Bits & Pieces

Social/welfare institutions: Need for a re-think?

2012-02-13T16:27:00.000+08:00

Assalamualaikum (Peace be upon you),

The recent article in Borneo Bulletin on the indebted plight of single mothers reminds me of some of the interviews I had recently with zakat recipients. It reinforces my view that social institutions that involves giving out financial support to others, needs to re-think the way they look at personal finance in a world where governments are pushing individuals to be more financially dependent and literate, such as the pension issue that faces numerous countries and individuals.

At the very least, when creating financial solutions for the poor, there is a need to be more thorough and further consideration on the costs of individuals facing hardship. Between those who have and have-not, $1 is valued differently.

Without criticizing these institutions, the emphasis should be to creatively come up with better, innovative ways on how, from a personal financial view, that these social institutions can evolve forward. The relative success of microfinance from the early days of Grameen bank in Bangladesh is interesting, though the issue of interest or riba prevails. Can we come up with better way to help improve the situation of the poor, without interest? Can we create a comprehensive and inclusive financial solution that is fair for all concerned?

My thoughts.

Take care,
Umar

Past, Present & Future - Me, Myself & My Research

2012-01-14T16:07:00.000+08:00

Assalamualaikum (Peace be upon you),

I was watching the RSA Animate of Professor Philip Zimbardo's talk on 'The Secret Powers of Time' and several things got me thinking.

1. The Past

Am I a 'Past-oriented' person? Growing up, I used to be 'past positive' but then at some point, I probably became more of a 'past negative'.

Mistakes and regrets are norms of life. Though they dent our past, they do not define us. We define ourselves by what we do next, i.e. how we correct our mistakes or avoid doing the things that leads to those feelings of regret. <---This paragraph is the easy part, the writing.

The harder bit is the correcting or avoiding. My life, alhamdulillah, is relatively blessed. Those who I interviewed in my research, those living in poverty, face a challenge I can only write about. Whether they were born into poverty or fell into the poverty trap, it is a paramount challenge for them, to overcome. If some made mistakes when they were younger or naive, how do they correct their wrongs now. What can they do? Who will help them? Alhamdulillah, I live in a country where zakat plays a critical role in poverty alleviation and I hope it continues.

2. The Present

I'm trying to be more future-oriented than before. At present, that's my new year resolution. But before I talk about the future, let me dwell on the present.

Three bits are on my mind these days. Not surprisingly, my research is one of them. Being realistic, I'm cautious on whether it will be a truly applied research, or bring about changes that I initially intended. Currently, I just hope it adds to the discussion on zakat, awqaf and personal finance. It is after all, the synergistic discussion of a single topic that advances the way we see our world differently, do things better or re-invent old concepts.

Another bit on my mind is my late beloved grandmother. She passed away around this time last year, and she's a true inspiration. She usually prays for us, grandchildren, to do well in our studies and life. I miss her & I pray she is granted Jannah. Amin. Al-fatihah.

"...To Allah we belong and to Him is our return." (2: 156)

3. The Future

Our return.

In my understanding, in Islam, the bigger picture is that this life on earth is transitory. We are no more than a traveller living in a transient world, doing good where we can & avoiding evil as ever.

The same context applies in Islamic financial planning. Although in conventional financial planning, the future can be related to planning for children's education and retirement, it is somewhat different in Islamic financial planning. As Muslims, the future is the eternal hereafter, and in the realm of Islamic financial planning that should include understanding the role of zakat and awqaf to enhance that future. For instance, related to ongoing charity/awqaf, Prophet Muhammad (pbuh) said: "Whence a child of Adam dies, his/her deed comesto an end except for three things: an ongoing sadaqah, knowledge that benefits(others), and a righteous child who prays for him/her."

In terms of deeds, what better deed that one that does not end. In terms of my research, the question would be how can social finance benefit more from personal finance, zakat and awqaf combined. In the contemporary financial world we live in, with the savings and pensions issues, how can we create an interwoven zakat, awqaf and personal financial system that benefits all of us, both the rich and the poor, both in this world and the next?

If you have a thought on this, drop me a line or email.

Take care,
A. Umar

I'm tired...

2011-10-24T21:08:00.001+08:00

Three sentences usually sum up our days or certain events. There's the classic romantic words of 'I love you'. There's also the equally important, though non-romantic words of 'I am hungry' & there's the frequently-said words of 'I am tired'.

I am tired...

Today marks a 30-day countdown to the end of my research fieldwork, with about 60% of interviews done. The exhaustive nature of the fieldwork is expected & that's why I tried to pace myself by taking breaks every now & then. However, recently, I'm starting to feel the 2nd leg of the fieldwork to be somewhat too tiring.

Firstly, there's the burden of the expectations in some interviews. Since my fieldwork involves the poor or those receiving financial welfare, there are times when I worry that my research will not achieve anything, let alone try to help, in any shape or form, those in poverty. I recall one particular respondent half-pleading to me, to help him on certain welfare issues. In hindsight, I don't know how I managed to respond to him or in that situation. This in itself is not an isolated incident. In another, a respondent stresses or hopes that his responses/pleas/complaints do not stop in his living room. In a sense, he was hoping that something be done to address it. In one sense, I could just take these pleas/responses in my stride. In others, I at times feel the burden of getting my research done right & as fast as I can, whenever this happens. I am tired.

Secondly, there's the issue of failure. There are times I get concerned that the 2-3 years of sweat & effort amounts to nothing, a failed research, nothing more than an attempt at something seemingly noble. Once upon a time, in a different job, I used to return from work, feeling tired but content on a job well done. A sense of feeling, that I had done what I can for that day. These days, I yearn for those days. Nowadays, I am wary of having spent 2-3 years spending time on this bit & coming back empty-handed. Was it (or Will it be) a job well done?

These are some of the things that hover above me like a grey cloud. In some ways, it's a bit selfish. This is a minute issue, a drop in the ocean, compared to the poverty issues faced by some individuals or families...compared to the bereaved families of those who lost their loved ones...and compared to those who yearn for justice against the oppressor.

I am not complaining. I am simply saying, I am tired.

Take care all.

Peace be upon you.

Ramadan or No Ramadan: Don't forget Zakat on Wealth

2011-08-30T15:45:00.002+08:00

Salam (Peace be upon you),

Please don't forget to pay your zakat on wealth (e.g. savings, mutual funds, fixed deposits etc), even after Ramadan, to those in need. Below is a short summary of some forms of wealth, alongside some links.

1. Savings a/c: Identify the lowest balance in the lunar year. If more than 1 savings a/c is held, don't forget to combine the differing sums before comparing w/ the nisab (See link)

2. Fixed deposits: Since fixed deposits are likely to be left invested for 1 year or more, the amount held for 1 lunar year is zakatable at 2.5%.

3. Mutual funds: Although I haven't come across fatwas on mutual funds, its near-similarity to stocks can be argued that the approach to zakat on shares = zakat on mutual funds. In 1988, the OIC Fiqh Academy notes that company shares purchased for trading purposes are treated similarly to trading on business inventory. In other words, 2.5% of the market value of shares is used to compute the zakatable amount [Those interested in the zakatability issue of the monthly mutual fund payments could read up Yusuf Al Qardawi's writeup (See p. 72 of this volume).

4. Money lent: Different scholars have different views (See p. 58 of Al-Qardawi's volume 1 for a short, succinct discussion).

5. Money saved up in a family takaful plan: These types of takaful generally places some portions of premiums as savings. Try asking them of your policies 'surrender value', i.e. how much you currently have in that policy. If it's yours & potentially withdraw-able, isn't it eligible for zakat too? (See link)

Don't forget that the 2.5% zakat rate is applicable on financial assets for a lunar year (i.e. using Islamic/ Hijrah calendar). Monzer Kahf notes that if zakat is paid following a solar year (e.g. Gregorian calendar), the rate should be adjusted to 2.5776%, since the lunar year is shorter than the solar year, by around 11 days or so (See p. 13 of this booklet).

My thoughts only.

Eid Mubarak.

Long Walk To Discovery

2011-08-22T23:00:00.000+08:00

Salam (Peace Be Upon You),

I'm in the midst of reading Nelson Mandela's book 'Long Walk To Freedom'. Hence, the shamelessly, lame title of this particular post. It's been a while since my last post. Things have changed, as is life. It's probably time this blog has too, as I write more about research.

Since pursuing a PhD and going through an academic researcher route, or at least training to be one, I can't help think about my research. It consumes my days, both working and weekends. I'm not saying I work hard, for thinking about things is different from doing it. Especially when it comes to the fieldwork, I worry about the getting the interviews done, hoping my research assistants do not quit and other details, which other researchers may consider as well.

On a personal level, since my research relates to poverty, I have been thinking more about the lives of those who are poor. I know we are different, yet similar. Their houses may look shabby and derelict, but our intentions are the same. Do we not all wish to live in a nice house and live happily? Our current situations may differ due to birth (i.e. being born poor or non-poor) or due to one's own circumstances (e.g. too much debt, bad luck etc.), but our future situations are the same. For we will die one day, in the same earth or layer of soil. No one grave essentially different from the next.

At times, it feels tiring to do this research. Obviously, as in some other forms of research, the rejection rate can be high. Although I've worked in customer service before and developed a bit of a thick skin, it can bring you down sometimes. But such is life, the wheel that turns around. I have faith in such things. For if ever there was something to bring one down, it should be for doing a good cause. Few probably so, than trying to help reduce poverty, even if it is from a research or academic point of view. There's this Hadith or saying of the Prophet Muhammad (pbuh) which goes along the lines of:

"When any one of you sees anything that is disapproved (of by Allah), let him change it with his hand. If he is not able to do so, then let him change it with his tongue. And if he is not able to do so, then let him change it with his heart, though that is the weakest (kind of) faith."

