademik sentiasa menyayangi pelajar dan menasihati dan membimbing dalam pembentukan syahsiyah mereka. Ahli akademik juga adalah kaunselor dan penyebar nilai budaya yang elok dan menjadi contoh kepada pelajar.
    d) Muaddib.
    Muaddib bermaksud mendidik ke arah memperelokkan lagi akhlak pelajar. Ahli akademik yang muaddib merupakan individu yang bertanggungjawab dan melaksanakan pendidikan peradaban dalam pengertian yang luas dan mendalam terhadap peribadi dan kehidupan pelajar. Muaddib seorang yang memberi ilmu dan mendidik mereka dalam akhlak dan adab yang baik. Ahli akademik juga mendidik pelajar agar tidak merendahkan ilmu pelajaran lain selain dari yang diajar olehnya. Ahli akademik mendidik pelajar melalui akhlak yang baik daripada hanya penyampaian secara teori sahaja.
    e) Murshid.
    Ahli akademik yang mursyid bermaksud sebagai penuntun jalan hidup yang benar dan betul dengan nilai dan sikap yang benar dan berperanan sebagai hamba Allah Subhanahu Wataala dan khalifahNya dimuka bumi. Mursyid menunjukkan kepada jalan yang benar dari sudut ilmu kesufian dan memberikan petunjuk kepada jalan yang lurus. Ahli akademik mempunyai tingkah laku baik dan terpuji, bersih dari akhlah tercela, tidak taasub atau fanatik, zuhud pada amalan dan perbuatan dan mempunyai tokoh kepimpinan. Syarat untuk menajdi ahli akademik yang mursyid ialah beliau mestilah alim dari segenap perkara atau disiplin ilmu, menyimpan atau menutup keaiban pelajar-pelajarnya dan pengajaran terkesan di dalam hati pelajar.

    Kesemua ciri-ciri seorang ahli akademik unggul seperti di atas perlulah diamalkan secara berterusan dan dengan penuh iltizam. Ahli akademik perlu ada sifat mendidik pelajar kerana Allah Subhanahu Wataala, berperibadi mulia, menjaga kehebatan dan kehormatan diri, memiliki ilmu dan kaedah pengajaran dan bersifat kasih sayang. Bukan itu sahaja ciri-ciri ini perlu diamalkan dan diserlahkan dari semua aspek termasuk kepimpinan, profesionalisme, tingkahlaku, pembudayaan kualiti dan khidmat masyarakat.

    4.0 LANGKAH MEMELIHARA AKAUNTABILITI AKADEMIA

    a) Mendidik Kerana Mencari Keredhaan Allah Subhanahu Wataala[4].
    Seorang ahli akademik perlu memastikan niatnya untuk bersifat ikhlas terhadap Allah Subhanahu Wataala dalam segala amal pendidik yang dilakukannya. Allah Subhanahu Wataala telah merakamkan dalam al-Quran surah al-Bayyinah ayat 5 yang bermaksud ”Dan tiadalah mereka itu diperintahkan, melainkan supaya mereka menyembah Allah dalam keadaan mengikhlaskan agama kepadanya”. Ini dikuatkan lagi dengan sabda Rasulullah Sallallahu Alaihi Wasallam yang bermaksud: ” Sesungguhnya Allah tidak akan menerima suatu amalan melainkan apa yang ikhlas kepadaNya dan yang ditujukan hanya untukNya. (Riwayat Abdu Daud dan an-Nasai).

    Ahli akademik hendaklah menunjukkan setiap pekerjaan yang dilaksanakan itu hanya semata-mata kerana Allah kerana hanya dengan keikhlasan beliau akan mendapat keredhaan dan keberkatan bahkan akan dikasihi dan dihormati oleh pelajar mahupun masyarakat.

