Isfire June 2018 Issue

VOLUME 8 - ISSUE 3 | JUNE 2018 - £20

INSIDE THIS ISSUE PERSONALITY INTERVIEW

Dr. Ahmed Abdul Hameed Al Shaikh, Director, Bahrain Institute of Banking & Finance

ISFIRE REPORT

Third Global Good Governance Awards

TECHNICAL NOTE

Standardisation of Notation in Islamic Economics, Banking & Finance

Published by:

Exclusive Interview with

DR. AHMED ABDUL HAMEED ALSHAIKH Director, Bahrain Institute of Banking & Finance

FROM THE

EDITORIAL NOTE

I was recently in Astana, Kazakhstan for the launching of our 9th edition of the Global Islamic Finance Report 2018. The ceremony was held in conjunction with the Astana Finance Days and the official launch of the Astana International Financial Centre or AIFC as part of Kazakhstan’s ambitious project to establish Astana as the main financial hub for Central Asia, the Caucasus, Eurasian Economic Union, the Middle East, and Europe. The new financial centre is set to offer financial services, including in financial technologies, Islamic finance, green finance, capital market and asset management.

It was indeed a grand affair. But what struck me the most was the rapid transformation of Astana from a small town in the Kazakh steppes into a world-class capital over the course of merely 20 years span. As part of the Digital Kazakhstan state programme, the government is seeking to improve quality of life and to increase the competitiveness through the digital ecosystem development. Its main directions include the digital government, high technology digital infrastructure development, transformation in economy sectors and human capital development.

Astana’s incredible transformation in becoming a modern city that is playing an ever-growing political and cultural role in the world community, is a testament to the importance of countries

EDITOR IN CHIEF

and organisations to transforms themselves in the wake of the fourth industrial revolution and digital economy.

Operating in the Digital Age, Islamic finance cannot escape fintech revolution. Within this context, the sector must embrace the financial technological revolution, which will be the next game-changer for the industry.

In this issue’s cover story; Dr. Ahmed Abdul Hameed Al Shaikh, Director of Bahrain Institute of Banking & Finance, talks about the importance of leveraging on technology to drive the human capital agenda for the Islamic financial services industry. He stressed that new technological disruptions that are taking place should be welcomed rather than seen with scepticism.

Elsewhere in the magazine, we have an article that investigates the possible DNA of crypto currency and a feature article that discusses the role of women empowerment as a key growth driver of the Islamic finance industry.

Happy reading!

Dr. Sofiza Azmi Editor-in-Chief

ISSN 2049-1905

CONTENTS

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

COVER STORY 08 Dr. Ahmed Abdul Hameed Al Shaikh

Director, Bahrain Institute of Banking & Finance

VOLUME 8 - ISSUE 3 | JUNE 2018

TALKING POINTS 14

London Housing Market Is There a Role for Islamic Finance to Play?

32 Making Women Empowerment a Key Growth Driver of Islamic Finance Industry

PERSONALITY 36 James Chua

Deputy Head of Treasury & Global Markets at Bank Islam Brunei Darussalam (BIBD)

ISFIRE REPORT

38 Third Global Good Governance Awards

ISFIRE NOTE

50 Cryptocurrencies New DNA?

PAUSE FOR THOUGHT 56 Pause for Thought

TECHNICAL NOTE

60 Standardisation of Notation In Islamic Economics, Banking & Finance

50

CONTENTS Editor-in-Chief Dr. Sofiza Azmi

CEO, Edbiz Consulting

Editorial Assistant Hasha Dar

International Editorial Board Dr. Nafis Alam University of Reading Malaysia

Professor Mehmet Asutay Durham University

Professor Dr. Mehmet Bulut Istanbul Sabahattin Zaim University, Turkey

Dato’ Dr. Asyraf Wajdi Dusuki Islamic Finance Expert

Professor Joseph Falzon University of Malta

Dr. Mian Farooq Haq State Bank of Pakistan

Professor Kabir Hassan, The IDB Prize Winner 2016

08

University of New Orleans

Dr. Rizwan Malik

Islamic Finance Expert

Moinuddin Malim Alternative International Management Services

Dr. Aishath Muneeza INCEIF

Dr. Asmadi Mohamed Naim Universiti Utara Malaysia

Professor Muhamad Rahimi Osman Universiti Teknologi MARA

M. Saleem Ahmed Ranjha Wan Miana Rural Development Programme

Dr. Irum Saba

32

Institute of Business Administration, Karachi

Dr. Mughees Shaukat College of Banking and Financial Studies, Muscat

Dr. Usamah Ahmed Uthman

60

King Fahd University of Petroleum & Minerals

Designed By Published by Edbiz Corporation Limited

305 Crown House, North Circular Road, Park Royal, London, NW10 7PN, United Kingdom T: +44 (0) 203 617 1089 E: info@edbizconsulting.com W: www.edbizconsulting.com

Ehtisham Ahmad Kamal Fasha

Advertisements, Commercial and Subscription Enquiries Khuram Shehzad E: kshehzad@edbizconsulting.com T: +44 (0) 203 617 1089

This publication is provided for information purposes only and should not be treated as financial, legal or policy advice in relation to Islamic banking and finance in general or to any Islamic financial institution in particular. The reader should not act on the basis of the information contained in this publication without having obtained individual, expert advice. In this respect, publishers, editors, contributors, sponsors and other supporters of the publication do not assume responsibility for any damage resulting from decisions made by the reader on the bases of the information contained herein.

Copyright Š 2018 Edbiz Consulting

ISLAMIC FINANCE REVIEW | JUNE 2018

COVER STORY

DR. AHMED ABDUL HAMEED AL SHAIKH Director, Bahrain Institute of Banking & Finance

8

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

COVER STORY

Driving the Human Capital Agenda

9

ISLAMIC FINANCE REVIEW | JUNE 2018

COVER STORY

Q1. ISFIRE has a global distribution and our readers come from all over the world. Kindly share with us your personal approach to Islamic banking and finance (IBF). As Director of BIBF, how has BIBF contributed to the development of Islamic banking and finance in Bahrain and globally?

Q2. You have had an illustrious career, most recently with Labour Reform Project. Now you’re running an institute that arguably has one of the best centres of excellence in Islamic finance in the world. How does your current role excite you professionally and personally?

The BIBF was established in 1981 and is the training arm of the Central Bank of Bahrain. We have 7 learning centres including Banking, Accounting and Finance, Leadership and Management, IT and Project Management, Insurance, Academic Studies and of course Islamic Finance. Since inception, we have trained over 340,000 individuals in 63 countries.

Within Bahrain, the BIBF continues to be the backbone of the financial sector as most employees of financial institutions have been trained at the BIBF, be it at entry level, technical or professional training or executive development or board level training.