In this context, isn't poverty an evil or a thing disapproved? Even if attempting to mitigate poverty is difficult to achieve, it should be worth it. Nothing good ever came easy. And along the way, who knows. We may confront our own biases, refine our thoughts or maybe inspire someone to do at least one good thing.

More importantly than inspiring or trying to change others, is the need to realise that our actions should be more of a discovery of ourselves, the changes of our line of thought, our perception of others & the short, worldly life that we live in. Hence, the corny title of a 'long walk to discovery'.

Take care all.

Sincerely,
Umar

Planning your retirement (Brunei-specific...ish)

2011-04-15T04:18:00.001+08:00

Assalamualaikum (Peace Be Upon You),

My major disclaimer is that though I have a certificate in financial planning, I'm not a certified financial planner per se. The bits below should be taken at face value, till you meet a certified financial planner (who's actually certified by an established financial planning body like the CFP and the like). Unfortunately, in Brunei, financial planning is currently unregulated, making trusting planners somewhat more difficult. But just to add some cred(ibility:) to what I'm saying, I'll nerdily add 1 or 2 references along the way.

My actual intention is just to highlight some "simple" steps to plan your retirement (It actually may not be simple, they'll be numbers, calculations [Thanks goodness for websites] & maybe the odd, irrelevant diagram). Let's start w/ a scenario: Say, I'm currently 25 (Du bi du) & I want to retire at 55. I have a fictitious TAP (an Employee Provident Fund) of $20,000 & an investment deposit of $10,000.

Step 1: Estimate your retirement expenses

Some planners & finance websites might provide a rule of thumb like "An easy rule of thumb is that you’ll need to replace 70 to 90 percent of your pre-retirement income" (p.7).
Although rules of thumb are handy, it might not be for everyone or be too rigid (e.g. post-retirement may see higher or lower actual expenses due to health costs, vacations etc).
The better thing, according to Mittra, Potts & LaBrecque (2005), is to work out an expected expenses figure. Look at your monthly expenses, break it down to fixed vs. flexible expenses, create key categories & estimate a figure for each category.
In this scenario, let's say mine works out to $3,000 per month or $36,000 per year. This is how much I need each year after retirement.

Step 2: Calculate the lump sum needed at age 55

As I'll need $36,000 per year until I pass away, I need to know how much I ideally would like to save by 55. In a sadistic world, I'll need a financial calculator, face some mental anguish but thanks to the internet, let's use this webpage. Imagine we're at year 2041, when I'm umm 55. Put in the following figures:
Present value: Leave it zero (Cos we want to find this figure - This is the lump sum we need to have saved up by 2041.)
Future value: I'm putting $10,000 here, assuming I want to leave it as inheritance money.
Number of payments: 20 (Assuming I withdraw a fixed amount per year & my life expectancy is 75.)
Payment amount: $36,000 (I want $36,000 per year after retirement.)
Profit rate: I'll put in 0.98% (Inflation-adjusted profit rate)
Payment at: Begin ('Cos I want to receive the 36k at the beginning of each year.)
Press the PV icon, which is the present value, which in this scenario is the lump sum I ideally would like at age 55 = $665,557.26.

Step 3: Estimate your retirement income

Question is: With my current TAP + savings, is it enough to climb up to cover that lump sum?
To simplify, I'll combine the 2 investments in this calculation. Assuming I want to save B$500 per month on top of the 30k, from age 25 to 55 (that's 30 years) & the estimated profit rate of the investment is 6%. Using the same website, enter the numbers (In this scenario, we're back in 2011, aged 25):
Present value: -30,000 (Put a negative sign 'cos money is going out.)
Future value: Leave it zero (We want to find this figure)
Number of payments: 30 (Assuming I invest a fixed amount per year, not per month.)
Payment amount: -6,000 (500 x 12, Put a negative sign 'cos money is going out.)
Profit rate: 6% (Inflation-adjusted profit rate).
Payment at: End ('Cos I want to invest at the end of the year.)
Press the FV icon, which is the future value, which in this scenario is your actual lump sum (should your investment assumptions fall into place). You would get $646,653.85.

Step 4: Reconcile the difference

With an estimated retirement nest/income at $646,653.85, & the required nest/expense at $665,557.26, that means there's a deficit of $18,903.41. In reality, there's a lot of options to deal with this. E.g. retire later, try to earn more, lower your retirement expenses, reposition your investments, take more risks, save/invest more etc.

Step 5: Review & update your plan periodically.

Things happen. E.g. Investment rates may go up or down, or I may decide to retire later. It's always advisable to review your plan to make sure you're on track.

Step 6: Meet an actual, certified financial planner

In this scenario, I used some of my own assumptions e.g. I only deposit at year end, instead of month end. I assumed my investments will go up per year at 6% etc & ignored the newly introduced SCP in Brunei. So here comes the corny line:

If there's one thing I would like you to take away from this boring post...(assuming you've survived)....is to meet a decent certified financial planner & gauge your actual retirement needs. It might be depressing knowing all the money you need to save or changes you have to make, but it's better to bite the bullet now, rather than face the ultimate bullet later on in retirement.

[Fuh, it seems like a long post. I can continue my life now.]

[ps Lemme know if anyone spots any errors.]

[ps2 I lied. I couldn't find a decent, irrelevant diagram...but I could find this link, which would have saved 20 minutes of your life, rather than reading this post :) ]

Offline Reference:

Mittra, Sid, Potts, Tom, & LaBrecque, Leon (2005). Practicing Financial Planning for Professionals. Michigan: RH Publishing

Peace,

Umar

Money: To Leave or Not To Leave

2011-04-02T04:39:00.010+08:00

Assalamualaikum (Peace Be Upon You),

Over the past year, it's twice that I've heard a fellow Muslim say, (paraphrasing here), that it is better to leave one's children without any money & based that opinion on the past such as a Companion of the Prophet (pbuh)'s practice or opinion.

Although I'm not an expert in historical practices of Islam, I do understand some law of inheritance (or what's commonly known as Faraid). I understand that, in the Qur'an, there are some verses that highlights the law of inheritance, such as in Chapter 4, verse 11.

Allah (thus) directs you as regards your Children's (Inheritance): to the male, a portion equal to that of two females: if only daughters, two or more, their share is two-thirds of the inheritance; if only one, her share is a half. For parents, a sixth share of the inheritance to each, if the deceased left children; if no children, and the parents are the (only) heirs, the mother has a third; if the deceased left brothers (or sisters) the mother has a sixth. (The distribution in all cases ('s) after the payment of legacies and debts. Ye know not whether your parents or your children are nearest to you in benefit. These are settled portions ordained by Allah; and Allah is All-knowing, All-wise. (4: 11)

Based on verses such as these, the logical conclusion is that, it can't be right that Muslims should not leave their children any money. If Allah did not want Muslims to leave their children any money, this verse and others such as these would not be revealed. Its mere revelation indicates, in my opinion, that it's ok to leave money for your offspring.

A Hadith or saying of the Prophet (pbuh), which contributes to the law of inheritance also contributes to this logical conclusion. Reported by Bukhari, the Hadith states:

Narrated Sa'd bin Abi Waqqas:
I was stricken by an ailment that led me to the verge of death. The Prophet came to pay me a visit. I said, "O Allah's Apostle! I have much property and no heir except my single daughter. Shall I give two-thirds of my property in charity?" He said, "No." I said, "Half of it?" He said, "No." I said, "One-third of it?" He said, "You may do so though one-third is also too much, for it is better for you to leave your off-spring wealthy than to leave them poor, asking others for help…"

As I write this, I hope the comment made by the person I mentioned earlier is not shared by the majority in the Muslim world because there is, unfortunately, a substantial level of poverty in Muslim countries, for one reason or another.

If I am wrong on this subject, please correct me. Just sharing what I know.

Peace,
Umar

Is the OIC powerless?

2011-03-11T03:44:00.005+08:00

Salam (Peace Be Upon You),

Reading about events in Libya is near similar to some events in some other Islamic countries such as Palestine, Somalia etc, as one particular trend crops up in mind: Why is the OIC powerless to help fellow Muslims?

Perhaps this is a cause for the downfall of Muslims in the current era, where nationality triumphs over religious belief. The Prophet Muhammad (pbuh) taught us that a Muslim is a brother of another Muslim, as noted in numerous Hadith:

Narrated 'Abdullah bin Umar:

Allah's Apostle said, "A Muslim is a brother of another Muslim, so he should not oppress him, nor should he hand him over to an oppressor. Whoever fulfilled the needs of his brother, Allah will fulfill his needs; whoever brought his (Muslim) brother out of a discomfort, Allah will bring him out of the discomforts of the Day of Resurrection, and whoever screened a Muslim, Allah will screen him on the Day of Resurrection. (Bukhari)
In another Hadith, Narrated Anas:
Allah's Apostle said, "Help your brother, whether he is an oppressor or he is an oppressed one. People asked, "O Allah's Apostle! It is all right to help him if he is oppressed, but how should we help him if he is an oppressor?" The Prophet said, "By preventing him from oppressing others." (Bukhari)

And yet the OIC, which in its charter, states it is "to preserve and promote the lofty Islamic values of peace, compassion, tolerance, equality, justice and human dignity;...", appears hesitant to really make a difference where it can, or where it should, that is through its actions. Undoubtedly & perhaps unfortunately, like other associations or groups, it also includes in its charter that it is "to respect the right of self-determination and non-interference in the domestic affairs and to respect sovereignty, independence and territorial integrity of each Member State;..."

To what end?

As Muslims, a Hadith teaches us..."Whoever of you sees an evil action, let him change it with his hand; and if he is not able to do so, then with his tongue and if he is not able to do so, then with his heart, and that is the weakest of faith."

...And yet the OIC appears powerless to help Muslims on the ground. Why? To what end? My concern is that if in the next world, we are asked, what have we done in so & so situation? Did we do what we can? By action, by hand & by heart...