    b) Peribadi Mulia[5].
    Ahli akademik bukan sahaja menjadi ”role model” atau pun ikutan kepada pelajar menerusi sifat spiritual seperti ikhlas, jujur, sabar, kasih sayang, warak dan takwa, bahkan menerusi sifat-sifat fizikal atau lahiriah seperti tutur kata, tingkah laku, kebersihan diri, pakaian, tempat tinggal dan lain-lain. Justeru itu, bagi mencapai keberkesanan proses pembelajaran dan pengajaran serta pembentukan peribadi mulia, Islam mengutamakan tutur kata, tingkah laku yang baik dan nasihat berguna serta menarik. Hal ini dapat dilihat jika kita merujuk dakwah yang dijalankan oleh Nabi Musa dan Nabi Harun, ketika mereka menyampaikan seruan agama kepada Firaun yang amat zalim seperti yang difirmankan oleh Allah Subhanahu Wataala dalam al-Quran surah thaha ayat 43 yang bermaksud:-” Pergilah engkau berdua kepada Firaun, sesungguhnya dia derhaka. Katakanlah kepadanya perkataan yang lemah lembut, mudah-mudahan ia akan dapat pengajaran atau takut kepada tuhan”.

    c) Menjaga Kehebatan dan Kehormatan diri[6].
    Sudah menjadi tanggapan masyarakat mahupun pelajar bahawa seorang ahli akademik adalah seorang yang mempunyai kehormatan diri dan kehebatan ilmu pengetahuan. Oleh itu, sudah semestinya ahli akademik untuk beramal dan berpegang teguh dengan ilmu yang dimilikinya. Setiap amalan mestilah dilakukan dengan istiqamah dan seterusnya menjadikan diri untuk lebih bertakwa kepada Allah Subhanahu wataala. Ahli akademik tidak sepatutnya melakukan perkara yang berlawanan dengan ilmu yang dimiliki kerana ini akan menjatuhkan kehormatan diri dan mengurangkan rasa hormat pelajar kepadanya. Hal ini telah dirakamkan oleh Allah Subhahanahu Wataala di dalam surah al-Maidah ayat 44 yang bermaksud:-” Adakah patut kamu menyuruh manusia membuat kebajikan dan kamu lupakan diri kamu sendiri sedangkan kamu membaca kitab Allah, tidakkah kamu berakal”.

    d) Memiliki ilmu dan kaedah pengajaran[7].
    Ahli akademik sememangnya perlu memiliki ilmu yang mantap dan mendalam dalam bidang yang diceburi. Pelajar akan lebih yakin dan mudah menerima ilmu yang disampaikan sekiranya ahli akademik benar-benar menguasai ilmu tersebut. Selain itu, ahli akademik juga perlu kreatif dan inovatif dalam menggunakan kaedah atau teknik pengajaran berkesan. Dalam dunia moden masa kini, ahli akademik perlu arif dalam penggunaan teknologi dan dalam masa yang sama sentiasa mempelbagaikan teknik pengajaran agar lebih berkesan dan menarik minat pelajar.

    e) Bersifat kasih sayang.[8]
    Pelajar merupakan golongan yang masih muda dan perlukan perhatian oleh pendidik mereka. Oleh itu ahli akademik mesti mempunyai sifat kasih kepada pelajar dan menganggap mereka seperti anak sendiri. Dengan sifat ini, pelajar akan lebih mudah mendekati ahli akademik dan dapat meluahkan masalah mereka. Sifat ini juga akan dapat menerbitkan suasana mesra di antara pelajar dan ahli akademik dan seterusnya akan memudahkan lagi proses pentarbiyahan dan pembentukan peribadi mulia.

    5.0 KESIMPULAN.
    Secara umumnya, seorang ahli akademik harus mencapai martabat seorang pendidik iaitu murabbi, mudaris, mualim, muaddib dan mursyid. Kedudukan seorang ahli akademik yang mursyid menjadikan setiap ilmu pengetahuan yang disampaikan akan menjadi lebih berkesan dan mudah diterima oleh para pelajar. Terdapat beberapa ciri utama seorang ahli akademik yang membolehkan mereka dapat membimbing pelajar dengan baik dan berkesan. Ini termasuk mendidik kerana Allah, berperibadi mulia, menjaga kehebatan dan kehormatan diri, memiliki ilmu dan kaedah pengajaran dan bersifat kasih sayang.

