In this world, we have two options, basically.

We could be very much of big picture mentality or we could be very much focused on small, small things; technical aspect of things.

We can be very technical, we can be very literalist, or we can be a bit above the board to see the issues at hand from the overall perspective – if you like, from the 360-degree perspective, helicopter view of any issue that we are faced with.

Some people, they like to be very literalist and very technical and they are very much motivated to examine, to argue and debate on the very technicalities of things; 1+1 should be 2.

This is not wrong, to be honest, but in some cases, we have to be above that kind of mathematics because mathematics does not solve all the problems.

We have to bring the art and the science to the whole discussion.

Big picture mentality in Islamic Finance

So, having a big picture mentality would help a lot Islamic banking and finance; a government issuing a sukuk, for infrastructure financing, for 10 years or 20 years – and of course technically speaking, this infrastructure financing will not be able to generate instant cash flow and profitability to the sukuk investors, so how could we issue sukuk for project financing which is long term financing.

But this is very much technical, but from the bigger and from the wider perspective, this is good for both the issuer, the government issuing sukuk and the investor because the investors are putting their money to help the government to perhaps manage the budget deficit as well as to allow the government to tap into Islamic liquidity in the local market as well as at the international market.

This is the big picture mentality helping both the stakeholders, the government, the sovereign and the Islamic investor coming in to support the project financing because that will help the government to get the money though they might put some cashflow, somewhere, somehow, from different project, to pay back the coupon of the sukuk.

Don’t look into the technicalities and try to be above the board and try to have a big picture mentality to support the Islamic finance agenda, in some of the relevant cases to push the agenda and to make sure that we are having the winning agenda all the time.

A small mind cannot solve all the problems – you have to have a big picture mentality to put the right policies and the right strategic mind to make the Shariah finance the mainstream of Islamic finance for the whole world.

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.

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.

The word Takaful is derived from the Arabic verb ‘kafalah’ which means to take care of one’s need.

It can be defined as the pact between two parties or more who agree to joint guarantee one another in the event of loss or damage that might be inflicted upon anyone of them.

The differences between Takaful and conventional insurance

There are several contradiction between Takaful and insurance.

The fundamental difference between Takaful and conventional insurance is rooted in the type of contract adopted.

In the conventional insurance contract, it is constructed between two parties which are the insured and the insurance company.

The one who is insured will be paying regular instalments to the company to get the compensation guarantee for any calamity or misfortune that might happen.

From the Shariah perspective, the contract is strictly unacceptable.

Takaful is different

Takaful is different from the insurance in the sense that the Takaful operator is not the insurer that insuring the participants.

The participants of the pooling system are mutually insuring one another. In this context, the Takaful operator acts as the administrator of the Takaful fund who is responsible in managing and investing the fund in a Shariah manner.

There are several elements involved in the conventional insurance that are contradicting with the principles used in Takaful operation.

Al-Maysir in conventional insurance

One of the elements is al-maysir, otherwise known as gambling. The policyholders lose the premium paid if they do not claim or the loss does not occur.

The policyholder may be entitled to receive a larger amount than what they deserve as compared to the premium.

In other words, the insurance company promises to pay a certain amount of money, which is the premium, if the risk does not occur while there is no such case in Takaful since the policyholders are deemed to donate a sum of money to help each other in the case anyone of them experience a misfortunate event.

Gharar in conventional insurance

The second element is gharar, which is uncertainty.

It is strictly prohibited in Islam to sell any contract that involves uncertainty, doubt and probability.

The issue in conventional insurance is neither the one who is insured nor the insurer knows when the loss will occur, what will be the amount to bear and whether the loss will ever happen in the first place. Shariah prohibits uncertainty in buying and selling contracts.

Alternatively, not just Muslims but also non-Muslims can also opt for Takaful.

The policyholder fund is purposely structured to aid each other in the event of loss. There is no guarantee from the company to the policyholder.

The policyholders are grouped in a mutual assistance contract where there is no probability or uncertainty factor involved as they donate their contributions to the fund.

In fact, they could receive a surplus from the profit and loss sharing principle.

Unlike the conventional insurance, there will be no risk transfer in Takaful but only risk sharing among the policyholders.

Riba’ in conventional insurance

In conventional insurance, another element which is not permitted according to Shariah is riba’.