Wassalam,
Umar

Islamic Finance: It's tiring but it should be worth it.

2010-07-09T22:30:00.005+08:00

Salam (Peace be upon you),

After a long break from the blog, it's ironic that it takes a long week to interest me, to write something useful or at least of some decent worth.

After attending a 5-day workshop-like session on Islamic finance, one is mentally drained not simply because of the activity itself, but the mental questions that one asks oneself of Islamic finance: "Who is Islamic finance for?"

This question has two prongs.

Firstly, for non-Muslims who are familiar with Islam, they know that Islamic finance or banking is not for Muslims only. The ideal view in Islamic finance is for a fair, socio-economic or financial system that works for everyone, irrespective of whether one is rich or poor, young or old, Middle-eastern, Asian or Western, or whether one is a Muslim or not.

Yet, such is the view towards Muslims notably in communities that know little about Islam, that anything labeled with 'Islam' is viewed suspiciously. At the same time, religion in itself is a tricky thing. If someone asks me to consider 'Christianity banking' or 'Jewish banking', I'd perhaps too be cautious, without knowing what it is all about. Therefore, I'd feel that Islamic banks should drop the name 'Islamic' in their names. What is a name. A name is only as a good as what it represents. If Islamic banks are truly ethical in that it avoids interest (riba), advocates reduction in poverty & a fair financial/banking system, then it should not worry about not having the word 'Islamic' in its name. What's in a name?

The second prong is the direction that Islamic finance is heading. To some extent, I disagree with some aspects or those who advocate within Islamic banking, such as those whom aggressively advocate for derivative products or banking products that appears to create financial wealth instead of real economic productivity. In my opinion, the implication of trying to push for those financial products (rather than those leading to real economic productivity) , whilst mimicking conventional financial products along the way, is more likely to enrich the rich, rather than alleviate poverty amongst the poor via microfinance capital, ventures, takaful etc. In addition, Islamic banks that continue to aggressively advertise so-called Islamic credit cards or other debt products is more likely to create a consumer and credit culture, rather than a savings and investment culture. Who then is Islamic finance for? The rich? Or does it really include the poor?

Despite my critical opinion above, one can appreciate that Islamic finance is only 35 years old or so, compared to centuries of interest-laden financial banking. Yet the challenge is to avoid going down a path which absolutely mimics conventional finance. Planting the seeds of conventional finance, within the realm of Islamic finance is dangerous. In years or decades to come, the financial products or structures may become deep-rooted, making it more difficult to change from a Shariah-compliant system, to a Shariah-based system.

Despite the challenges, I do feel these challenges are worth the mental strain and physical effort. Nothing worth having ever came easy. An ethical financial system that provides financial structures & opportunity for the rich and the poor, irrespective of religious background, ethnicity and race is worth the effort.

"So, verily, with every difficulty, there is relief: Verily with every difficulty there is relief."
- The Qur'an (94: 5-6)

My thoughts.

The Pensions Crisis

2009-08-28T21:03:00.004+08:00

An interesting read on the Pensions Crisis (Financial Times - In Depth: The Pensions Crisis)

What does it mean to be a Muslim?

2009-08-15T00:19:00.006+08:00

Late this evening, I stumbled onto the CNN Report by Christian Amanpour on 'Generation Islam' and it reminded me of this question that constantly plagues my mind, 'What does it mean to be a Muslim?'

Like so many Malay Bruneians, we are born Muslims. Our father was born as Muslims, like our forefathers before us. Yet, when I listen to Muslim converts tell their tale of how or why they come to appreciate the beauty of Islam, I sometimes am left in awe and maybe in envy that they appreciate and actually acknowledge what it is to be a Muslim. For me, I sometimes wonder, will those born as Muslims such as I, ever know what it is to be a Muslim, or do we take it for granted & at the same time, not fulfill the responsibilities to entails in calling ourselves a Muslim?

I recall the time when I studied overseas. It is ironic that I felt more of a Muslim or more religious when in a foreign country, or when in a non-Muslim country, whether it is by waking up for the subuh prayer, reading the Qur'an often or giving more donation. Then when I came back home, I find myself somewhat lax. Am I really a Muslim?

I also recall wars & conflicts related to Islam such as the recent Israeli bombimg in Gaza in January, or the Israeli bombing in Lebanon a few years back. It strikes me that voices of Muslims around the world echoed against such injustice, and it helped to bring attention to the bombings, and ended it. But what surprised & dissapointed me is that once the news coverage ended, where were these majority, moderate Muslims? The Palestinians are still suffering but these Muslims it seems were back to their status quo, living their everyday life., maybe feeling good after giving some charity. Is that wrong, or right? What else could 'common' Muslims do, one may argue.

In any case, in the context of being a global community as the world shrinks, & with regards to the complicated misconception of Islam & the West, maybe we should ask ourselves, what it means to be a Muslim?

At the end, I come to this current conclusion.
Firstly, to be a Muslim, I guess we must first correct ourselves, turning the mirror inwards before advising others. Individually, to be a Muslim, I believe is to follow what this religion asks us to do what is good, and leave what is prohibited/bad. I have seen nothing wrong with this religion and therefore, I hope to be a Muslim.

Secondly, such is the reality of this world that Muslims are currently disjointed. Therefore, when it comes to the Muslim brothers & sisters in Palestine, in Somalia and other places where unjust prospers, I like so many other Muslims can only pray. The friday prayer in Brunei today elaborated on the power of prayers in Islam, to even change what may appear to be pre-destined. I pray that we find some happiness in this world, and can meet in jannah or heaven.

Thirdly, I pray that there is a unifying institution or voice in the Muslim world, driven by real, moderate Muslims to make sure all Muslims are kept attuned with what other Muslims are faced. Such is the power of news coverage that only then do Muslims know what is happening on the other side of the world. When the mass media is gone, the global community usually seem to look at other issues. We need to keep on knowing what is happening.
There are perhaps news institutions that do such service, but some may question their neutrality. Perhaps there needs to be a network of Muslim news institution reporting what is happening within their Muslim community, in a weekly or monthly coverage. Only this way, can we ensure that Muslims all over the world are in-the-know, and that we become real Muslims.

Nu'man b. Bashir reported Allah's Messenger (may peace be upon him) as saying: The similitude of believers in regard to mutual love, affection, fellow-feeling is that of one body; when any limb of it aches, the whole body aches, because of sleeplessness and fever.

My thoughts.

I Am Broke

2009-07-06T22:39:00.003+08:00

Below is an edited version of a speech I made at a speaker's club quite some time back. Although it's slightly edited, it still is relevant.

----------
I Am Broke

Have you ever been broke? And I mean really broke? Living from one paycheck to another. Regularly scrutinizing your savings account, worried that your savings will run dry before the next paycheck. I guess since we’re working, it’s ok as we can ask banks to increase our credit card limit or apply for a loan. But what happens when we cannot apply for loans or increase our credit limit anymore? What happens when we’re not working anymore, that is when we retire and we are broke.

Would we want to be dependent on our family and relatives? Do we apply for some form of social assistance from the government? Will we go back to work, if we can work? What will we do?

Ladies and gentlemen, the reality of the modern world that we live in are that retirement plans/pension schemes whether organized by governments or corporations are increasingly pushing the responsibility to the individuals, ourselves to ensure that we ourselves will retire comfortably. Let me share with you 3 things that I feel we need to consider for us to do just that, to retire comfortably.

1. Our Pension Scheme
Our Pensions Scheme: Let me begin with the simplest assumption that you have a TAP or Employee Provident Fund Account in Brunei. A research by the Centre for Strategic and Policy Studies highlights that the current TAP contribution rate of 5% by both Employee and Employer is too low to fund retirement, especially for the lower Income bracket. Based on anecdotes, they also point out that after retirement, most withdrawals do no last more than a few years as they are used to settle loans and renovate houses.

Let’s move to the other notion that we have other retirement funds, money that we save each month for retirement. We should be fine, right? Maybe. Maybe not.
The Centre for Retirement Research in Boston College, USA highlights for most people, they will need 65% to 85% of their pre-retirement income after they retire.
If we earn $2,000 just before retirement, we would ideally like between $1,300-1,700 every month when we retire. If $3,000 is our pre-retirement income, after retirement, it’s around $1,950 to 2,550, and so on.

Going back to the Centre for Retirement Research, their study showed that in the US, about 45% of working-age households are failing to meet that percentage. They will have to change their lifestyle dramatically.

How about us? If we accept that we will need 65%-85% of our pre-retirement income when we retire, have we planned enough?

2. Longevity
With breakthroughs in healthcare, our present generation is expected to live longer than in the past.
According to United Nation statistics on Brunei,
• Year 2000-2005: Life expectancy is 74 (man) & 79 (woman).
• Around 2040: Expected to be 78 (man) & 83 (woman).

The difference between the 2 periods is only 4 years. Is the difference significant? I believe it is. The financial amount you need to save by 55 increases, ranging from $62,400 to $163,200 (Table/Assumptions not shown, unable to upload).

Though these life expectancy figures are estimates, the general trend is that we will generally live longer than previous generations, and we might want to consider that in our retirement plans.

3. Health cost
This brings me to my last point: Health cost. An article in the New England Journal of Medicine, highlights that health cost will increase simply because people get more care, especially with new medical technologies. In other studies, better prescription drugs are mentioned as the main factors. Hence, we live longer. Hence, we need more health care and we pay out more.

An article on Brunei in the Asia Pacific Population Journal states that Brunei has an ageing population. While Bruneians may currently enjoy free medical care from the government, increasing numbers of elderly will put a strain in the financial liabilities for the government’s health care system. Speculatively speaking, it is not impossible that slowly but gradually we will need to bear these medical costs as individuals, whether it is through a medical insurance scheme or otherwise. So have we considered future health expenses or medical insurance schemes?

