Venture Capital & Islamic Finance

Venture Capital & Islamic Finance Nida Khan

Sukuks & Socially Responsible Investment Saba Radwan & Nur Shaira

WHEN WAQF MEETS CROWDFUNDING Suhaili Al Ma'amun, Muhammad Hakimi, Muhammad Syaukani & Umar Munshi

Islamic nance: for a sustainable tomorrow Rosie Kmeid

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Venture Capital & Islamic Finance Nida Khan

WHEN WAQF MEETS CROWDFUNDING

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Suhaili Al Ma'amun, Muhammad Hakimi, Muhammad Syaukani & Umar Munshi

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Sukuks & Responsible Investment Saba Radwan & Nur Shaira

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Islamic nance for tomorrow Rosie Kmeid

Islamic nance Q & A Mufti Ismail Ebrahim Desai

EDITORIAL Putting our capital in the right place Basic economic theory tells us that the most essential ingredients for a successful economy are capital and entrepreneurship. These are what go hand in hand for any good business venture. One needs the other and vice versa. All the more so in an Islamic environment where capital cannot be used to generate interest money but must be put to productive uses if it is to grow instead of stagnating and losing value over time. This is all the more reason why Islamic Bankers and Financiers must focus on putting their monies in the right place and for the right reasons. Identifying good entrepreneurs with bright ideas is no hard task. Today's developments in IT have made that task so much easier with various kinds of platforms offering to match the two. There cannot be a better era for Islamic Finance than today! Our lead story by Nida Khan 'Venture Capital and Islamic Finance' puts this truth in perspective. As she points out, the core principle of Islamic Finance is Profit and Loss Sharing, which is the very foundation of venture capital firms.

Thus developing solutions for small and medium tartups with innovative ideas is not only imperative from an economic point of view but also simply the proper thing to do from an Islamic standpoint. As Nida observes, contrary to the belief that start-ups are risky, closer study reveals that actually they do quite well. So what's stopping us from treading this pristine path instead of trudging the beaten track? Nida also makes a case for having more women engaged in venture capital. This is an area where women too must take the lead. One only has to look into the early days of Islam, to the entrepreneurial skills of our Prophet's beloved wife Khadija to realize that Islam gives ample scope for women to engage in entrepreneurship and contribute to the real economy. If there's one reason why the Muslim world is backward today compared to the glorious days of Islam, it's because women have lagged behind. It's high time we changed that to bring back another Golden Era by God's Grace. This very issue is testament to the fact that women have all it takes to contribute meaningfully to our economic betterment. We have as many as five women contributing as authors or co-co-authors of some really thoughtprovoking papers from venture capital and socially responsible investing to a novel idea for crowdfundingbased wakf projects. Why tarry any more when Now is the time we have been waiting for? Asiff Hussein Editor-in-Chief Islamic Finance Today

Editor in Chief - Asiff Hussein Layout & Design - Nimry Marikkar Marketing & Circulation - Anfas Anees No 4, Collingwood Place, Colombo 06, Sri Lanka. Phone: +94 11 7395090-3

Islamic Finance Today is a monthly magazine exclusively dedicated to Islamic Finance & Banking published by Pioneer Publications (Pvt) Ltd. It contains a variety of interesting articles including exclusive interviews, news and views on various aspects of the industry. No part of this publication may be reproduced in any form without the prior written permission of the publisher. Views expressed in this publication are not necessarily those of the publisher.

Nida Khan is the developer of the world's first Islamic Finance Education App. She served as a Researcher at the University of Luxembourg focussing on data security in online social networks. She holds a Masters Degree in Information and Computer Sciences as well as a Master Diploma in Islamic Finance and a certificate on Islamic Finance from AUSCIF.

