ISSUE 19, DECEMBER 2019

03
IN-PERSON
Prof. Dr. Ashraf Md. Hashim

08
RESOLUTION
191ST MEETING SHARIAH
ADVISORY COUNCIL OF
BANK NEGARA MALAYSIA
(BNM)

11
ifikr.isra.my

GLOBAL INSIGHT
ISLAMIC FINANCE:
WHAT TO EXPECT IN 2020?
2

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 In-Person 3

Prof. Dr. Ashraf Md. Hashim

Prof. Dr. Ashraf Md. Hashim is the Chief Executive Officer (CEO) of
ISRA International Consulting Sdn. Bhd. (ISRA Consulting). He is
currently Chairman of Shariah Committee of Bursa Malaysia, Panel
of Experts in Muamalat Matters, Jabatan Kemajuan Islam Malaysia
(JAKIM) and Deputy Chairman of Shariah Advisory Council (SAC)
of Bank Negara Malaysia. He is also a member of Shariah Advisory
Council of the Securities Commission (SC) of Malaysia, Shariah
Committee of Association of Islamic Banking Institutions Malaysia
(AIBIM), Shariah Committee of Lembaga Tabung Haji (TH), amongst
many others. The following are excerpts of his interview as the CEO
of ISRA Consulting, his role as a Board Member of TH and his view
on the next major milestone in the development of Islamic finance.
4
As the Chief Executive Officer
1 (CEO) of ISRA International
Consulting Sdn. Bhd.
(ISRA Consulting), can you
briefly share the company's
background and its business
activities?
ISRA Consultancy Sdn. Bhd. was established in 2012.
In recent corporate restucturing, the firm is now called
ISRA International Consulting Sdn. Bhd. It acts as the
consulting arm of ISRA, where the main business
activities include Shariah advisory, training and
translation services.
Within the advisory ambit, ISRA Consulting offers a
broad range of Shariah advisory services to several
sectors such as banking, takaful, capital market, etc.
The advisory services, among others, include product
structuring, Shariah endorsement on products, etc.
ISRA Consulting also offers advisory services on
developing Islamic finance regulatory framework. For
example, ISRA Consulting had successfully developed
the Islamic Banking and Takaful Act for the Republic of
Maldives. We also recently completed a two-year project
on developing Islamic banking regulatory framework with
the National Bank of Tajikistan. Based on this successful
assignment, Islamic banking license was issued in the
Republic of Tajikistan. Presently, ISRA Consulting is
undertaking another regulatory assignment to draft
or establish the regulations of the Islamic Republic of
Afghanistan to facilitate the country’s sovereign sukuk
issuance.
Moving to the training sphere, ISRA Consulting has been
entrusted by the Central Bank of Malaysia to conduct
training designed specifically for Board of Directors of all
Islamic banks, including parent companies of the Islamic
banks. We also design tailor-made training programs for
stakeholders ranging from Islamic banks, takaful, fund
managers, private and public companies, etc. Finally,
in regard to translation services, ISRA Consulting offers
multiple languages translating services which include
Arabic, English, Turkish, French, etc. In a nutshell, ISRA
Consulting is a Shariah consultancy arm that provides
comprehensive solutions for all.
Recently, ISRA Consulting
2 won the Best Consultancy
House. What would you say
is the secret to the company’s
success and what makes it
unique?
We were delighted with the news that ISRA Consulting
had been awarded the Best Consultancy House by
Islamic Finance News (IFN) this year. Since this is based
mainly on votes worldwide; we are extremely thankful to
all the voters who have put their trust in us. Also, a huge
thank you to all the staff of both ISRA Consulting and
ISRA. Without their hard work and efforts, we will not
be where we are today, especially in winning this award.
ISRA Consulting is unique, mainly due to three factors.
First, ISRA Consulting does not have any shareholders
as we are an establishment of ISRA. Therefore,
whatever profits that we make will not be distributed to
shareholders. Instead, it will be deposited into ISRA’s
fund and utilised for the betterment of Islamic banking
and finance industry. Second, is the sizeable experienced
workforce from ISRA. For example, ISRA Consulting
has in-house consultants from ISRA who are experts
in various fields such as Shariah, accountancy, legal,
economics, etc. The pool of experts becomes wider
when we leverage on International Centre of Education
in Islamic Finance (INCEIF). Therefore, whenever we
undertake any projects, we have dedicated in-house
experts who will ensure we meet the objectives of the
projects. Third, is the collaboration with industry experts
whereby in some cases we hire industry practitioners as
our consultants to participate in our projects. All of these
three factors allow us to offer comprehensive services
thereby providing utmost satisfaction to our clients.
 5