    Akauntabiliti akademia merupakan perkara yang amat penting untuk dipelihara oleh setiap ahli akademik dan ini meliputi dari aspek kepimpinan, profesionalisme dan ketelusan serta kerahsiaan sama ada dalam hal ehwal pengajaran, penyelidikan, persidangan, penerbitan dan khidmat masyarakat. Sesungguhnya sebagai seorang ahli akademik, beliau mestilah berusaha untuk memenuhi ciri-ciri seorang pendidik yang mursyid di mana mampu untuk membimbing pelajar bukan sahaja untuk mendalami ilmu pengetahuan yang disampaikan malahan dapat memberi panduan kepada mereka untuk menjadi insan yang berguna dan berjaya. Akauntabiliti akademia mesti dipelihara demi menjamin keutuhan institusi keilmuan yang sememangnya dipandang tinggi oleh Islam.

    [2] Rujuk Al-Ghazali. Ihya Ulumuddin. (Terjemahan) . 2006. Kuala Lumpur: Darul Fajar. Hlm 1-14.
    [3] Ahmad Mohd Salleh. (2004). Pendidikan Islam. Selangor: Fajar Bakti. Hlm 122-123.
    [4] Abdullah Ishak. (1989). Sejarah Perkembangan Pelajaran dan Pendidikan Islam. Selangor: Ar-Rahmaniah. Hlm. 122-123.
    [5] Ibid hlm 128.
    [6] Ulwan Abdullah Nasih. (1981). Tarbiyatul Awlad Fi Islam. Juzuk 1. Darul Salam dalam Ahmad Mohd Salleh. (2004). Pendidikan Islam. Selangor: Fajar Bakti. Hlm 126-127.
    [7] Supra nota 3 hlm 126.
    [8] Yaakub Isa. (1994). Guru dan Pengajaran yang efektif dalam Ahmad Mohd Salleh. (2004). Pendidikan Islam. Selangor: Fajar Bakti. Hlm 126-127.

    Best Regards
    ZULKIFLI HASAN
    DUBAI, UAE

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  • Dubai Mall, United Arab Emirates.

    Where the USD5 Trillions is coming from?: Remarkable Analysis by Rodney Shakespeare and Max Keiser

    Assalamualaikum,

    Dear Readers,

    While recent G20 meeting in London outlined their plan to solve the current financial crisis and it seems to be plausible action, Rodney Shakespeare (Binary Economist) and Max Keiser (Financial Journalist) tried to disclose the otherwise. I assure you that this exclusive interview is very illuminating. Click here: http://criticmagazine.blogspot.com/2009/04/analysis-of-g20-meeting-outcome.html

    Best Regards
    ZULKIFLI HASAN
    DUBAI, UAE

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  • Fujeirah, United Arab Emirates

    In Person With Aamir Rehman, a Head of Strategy for Fajr Capital

    Aamir A. Rehman is an expert in global corporate strategy. He was formerly the global head of strategy for HSBC Amanah, a business unit of the world’s third largest bank serving over 300,000 customers in major markets worldwide. As an advisor to Fortune 500 and other leading businesses, Mr. Rehman has helped develop strategies for multinationals across the globe, including the United States, Europe, the UAE, Saudi Arabia, and the broader Middle East. Previously a consultant with the Boston Consulting Group, he holds an MBA from the Harvard Business School, a master’s degree in Middle Eastern Studies from Harvard University, and a bachelor’s degree from Harvard College. He is author of Dubai & Co.: Global Strategies for Doing Business in the Gulf States (McGraw-Hill 2007), a guide to corporate strategy in the GCC region and “Islamic Finance: The New Global Player” (Harvard Business Review, February 2008 ) and of several other articles. His commentary has been featured in the Wall Street Journal, the Financial Times, the Wharton Leadership Digest, US News and World Reports, and other leading media outlets.

    Best Regards
    ZULKIFLI HASAN
    DUBAI, UAE

  • 07042009513
  • With Aamir Rehman at his office

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  • Bringing Together Shari’ah and Common Law in Malaysia

    Assalamualaikum,

    Dear Readers,

    I am very grateful to share my recent article published in Business Islamica magazine. This article is also available at http://www.islamica-me.com/main.asp. Business Islamica is the first monthly magazine of its kind in the United Arab Emirates, specifically covering all aspects of Islamic business and finance both regionally and internationally. Enjoy reading!

