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Hakim Bey

A SAVE HAVEN IN TIMES OF CLAMOR AND STRIFE


If there is to be anything positive to emerge from the (seemingly) never ending global credit crunch, it must surely be this -- the rise of Islamic banks. Folk around the world are flocking to them, rushing their savings into them, as fast as they can deposit them. Fear might be the dominant motivation, but disgust figures as well: disgust at the orgy of speculation which is 21st century western style banking, disgust at the lack of ethics and accountability. Islamic banks beckon as safe havens amidst the raging financial storm that is true, each one a harbor in this time of clamor and strife. But I like to think that Islamic banking represents something more than safety and stability, and in some ways offers a template for a whole new model of social life. The era of casino capitalism is imploding, that cannot be denied -- and between the cracks in the walls, if one is sensitive enough, one can discern the shape of what it is to come. Put another way: In the cataclysm which is breaking upon us, it might indeed be Islamic banks and their ilk which survive to dominate the post-Crunch world, while western institutions go the way of the dodo, and the dinosaurs. We could certainly do with some kind of alternative, in the more caring, sharing, community minded era which I hope is soon about to dawn. I am no Muslim by any means, but it took me only a heartbeat to recognise the wisdom of Islamic finance, which seems rooted in community (rather than the Baudrillardian hyperspace of speculation). I am not the only convert, not the only one by far. As The Birmingham Post from the United Kingdom reported on October 3, 2008: "Growing numbers of non-Muslims are turning to Islamic banking as customers spooked by turmoil in the Western banking system increasingly see the sector as a safe haven.

"The Birmingham-headquartered Islamic Bank of Britain said it had seen significant growth in non-Muslim customers since the onset of turbulence on financial markets as Islamic banks, bound by strict religious principles, are largely seen as insulated from the credit crisis.

"Islam's prohibition on the charging or paying of interest - riba - as well as rules on the kinds of investments they can make are among the reasons Islamic banks are coming through the crisis unscathed."

At the Islamic Bank of Britain or IBB as it called you won't earn any interest on your savings account -- you will however earn a four percent "target profit rate". At Islamic banks in Malaysia too (and there are many of them) the going rate for savings accounts seems to be about four per cent. At no Islamic bank anywhere in the world, from the Persian Gulf to the gleaming towers of The Orient, will you find ridiculously overpaid bankers inventing products like derivatives which basically add nothing to the capital of the human race. Actually, that is not exactly true -- they do have derivatives in Islamic banking, read this article for confirmation of that. But the difference between Islamic finance institutions (IFI's) and Wall Street, for example, is that IFIs, in order to remain Shari'ah-compliant, must qualify their products and strategies through the scholars that provide supervisory authority. If only Wall Street had had this kind of spiritual oversight (or any oversight at all!) That is not to say that Islamic banks and finance institutions are dreary affairs, lacking any color or imagination. The Islamic banks in Malaysia over the full range of modern services including Internet banking, credit cards and the like. This is not like revolutionary Iran. In addition to Islamic loans, there are Islamic bonds, Islamic credit cards and even Islamic derivatives (I know, I said that before -- they have derivatives in Islamic banking!) Loans and bonds that conform to the Koran are already available in the United States. And Britain, Japan and Thailand are contemplating issuing Islamic bonds of their own. (Hong Kong is getting in on the act too -- read this article here for further enlightenment!) So how does an Islamic bond differ from a Wall Street bond, exatcly? Well, Islamic bonds, or sukuk, do away with coupons and replace them with payments backed by the performance of tangible assets. Islamic law prohibits the payment of interest (as I have stated before) and requires transactions to be linked to assets, thus deterring the kind of complexities prevalent in conventional financing operations.

Some folks might think that that Islamic banking is not about making money, but this is not true -- under the concept of Al Ghunm bil Ghurm, earning profit is legitimized only by engaging in an economic venture, risk sharing and thereby contributing to the economy (source: Asian Finance Bank).

The International Herald Tribune said: "Big banks, including Citigroup, HSBC and Deutsche Bank, as well as financial capitals like London, Tokyo and Hong Kong, are all going into the Islamic banking business. An estimated 300 Islamic financial institutions hold at least $500 billion in assets, an amount that is increasing more than 10 percent a year.

"'This is an industry on its way from a niche industry to becoming a truly global industry,' said Khawaja Mohammad Salman Younis, the managing director for operations in Malaysia for Kuwait Finance House, the world's second-largest Islamic bank, after Al-Rajhi Bank. 'In the next three to five years you'll see Islamic banks coming out in Australia, China, Japan and other parts of the world...'"