Venture Capital & Islamic Finance

Technology has been the guiding force in nearly all financial discourses over the last few years and would remain so in the coming years on account of its impact on the way banking is done and the economy is driven. We are at the threshold of entering one of the best markets for investing in emerging technologies. The best way to do this is by encouraging mushrooming of more venture capitalists. The core principle of Islamic finance is profit and loss sharing (PLS) and this is the foundation of venture capital firms. The need of the hour where unemployment is high and young talent needs harnessing is to encourage entrepreneurial traits. The leading college majors nowadays are in computer science and entrepreneurship. It seems that nearly everyone wants to either start or join a venture backed company. Two extremely important areas that would benefit by the help of venture capital firms is increase in exports and development of small industries. Contrary to the popular belief that funding start ups by venture capitalists is a high risk business, a closer study reveals that VC firms do fairly well even if the start-ups fail as their contribution starts in Series A round whereas the earlier stage is funded by angel investors so the amount provided is comparatively less. Moreover with the popular trend of many firms funding a start-up, the risk is shared. Islamic Finance Today - September 2016

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Islamic Finance: The Right Tool for VC Entrepreneurs go to venture capital firms as they are not in a position to pay the high interest rates of a bank loan and other debt instruments might not be available for them. The VC firms participate in the risk as well as the profit of the new businesses they fund and this profit and loss sharing is the essence of Islamic Finance. IFI's have been avoiding the employment of PLS modes of financing for too long because of the risks involved but these modes represent the true spirit of Islamic finance. Combine PLS modes of financing like Mudarabah and Musharakah, venture capital and technology and the outcome is a sure winner. There is a lot of wealth in a few nations and utilisation of it in the right direction will prove to be very beneficial for the future. Information asymmetry and moral hazard is a major concern in providing venture capital as the entrepreneur might engage in high risk behaviour since the money being invested does not belong entirely to him. Moreover entrepreneurs can ask for more money than needed. Transparency is a necessary requirement in this and technological measures like etherium blockchain to monitor transactions as they happen can be taken to ensure that the behaviour of the start-up firms is within discussed guidelines. Etherium is a decentralised platform used to run smart contracts that ensures that there can be no fraud in the execution of the contract between two or more parties. Two tier Mudarabah can also be utilised to increase the pool of investors where the bank acting as an intermediary provides the capital to entrepreneurs. To reduce the risk involved, diminishing musharaka can also be used where the financier gradually sells his share to the partner like by using the company assets as collateral.

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IslamicFinance FinanceToday Today- August - September Islamic 2016 2016

Murabaha can also be used by banks to finance entrepreneurs. It necessitates fewer resources, is less risky and can enable IFI's to compete with conventional banks in fund mobilising. However to recognise the full potential of Islamic finance it's better to use the PLS modes of financing. Innovation & Venture Capital Innovation and invention drive the economy. This is something unique that comes in the forefront when intellectual talent is harnessed. Venture capital and crowdfunding can go hand in hand to raise up this intellectual pool. Venture capital should be invested in start ups dealing with key developments and new applications in technologies related to artificial intelligence, machine learning, drones, data analysis, data mining and the like. These investments would be risky but there is a huge potential for seismic shifts in society if they prove to be successful and returns would be immense. Entrepreneurs nowadays have other opportunities to get capital from, like crowdfunding and a dedicated platform for angel investors. However what makes VC attractive is the expertise that the firm brings to the entrepreneur. In order to make this more easy to comprehend and reduce the time the entrepreneur might take to know the VC firm, venture capitalists should maintain an online portfolio of what they would offer in terms of expertise, mentoring and services to the entrepreneur they would fund. This would enable an easy decision on the part of the entrepreneur.

Islamic Finance Today - September 2016

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Women & Venture Capital Women can become a massive force in contributing to the economy. They lag behind as their ideas are not backed financially to transform into full fledged ventures though they are one of the biggest emerging markets. There are many initiatives where women would not only excel but are a necessary inclusion on account of their expertise and gender, namely the fashion and cosmetic industry. Women understand the needs of women more and encouraging this talent pool is a must. There is a need to have more women venture capitalists. An analysis by CrunchBase on the participation of women in start-ups has led to the present conclusion that VC firms that have women founders or a high percentage of women partners invest in female entrepreneurs more. Approximately 8 percent of investing partners at the top 100 venture and micro-venture firms are women. Seed investors follow a similar pattern as venture investors. 12 percent of venture rounds and 10 percent of venture dollars went to start ups with at least one woman founder between 2010 and 2015. True Wealth Ventures, Female Founders Club, Forerunner Ventures, Valor Ventures are a few VC firms who have women as VCs. They provide funds to start-ups dealing with innovative digital commerce, technology enabled products and services, life sciences, medical, health and digital health and many more areas. An organisation worth mentioning is Pipeline Fellowship. It trains women philanthropists to become angel investors through education, mentoring and practice. The women undergoing the training commit to invest in women-led for-profit social ventures in exchange for equity and a board seat at the end of training. Islamic finance industry can create an educational institution providing teaching and training to women who are interested in becoming venture capitalists. Till this is realised a consultancy wing can be set up in IFI's to cater to women needing information on VC and women entrepreneurs seeking VC funding. Many women in the eastern part of the world hesitate to seek information and a dedicated helpline in Islamic banks can be set up for such women who can call and inquire and get the requisite information. Similarly an additional subject in regular Islamic finance courses can be set up as supplementary giving extra credit to people who study about entrepreneurship and venture capital firms.