For me, professional and personal satisfaction are inter-twined. The fact that at the BIBF we are continuously trying to raise the competency levels of our trainees to make them competitive internationally is my major challenge as well as motivating factor.

The Islamic Finance Centre was established in 1997 and has the unique distinction of being the oldest Islamic finance professional qualification provider in the world. We strive to facilitate not only the local but also the global Islamic finance industry – by providing holistic solutions such as consultancy and product development apart from training. We have worked with Central Bank entities of different jurisdictions within the GCC and beyond to enable regulators to better appreciate the workings of Islamic banking and finance. We have also provided Islamic finance trainings to infrastructure institutions such as the World Bank among others.

Moving forward, to reach a wider audience, we have leveraged technology and BIBF is the only institute globally to exclusively partner with A AOIFI and IFSB on e-Learning. We are also launching our flagship Advanced Diploma in Islamic Finance (ADIF) as a distance learning programme and have used virtual classroom software to deliver courses outside Bahrain.

10

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

COVER STORY

Q3. Bahrain is big on an Islamic banking and finance agenda. How do you position BIBF in the overall landscape of IBF in the country, in the region and globally?

As mentioned earlier, the BIBF is the training arm of the Central Bank of Bahrain and the Islamic Finance Centre is the oldest Islamic finance professional qualification provider in the world. Both these unique attributes help us get insight into the market gaps and requirements. Moreover, the Islamic Finance Centre has an advisory board, which includes international industry experts such as Shaikh Essam, Mr. Ijlal Alvi and Mr. Ashar Nazim among others. The Centre also works closely with HR managers of Islamic banks in Bahrain and each year, the Masterclasses offered are based on the feedback of the industry.

Within Bahrain and Muslim majority countries, again, growth is dependent on how Islamic banking positions itself. New technological disruptions taking place should be welcomed rather than seen with skepticism.

Islamic banks in Muslim countries can significantly increase their market shares if they effectively harness technology and offer innovative products catering to the needs of the clients. For example, majority of the global Muslim demographic consists of young people but Islamic banks have largely ignored that and there are not many product catering to young professionals.

From a global perspective, the Islamic Finance Centre works with Central Bank entities as well as financial institutions. We also work with universities in the UK to develop their Islamic finance modules and have developed the IFQ Level 2 qualification for the Chartered Institute of Securities and Investments (CISI). To further its international footprint, the Islamic Finance Centre is leveraging technology with its e-Learning strategy (mentioned earlier). The Centre is also launching the Islamic Finance Management Development Programme in partnership with the Coventry University, to be held at CU in July this year.

Q 4. Islamic banking and finance is significant in terms of size and proportion in the Bahrain financial sector. Some analysts believe that further growth in the sector will pose a real challenge and that it will be extremely difficult for Islamic banks and financial institutions to cannibalize conventional banking and financial business beyond the current market share.

Does it mean that Islamic banking and finance will never have a market share of 50% or more in Bahrain?

I believe that Islamic banking has a much larger role to play within the financial sphere but it is imperative to have a strategy rethink. We saw that post 2009 financial crisis, Islamic banking in some Western countries received remarkable attention. This was mainly due to the fact that it was seen as an ethicsbased alternate value proposition for the financial system. Islamic banking can also increase financial inclusion and if done in a proper manner, can lead to more equitable distribution of wealth in society.

Therefore, I strongly believe that if Islamic banking is to play a larger role globally, it needs to be positioned as a viable, ethical alternative.

Q5. The world is fast becoming orientated towards the use of social media. What role can social media play in creating awareness around Islamic banking and finance?

I believe that social media is an efficient tool to reach a large audience as well as directly interact with them.

The BIBF has a strong social media presence in all major platforms such as Facebook, LinkedIn and Instagram.

The Islamic Finance Centre is in the process of launching an Islamic finance awareness campaign to increase the understanding of the general public regarding Islamic banking products. The whole idea is to counter the rampant misconception and skepticism about Islamic banking. A major chunk of this campaign will see the use of social media to get the message across to a wider audience.

11

ISLAMIC FINANCE REVIEW | JUNE 2018

COVER STORY

Q6. Bahrain is one of the few examples of countries where governments are extremely supportive of Islamic banking and finance. BIBF is also a direct beneficiary of the generous support and patronage of the government. Will it be harder for BIBF to assume a global leadership role without such a support?

The BIBF is a not-for-profit institute; therefore, we follow quality and not revenue. All the profit that the BIBF generates is invested back to further improve quality. This has been the major contributing factor of gaining the trust and support of the government. Of course it would have been a challenge to reach where we are without the support we received. The leadership in Bahrain has always given priority to human capital development in the kingdom.

This local support and trust has helped us in building an international footprint where we have been approached by the likes of the World Bank, universities in the UK, CISI, central banks and global Islamic financial institutions as Islamic banking subject matter experts.

Q7. Please share with us how technology has improved pedagogy of Islamic finance. What challenges do you perceive in the wake of growing role and influence of Blockchain technology?

The BIBF is a thought leader and we always follow global best practices, especially when it comes to leveraging technology. I strongly believe that we have to grow and change with the rest of the world.

The BIBF was the first in the Middle East to have a Simulated Dealing Room. When it comes to the Islamic Finance Centre, our strategy for the past 3 years has been on effectively leveraging technology to facilitate the global Islamic finance industry. We have developed the first Islamic banking simulation in the world. This software exposes the trainees to all aspects of an Islamic bank including the Balance Sheet and P&L Management, Treasury Function, Asset Liability Management,

12

Operations and Marketing. The software also poses different scenarios to the trainees and the trainer can assess the responses. This also helps the trainees appreciate the effect of their decisions on the financial statements.

As mentioned earlier, BIBF is the only entity in the world exclusively working with A AOIFI and IFSB on e-Learning.

The future direction is to have a holistic Islamic finance portal, which includes e-learning trainings for A AOIFI Standards, IFSB Standards, IIFM Contracts and BIBF’s own training content (including training for front facing staff of Islamic banks). The portal shall also have news and reports pertaining to the Islamic finance industry and students will be able to block one on one tutoring sessions with BIBF faculty.

Q8. Can you please share with us details on your flagship Islamic finance course?

The BIBF’s flagship Islamic banking course is the Advanced Diploma in Islamic Finance (ADIF). Having been launched more than 20 years ago, it is one of the oldest Islamic finance professional qualifications in the world. It has six modules which cover all aspects of Islamic banking and finance and is mandated by the Central Bank of Bahrain for control positions.