How do you see ISRA
3 Consulting evolving in the next
two years?
We plan to go global in the next two years. Even though
we offer limited consultancy services abroad, but with
proper strategy and planning, we would like to provide
a more comprehensive and wide-ranging consultancy
services globally. However, this can be quite challenging
due to the time difference, distance, location, etc. In
this situation, crucial physical meetings can be quite
challenging. To address this issue when going global,
we plan to have our office registered in other parts of the
world with a representative in each location. So wherever
our clients are in the world, we are within reach. This will
be our main focus in the next two years.
government from August till December 2018. I can say
that the four months was an eye-opening experience
for me. The restructuring process was not an easy
task. However, the dedication and commitment of the
management of TH alongside the support of both the
Board members and the government have allowed TH
to find a solution. As all of us are aware, amidst the
challenging issues faced by TH in 2018, the institution
was still able to pay hibah/dividends to depositors in
2018. One of the positive outcomes of this incident is
that TH now has a more transparent business model
and can move forward as one team. I must say that this
whole experience has taught me a lot. For example, in
the past, I mainly advise on Shariah matters, but this
opportunity has given me the exposure to learn and
understand how business decisions and strategies are
made by looking into many perspectives.

We also plan to venture in other areas of Islamic finance
and economics and not only the ones restricted to
regulated entities. For example, this includes the halal
fraternity, non-banking sector that offer financing such
as cooperatives, private companies, etc. With this,
Shariah-compliant services will be offered not only by the
takaful, banking and capital markets but other entities as
well. This is important because when we advise them to
conduct their business in a Shariah compliant manner,
it will be a form of promotion for Islamic finance at large.
As of now, Alhamdulillah, TH is on the right track and I
strongly believe that TH can move to a better position
in coming years. We will strive hard to ensure that TH
remains a respected institution worldwide and its model
will continue to be emulated by many. Finally, moving
forward, we aim for TH to be the best hajj fund institution
worldwide.

We also plan to work hand-in-hand with the digital

economy by offering Shariah-compliant services to
start-up companies that want their products to be
Shariah-compliant. Finally, gold is also an area that we
will be tapping into by studying the various possibilities
of turning gold into wholesale and retail products for
everybody.

You have just hit the one-year

4 mark as a Board Member of
Tabung Haji (TH). What positive
changes have you seen so far

I was appointed to the Tabung Haji (TH) Board in

August 2018 last year. In that same year, TH was facing
several challenging issues. To address these issues,
rigorous restructuring was done with the support of the
6
Finally, as a key personality
5 in Islamic finance, in your
opinion, what is the next major
milestone in the development
of Islamic finance?
The next major milestone for the development of Islamic
finance can be tackled in four different areas. First, is to
address the issue of constraints from legal, accounting,
business and risk perspectives. For example, Islamic
finance has only been around approximately 50 years,
whilst conventional finance has been in the system
for hundreds of years. As a relatively new financial
system, there are a lot more things that we would like to
accomplish in Islamic finance; however, it is limited due
to the constraints highlighted. Therefore, to take Islamic
finance to the next level in the next coming years, we
must find ways to address these constraints.
Second, is to extend the services of Islamic finance
to include other sectors of Islamic economics such as
zakat, waqf, sadaqah, etc. More efforts are needed
to connect the “dotted lines” between all the organs
of Islamic economics. By addressing this, we can
offer better solutions and services to the masses that
are not only restricted to Islamic banking, takaful and
capital market. For example, through regulated Islamic
banking and capital market, many people have been
declined financing due to credit limitations. However,
by connecting all the dots in the Islamic economy as
a whole, non-bankable people will be given financing
opportunity, which helps to eliminate the issue of non-
bankable people in the future.
Third, is to reduce or eliminate products that are primarily
based on makhraj or way-out, and to focus more on
businesses based on the underlying assets intended by
the contracting parties. Finally, and most importantly, we
need to have a clear direction on how to move forward.
Even though value-based intermediation has been
proposed, in my view this is not the light at the end of the
tunnel. Instead, we need to move forward with a proper
blueprint and clarity in mind with serious considerations
on being accountable to both the people and the planet.
I-FIKR
 MIFCMIFC
DATA UPDATES
Data Updates

Global Sukuk Issuance Global Sukuk Outstanding by Domicile

as at end-October 2019 as at end-October 2019
Islamic Funds AuM by Domicile as at Global Islamic Funds AuM by Asset Class
Islamic Funds AuM by Domicile as at Global Islamic Funds AuM by Asset Class
Q1 2018 as at Q1 2018
Q1 2018 as at Q1 2018
140.6 10.8%
140
13.3% 5.2%
Others
5.2%
Mixed 0.4%
119.7 13.3%
118.8Others 5.4% 0.4%
120
3% 5.4%
4.1Real
% Mixed
Assets Alternatives
Others 112.4 Alternatives
3%
USA Real
Qatar
Estate Assets
99.5
USA
Amount (USD Billion)