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Future forward The time to sit back and think, look at others and imitate their brands and products is gone. Now is the time to launch your own products and create your own legacy representing your culture and values. Islamic finance and technology is the optimum base for the right kind of ideas to take root and flourish. Angel investors should come forward and encourage such developments. Why is there a need to go to imported big brands when the necessary human resources and financial input is available in any country to produce their own similar brands ? These are questions which need thinking. The purpose of any tool be it technology, Islamic Finance or Venture Capital is to just be the means to an end. That end should be recognised and tools can be modified within appropriate guidelines to serve and accomplish that purpose. Middle Eastern and other nations where Islamic finance thrives have all the ingredients for a huge economic success in store but what is lacking are necessary organisations and leadership to propel young talent to mix those ingredients and produce the requisite output. Governments need to take action to make starting a venture extremely easy and in fact support such initiatives by financial rewards so that the younger generation is attracted more towards it and contributes to the pool of intellectual resources. Islamic finance is not just an alternative financial system. It is a system to encourage equality and bridge the gap between the rich and the poor. Islamic finance is a system with divine principles to encourage prosperity in each nation and help, especially the poor and needy to lead a good life. VC firms are a good way to bring about this transformation and necessary capital should be invested in teaching, training and laying down the infrastructure of such firms.

Islamic Islamic Finance Finance Today Today - August - September 2016 2016

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ISLAMIC FINANCE Mobile APP

Get Your Islamic Finance App Today!

Developer : Nida Khan

Islamic Finance is the first app on this platform, which gives you a concise introduction to Islamic finance while simultaneously giving you Islamic finance, finance and business news from across the globe from diverse news sites.

The app has been adapted to receive RSS feed links from some sites to enhance the user experience. Few news sites in the local language of the people of India, namely Urdu and Hindi also feature in the app to cater to the booming economy there. The app touches upon all the subjects relevant to this sector. An extensive use of graphical representations will enable an easy comprehension of the subject and serve as an aid to memorizing facts.

It will serve as a pocket guide for the professionals of this sector, as well as for those learning about this sector. It will also keep the professionals of this sector always aware of the latest happenings in the financial world. All the theoretical content in the app can be saved to be viewed in offline mode and you will not need an Internet connection to continue your knowledge enhancement, post saving it on your device. The app will teach the basics of this sector to even those, who don't know anything about Islam.

The app talks about the prevalent modes of finance in this sector like Musharakah, Ijarah etc., defining the rules governing the said transactions and drawing comparisons wherever needed. It also talks about Sukuk or Islamic Investment Certificates and the role that they play in this sector. In addition the app talks about the necessary conditions required to deal in shares. It also touches upon the topic of innovation in Islamic finance, sharing the thoughts of the developer. Islamic Finance Today - September 2016

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WAQFWORLD WHEN WAQF MEETS CROWDFUNDING By Dr.Suhaili Al Ma'amun, Dr. Muhammad Hakimi Mohd Shafiai, Muhammad Syaukani Ahmad Adnan (Research Centre for Islamic Economics and Finance (EKONIS), Faculty of Economics and Management, Universiti Kebangsaan Malaysia) & Umar Munshi, Ethis Ventures

