My Story: Palestine Solidarity Campaign

Assalamualaikum,

Dear all,

While we are busy with our own affairs, it is important for us as a Muslim to locate our time to know what is happening around the world especially to the recent situation in Palestine. Last Thursday, I attended the Durham County Palestine Solidarity Campaign organised by the PSC at Town Hall, Durham City Market Place. The PSC is a human right movement in Durham which is actively promoting awareness amongst the public regarding with the issues of Palestine.

Palestinians in the Gaza Strip faced a sharply deteriorating humanitarian situation as Israel tightened its closure of the border crossings. No food, medicine, utilities or other vital supplies have been allowed into Gaza that is home to 1.5 million Muslims. An estimated 70 percent of the Gaza Strip has experienced lengthy power outages as Israel has cut off fuel supplies to Gaza’s power plant which is affecting seriously condition in the Gaza’s hospital.

This time, the PSC invited Yvonne Ridley a well known journalist as a special guest speaker who is also an eyewitness account of the Free Gaza Movement boats that in August this year broke the Israeli blockade. Furthermore, 2 Palestinian students, Mr. Iyad and Mr. Mahmoud also shared their experience and recent information on Palestine in which they concluded it as a sheer genocide of Palestinian by Israelis. Although, the International agencies and officials, including UN Secretary General Ban Ki-moon have condemned the violation of international humanitarian law by Israel but there is no sign of relief as everybody knows that Israel does not respect the international law at all.

Let us pray to Allah the Almighty for our Muslims brothers in Palestine. Perhaps, we also could donate a certain sum of money for them by depositing into the interpal account at https://www.interpal.org.uk/donate/donate.aspx/. Interpal is a non-political, non-profit making British charity that works with international funding partners on the ground to provide relief and aid to Palestinians in need, mainly in the West Bank, Gaza Strip and the refugee camps in Lebanon and Jordan.

Best Regard
ZULKIFLI HASAN
DURHAM UNIVERSITY

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  • With Yvonne Ridley and Mr. Mahmoud of Palestinien Student of Durham University.

    Yvonne Ridley is a British-born, award-winning journalist and well known in the Muslim world for her outspoken views and defence of Islam. She reverted to Islam 30 months after making international headlines when she was captured by the Taliban in Afghanistan.

    The very recent case of Arab-Malaysian Merchant Bank Bhd v Silver Concept Sdn Bhd [2008] 6 MLJ 295 and Launching of My New Web Page

    Assalamualaikum,

    Dear Readers,

    I am very pleased to announced that I just created my new webpage at https://zulkiflihasan.wordpress.com/my-case-report/. This web page offers a range of cases report and cases commentaries regarding with the issues in Islamic finance. It is hoped that all my respected readers will benefit something from this informative webpage.

    In the mean time, I would like to share the very recent case of Arab-Malaysian Merchant Bank Bhd v Silver Concept Sdn Bhd [2008] 6 MLJ 295 which was decided by the learned judge Dato’ Abdul Wahab Patail. Click Here

    Unlike in the earlier case of Arab Malaysian Finance Bhd V Taman Ihsan Jaya Sdn Bhd & Ors (Koperasi Seri Kota Bukit Cheraka Bhd, third party) [2008] 5 MLJ 631, the court held that that BBA facility in this case is a bona fide sale since there was a novation agreement which indicates that the bank is the legal purchaser and rightful owner of the properties and therefore rendered the transaction as a Shari’ah compliant facility. By the way, the court asserts that there must be a conscious effort in the form of novation agreement or any other valid instruments to make the transaction into a true and formal sale which is acceptable under the Shari’ah principles.

    Happy Reading!
    ZULKIFLI HASAN
    DURHAM UNIVERSITY
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    The Empire State Building, New York

    Islamic Banking and Finance – Social Failure

    Quoted from the New Horizon by Dr Mehmet Asutay

    Introduction

    The phenomenal growth of the Islamic banking and finance (IBF) industry has been remarkable since it came into existence just over thirty years ago. However, a closer reading of this positive development indicates that IBF does not necessarily share the aspirations or the foundational claims of Islamic moral economy (IME), an authentic value system for human-centred economic development and social justice. Despite its contribution in expanding the financial base in Muslim countries and overcoming financial exclusion through product diversification, IBF, in responding to the realities of the international financial system has converged towards the conventional notion of managing wealth, resulting in tensions with the foundational axioms upon which an Islamo-ethical financial system was intended to be built. In such transformation, the identity of IBF is reduced to the mere removal of riba and conducting financial activity in contractual norms derived from the Shari’ah. The result, therefore, has been the divergence between the aspirations of IME and IBF as an instrument of that system.