100 Estate 47.8%

37.5% 7.2%
5.6%
3.8% 37.5% 5.6% 37.9% Malaysia
Malaysia Bond
Indonesia 37.9%
80 3.8%
Luxembourg Bond Money
74.8 Malaysia Money
Luxembourg 66.1 Monkey
Monkey
60 10.9%
11% 10.9%
Commodity
11% Commodity
40 Jersey 8.2%
Jersey
UAE
20

0
2013 2014 2015 2016 2017 2018 end-October
31.4% 2019 21.9%
31.4% 34.6%
Saudi Arabia Year 34.6%
Saudi Arabia
Saudi Arabia Equity
Equity

Global Islamic Funds AuM by Domicile Global Islamic Funds AuM by Asset
Global Sukuk Issuance
Issuance as
as at Q1
Q1 2018 Islamic Funds AuM by
by Domicile as
as at
Globalas at end-October
Sukuk 2019
at 2018 ClassFunds
Islamic as atAuM
end-October 2019
Domicile at
Q1 2018
Q1 2018
USD 32.3
USD 32.3
billion 4.7%
billion 9.6%
Q1 2018 6.2% 9.6%
Mixed 0.6%
Q1
11.2% 2018 Others
Real Others
Assets Alternatives
3.9% USD 119.7 4.2%
USD 99.5 Others USD 119.7 4.2%
Estate
USD 99.5
Indonesia billion Qatar
Qatar
billion billion 33.4%
billion 2013 7.7%
2017 2013 51.6%
51.6% 39.0%
2017 Saudi Arabia 7.6%
7.6%
4.4% Bond Malaysia
Malaysia Money
Indonesia
Indonesia
Luxembourg Market

13.8%
Commodity
7.9%7.9%
14.1% UAE
UAE
Jersey
USD
USD 74.8
74.8
billion
billion
2016
2016 USD
USD 118.8
118.8
billion 19.1%
19.1%
billion
USD 2014 Saudi
Saudi Arabia
Arabia
USD 66.1
66.1 2014
billion
billion
33.0% 27.9%
2015
2015 Equity
Malaysia

Source: MIFC estimates

www.mifc.com Malaysia World's Islamic Finance Marketplace @malaysiaIF MYIF mobile app marketplaceIF MarketplaceIF
8 Resolution

The 191st Meeting of the

Shariah Advisory Council
of Bank Negara Malaysia
(BNM)
The SAC of Bank Negara Malaysia at its 191st meeting on 26 March 2019 ruled
the following:

Rebate (Ibra’) Reduction Mechanism to Partially Recover

the Costs in Cashline Financing Product

SAC RULING
The SAC has resolved that there is no objection in Shariah on the proposal to reduce the rebate (ibra’) on the
unutilised amount for cashline-i facility based on murabahah / tawarruq concept to cover part of the costs incurred
by the financier arising from compliance to the Malaysian Financial Reporting Standards 9: Financial Instruments
(MFRS 9). However, to promote fair market practices, Bank Negara Malaysia as the authority may determine the
appropriate regulatory policy or guideline on the implementation of such mechanism within the Islamic finance
industry in Malaysia to ensure that the interest of all parties are considered.

BACKGROUND

ƒ In general, financial institutions bear certain costs in providing financing facilities to customers. These costs
may increase with the implementation of the MFRS 9 (in replacement of MFRS 139) beginning the financial
year 1 January 2018, in particular the new impairment provision requirements based on a forward-looking
approach. The new impairment provision requirements require financial institutions to estimate expected
credit loss either for the next 12 months or throughout the lifetime of a credit facility, having regard to historical,
current and future micro and macroeconomic developments. This contrasts with MFRS 139, where impairment
provision is only recognised when there is objective evidence of impairment i.e. incurred loss approach.
 9

ƒ In In the context of cashline-i products, MFRS 9 iii. Where the customer does not utilise the
requires financial institutions to establish impairment entire facility amount, the ibra’ rate given
provisions on the entire credit facility including to the customer on the unutilised portion
unutilised balance or undrawn cashline facility. This is reduced to the difference between the
could be costly for Islamic financial institutions (IFIs), ceiling profit rate and the floor profit rate.
given that IFIs are not allowed to charge any fees
over unutilised balance in their current practices. ƒ Below is an illustration of the difference in
current and proposed rebate rates:
ƒ To address this issue, the Association of Islamic
Banking and Financial Institutions Malaysia (AIBIM) Diagram of ibra’ rates
representing the Islamic banking industry has
proposed a rebate (ibra’) reduction mechanism Standard Proposed
Rate Type
practice practice
for unutilised balance of credit facility to partially
recover cost incurred arising from higher impairment Ceiling profit rate 12% 12%
provisions under MFRS 9.
Profit (utilised) 8% 8%
ƒ The details of the proposal are as follows; (Ibra’ = 4%) (Ibra’ = 4%)
Profit (unutilised
i. AIBIM proposes to introduce another type
balance) – For 0% 1%
of profit rate namely the floor profit rate that (Ibra’ = 12%) (Ibra’ = 11%)
illustration, floor
is charged on unutilised facility amount. As
profit rate 1%.
an addition to existing profit rates applied in
current cashline-i products (i.e. ceiling profit
rate and effective profit rate).
Shariah Issue
ii. Where a customer utilises the entire facility
amount, the ibra’ rate given to the customer ƒ Is the proposed ibra’ reducing mechanism
is the difference between the ceiling profit rate for unutilised portion of cashline-i deemed as
and the effective profit rate. Shariah compliant?

