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Sunday, 14 July 2013

Zakah - The inspiration behind kindness, compassion and care

ALLAH says in the Holy Quran: "And whatsoever you spend of anything (in the cause of Allah), He will replace it. He is the best of those who grant sustenance". He further exhorts: Establish worship, pay the poor due (Zakah), and bow your heads with those who bow (in worship). Little wonder then that Zakah has been counted as one of the five pillars of Islam. 

In its proper sense, Zakah is a practical manifestation of the brotherhood among the faithful and establishes mutual solidarity among them by the firm bond it creates between rich and poor, in a way that strengthens the individual's sense of relation to the community and the community's awareness of the value of the individual, and that it is strengthened by his strength and weakened by his weakness.  

Zakah purifies the human personality by removing selfishness, greed and materialism. It creates compassion, care, love and kindness among Muslims and it makes a person more thankful to Allah. Zakah helps the needy and provides funds for good causes and for community projects.

Zakah is the wealth given in the way of Allah to obtain purity of heart and to obtain the blessings of Allah. The root of the word Zakah in Arabic has two meanings: purity and growth. It aims to ensure full social security in an Islamic society.

Zakah is mandatory on every Muslim, whose finances (not just cash) are above a certain specified minimum, and has to pay 2.5 per cent of his cash balances annually to a deserving fellow being.

The principle of this obligation is based on the premise that everything belongs to Allah; and we human beings are only trustees even of our own wealth.

Allah wants us to help the needy. In a bid to cleanse our wealth, the Muslims are taught to set aside a portion of it for those in need as this spirit of sharing with the less fortunate balances and encourages new growth. Thus, paying Zakah manifests an unbreakable bond amongst members of the community.

While the 'haves' are purified from the twin evils of greed and selfishness Zakah also cleanses the hearts of 'havenots' from feelings of jealousy and animosity.

Although Zakah can be distributed any time of the year, Muslims all over the world prefer the Holy Month of Ramadan for its distribution. Thus we see Ramadan is the time where Muslims look forward to sharing their possessions with their less fortunate fellow beings.

The Holy Quran is replete with verses on instructing people to pay Zakah equating it with purifying and cleansing oneself. A verse in Chapter Taubah, verse No. 103 reads: "Take from their wealth charity (alms) to purify them and cleanse them thereby, and pray for them." Another verse states: "Never shall you attain piety unless you spend (in the way of Allah) out of what you love (Al Imran: 92)."

It is reported that Prophet Muhammad (peace be upon him) said: "Until four questions have been asked to, no one will be allowed to move on the Day of Resurrection. Two of these questions are: How did you earn and how did you spend?" The Holy Quran guarantees the Zakah giver prosperity as the holy book states, "those who establish regular prayers and pay regular poor due (Zakah) are the ones who will prosper (31:45)."

Zakah can only be given to those who qualify to receive it. The Holy Quran has identified eight groups of people who are entitled to receive Zakah. They include fuqara (the hardcore poor), masakin (the needy), mu'allafatu 'lqulub (converts), Pi'rriquab (slaves), algharimin (overburdened debtors), fzsabilillah (those striving in the way of Allah), Ibnu'ssabil (travellers) and amilinaalayha (those who administer Zakah). Zakah is to be paid on cash as well as other wealth comprising several subcategories, namely, on savings, business, crops, livestock, buried treasures, etc.

Although it is permissible to take out Zakah and distribute it on an individual basis it is highly recommended to pay one's share of Zakah to Baitulmaal, literally a House of Wealth, from where it will be distributed systemically and to the right beneficiaries.

Zakah is compulsory for every Muslim, male or female, who owns more than the threshold (limit) of Zakah, which is equivalent to 85 grams of gold in excess of what he needs for his own and his dependent's living.

Writes Adil Salahi, a prominent Saudi-based scholar: "Zakah is imposed on every type of property that is liable to growth. Thus, it is not imposed on a person's own accommodation, or the tools of his trade, even though these maybe costly". He adds, "Zakah is payable on capital and profit, every year, at the rate of 2.5 per cent for most types of money and property, although the rates may be different in some situations." Islamic scholars guide Muslims to calculate their Zakah properly so that it is given out in correct proportion.

Thus Zakah ensures full social security in a society, giving is a demonstration of love and caring. It may be interesting to note that Zakah is the minimum and voluntary charity is wide open. 