It is the only Islamic finance professional qualification in the world to have a progression route into a UK MBA , whereby, ADIF graduates need to spend 1 month intensive at the University of Bolton, complete a thesis after which they are granted an Executive MBA from the University of Bolton. ADIF graduates also receive two exemptions from A AOIFI’s CIPA qualification and CIPA holders also receive two exemptions for the ADIF. Therefore, ADIF graduates in 1.5 years can have two professional qualifications in Islamic finance as well as an Executive MBA from the UK. We are in the process of launching the ADIF as a distant learning programme with the option of online classes.

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

COVER STORY

We are also in talks with Coventry University (ranked 13th in the UK) to have a similar arrangement as with the University of Bolton but for an MSc route.

More details can be found at www.bibf.com/adif/ Q9. The GCC is passing through a very critical stage at present. What is the future of Islamic finance in the wake of the current developments?

From what I have seen, all countries in the GCC are very keen on promoting Islamic banking and finance. Low oil prices have posed liquidity problems to the GCC but we have seen that Sukuk issuances have been used by both corporates and sovereigns to counter this. Going forward, I believe Islamic finance products can be used effectively for infrastructure financing in the GCC. Q10. You travel extensively. Which Muslim-majority country has really impressed you and why?

For me, two Islamic countries stand out; Turkey and Malaysia. These countries have the right vision and the right competencies to execute that vision. They focus more on human capital development, which has led to the economic growth of the countries.

oriented. I also meet every week with my management team to discuss projects in the pipeline and give any support that may be needed.

Q12. What would be your message to the global Islamic financial services community, particularly the youth?

I believe that the next generation will be the one to take Islamic banking to the next level. There are obviously huge challenges and gaps within the Islamic finance industry and to fill them, the industry requires out of the box thinking and more creativity.

I am also a strong proponent of maintaining a high level of ethical behaviour and hard work.

Q13. Anything else you want to highlight about BIBF? I am strong believer that education should not be commercialized and educational institutes should be non-profit. The focus of educational institutes should be quality and we at the BIBF do not compromise on quality.

Q11. Please share with the readers a typical day of Dr. Ahmed Abdul Hameed Al Shaikh. How it starts and what are must on the to-do list on a daily basis?

I believe in the power of networks therefore my schedule revolves around meeting with all stakeholders to understand how we can improve and be more market-

13

ISLAMIC FINANCE REVIEW | JUNE 2018

TALKING POINTS

LONDON HOUSING MARKET Is There A Role for Islamic Finance to Play?

Jamil Akhtar, CEO of Britnaire Limited

London has seen dramatic changes over the past decade, notably the increasing concentration of super-rich individuals and international investors buying property on Prime Locations. The scale of investment is a confirmation of capital’s success in business and a vote of confidence in the UK’s political stability and in the financial and judicial system. It is a global endorsement of democracy, the rule of law, individual liberty, mutual respect and religious freedom offered by the multicultural society of London.

London has worlds’ best schools, colleges, and universities including a number of prestigious Russell Group universities, high living standard, and world-renowned cultural infrastructure.

14

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

TALKING POINTS

London is a safe haven for assets of the super-rich.

London is a global epicenter of personal wealth.

In September 2017, there were 16.5 million High Net Worth Individuals (HNWIs) with $1m or more of investable assets (excluding primary residence) in the world.

Of these, 568,000 are residing in the UK, the vast majority of them living in London.

According to Forbes, there are 50 billionaires residing in London with a combined net worth of $217.3 billion.

From 2009 to 2015, foreign buyers pumped in ÂŁ100 Billion into London property.

ABOUT

a third of the sales handled by certain international estate agents between April 2014 and April 2016 were to overseas buyers, rising to over 50% in central London. Most of the overseas buyers come from Hong Kong, Singapore, China, Russia, Malaysia, Saudi Arabia and from many other countries with diverse purposes to buy: as an investment for growth and rental income; to accommodate family; or as a second home to be used in vacation by family members and friends or to accommodate a child during education. However, more than 70% of the sales were for letting purposes.

While investing in the London property has always been a secular decision but increasingly Shari’a sensitivities have also been observed by some devout investors hailing from the countries with predominant Muslim populations.

Almost 100% of London’s very large residential development sites are backed by investment from overseas especially in the build to rent schemes. Many of such very large sites are owned by foreign entities. Billions of pounds of foreign investment in the UK property has pumped up the prices to unaffordable levels for the vast majority of the local buyers.

15

ISLAMIC FINANCE REVIEW | JUNE 2018

TALKING POINTS

Since 1996, the average residential house price has drastically increased by 281% across the United Kingdom, whereas in London the extraordinary figure is 501%. Buy-to-let landlords have acquired the greatest yield, typically generating returns worth £14,987 for every £1,000 they had invested for the past two decades.

Investment in residential property is very popular throughout the world especially in the UK, and London being the most popular and rewarding. Investment in residential property remained popular despite the credit crunch which resulted in tighter regulation for mortgages. However, low-interest rates, low yields on other investments have helped demand for residential property and of course prices.

by 68%. Property owners have seen very satisfying returns but the amount depends upon the location.

New areas of the city classified as prime fringe have seen the strongest returns over the period.

However, over the past decade prices of prime central London property increased by 101% but super-prime areas recorded an increase of 116%. This is very lucrative and can be explained with a simple example.

If you had bought a house for £4,000,000 with 75% mortgage, your investment in the property would be £1,000,000 excluding stamp duty and other costs.

That house, would be £8,000,000 after 10 years.

Three million is bank debt and £5,000,000 is your gross profit. The profit figure has not taken into account the rental income and finance cost. Last ten years have seen the lowest interest rates historically, so we can assume both rental income and interest charges off-set each other. Here we are not very far from turning £1,000,000 to £5000,000 in ten years.

In other words, your £1,000,000 investment returned £5000,000 every year. If the property you bought had a potential to extend or convert into flats, the profit margin could have been much bigger. The actual figure would be lower after taxes but still very high returns.

Opportunities to make very healthy profits still exist if a property is chosen carefully.

WHILE INVESTING IN THE LONDON PROPERTY HAS ALWAYS BEEN A WHILE INVESTING IN THE LONDON PROPERTY SECULAR DECISION BUT HAS ALWAYS BEEN A SECULAR DECISION BUT INCREASINGLY SHARI’A INCREASINGLY SHARI’A SENSITIVITIES HAVE SENSITIVITIES HAVE ALSO BEEN OBSERVED

BY SOME DEVOUT ALSOINVESTORS BEENHAILING OBSERVED FROM THE COUNTRIES WITH

BY SOME DEVOUT PREDOMINANT MUSLIM POPULATIONS. INVESTORS HAILING FROM THE COUNTRIES WITH PREDOMINANT MUSLIM The most exclusive property has delivered the best returns over the long-term. Investment in the super prime market returned the best returns not only in London but also across the whole of the UK. In the last ten years prices of prime property rose by 45% compared with 27% for non-prime. In London, prime property increased by 82% while non-prime increased

No wonder why Middle East investors have flocked to London in pursuit of higher returns in a market that has by and large been very stable. The Muslim’s interest in the UK property market in general and the London market in particular is evidenced by a number of Islamic investment banks operating in the capital. All of them have Middle Eastern shareholders who love to invest in the property.