Waqf can be perceived as a fundamental pillar of the Islamic economic system. Waqf founders donate and dedicate their assets (movable or immovable) for societal benefit. The beneficiaries enjoy its usufruct and/or income. Waqf is usually perpetual, but can be temporary and partial. In Muslim history, Awqaf provided public utilities (roads, water and sewage), educational institutions and hospitals. Essentially, waqf serves society through its functions as a social security instrument. Traditionally Muslims pledge waqf assets in the form of tangible assets that carry the perpetuity feature. In the modern world, cash waqf has gained acceptance as a new form of waqf asset. The strength of cash waqf lies in the fact that it can be participated by all segments of Muslim society regardless of the amount. Raising waqf funds can be done either in conventional ways (offline) or online. However, it is believed that the existing online approach should be empowered with a sophisticated platform to connect communities through the internet. This will encourage risk sharing, democratize wealth and channel capital to real economic activity – in other words, to crowdfunding! Crowdfunding and cash waqf are inherently compatible and mutually reinforcing. Waqfworld.org 'exploits' the strength of crowdfunding. The first waqf based crowdfunding, Waqfworld.org was officially launched during the World Islamic Economic Forum (WIEF) in Jakarta, Indonesia on 3rd August 2016 by Malaysia's 5th Prime Minister Tun Abdullah Ahmad Badawi, who is also the founding patron of Waqfworld.org. Waqfworld.org is the outcome of the collaboration between three parties namely Tun Abdullah's office, research team from the Research Center for Islamic Economics and Finance (EKONIS) Universiti Kebangsaan Malaysia (UKM) and Ethis Ventures. This article highlights what Waqfworld.org is all about, some of the top challenges and priorities for the next step. Wakf-based Crowdfunding Empowering waqf for the development of the ummah has always been the passion of Tun Abdullah. Therefore the idea of integrating waqf and crowdfunding was shared together with EKONIS. On 21st January 2016, based on a preliminary study, EKONIS presented the idea of establishing a waqf-based crowdfunding platform for ummah development in a roundtable discussion organized by the Islamic Research and Training Institute (IRTI) in Jeddah.


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The idea was fascinating but, the next step was pretty much challenging. Creating a platform was very costly and funding was another main barrier. In addition, its task as a technology partner is beyond the establishment of the platform. The technology partner is the one who operates the platform. Hence, being reliable, having a good track record in crowdfunding service, and willing to be a part of the team upon and prior to the establishment of the platform were the requirements that Tun Abdullah's office and EKONIS looked for. Finally, Ethis Ventures, the pioneer of Islamic crowdfunding was chosen as the technology partner. The objective of Waqfworld.org is to develop or empower the ummah. After several discussions, meetings and on-going research, the concept of ummah development has been carefully defined so that it is in line with the sustainable development goals (SDGs) promoted by IDB. Therefore, from the Waqfworld.org point of view, the concept of ummah development is something that can be achieved when funds are mobilized for projects that are able to create wealth, increase human capital, enable humanitarian relief and other religious activities. As of now, there are only four waqf project campaigns on Waqfworld.org. Ensuring Transparency 'Trust' is the key for the sustainability of Waqfworld.org. As the research partner, EKONIS UKM has been carrying out research on transparency and governance issues. For the time being, the crowdfunding system is adequately transparent in the sense that the funders know where their monies go to, they know how much is needed, they are informed of the progress of the projects from the platform itself. This is how the crowdfunding works. In terms of governance, the whole structure is now known as Secretariat of Waqfworld.org., the Founding Patron is Tun Abdullah Ahmad Badawi, EKONIS UKM contributes to this platform in the form of research and consultation, and Ethis Ventures plays the role of technology partner. The secretariat works together in locating potential waqf projects to been put on the platform. This is important to ensure transparency is not violated. Therefore, Waqfworld.org has established some guidelines. Firstly, Waqfworld.org only works with authorized and selected waqf bodies and NGOs. Secondly, these projects are managed by authorized mutawalli and thirdly, only impactful waqf projects are considered.