BASIS OF RULING

ƒ The proposed ibra’ reduction mechanism has no Shariah concern. This is based on the opinion of some
school of thoughts that allows the concept of ibra’ muqayyad and ibra’ mu`allaq to be applied in muamalat
transactions.

ƒ Ibra’ is one of the form of rebate where contracting parties can waive his/her rights to the other party who
has an obligation to pay a certain amount contracted. Hence, in principle, the ibra’ can be given in any form
based on the willingness and discretion of the entitled party (i.e. the financier).

ƒ MFRS 9 requirements, in which additional provisions are made for the remaining unutilised amount can cause
additional cost to be incurred, that may entail a negative impact to the growth of IFIs.

This ruling is effective immediately upon the decision made by the SAC on 26 March 2019. The For complete
implementation will be based on the policies and guidelines issued by BNM in the future or approval information
given by BNM on a case-by-case basis through product application.

An IFI shall comply with this ruling pursuant to section 28(1) of the Islamic Financial Services Act 2013
or section 33D(1) of the Development Financial Insitutition Act 2002, as the case may be.
10

FATWAS CORNER

ƒ Using Istisna` to Invest Funds and Ways and Means to Utilize this Contract

ƒ Project Financing Based on Istisna` with Pledging of Conventional Bond

ƒ Financing Product for House under Construction Based on Istisna` Muwazi, Ijarah Mawsufah fi al-
Zimmah and Ijarah Muntahia bi al-Tamlik

ƒ Resolution No. 65/3/7: “Aqd Istisna’a” (Manufacture Contracts)

ƒ The Istisna` (Manufacturing) Contract and the Magnitude of its Importance in Contemporary Islamic
Investments

IF EXCERPTS

ƒ Asset-Backed and Asset-Based Sukuk | IRP 8/2010

ƒ Combined Law Of Choice Clause In Islamic Financial Contracts | IRP 33/2012

ƒ Results and Discussion: Analytical Comparison - Musharakah Mutanaqisah | IRP 40/2012

ƒ Discussion and Recommendations [Trend of Islamic Finance Legal Suits in Malaysia] | IRP 48/2012

ƒ The Concept of Investment in Islamic Jurisprudence | IRP 51/2013

ƒ Issues in the Implementation of Mudarabah and Musharakah Contracts | IRP 56/2013

ISRA 2020 FLAGSHIP EVENTS

ƒ 14th Muzakarah Cendekiawan Syariah Nusantara ( Muzakarah-14) | 1st - 2nd July 2020

ƒ 3rd Islamic Fintech Dialogue 2020 (IFD2020) | 11th - 12th August 2020*

ƒ 15th International Shariah Scholars Forum (ISSF2020) | 21st - 22nd October 2020

* Tentative date

Check Out More Features on I-FIKR:

ƒ Fatwas ƒ Excerpts ƒ Bibliography

ƒ Columns ƒ News ƒ Compendium

ƒ Videos ƒ Experts ƒ E-Publications

 GLOBAL INSIGHT 11

ISLAMIC FINANCE:
WHAT TO EXPECT IN 2020?
As we move into 2020, it is timely for us to assess the performance of both global and domestic Islamic
finance industry, and to understand further what are the potential accelerators needed to move forward
successfully.

According to S&P Global Ratings, the global Islamic finance industry is expected to expand in 2019-2020
at a lacklustre pace of approximately 5%. This shows a slight improvement as compared to the minimum
increment of only about 2% in 2018-2019. In the case of Malaysia, according to the Malaysia-based rating
agency, RAM Rating Services Bhd., the financing growth of the domestic Islamic banking sector for 2019
is around 10-11%, which is about the same as the rate of growth in 2018. Although the Malaysian Islamic
banking sector is maintaining a stable outlook for this year, unfortunately, it may take longer to achieve Bank
Negara Malaysia’s (BNM) 40% target for Islamic financing as a proportion of the overall system’s loans by
2020.