It comes into the existence where most of the conventional insurers invest in interest-bearing assets such as the government or company bonds.

Takaful business is an interest-free system which simply means that a Takaful entity must ensure that both its policyholder and shareholder funds must be invested in the Shariah compliant investments that do not have the element of riba’.

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.

Can you see any similarities between human body system and Shariah?

Well, Shariah is an apparatus which integrates all domains of human life, which is comprises the relationship of human being with regards to the vertical and horizontal relationship, just like the different system in the human body integrate to provide a complete human being.

If one system doesn’t work properly, the whole body will also be affected. Allah S.W.T. mentioned in the Al-Qur’an, in Surah Al Baqarah, verse 208:

“يَا أَيُّهَا الَّذِينَ آمَنُوا ادْخُلُوا فِي السِّلْمِ كَافَّةً وَلَا تَتَّبِعُوا خُطُوَاتِ الشَّيْطَانِ ۚ إِنَّهُ لَكُمْ عَدُوٌّ مُبِينٌ“

which means, ‘O Believers, enter wholly into Islam and do not follow in the footsteps of Satan for he is your open enemy.’

Being a part of Islamic finance industry, Shariah compliance is the main topic we continuously discuss on.

Meaning of Shariah Compliance

When we talk about Shariah compliance, we have to understand the very meaning of Shariah.

Shariah is an Islamic law based on the teachings of Qur’an and Sunnah, prescribing both religious and secular duties and sometimes, retributive penalties for law breaking.

The compliance with Shariah by a Muslim individual should cover all spheres of his life. Shariah is always working together with the very essence of humanity; various problems of human communities, throughout the globe are triggered by the individual, familial, social, and international ecosystem imbalance as a result of non-compliance to the Shariah.

These illnesses can be prevented through the implementation of Islamic teachings and principles of fair, realistic, and objective approaches.

As I said earlier, the vertical and horizontal relationship refer to a relationship between a slave to his God and also in relationship which is built among creatures in this world, respectively. Humans, as a vicegerent of Allah on Earth, need to develop the world for and on behalf of Allah, to state the people, to apply the orders, and to avoid the prohibitions of Allah among people, animals and non-living things. Allah S.W.T. demands Muslims to submit all of his being to Allah.

Muslim’s perspective, intellectual activities, behavior and interaction with other people need to be completely subordinated to Islam.

It is forbidden for a Muslim to split up of his life into some compartments for some of them are governed by the Islamic teachings and the others exempt.

Therefore, the compliance with Shariah is a vital element for a Muslim in order to achieve the ultimate goals in life and Hereafter which are Allah’s pleasure and the eternal Jannah.

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.

Shariah standard on gold

How do you sell gold for cash in a Shariah compliant manner?

This is the main point setup in the AAOIFI Shariah Standard on gold which was recently issued and the one that has the widest impact and garnered a lot of attention.

The AAOIFI Shariah Standard stipulates that the exchange for gold and cash needs to be happen on a spot basis in the same contracting session.

What does spot here mean?

AAOIFI determined that the spot exchange needs to be where gold and change is exchanged at the same time and it goes a step further where identification of the gold to be exchanged must exist at that point in time.

This is a departure from the market practices in the global gold market where a spot exchange of gold involving identification of gold happens at T+2 – this is also a departure from the existing AAOIFI Shariah Standard on Currency Exchange where spot usually means T+2 as well.

Why is it crucial for identification of the gold to be manifested at the time of exchange?

The AAOIFI has determined that gold is a unique and special asset and it also is a ribawi item, where very strict rulings need to be put in place and hence the requirement for identification of the gold must happen, taking these special attributes of gold as a real and tangible asset.

Without this strict ruling, it may result in a breach of the ribawi requirements and make it more ineffective for gold to be as part of an alternative asset class in the Islamic Finance space.

So, with these clear rulings as put across by the AAOIFI Shariah Standard, it is hoped that more and more gold-based products can be developed and structured further to allow a more diversified asset class for Islamic investors.

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.

Contract or aqd is Islamic commercial law means to tie or to bind because the contract is binding between the two parties, the offerer and offeree.

Technically, contract is a legal agreement between two or more persons that creates rights and liabilities.

Contracts are the foundation upon which the Islamic finance product rest.

