BLOG OF KNOWLEDGE

By Mushtak Parker. Available at http://www.arabnews.com/?page=9&section=0&article=127292&d=11&m=10&y=2009

A number of statements, resolutions and judgments relating to Islamic banking that have been issued and passed during the last two years have rekindled the debate over the very nature of the Shariah governance process in the global Islamic finance industry.

These included Resolution 179 (19/5) on Tawarruq issued by the International Council of Fiqh Academy in April 2009; the statement issued by the Shariah Committee of the Accounting and Auditing Organization of Islamic Financial Institutions (AAOIFI) in Bahrain in February 2008 relating to musharaka and mudaraba sukuk; and the judgment of the Malaysian Appeal Court in April 2009 that the Al-Bai Bithaman Ajil (BBA) deferred payment contract as practiced in Malaysia is a valid Islamic sale contract.

It is true that no Islamic financial transaction can be closed without the sign-off of the Shariah Advisory Board as to whether the transaction or structure satisfies the tenets of Fiqh Al-Muamalat (Islamic law relating to financial transactions). In many markets, the reputation of the so-called top tier of international Shariah advisories do not mean much as retail customers in particular prefer to have the input of their local imam or Shariah scholar.

This is a potentially a major problem for the development of the sector because not every local imam or Shariah scholar is conversant with the rubrics of Fiqh Al-Muamalat, which is a highly complex yet under-developed area of Islamic jurisprudence. The Islamic finance sector not only has a human capital development challenge but, perhaps equally importantly, also a Shariah advisory development challenge. While the universities and specialized academies are now starting to offer academic and training courses in this respect, they are still few and far between and their curricula are at best mixed and not quality controlled.

The failure to develop educational best practice and independent governance at universities in most Muslim countries has stunted the institutional development of these institutions, which has resulted in an unfortunate inertia that has failed to recognize the main and unique chance that Islamic finance brings to Muslim countries and societies. Malaysia is a notable exception, for which other country has set up three trusts with a combined volume of funds totaling 700 million ringgits dedicated to education in Islamic finance, the training of Shariah scholars for the sector and conducting research in Fiqh Al-Muamalat.

The International Centre for Education in Islamic Finance (INCEIF), armed with a trust fund of 500 million ringgits, has ambitions of becoming the INSEAD and Harvard Business School for Islamic Finance. Bank Negara Malaysia, the central bank’s 100 million ringgits Shariah Development Fund aims to offer scholarships to aspiring qualified Shariah advisories both from Malaysia and abroad. The International Shariah Research Academy for Islamic Finance (ISRA), also with a trust fund of 100 million ringgits, specializes in conducting research in Fiqh Al-Muamalat and in compiling a database of fatwas (Islamic legal opinions).

Organizations such as the International Council of Fiqh Academy in Makkah, the Shariah Committee of Rabitah (World Muslim Congress) in Makkah, and the Shariah Committee of the AAOIFI in Bahrain are frontline organizations dealing with the issuing of fatwas and perhaps increasingly also debating the consequences of their opinions.

They are not training institutions nor do they have the capacity and independent governance structures to teach Fiqh Al-Muamalat. Although there is a clamor for standardization or uniformity of Shariah interpretations, this is unrealistic given the various Madhabs (schools of Islamic law). In any case, even in conventional finance there is no uniformity of rules and laws, and can differ even within one country as in the US where the state laws on banking differ from each other.

The late Azharite Shariah scholar, Zaki Badawi, used to stress that it would be wise to remember that in Islam there is no Vatican. Diversity of Shariah opinions is a strength and not a weakness. Only that way the Islamic finance sector will thrive. On the upside, there are signs that the Shariah governance process in Islamic finance is steadily evolving and gaining maturity with the latest call by prominent Saudi Shariah scholar and economist, Mohamed Elgari, for a scientific approach to Shariah compliance. This follows the recent call by another prominent Shariah scholar, Sheikh Esam Ishaq of Bahrain, that Shariah advisories serving the Islamic finance industry should be regulated.