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  • Bringing Together Shari’ah and Common Law in Malaysia

    Malaysia has a very unique legislative framework consisting of mixed legal systems, namely common law and the Shariah. Common law principles are applied in the civil courts in almost all legal matters. Islamic law is practiced in the Shariah courts and only pertains to family matters and inheritance law. The Federal Constitution places Islamic banking matters under the jurisdiction of the civil court. Malaysia has achieved tremendous growth in developing the Islamic banking industry locally as well as internationally. This achievement is due to the comprehensive approach of the authorities as well as Islamic banking players, especially in legal aspects. The growth and development of the Islamic banking industry are supported through good governance and a comprehensive legal framework. It is essential to have a standard law of practice which harmonizes Shariah and civil law in the context of Islamic banking.

    Finding Agreement
    Common law originated in England. It is a system based on precedent derived from judgments by judges. Shariah refers to rules of Islamic law. Shariah governs many aspects of day-to-day life, including politics, economics, banking, business law, contract law and social issues. In Arabic, harmonization is known as Tawfiq, which means to bring one thing into harmony or agreement with another (two or more different types of ideas). In Malaysia, this can refer to the integration of Islamic and common laws. It is interesting to note that the issue of harmonization arose out of the negotiation leading to the formation of Malaysia in 1963. With a diverse historical, racial and cultural background, the process of harmonization in the country was carried out through modification of existing laws. Harmonization of Shariah and common law in the context of Islamic banking does not mean combining these two systems without taking Shariah principles into consideration; it refers to the implementation of common law principles which are not contrary to Islamic law. The existing laws that are in line with Shariah principles can be integrated to further strengthen the legal infrastructure of Islamic banking.

    Reasons for Harmonization
    Harmonization is more of a process than a goal. It is not combining Shariah and common law across the board, but only harmonizing certain disparities in selected areas. Harmonization is particularly necessary in the case of Islamic banking, especially when there are disputes between two or more parties that are brought to court. These disputes are heard in the civil court according to Schedule Nine, List 1 of the Federal Constitution. Since Islamic finance takes its place alongside conventional finance, there are many procedural laws and substantive legislation based on common law principles that relate to Islamic banking. A number of these existing laws are in line with Shariah principles and we do not need to enact new ones. In fact, a study performed by Pakistani scholars revealed that only a small portion of Pakistani civil law (which is quite similar to Malaysian law) is considered to be unIslamic. The process of harmonization of Shariah and common law in Malaysia relating to Islamic banking involves several elements:

    Dual Banking System and Moderate Approach
    Malaysia decided to introduce a dual banking system in which existing conventional banking is practiced side by side with the Islamic banking system. Malaysia Berhad started its operations as Malaysias first Islamic bank in 1983, beginning what can be considered the first phase of Islamic banking in Malaysia, which lasted until 1993. In 1993, the Central Bank of Malaysia introduced an interest-free banking scheme which allowed conventional banks to offer Islamic banking products through windows. Many conventional banks set up Islamic windows once this was introduced. This was the beginning of the second phase of development for Malaysian Islamic banks, which continues today as the country liberalizes its Islamic banking policies so as to enable us to lead the sector. These phases have been facilitated and supported by legal infrastructure built through several laws and directives, particularly the Islamic Banking Act 1983, the Banking and Financial Institutions Act 1989, the Central Bank of Malaysia (Amendment) Act 2003, other relevant statutory legislation, the Central Bank of Malaysias directives and court developments.

    Federal List
    In Malaysia, separate Islamic legislation and banking regulations exist side by side with those of the conventional banking system. Islamic banking was put under the Federal List since it refers to commercial dealings, although Islamic banking actually falls under the purview of Islamic law.

