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Renowned Malaysian shariah scholar Datuk Dr Mohd Daud Bakar started a shariah consultancy in 2005, just before the surge in demand for such services. He travelled the world, setting up offices (sometimes too early for a particular market, so he had to close them), meeting people and making contacts.

His company, Amanie Advisors Sdn Bhd, became known and started generating business from all corners of the globe. “We started in Malaysia, then moved on to Dubai. From these two places, we are well positioned to serve clients from all over the world. The Malaysian office takes care of business in the Far East while the Dubai office oversees business in Europe, Central Asia and Africa,” says Mohd Daud.

When he started the Dubai office, its location was important to establish credibility. “We are based in the Dubai International Financial Centre (DIFC), which is good as we are surrounded by all the regulators and large firms. Not many shariah firms are based in the DIFC,” he says.

The full article can be found here: https://www.theedgemarkets.com/article/profile-nothing-ventured-nothing-gained

With its strong religious and spiritual principles, the religion, Islam guides the followers, or the muslims to live a life according to Allah, their one and only God.

There are five basic pillars Islam which a muslim has to follow at any cost.

Some of the pilgrims are not obligatory as all the muslims are not that financially stable. 

Islam teaches its followers to offer the obligatory prayers everyday, to give charity in the name of Allah and to remain steadfast and patient in life problems.

The holy Quran, the most noble book for muslims, bestowed by Allah and to the last prophet (PBUH) Muhammad is a complete guide for a muslim to live a content and a happy life according to the principles of Islam.

In that book, there is a solution to every problem, whether big or small and it also guides on life matters, such as business, banking, charity, neighboring and etc.

In the similar manner, Islamic finance’s root is the principles mentioned in the Holy book of Quran.

But, what actually is Islamic finance and how does it differ from the modern finance and banking?

What is Islamic Finance?

Islamic finance is also known as the shariah compliant finance.

The application is applied physically in finance and banking by using the shariah laws and the finance principles according to the shariah law. 

Just like the conventional or the modern finance systems, Islamic finance also has fund managers, banks, capital, investment firms, markets and insurance companies.

However, the islamic finance industry revolves around the Islamic banking laws and the conventional banking laws. 

There are many modes of Islamic finance and banking.

Some of them are Mudarabah, wadiah, Musharaka and Murabaha.

These terms are similar to profit sharing, loss bearing, safe keeping and joint venture and cost plus respectively. 

There is also another mode, known as the ijara, which also means leasing in conventional banking. 

Islamic finance and banking prohibits usury or riba strictly.

It means that some islamic scholars restrict all types of interest on the loans of cash.

Moreover profit gained from business of alcohol and drug smuggling is also prohibited or restricted in Islam. 

Basic Concept of Islamic Finance & Banking

Balancing spiritual needs & material pursuits

There is a strong belief in muslims that they will be awarded in the hereafter for performing the shariah compliant banking.

The islamic economic principles are to balance the materialistic needs and spiritual needs.

By following the shariah compliant banking, a muslim keeps a balance between his material pursuits and his worshipping acts.

However, a person should not neglect worshipping Allah for establishing a stable shariah compliant business or economy. 

Balancing individual & social needs

The main concept of Islamic finance is to care about the rest of the world too.

It is about balancing your needs and the social needs by the money granted to you by Allah.

A muslim should follow the islamic finance principles just to make sure that he is using the granted resources wisely. 

Basic Principles of Islamic Finance & Banking

Prohibiting interest or riba’

Riba or interest in all kinds of loans or borrowed money is haram or prohibited in Islamic finance.

Implying interest and giving interest both are sins according to the islamic scholars.

In islamic finance and banking, it is a concept that people take interest for making profit and wealth, which is very unjust to the society.

Hence, riba is strictly prohibited.  It also means that the muslims should not apply for loans in conventional banks or should not promote riba-based products. 

Avoiding gharar or uncertainty transactions

Gharar is the term used in islamic finance for ambiguous based transactions.

Islam guides its followers to stay away from the transactions in which you are not sure what to expect.

Gharar can exist in the following conditions:

• When two business parties sign a business treaty or a contract but does not reveal full information.
• When both the business parties do not reveal complete information with each other.