The venerable Christian Science Monitor writes: "At a time of almost unprecedented financial volatility, Islamic banks are being hailed as bastions of stability. Growing numbers of individuals and companies are now embracing their workings, which are based on Koranic principles.

"Using law changes and generous tax breaks, the British government is now attempting to transform London into the Western world's center for Islamic finance. Conventional banks and financial institutions are also rolling out a range of Islamic finance products.

"Globally, the market for Islamic financial services is estimated to have grown more than threefold over the past decade Efrom around $150 billion in the mid-1990s to $500 billion in 2006.

"Keen to tap into this, Britain's authorities are planning to become the first Western government to issue an Islamic bond Ecalled a sukuk Estructured to comply with the sharia law principles of Islamic finance, which forbids all forms of interest payments..."


A GLOSSARY OF ISLAMIC BANKING TERMS


Islamic banking is based on Shariah law. Here is a glossary of terms you might expect to find in a contract at an Islamic bank in Malaysia or elsewhere in the world, borrowed from Alliance Islamic Bank, Asian Finance Bank, and myriad other sources:

Al-'Aariyah (Gratuitious loan of non-fungible objects)
This Arabic term basically means "trust", and comes bundled with associated nuances of trustworthiness, faithfulness and honesty. In the world of Islamic banking, Al-'Aariyah refers to a transaction in which one party keeps another's funds or properties in trust. "By extension, the term can also be used to describe different financial or commercial activities such as deposit taking, custody or goods on consignment" (from Asian Finance Bank).

Al-Kafalah (Suretyship)
The third party guarantor of Islamic banking. Literally, Kafalah means responsibility, amenability or suretyship. Legally in Kafalah a third party become surety for the payment of debt. It is a pledge given to a creditor that the debtor will pay the debt, fine etc. Suretyship in Islamic law is the creation of an additional liability with regard to the claim, not to the debt or the assumption only of a liability and not of the debt.

Al-Rahn
Pledge, Collateral; legally, Rahn means to pledge or lodge a real or corporeal property of material value, in accordance with the law, as security, for a debt or pecuniary obligation so as to make it possible for the creditor to recover the debt or some portion of the goods or property. In the pre-Islamic contracts, Rahn implied a type of earnest money which was lodged as a guarantee and material evidence or proof of a contract, especially when there was no scribe available to put it into writing. The institution of earnest money was not accepted in Islamic law and the common Islamic doctrine recognized Rahn only as a security for the payment of a debt.

Al-Sarf
Basically, in pre-Islamic times it was exchange of gold for gold, silver for silver and gold for silver or vice versa. In Islamic law such exchange is regarded as "sale of price for price" (Bai al Thaman bil Thaman), and each price is consideration of the other. It also means sale of monetary value for monetary value -- currency exchange.

Arbun
One of the permissable "deferred contracts" in Islamic banking, according to the Islamic Bankers Resource Center.

Bai Bithaman Ajil
This contract refers to the sale of assets or goods on a deferred payment basis. Assets or goods requested by the Customer are bought by the Bank which subsequently sells it to the Customer at an agreed price which includes the Bank's mark-up profit. The Customer may be allowed to settle payment by instalments within a pre-agreed period, or in a lump sum.

Bai Dayn
The provision of financial resources required for production, commerce and services by way of sale/purchase of trade documents and papers.

Bai Ma'Dum
Buying and selling something which does not exist.

Bai'Muajjal
Literally it means a credit sale. Technically, a financing technique adopted by Islamic banks that takes the form of Murabaha Muajjal. It is a contract in which the seller earns a profit margin on his purchase price and allows the buyer to pay the price of the commodity at a future date in a lump sum or in installments. He has to expressly mention cost of the commodity and the margin of profit is mutually agreed. The price fixed for the commodity in such a transaction can be the same as the spot price or higher or lower than the spot price.

Bai Sarf
The buying and selling of foreign currencies.

Fiqh Muamalat
Islamic commercial law, according to a Malaysian bank which bears its name.

Gharar
"Speculation or uncertainity, prohibited in Islamic banking because speculation favors the bank. Instead, money is made through mutually beneficial partnerships and profit-sharing in Halal trade and investments." (Source: Al Rajhi Bank.)

Haram
Forbidden. Here's a story from India's Zee News in February 2012: "Forex Trading is Haram, According to Malaysia's Fatwa Council".

Ijarah
A contract where the benefits/use of an asset are transferred by the owner/lessor to the lessee at an agreed price/rental amount for an agreed period of time or lease period.

Ijarah Thumma Al-Bai
A type of lease which concludes with the option to buy-back in which the legal title of the leased asset will be passed to the lessee at the end of the lease period.