    Philosophical sources of Islamic finance: utopia

    IME, in its modern usage, came into existence in the early 1970s mainly as a critique of economic development strategies that ignored the importance of societal well-being. Therefore, it aimed at formulating a human-centric development strategy by providing the following foundational base through which financial and economic activity could be conducted:

    * Tawhid (unity) indicates the vertical dimension of the Islamic ethical system in terms of equality in front of God;
    * Al-’adl wa’l-ihsan (justice and equilibrium) provides for the horizontal dimension of equity in terms of equality between individuals;
    * Ikhtiyar (free will), provides individual opportunities in the economic system to choose between various options;
    * Fard (responsibility) implies that individuals and society need to uphold the public good;
    * Rububiyyah indicates divine arrangements for nourishment, sustenance and directing things towards their perfection;
    * Tazkiyah calls for growth with purification to incorporate the good of the others and be conducted with ethical and moral considerations;
    * Khilafah indicating an individual’s role as God’s vicegerent on earth.

    Within this framework, maqasid al-Shari’ah, or the objectives of Shari’ah, is interpreted to suggest that economic and financial activity must lead to ‘human well-being’. Being the institutional aspect of this IME, IBF institutions are expected to operate within this framework to produce a social and environmentally acceptable optimum.

    From utopia to reality

    In responding to this moral economy strategy, the initial experience of IBF in Egypt in late 1960s was structured as a socially-oriented institution, aimed to provide credit to peasants, small businesses, and workers to overcome financial exclusion and expand the ownership base of society. However, despite such a novel origin, with the internationalisation and unprecedented growth in their assets base and financing since 1980s, the lives of Muslim individuals have not been significantly affected by such development of IBF, as the social dimension is limited to zakat and other non-systematic charitable activities, which negates systematic economic development.

    It might be useful, therefore, to compare the realities against the aspirational worldview by deconstructing the practices of IBF through values the practitioners attach to IBF against the foundational values mentioned above. Speaking at the Islamic Finance Seminar held in London last year, Iqbal Khan, a leading contributor to the development of the sector, suggested the following values among the aims of IBF:

    * Profit-and-loss (PLS) sharing and risk- sharing is preferred alongside creating more value addition to the economy;
    * Community banking: serving communities, not markets;
    * Responsible finance, as it builds systematic checks on financial providers; and restrains consumer indebtedness; ethical investment, and corporate social responsibility (CSR) initiatives;
    * Alternative paradigm in terms of stability from linking financial services to the productive, real economy; and also it provides moral compass for capitalism;
    * Fulfils aspirations in the sense it widens ownership base of society, and offers ‘success with authenticity’.

    It is clear that these values fit into the aspirational values of IME as well. A critical examination of these objectives, however, indicates that the reality is far from fulfilling these objectives.Regarding preference towards equity-based PLS and risk-sharing financing over debt financing, data analysis, for instance, in the Malaysian IBF case depicts that the percentage share of musharakah declined from 1.4 per cent in 2000 to 0.2 per cent in 2006, while major modes of Islamic financing remain to be bai bithaman ajil (sale of goods on a deferred payment basis; another term used for such sales is bai mu’ajjal) and ijara wa iqtina (leasing and subsequent purchase) with 55.9 per cent and 25.2 per cent respectively in 2006. In addition, from 1984 to 2006, murabaha constituted 88.1 per cent of the mode of financing for Bank Islam Malaysia Berhad, and 67.3 per cent for Dubai Islamic Bank, while mudarabah and musharakah was about 1.7 per cent and 9.3 per cent respectively.

    Moreover, in relation to social lending, the percentage of qard hasan (an interest-free loan for welfare purposes/short-term funding requirements) is at a negligible level in IBF sector. Taking into account that IME aims for equity financing for creating value addition in economic activity, the change towards debt-financing is rather meaningful, which indicates that IBF institutions have deviated from the economic development and social welfare objectives of IME. Thus, the promise of Islamic finance in relation to its performance failed to be realised in providing socio-economic development for the larger parts of the Muslim world and communities.

    Data analysis also shows that long-term financing is not the norm, as most of the financing focuses on projects with maturities lasting less than a year. In addition, while developmental financing necessitates financing sectors such as agriculture and manufacturing, the majority of IBF is related to retail or trade financing. For instance, after the initial years, Islamic banks in the Sudan moved away from financing agriculture and industry using PLS schemes. Furthermore, instead of investing in value-added economic activity in the Muslim countries, there has been a tendency to invest the funds abroad. As a result, the value addition of IBF to the local economy has further declined, and the contribution of IBF for economic development through real economy has been rather elusive.

    Regarding the community banking objective, experience shows that IBF has done little to contribute to capacity building in the communities. On the contrary, IBF has aimed at becoming part of the international financial markets and, despite the social expectations, IBF claims that it is not a charity, and that firms have to work under difficult competitive conditions. Clearly, this indicates profit maximisation as the aim, which negates the importance of societal responsibility.

