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Thursday, 17 December 2015

Zakat: The best welfare system

Islam was born in the sandy deserts of Arabia with profound implications for the world. Its impact is still found around the globe due to its contacts with other religions and communities. Today Islam is almost associated with terrorism which is nothing but the “manufactured perception” by media and some interested groups to control the resources of the Muslim world. The tag of terrorism to any Islamic country gives them an excuse to invade the country and destroy its history, culture and society. Some big multinational companies are involved in this process as well as for the world it is necessary to control the markets and provide a readymade supply of raw materials. By any standards, Islam is nothing but peace and it has come to world to establish a just and fair system. It just takes a rational man without the prejudices to understand the implications of this system. This has been even realised by European intellectuals as well. It is disastrous for the honour of the Muslims that they have to resort to writing of European intellectuals to justify good in Islam rather than simply relaying on its tenants and principles. Even though there is a sense of ‘Political Islam” emerging which has totally overshadowed the other sub systems that are present in Islam which could relieve humanity from poverty, misery and destitution. The social welfare system in Islam is based on the concept of Zakat.
Modern governments are based on the concept of welfare system. These take care of the health, education and other basic necessities and needs. The type of the welfare system will be in line depending on the types of governments whether it is capitalist, communist or dictator.  There is some difference between these. However all these aim at the promotion of the peace, prosperity of their respective countries. However there is a serious question whether the policies have worked or not. Globally, there are still more than 1 billion population that lives in extreme conditions. This is a starving line where people don’t possess enough food to eat. Much of the world’s poverty of this type is concentrated in Asia and Africa. Millions of dollars are spend on the welfare systems around the world, billions are spend by NGO’s yet there is no solution to the looming crisis that has engulfed humanity. The reason, being, that today’s welfare system is based on the Political necessities and Macavalian policies. The governments have billions to spend on weapons and wars but not to feed the starving mouths around the world. It will take just 15% of the global spending on wars to feed the billions that die and provide them education. There will be more left to spend on the scientific knowledge and progress of humanity. However it seems crazy to believe that after spending so much, the welfare system of the world is unsustainable. It becomes even more unsustainable when there is depression and recession in the economy. The recession of 1930’s, recession of 2008 and Greek debt crisis saw deep cuts in the welfare expenditure around the world. It forced many millions to resort to violence on the streets. However, the economy is to be seen in light of the “whole” system. The governments in the recession resorts to tricky measures, to cool the temperature, by resorting to borrowing from banks and other entities. Many few realise the borrowing will cost them in future. They will have to pay back the money and with due interest rates. It is no secret that millions of people are under debt even in developed countries. It is exactly what happened in Greece. Similarly, in recession the rich demand cuts in income taxes and all to keep the economy afloat which again impacts the welfare system. In recession banks don’t lend to poor and those who lost their jobs due to income credibility problems. If it lends, it lends these at higher charges. It puts them in trap of banking system that creates money out of nothing. The recession is the best opportunity for the banks to keep governments in check and control economic resources.  And when these institutions turn in on these poor flocks, they have no mercy.
Zakat is significantly different from the other systems. The first principle of the zakat is that it is exclusively left for the poor. This principle takes away the interference from political parties tempering into the welfare system. Whether the money is less or more, it has to be spent on the poor people. However since the poverty is a relative term, the poverty line can always be adjusted to keep spending on the poor in a country and when everyone is rich, the money can be given to other nations to feed their poor flock. Islam doesn’t make a difference between poor persons living in different countries. However the modern government’s welfare system does. The zakat can be stored in the boom times to meet the basic necessities when the economy is in recession and when it is expected that poverty ratio will increase. One more important fact about zakat system is that it is provided to poor free of interests and governments have not to borrow it from the people. It is religious obligation on the rich to provide some amount of the money to poor. This way there is no inter-generational debt problems. The present consumption by the poor doesn’t lead to an increase in income taxes for the next generation. This is all what economics strives for. However since there is bias about Islamic institutions these are really taken seriously. One misconception about zakat system is that it will breed poverty among the society as people will choose to be poor as the society will take care of them. So there is no incentive for hard work. However human nature is against being at the bottom. There is a lot of evidence in economics that suggests that men or women if given enough space will try to achieve a good life for them and their children. Zakat has more profound implication on the evils of the society like theft, kidnaping etc. since zakat will take care of the basic needs of the poor, and they are unlikely to indulge in social evils. It has a positive externality for the society as social evils will come down rapidly. It strikes at the root of class war which Marks, the false prophet, proposed. However the zakat system has to be seen as a sub system of the Islamic economic system. Since the society will make resources available money for the poor, the creation of better relations is a necessary implication for it. In fact zakat is a guarantee for peace and development. This helps in more growth and equality distribution.