Istisna
A contract of acquisition of assets by specification or order, where the price is paid in advance, but the assets are manufactured/constructed and delivered at a later date.

Kafalah
A surety given by one party who agrees to discharge a liability of a third party in case the third-party defaults in fulfilling his obligation.

Maisir
Gambling, one of the big no-no's of Islamic banking.

Mudharabah
An agreement made between a party who provides the capital and another, usually an entrepreneur, to enable the entrepreneur to carry out business projects. The agreement will be on a profit-sharing basis, according to a pre-determined ratio agreed upon earlier.
In the perspective of Islamic banking, the agreement could be between a depositor and the Bank (as the entrepreneur), or the Bank (as capital provider) and an entrepreneur. In case of losses, they are borne by the providers of funds.

Murabahah
A sale contract between the Bank and its Customer for the sale of assets or goods at a price which includes a profit margin agreed by both parties. It involves the purchase of assets or goods by the Bank as requested by its Customer. The assets or goods are sold to the Customer with a mark-up profit. Payment, usually in instalments, is specified in the contract.

Qardh
Islamic loan.

Qimar
Gambling, an ultimate no-no in the realm of Islamic banking, as is investing in pork industries or pornography.

Wadiah Yad Dhamanah
A contract between 2 parties i.e. the owner of goods and the custodian of goods to ensure the safe custody of the goods. The goods are protected from being stolen, lost, destroyed, etc. 'Goods' can refer to anything of value.

Wakalah
Refers to the nomination of a person by another to act on behalf or as his agent.

Ujr
Refers to commission, fees or wages charged for services.

Wa'ad
With Wa'ad, the rules are less stringent as it is a gPromiseh thus is non-binding. It is also unilateral therefore both parties can choose not to make good their promise. Under Shariah, because of the unilateral nature of the promise, the details of the promise is not as carved in stone as any other contract. Those restrictions do not apply to the contract of Wa'ad, where in other contracts the details such as time of delivery, the price, terms of payment and goods specific description are strictly adhered to.

Zakat
As the Guardian newspaper in the UK wrote, a zakat is a special levy imposed on the wealthy, with takings distributed to poorer sections of the community. "This law applies to both individual and business wealth," the newspaper reported. "In the wealth that is produced, three parties are entitled to share: the working man, the person supplying the capital, and the community as representing mankind."


ABC OF ISLAMIC BANKS AND FINANCE INSTITUTIONS IN MALAYSIA



ASSOCIATION OF ISLAMIC BANKING INSTITUTIONS MALAYSIA:


Members include Affin Islamic Bank Berhad, Alliance Islamic Bank Bhd, Al Rajhi Banking & Investment Corpn. Bhd, AmIslamic Bank Berhad, Asian Finance Bank Berhad, Bank Islam Malaysia Berhad, Bank Kerjasama Rakyat Malaysia Berhad, Bank Muamalat Malaysia Berhad, CIMB Islamic Bank Berhad, EONCAP Islamic Bank Berhad, Hong Leong Islamic Bank Berhad, HSBC Amanah Malaysia Berhad, Kuwait Finance House (Malaysia) Berhad, the aforementioned Maybank Islamic Berhad, OCBC Bank (Malaysia) Berhad, Public Bank Berhad, RHB Islamic Bank Berhad, and the Standard Chartered Bank Malaysia Bhd.


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Including part time jobs. The last time I checked in the part time jobs // entry level section, there were nine jobs listed (over the past two months). These included home-based telemarketer (in the KL area), health advisors (promoters) in the Klang Valley, and payment manager for a US software company.


JOBS MANAGER:


Umesh Desai from Reuters reported in August 2008: "The global credit crisis presents the $1 trillion Islamic finance industry with an opportunity to expand its appeal beyond Muslim investors, as a haven from speculative excess. While conventional banks worldwide are nursing losses of more than $400 billion from the credit crisis, Islamic banks are virtually unscathed. And they are playing up the contrast to scalded shareholders, bondholders and borrowers and fearful depositors. "It's very much a return to old-fashioned conservative lending," said David Testa, chief executive of Gatehouse Bank, which began operations in April as the fifth Islamic bank in Britain. "The current global market condition has given Islamic finance a great opportunity to show what it can do - help to fill the liquidity gap," he said. Testa said that Islamic finance practices were more fiscally conservative, with direct participation by investors in plans that do not involve parking assets in off-balance-sheet vehicles. The Asian Development Bank estimates that Islamic assets globally have a combined value of about $1 trillion, with annual growth of 10 percent to 15 percent a year. Al-Rajhi Bank of Saudi Arabia and Kuwait Finance House are the two biggest Islamic banks in the Gulf region. In Malaysia, the largest Islamic lender is Maybank Islamic, a subsidiary of Malayan Banking.