Contract in Islamic Finance

We have got so many types of contracts in Islamic commercial law like uqud ul muamalat, contracts of considerations, such as contract of bay’, contract of salam, contract of istisna’, contract of ijarah, and so forth.

We have got contracts of donation, al uqud ul tawarruq, like contract of loan, contract of gift, contract of waqf, and so forth.

We have also got authentication contracts, or contracts, al uqud ul tawfiqat like contract of rahm, contract of kafalah, contract of guarantee, and so forth.

In Islamic commercial law for a contract to be binding, there has to be an offer and acceptance between the contracting parties.

Offer and acceptance

Offer is an expression of interest expressed by one of the parties inviting the other the other parties to accept his proposal.

An offer has to be, clear, absolute and communicated to the offeree.

Acceptance is an expression of approving the second party’s proposal with regards to the same specifications and details expressed in the offer.

Both offer and acceptance could be made verbally and in writing.

In Islamic commercial law, for a contract to be valid, it has to be made by free consent of both contracting parties, the free consent of the contracting parties is also known as consensus of both parties without any formal compulsion.

If a contract caused by compulsion, by force, by fraud, that contract is considered void in Islamic commercial law.

And also in Islamic commercial law, for a contract to be valid the subject matter of the contract has to be owned by the seller.

Because the Prophet SAW prevent us from selling something which is not in our disposal.

The contracting parties who conclude the contract must have the legal capacity in order to enter into the contract.

The legal capacity also known as ahliyyah.

The legal capacity refers to the physical poverty to the maturity and soundness of mind of contracting parties who are entering into the contract.

In Islamic commercial law, the subject matter of a contract must be halal and legitimate.

If the subject matter will be haram, like pig meat, like dangerous drug, like alcohol, the contract is considered illegal and haram.

And also the subject matter of a contract must be certain and identified in order to avoid the element of uncertainty.

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.

I want to talk about one of the best advisory company in Islamic financial industry.

I want to talk about Amanie Advisory.

I’ve been with this company since 2007, 2008 and from my previous experience since 1988 in this field, during studying, searching, as well as advising many companies, banks, funds, takaful companies, I can really and quite confident to say Amanie one of the best ever I’ve seen in this field, by many aspects.

By searching, by advising, by differentiate between technical searching, advising, development of these Islamic financial tools.

So, after this good period working with such a company, I really happy to be in this company and really, I can say Amanie Advisory participate or one of the best companies, participate in developing Islamic Financial business, not only in these areas, I mean, in GCC areas, but worldwide.

Other companies, although there is many other companies, but I can say Amanie maybe can reach the top of these companies and I really pray to Allah SWT to support them and as well as I pray to give them more energy to be, to help the market, to be the best market worldwide and thank you Amanie and Assalamualaikum WBT.

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.

Islamic mortgage

Home mortgage is a very common terminology describing the way to own and purchase your dream property.

How does it work, conventionally?

You go, simply go to a bank, you don’t have sufficient funds to purchase your dream property, let’s say it’s worth 1 million USD.

You go to the bank, you request a loan facility of 1 million USD, and then once granted from the bank, upon clearance of your credit risk and everything, the Bank will grant you a loan facility of 1 million USD and expect a repayment of that loan facility over a period of time, not just the principal 1 million, but also a certain markup amount which is called interest.

And then, you will use that property to mortgage it to the Bank as a security or as a collateral.

So why is this not permissible under Islamic banking and finance?

It’s mainly because of two main reasons.

One, it’s because the loan facility granted by the conventional bank to you, involves an element of interest. Interest is a very sensitive and a clear prohibition under Islam, which is mentioned in the Quranic verse,

“ وأحل الله البيع وحرم الربا”

Secondly, the loan facility, is not involved in the real economy.

Therefore it does not participate in the real economic risk.

Why is that?

It’s because under conventional loan, the bank is only exposed to the credit risk of the customer.

So let’s say something happens to the customer, he won’t be able to pay the loan, as according to the payment schedule, then the bank will be at loss.

So the bank is only attached to the credit risk of the customer and not to the property itself.

So how does Islamic home mortgage work?

Islamic home mortgage work in various forms.

I will explain to you the 2 most popular way of how you can obtain or how you can purchase and own your dream property under Islamic mortgage facility or product offered by Islamic banking institutions.

Murabahah – Selling and Buying

First, it’s by way of selling and buying.