Fellow members & friends, at the end of the day, when we consider all these 3 points; pension schemes, longevity & health costs, the most important question we should now ask ourselves is, what can we do now?

My best suggestion is, don’t believe me 100%. Talk to a certified financial planner & maybe don’t believe them 100% either. Better yet, learn and pick up financial planning for retirement ourselves. If it’s something very important such as retirement, why leave it to someone else.

I leave you with a quote from Boxer George Foreman who said:
“The question isn't at what age I want to retire, it's at what income.”

Poor financial planning or plain greed?

2009-06-19T22:21:00.002+08:00

A few months ago I attended a workshop related to finance, and the overseas consultant in a light-hearted remark noted how Bruneians (in general) are relatively rich (er) but also make some poor personal financial decisions.

Back then, I took his remarks as a given, thinking that Bruneians, just like any group of people are not all financially knowledge-able. Some will be better financially prepared or plan their finances wisely than others. It all boils down to knowledge really. Or so I thought.

Recently, I have some time to reflect & am beginning to question, maybe greed has some role to play as well. Even if we know financial planning or personal finance, some of us will buy that expensive car (he/she knows is over their monthly budget) or just about any item/service that is not needed. We create in our mind this group of luxuries (which we categorize as 'needs'), and make an attempt to justify it's existence in our everyday lives, not because we need it per se but we want it. Greed?

The consequences are that we become in debt to banks, or worse to informal moneylenders, or our family members. In a worst case scenario, we die with debt hanging over our souls (as Muslims, this is a big thing as my previous blog noted) or at it 'mildest', we lose a bit of our dignity (knowingly or unknowingly) as debt has a way of decreasing our value (primarily because we owe someone or some entity, i.e. we are indebted to them).

So maybe we should not only learn the knowledge or tools of financial planning, but also embrace the discipline of not entertaining our greed and look away at such 'needs'. Maybe and maybe only then, can I respond to that consultant that it is actually only the lack of financial planning knowledge, and not greed that makes some Bruneian or any people for that matter 'poor'.

A Muslim is a brother to another Muslim?

2008-12-29T20:38:00.003+08:00

With the Israeli attacks in Gaza & the Hamas rockets onto Israel, everyone has their 2 cents opinion on who is at fault and can with some justification, condemn one, the other or both.

But without doubt, some of the surprising elements of this issue is that there exists no notable collective Muslim group of countries, be it the Arab League, the OIC or any other collective group which voices their opinion. Is it wrong to think and come to a conclusion that the Muslims in this time and age, an age of Islamic politics, where Muslims are divided by region, countries or sects are all but disjointed, in opinions and actions?

Yet, Islam teaches us otherwise. At least 3 Hadith or Sayings of Prophet Muhammad (Peace be upon Him) which all Muslims should always remember state:

"...A Muslim is the brother of a Muslim, he neither opresses him, nor forsakes him, nor humiliates him. The Piety's here." He said, and while saying so, he pointed towards his chest thrice.

"Any Muslim is a brother of any other Muslim; he should not persecute him or leave him alone in his troubles."

"None among you will be a true believer until he wants for his brother [Muslim] that which he wants for himself."

And here in our tv screens we see the killings of civilians, including children and woman. So where are the Muslim leaders? One cannot fail to wonder, Is this why the common Muslim or those in a less powerful/ influential position who feel the hurt of their Muslim brothers decide to resort to extreme measures & terror? All because the leaders or leaders-to-be fail to take actions or voice a concerted view concerned for some other implication, be it political, economic or social.

To all Muslims, let us pray for some form of peace for those in need and keep in mind the Hadith of the Prophet (pbuh) when seeing evil:

"Whoever of you sees an evil action, let him change it with his hand; and if he is not able to do so, then with his tongue and if he is not able to do so, then with his heart, and that is the weakest of faith."

Quick Post - Heroes & Zeroes of 2008

2008-12-16T17:07:00.002+08:00

Here's an interesting read from CNNMoney on the Heroes & Zeroes of 2008 where finance is concerned. Also highlights some of the more notable people in the US Financial scene.

Ponzi & Pyramid Schemes - Why it's not only the simple schemes that falters?

2008-12-12T23:35:00.003+08:00

The recent US$50 billion fraud scandal by a Hedge fund managed by the former Nasdaq chairman is a near-perfect example why pyramid & ponzi schemes are simple tools to continuously deceive and plot one's and other investors' downfall.

It doesn't take a fund manager such as the former chairman to concoct such pyramid & ponzi schemes as history has shown but the vast amount of $50 billion dollars is a lot of money. Why anyone falls into the trap is easy to understand at times, given the lack of some form of transparency in Hedge funds & its aggressive tactics/strategies/tools, but for that reason alone, it is the need for transparency even in mere simple financial transactions that can make a huge difference.

Investors should know where their money is placed. Huge returns over and above market returns, are generally not sustainable. Knowing what pyramid schemes are in the first place is good idea...Here's a nice, short article from Investopedia on 'What is a Pyramid Scheme'.

Have a good read.

Talking FOREX & Islamic Finance - Personal Thoughts

2008-10-17T21:16:00.002+08:00

Over the past few months, I've been asked by friends, acquaintances & relatives on my thoughts on foreign exchange trading. Due to various reasons, queries on forex has increased and this i s troubling me for the following reasons:

1. Losing sight on the fundamentals:
When investing in anything, be it stocks, currencies or real estate, I always consider the fundamentals behind the asset. For example, the fundamentals behind stocks is the company itself...understanding the company itself, the management team that runs it, carrying out various forms of analysis on the financial statements etc, which generally helps to answer whether the stock of the company is a good buy or otherwise. But when it comes to foreign exchange trading, I sometimes question what is the real fundamentals behind trading in currencies? What is the investor really trading in? Once the fundamentals becomes distinctively vague, volatility increases dramatically due to high speculation.

2. Reliance on technical analysis:
Due to the vague fundamentals within foreign exchange trading, some part of foreign exchange trading relies heavily on technical analysis (as opposed to fundamental analysis). Using some formula or methodology, the hour-to-hour or certain minute-to-minute rise and fall of the market is analyzed and depending on the methodology, it is supposed to tell the investor when to buy or sell. Let me assure you that there is no winning formula or methodology. If someone offers anyone of us a prize-winning formula or so, I become very skeptic. To be honest, if I discovered a winning formula, I wouldn't share it with anyone. If I shared it or sold it, this sharing of formula saturates the market. Any advantage or arbitrage is lost rather quickly.

3. The financial market is a messy place, the forex market even messier:
The financial world is a messy place, decision-wise. Every organization, group & individual has their own formula or methodology...and since everybody makes investment decisions based upon their own methods, the reality is that the market goes up or down for various reasons...sometimes, the reason why it falls maybe clear (e.g. a recession) but there is never a complete answer, especially in what is already a volatile market in the first place.

4. Mixing forex with marketing product/group activities:
I also am guarded against mixing investment strategies, with other side incomes or marketing products. I am aware some people might share or sell their investment methods only if the person he shares it with, will participate in some group activities or marketing venture. I am not saying this is wrong or a pyramid scheme, but some of the activities I hear are too good to be true.
The methods are too vague or the returns are too high to be sustainable, especially in the global downturn that we are all facing nowadays. Sometimes, I ask, where does the person's wealth or income truly come from? Is it from forex? From the marketing or group activity? Other side incomes?

5. Forex akin to gambling:
Due to the speculative nature of foreign exchange trading, an experienced trader and ex-banker whom traded in forex once said, he doesn't trade in forex with his own money and he like an Islamic jurist and scholar that I know, clearly state it is near to gambling. Due to the volatile nature of the market (and I'm adding, the questionable 'fundamentals'), investment in foreign exchange trading (other than changing from one currency to another), is akin to a game of chance. A game of chance is basically gambling & is haram.

6. Don't follow your heart, follow your head:
This brings me to my next point, intentions. Intentions are important in Islam, as Prophet Muhammad (peace be upon him) states that 'Actions are but judged by intentions...'. I have heard numerous times from some finance-conscious individuals that the reason why they are sharing their methods or formulas are because they want to see Brunei be successful and where returns are not high enough in banks, forex trading is the answer. They further preach a good sales pitch, on how we Bruneians buy a car that is too expensive etc, which is somewhat true but I always felt that if any finance-conscious Bruneians intend to help other Bruneians succeed and profit, it's not in forex. It's too volatile and too much similar to gambling.

Why not invest in companies? If we really want to make Brunei more successful and Bruneians richer, venture into our own economy. If we have enough money, can tolerate the risk and have a good business plan/ideas, plan comprehensively and set up our own company. At least, the fundamentals is clear.

However, if one does not have enough financial knowledge (yet), seek mutual funds. There is no such thing as a passive income in forex. It requires active management & there is always potential for big gains and big losses, no matter what method you use.

7. No such thing as a free lunch & financial education:
We all must face the reality that there is no such thing as making a quick buck. There is no easy, sustainable way to earn money fast. There is no such thing as a free lunch or free advice. Making money is hard work and in many case, takes time. I'm not saying that no one has ever made money from forex, as I know some forex investors myself but they have their days, good & bad. All I'm saying is if anyone offers us something that is too good to be true, check it out first. Educate ourselves. Financial education is one of the best form of protection against pyramid schemes, questionable investment methods etc, all of which can make us regret big-time.

8. What we all don't want to end with:
What I would dread to see is Bruneians whom indulge in forex, not knowing the real issues behind forex...what makes the market go up and down...how volatile it truly is...what Islam says on forex...because at the end of the day, I dread see-ing Bruneians and friends lose their hard-earned money in some scheme and try to re-gain money in another questionable scheme, only to find the cycle compounding our losses, creating a bubble that will only burst in a bigger, disasterous way.