 It is necessary that the prejudices against Islamic economic system must be removed. Its fundamentals will remove the defects of the present economic systems throughout the world. The welfare system of the world has cracked down and the poverty is increasing so is the inequality. It is a great time for the economists to give serious thoughts to zakat system so that poverty, hunger and destitution will be removed throughout the world.

(Kashmir Images / 17 December 2015)
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Oil-Squeezed Malaysia Seen Selling Sukuk as $1.2 Billion Matures

Malaysia will face pressure to sell global sukuk next year as $1.2 billion of Islamic debt matures in July and plunging oil prices erode fiscal revenue and currency reserves.
RHB Investment Bank Bhd. and Union Investment Privatfonds GmbH see demand for a new Islamic bond holding up because of a scarcity of dollar sukuk and longer-term prospects for Malaysia’s finances. The ringgit has rebounded 1.8 percent this quarter, paring its losses to 19 percent for 2015, a year in which reserves slid below $100 billion for the first time since 2010.
Prime Minister Najib Razak repeated a warning last week that government revenue for Asia’s only major net oil exporter could fall short of the official target by the equivalent of about $7 billion next year. The yield on the sovereign U.S. currency Shariah-compliant notes that are maturing has climbed 21 basis points in 2015 to 1.58 percent, the highest in more than two years.

“Despite some problems in its sovereign credit, Malaysia will easily sell $1 billion to $1.5 billion,” said Sergey Dergachev, a senior money manager who helps oversee $13 billion at Union Investment, which is “market weight” on the debt. “I assume many emerging-market sovereigns and corporates would like to make use of this cheap opportunity to still lock in low rates.
Dergachev said he’ll consider buying the bonds if valuations are good, and estimated a 20 to 25 basis-point premium over Malaysia’s existing 2021 dollar Islamic notes assuming it’s a five-year maturity. The 4.646 percent debt yielded 3 percent on Wednesday. He said the government may tap investors early next year.
Angus Salim Amran, Kuala Lumpur-based head of financial markets at RHB Investment Bank, said a Malaysian 10-year sukuk may pay 160 basis points more than U.S. Treasuries, which he put around 3.80 percent when he was interviewed on Tuesday.
Global issuance of Shariah-compliant bonds has dropped 29 percent in 2015 to $34.2 billion, the poorest showing since 2010, according to data compiled by Bloomberg. Malaysia sold global Islamic bonds this year for the first time since 2011, and has a total of four foreign-currency sukuk outstanding and no conventional notes.
Overseas investors also seem optimistic, after raising holdings of the nation’s sovereign and corporate ringgit debt to a seven-month high of 213.6 billion ringgit ($49.5 billion) in November. They increased the proportion of government Islamic notes to a record 11.7 billion ringgit.
The recovery in foreign demand “may be an indication of the interest that investors are expected to exhibit in any sukuk offering by the government,” said Helmi Abdul Jabar, head of project finance with the global investment banking division of OCBC Bank (Malaysia) Bhd. in Kuala Lumpur.

Brighter Picture

Asset sales by a debt-ridden state investment company may also help. 1Malaysia Development Bhd. struck a deal last month to sell its power assets to China General Nuclear Power Corp. for 9.83 billion ringgit. The firm had drawn criticism from lawmakers due to its 42 billion ringgit of debt and spooked investors when it almost defaulted on a loan in 2015. The government provided a 950 million ringgit credit facility in March to shore up its finances.
As the central bank sought to prop up the ringgit, Malaysia’s foreign-exchange reserves sank 18 percent this year to $94.6 billion. The currency’s rebound and 1MDB’s progress in winding down its operations also brought down the cost to insure the nation’s sovereign bonds from non-payment to 182 basis points from a six-year high of 247 in September.
Standard & Poor’s analyst Kim Eng Tan said Wednesday that the company’s stable outlook on its credit rating for Malaysia was unchanged despite the domestic and global developments. It rates the nation A-, the fourth-lowest investment grade.
“Fundamentally, investors are still positive on the longer-term prospects,” said RHB’s Angus. “I expect buyers to be made up mainly of structural investors who take a longer-term outlook on the sovereign rather than focus on current market weakness.

(Bloomberg Business / 17 December 2015)
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