    Islamic Banking Laws
    The legal basis for the establishment of Islamic banks was the Islamic Banking Act (IBA) of 1983. The IBA gives the Central Bank of Malaysia power to supervise and regulate Islamic banks as it does other licensed banks. However, the IBA, with 60 sections divided into eight parts, is obviously very brief and it is regulatory rather than substantive in nature. Although the IBA is general and noncomprehensive, which has led to various interpretations, it does allow flexibility for Islamic financial institutions in their operations. For example, Section 2 of the IBA defines “Islamic banking business” as “banking business whose aims and operations do not involve any element, which is not approved by the Religion of Islam.” This section can be interpreted negatively or positively. The negative view is that the IBA does not stipulate how the section is to be understood in the context of Islamic banking. On the other hand, it could be understood that the purpose of such a general provision is to create a flexible approach to the implementation of Islamic banking. As a result, Islamic financial institutions in Malaysia may offer various banking products under multiple modes of financing based on Shariah principles. Malaysia has the distinction of being first in several issuances of Islamic bonds, including the first to issue a global sovereign Sukuk. Many Islamic banking products have been introduced in a range of sectors, such as financing for personal consumption, small to medium entrepreneurs or huge corporations. The increasing demand for Islamic products has driven tremendous growth in the Islamic banking sector. Moreover, non-Muslims have also been attracted to the Islamic products offered on the market. In responding to the demands of conventional banks to open Islamic counters, Section 124 of the Banking and Financial Institutions Act 1989 (BAFIA) was introduced, which allowed conventional banks to do Islamic banking business. They are required to establish Shariah committees to advise them on any matter related to Islamic banking or finance.

    Amendment and Review of Laws
    As the Islamic banking sector develops, there should be continuous revision of relevant laws. The Central Bank of Malaysia has several committees to review existing legislation, with the aim of removing impediments to the efficient functioning of the Islamic financial system.Apart from the IBA and the BAFIA, the Central Bank of Malaysia (Amendment) Act 2003 (CBA) has played a major role in terms of supervising and monitoring Islamic banking. The CBA mandates the National Shariah Advisory Council (SAC) as the sole authority for the civil courts pertaining to Islamic banking and finance. Section 16B (1) of the CBA 1958 provides that banks can establish an Advisory Council which would be the authority on Islamic law for the purposes of Islamic banking, finance and development finance, Takaful or any other business which is based on Shariah principles and is supervised and regulated by the Central Bank of Malaysia. The effect of the amendment is to ensure that any deliberation of the SAC will be binding in the court and should be followed by all Islamic financial institutions in Malaysia. Section 16 B (8) provides that, in any proceedings relating to Islamic banking or financial business before any court or arbitrator, if any question arises concerning a Shariah matter, the court or arbitrator may refer such question to the SAC. Rulings made by the SAC must be taken into consideration by the court, and if the reference was made by an arbitrator, be binding on the arbitrator. Another significant law in the implementation of Islamic banking is the Hire Purchase Act 1948 (HPA). The HPA only governs certain types of vehicles and it contains an element of interest. Due to the obstacles to meeting the requirement of the HPA, some Islamic banks opt to offer financing for vehicles based on the concept of Bay Bithaman Ajil. This creates problems for the bank in terms of repossession of vehicles in the case of default. Under the concept of Bay Bithaman Ajil, the bank cannot simply repossess the vehicle without a court order, while under the HPA, the bank may do it through notice of repossession. It is reported that the Central Bank of Malaysia has set up a working committee to study the requirements of an Islamic Hire Purchase Act. This act would cover not only vehicles but also financial leases of immovable property. Islamic banking products, especially for debt financing, involve trading transactions, while conventional banking products may only involve a loan transaction. Basically, this concerns the financing of houses, motor vehicles, land, consumer goods, cash line facilities, education financing packages and personal consumption. Trading transactions require two separate agreements, purchase agreements and selling agreements, and this results in double taxation. In order to stimulate the growth and development of the Islamic banking sector, the government introduced incentives for Islamic financial institutions through tax exemption. Any legal documentation that involves trading transactions will only incur normal tax, as provided under the Stamp Act 1948. This incentive is very effective and, in fact, debt financing is the biggest contributor in terms of growth and profit to Islamic financial institutions in Malaysia.