16

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

TALKING POINTS

Price Growth 2007-2017 90%

82%

% growth in a decade

80%

68%

70% 60% 50% 40%

45% 27%

30%

30%

20%

23%

10% 0% E&W Prime

E&W Non-Prime

E&W Prime

(excl. London)

E&W Non-Prime

(excl. London)

London Prime

MUSLIM’S INTEREST THETHE MUSLIM’S INTEREST IN THE UK PROPERTY MARKETUK IN GENERAL AND IN THE PROPERTY THE LONDON MARKET IN PARTICULAR IS MARKET IN GENERAL EVIDENCED BY A NUMBER OF ISLAMIC INVESTMENT AND THE LONDON BANKS OPERATING IN THE CAPITAL. ALL OF PARTICULAR THEM MARKET IN IS HAVE MIDDLE EASTERN SHAREHOLDERS WHO EVIDENCED

BY A NUMBER LOVE TO INVEST IN THE PROPERTY. OF ISLAMIC INVESTMENT BANKS OPERATING IN THE CAPITAL. ALL OF THEM

London Non-Prime

Source: Hamptons International, HMLR

17

TALKING POINTS

Factors Determining Price Appreciation in the London Market The salient driving force behind prices is inadequate supply in relation to demand. In other words, demand for residential property has superseded its availability in the housing market.

London is historically one of the most popular cities in the world for many reasons including tourism, living, investments, and business or education etc. The performance displayed by the London housing market over the last couple of decades makes further investment in London property market more appealing. Last couple of years have been tough for prime London market but there are not many signs of any structural slowdown in growth.

It doesn’t seem like investors are afraid of the ongoing uncertainty with respect to Brexit and tax changes. As seen in other most popular cities in the world, demand for luxury property is growing. The developers of luxury property have been achieving very high returns historically.

London property prices performed well compared to competitors since 2007 as shown below.

18

ISLAMIC FINANCE REVIEW | JUNE 2018

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

TALKING POINTS

Major Global City Prime Growth, 2007-2017 300

200 150 100

London

New York

Los Angeles

Hong Kong

Q3 2017

Q1 2017

Q3 2016

Q1 2016

Q3 2015

Q1 2015

Q3 2014

Q1 2014

Q3 2013

Q1 2013

Q3 2012

Q1 2012

Q3 2011

Q1 2011

Q3 2010

Q1 2010

Q3 2009

Q1 2009

Q3 2008

Q1 2008

0

Q3 2007

50 Q1 2007

Index 2007 = 100

250

Paris

Source: Hamptons International, HMLR, Insee, USFHA, HK Govt

19

TALKING POINTS

London Luxury Market in the Last Years

ISLAMIC FINANCE REVIEW | JUNE 2018

4

According to the data obtained from the London housing market, London luxury market is attaining some sort of stabilization after price decline in the past couple of years, which is attributable to the tax changes, Brexit, and oversupply. The data supports the market view that suggests that London’s luxury market has seen the bottom and will start gaining momentum soon after Brexit. This may be the perfect time to buy because certainty has not returned yet and sellers are more willing to drop prices. In certain times, sellers will be less willing to negotiate or offer no or less discount. In rising market, buyers compete for a property and many pay over the asking price and many are gazumped.

If you want to invest for a long-term, this may be the best time. Buyers of real estate property in London have been buying at a larger discount due to wider choices they have now. The discounts offered on the already developed prime properties increased to an average of approximately 10% (from peak) during the last quarter of 2017. As the sellers struggle to accept the reality of declining prices on time, they had to offer more discounts to sell the property.

Nevertheless, the most recent quarter showed an increase in values of 1.1% with respect to the London luxury properties when a comparison is made with the preceding quarter as indicated by Coutts London Prime Property Index. Higher stamp duty costs and slow market make it hard to attain short-term gains unless a value is added to the property through extension, conversion or renovation. The prices of London luxury property are expected to remain flat on average till Brexit is over. If you want to invest for a long-term, this may be the best time.

20

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

TALKING POINTS

Effect of Taxes and Brexit on London Luxury Market Escalating price growth of prime and super prime London property created anxiety for the government. The Bank of England and the Ten Downing Street were concerned that a property bubble is forming which will destabilize the financial system and hurt the economy if not controlled on time. The government wanted the market to cool down. So, they took a raft of measures including increasing the stamp duty, introduction of capital gains and income taxes for foreigners. New higher taxes on properties bought through offshore structures and a new 3% extra stamp duty on purchases of buy to let or second homes. This resulted in a gradual slowdown in the market.

In a referendum on 23 June 2016, 51.9% of the participating UK electorate voted to leave the EU, out of a turnout of 72.2%. This resulted in a further slowdown of the market. On 18th of April, The Prime Minister of the United Kingdom of Great Britain announced a snap election on 8th June 2017. The results were totally unexpected for the Prime Minister and her party. The ruling party succeeded to form a much weaker coalition government headed by the same Prime Minister, Theresa May. The above changes produced undesirable results for the market and resulted in lower prices and a big reduction in transactions for properties above ÂŁ1 Million. The areas with more concentration of Europeans experienced more decline in prices compared to other areas. Generally, the prices of London real estate property have dropped by 10-20% following tax changes, the Brexit referendum and snap elections. The weaker pound and prices decline offers foreign buyers a very good opportunity to invest for the long term.

Many of the largest developers are delaying ongoing construction of units due to subdued demand. They want to sell their completed units first and are willing to offer special deals through their selected intermediaries like ourselves. The government wants the developers to shift their focus from luxury apartments to affordable homes. So, an opportunity exists for the investors to invest in smaller units for long-term growth.

21

ISLAMIC FINANCE REVIEW | JUNE 2018

TALKING POINTS

The UK Property Taxes Compared to Other Destinations

Even tax c a prop sti very

While it is true that overall property taxes in the UK rank highly in the Organisation for Economic Co-operation and Development (OECD) averages, the comparison is not straightforward since the structures of tax in different counties make like-for-like comparisons almost impossible.