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Crowd funding

The Basic operational structure of Waqfworld.org

This shows the basic operational structure of Waqfworld.org. Waqfworld.org acts as mediator that matches between waqf donor and waqf fund raisers. Waqf donors can make a minimum $50 (Singapore Dollar) for each chosen campaign of the waqf project on the platform. No fees or charges are collected or imposed by Ethis Ventures but, transaction fees apply. Each waqf project that has been put up on the Waqfworld.org must have a mutawalli. The mutawalli is responsible for managing and monitoring the uses of waqf fund raised from the platform for the beneficiaries of the corresponding waqf projects. The flow of waqf fund from mutawalli to beneficiaries is not necessarily a straightforward process. Each waqf project has its own waqf model. Possible Situations Depending on its waqf model, waqf by cash from the donor via Waqfworld.org can be used in three possible situations. Firstly, it can remain in the form of cash whereby only proceeds from investment used for the beneficiaries and principal goes back into the cycle for investment. Secondly it is transformed into a tangible asset that generates an income to buy another asset. Thirdly, it is used to possess immovable assets such as buildings or land. The perpetuity of the corpus of waqf assets is protected regardless which model the waqf projects follow. It can be seen from this description that the whole system of Waqfworld.org works like a waqf driven sector contributing to the real sector economy. Being a secretariat to run Waqfworld.org is still considered a loose arrangement. It is the intention of Waqfworld.org to streamline the position of each party involved in the secretariat. The three parties remain but the secretariat must be transformed into a new institution that binds all parties legally. Islamic Finance Today - September 2016

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Waqfworld.org is also working on preparing a standard operating procedure (SOP) which involves the appointment of the Sharia Advisors. For the time being, Ethis Ventures uses its Sharia Advisors to ensure the operational structure of Waqfworld.org does not violate any Sharia principles. WaqfWorld.org currently does not charge any fees. Ethis Ventures is willing to run the platform and provide service on free of charge basis as part of its corporate social responsibility (CSR). WaqfWorld.org is now part of the EthisVentures.com family of Islamic crowdfunding platforms. There appears to be some urgency for Waqfworld.org to look for funding to meet operational cost as well as for management expenses obligations. The minimum of $50 cash waqf has to be reduced and transaction fees, if possible, must be borne by Waqfworld.org. so that waqf donors from all walks of life can contribute to it. Hence, Waqfworld.org is looking for more strategic partners such as IDB that are able to assist in the form of funding. At the same time, studies carried out by EKONIS will help Waqfworld.org to figure out the best mechanism to ensure the sustainability of the fund.

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Rosie Kmeid

Islamic nance: for a sustainable tomorrow By Rosie Kmeid

Rosie Kmeid is Vice President Global Corporate Communications & Marketing at Path Solutions An important development in the last two decades has been the growing emphasis on responsible, inclusive and sustainable finance. The recurring global financial crises provided a dramatic reminder of the basic purpose of financial intermediation as a means to create sustainable value in the real economy. Being consistent with the long term preservation and development of the global economy, society and environment, sustainable, responsible and impact investing (SRI) and environment, social and governance (ESG) considerations are gaining significant momentum in a number of developed countries. To meet the world's expectations of gaining traction towards achieving economic stability and growth, Islamic finance is uniquely positioned to champion this cause, guided by the all-embracing Sharia principles which emphasize protecting the interests of mankind. Islamic finance complies with Sharia rules which govern economic, social, political and cultural aspects of Islamic societies. In other words, the rules of Islamic finance place emphasis on the ethical restrictions underscored by Islamic values. Under this authority, Islamic finance is not only an alternative financial approach but also addresses the issues surrounding us today such as inequality, financial fragility and environmental hazard. The value proposition of Islamic finance, one that advocates justice, sustainability, inclusion and fair globalization, has extended out to the global community. It is the inherent qualities of this relatively new finance model that have attracted interest from diverse backgrounds, because at the core of Islamic finance lies virtues that encompass both ethical and moral aspects in driving potential solutions to achieve economic stability and environmental protection. Crossover with ethics Ethics in financial services has never caused so much attention. Ethical practices figure today as mainstream considerations in business decisions with regard to competitive advantage and financial performance. In recent times, a number of researches have been increasingly devoted to investigating the advantages of adhering to ethical standards in international finance. Islamic Finance Today - September 2016