To further gauge the performance of Islamic finance industry in 2020, ISRA IFIKR Digest has invited several
distinguished Islamic finance players representing their respective government, regulator, Shariah, fintech,
economics, legal, practitioner, audit and rating agency fraternity to share their insightful views.
12

In 2020, the opportunities for Islamic finance in Malaysia lies in three main sectors,
namely halal trade, financial technology (fintech) and sustainable finance. Halal
trade brings in a lot of opportunities, especially when it is estimated that the world
trade will reach USD3 trillion by 2023 driven by Muslim spending across various
sectors. Through this, there is a huge opportunity for halal related financing to
meet global demand. With fintech, it creates an opportunity for Islamic finance
to grow beyond boundaries by tapping into the millennial segment. As for
sustainable financing, there is a global demand for impact investment which can
reach as high as USD26 trillion. Malaysia is also not spared by this momentum
YB Dato’ Wira Haji as the country puts on a greater emphasis on value-based intermediation (VBI)
Amiruddin Bin Haji where financing and investment is not only about dollars and cents but achieving
Hamzah the maqasid. Finally, the government blueprint known as the Shared Prosperity
Vision 2030 has also highlighted Islamic finance as one of the main key economic
Deputy Finance Minister
of Malaysia growth to achieve a decent standard of living for all Malaysians.

Shariah-compliant financial solutions offered by Islamic banks in Malaysia

continue to grow and play a key role in meeting the diverse needs of the economy
in 2019. Its growth is evidenced by 34.7% share of total financing, compared to
31.9% a year ago and merely 5.3% in the year 2000. This indicates significant
product advancement that has led to more competitive and innovative offerings
that complement and also compete with its conventional counterparts.

As the barometer of progress goes beyond headline numbers, Islamic banks

are now making strides in delivering positive and sustainable impact on the
community, economy and environment. Through VBI, the intent of Shariah to
promote good and prevent harm is reinforced. This natural progression gives a
head start for Islamic banks to spearhead better alignment of finance to support
the UN SDGs. VBI financial solutions which are more inclusive for lower-income
households, women entrepreneurs and SMEs, as well as “green” solutions,
are gaining traction. In 2020, the Bank will further intensify VBI implementation Mr. Adnan Zaylani
and alignment of Islamic financial institutions to SDGs and Shared Prosperity Mohamad Zahid
Vision 2030. With this, it is expected for the range of Islamic financial solutions Assistant Governor of
to expand further to support social and economic development. Bank Negara Malaysia
 13

Globally, ICM, particularly the sukuk market, has registered double-digit

annualised growth with numerous innovations entering the market. Some of
these innovations are evident within the sphere of ICM, with the outlook for ICM
continuing to be optimistic as the industry embarks on more innovative products
and services in tandem with growing trends such as fintech and sustainable
investments. ICM has long adhered to the values of societal accountability,
shared benefits, and sustainable development. We expect these to continue
drive growth in the years to come. The natural fit between Islamic finance and
sustainable finance, in light of its fundamental principles of risk sharing and
Ms. Sharifatul Hanizah sustainability, can prove critical in financing investments to address the SDGs.
Said Ali SC Malaysia will continue to lead initiatives to establish Malaysia as a regional

Executive Director of
Islamic Capital Market
Development, Securities
Commission Malaysia (SC)
leader for SRI through the launch of the SRI Roadmap for the Malaysian Capital
Market, which serves to guide domestic and regional efforts to accelerate
the growth of the SRI segment. The five-year SRI Roadmap has identified 20
strategic recommendations to drive the development of a robust SRI ecosystem
and position Malaysia as SRI centre in the region. These include, among others,
widening the range of SRI instruments, instilling strong internal governance
culture, and designing an information architecture in the SRI ecosystem.

Islamic banks in its early phase were mostly concerned with formalising their
transactions following the rules of Shariah with not much consideration for the
nature of business financed. Islamic banks followed the minimum requirements
in avoiding the financing of prohibited business activities. As Islamic banks
became more established, and as their products mature, they began improving
their financing requirements. This marks a good time for Islamic banks to
internalise SDGs as well as ESG standards. There is another reason for the new
direction: Islamic banks have reached a point that they may no longer be able
to compete with conventional banks in terms of size. They have to elevate their
competitiveness through quality attributes. As clients become more educated
and aware of the similarities and differences between Islamic and conventional
banks, they will demand products and services that are sufficiently differentiated
from their conventional counterparts. A critical dimension for differentiation is the Dr. Sami Al-Suwailem
ethical and developmental dimensions. The time is ripe for the Islamic financial Acting Director-General
industry at large to embrace SDGs and similar objectives. Such opportunities do of the Islamic Research
Training and Institute (IRTI),
not come too frequently; those who successfully seize the moment will have a
Islamic Development Bank
better chance to thrive in the coming decades. (IsDB)
14

The year 2020 will present its own set of challenges, especially with rising local
and global uncertainties. However, it may not be as bad as how some foresee
it to be, primarily because of our country’s economic resilience. Amidst the
economic uncertainties, I see 2020 as a year to challenge ourselves to achieve
beyond what we set out to do. Sustainability is surely an essential criterion in
2020. With the recent development of VBI and sustainability agenda, there is
a positive shift in the activities embarked upon by Islamic banks. At Maybank
Islamic, some of our initiatives include setting up a global humanitarian fund
based on the concept of waqf. We are also looking to have an impactful
Mr. Zainal Abidin collaboration with local- and international-renowned humanitarians, including
Bin Jamal humanitarian-based institutions, as part of the bank’s sustainability objectives.
Other humanitarian-based programmes organised by Maybank Islamic among
Chairman of Maybank
Islamic Berhad others include the Regional Ramadhan Relief programme benefitting more than
75,000 beneficiaries this year and joint collaboration with other Islamic banks
to build boats for fishermen. Finally, as we move into 2020, we should remind
ourselves that profit should not be the ultimate goal of Islamic banks, and focus
should continue to be directed towards empowering and serving the society.