Elgari has called on fellow Shariah advisories to adopt a scientific methodology in reaching their deliberations on Islamic finance. “To be respected,” said Elgari, “Shariah scholars should follow scientific methods to reach their conclusions. We have seen many mistakes where declarations have been issued. Only the correct resolutions will prevail. Shariah is not a group of infallible people. It is a science. It requires methodology, and resolutions require peer review and market consultation.”

Elgari is also a big supporter of the codification of Fiqh Al-Muamalat, which could contribute immensely to clarifying the rubrics and the contentious issues relating to products and services in the nascent Islamic finance industry. Similarly, he believes that greater transparency in the Shariah governance process, more professional articulation of the resolutions and statements, and prior debate and consultation between scholars and other stakeholders in the industry, could go a long way in mitigating the misconceptions and confusion that has arisen as a result of some of the recent Shariah rulings.

The market impact of these developments is real. Some bankers such as Mohammed Tariq, head of treasury at the Islamic Development Bank, agree that the AAOIFI Shariah Committee ruling is a marginal issue, but has contributed to the slowdown in the sukuk market.

Others such as Badlisyah Abdul Ghani, CEO of CIMB Islamic Bank, are less impressed: “The AAOIFI Resolution on musharaka sukuk,” he wrote in the May/June 2009 issue of Islamic Banker, “is rightly based on the provisions of a particular School of Islamic Law. However, the resolution cannot invalidate musharaka sukuk transactions based on other schools of Islamic law. To generalize that musharaka sukuk as currently structured are not Shariah-compliant is unjustifiable from a Shariah perspective. In the Shariah governance process in Islamic finance it must be appreciated that all schools of Islamic law are valid and enforceable in their own right.”

Another major development in August 2009 was the issuance by Bank Negara Malaysia of the first in a series of Shariah references. The first one, Shariah Parameter Reference 1 or murabaha Parameter (SPR1), will be followed by Shariah Parameters on ijarah (leasing), mudaraba (trust financing), musharaka (partnerships), istisna (construction financing) and wadiah (current accounts). Bank Negara Malaysia stressed that “SPR1 outlines the main Shariah requirements in the contracts and provides examples, methods and models for practical application of the contract, and is issued as guidance and reference to all IFIs. It also marks a key advancement in the bank’s efforts to promote greater harmonization in the development of the Islamic finance industry.”

Some scholars stress that the Shariah governance process has also got to be pragmatic. The Islamic Fiqh Academy, for instance, recommends that “to ensure that Islamic banking and financial institutions adopt investment and financing techniques that are Shariah-compliant in all its activities, they should avoid all dubious and prohibited financial techniques. All transactions must conform to Shariah rules in order to ensure it meets the objectives of Shariah (Maqasid Shariah). In addition, such a move will ensure the progress and actualization of the socio-economic objectives of the Muslim world. If the current situation is not rectified, the Muslim world would continue to face serious challenges and economic imbalances that will never end. The council encourages the application of Qard Al-Hasan and establishment of Qard Al-Hasan funds by financial institutions to shift people who are in need of fund from products such as Tawarruq.”

The concern raised by some of the Shariah scholars, who questioned this ruling, explains Mohammed Akram Laldin, executive director of ISRA (International Shariah Research Academy for Islamic Finance), the publisher of this e-newsletter, is based on the fact that most of the existing portfolios and products of IFIs globally are based on the mechanism of commodity murabahah based on the tawarruq mode. “If such transactions are deemed to be nonpermissible, then an alternative must be in place to facilitate such transactions which are worth billions of dollars,” he added.

The suggested use of Qard Al-Hasan, adds Laldin, has yet to be tested in the market. “The very nature of the Qard Al-Hasan that specifically disallows the taking of any additional profit or increase over and above the principal given would impose a major restriction on the Islamic finance industry. In addition, the fee that can be charged on the implementation of the Qard Al-Hasan must be the actual fee incurred in administering the transaction,” he explains.