    As regards to responsible finance, there is no universally accepted regulatory body that systematically checks Islamic financial providers. The initiatives by AAOIFI (Accounting and Auditing Organisation for Islamic Financial Institutions) in Bahrain and IFSB (Islamic Financial Services Board) in Malaysia remain weak and are not generally adopted. To evidence this, a recent study demonstrates that a large number of Saudi Islamic finance practitioners, accountants and auditors, are largely unaware of AAOIFI standards.

    Pertaining to fulfilling aspirations, IBF has not positively affected social capacity building and contributed to widening ownership, which could have been possible through venture capital or PLS type of investments. However, as discussed previously, these do not seem to be preferred by IBF. As part of restraining consumer indebtedness, the data indicates that IBF institutions prefer to involve themselves in transactions, which are debt-financing oriented, as they are more profitable. Thus, this aim remains unfulfilled.

    Concerning ethical investments, restraining the investment areas does not necessarily make IBF ethical. Rather, it only implies that IBF fulfils its legal expectations, as screening of Islamic investment is part of Shari’ah. However, considering that ethicality includes being pro-active in regards to IBF, there is little indication that the industry is entirely ethical. This, again, refers to the CSR, as recent studies on these initiatives of IBF demonstrate they have not pro-actively developed such an understanding. Their perceptions of CSR remain within the framework of zakat distribution and other non-systemic charitable activities rather than working towards capacity building for developing communities.

    In terms of real economy consequences, the claim that IBF links financial services to the economy’s productive side is not convincing, since IBF does not exhibit macroeconomic consequences. Particularly so, when considering the most preferred financing is debt financing as opposed to equity financing. It is, therefore, difficult to argue that IBF is related to the real economy beyond financing the retail markets. In addition, further involvement of IBF sector in debt-like financing, including tawaruq products (sale of a commodity to the customer by a bank on deferred payment at cost plus profit), clearly undermines the ‘productive economic activity’ discourse in Islamic economics.

    The realities of financial markets, which prioritise economic incentives rather than religious behavioural norms, has thus forced IBF to become part of the international financial system by adopting the commercial banking model. In that predicament, IBF is described as heterogeneous financial products deprived of their value system as expected by IME. Under such circumstances, it is difficult to argue that IBF acts as a moral compass for capitalism, either. On the contrary, recent studies show that IBF has much to learn from conventional finance in terms of ethical and CSR financing issues.

    As to locating the principles governing IBF in the Quran, indeed it reveals the importance of authenticity. Yet, the characteristics of IBF do not necessarily reflect the Quranic economic meaning of authenticity or, for that matter, Shari’ah-based principles as formulated in the aspirational notions of IME. Instead, religion serves to provide justification for IBF’s current operations by claiming legitimacy in the form of ethicality and social responsibility as shaped by Islam.

    Conclusion

    The discussion so far should not be considered to undermine the progress of IBF, as its contribution in terms of bringing economic growth through expansion of the financial base in Islamic commercial banking is self-evidenced with the developments in the sector. Also, provision of alterative products in compliance with Shari’ah overcomes financial exclusion. However, against this ‘commercial’ nature, social aspects of IBF, in terms of economic development and as described in IME need to be addressed, which constitutes the gap between promised expectations and performance.

    It can, therefore, be suggested that IBF has failed to internalise the social dimension and social justice into its own operational function, as the distinguishing characteristics of IBF has been reduced to a technicality in which the value system is referred to only in describing the Quranic prohibition of riba. As a consequence, a solution to overcome social failure requires new models of institutional developments beyond commercial IBF, by going back to the Islamic construction. In this new modelling or reorienting social banking, community banking, ethical and social investment, community development-oriented projects and microfinance have to be endogenised and addressed as objectives.

    In reorienting towards social banking, Professor Mahmoud El-Gamal, a renowned contributor to academic discourse in the field, in his recent books states that ‘the “Islamic” in “Islamic finance” should relate to the social and economic ends of financial transactions, rather than the contract mechanics through which financial ends are achieved’.

    The difficult state of economic affairs in the developing world requires such a transformation. In this effort, the evolutionary financial experience in the West can be taken as an example in developing Islamic community development banks and Islamic social banks alongside commercial IBF. Such an institutional solution aiming at correcting and moderating the social failure of IBF will contribute to the development of individual lives by focusing on societies’ micro-dynamics rather than affecting the financial equilibrium by extending financial involvement to embrace larger society in this economic dynamics. This fits into the new development paradigm, which has shifted focus from macroeconomic development to micro dynamics.