I leave this post, with this verse from the Qur'an, with sincere intentions for all, Bruneians or non-Bruneians, Muslims or non-Muslims to not fall for any questionable products or schemes, and be prepared with knowledge, be it financial or otherwise.

From Surah Al-Zumar (The Crowds), verse no. 9:

"Are those equal, those who know and those who do not know. It is those who are endued with understanding that receive admonition"

My thoughts. Apologies on any shortcomings.

Wassalam.

Watching the US Vice Presidential Debate

2008-10-03T10:47:00.002+08:00

I was changing the tv channels this morning when I found myself watching the whole US Vice President Debate between Joe Biden & Sarah Palin. Aside from the interesting personalities that the two candidates projected or tried to project, it was dissappointed (though expected), as in many US political events and speeches that foreign policies are normally lop-sided where the Middle-East is brought into the picture.

I watched as is common in US politics and news that the Israel government's position is given much praise without real balance to the issues in the Middle East. The real essence of problems in the international arena and in the Middle-East in particular, is that one side is nearly always at the unfair side of the stick and without being bias (as I am a Muslim myself), it is always the Muslims in Palestine that gets less 'fairness' not only in actions but also in tv-time or politics-time. The US politics and foreign policies due to one reason or the other always flourishes the Israel government huge and sometimes unproportionate praises or support but really fails to identify or talk about the unjust that the Israel government has done to the Palestine people whether we're talking about the wall built by the Israel government, the heavy-handed attacks in Palestine etc.

It is in my opinion, it does not help either for the Palestine and Muslim cause that some individuals and even Muslims go to the extreme side of the view and project Islam as an extreme religion.

But at times, I wonder if US policy-makers and politicians had sat down with American Muslims in America, let alone other moderate Muslims in other parts of the world and try to understand the view of Muslims as to what the Israel government had and is doing to the Palestinian people. In this case, I guess the mirror reflects both ways. If any Muslim country or organization is serious in playing an international role in the pursuit of really improving Islam's image in the international arena, we should really be sitting down with the average, moderate Jews etc to ascertain their view.

It is truly sad to see that in my opinion, the OIC, the Organization of The Islamic Conferences in the public eye had not taken a strong position or real-public relations interest (in the layman's view) in improving the image of Islam in the international arena. I hope to be wrong and they may be some small to medium action plans carried out by the OIC but it is in the political, international, public-relations, news-grabbing arena that Muslim countries need to cut down the barriers of states, countries, Sunni vs. Shia etc and come to realize that when the Prophet Muhammad (peace be upon him) united all groups of Muslims during the early days of Islam such as the Muhajirin and the Ansars, it was for the sole purpose of improving human beings as a whole...that the Prophet (peace be upon him) was only sent to improve human beings 'akhlak' (moralities). There was no mention of one Muslim state against another, one sub-theological group against the other and this is where all Muslims especially the Muslim leaders need to come back...come back to the Quran and Hadith (Sayings of the Prophet) and learn, let go, improve upon whatever happened after the demise of the Prophet (pbuh).

We, Muslims, if we want to improve our own standard of living in our own country and stand as a true, united Muslim group of nations or 'Ummah' in a more general, international sense of the word must purify ourselves first as individuals. Though I don't pretend to be perfect but this time of the year, after Ramadan is the perfect opportunity to purify our thoughts and subsequently our actions. Then as a country, assist our leaders to accentuate the views of the Qur'an and Hadith as to what Islam truly entails and preaches...no more, no less. Nothing extreme, nothing compromised.

Hopefully, insya Allah (God willing), only after individuals and Muslim nations clean up shop and the OIC as a strong political body help to truly improve and project this real, moderate and practical view of Islam as revealed by the Qur'an and Hadith of the Prophet (pbuh).

Otherwise, it is in my view, that the status quo will remain and may even get worst that in the international arena, where it matters due to its ironic role in firing up Muslims' sentiments and Non-Muslims' misperception that we will, God Forbid, fail to improve our fellow Muslims' situation and continue to project an unbalanced and divided view of Islam.

I sincerely hope I am wrong in some respects in this post such as my argument on the OIC but it is simply my view, a layperson when it comes to 'International Muslim' politics (if there is such a word).
Additionally, it is not that I dislike Israel or the US as a country, but it is only certain policies or government /administration actions that I disagree as it do not help the cause of improving the international political issues that we see today.

I pray and I hope all of us regardless of religion/ belief, nation, race and background hope to improve upon the volatile nature of the world that we live in today. My apologies on the wrongdoings in this post and others.

In the spirit of Eid, I would like to wish 'Selamat Hari Raya' (Eid Mubarak) to all Muslims and to both Muslims and Non-Muslims, 'Maaf Zahir Batin' (forgiveness for any emotional and physical wrongdoings) for my posts.

Wassalam.

Fellow Muslims: When taking a loan, think twice...

2008-09-21T17:12:00.004+08:00

Nowadays, it is common to obtain numerous credit cards (be it 'Islamic' or otherwise), at times, with the banks themselves offering to increase the credit limit without much hassle from us. Then there is the other 'low-interest' or 'no-interest' financial products out in the dual-banking market. One cannot help that in Brunei, the development of these debt-related products has something to do with restrictions on personal loans/financing back in 2005.

When it comes to personal financing (loans), the government in Brunei has restricted the relative ease of attaining loan, but one wonders how low had the level of personal financing fallen overall? It would be interesting and more importantly, learningful (I know there's no such word) to analyze the following:

Has personal financing actually dropped in the past 2 years, post-2005 rulings?
What is the categories of personal borrowers in this case? The middle-class? The high-income group? Or no particular generalization?

I sincerely hope this does not become privileged information, as Brunei aims to enhance its financial knowledge to the masses. In this case, sharing the data available would make Bruneians more finance-conscious.

In the global context of the credit crisis and confidence crisis, a need for Bruneians to enhance their financial planning know-how is a must. We must consider what kind of people we want to be: A consumer society or a producer society? A knowledge-able society or a dependent-society?

Reading the book 'How To Calculate Inheritance: A Simple Approach' by Shakil Ahmad Khan (2004) has me a bit worried on debt management in Brunei. A hadith narrated by Salamah ibn al-Akwa' reads:

Once, while we were sitting in the company of the Prophet (peace be upon him), a dead man was brought. The Prophet was requested to lead the funeral prayer for the deceased. He said, "Is he in debt?" The people replied in the negative. He said, "Has he left any wealth?" They said, "No." So, he led his funeral prayer.

Another dead man was brought and the people said, "O Allah's Messenger! Lead his funeral prayer." The Prophet said, "Is he in debt?" They said, "Yes." He said, "Has he left any wealth?" They said, "Three Dinars." So he led the prayer.

Then a third dead man was brought and the people said (to the Prophet), Please lead his funeral prayer." He said, "Has he left any wealth?" They said, "No." He asked, "Is he in debt?" They said ("Yes! He has to pay) Three Diners." He (refused to pray and) said, "Then pray for your (dead) companion." Abu Qatadah said, "O Allah's Messenger! Lead his funeral prayer, and I will pay his debt." So, he led the prayer. (Sahih al-Bukhari)

Another Hadith narrated by Muhammad ibn Jahsh reads:

One day while we were sitting with the Messenger of Allah (peace be upon him), he raised his head towards the sky, then put his palm on his forehead, then said: "Glory be to Allah, how sternly it has been revealed"! We remained silent and terrified.

On the next day I asked. "O Messenger of Allah what is that stern (message) that has been revealed?" On this he (peace be upon him) said: By Him in whose hand is my soul, even if a man is killed (martryed) in the way of Allah, then revived, then killed again, then revived again - and he is under debt - he will never enter Paradise until his debt is cleared." (Sunan an-Nasa'i)

For me, it makes one think.

Forget about the loans and credit cards that one may hold...what about the debt in bills that one may have that may have build up, i.e. the water and electricity bills. I recall a few months back or so, a news article related to how much Bruneians owe for their usage of utilities. Is this not a form of debt? If we were to die shortly, whom will pay our debt? How? How certain are we? A scary thought.

Wassalam.

Correction on 'Sukuk Ijarah' bit (1 post down)

2008-08-02T19:34:00.004+08:00

After attending a seminar a month ago in UK, I was curious on what had materialized following the AAOIFI guidelines on Sukuk. In my previous post on Sukuk, I was adamant that Taqi Usmani was referring to Sukuk Ijarah. When a speaker (renowned academician in the field) in the seminar talked on Sukuk, I asked him accordingly.

He informed me that the Sukuk informed by Usmani was not Sukuk Ijarah and was one of the Profit & Loss sharing concepts, Sukuk Musharakah.

I stand corrected (though, I am still adamant that Sukuk Ijarah still has issues due to its resemblance to a riba-based transaction). If it smells like riba, looks like riba...isn't the effect of such transaction similar to riba?

If so, what exactly is prohibited? Is it the technical form of riba (such as the 'increase' found on a loan) or the substance/essence of riba (i.e. the unjustified increase where there is one party assured of a profit while the other is not, and the effects that this transaction brings not only to one party or the other, but the socio-economic system as a whole)?

What are the characteristics of a good leader in Islam?

2008-07-24T16:27:00.004+08:00

Reported by Ali r.a, Prophet Muhammad s.a.w. said (in answer to the former’s question about the Prophet’s character assets):

Knowledge is my principal possession

Reason, the root of my religion

Love, my foundation

Longing, my coach

Remembrance of God Almighty, my weapon

Patience, my dress

Contentment, my prize

Poverty, my glory

Abstinence, my calling

Obedience, my measure

Striving (jihad), my character, and

Prayer, my pleasure

Note:
Cited in Ismail Noor (1999). Prophet Muhammad's Leadership: The Paragon of Excellence, Altruistic Management - A Cross-Application To Modern Management and Leadership Practice. Kuala Lumpur: Utusan Publications & Distributors Sdn Bhd.