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This circumstance goes with the fact that the existing standards are to a greater extent disputable. Ethical theories, developed mainly by Western scholars, are the current theoretical framework all financial institutions have at their disposal to ensure compliance with the spirit of the law. The contemporary steps at introducing ethical principles to the United States' corporate environment through the adoption and integration of the Sarbanes-Oxley (SOX) Act of 2002 into the USfinancial system are an example of the global imposition of a particular set of Western values that they believe is equally valid and commendable, noting that other financial markets are facing similar levels of regulations with SOX style compliance. However,compliance with SOX continues to be resisted mainly because of the substantial costs associated with it. Rather than comply, numerous financial institutions opted to “go dark” to avoid legal penalties, and many have chosen to launch their IPOs on foreign exchanges in lieu of raising capital in the US market. This new regulatory environment is burdensome to all financial institutions regardless of geography, as many do not have the infrastructure in place to handle the costs of complying. It is observed that scholars, jurists and analysts from think tanks concorded that governments should revisit the impact of codes of ethics, industry standards and regulations, so that financial institutions, being part of an 'ecosystem', can embed ethics in their decision making and operations at minimal cost. In Islam, ethics is the fundamental principle that shapes the Islamic financial system. The same principle is criteria shared with ethical or impact investing. As such, ethics and SRI are indistinguishable from the system itself. The ethical behaviour here stems from a desire to transcribe the religious beliefs into decent financial practices. Yet, there are considerable benefits in terms of greater relevance and scope shared between Islamic and ethical finance. This is a view that has much merit, as does the point made by the World Bank once that Sukuk can serve as a bridge between the worlds of Islamic finance and that of responsible investment. The rise of fintech and its impact on ethical finance The growing importance of responsible, inclusive and sustainable finance and the preconditions necessary to sustain a value-based financial system required provision of access to a range of ethical financial products supplied through various delivery channels in a well regulated environment. 19 IFT


Evidence showed considerable disparities in access to ethical financial services between populations. With the technological revolution and digitization, we are witnessing the most significant transformational development of our era, one that is certainly positive and inclusive for these populations. Thus, fintech is increasingly emerging not only as a tool that improves financial performance, it is also emerging as an effective tool to increase efficiency and sustainability. Fintech has demonstrated that it can contribute efficiently to financial inclusion and sustainable development, providing new ways for excluded people to be better integrated and have a superior financial and social status, while ensuring that they have access to a wide range of financial products in line with their values. Rather than looking at the fintech revolution as unwelcoming, we ought to leverage on it to advance economic and social goals and to embrace it as an opportunity, because its potential social impact is significant. The time is now There has never been a better time where a convergence of developments have called for us to transmit the values of Islamic finance in addressing the challenges confronting us today; economic inequality, wealth gap, and environmental damage and degradation. The ideology of purpose that is beginning to dominate our days is one that finds acceptance and participation by society at large in the adoption of ethical behaviour. In this game-changing trend creating both disruption and opportunities on a global level, leveraging on technology to accelerate innovation and meet the future needs of Islamic finance of contributing towards a more inclusive and stable global financial system is a growing imperative.


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Saba Radwan Jamal Elatrash is a Research Officer at the International Shariah Research Academy for Islamic Finance (ISRA) and Nur Shaira Mohd Yusoff is an Executive at ISRA Consultancy Sdn. Bhd.

Sustainable and Responsible Investment (SRI) is an investment that advances environmental, ethical, and social justice while employing any investment strategy that achieves both financial return and beneficial impact on society. The idea of protecting and enhancing the community through investing for a social cause and generating a financial return is very appealing to 21st-century investors. In fact, SRI assets under management in the US alone is said to be worth more than $6.57 trillion according to a 2014 report by the USSIF Foundation. Islamic finance prescribes the principles and elements of social responsibility, profit and risk sharing, as well as ethical practices in all that is financed and transacted. There is a great emphasis on ensuring Islamic finance transactions do not contain any elements of injustice, oppression, and exploitation. There is no denying that the objectives of Islamic finance and SRI can easily go hand in hand. Developing Sharia compliant structures and products for SRI is likely to become an important contributing factor to the expansion of Islamic finance in the global market. The rapid growth of Islamic finance and SRI over the past two decades reflects the soaring appetite of investors who are demanding products that not only provide financial return but also bring about social change. However, without adequate government structure and proper regulatory frameworks to regulate Sharia-compliant investments, Islamic finance instruments with SRI elements such as SRI Sukuk might not develop to its full potential. The challenge is to ensure that its investors have the assurance that while the investment is Sharia compliant, it also complies with SRI's environmental, social and governance (ESG) set of standards and best practices. Eligible Projects To further develop the Islamic capital market and enhance Malaysia's leading position in the global sukuk market, the Securities Commission Malaysia (SC) introduced the SRI Sukuk Framework in August 2014 to facilitate the rising trend of SRIs. Eligible projects aim to: (I) preserve and protect the environment and natural resources; (ii) conserve the use of energy; (iii) promote the use of renewable energy; (iv) reduce greenhouse gas emission; (v) improve the quality of life of society. Projects that adhere to these objectives will be deemed to be an eligible SRI project. Islamic Finance Today - September 2016