    Coordination Between the National Shariah Advisory Council and the Court
    In Malaysia, Islamic banking cases are under the jurisdiction of the civil courts. The issue here is the judges in civil courts face difficulties in understanding certain concepts and terms of Islamic finance. To address this problem, the Central Bank of Malaysia, with the cooperation of the judicial body, agreed to set up a special High Court in the Commercial Division known as the Muamalah Bench. All cases under code 22A filed in the High Court of Malaya are registered and heard in the High Court Commercial Division 4. This special court deals exclusively with Islamic banking cases.

    Governance of Shariah Committees
    The Central Bank of Malaysia has issued guidelines to regulate the governance of Shariah committees of Islamic financial institutions. According to the guidelines, Shariah committee members must have qualifications or possess necessary knowledge, expertise or experience in Islamic jurisprudence or Islamic transaction or commercial law. The guidelines also state that the SAC has the authority to decide on the Shariah compliance of any issue in Islamic finance.

    The Impact of Harmonization
    The impact of Malaysias harmonization approach can be seen through the achievement and growth of the Islamic banking sector in Malaysia as well as the recognition of its products worldwide. This could not have been accomplished if there were no effective and comprehensive legal mechanism for governing the implementation of Islamic banking. As Malaysia operates within both Islamic and common law traditions, the harmonization process is one of the best approaches to facilitate Islamic banking transactions.

    Best Regards
    ZULKIFLI HASAN
    DUBAI, UAE

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  • With Professor Dr. Masudul Alam Choudhury, Professor Rodney Shakespeare and Professor Dr. Nur Alam Siddiqi in Jakarta, Indonesia

    Interview With Dr. Mohamad Daud Bakar, a renowned Shari’ah Scholar

    Dr. Mohd Daud Bakar

    Dr. Mohd Daud Bakar is currently the Managing Director of Amanie Islamic Finance Learning Centre (DIFC Incorporated) Dubai. He received his first degree in Shari’ah from University of Kuwait (1988), PhD from University of St. Andrews, United Kingdom (1993) and external Bachelor of Jurisprudence at University of Malaya (2002). He has published more than 30 articles in various academic journals and presented more than 200 papers in various conferences both local and abroad. He is now Chairman of the Shari’ah Advisory Council at the Central Bank of Malaysia, member of the Shari’ah Advisory Council at the Securities Commission of Malaysia, (Malaysia), Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) (Bahrain), Dow Jones Islamic Market Index (New York), Unicorn Investment Bank (Bahrain), Financial Guidance (USA), BNP Paribas (Bahrain), Bank of London and Middle East (London), Islamic Bank of Asia (Singapore), Noor Islamic Bank (Dubai), Morgan Stanley (Dubai), Dubai Bank (Dubai) and in other financial institutions both local and abroad. He has been involved in advising Islamic funds and Islamic Sukuk both local and globally. In 2005 he has been awarded the Islamic Banker Award of 2005 by the Association of Islamic Banking Institutions Malaysia

    Best Regards
    ZULKIFLI HASAN
    DUBAI, UAE

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  • With Dr. Mohamad Daud Bakar, at his office, Amanie Islamic Finance Learning Centre, No.44, Level 41, Emirates Towers, Sheikh Zayed Road, P.O. Box, 31303, Dubai, UAE.

    Malaysia’s Court of Appeal reverses High Court BBA ruling

    By Habhajan Singh (Available at http://epaper.themalaysianreserve.com/ also at: http://islamicfinanceasia.blogspot.com/)

    The Court of Appeal had on Mar 31 reversed an earlier High Court decision that Al-Bai Bithaman Ajil (BBA) contracts were contrary to Malaysia’s Islamic banking regulations. The move will certainly be a relief to local Islamic banks that had earlier feared a potential spike in defaults of Islamic contracts, especially for home financing. The unanimous decision in the appeal in the Bank Islam Malaysia Bhd v Ghazali Shamsuddin & 2 Others, and nine other cases, would mean that Islamic banks need not worry about the possibility of a string of defaults in BBA-based financing on the basis that the facilities are not Shariah-compliant. In Tuesday’s [Mar 31, 2009] appeal, Bank Islam Malaysia Bhd (Bank Islam) had 10 cases bundled together in the appeal before Court of Appeal judges Datuk Md Raus Sharif, Datuk Abdull Hamid Embong and Datuk Ahmad Maarop. The Malaysian Reserve first reported on Sept 8, last year on the BBA judgment by High Court judge Datuk Abdul Wahab Patail, that sent shockwaves through the local Islamic banking fraternity as they began deciphering its impact.