The jump in popularity of Islamic finance is drawing the interest of companies outside the Middle East. City Developments, one of the largest developers in Southeast Asia, said last week that it could issue Islamic debt and sell hotels to enhance its ability to make acquisitions.

Debashis Dey, the Dubai-based head of capital markets at the law firm Clifford Chance, said that although the Islamic finance industry was adapting conventional products to make them compliant with Shariah, it was a long way from sophisticated products like collateralized debt obligations. But while Islamic products are coming into favor, analysts say market commentators and intermediaries may be too zealous in promoting the merits of Islamic finance as a safe product. Mohamed Damak of Standard & Poor's cited the case of the boom in real estate financing in the Gulf mainly by Islamic banks in the past three years, amid soaring property prices. "A correction of the real estate sector would impact Islamic banks involved in this business line. Islamic finance is not immune from risk," he said. Even as experts are weighing the degree of insularity that Islamic financing provides, there are differences in the way accounts are prepared and in how Shariah law is interpreted. Banks in Britain differ in their accounting operations from banks in Bahrain, for example, which in turn differ from banks in Malaysia and Indonesia. Dey, at Clifford Chance, said the lack of standardization posed a hurdle to growth, but others said that a cookie-cutter approach was not desirable and that regional differences would remain.

"Complete standardization may not happen - there will always be variants," said Raj Maiden, managing director at Five Pillars in Singapore, who added that it was more important to tailor products according to the needs of each market.
"While the debate rages on whether Islamic finance provides a safer bet or is merely a potential source of irrational exuberance, most agree the industry should make the most of the attention it is now receiving.
"If Islamic banks step up to the mark, then they will gain traction," said Testa, of Gatehouse."



PART TIME JOB, PART TIME BUSINESS, KERJA SAMBILAN MALAYSIA:


The Sydney Morning Herald from Australia wrote: "Charging interest is immoral because it does not take into account how changes in the value of the loan's security can affect the borrower, sharia says. Home owners who bought near the peak are now experiencing this harsh reality: interest gives banks a steady payment from the borrower, regardless of the property market's state.

"However, profit is fine, and Islamic banks have devised ways to make money from lending. Instead of demanding interest, they buy the asset outright on behalf of the borrower. The borrower pays off the loan (the principle) and a fee for using the asset (rent, for example) until the amount is repaid and ownership transfers to the borrower.

"Just like mortgage-backed securities, the rights to loan repayments can be sold as an Islamic bond, or sukuk. But instead of a yield, the bondholder receives repayments on the loan, and some rent. As a result, Islamic lenders have not had to venture into money markets that have recently blown up. For depositors, putting your money with an Islamic bank is more like being a shareholder. Rather than interest, depositors get a cut of any profits. Understandably, Western governments are casting around for ideas on how to run a more robust financial system. But what could they possibly learn from such a different approach? Islamic finance's more prudent rules on debt look attractive in hindsight. But more fundamentally, proponents say it provides a better way to link the financial system to the "real" economy. Because Islamic banks keep ownership of the asset until the loan is repaid, they have a greater incentive to make sure borrowers do not bite off more than they can chew. The bank shares in the risks of the entrepreneur but also its failures, the argument goes. I am not suggesting we switch to a lending system without interest payments. But a big gripe emerging in recent weeks is that finance has become out of whack with the needs of the rest of the economy.


ISLAMIC BONDS IN MALAYSIA


There are three types of Islamic bonds issuers a. Government Government Investment Issues (GII) - Issued by the Government of Malaysia - Governed by the Government Investment Act 1983; provides the power for the government to borrow via Islamic principle for its general financing. - Currently only zero coupon bonds issued - Syariah principle: debt based (securitisation of government assets, but not a direct claim of assets as in an Asset-backed securities) - Total outstanding balance as at end of 2003 is RM7b, up to a limit of RM15b imposed by the Act. - Tradable since June 2001. - Issued on a pre-announced calendar. b. Quasi Government Khazanah Benchmark Bond - Khazanah Benchmark Bond was issued by Khazanah Nasional Berhad (fully owned by the government) - Issued mainly for long-term financing purposes - Zero coupon - Syariah principle: debt based - Total outstanding balance as at end of 2003 is RM10b (maximum limit) c. Corporate bonds - Known as Islamic Private Debt Securities(IPDS) - Issued by big corporations in Malaysia - Minimum period of 3 years and maximum of 20 years - Approval from Security Commission and Central Bank required


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