Sadaqah is another form which refers to voluntary charitable donations. Simply put, it is a financial help offered to a needy or a poor person without any obligation on the part of the giver or any condition on the receiver. Sadaqah need not be confined to financial help and refers to any good work. Offering just a glass of water is considered charity in Islam. 

A tradition says that a good word is a charity and removing a harmful thing from the road is also a charity. Sadaqah is an act that reflects feelings of love and compassion on the part of the giver, who is considered "rich" in the sense that he has more than he needs. Thus, it has a dual effect of purification: It purges the beneficiaries of any feelings of grudge and hatred towards rich people and purges the rich givers of feelings of greed, self-aggrandisement and miserliness.

Charity has a tremendous positive impact on society. A person under poverty tends to think that Allah has deserted him and that the society shows no concern for him or his needs and thus shows no compassion. This enhances his sense of frustration and weakens his allegiance to his society resulting in a string of negative habits which will lead to destruction. Zakah or Sadaqah thus come as a godsend to him and he experiences a genuine sense of happiness and contentment. Thus through Zakah a social security is established and maintained in a society, ensuring that a poor person who is unable to work, or does not have sufficient income, has enough to meet his ends.

(Times Of Oman / 13 July 2013)

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Islamic Retail Banking: Coping through challenges to meet customer needs

Globally, Islamic banking is an increasingly visible alternative to conventional banks. Identifying the sources of Islamic banking's expansion and ways to stimulate its continued growth is therefore of interest to policymakers. 

Learning from the current economic situations of developed regions, global financial leader have realised that Islamic banking will not only help under developed and developing countries to catch-up economically, but also stabilise fiscal fluctuations and guard against economical threats even in developed countries.

During the past decade, Islamic banking has grown from a niche market into a mainstream industry. It has also contributed to growth in the Islamic world by drawing the unbanked and underbanked populations into the financial system and allowing risk sharing in regions that are subject to large shocks but few buffers. Islamic banking is not only growing in size, but also in sophistication, with products offered ranging from Shariah-compliant credit cards to insurance and investment products.

Despite the rapid growth in Islamic banking during the past decade, challenges remain, pointing to the need for further reforms and greater harmonization in the interpretation of what is Shariah compliant between Islamic scholars and bankers.

However the limitations faced by the Islamic retail banking sector, may be broader than just the compliance of islamic proceedings. Accoding to John Chang, Head of Consumer Banking - Noor Islamic Bank - Dubai, U.A.E,
"The 3 main limitations faced by the Islamic retail banking sector are:

1.The perception of Islamic Banking being a niche offering to Muslims and that it is not available to non-Muslims.

2. Perceived limited choices and options with regards to products and service and flexibility thereof

3. Slightly more laborious documentation and processes than conventional banking"

The most intriguing contrast between the working of a Islamic Banking and conventional banking is the means of funding. This contrast may project as a threat for Islamic banks if customers are to choose between the two banking systems. 

This concept of has been further explained by Abdulrahman Turki , General Manager: Retail Banking - Bahrain Islamic Bank BSC as he states, "Islamic bank's cost of funding is always on the high said compared to the cost of funding of the conventional banks, The Mudharb is considered as a partner in any investment the bank makes and therefore will be liable for any loses that the bank may incur, thus many customers except to get higher rate on their deposits based on the theory of higher risk higher return.Therfore a collective efforts must be put towards clearing this negative perceptions from customers mind since no bank ever shard the losses with its clients in the last 30 years." 

Global leaders and Islamic banking heads try to investigate and come up with strategic solutions to overcome the challenges and eradicate the same. Musa Shihadeh, Vice Chairman & CEO - Jordan Islamic Bank, shares his view on the effecting chanllenges and also provides corrective measures to curb the same. 

Accoding to him, "The most important limitations or drawbacks faced by the islamic retail banking sector are as follows, 

1. Islamic finance grants rely on individuals' income, and they are usually distributed to cover family and consumer needs of clients etc.

2. Individuals' ( retail) needs for cash finance which is hard to cover through retail islamic finance modes.

3. The need for guarantees in finances granted for individuals( retail finance) which sometimes are difficult for clients to insure.