Some Shariah scholars maintain that the imposition of such restrictions as the above might affect the rapid development of the industry going forward. Until Islamic finance achieves a reasonable level of total financial services market share, surely there has to be some room for “exceptional need” or necessity in the absence of viable alternatives. As long of course this need remains within the parameters allowed by the Shariah.

Scholars such as Sheikh Esam Ishaq of Bahrain would like greater inter-action with regulators. He stresses that scholars do engage with them in advising and counseling over matters relating to Fiqh Al-Muamalat. “If they are Muslim regulators, we do remind them that they cannot be ambivalent of the religious dimension of Islamic finance, which is faith-based,” he says.

The Islamic finance market is growing in tandem with the increasing awareness of the general public of Islamic finance per se and of the Shariah supervision process over the last decade or so. People are now more demanding and want proper regulation of Shariah boards. Sheikh Esam stresses that he is “definitely in favor of regulating Shariah advisories by some peer group or organization. But this process should be pragmatic. I agree that having the right education and skills sets to give Shariah advice relating to Fiqh Al-Muamalat are important aspects to this process. There should also be a limit to the number of Shariah boards any single advisory can sit on.”

Best Regards
ZULKIFLI HASAN
DURHAM, UK

Notes: With the failure of several IFIs such as Ihlas Finance House in Turkey, financial scandal like in the case of Dubai Islamic Bank and Bank Islam Malaysia Berhad and huge potential implication of Shari’ah non-compliance risk, the need for good and efficient Shari’ah governance system is considered as part of the crucial portion of corporate governance in IFIs. The demand to have effective Shari’ah Governance is really crucial which would then strengthen the credibility of IFIs failing with would inevitably lead to serious disruptions in the market which would have dire consequences for Islamic finance industry. Realizing this, the existing Shari’ah governance framework needs for further enhancement and improvement in order to reinforce the extent of Shari’ah compliance in IFIs. In this regard, it calls for a further research to study and examine the existing Shari’ah governance practices with purpose to identify a proper and high standard of Shari’ah governance framework for IFIs.

Burj Al Arab, Jumeirah, Dubai, UAE

Reuters Available at http://arabnews.com/?page=6&section=0&article=128269&d=9&m=11&y=2009&pix=business.jpg&category=Business

KUALA LUMPUR: Islamic law should prevail over secular law when a Malaysian court hears Shariah finance matters, a religious scholar said, responding to uncertainty in the industry about how to deal with legal disputes. Dispute resolution is expected to be a key area for the $1 trillion Islamic finance sector as a fragmented regulatory framework and untested court systems push legal wranglings into unchartered territory.

The ability of civil court judges to adjudicate on Shariah matters and possible contradictions between secular and Islamic law are some issues that the industry is grappling with. Shariah adviser Engku Rabiah Adawiah Engku Ali said a Malaysian law requiring judges to refer Islamic law issues to national level Shariah advisers “should be indicative that the Shariah principle should prevail.” But Malaysian law does not make it clear that the Shariah should prevail in the event of a conflict with secular law, resulting in some uncertainty, she said. “That should be clarified by the legislative,” she said on the sidelines of a Shariah scholars conference recently.

Malaysia has the world’s largest Islamic bond market and is seen as a leading center for Shariah banking, alongside the Middle East. The relationship between Islamic and secular law is unclear. This is reflected in a 2004 case involving Shamil Bank of Bahrain where an English court refused to apply Islamic law to a murabaha contract, reasoning that two systems of law cannot govern one contract. Kuwait’s Investment Dar said in May it had defaulted on a $100 million sukuk registered in Bahrain and in the United States a court case is ongoing involving the sukuk issued by oil firm East Cameron.

Best Regards
ZULKIFLI HASAN
DURHAM, UNITED KINGDOM

Oslo, Norway.

By Zulkifli Hasan, Business Islamica Magazine. Available at: http://www.islamica-me.com/article.asp?cntnt=204

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.