Sukuk Ijarah & its structural features: How much of it IS 'Shariah' compliant?

2008-04-16T21:41:00.009+08:00

Sometime in November 2007, Shaikh Muhammad Taqi Usmani, the chairman of the Shariah board of the standard-setting body, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) created news headline when he mentioned that in the Gulf, around 85% of Sukuk Ijarah are suspect of being Shariah compliant.

Subsequently, in February/March, AAOIFI released some guidelines with emphasis, among other things, on the need for Sukuk structures to be asset-backed (actual transferral of asset i.e. asset is off the balance sheet) rather than asset-based (mere transfer of cashflow only). However, it is also interesting that one section from the guidelines noted:

Fifth: It is permissible for the lessee in a Sukuk al-Ijarah to agree to purchase the leased assets when the Sukuk are extinguished for their nominal value, as long as the lessee is not also an investment partner, mudarib, or agent.

To repeat the sentence, so the guideline above states it is allowed for the originating party (be it government or corporation issuing the sukuk) whom technically is the lessee to buyback the asset at nominal value as long as this party is not 'an investment partner, mudarib or agent'. In my view, it opens a curious thought onto what is meant by 'investment partner, mudarib or agent' or how these terms are to be defined or interpreted.

If the originator of the Sukuk creates a Special Purpose Vehicle (SPV) to sell the asset in the initial stage, does the originator fall under the definition of 'investment partner'? After all, the SPV is essentially under the realm of the government or corporation that originated the Sukuk. Does the originator not have some form of power or influence in the buyback at nominal vs market value? Even if the lessor is not the SPV but a bank, does the originator have no say in the buyback at nominal vs market value? This is one issue that needs addressing.

Secondly, in my opinion, the bigger picture for Sukuk Ijarah to progress as a Shariah compliant product lies in the need to clearly answer whether the permissibility of buyback at nominal value is in compliance with Shariah as it is so close to riba. To answer this, we must continuously re-learn and clarify within ourselves as to why riba is prohibited. Is it because of the positive, predetermined returns on a loan or is it because of the adverse effects of the loan?

If it is the latter, we have to be very careful with Sukuk Ijarah, with the buyback notion at nominal value. With this nominal value issue, the cash flow of the overall transaction appears similar to riba. If this is the case, would the effects of a riba-based loan exist in a Sukuk Ijarah (structured at nominal value) as well? This, I believe, need some research or deeper analysis.

At present, Islamic finance may be at the limelight with many new markets opening up such as those in the West and other countries whom are attracted to the growth of the Sukuk market. I fear this growth may lead us to be rich and prosperous in this lifetime but are we prepared to be accountable for the hereafter (Only God knows).

The above are my thoughts only. Anyone whom can explain the guideline to me better or correct me if I'm wrong is very much encouraged to give comments.

For readings on a Sukuk structure, there is a good section in 'Islamic Capital Market Products - Developments & Challenges' in an IRTI website.

Wassalam.

Back to Basics - Islamic Management

2008-03-28T22:01:00.003+08:00

It's good to be back, blog-wise. After a relatively hectic & challenging month, I feel it's time to get back to basics.

It's been a while since I polished up on my Islamic management readings. It's been a great source of encouragement & inspiration for me in the past. This week, I've occasionally gone back to one of my favorite Hadith or Sayings from Prophet Muhammad (Peace be upon Him) which have helped me in thick & thin, which is:

Actions are but [judged] by intention and every man shall have but that which he intended. Thus he whose migration was for Allah and His Messenger, his migration was for Allah and his Messenger, and he whose migration was to achieve some world benefit or to take some woman in marriage, his migration was for that for which he migrated.

At times, I feel that sometimes we lack clarifying our intention or asking ourselves whether our intention are sincere & unselfish. In Islam, our actions has to be aligned with the intention of getting 'points', i.e. doing good in line with the Qur'an & Hadith.

The Hadith above is truly powerful if we take the time to appreciate it. If we are sincere in the action, if we believe in the good that the outcome will bring even if the action is unpopular in some quarters, our action will be guided by this powerful intention.

In our jobs, our actions should be driven by our noble intention which should be to improve the organization's profitability and performance, no matter how difficult the action is. For Bruneians, our actions should be for the progress of Brunei no matter where we work, either private or public, this department or that, this team or that...it is the overriding intention that we set ourselves that truly pushes the development of our country, our organization and our own self being.

So the next time, you're unsure of undertaking any action. Take time out to analyze your intentions. If in doubt, leave it.

My thoughts. Till next time.

Islamic Finance in Dilemma: Growing fast vs. "Shariah-Compliance"

2008-01-28T19:47:00.000+08:00

Having read throughout the few weeks on how numerous countries are trying to position themselves as the financial hub for Islamic finance given the impressive growth of the industry at 15-20% per year (asset value), I cannot help but wonder if this is a good thing or will this come back to haunt us one day.

Undoubtedly, the growth of an industry whether in terms of assets or the introduction of new innovative products is encouraging, but there are numerous issues still left unanswered.

For one, there are Shariah issues in Bai Inah & Tawarruq considered controversial in some quarters, and perhaps considered the 'norm' in other countries. While the issues of these methods have been on-going for some time, but in my opinion, feasible alternatives to minimize their controversial aspects has been limited (e.g. the use of the LIBOR). Additionally, in the early decades of contemporary Islamic finance, scholars were said to allow some of these methods as a last resort or simply as a case of darurat (emergency), when no other alternatives are available.

Unfortunately, it appears that the darurat is still ongoing in the sense that these controversial mechanism are still the popular choice in banks. But whose fault is it? Is it the banks' fault which merely use these mechanism to maintain the status quo (no pain, no gain/ no collateral, no loan)? Is it the fault of scholars & jurists who cannot find or for lack of trying cannot find an alternative that is feasible? Is it the Muslim community's fault for mere ignorance, leaving the issue of faith in the hands of the bank without being the slightest bit curious on the Islamicity of the products?

The blaming game does not help. No one actually gains at the end.

What is needed, in my opinion, are 2 crucial actions.

1. A need for a 'masterplan'
Ok, perhaps the term 'masterplan' is a bit majestic but the need for the relevant Muslim jurists to come up with a step-by-step or gradual approach in moving forward towards an Islamic financial & economic system that truly serves the socio-economic goals of Islam is desired, if not critical.

Whether it's the OIC or the Fiqh Academy or any other global Islamic organization, I believe that it is time for Muslim financial & Shariah experts to sit down & come up with a timeline, with the sole purpose of identifying alternatives to Bai Inah, Tawarruq & other major issues.

I appreciate the difficulties of this especially in personal financing but certain steps can be done progressively in corporate or commercial financing (e.g. pilot tests on 'innovative' musharakah/ mudarabah). At this stage, you may ask...what innovative musharakah do I mean? At present, I am also still trying to feel my way through in Islamic finance & trying to seek solutions individually, which brings me to my next point.

2. A need to have an effective Islamic finance thinktank
In my limited time studying Islamic finance, I have not come across an Islamic finance thinktank that is truly active & passionately progressive in seeking the 'solutions' I mentioned above.

One person trying to seek feasible alternatives will not be as effective as a group of thinkers applying synergistic value with the same goal or intention in mind. The value of synergy, insya Allah (God willing) can produce thoughts & ideas quicker & more comprehensive than 1 person in an industry that is developing ever so rapidly.

One way for this thinktank to effectively work is to work with other jurists, scholars, economists & financial experts in conferences/seminars/workshops that are action or solution-oriented focusing on one fundamental issue at a time. Certain contemporary conferences, I feel, are so diverse that it appears that the organizers want to maximize the number of attendees. Though this is not a criticism but it does not help the cause of Islamic finance towards promoting socio-economic equity.

When all is said and done, essentially the concern that I have is that with these controversies still looming (and I'm not just referring to Bai Inah but others as well such as the way Sukuk is applied) & with the so-called growth of Islamic finance in mind, these issues will be entrenched in the roots of Islamic finance. It will trouble Islamic finance from within because it will become the 'status quo'. So entrenched will these controversial practices be within banks that changing them or attempting to convince financiers/jurists/those in authority to modify them will be all the more difficult.

At the end of the day, I sincerely hope we will be saved from being at 'war with God & the Prophet (Peace Be Upon Him)' as highlighted in the fourth set of revelations in the Qur'an on riba (interest):

From the Qur'an, Surah al-Baqarah, verse 275-81:

“Those who devour riba will not stand except as stands one whom the Evil one by his touch has driven to madness. That is because they say: ‘sale is like riba’, but Allah has permitted sale and forbidden riba. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah [to judge]. But those who repeat (the offense) are inhabitants of the Fire: they will abide therein (forever).” (2:275)

“God deprives interest of all blessings but blesses charity. He loves not the ungrateful sinner” (2:276)

“Those who believe, performs good deeds, establish prayer and pay the zakat, their reward is with their Lord; neither should they have any fear, nor shall they grieve.” (2:277)

“O believers, fear God, and give up the interest that remains outstanding if you are believers” (2:278)

“If you do not do so, then be sure of being at war with God and his Messenger. But, if you repent, you can have your principal. Neither should you commit injustice nor should you be subjected to it.” (2:279)

“If the debtor is in difficulty, let him respite until it is easier, but if you forego out of charity, it is better for you if you realize.” (2:280)

“And fear the Day when you shall be returned to the Lord and every soul shall be paid in full what it has earned and no one shall be wronged.” (2:281)

Knowledge Is Sought - It Does Not Just Come

2008-01-13T00:06:00.000+08:00

I would like to share a segment that I came across recently. It's extracted from 'Hamid, AbdulWahid. 1989. Islam: The Natural Way. London: Muslim Education & Literacy Services.'
It reads:

KNOWLEDGE IS SOUGHT - IT DOES NOT JUST COME

In spite of his youth, 'Abdullah ibn Abbaass, a cousin of the Prophet, became one of the most learned companions. He was only thirteen when the Prophet died.