Avoiding gambling

In shariah compliant banking, gambling or wealth gained without effort is strictly prohibited. Islam strictly considers effortless money as haraam.

If a muslim invests a small amount and receives a large handsome amount in return, this is unjust wealth and is strictly prohibited by shariah. One such example is investing in interest-based transactions or products.

Avoiding investment in prohibited industries

Islamic finance does not allow investing in industries which can cause social harm to society, such as investing in an alcohol industry. All the revenue or profit gained from such acts is haram. 

Islamic Products

The two important products of islamic finance are musharakah and mudarabah.

These terms are also known as profit sharing and loss bearing in conventional banking and finance.

It means that the financier has to share the profit as well as the loss with the finance partner or the bank according to the contracts of the business partnership. 

There are other products of islamice finance as well, such as the takaful, ijarah, sukuk, hawala, murabahah, musharakah and wadiah. 

What about Islamic Banking?

Islamic banking is also known as shariah compliant banking or non-interest banking.

The principles of islamic banking are completely based on profit sharing and loss bearing.

Moreover, it also includes the restriction of taking riba or interest on loans.

The investments of islamic banking is completely different from that of conventional banking.

Islamic banking does not allow investing in industries, which are harmful to the society.

Moreover, islamic banking emphasizes on sharing the profit rather than taking the interest. 

Islamic Investment

Islamic investment is also known as shariah compliant investment and revolves around the principles of islamice finance and banking.

Islamic investments are those which can be done with shariah permissibility. The first important thing is the absence of riba or interest in the investment.

The second factor is the absence of unethical concerns in the investments.

It means that in islamic investment, you have to follow the profit sharing and loss bearing strategy rather than taking interest.

Moreover, you should not invest in industries that may pose a threat to the society, such as the alcohol industry or the pork meat industry.

Conclusion

It is important for the muslims to follow islamic finance and banking, which are totally in accordance to the islamic shariah and laws.

However, if a muslim is involved in islamic finance and banking, he should not invest in riba-based transaction through conventional banking.

What do we know about SRI Sukuk?

The SRI Sukuk, or the Sustainable and Responsible Investment Sukuk, is another investing platform which the call for the Sukuk proceed is to be used for the preservation and protection of society.

The SRI Sukuk opens a new era for the Islamic Finance and complements the arising of green bonds and social impact bonds that also promotes the sustainable and responsible investing, globally.

What is the difference of normal sukuk and SRI Sukuk?

The SRI sukuk is very much similar to the normal sukuk, where there’s issuer raise sukuk to get capital while the investor will receive coupon payment.

The only difference is that the issuance of SRI Sukuk is meant for social impact projects such as education, green energy, or health program.

In Malaysia, the Securities Commission (SC) had on August 2014 released its Sustainable Responsible Investment Sukuk Framework to facilitate the financing of sustainable and responsible investment initiatives in order to promote socially responsible financing and investment.

It is part of the SC initiatives to create the conducive ecosystem for the investor and the issuer of the sukuk. Allow me to talk a bit about Sukuk Ihsan.

Sukuk Ihsan by Khazanah Nasional Berhad

Khazanah Nasional Berhad in Malaysia, has on May 2015 launched the first ringgit denominated sustainable and responsible investment sukuk called Sukuk Ihsan to raise funds for its trust school program under Yayasan Amir.

Amanie Advisors is proud to be part of the team, together with CIMB Investment Bank, as the joint Shariah advisor in structuring the Sukuk Ihsan.

The structure is in accordance with the Islamic principle of wakalah bil istithmar with at least 33% of the sukuk proceed is invested in tangible asset.

The Sukuk Ihsan is designed as a pay-for-success structure which is measured by a set of predetermined Key Performance Indicator, or KPI, which are assessed over a 5 years observation time frame.

If the KPIs are fully met at its maturity date, the Sukuk holders agree to forgo or contribute up to 6.22% of the nominal value due under the sukuk as part of the sukuk holders’ social obligation in recognizing the positive social impact generated by the trust school program.

On the other hand, if the KPIs are not or partially not met, the sukuk holders will receive up to the nominal value due under the sukuk as agreed at the issuance.

Another interesting feature of the Sukuk Ihsan is that the sukuk holder has the option to convert their investment in the sukuk into a donation at any point in time during the sukuk tenure.