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HARMONISATION OF SHARI’AH AND COMMON LAW IN THE IMPLEMENTATION OF ISLAMIC BANKING AND FINANCE IN MALAYSIA

By Habhajan Singh Available at the Malaysian Reserve, November, 3rd 2009.

The International Council of Fiqh Academy has to relook at its internal processes in coming out with pronouncements related to Islamic finance and other matters, said a much-sought after Shariah scholar. In a blunt statement, Bahrain-born Shariah scholar Sheikh Nizam Yaquby said that the academy has to retain its past practice of a thorough and meticulous decision making process. “My concern is not just the tawarruq fatwa of the Fiqh Academy. My concern is with the entire process by which the Fiqh Academy is going about now,” he told The Malaysian Reserve yesterday.

In May, the academy made news within the Islamic finance fraternity when it slapped a ban on organised tawarruq, a decision which led to an initial spate of debate and discussion, but was eventually ignored by a majority of the market players. Tawarruq is a Shariah concept widely used in the Middle East, particularly for cash financing. The contract began picking up steam in Malaysia in the last few years, with local Islamic banks using it to structure new products to make them acceptable beyond Malaysian shores. Tawarruq means purchasing a commodity on a deferred price, and later selling it to a third party with the objective of obtaining cash, according to a definition by Bank Negara Malaysia (BNM).

This is not the first time that Nizam had publicly expressed his disssatisfaction with the manner in which the Fiqh Academy went about the tawarruq fatwa which was announced after a five-day session which ended on April 30 in Sharjah, United Arab Emirates. “If the Fiqh Academy wants to be respected, as it was, it has to go back to the due process that it used to do. To the due diligence on each sensitive matter, whether it was biomedicine, social, political or economics,” he said. It is not clear if the issue indicates potential tension between the Fiqh Academy and the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), a standard setting body for Islamic finance institutions based in Bahrain.

The Fiqh Academy, an initiative of the Organisation of Islamic Conferences (OIC), is an influential international Islamic organisation. In the Islamic finance fraternity, though, the organisation commanding wider respect is the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), a standard setting body for Islamic finance institutions based in Bahrain. Nizam, who is attending the Kuala Lumpur International Islamic Finance (KLIFF) 2009 conference, which began with the Islamic finance Shariah scholars’ muzakarah, sits on the Shariah supervisory board of AAOIFI. Locally, he sits on the CIMB Islamic Bank Bhd’s Shariah committee.

Fiqh Academy Meeting Nizam, who sits on Shariah boards of more than 40 banks globally, was present at the Sharjah meeting. It resolved that it is not permissible to execute both tawarruq (organised and reversed) because simultaneous transactions occur between the financier and the mustawriq, whether it is done explicitly or implicitly or based on common practice, in exchange for a financial obligation. This was done after the council reviewed research papers on tawarruq, its meaning and its type (classical applications and organised tawarruq), it had said.

Nizam viewed it differently, arguing that research on crucial matters, whether related to biotechnology, politics, social or Islamic finance, require time. “If a research paper, written hastily and introduced one hour before the session, how can people read it? There were 17 papers on tawarruq presented to the Fiqh Academy. “I have reviewed them now. Most of them say tawarruq is permissible. They are not against it. But there was no time to read and review it [during the session]. “Researchers were not even given time to explain. Those who wanted to discuss or debate the papers, they were not even given one minute each. “How can we reach a decision and bind the entire ummah, almost 1.5 billion people, on such a hasty decision?” he said. He added that the Fiqh Academy used to convene specialised conferences on each subject, allowing experts to give their views and suggestions, before issuing any decree. When asked about AAOIFI, Nizam said its standards go through a rigorous research. Elaborating the process, he said it begins with the preparation of a written research paper which is discussed at research committees. It is followed by a draft standard which goes to its 15-member Shariah council. “They study it carefully. It then goes back to public hearing. Each standard takes two to three years. This is the right way to do research,” he said.