The collection and study of hadith was one of his many specialisations. It is said that he committed to memory about 1,660 sayings of the Prophet which have been authenticated.

Whenever he heard of someone who knew a hadith which he did not know, he would quickly go to him and record it. He would closely scrutinise whatever he heard and check it against other reports. He would go to as many as thirty companions to verify a single matter.

'Abdullah described what he once did on hearing that a companion of the Prophet knew a hadith unknown to him:

"I went to him during the time of the afternoon siesta and spread my cloak in front of his door. The wind blew dust on me (as I sat waiting for him). If I wished, I could have sought his permission to enter and he would certainly have given me permission. But I preferred to wait on him so that he could be completely refreshed.

Coming out of his house and seeing me in that condition he said:
'O cousin of the Prophet! What's the matter with you? If you had sent for me I would have come to you.'

'I am the one who should come to you, for knowledge is sought - it does not just come,' I said. I asked him about the hadith and learnt from him."

Islamic Finance - Thoughts on Stock Screening in Equity Funds

2008-01-08T23:01:00.001+08:00

More often that not, those involved in Islamic finance will admit not all is rosy in Islamic finance...at least not yet. As in all matters of faith be it Islam, Christianity or other major religions, controversies in rulings & practices exist.

Since the resurgence in Islamic finance in the 60s and 70s, Islamic finance has gotten a firm foothold notably in Muslim countries but controversies over certain major practices continue to exist. This includes areas such as Bai Inah and stock market practices, just to name a few. At this juncture, two points come into my mind.

As rightly pointed out by numerous scholars, it's easier to play the blaming game to say that a certain practice in Islamic finance is controversial & point out that it is haram. Simply saying something is haram does not help the cause for Islamic finance. The better way is to evaluate or provide a constructive & practical alternative to improve the practice.
With this in mind, I wonder if there exists a collective, synergistic body that continuously considers approaches that will make those practices less controversial. It is my understanding that throughout the past few decades since the inception of the contemporary Islamic finance that we know of today, scholars noted that the use of controversial practices are transitional in nature. These are not permanent solutions but rather due to dire situations or darurat, they are tolerated.

The point now is to ask ourselves whether we can expedite this transitional period. Again, easier said than done but let's start somewhere. For instance, in the stock screening process used in Islamic stock markets or funds, ratio analysis is one criterion towards evaluating firms for investment. One common ratio is debt ratio, where certain Islamic funds will only invest in firms with a debt ratio of 33% or less.

Would it be beneficial to divide these firms into subcategories or divisions? For simplicity's sake, let's use color-codes & assume debt ratio is the only ratio analyzed; red for firms with a debt ratio of 27-33%, orange for firms with a debt ratio of 21-26% and yellow for firms with a debt ratio of 20% & below. Then allocate more funds for 'yellow' firms, less so for 'orange' firms and even less for 'red' firms. In short, allocation of funds is weighted according to these categories, with preference to firms with minimal debt ratios & other such ratios.

The aim of this approach is to encourage more firms to move towards the 'yellow' category which has the least involvement in interest-based lending. One may argue if firms will actually be motivated to reduce their debt ratio for Islamic fund management. That said, with the growth of Islamic finance at around 15-20% per annum, would it be inconceivable for the funds to grow attractive enough for firms to reduce their debt level & other ratios?

Actually, I believe I have read this approach stated in an article before but I would like to know if it actually had been adopted anywhere. And what are its implication or effect? I would appreciate it if anyone who is aware of this approach to drop me a line.

Wassalam.

There is only one Islam and one Ummah

2007-12-31T00:21:00.001+08:00

I am no Muslim jurist nor a Muslim historian but it does not take a jurist or a historian to try to make sense of what is happening to Muslims in the 21st Century. The political, social and economic issues of key Muslim countries are always in the spotlight in the global media, often misunderstood or easily misinterpreted. Yet as a collective voice for response, there is no real integration by Muslims. In fact, it appears that Muslims are divided by Sunni v. Shia, or by national/ political identity.

Didn't Prophet Muhammad (Peace Be Upon Him) show us the way of improving communal ties when the Prophet (PBUH) improved relations between the Ansar and Muhajirin prior to the Golden Days of Islam?

Now, we find ourselves centuries away from that age and its prosperity, with Muslims divided between Sunnis and Shias. Why? This 'division' did not occur during the time of the Prophet (PBUH). It occurred during or upon the selection of the succession of the Caliphate as to whom would lead the Muslim Ummah at that time. Why have Muslims forgotten the fundamental message that the Prophet (PBUH) preached, whose role was simply to perfect the morals of humankind? No Muslim should be forget this simple yet powerful message.

Yet, here Muslims are divided not only over Sunnis and Sects, but also divided over nationalities and politics. Have we forgotten the message of the Prophet (PBUH) and taken form over substance, pretending to be Muslims or not acting in the true capacity of a Muslim?

I hope this becomes food for thought. Muslims need to go back to the true intention of Islam as a religion or set of beliefs. As the Prophet (PBUH) said, 'Actions are but judged by intentions...'.

Let our actions be guided by our humble intentions and let that intention be the message that the Prophet (PBUH) declared, that is simply to perfect morals in attaining justice and fairness.

Wassalam.

The Brunei Speakers' Club

2007-11-14T21:10:00.000+08:00

Last Tuesday, the Brunei Speakers' Club meeting was quite a memorable one. As always, humor played a good part in learning the bits within the club. The guests were excellent and appeared to enjoy themselves. On top of that, the speeches, both impromptu & prepared ones, was very interesting and creative.

However, there is one part that stands over the rest; the 'farewell speech' from a long-time member who was leaving Brunei. It was something in his speech that made me think. He struck a note when he mentioned how he had observed younger members in the club improve their communication skills, making them highly confident and propelling them towards further personal growth.

And he was right. Gradually, without even noticing it, I had improved my speaking skills and my confidence is somewhat high. Today, I gave a presentation to a professional audience that I could never imagine 2-3 years back. Then another thought appeared; Why are speaking clubs not popular in Brunei?

I notice that there is a general misconception that there are 100+ members in the club while in reality, at present, there are 20+ members. In a previous contest, a reporter looked half-surprised that the number was not as large as he expected. Compared to Singapore where there are around 150 'toastmasters' clubs in that tiny island, Brunei has only 3 clubs. The argument of Singapore having a bigger population is probably valid but in all the 3 Bruneian clubs, the number of members are relatively lower.

Can it be that Bruneians are not really interested in enhancing their speaking skills, or perhaps they are not aware of the existence of these speaking clubs? Whatever the reason may be, I always felt that there is always a need to improve any individual's speaking skills, no matter how fluent the person can speak. Like other skills, it needs to be sharpened. And what better way to do it than in a safe and fun atmosphere.

In my experience in the Club, there are professionals and students who can speak well, and they have joined speaking clubs. There are also others who are slightly weak and more importantly, they wanted to improve. They too have also joined speaking clubs. So it must be a lack of awareness of the clubs or (my new theory), it is because of the 'myth of toastmasters clubs'. If it is the latter, let me attempt to refute these myths here.

1. "Speaking clubs are for fluent speakers only"
False, I've met a mixed bag of individuals who are quite fluent in speaking and those who are less fluent within toastmaster clubs in Brunei. The more important point is they want to improve their speaking skills and they understand that these Clubs can help.

2. "Speaking clubs are for snobs & people with suits"
Hehe...I can't help laughing over this one. When I was younger and long before I joined the club, I thought the same way too. Fearing that these were people in suits who gave outstanding speeches every week, I never joined the club until a few years ago.
Actually, we don't wear suits except in annual dinners or selected contests. Every Tuesday, we come to the club in casual smart attire. But yes, we do try to give good speeches. They may not be outstanding every single time but it's the learning process that counts. Where else can I learn by making mistakes? It is a safe environment.

3. "If I make a mistake or say something wrong, people will laugh at me"
A friend highlighted this to me a few weeks ago. I quickly answered back. "No, we don't laugh at people." Truth is, we have fun as we learn whether because it is a humourous impromptu speech or even in an accidental humour situation, we laugh it off together.
This is hard to explain in writing. One has to experience the meeting to understand this bit.

I hope any reader finds these myths to be false as they come to the meeting. Although I am in the Brunei Speakers' Club, there are 2 other toastmasters clubs in Brunei worthy of mention should any person in Brunei be interested to join or drop by. There is HSBC Brunei Speaker's Group (HSBC Staff only) and the other is in Seria known as the OTTERS TMC (Open to public) who regularly meet at the OGDC building.

For those interested in coming to the Brunei Speakers' Club (open to public), one can come as a guest to find out if it works for you. (Disclaimer: There is actually a guest fee of $5 just in case I implied that it's a free bit). We meet up at SEAMEO Voctech on Tuesdays at 7:15pm. See our website for details & contacts.

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

2007-10-26T17:59:00.000+08:00

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.

The 'Bai' Bithaman Aajil' Concept

2007-10-24T22:34:00.000+08:00

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.

Questions To Ask Bankers

2007-07-01T23:50:00.001+08:00

In my last post, I mentioned that with the new financial products & services introduced by banks in Brunei, it's important to ask some interesting questions to the bankers. Here are some questions that I feel is a-must.

1. Can you explain to me that product once again? How does it work?

Although it's tempting to apply a financial product when a banker tells you the high rate of return and that your principal/capital is protected (i.e. they'll return whatever amount you put in), but getting to know the basics of the product will make you aware of some risks that you may have not considered yet (e.g. other costs, ability to withdraw your money etc).

Even if we have asked 1 or 2 times and we still do not understand the product, ask again. Ignorance is not bliss, where money is concerned. Regret can be very, very costly. If the person looks weary or does not explain well, be persistent. My experience has shown that generally, the person will ask a more experienced staff member to explain further. If not, then maybe your money is better off somewhere else.