    Thus, a move towards goals and policy rather than the mechanistic and legal structure of IBF will serve human well-being much better, as suggested by Professor Nejatullah Siddiqi, a leading scholar in the field. This will help to establish optimality between venal behaviour and sacrificial behaviour, and the choice between the two will be determined by the values of the participants in the sector and the interest of the larger environment. However, Islamic social and community banking can provide this balance, and the new brand in compliance with ethical religious norms of IME regarding economic and financial activity for achieving prosperity (falah) in this world and in hereafter through purification and perfection of individuals and institutions for growth and development, as tazkiyah suggests.

    Best Regard
    ZULKIFLI HASAN

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  • Coventry University

    New Sukuk Regulation From IFSB

    Quoted from New Horizon (http://www.newhorizon-islamicbanking.com)

    The remarkable rise and subsequent sharp drop in sukuk (Islamic bond) sales have been the issue of many debates of late. The sales were doubling in volume year on year since 2004, but 2008 has witnessed a 50 per cent drop. The ongoing unrest in the financial markets worldwide has been blamed for this by some. However, the February ruling of Shaikh Muhammad Taqi Usmani, head of Shari’ah committee of the AAOIFI (Accounting and Auditing Organisation for Islamic Financial Institutions), was widely accepted as the main reason. Shaikh Usmani labelled a substantial number of sukuk non-compliant with Shari’ah and pointed out that many sukuk followed Shari’ah principles only in form, but not in substance.

    Since then, a series of steps to rectify this discrepancy have been taken by AAOIFI and other international standard-setting organisations. The most recent prudential standards regarding sukuk have been issued by the IFSB (Islamic Financial Services Board). They focus on the capital adequacy requirements for sukuk securitisation and real estate investment, and will be published by the end of 2008. The regulation was approved by the IFSB Council during its 13th meeting, recently held in Dubai. It was chaired by H.E. Dr Shamshad Akhtar, governor of the State Bank of Pakistan (central bank and regulator) and chairperson of the Council, and attended by a number of high profile members, including the president of the Islamic Development Bank (IDB).

    In addition to new sukuk guidelines, the Council also issued guiding principles of governance for Islamic collective investment schemes (also available by the year-end). Professor Rifaat Ahmed Abdel Karim, secretary general of the IFSB, stated that once these standards were implemented they would ‘enhance the soundness and stability of the Islamic financial services industry’. Meanwhile, the number of IFSB members continues to grow steadily, contributing to a pool of resources and expertise of current participants. Since the start of the year, the IFSB has welcomed about 40 new members, with the most recent additions being Arbah Capital (Saudi Arabia), Absa Bank Limited (South Africa), Al Hilal Bank (UAE) and Cagamas Berhad (Malaysia).

    BEST REGARD
    ZULKIFLI HASAN
    DURHAM UNIVERSITY

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  • The National Library of Wales.

    Islamic Banks in the UK Grow Despite Crisis

    By David Oakley, The Financial Times

    Launching a bank in the face of the worst financial crisis in almost 80 years does not appear to make business sense.But that is precisely what investors in two of Britain’s five Islamic banks did as demand continued to grow in Europe for financial products that avoided paying interest, in line with strict religious rules. These products pay profits from an underlying business or rent from a building used as collateral to raise money. The European Finance House launched in January and Gatehouse Capital followed in April, while a third Islamic bank, the Bank of London and the Middle East, opened for business in July last year – a month before the August credit crunch surfaced.

    Steady growth

    All three are growing steadily, even as the credit crisis deepens, because they are not exposed to the toxic assets and derivatives that have seen losses mount higher and higher, above $650 billion (Dh2,385.5 billion) at the latest count, among the conventional banks.The European Islamic Investment Bank and the Islamic Bank of Britain – the two other British Islamic banks – are also expanding.

    The IBB launched its first Islamic, or Sharia-compliant, residential mortgage in September, just as Lehman Brothers, one of Wall Street’s most renowned banks, collapsed under the weight of its credit exposure. Humphrey Percy, chief executive of the Bank of London and Middle East, says: “We have not been affected to the same extent that the conventional banks have, although we have been indirectly impacted by the general lack of liquidity.”

    Sultan Choudhary, commercial director of the Islamic Bank of Britain, adds: “We are still growing, not contracting. We never had the asset exposure in terms of the toxic assets that other banks have.”As the city has been devastated by financial losses and job cuts, Islamic finance is a refreshing positive among the gloom for London, which has pioneered the growth of this sector in Europe and the west. Britain is the only country in the European Union that has established Islamic banks. The Treasury is still planning to launch an Islamic bond, known as sukuk, even though this market has suffered in recent weeks.

    Principal Insurance, the UK’s first Islamic insurance company – and the first in western Europe – was also launched in May, providing Britain’s two million Muslims with the opportunity of insuring their cars or houses in a Sharia-compliant way.

    Best Regard
    ZULKIFLI HASAN
    DURHAM UNIVERSITY

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  • MADRID, SPAIN