Best Regards
ZULKIFLI HASAN
DURHAM, UK

Notes: It has been a long debate on the status of Tawaruq financing facility. Despite of its permissibility based on Shari’ah pronouncements made by respective Shari’ah boards including the AAOIFI, the Fiqh Academy of the Muslim World League has issued two resolutions at the 15th meeting on 31st October 1998 and 17th meeting on 13-17th December 2003 where the former approved all kinds of Tawarruq and the latter disapproved Tawarruq Munazzam. Finally, the Islamic Fiqh Academy of the OIC issued the final resolution on tawarruq at the 19th meeting in Sharjah, United Arab Emirates on 26-30th April 2009 which confirmed the impermissibility of tawarruq. Muhammad Nejatullah Siddiqi, a founding father of Islamic economic is of the view that Tawaruq is identical to interest based loans both from the functional and macroeconomic perspective and he concludes that tawaruq is a financial instrument whose mafasid (harms) are much greater than masalih (benefits) and therefore cannot be characterized as shari’ah-compliant. He listed down several mafsadah of Tawaruq and this includes creation of excessive debt; exchange of money with more money in future, which is unfair in view of the risk and uncertainty involved; debt proliferation, which is likely to gambling and speculation;greater instability in the economy; inflationary expansion;inequity in the distribution of income and wealth; inefficient allocation of resources. Another prominent Islamic economist, Munzir Kahf argues that tawarruq is worse than the practice of interest-based loan legally and economically. While I beg to differ with Sheikh Nizam Yaqubi on the issue of Tawarruq, I strongly affirm his view pertaining to the need of meticulous, rigorous and thorough research for any fiqhi verdicts.

With CEO of BMB Islamic, Dr. Humayon Dar.

Available at: http://gulfnews.com/business/banking/time-for-uae-to-rethink-dollar-peg-1.521680

It may be a good time now for the government to reassess the dollar volatility. The UAE should consider a fresh monetary policy, reducing its link with the US currency that has been declining in value.

As a result, the UAE and other Gulf currencies that are pegged to the dollar are losing value. The UAE, the Arab world’s second biggest economy, is part of the six-member Gulf Cooperation Council. It was also part of a planned monetary union till May this year when it walked away over a dispute. The move frees up its monetary policy from certain obligations.

“It may be a good time now for the government to reassess the dollar volatility,” Hamad Bu Amim, Director-General of the Dubai Chamber, told Gulf News. “We always link our monetary and fiscal policies with the United States.” It’s time to revisit that link, he said. “The Central Bank is applying different monetary tools and is not blindly following US policies. “Having said that, the dollar peg has served us well for the last three decades.”

The weak dollar might have helped the US economy — but it has affected other economies, and hurt some. “Evidently, this hedging tool is losing steam, really,” he added.

Costs getting lower

The current economic situation provides a better business environment for investors who could benefit from low cost base in starting up businesses, Hamad Bu Amim, Director-General of the Dubai Chamber, said. “The current lower property prices and rents and flat inflation creates a good investment climate for new investors,” Bu Amim told Gulf News.

“They can start businesses with a much lower start-up capital. Doing business is much cheaper now than a few years ago. Besides the expanded infrastructure at the airport, roads and highways, the opening of Dubai Metro — all strengthens Dubai’s attractions as a global hub. “That’s why we are celebrating Dubai’s business diversity by inviting the who’s who of Dubai at our inaugural Dubai Business Gala,” he said. The gala event, to be held tomorrow, will be attended by leading businessmen, dignitaries and top government officials offering everyone the opportunity to network and talk business.

Best Regards
ZULKIFLI HASAN
DURHAM, UK

Note: The entire GCC Countries, most of OIC countries and some economists claimed that 1/3rd of the countries in the world pegged their currency to dollar that has been declined in value. This is serious issue that needs to be resolved prudently as the currencies which pegged to the dollar are losing value out of nothing. GCC Countries and other OIC Countries should reassess their monetary policy so as to find other alternatives for their currencies stability tools. I strongly affirm the motion made by the Director General of Dubai Chambers.

OXFORD UNIVERSITY