2. What are the costs that I must be aware of? Can I get a list of fees or charges relating to this product/service?

I have this pessimisstic feeling that some banks will not reveal to me certain hidden costs and one day, I will get an unpleasant surprise on some new, unexpected costs charged to my account. To avoid this, it's good to ask for a listing of charges. Some banks show these listing in their pamphlets and websites but one cannot be sure if the listing is comprehensive. If in doubt, ask again just to be sure.

In some cases, those listing of charges will show you that banking through other avenues (e.g. internet banking etc) may be less costly than banking through counters. You never know where opportunities to save money exists.

3. Can I get a copy of the product's/service's terms & conditions (or other necessary documents) so I can learn & think about it?

Asking for a copy of the 'Term and Conditions' before making a decision, can help tackle the above 2 questions. The 'Terms and Conditions' papers are those documents that are normally given to us after we apply or subscribe to the product. These documents basically indicate (unfortunately, in some cases, using technical & legal terms) what the banks' and the customers' rights are.

I must admit that reading through these bits are not fun at all because of the technical terms & some documents have lengthy pages, but in some paragraphs, it may be interesting. At the very least, some will show you the total types of costs involved and describe your rights as a customer.

It is my opinion & also through some observations, that there are individuals that take their banking lightly and put their hard-earned money in a financial product that they do not know enough about. But once we get a grip on the costs and the flexibility of the product, we may also identify other opportunities to save some money. At the very least, we'll be avoiding that classic phrase, 'A fool and his money are soon parted'.

ps If anyone has any other 'interesting' questions or tips to ask banks, let me know. Thanks.

Marketing & Advertising in the Brunei financial world

2007-06-30T23:32:00.000+08:00

Noticed how busy banks in Brunei had been with their adverts over the past few months?

Whether it's a new financial product, a prize-giving ceremony or a financial counselling service, it's not surprising that huge amounts of money are spent in the marketing department, considering the growth of the financial sector in Brunei.

Ok, here's a quick quiz. After oil and gas, what is the next sector that is dominant in Brunei? Take a guess from the following list:

Business services
Real estate & ownership of dwelling
Wholesale & retails sector
Construction sector
Finance sector

Well, actually, the above list is the top 5 growing sectors after oil and gas. Noted from the Brunei Economic Statistical Yearbook of the Department of Economic and Planning Department used by the International Monetary Fund, these 5 sectors had an annual nominal GDP growth rate of around 3% (on average) between year 2000 & 2005.

Following those statistics, the table below shows the nominal GDP growth percentage of these sectors over the five years.

While the top 4 has it's own interesting stories, the finance sector is the one that interests me. The many different marketing approaches & adverts that banks in Brunei put up in newspapers etc., in my opinion, are signs that the banks are getting increasingly competitive. Here are my reasons why I believe this is the case.

1. Relatively high Gross National Income (GNI) & Gross Domestic Product (GDP) Stats:
The WorldBank Development Indicators puts Brunei in the 'High Income' category based on 2004 Gross National Income (GNI) statistics. Combine that with the 2006 per capita GDP, estimated at around B$49,000 (See the 2006 Key Indicators) which is roughly at US$30,000, these two stats generally indicate Brunei as a relatively well-off country with Bruneians in general, able to purchase more goods & services than some other countries. That must be good for the economy, right?

2. Regulations on personel lending:
Year 2005 saw the Ministry of Finance's (MOF) intention to curb back on personal loans (to a maximum of 12 times the monthly salary), which is not surprising considering the amount of loans that goes bad which according to the International Monetary Board is somewhat high (See para 3). So if there are fewer personal loans than in the past, how can banks make more money?

3. Investment opportunities on the rise:
The issuance of short-term MOF Sukuk, Brunei Liquidified Natural Gas Sukuk and Baraka Investment Deposits are clear initiatives to get Bruneians to investment in Shariah-complaint funds. Financial counselling and consultancy has also been highlighted in some banks to get Bruneians to consider saving and investing in their banks.

Overall, these three points means that banks in Brunei will have to be more competitive and fight it out to get customers.

What does this mean for the average bank customer? In my opinion, this means that Brunei bank customers must ask some interesting questions to the bankers, not just because it's important to know what happens to our money but more important that we are clear on what the costs and other terms & conditions are. This is critical because once we've put our money in the bank, the costs to withdraw/cancel/change may turn out to be very costly.

So the next time we go to the bank to ask about that new product, let's ask some interesting questions. What have we got to lose?

What is the difference between Islamic finance & Conventional Finance?

2007-06-17T19:15:00.000+08:00

In the past, there are some questions that friends & acquiantances frequently ask me. Aside from the 'So when are you getting married?' question that some people like to ask (which I must say, is an attempt to see me squirm), other questions are somewhat simpler to answer. This includes that question, 'So what's the difference between Islamic finance and non-Islamic/conventional finance?'

Some people may answer by saying, 'In Islamic finance, interest is forbidden'. That is true because without a doubt, interest is forbidden in Islam but with every prohibition in Islam lies a fundamental reason or effect. And one must understand this effect or reason to appreciate the difference between Islamic finance & conventional finance.

My short version in the prohibition of interest is that it's exploitative because it caters for one side to be at a distinct advantage over another. One side will have their money back guaranteed while the other has to sweat and work hard to make sure he can pay back. Is this fair?

(For a detailed macro-outlook on the effects of riba, check out Taqi Usmani's writeup on the prohibition of riba in Pakistan [Note: See p. 42-47).

An interesting scholar, Umar Chapra in, ‘Towards a Just Monetary System’, says that from the Qur’an and the Hadith of Prophet Muhammad, Muslims are given principles to know what is fair and unfair, or what is ‘justified’ and ‘unjustified’, when it comes to one’s earnings. He goes on to say,

“One of the important sources of unjustified earnings is receiving any monetary advantage in a business transaction without giving a just countervalue.”

So my answer to the difference between Islamic finance and conventional finance is that Islamic finance is fair. Islamic finance advocates financial products that provide 'just countervalues'. In other words, Islamic finance aims to get rid of any unjustified or exploitative financial situation, product or service...not just in a loan transaction but in any bits that are unfair or exploitative in the financial world.

The outcome of this simple aim is asset-backed financial products that provide a ‘just countervalue’ for all parties. If you've read Taqi Usmani's book, An Introduction to Islamic Finance, he describes asset-backed financing as financing which creates real assets...which can then be sold for money and consequently, earns a justified profit.

This is very much different from conventional systems that make money out of money (that is 'interest').

In other words, in Islamic finance, there is an asset that creates the profit, not 'Money + Interest = More money' but 'Money + Asset/Real factor of production = More money'.

[Unfortunately, in the past, I've never been able to answer this question in the manner above, whether it's because of the time constraint that we're in (e.g. In the middle of a meeting or tea break) or I couldn't articulate it in the same manner].

After explaining my answer to friends and acquaintances...I normally catch a glimpse in their eyes or their body gesture that says, 'I understand what you're saying but what about the loans that Islamic banks gives out'.

Hmmph. To be honest, the use of Bai Bithaman Aajil (BBA) and Murabaha in Islamic finance especially for loans hasn't helped me in this explanation. This is a controversial concept where perhaps the implementation has been taken lightly in some institutions.

As I've already rambled on here, I will probably probably discuss BBA some other time. However, anyone interested to read up on BBA/Murabaha could read up Justice Taqi Usmani's writeup on the matter (See #6 & 7).

Till next time.

Saving for retirement

2007-06-10T11:17:00.000+08:00

This week, I've been reading on savings in some OECD (Organization for Economic Co-Operation & Development) countries and it seems that savings had generally declined over the years. If people aren't saving as much as they used to, that means spending and/or borrowing has gone up. Everytime I read articles on savings/investing vs. spending/borrowing, I get worried. Have we saved enough for our future including retirement?

I recall reading a book written by Azizi Ali (a finance coach) and how he scared me, by highlighting that if I don't save enough, who's going to support me after retirement. If I have children, do I want to them to financially support me?

Now, that made me think. We, in Brunei are culturally blessed that we take care of our parents and financially support them but I would prefer that in my old age, I'd be financially dependent and let my children enjoy their own finance. And let's not talk about TAP (Brunei's Employee Provident Fund). For now, let's just say that having a TAP account does not guarantee they'll be enough money for retirement.

In Brunei, although no real savings issues had been highlighted, it's evil brother 'Debt' had in the past made news headlines. Year 2005 saw the Ministry of Finance make regulatory changes, restricting personal loans to a maximum of 12 times the monthly salary. Even a Friday sermon that year, highlighted this debt problem, as noted by Brudirect where in that sermon...

"...imams quoted a report saying Bruneians are the largest indebted society in the region and stated that most of the people are in debt to the tune of 60 per cent of the family income."

On the whole, while these 2005 events are helpful to jolt us, I keep thinking, 'Have we saved and invested enough for our retirement, or to leave some inheritance for our children?'

No information on the internet?

2007-06-07T00:47:00.000+08:00

Does anyone realize how difficult it is to find certain information on the internet?

Over the past few months, I've been collecting information for work-related purposes and it's been a hassle because the things I want to know about is difficult to find. I have also come across people who tried to find some of these information online and were unsuccessful (I'm glad I'm not the only one...Yesss! There is a nerd in all of us).

Fortunately, I had bookmarked some of those webpages and I'll share some here. This information I keep mentioning includes bits about finance (written in a simple way), Islamic finance (an aspect of finance that is interesting), Islamic finance in Brunei (that's where I'm from & Brunei is not in the Middle East or Africa) and other random bits & pieces that I feel like knowing about.

So while sharing this information around, please let me know if I missed something out on finance or Islamic finance in Brunei, or mentioned something incorrectly here.