    Before that, many Islamic finance bankers and lawyers had not seen Abdul Wahab’s 54-page written judgment dated July 18, but which was made available to lawyers involved in the case only sometime in August. Upon winning the appeal, Bank Islam yesterday issued a two-paragraph statement saying: “Customers of Bank Islam and the public at large can now take comfort from the certainty that Bai Bithaman Ajil (BBA) contracts are valid and binding. “This follows the unanimous decision by judges of the Court of Appeal on March 31, 2009, during a proceeding involving Bank Islam. The said decision reaffirmed that Bank Islam’s practices in relation to BBA contracts are Shariah-compliant and valid. “The Court of Appeal also reiterated that a BBA contract is a sale transaction and therefore must not be compared to a loan transaction.”

    Bankers at outfits like Maybank Islamic Bhd, CIMB Islamic Bhd and RHB Islamic Bank Bhd were jolted by Abdul Wahab’s ruling that the application of the BBA contracts in Arab Malaysian Finance Bhd vs Taman Ihsan Jaya & 2 Others (2008), and 12 other cases, were contrary to the Islamic Banking Act 1983 (IBA). Abdul Wahab had argued that since some BBA contracts were structurally faulty, defaulters need not pay more than the original financing amount that they received, depriving banks of the profit they would have otherwise booked from the transaction. Bankers feared that this could mean that current BBA financing clients would only need to pay the facility amount and would escape from paying the profit portion.

    BBA is a hugely popular Islamic financing contract in Malaysia, though it is not accepted in many other jurisdictions, including most of the Middle East. In Malaysia, BBA has been the underlying concept for most Islamic financing in the last two decades. Since Abdul Wahab’s judgment, there has been some shift away from BBA. Towards the end of 2008, RHB Islamic, for example, completely phased out BBA in favour of the musharakah mutanaqisah concept for its home financing products. At the full hearing on Tuesday, Mohamed Ismail Shariff from the law firm Skrine appeared as the lead counsel for Bank Islam, assisted by Oommen Koshy and Arief Emran, while Harpal Singh Grewal and Harminder Kaur appeared for one of the respondents. In this instance, the Arab Malaysian Finance Bhd v Taman Ihsan Jaya case proper was not one of the cases before the Court of Appeal.

    When contacted, Ismail said the Court of Appeal ruled that the BBA agreement is valid as it is being done now, even without a novation agreement. Post Abdul Wahab’s BBA judgment, some banks were considering including a novation agreement in future BBA contracts as it was cleared by the judge. “It also ruled that the amount that the bank is entitled to demand upon a default is the balance of the bank’s selling price, subject to the bank giving an ibra [CORRECTED] or rebate, upon payment being received or realised,” he said. In the earlier judgment, Abdul Wahab had ruled that the sale element in the BBA is “not a bona fide sale” and had brought into question the profit portion of the facility. Bank Negara Malaysia (BNM), which regulates the Islamic finance sector, was involved in the hearing as an intervener. It was represented by Karlos Israphil Bendlin from Zaid Ibrahim & Co. Association of Islamic Banking Institutions Malaysia [and not Institut Bank-Bank Malaysia (IBBM) as reported in original TMR 2/4//09 report] had also sent a counsel holding a watching brief.

    Technically, the respondents can still appeal to the Federal Court, the highest court of the land. However, initial checks show that this is not likely to happen. The BBA financing is a contract of deferred payment sale (the sale of goods on a deferred payment basis) at an agreed selling price, which includes a profit margin agreed on by the customer and the bank. Profits in this context is justified since they are derived from the buying and selling transaction as opposed to interest accruing from the principal lent out.

    Best Regards
    ZULKIFLI HASAN
    DUBAI, UAE

  • 03042009502
  • Jumeirah Beach, Dubai, UAE