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Figure 1: Projects that Can be Deemed “Eligible SRI Project”

Eligible SRI Sukuks can undertake to develop Waqf properties and assets. The clarification on what is considered an eligible SRI Sukuk is significant when comparing Malaysia to other countries. Malaysia has successfully created a framework for SRI Sukuk that provides legal and regulatory clarifications on what can be considered as SRI Sukuk. This move is seen as encouraging issuers and providing them with guidelines to come up with eligible SRI Sukuk projects. Concurrently, such legal backing from these guidelines or framework provides credibility to foreign and local investors. The SC has taken this a step further by imposing disclosure requirements on the issuer whereby the issuance of a disclosure document in relation to the SRI Sukuk must include: (i) Details and impact objectives of the eligible SRI project; (ii) A statement that the issuer has complied with relevant environmental, social, governance (ESG) standards or recognized best practices relating to the eligible SRI project. Fostering Innovation The primary aim of the SRI Sukuk Framework is to foster innovation and dynamism in the Islamic finance market. The introduction of the SRI Sukuk Framework has benefited the Malaysian Islamic Capital Market industry through the issuance of the world's first ringgitdenominated SRI Sukuk by Khazanah Nasional Berhad . Khazanah's vision is to be the leading regional strategic investment house that creates sustainable value for a globally competitive Malaysia. True to its vision; it issued the world's first ringgitdenominated SRI Sukuk in 2015. 23 IFT


Led by a Special Purpose Vehicle (SPV) called Ihsan Sukuk Bhd (Ihsan), the sukuk program issued a nominal value worth RM1.0 billion. The tenure of the program was for 25 years from its first issuance with a remarkable preliminary rating of AAA(s) by RAM Rating Services Berhad. The sukuk program was deemed hugely successful with an oversubscription for the first issuance worth RM100 million and has a 4.3% return per annum over a 7-year tenure. The structure of the Sukuk is as below.

Figure 2:Khazanah SRI Sukuk Structure Source: CIMB (2015)

The structure of the SRI Sukuk is in accordance with the Islamic principle of wakalahbi al istithmar, which further acknowledges Khazanah's efforts in intensifying the innovation and evolution of Islamic Finance. The issuance proceeds will be channeled to YayasanAMIR, a not-forprofit foundation initiated by Khazanah to manage its cashflow for the deployment of the Trust Schools Program for schools identified in 2015. YayasanAMIR will, in turn, focus on improving accessibility to quality education in Malaysia's government schools. The sagacious step taken by Khazanah gives a reason for the stakeholders in the Islamic Finance industry to dream big and anticipate a brighter future. The first issuance of SRI Sukuk in Malaysia has amplified the expectations and hopes of society to access quality education. This SRI Sukuk could fulfill the needs of both investors and society towards ensuring growth in the community's economy. Islamic Finance Today - September 2016

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Attractive Package Ultimately, SRI Sukuk has the significant advantage of providing a package that is very appealing to investors. The ever increasing need for developing and improving transport services, housing, schools, and hospitals,in addition to the necessity of developing alternative energy resources as well as green energy for the future generation, is an outcome desired by socially responsible, ethical and green investors. Though the SRI Sukuk is seen as cutting edge and progressive in the sukuk industry, it has a long way to go. To encourage better participation and break new ground in the global market, countries across the world can facilitate the development of SRI Sukuk with a robust legal, regulatory and governance framework such as the SRI Sukuk Framework issued by the Securities Commission Malaysia. It is a leading example of what has to be provided to meet the demands of both retail and sophisticated investors in the sukuk market.