Islamic banking will continue to grow in 2020 – faster than conventional banking
as it has done for some time. It is likely that growth will not be driven by asset
only but also liability growth that in turn necessitates the asset base to be Shariah
compliant. This is the right type of growth and will be driven by market demand
since all else being equal, Shariah compliance is preferred. That is also true for
sustainable banking or value-based banking, i.e. what VBI is based upon. All
else being equal, sustainable banking is preferred. For both Shariah-compliant
and sustainable banking growth trends, they are supported by a growing base
of Shariah-compliant only, and sustainable only demand. With Islamic banks
leading on VBI, they are well-positioned to capitalise on the sustainable banking
trend that looks to refocus banks from financial achievement alone to also include
delivering value “within the communities we serve and the environment we live
in”. More needs to be done by the VBI CoP to progress this “Triple Bottom Line”
banking. The CoP’s efforts will be well supported by the BNM- and SC-chaired
JC3. The climate change action taken there will support the environment thread Mr. Arsalaan Ahmed
of VBI. As VBI and JC3 enable change, it should lead to a shift in decision-
Chief Executive Officer
making in Islamic banks. These will likely be incremental changes but with an (CEO) of HSBC Amanah
enabling environment for a step change in bold institutions. Malaysia Bhd.
 15

Dr. Rifki Ismal
Deputy Director of Bank
Indonesia and Member of
National Sharia Board (DSN)
This year’s global economic imbalances will continue into next year. Political
and economic turbulences need to be anticipated by all countries, starting from
the unresolved trade agreement between China and the US, deadlock in UK
discussion on Brexit, Hong Kong crisis and conflicts in the Middle East. For open
economies, these unfavourable conditions will strongly impact the domestic
economy and without exception, the Islamic finance industry. It is a fact that the
growth of Islamic finance markets has slowed down in the last couple of years
due to the economic downturn in some of the leading Islamic finance countries
(mostly in the Middle East). To be prudent and resilient from this condition, Islamic
finance should: (i) base its operations on the real sector and avoid “playing”
solely in the financial markets; (ii) foster domestic halal industry with high local
content and domestic-oriented products; (iii) strengthen the Islamic social sector
as a buffer for the poor and needy. On another note, Islamic economics should
not be exclusive to Islamic banks and the Islamic capital market (such as sukuk),
but its scope should be expanded to include halal industry, Islamic education
and Islamic social sector. This can potentially lessen its susceptibility to global
economic conditions.

Many researches have predicted the world economic growth to be, at best,
moderate in 2020. In fact, some countries may experience a further slowdown
in their economic growth. The ongoing trade dispute between the US and China
may continue to stymie global markets. I believe, as part and parcel of this global
economic circle, Islamic finance will also be affected. To take the edge off this
situation, perhaps Islamic finance should take more courageous steps (which in
fact, have been initiated) towards other growth sectors such as halal industry,
trade finance, especially among Muslim countries, the use of fintech and digital
economy and sustainable and renewable energy. Since Islamic finance is still
relatively new in these areas, there are lots of potentials yet to be explored.
Islamic finance should also go back to its “core” mandate, to finance real
economic activities; one of the main sectors is SME, which continue to show Dr. Aznan Hasan
remarkable growth and contribute to the economic growth of many countries.
By doing these (besides other things, of course), I believe Islamic finance will Internationally Renowned
Shariah Scholar
have a better prospect of growth next year and years to come, Insya Allah.
16

Three key ingredients should be in place to accelerate growth to realise Malaysia’s

Ms. Azleena Idris
Director, Corporate Services
Division of Payments
Network Malaysia Sdn. Bhd.
potential to lead the fintech space. Firstly, alignment and coordination among the
public. With clarity on the legal, regulatory and tax treatment, coupled with well-
designed funding mechanics across the Islamic fintech’s growth cycle, complete
with the ecosystem of investors, more time and resources can be focused
at delivering value to the public via Islamic fintech. Secondly, a collaborative
framework between the public and private sector. This is because as lines blur
due to business models “platformisation”, a broader national philosophy for
innovation linked to policies for nurturing the sharing economy can be considered.
Millennials prefer sharing economy. For some millennials, they have no other
alternatives given the prevailing job market. Millennials account for one third of
the country’s population. Basic needs, including medical, access to financing,
etc. can be proactively designed to ensure those involved in this new sector
enjoy sustainable livelihood. Thirdly, creating Islamic fintech connectivity among
countries. This is because not only business borders are blurred, technology
disruption today crosses borders seamlessly. The ability to connect with other
countries will benefit consumers due to cross-fertilisation effects. It can be a
double-edged sword. Consequential issues like data security, privacy, how they
should be ethically shared, etc. will need to be tackled for this to happen.

