Friday, October 26, 2007

Transparency & IT : A Win-Win Situation for Zakat & Charity

An article in today's Borneo Bulletin reads 'Meeting on drop in zakat collection'. Following the speech by His Majesty The Sultan of Brunei during Hari Raya, on the dramatic fall in zakat payments over the years, this meeting along with its outcome should be something that Muslims in Brunei pay attention to.

Ironically, not so long ago, I had conversations with some friends & colleagues related to this matter. Our conversation encircled around Bruneians whom are living in dire levels of poverty which would probably shock the average Bruneian, as these fellow Bruneians are in extremely poor living conditions & old houses. Additionally, in Brunei, every now & then, news articles related to these unfortunate Bruneians are highlighted in the mass media. The latest one was in a Borneo Bulletin article earlier this month.

Our conversation turned into a discussion & a half-hearted debate on whether the authorities had done enough in giving out zakat. At one end, there is an understanding that zakat has to be carried out in the correct manner, where not just about anyone can be given zakat. Additionally, it is important to encourage people to work hard & not depend on handouts alone. The other side of the coin is the lack of transparency or clarity in what happens to our zakat payments.

In the UK, some Islamic charity organizations promote transparency in letting the donors & the general public know what happens to the money contributed to the charities in the past, for example last years' donations. They use insightful pie charts, percentages & the relevant figures to get this message across. Their message is 'Your donation counts & this is what we did with your donations'. This gives donors a feel & a sense of appreciation that their contributions helps, no matter how little the amount appears to be for the donor.

Transparency can help zakat contributions in the very same manner. It would be great to know how much zakat was contributed every year, how many went to which projects/divisions/recipients & what happened when the funds were lacking or there was a surplus for that year. Essentially, this is our zakat, our collective approach to share wealth & decrease the gap between the have and have-nots. Therefore, transparency should not be an issue.

Secondly, the use of I.T. would greatly enhance this effort of transparency. In our neighbouring countries, websites such as www.zakat.com.my and www.e-zakat.com.my, are very useful. The public gets to know the basics of zakat and the calculators in the websites provides the necessary insight into how much the donor has to contribute. Not to mention, the various ways that Muslims can pay zakat, be it online, ATM, bank counters & even over the phone is a big plus.

In the spirit of generating awareness of the need to pay zakat & to keep Muslims on the know of what happens to their zakat payments, these two avenues in my opinion can greatly move the Muslim World further, if we really want to close the gap between the rich and the poor, insya Allah.

Wednesday, October 24, 2007

The 'Bai' Bithaman Aajil' Concept

One of the more 'interesting' financial concepts used in Islamic finance has to be 'Bai Bithaman Aajil' or 'Bai Muajjal'. In some areas, it's being called 'Murabaha' as well, though I always felt the two were somewhat different.

Let me explain Murabaha.
Forget about banks & bank loans for now but think of a businessman. A customer goes to the businessman & asks for an item. The businessman buys the item & sells it at a cost price plus a profit margin to the customer who then pays on the spot. In a nutshell, this is Murabaha.

The ever-popular concept, BBA or Bai Muajjal, is a variation of Murabaha. The difference being that BBA or Bai Muajjal involves payment to the businessman on a later date, whether it is in installments or a big lump sum. This concept is very popular that around 80 to 90-ish % of a typical Islamic banks' practice revolves around this for the main reason that it provides a financing avenue for Islamic banks.

Justice Taqi Usmani in his article/book mentions that Murabaha can be used as a financing mode but it must follow certain steps. There's more details in the relevant website (See #6 & 7) but the gist of it are as follows:

Step 1: Begins with an overall agreement between the bank & customer.

  • Important: Murabaha can only be used to actually buy some item & not a way to give out a loan. There must be a genuine sale & purchase of items.
Step 2: The bank appoints the customer as his agent to purchase the item on the banks’ behalf.

Step 3: The customer purchases the item & takes the item as an agent of the bank.


Step 4: The customer informs the bank the item is with him & makes an offer to buy it from the bank.


Step 5: The bank agrees, accepts the offer & the ownership of the item and the risk of having the item is transferred to the customer.

Among other things, one of the important bits here is that the ownership risks are with the bank between step 3 & 5. If anything goes wrong with the item, say a fire at the warehouse, then the bank is liable.


Things to ponder:
  • In the shrinking global network & with the use of IT, ownership risk can be minimized in a matter of minutes. The question that I pose is how fair & justified is the actual profit rates charged by Islamic banks?
  • How many Islamic banks do practice the 'appropriate' way of using BBA/ Murabaha?
  • How can we move further away from the current practice of BBA/ Murabaha into something truly & distinctively Islamic? Can we?

Till next time.