£5,913,750

£8,000,000 £7,000,000

£1,000,000 SDLT pre 2012

£2,000,000

£5,000,000

SDLT post 2014

£10,000,000

£2,000,000

£2,113,750

£20,000,000

Second home SDLT post 2012

Source: Hamptons Research, HMRC

22

£800,000

£1,500,000

£1,413,750

£400,000

£750,000

£663,750

£513,750

£200,000

£300,000

£753,750

£213,750

£80,000

£73,750

0

£43,750

£1,000,000

£40,000

£2,000,000

£150,000

£3,000,000

£1,113,750

£4,000,000

£3,000,000

£5,000,000

£2,913,750

£6,000,000

£7,500,000

Change in Stamp Duty Charges

£7,413,750

Most UK Property taxes are levied on the purchase of the property and the annual property taxes are very low. While in other countries after sale taxes are much higher compared to the UK.

£50,000,000

ATED Stamp Duty

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

after taking changes into Even after taking tax changes into account, UK account, UK property market perty market still compares very favourably ill compares with other popular y favourably destinations.

TALKING POINTS

Government Tax on Equivalent £5,000,000 Purchase HK

UK

Paris

New York

Purchase Price

HK$53,000,000

£5,000,000

€5,654,765

$6,700,000

Government Tax

HK$20,405,000

£663,750

€340,140

$189,275

39%

13%

6%

3%

Source: HMRC, Notaires de France, Homenet HK, RealDirect

London Housing Crisis Despite massive inflows of international investment; London is facing domestic housing crisis.

A waiting list of more than a quarter of a million people who want housing from local councils.

In most London boroughs a household would require an income of £100,000 to buy an average three-bed home while the average salary is just over £35,000 per annum.

The house price ratio to annual earnings with respect to the capital in London housing market has increased from 6.9 times in the year 2002 to 12.8 in the year 2016, based on the government data.

The most recent official statistics, published on 22 March 2018, recorded 78,930 households in temporary accommodation at the end of December 2017. This marks the 26 times that the number

of households in temporary accommodation has risen compared with the same quarter of the previous year. The 78,930 households include 120,510 children, representing a 75% increase since 2010. Of these households, 54,370 (69%) were placed in temporary accommodation in London. The number of families with dependent children placed in B&B-style accommodation increased from 740 at the end of June 2010 to 2,030 at the end of December 2017.”

Private rents in the mainstream lettings market in London are more than double that of most other English regions.

There are about 60,000 people living in nondomestic dwellings just in one borough of London.

23

ISLAMIC FINANCE REVIEW | JUNE 2018

TALKING POINTS

“The increase in London’s population is unprecedented, growing more over in the last ten years than at any time in London’s 2000 years history. There could well be a staggering ten million Londoners by 2030. But while the population boomed, we failed to build enough homes, not just for ten years, but for thirty or more. Through decades of boom and bust, across economic cycles and under every shade of government it was the same story. We just did not build enough homes. Which leaves London facing the epic challenge of building more than 42,000 new homes a year, every year, for twenty years. A level of house building unseen in our great city since the 1930s”.

Boris Johnson, Mayor of London, the London Housing Strategy 2014

London’s population is booming: it grew from 6.7 million in 1986 to 8.4 million in 2013. It will reach nine million by 2020 and ten million by 2030.

This is the equivalent of adding the population of the UK’s second biggest city, Birmingham, every ten years.

There are around 800,000 Londoners on the housing waiting lists for council and housing association affordable housing, an increase of nearly 84 percent in the last 10 years.

House prices in London are 61 percent higher than the national average and more than double those in the North.

London's population is growing at an unprecedented rate, and exceeded its previous peak of 8.6 million in early 2015

Historic and projected London population, 1801 to 2035 12 10

Population (millions)

1939 - 8.62m

2015 - 8.66m

8 London total

6

Outer London

4 Inner London

2 0 18

24

01

18

21

18

41

18

61

18

81

19

01

19

21

19

41

19

61

19

81

20

01

20

21

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

TALKING POINTS

London currently welcomes almost 25 million visitors, attracts 110,000 international students every year and is consistently rated as the best place in Europe to do business.

One of the world’s biggest financial centres, London is home to thousands of employers. From world famous companies to niche brands, the capital attracts people from all over the world, drawn by the major opportunities found here.

London’s world-famous schools, colleges, and universities are recognized around the globe as centers of excellence and places are much sought after, creating another ready market for investors. In fact, foreign students rent almost a third of homes in prime central London locations.

All this points to a looming housing crisis and if the current situation is allowed to continue, London's’ position as a world’s financial hub is at stake. The government wouldn’t allow this and has introduced many measures to tackle the problem.

Problems bring opportunities for those who can solve them. The housing crisis has created tremendous opportunities for property developers, investors, builders, construction companies and other related sectors both in the short term and in the long term and not only in the New Build but in the secondary market as well. The foreigners can invest in new ventures with local companies like Britnaire and make healthy profits. Currently, the low end market is very active especially sub £600,000 with help to buy.

Supply of New Homes in London According to new figures from the government, London needs to build 66,000 new homes every year to meet demand.

The chart below shows a huge gap despite improvement in recent years.

New supply of homes, by type of development 50,000 40,000 Conversions

30,000

Changes of use

20,000

New build

10,000 0 20

/ 04

05 20

/ 06

07 20

/ 08

09 20

/ 10

11 20

/ 12

13 20

/ 14

15 20

/ 16

17

25

TALKING POINTS

ISLAMIC FINANCE REVIEW | JUNE 2018

Brexit is already creating a shortage of labour in the construction industry and it will be very hard for any government to fulfil demand for housing in the foreseeable future.

It must be noted that there is oversupply of newly built luxury apartments (above one million price) and a huge shortage of affordable homes.

Infrastructure and Regeneration Government is determined to build hundreds and thousands of new homes to house the rising population. It has initiated a number of regeneration and infrastructure developments projects. One of the most important is 118 Km long CrossRail.

The Crossrail London The Crossrail has created a very big opportunity for investors and prices in the areas covered by the Crossrail has are booming. Slough and East London are among the areas that recorded high price growth due to Crossrail. The areas will keep improving and lack of housing will keep pushing up prices.

26

Piccadilly

Terminals 2 & 3

Piccadilly

Terminal 4

Hanwell

Southhall

Hayes & Harlington

Heathrow Airport

Iver

West Drayton

Elizabeth Line

Piccadilly

Terminal 5

Langley

Slough

Burnham

Taplow

Maidenhead

Twyford

Reading

West Ealing District

Central

Ealing Broadway Acton Main Line District Hammersmith & City

Circle

Bakerloo

Paddington

Jubilee

Central

Bond Street

Northern

Central

Metropolitan Trains to Stansted Trains to Southend

Circle Hammersmith & City

Farringdon

Trains to Southend Trains to Stansted

Overground

Northern

Metropolitan

Circle Hammersmith & City

Central

Liverpool Street

Step-free from platform to street

Tottenham Court Road

Step-free from train to street

Trains to Southend

Overground

DLR

Jubilee

Central

Stratford

DLR

Maryland

Abbey Wood

DLR

Woolwich Arsenal

Woolwich

Custom House

DLR

Jubilee

Canary Wharf

Overground

District Hammersmith & City

Whitechapel

Overground Wanstead Park

Forest Gate Manor Park

Harold Wood

Goodmayes

Chadwell Heath

Overground

Romford

Gidea Park

Seven Kings Ilford

ShenďŹ eld Brentwood

TALKING POINTS

ISLAMIC FINANCE REVIEW | JUNE 2018

The project, which is well underway, will increase the capacity of the city’s transport system by 10%, The completion of Crossrail will have a twofold effect on the housing market: the rise of wider regeneration, coupled with significantly reducing commuters travel times to and from the capital every day.