We expect our Islamic banking and takaful industry to report greater

integration of sustainability practices in alignment with the VBI framework in
their operations. More domestic Islamic banks could tap external funding via
issuances of sustainable sukuk to match and grow their green financing assets.
Islamic banks could also foster growth through increased funding of SMEs, in
particular, those involved in the halal economy. There are a number of countries,
including non-Muslim majority countries, seeking to introduce legal reform to
enable Islamic finance in their jurisdictions. Unlike the pioneer countries, these
new jurisdictions now take into consideration the advantages of fintech and
digitalization, integration with the wider Islamic economy and the halal industry,
and sustainable finance and investments, to shape their Islamic finance industry
and financial inclusion. Banks in Malaysia and globally will continue to keep
up with some of the global trends in fintech, with developments in payments,
compliance and lending. More collaboration between fintech players and banks
is to be expected, particularly in areas such as know-your-customer (KYC)
processes, anti-money laundering and digital identity management, including Dr. Aida Othman
facial and voice recognition. Regulations are needed, and currently being put in
Director, ZICO Shariah
place, to bring digital assets within the remit of securities laws to promote fair and Partner, Messrs. Zaid
and orderly trading and ensure investor protection. Ibrahim & Co.
 17

Mr. Jalalullail Othman
Senior Partner, Shook Lin &
Bok
The sustainability agenda will feature prominently in both the global and
domestic IF landscape. The major pillars of the Sustainability Agenda go to the
very heart of the sacrosanct principles of Shariah. I see a movement gaining
momentum where IF will be seen as the natural and necessary choice to push
the sustainability agenda into a higher gear. The Shariah morality and equitable
edge will appeal to the crusaders of the sustainability movement. Responsible
financing which ventures beyond the preservation of the environment will
increasingly find a comfortable home in IF. The embedded Shariah governance
principles will ensure that the trigonometry of People, Planet and Profits is
kept in an equitable equation. Society will continue to pin their hopes on IF
to ensure that People are treated fairly, the Planet is preserved and Profits are
not generated exorbitantly at the expense of the People and the Planet. I hope
to see IF reaching out more to the financially marginalised segment of society,
and the catalyst for this may very well be the sustainability platform and the UN
SDGs Goals. Fintech will continue to do what it does best – to disrupt and to
create chaos. And in the realm of IF, they will cause more of an evolution than a
revolution, i.e. not only to do the same things faster but to do old things in new
ways. I foresee some challenges and tension points between fintech which lights
up the sky and Shariah, which acts as the lightning rods.

The IMF forecasts the global GDP growth in 2020 to be 3.5%, which signals a
return to growth for industries, including Islamic finance. However, this may be
disrupted by a number of geopolitical risks around the World and in particular,
in the oil-exporting region in the Middle East, which makes up almost 50% of
the industry. Novel innovations are expected to emerge in the social sectors
(housing, healthcare and education). Market institutions can leverage the fast-
paced development of the technology ecosystem and design products that will
create new asset class markets such as budget housing and SME financing in
healthcare and education. Renewable energy markets in Asia, and the Middle
East are larger assets class markets, providing broad scope to diversify risk for Dr. Hatim El-Tahir
IIFSs. This is the key to fulfilling the noble aspiration of maqasid al-Shariah and UN
Director, Audit & Assurance
SDGs through the creation of jobs and the development of local communities. of Deloitte & Touche -
Middle East
18

Ms. Ruslena Ramli
Head of Islamic Finance
RAM Rating Services
Berhad
The year 2020 is anticipated to be another exciting year for Malaysia’s Islamic
finance industry. Initiatives to be revealed in the Islamic Economic Blueprint
(as per Budget 2020) is envisaged to support Malaysia’s ambitions to become
a Center of Excellence (CoE) in Islamic finance. According to the Islamic
Economist, it is no longer about the overall growth and size of the sector. The
strength of a country’s ecosystem in facilitating Islamic finance activities to
create sustainable future businesses will be the catalyst in positioning itself as a
potential CoE leader. To date, fintech has enabled Islamic banking in Malaysia to
reach a broader spectrum of customers that had previously been elusive (due to
logistics), improve efficiency, reduce costs and offer a greater range of products
and services. In 2018, BNM conducted a nationwide Financial Capability and
Inclusion Demand Side survey (FCI 2018) to assess the financial capability and
literacy levels of Malaysians. The survey observed a marked improvement in
the take-up of financial products and greater utilisation of digital channels. Even
though there was no delineation between Islamic and conventional products, the
overall growth of Islamic banking assets suggested a preference for the former.

