Malaysia: New ruling to maintain Muslim business legacy
PETALING JAYA: The Labuan International Business and Financial Centre (LIBFC) has cleared the regulatory requirements that will allow Muslim businesses to maintain the core wealth of the company under Islamic beneficiary laws.
Dr Mohd Daud Bakar, chairman of the Shariah Advisory Council for Bank Negara Malaysia and LIBFC, said a fatwa issued by the council in April has allowed the creation of trusts that will allow the family business to be preserved and passed down to ensuing generations in a non-disruptive way.
Traditionally, Islamic wealth is passed down the generations through a system called ‘faraid’, which allows for the wealth to be divided among beneficiaries.
Mohd Daud said by creating trusts, Muslim family businesses will survive after the death of the principal.
“Businesses that had been build over a period of time would not be dismantled as Muslims can create waqf or trust foundations that will prevent the dissolution of business empires or lead to the massive erosion of wealth,” he told The Malaysian Reserve in Kuala Lumpur yesterday.
Speaking on the sidelines of the Islamic Wealth Management forum, Mohd Daud said these trust funds will be professionally managed in LIBFC. “Muslim families are given the option to create a foundation that ensure that wealth will not be subject to ‘faraid’ upon death as the trustee can manage for the benefit of the beneficiaries,” he said.
Mohd Daud, however, said though the new ruling is subject to challenges in the Shariah courts, it is a way to allow high net worth Muslims a way to ensure that their legacy is not broken up.
The fatwa that was issued in March allows Muslims to equally distribute the assets to sons and daughters and addresses the uneven distribution under ‘faraid’ that is biased towards male heirs.
Also at the forum, former Chief Justice Zaki Azmi said Islamic finance was sparked off by the discovery of oil in the Middle East that resulted in the demand for banking system that is free from interest and other non-halal practices.
Zaki said the sudden rise in wealth of Arab countries created a need for Western banks to adopt Islamic-compliant systems in order to attract Arab money.
“These Muslims wanted to invest but do not want their money to be tainted by transactions which are based on interest and therefore haram.
The monies belonging to billionaire Muslim Arabs were mostly in the western financial institutions, which practise the Jewish banking system (interest or usury-based),” said Zaki.
Speaking at the Islamic Wealth Management Seminar in Kuala Lumpur yesterday, Zaki said when Arabs became reluctant to put their money in the western banks, because they will be tainted by haram or illicit dealings, the banks had to tailor the investments to make them halal.
“It began in Dubai, hence the beginning of Islamic financing,” Zaki said.
He said from this spark, other countries, notably Malaysia has spearheaded the move to allow Islamic banking to flourish.
“To avoid any challenge that the method of financing was not according to Shariah, a fatwa council was set up giving confidence to investors of the compliance of the products with halal principles,” Zaki added.
Islamic banking assets under management is anticipated to reach US$2 trillion (RM6.46 trillion) by 2014 globally, while Malaysian banks are the leading Islamic banks in the South-East Asian region.