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Islamic Finance Today - September August 20162016

ISLAMIC FINANCE

By Mufti Ismail Ebrahim Desai

Question: I have given money to a builder for investing in his projects. When he sell the flats he will return an amount as per loss/profit. Is this permissible according to Sharia ? Answer: We understand that you have given your funds to a builder to invest on your behalf and return the funds based on a profit and loss sharing basis. There are various ways of executing such an investment transaction from a Sharia perspective. Hereunder follows the fundamental concepts and rules thereof: 1. Mudarabah – Sweat Partnership Mudarabah is a partnership wherein one partner contributes investment capital to the partnership and the other contributes the labour/management expertise. The investment partner is the Rabbul Mal while the labourer is the Mudarib. In a Mudarabah partnership, a fixed profit ratio/percentage may be fixed. For example, partner A receives 60% of the profits while partner B receives 40% of the profits. However, a fixed amount cannot be fixed nor can a percentage on the capital investment be fixed. All losses will be for the account of the investor. Based on the scenario in reference, the builder can be deputed as the Mudarib while you will be the Rabbul Mal. All responsibilities of management lie with the Mudarib and the investor has no managerial role unless otherwise agreed. 2. Wakalah – Agency The builder is appointed by the investor as agent and receives a fixed salary or commission fee. This commission fee or salary is not based on the risk of the project but the work provided by the agent. 3. Istisna – Manufacturing Contract Istisna is a contract in which the manufacturer or builder pre-sells a product to the purchaser upfront before manufacturing or building with all the stipulations and specifications of the end product including delivery date. The purchaser pays for the product/building during the contract tenure and then takes ownership and possession once the product is completed and fully paid for.


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Based on this contract, the builder fixes his mark-up on the building and the purchaser re-sells the building for a profit either via a parallel Istisna contract with another buyer during the tenure of the contract or a sale and purchase agreement after taking ownership of the property. Question: I have a question on credit card balance transfer. This does not charge any interest for a stipulated period of time but charges a fee, usually 3%, before the transfer takes place. Please let me know if it would be permissible to involve in such transactions. Answer: A credit card balance transfer is the transfer of the balance (the money owed) in a credit card account to an account held at another credit card company. In principle, the usage of a credit card is permissible on condition one is certain of abstaining from interest and late payment fees. The fees charged by the credit card company is only validated in exchange of an equal service provided and not in exchange of the credit provided as that would entail interest and hence prohibited. With regards to your specific query, the 3% charged by the credit card company is in exchange of valid administrative costs and hence permissible. Moreover you should refrain from paying interest on the credit provided by the registering credit provider. Question: Is it permissible to daytrade stocks, for example if I own stocks in a company which increases by 10% and I sell it and then at the end of the day I see it has fallen 2% and buy it back? Is this type of trade permissible or is it only allowed to invest in a long period of time? Answer: Day trading is defined as the buying and selling of a security/stock within a single trading day. Once the stock owned by the shareholder is sold, it does not belong to him. The repurchase of the stock at a lower price is a separate and completely new transaction. Day trading is permitted provided the underlying traded stock is Sharia Compliant. Question: I am planning to go for a loan for a house. I know it is not permissible as all Indian banks have a Riba-based system. So how can I get a home loan?

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Answer: We commend your enthusiasm in searching for Sharia Compliant Solutions. You state that you wish to purchase a house. It is impermissible for one to purchase a house on the basis of home mortgage/interest bearing loans. You also state that Indian banks do not offer Sharia Compliant home financing. We advise you to consider adopting Sharia Compliant Home Finance Solutions via private funding using the following common Sharia Solutions: 1. “Ijara Wa Iqtina” (Rent to Buy) facility where a prospective client may lease a house over a period of time and thereafter receive an option to purchase for a minimal sum of money. 2. Murabaha “Cost plus Financing” facility where the client purchases equity from a third party while receiving the necessary finance from the Islamic Bank. This facility entails a complex structure of seven different stages such as purchase requisition, MMFA “Master Murabaha Facility Agreement”, Agency (Specific/Global) Agreement, etc. 3. Bay al-Ta'jeel “Sale on deferred payment” facility where the bank sells the equity to the client on the basis of periodic instalments for a fixed tenure. 4. Diminishing Musharakah where the bank and the client jointly purchase the equity. The bank charges rent to the client for the equity it owns while the client gradually purchases the bank's equity over a fixed period of time.


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