In 2020, the focus of the Islamic financial landscape should be in three main
areas, namely VBI, Islamic social finance and fintech. VBI can push Islamic finance
to match its business models with sustainability concerns and social impacts.
More focus should be given to Islamic social finance, especially waqf and zakat.
For example, effective ways on how they can be linked/enhanced through IFIs
participation or using Islamic finance/Islamic capital market instruments should
be discovered further. The potentials of Islamic fintech should be explored to
push further the development of Islamic finance and widen its outreach. The year
2020 should also present new growth areas such as waqf and social impact
investments combined with fintech, more issuances of SRI, green sukuk and
other socially impactful investment structures, and non-bank institutions offering
Islamic finance solutions such as micro-credit, crowdfunding, impact investing,
etc. using waqf, zakat or other sources of funds. In addition, there were a lot of
hypes about waqf banks. However, until now, there is yet a real-life scale and Prof. Dr. Engku
proven model. This is also an area that should be further discovered in 2020. Rabiah Adawiah
Finally, the takaful sector should be further explored to maximise its full potential.
Engku Ali
Perhaps by innovating a more pragmatic business or operational model or Internationally Renowned
framework. Shariah Scholar
 IF for Dummies 19

I-FIKR DIGEST, through its Islamic Finance for Dummies

would like to highlight the different concepts of shirkat
(partnership) ......... ENJOY!

SHIRKAT AL-AQD (CONTRACTUAL PARTNERSHIP)

Technically: A partnership that comes into being as a result of agreement between the partners, through an offer and an
acceptance; for example, when a [prospective] partner offers another to share wealth or right of disposal and the second
party accepts. Contractual partnership includes all types of partnership based on a contract between the partners, such
as cooperative partnership, capital-labour partnership, and partnership of eminence or credit partnership.

SHIRKAT AL-INAN (COOPERATIVE PARTNERSHIP)

Literally: : ‘Inan is derived from ‘unun and mu’anah which mean appearance and exposure. It is so named because a
partner involves himself with the other partner’s property and shares it with him.

Technically: A contract between two or more persons to become partners in the capital each has contributed, with the
understanding that they will together with it and share the profit at determined rates. All Muslim jurists are unanimous
about its validity, even if they disagreed about its conditions. The Hanafis stipulate that the capital be on hand, not a
debt, and that there be perfect equality in the right to its disposal. Some Malikis stipulate four conditions: 1) the capital
contributed must be of the same genus and attributes; 2) the capital must be mixed; 3) each gives permission of disposal
to the other; 4) they must agree to distribute both loss and profit in proportion to the shares of capital contribution. Shafi’i
jurists stipulated the first two of these conditions, while the Hanbalis stipulated that the assets must be present and their
quantities known. The jurists also disagreed whether it is permitted for the capital to be goods instead of cash; they also
disagreed whether the profit shares must be equal.

SHIRKAT AL-WUJUH (CREDIT PARTNERSHIP)

Literally: : A partnership of faces (reputations).

Technically: An agreement by two or more people of good reputation but no capital to buy things on credit and sell them
for cash and to split the profit. According to the Hanafis and Hanbalis, a credit partnership is valid with conditions, while
Malikis and Shafi’is classified it as a void contract, based on the argument that the basis of partnership is the availability
of capital or labour, while a credit partnership is lacking both. Sharikat al-wujuh is also known as sharikat al-dhimam
(liabilities), sharikat al-mafalis (the penniless) and sharikat al-wijahah (reputation).

SHIRKAT IKHTIYARIYYAH (VOLUNTARY PARTNERSHIP)

Literally: : It is a partnership that becomes effective by the voluntary will of the parties, even without a contract, such as
joint purchase of a car or participation by two persons in the cultivation of barren land, thus becoming its joint owners.

SHIRKAT JABRIYYAH (INVOLUNTARY PARTNERSHIP)

Literally: A partnership which becomes effective without any action from the partners, such as inheritance or when
fungible things or things that are difficult to distinguish from one another become mixed without the choice of the owners.
If the mixing occurs due to an act by one of the owners without permission from the others, the one who caused the mixing
becomes the owner of the aggregate mix, and he becomes liable for compensating the other owners with comparable
wealth due to his transgression. Some jurists ruled that such a person cannot assume ownership until he compensates
his partners. Other jurists ruled that he has no right of possession because this is a coercive form of ownership transfer;
thus, all the property remains jointly owned. Some jurists divided involuntary partnership into sharikat jabriyyah fi al-milk
(compulsory partnership in property) and sharikat jabriyyah fi al-hifz (compulsory partnership in preservation).
20 ISRA Highlights

Issue 18, November 2019 ISSF Special Issue 2019 Issue 17, September 2019 Issue 16, August 2019 Issue 15, July 2019

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together to express their views and knowledge for the betterment of the
Muslim ummah.

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