So, instead of just lending money, similar to the conventional product that I explained to you just now, the Bank acts more like an active trader, so the Bank goes to the seller, and upon the request of the customer, purchases the house, and then immediately after, sells the house to the customer at a mark-up price.

This is a trading activity which is done multiple times and you’ve seen it everywhere in the world and it’s something which is very encouraged in Islam because the main source of wealth in Islam is by way of business – trading business activity.

So, in this structure, in this ”Murabaha” buying and selling structure, the Bank is not just exposed to the credit risk of the customer but the Bank is also exposed to the risk of the asset itself.

So imagine something that happens to the property after the Bank has purchased the property, before selling it back to the customer, then the Bank will be at real risk and real loss.

Ijarah – Leasing contract

Secondly, the option available under Islamic products for Islamic mortgage is by way of a leasing contract or what we commonly term as “Ijarah”.

Ijarah is a literal word under the Arabic language which means lease.

So how does it work?

You go to the bank and request the Bank to purchase the property that you desire and then immediately thereafter, you will lease that property from the Bank.

So now there is a lessor and lessee relationship.

So now, the bank, instead of merely lending money, the Bank acts more actively in the overall transaction.

How?

The bank is being the lessor and customer is being the lessee.

What does it entail?

It entails all the liabilities and responsibilities attached to that property over the leasing period.

So the Bank will be responsible not just to collect the lease payment amount, the bank will also be responsible for the maintenance, for the structural operations of the property until the expiration of the lease tenure.

And then, at the end of the leasing tenure, the Bank will sell that property to the customer at a nominal price, or even the Bank can grant the property to the customer as a gift in which we call as a “hibah” under Islamic contract.

What is ‘murabahah’?

Murabahah is actually derived from the Arabic word of ‘ribh’, which means profit.

Technically, it is a contract of sale in which the seller is obliged to disclose the cost price of the commodity plus the profit margin he makes on the commodity.

It is also known as cost plus financing. Murabahah contract, same like other Islamic finance contract, becomes binding by offer and acceptance between the two parties who shall have the legal capacity to enter into the murabahah contract.

And also, the subject matter must be owned by the seller in order for the murabahah contract to be valid.

As a whole, murabahah has got two main stages in order to be completed.

In the first stage, the client approaches the bank and requesting for a certain type of commodities and making promise to buy the commodity with a profit margin.

In the second stage, the client purchases the commodity acquired by the bank with a profit margin and agrees on a payment plan with the bank.

Actually, the payment mode of murabahah in the modern Islamic banking industry is usually made by installment.

Murabahah is the most popular mode of financing in the modern Islamic banking industry.

It constitute more than 60% of Islamic finance transactions.

It is commonly and mostly used in the consumer financing, such as buying machineries, equipment, cars, properties and raw materials and so forth.

I would like to believe that my book on the Shariah Minds in Islamic Finance is the first ever book written by a scholar, about the way the Shariah scholars have been thinking and putting their thoughts together in dealing with the Islamic financial industry.

With regards to the products, the endorsement, the audit, compliance, oversight and so on and so forth.

The book would be very much original, hands on, as well as based on real experience on the ground.

Shariah Minds on Islamic Finance book

Unlike many other books on Shariah, Shariah compliance, on the Shariah principle and standard, this book is about the actual understanding of the shariah principle on the ground.

Representing and articulating the Shariah code of thinking, or if you like, the Shariah thinking algorithm of any Shariah scholar who has been assigned and tasked to look into Shariah product development and endorsement and compliance and monitoring the whole value chain of the Shariah compliance and requirement.

So the book aims and very much to articulate the very basic thinking process of any Shariah scholar in the industry representing the real layers of thinking processes and how could a Shariah scholar identify the issue, understand the issue as well as giving his own thought of solving that particular issue bringing to the table of discussion, many thoughts jurisprudential thinking process from various books and opinions of the classical Muslim scholars.

So the book is about bringing up the whole articulation and more so the very new way of interpretation and understanding of the modern Shariah scholars on Islamic finance industry.

Of course, the book will not be perfect without giving the challenges; perhaps the misconception about the scholars and about the expectations of the scholars.

So the book tries to balance between the expectations of the scholars and the criticism level which were circulated around the scholars and the book has been very honest to articulate and to put the balance between what is right and what is wrong with regards to the Shariah scholar’s involvement and engagement in the industry.