Today’s 750,000 existing commuters’ journey times into central London will be reduced by 25% of the current average commute. On completion, over 200 million passengers are expected to travel using Crossrail each year, leading to the creation of central hubs such as Paddington and Farringdon, where extensive public realm programmes are already being prepared and implemented. So far, 57000 new homes have been built and 3.25 Million Square foot of shops and offices space created along the route of Crossrail.

Future Forecast Housing demand tends to increase following an economic boom or rather when leveraging becomes cheaper and drops when the vice versa is the case. Given the fact that newly built homes are in short supply, demand for housing is increasing with time because of increase in population and other factors. So, the trend is towards increase in the prices but the it will not be uniform in all areas. The greatest rise in price is anticipated to be in London and the least rise in Northern Ireland.

Good news for owners at the top end of the market who are dwelling in relatively expensive properties as the projection indicates that the number of properties in the UK valued at least £1000, 000 is anticipated to more than triple as from the present moment and 2030.

London is expected to perform the best over the long term and prices are expected to increase by 137% by 2030 according to research done by Santander bank as shown below.

28

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

TALKING POINTS

Current and expected property prices by region £1,300,000 2015

£1,200,000

2020 2030

£1,100,000 £1,000,000 £900,000 £800,000 £700,000 £600,000 £500,000 £400,000 £300,000 £200,000 £100,000

Wales

Northern Ireland

Scotland

Yorkshire and The Humber

West Midlands

South West

South East

North West

North East

London

East of England

East Midlands

0

29

ISLAMIC FINANCE REVIEW | JUNE 2018

TALKING POINTS

Percentage increase in property prices by region Region

Price Change % 2015 - 2020

2015 - 2030

East Midlands

+19%

+79%

East of England

+23%

+96%

London

+33%

+137%

North East

+17%

+72%

North West

+17%

+71%

South East

+23%

+97%

South West

+22%

+91%

West Midlands

+18%

+76%

Yorkshire and The Humber

+18%

+77%

Wales

+18%

+76%

Scotland

+18%

+76%

Northern Ireland

+16%

+68%

UK

+23%

+97%

Islamic banking and finance in the UK Islamic banking and finance in the UK will benefit from will benefitimmensely immensely from the London the London property market boom. property market boom.

30

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

TALKING POINTS

Conclusion In the UK, the residential property exhibits a commendable performance, but the prime property surpasses it throughout the entire country. Prime London property considerably beats other portfolios over a longer time span and the most exclusive property reaps the greatest yields. Even though taxation has changed certain returns, the UK continues to enjoy its good placement as compared to other international cities. The transition from the European Union comes along with uncertainty, but the risk is well covered by the reduction in prices and a weaker currency. There is a positive outlook with respect to capital growth in London over the longer term.

Population of London is increasing very fast and in almost every ten years one million more people are added to the population. London faces a severe shortage of homes and construction levels are far below the target. This will keep the demand for housing very strong for the foreseeable future and Prime London market will gain momentum after Brexit.

While investing in UK property, the investors should get full information on recent tax changes and should also take tax advice on how the change will impact them.

UK, especially London offers lot of opportunities for investment in Prime as well as in none prime markets. Due to market uncertainties, vendors are more willing to negotiate, and currency is weaker.

Many people don’t want to invest outside prime locations, this is perhaps one of the best times to buy newly built properties because demand is weak and sales volume which makes it buyer’s market and London don’t see that too often. The market is forecast to improve next year.

Government wants the builders to build thousands of new homes every year. It is promoting home ownership for first time buyers and has initiated schemes like help to buy. Under this scheme, the government provides up to 40% deposit to first time buyers to buy a newly built homes.

With all this excitement about the London property market, Islamic investment banks in the capital are also buoyant and one should expect that Islamic banking and finance in the UK will benefit immensely from the London property market boom.

31

TALKING POINTS

ISLAMIC FINANCE REVIEW | JUNE 2018

MAKING WOMEN EMPOWERMENT A KEY GROWTH DRIVER OF ISLAMIC FINANCE INDUSTRY 32

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

TALKING POINTS

Historically, the finance industry has always been male-dominated.

And Islamic finance was no exception where women faced various obstacles including religious conservatism, restrictions on mixed-gender working environments and stereotypes about women in Islamic finance. However, the past decade has seen a growing band of woman professionals breaking down barriers and performing increasingly important roles in the Islamic finance industry.

These exceptionally talented and inspiring female leaders have not only set the pace to occupy leadership positions in Islamic banking and finance, but have been playing a prominent role in the overall development of the industry as well. As inspirational role models, they have become drivers of change that have inspired a whole new generation of female talent.

Women involvement in the Islamic financial services industry has come a long way, with Malaysia undeniably setting the tone. Five out of the Top 10 Most Influential Women in Islamic Finance 2018 as listed on Womani 2018 (a list of compiled by Cambridge IFA , a UK-based think tank), are leading Malaysian women in their respective areas. Malaysian women have not only set the pace to occupy high positions in the Islamic finance industry, but have played and continue to play prominent roles in the overall development of the industry at both local and global level.

Empowering Women The topic of women empowerment has become a significant topic of discussion in development economics and is widely recognised as a key to economic growth, political stability, and social transformation. Many agencies of the United Nations in their reports have emphasized that the gender issue must be given utmost priority. World leaders, experts and scholars alike are giving their voice to this critical endeavor.

Barack Obama, 44th US President: When women succeed, nations are more safe, secure and prosperous.

Kofi Annan, 7th UN Secretary General: There is no tool for development more effective than the empowerment of women.

ACCORDING TO THE WORLD BANK,

EMPOWERMENT IS THE PROCESS OF INCREASING THE CAPACITY OF INDIVIDUALS OR GROUPS TO MAKE CHOICES AND TO TRANSFORM THOSE CHOICES INTO DESIRED ACTIONS AND OUTCOMES.

W 33

TALKING POINTS

When we use the term women empowerment its meaning extends beyond this to include self actualizing inner power, awareness of one’s rights and privileges and the ability to control one’s life in a more meaningful and fulfilling way.