4. The inability of islamic banks to get any fine in case the clients fail to pay on time. 

The most significant solutions to eradicate such limitations or drawbacks would be to develop current products and update new ones to meet the needs of retail banking clients and to reduce as much as possible the guarantees requested from clients when they are granted the finance."

" Introduction of customer's awareness programs, so the larger audience should take the benefit from the Islamic Retail Banking products. It has been observed in Muslim countries where the Islamic banking has been launched people have very high expectations and low knowledge. This can only be catered through by introducing Customer's awareness programs & campaigns." - Bilal Fiaz, Head of Retail Banking & Branches - Sohar Islamic, Bank Sohar, Oman. As suggested by Fiaz, creating proper awareness and knowledge programmes would help people to understand the proceedings of Islamic banking and the opportunities that retail banking offers. This knowledge itself will remove a lot of doubts and challenges owing to the Islamic retail banking sector and help customers to be more involved and make correct banking choices.

(Zawya / 12 July 2013)

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Malaysia's Islamic Finance Overhaul Boosts Protection For Depositors

KUALA LUMPUR/DUBAI: New laws governing Malaysia's Islamic finance sector will boost protection for depositors by making religious advisers legally accountable for financial products, and liable to steep fines and prison time for wrongdoing.
The new rules also include a plan to require Islamic life insurers to separate the life arm from other parts of their business. The regulations also could spur takeovers in the Islamic insurance sector through capital-base provisions that encourage larger participants.
Malaysia's new Islamic Financial Services Act (IFSA) gives regulators greater oversight as the country seeks to retain its position as the world's second-largest Islamic Banking market, with 395 billion ringgit ($124 billion) in assets as of May.
While there have been no major problems arising from lax standards, the new law - which went into effect last week - is seen as a broad way of enforcing closer adherence to sharia laws, where Malaysia is already a global leader.
One of the most important changes is to make sharia advisers legally liable for the financial products they approve, analysts and industry experts said. The Islamic scholars are hired by banks to assure that financial products abide by Islamic sharia standards.
The rule-change would encourage advisers to conduct a closer inspection of the financial products they approve, holding them more accountable, said Mohamad Akram Laldin, executive director of the Malaysia-based International Sharia Research Academy for Islamic Finance.
"This is a step forward, everyone who is involved will know their duties and what is expected of them," he said.
Previous rules governing sharia compliance were just guidelines. The IFSA elevates them to statutory duties, a breach of which could expose licensed financial entities to punishment.
Penalties will be more severe, a Malaysia-based lawyer told Reuters, with many offences carrying a possibility of up to eight years imprisonment and 25 million ringgit ($7.86 million) in fines.
Investors' protection should also be boosted by another provision that requires banks to distinguish deposits made for savings from those made for investments. Banks will also need to guarantee the principal amount on savings deposits.
The IFSA also gives Malaysia's finance ministry more powers to further scrutinize financial holding companies and non-regulated entities if they pose a risk to financial stability.
"From my view, it is quite comprehensive. The challenge is to ensure the enforcement, and to make people understand it," Akram added.
The IFSA may also reshape the takaful (Islamic insurance) sector by requiring the separation of life and general business lines, the latter covering property and automobiles. Under the new rules, firms with composite licenses that cover both sectors will have five years to separate the two.
Malaysia had 12 direct takaful operators with a combined 19 billion ringgit in assets as of December 2012, central bank data showed. The majority of those assets - 85 percent - were in family insurance, up 13.3 percent from a year earlier.
Companies need to establish a new board and capital base for each business under the IFSA, making operations more capital-intensive. This could favour companies with large balance sheets, spurring consolidation as smaller players struggle for scale, analysts said.
The IFSA is set to affect two-thirds of companies within the takaful sector with composite licenses, with bigger players such as Etiqa Takaful Bhd, Syarikat Takaful Malaysia Bhd and Takaful Ikhlas possibly spared, according to a report by investment bank RHB.
The top three operators hold roughly 90 percent of assets, while several of the smaller firms have suffered losses or shrinking profit.
Bigger operators will be eyeing smaller ones. "If their portfolio is attractive, we could be buying up business," said Hassan Kamil, group managing director of Syarikat Takaful Malaysia, the sector's second-largest after Etiqa Takaful.
Takaful Malaysia will be able to raise funds on the capital market for new acquisitions, being the only listed company among its peers, said Kamil.
(Business News / 13 July 2013)

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