The SRI Sukuk is indeed a noble yet powerful concept that invites awareness and responsiveness of the corporate sector to participate in the development of the wellness of the society especially in several major areas such as education, environment, health, power energy, and more.

We hope that Sukuk Ihsan will be the opening of more SRI Sukuk, not only in Malaysia, but globally.

Perhaps, soon, there will be a SRI Retail Sukuk where more parties are able to participate in such a noble project.

So if we speak about the Islamic Finance in Kazakhstan and the CIS region we can say that there is a very big demand for the Islamic financial products within the nations in this region.

And particularly, the Kazakhstan is leading in terms of the legislation.

It has developed the full legislation allowing for the Islamic banks, the Takaful companies which wants to make activities in this region and the legislation is developed for issuing Sukuk in Kazakhstan.

And now there is a very big initiative of Astana International Financial Center, which is working very close with the DIFC (Dubai International Financial Center) and it will be the similar platform to develop Islamic finance products and which can be the hub for the region to attract and to develop the Islamic Financial products.

Islamic Finance in Kazakhstan

And now according to the legislation the Kazakhstan has few banks, Islamic banks, and few leasing companies, the Ijarah companies and the Kazakhstan has issued Murabahah Sukuk in 2012 by the Development Bank of Kazakhstan and with coming this two years we are expecting two or three Sukuks to be issued by the Kazakhstani entities.

And the other states like Russia, is also working in this direction, especially the Tatarstan, which is in Russian Federation is one of the leaders in developing Islamic Financial products and legislation. And these works are on the way.

And Azerbaijan, Kyrgyzstan, Tajikistan they all are in the process of developing some legislation. In this regard, Kyrgyzstan has special decree by the president and the working Islamic bank as a model.

So, in general if we speak there is a huge territory that more than 200 million population, which is now going towards developing the legislation for the Islamic financial products.

And these market in coming 5 or 10 years might be very attractive for the Islamic, International Islamic Financial Institutions.

If you are interested to get us to help you with Islamic finance consultancy and Shariah advisory, feel free to contact us. Our team are looking forward to grow your brand with Shariah compliance products and services.

Many are wondering, “Why do we need a Shariah discipline and Shariah scholars to be involved in the whole Islamic banking perspective?”.

This is a very valid question, to be honest.

Shariah is needed to guide the activities of a banking system, from taking deposit as well as from providing the financing and the treasury management between the asset and the liability of a bank.

Shariah is very much required to ensure that each and every action taken by a bank in terms of taking deposit and the contract between the bank and the depositor in various categories of the account, saving, current as well as investment account, as well as how does the bank manage their treasury management in order that they are liquid, they are solvent, they are able to meet the requirement of the liabilities, the deposit and the asset of the bank, according to Shariah principle in terms of currency hedging, in terms of risk mitigation, between the asset and the liability.

Of course, the most important function of a bank – it provides financing to the customer, both the retail as well the corporate sector.

In this case, Shariah would be relevant because Shariah would provide the necessary: number one, valid contracts; number two, an oversight of the banking activities so that the management of the bank, most of them are not well trained in Shariah, so they are looking for the help of the Shariah scholars and the Shariah mind to come in to guide them in order to put the right contract, the right behavior, the right activities, and to ensure that the bank, as it is called Islamic Bank, would be guided by the Shariah, in each and every term, condition, contracts, practices, in normal case as well as in the difficult time, in the restructuring, rescheduling, default, foreclosure.

From the very beginning of the offer letter, marketing, offer letter, all the way to, if you like, the default and the foreclosure of the asset and the mortgage and the pledge and the collateral.

So this is how the Shariah is looked at – it’s very dynamic, is able to provide the right guidance for the: number one, the shareholders and of course the management of the bank for them to be guided, to be supervised, by the relevant Shariah contracts, terms and conditions, so that when they go out to the market, the market will know that each and every product that the Bank is offering has the Shariah flavour, has the Shariah placing, has the Shariah DNA in each and every product being rolled out in the society.

If you are interested to get us to help you with Islamic finance consultancy and Shariah advisory, feel free to contact us. Our team are looking forward to grow your brand with Shariah compliance products and services.