However, women experience multiple and intersecting inequalities. Structural barriers in the economic, social, political and environmental spheres produce and reinforce these inequalities. Obstacles to women’s economic and political empowerment are barriers to sustainable development and the achievement of gender equality.

While the government, corporates, and the society at large are looking at various initiatives and means to empower women in the workplace, marketplace and community; the real game changers are the women themselves. In this context, I would like to offer the “3Es” of Women Empowerment.

34

ISLAMIC FINANCE REVIEW | JUNE 2018

Given that empowerment processes are dynamic, positive change in one aspect reinforces other aspects of empowerment. Mentoring, in fact, has proven to be one of the most effective tools for advancing women in the workplace and encouraging empowerment amongst women. Companies with mentoring programmes are often viewed as more attractive places to work and retain female employees at a higher rate.

Creating more women role models in the corporate world is not just good for women, it’s good for business.

Companies need women and people with diverse backgrounds at the table so that they can make better and smarter decisions that respond to the diverse needs of their customers.

The first “E” is Encourage Empowerment. Even though women are making progress towards gender parity in many governments and corporates around the world, the numbers are still sobering. While more women have entered political positions in recent years, including through the use of special quotas, they still hold a mere 23.7% of parliamentary seats.

Hence, programmes like WOMANi, which is pioneered

by Cambridge IFA , serves a good platform for both men and women to support other women professionals as they seek to advance in their careers within challenging contexts, ensuring that they have knowledge and problem-solving skills to negotiate paths to success. In addition to supporting women as individuals, mentoring programmes may contribute to change in organizational cultures by preparing women to enter leadership roles with the tools to tackle the impact of implicit bias and to promote policies and processes that nurture inclusive, supportive environments.

The situation is not much better in the private sector, where women globally occupy less than a third of senior and middle management positions. Deloitte’s 2017 edition of “Women in the Boardroom: A Global Perspective” underlines that women’s placement at all board seats globally is only at 15%, up by a mere 3% from 2015.

The second “E” is Education for Empowerment. Education is an essential means of empowering women with the knowledge, skills and self-confidence necessary to fully participate in the development process. In education, we have seen steady and impressive decline in gender gaps around the world. Businesses are realizing that a more diverse workforce adds a lot of shareholder value.

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

TALKING POINTS

there cannot be empowerment. All of these elements go together hand in hand.

The third “E” is Economic Empowerment. Women’s economic empowerment is at the heart of the 2030 Agenda for Sustainable Development, which recognizes that women’s full and equal participation in the economy as a vital step toward achieving sustainable development. This is embodied with the inclusion of a Sustainable Development Goal 5 (SDG 5) on Gender Equality.

EXPERIENCE HAS SHOWN THAT THE RELATIONSHIP BETWEEN EDUCATION AND EMPOWERMENT IS NOT AS SIMPLE AS IT MAY FIRST APPEAR. WHILE EDUCATION IS UNDOUBTEDLY A KEY ELEMENT CONTRIBUTING TO EMPOWERMENT, THE TWO DO NOT NECESSARILY GO HAND IN HAND.

In the past, gender equality sometimes was regarded as a strictly social matter that exclusively benefits women and girls. Yet we know that nothing could be further from the truth! We know if women participated in the economy equally, the world economy would expand by 25% over the next decade.

However, experience has shown that the relationship between education and empowerment is not as simple as it may first appear. While education is undoubtedly a key element contributing to empowerment, the two do not necessarily go hand in hand. Many educational programmes will focus on acquisition of formal knowledge and training, and will often equip women with the technical skills necessary to take up paid employment in a specific sector.

While it is important for women to receive formal training as part of their education, a more holistic approach that places a strong emphasis on enabling them to develop a wider awareness of themselves, ability to reflect on their own reality, to develop self-awareness and to build self-esteem is also vital.

In my view, education must be reinforced by the development of self-esteem to lift women from the status of inferiority in which society confines them.

Similarly, without education and without self-esteem

This is one of the reasons why countries like Malaysia has placed economic empowerment and increasing economic independence of women high on the agenda. To increase women’s economic independence the Malaysian government seeks to create more opportunities for women to enter the labour market. A sum of RM20 million has been allocated under Budget 2018 for training and entrepreneurship programmes, including PEAK Entrepreneur Programme under MyWin Academy.

Empower Women, Empower Islamic Finance There is no denying that the Islamic banking and finance industry has provided ample opportunities for women to excel in their professional life and achieve their full potential. This is evident by the increased participation of professional women in the development of Islamic finance shattering the industry’s glass ceiling.

Undoubtedly, these inspirational female leaders and industry pioneers have inspired and motivated a new generation of female talent.

However, a more comprehensive view should be taken when one looks at woman’s participation in Islamic banking and finance. A holistic strategy should be devised beyond merely attracting women to this industry. Issues for example barriers to re-entry such as career obsolescence and employer bias must be a given a heightened importance at the policy level.

It is hoped that the recently concluded inaugural WOMANi Awards organized by Cambridge IFA will become an annual gathering of influential women that sparks conversations about issues and opportunities that impact women inside and outside of work, challenge the status quo, and ultimately, shape the leadership culture.

35

ISLAMIC FINANCE REVIEW | JUNE 2018

PERSONALITY

CAMBRIDGE-IFLP ALUMNI

JAMES CHUA Deputy Head of Treasury & Global Markets at Bank Islam Brunei Darussalam (BIBD)

James Chua is a seasoned banker well known in the Brunei space with almost 20 years of experience in the Treasury & Global Markets space as well as finance.

He currently holds the post of Deputy Head of Treasury & Global Markets at Bank Islam Brunei Darussalam (BIBD), the country’s flagship Islamic financial institution. Prior to joining BIBD, he worked at Citibank as VP and Head of Global Markets as well as the various other senior roles in finance. James is a recipient of the Queen Elizabeth II Chevening Scholarship.

He holds a Degree in Computing from the University of Manchester and a Masters in International Banking from Loughborough University, UK where he studied under the supervision of Professor Humayon Dar.

36

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

PERSONALITY

What was your earliest ambition?

My earliest ambition in life was to be an IT geek. This was back in the late 1980s. I wasn’t so fortunate to have a PC at that time in our home so I was adamant to homing my skills to be the best at computers.

What is your favorite quote and why?

What are you passionate about?

There are many good quotes out there but none that I particularly live by.

I think my current passion is my eagerness to develop further my knowledge and understanding of the financial markets. It’s the first thing I check on when I wake up and the last thing I read before I go to sleep. Another passion of mine which I hope to embark on in the near future, is to create a greater awareness of financial literacy in our community. I believe a community that has a greater knowledge of this would ultimately benefit the country at large.

