session 6 the significance of islamic investment...

Session 6

The Significance of Islamic Investment Principles

- Empirical Evidence from International Investment Funds

En. Mohd Syukry Mohd Saidein, Assistant Vice President,

Wealth Management, Bank Rakyat

The Islamic asset management industry has enormous growth potential

Ernst and Young Report:

Global Islamic finance assets to be at US$1.8 trillion in 2013

Islamic asset management expected to grow from around US$300 billion to US$500 billion

Conventional asset management is at US$58 trillion

…as the evolution continues, Asia and the MENA region will be growth engines for the Islamic asset management industry

Source: TR Global Islamic Asset Management Report 2014

Wealth and The Quran

And when the prayer has been concluded, disperse within the land and seek

from the bounty of Allah, and remember Allah often that you may succeed.

(Aayah No. 10, Surah Al-Jumuah, Chapter No. 62, Holy Quran)

He said, "My Lord, forgive me and grant me a kingdom such as will not

belong to anyone after me. Indeed, You are the Bestower."

(Aayah No. 35, Surah Saad, Chapter No. 38, Holy Quran)

Islamic Investment Principles

Prohibition of Riba Prohibition of Gharar Prohibition of Maysir

Prohibition of forbidden

commodities

Sharing of profits and risks

Riba and The Quran

Those who consume interest cannot stand [on the Day of Resurrection]

except as one stands who is being beaten by Satan into insanity. That is

because they say, "Trade is [just] like interest." But Allah has permitted trade

and has forbidden interest. So whoever has received an admonition from his

Lord and desists may have what is past, and his affair rests with Allah. But

whoever returns to [dealing in interest or usury] - those are the companions

of the Fire; they will abide eternally therein.

(Aayah No. 275, Surah Al-Baqarah, Chapter No. 2, Holy Quran)

Riba and The Quran

O you who have believed, fear Allah and give up what remains [due to you]

of interest, if you should be believers.

And if you do not, then be informed of a war [against you] from Allah and

His Messenger. But if you repent, you may have your principal - [thus] you

do no wrong, nor are you wronged.

(Aayah No. 278-279, Surah Al-Baqarah, Chapter No. 2, Holy Quran)

Riba and The Quran

O you who have believed, do not consume usury, doubled and multiplied,

but fear Allah that you may be successful.

(Aayah No. 130, Surah Ali-Imran, Chapter No. 3, Holy Quran)

And [for] their taking of usury while they had been forbidden from it, and

their consuming of the people's wealth unjustly. And we have prepared for

the disbelievers among them a painful punishment.

(Aayah No. 161, Surah An-Nisa, Chapter No. 4, Holy Quran)

Riba and The Sunnah

From Jabir (ra): The Prophet (pbuh) cursed the receiver and the payer of riba, the one who records it and the two witnesses to the transaction and said: "They are all alike [in guilt]." [Sahih al-Muslim, Sahih Al-Bukhari, Tirmidhi, Ibn

Majah, Bahiqi and Musnad Ahmad]

From Abu Hurayrah (ra): The Prophet (pbuh) said: "On the night of Ascension I came upon people whose stomachs were like houses with snakes visible from the outside. I asked Gabriel who they were. He replied that they were people who had received riba." [Ibn Majah, Kitab al-

Tijarat, Bab al-taghlizi fi al-riba; also in Musnad Ahmad]

From Abu Hurayrah (ra): The Prophet (pbuh) said: "There will certainly come a time for mankind when everyone will take riba and if a man does not do so, its dust will reach him." [Abu Dawud, Kitab al Buyu, Bab fi ijtinabi al

shubuhat; Ibn Majah]

Why Prohibit Riba?

Social Corruption Unjustified

Misappropriation Negative Effect on

Growth

Diminishes Humanity

Defy al-kharaj bi al-daman

Unjust

Why Prohibit Riba?

2,391,102,204,613,620,000,000,000,000,000,000,000,000,000

60,806,303,788,323,700,000,000,000,000,000

1,546,318,920,731,950,000,000 1000

1500

2000

$1 borrowed at 5% in Year 1

Gharar

The word Gharar appeared 27 times in The Quran

Literally: negative elements e.g. deceit, fraud, uncertainty,

danger, risk, hazard

Technically: excessive uncertainty over the substance

or attributes of the object of sale or doubt over its existence and availability at the time of

contract

“… are speculative transactions that are harmful to society”

Gharar and The Quran

And do not consume one another's wealth unjustly or send it [in bribery] to

the rulers in order that [they might aid] you [to] consume a portion of the

wealth of the people in sin, while you know [it is unlawful].


O you who have believed, do not consume one another's wealth unjustly but

only [in lawful] business by mutual consent. And do not kill yourselves [or

one another]. Indeed, Allah is to you ever Merciful.

(Aayah No. 29, Surah An-Nisa, Chapter No. 4, Holy Quran)

Gharar and The Sunnah

From Abu Said al-Khudriy (ra): The Prophet (pbuh) has forbidden the purchase of the unborn animal in its mother’s womb, the sale of the milk in the udder without measurement, the purchase of spoils of war prior to their distribution, the purchase of charities prior to their receipt, and the purchase of the catch of a diver. [Ibn Majah and Musnad Ahmad]

From Jabir (ra): The Prophet (pbuh) is reported to have forbade the sale of a heap of dates, with the weight of which is unknown, in accordance with the known weight of dates. [Sahih al-Muslim]

Why Prohibit Gharar?

To ensure certainty; improve

disclosure and

transparency

Certainty begets

consent

Without consent,

contract is void

Protects against

information asymmetry

Maysir

The winner will take the entire bet and the loser will lose his

bet

Games of pure chance where any party might gain at the

expense of the loss of the other party

“… acquisition of wealth by chance, whether or not it deprives right of other’s.”

Maysir and The Quran

O you who have believed, indeed, intoxicants, gambling, [sacrificing on]

stone alters [to other than Allah], and divining arrows are but defilement

from the work of Satan, so avoid it that you may be successful.

(Aayah No. 90, Surah Al-Maidah, Chapter No. 5, Holy Quran)

Maysir and The Quran

They ask you about wine and gambling. Say, "In them is great sin and [yet,

some] benefit for people. But their sin is greater than their benefit." And

they ask you what they should spend. Say, "The excess [beyond needs]."

Thus Allah makes clear to you the verses [of revelation] that you might give

thought.


Why Prohibit Maysir?

High risk present in these types of transactions

Lead to greater financial and societal problems

Unnecessary for society; not contributing to societal wealth

Prohibition of Dealing in Forbidden Commodities

Alcohol, drugs and pork etc.

Also activities such as excessive entertainment

Neither individual Muslims nor institutions owned by Muslims can trade, invest in or finance

enterprises that deal in forbidden items

Sharing of Profits and Risks

Equally distribute the risk of business and investment,

consistent with sharing of the capital contributed

Mudarabah, Musharakah

Islamic Investment Principles in Action

Higher moral and ethical values

Shariah supervision Higher real investment

Higher growth rates Extensive evaluation

on risk and return

Source: TR Global Islamic Asset Management Report 2014

The Trial of Wealth

Indeed, We have made that which is on the earth adornment for it that We

may test them [as to] which of them is best in deed.

(Aayah No. 7, Surah Al-Kahf, Chapter No. 18, Holy Quran)

Wealth, while one of the greatest blessings that mankind has been given, is at the same time one of the greatest trials and temptations.

“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.” ― Franklin D. Roosevelt

This presentation should not be regarded as offering a complete explanation of the matters

referred to and is subject to changes in law. It is not intended to be a substitute for detailed

research or the exercise of professional judgment. Labuan IBFC and MFPC cannot accept

any responsibility for loss occasional to any person acting or refraining from action as a

result of any material in this presentation. The republication, reproduction or commercial

use of any part of this presentation in any manner whatsoever, including electronically,

without the prior written permission from Labuan IBFC Inc. and MFPC is strictly prohibited.

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session 6 the significance of islamic investment...

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