If you could go back and give your 21-year old self a valuable piece of advice, what would you say?

I would tell my 21-year old self to start saving more and investing back then. 20 years on, it’s still not too late, though that 20 year head start would have undoubtedly been invaluable.

Who has been your greatest mentor?

My late father has been my greatest mentor in life. He taught me responsibility and the importance of living a life of integrity and simplicity. Through the life that he led, he also showed me the qualities needed to be a good father and husband.

What is your leadership philosophy?

To lead simply by example through a servant leadership philosophy. It was reassuring to hear that several CEOs and leaders seem to adopt a similar philosophy from the Cambridge IFLP programme.

What is the proudest moment in your career?

I think the proudest moment of my career was when BIBD sent me on the Cambridge Islamic Finance Leadership Programme at Clare College, Cambridge back in 2016. The opportunity to interact with current and future leaders in the field of Islamic Finance has proved invaluable to me.

What do you do when you are not working?

Apart from spending time with my wife and children, I try to read as much as possible. The most recent books I’m reading are the memoirs of Robert Kuok and Tun Dr Mahathir, the recently re-elected Prime Minister of Malaysia.

What has the most satisfying moment in your life been?

The day I got married to my wife, Christina.

In one word, describe yourself.

Reliable.

What drives you in your professional life?

The need to excel and build the best Islamic treasury team in this part of the world.

If you could meet a famous person/leader/ celebrity, who would it be and why?

I believe President Xi Jinping of the People’s Republic of China is one of the most influential global leaders today and will continue to be for the years to come. I would like to meet him to better understand his character and personality as his vision for China in the coming decades will become all the more important.

If you retired tomorrow and wanted to start a different second career, what would you do?

I would probably become an academic. It seems to be a hidden passion of mine to want to teach and share whatever limited knowledge that I have with others. The short stint at Cambridge University certainly rekindled that desire to go back and study or teach.

37

ISLAMIC FINANCE REVIEW | JUNE 2018

ISFIRE REPORT

3 GLOBAL GOOD GOVERNANCE AWARDS rd

Governance is the process of decision-making and the process by which decisions are implemented (or not implemented). The term governance can apply to corporate, international, national, local governance or to the interactions between other sectors of society.

Good governance has traditionally been used to refer to public sector organizations and institutions.

However, now the term is used with a wider scope to cover not only government & politics but also private businesses and even social sector & philanthropy.

38

The Global Good Governance Awards (3G Awards) were founded as an advocacy platform by Cambridge IFA to promote good governance in the three chosen areas, namely, government & politics, private businesses and social sector. The inaugural 3G Awards ceremony took place in the historical city of Istanbul in 2016, which was followed by a very impressive event in 2017 in the vibrant city of Dubai. The Stakeholders Committee decided to hold the 2018 edition of the awards in Kuala Lumpur on April 23, 2018, wherein a large number of international delegates participated from all over the world, from the USA to Nigeria.

The choice of Kuala Lumpur was strategic. Contrary to the negative publicity the country has received in the wake of the recently held elections, Malaysia has come a long way on its governance record. The public sector has shown significant improvement in terms of adoption of good practices and governance standards. The Stakeholders Committee hoped that holding of 3G Awards in Kuala Lumpur would highlight Malaysia’s achievements in this area, presenting it as a role model to follow in the region.

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

ISFIRE REPORT

“Over the last three years, we have adopted a strategy to highlight the role of regional players in the good governance regime to the global community,” said Dr. Sofiza Azmi, CEO of Cambridge IFA and President of 3G Awards Committee.

“The 2017 3G Awards Ceremony was held in Dubai, which helped us identify the players like Friends of Cancer Patients, Bateel, ADCB and Salam Air for their commendable efforts and commitment to good governance.”

39

ISLAMIC FINANCE REVIEW | JUNE 2018

ISFIRE REPORT

1

ST

ISTANBUL May 27, 2016

2

nd

DUBAI

April 24, 2017

3

rd

KUALA LUMPUR April 23, 2018

The 2018 3G Awards Ceremony held in Kuala Lumpur allowed the Awards Committee to bring an ASEAN-centric perspective to good governance. Many important winners from Indonesia, Malaysia and Thailand could have otherwise not been picked up by a global programme if the event was not held in the region. It helped the Awards Committee to even pick up winners from South Korea.

This year, 3G Awards Committee had nominated over 150 organisations and individuals from the public sector, businesses, and social sector and philanthropy. They went through a rigorous process of selection, and the winners in about 30 categories received 3G Awards & Certificates in a colourful celebration of good governance in government & politics, business, and social giving and enterprise.

The award winners came from over 15 countries. This year’s 3G Awards were distinct, as a number of utilities and energy producers

40

were presented with awards. These included Bangchak Corporation PLC, PT Bhimasena Power Indonesia, and Kahramaa. Bangchak Corporation received two awards, namely, 3G Sustainability of Performance Award 2018 and 3G CSR Award 2018.

As for the 3G Sustainability of Performance Award, the Awards Committee was highly impressed with the Bangchak’s sustainability policy and practices as part of its business culture and core values.

In tandem with its commitment towards embracing sustainable practices throughout all its businesses, Bangchak Petroleum has adopted Green Sustainability Strategy consisting of Green Business, Green Production, Greenovative Experience and Green Society. The Committee also took note of the Green Partnership Award Project aimed to improve the management quality and social responsibility of service station owners and agricultural cooperatives under Created Share Value (CSV) concept.

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

ISFIRE REPORT

Grassroot Microfinance Bank

COMSATS

Kenya Vision 2030

Minhaj University Lahore

Soho Properties

HEC

Maybank

SME Corp. Malaysia

41

ISLAMIC FINANCE REVIEW | JUNE 2018

ISFIRE REPORT

Bhimasena Power Indonesia was honoured for its role in social empowerment with 3G Social Empowerment Award 2018. This award category recognises an organisation’s initiatives that focuses on improving livelihood and development opportunities of project affected communities in a sustainable manner. The Awards Committee was highly impressed with Bhimasena’s “Community Empowerment Through Social Mitigation Program”, which have had a positive impact and successful in empowering people in economic development, education, health and infrastructure, social culture and the environment.

Table: 1

Winners from the Utilities Energy Sector

42

Bhimasena Power Indonesia

Category

Winner

Country

3G Sustainability of Performance Award 2018

Bangchak Corporation

Thailand

3G CSR Award 2018

Bangchak Corporation

Thailand

3G Social Empowerment Award 2018

Bhimasena Power Indonesia

Indonesia

3G Best Green Initiative Award 2018

Tarsheed National Program

by Kahramaa

Qatar

3G Creativity & Innovation Award 2018

Tarsheed National Program

by Kahramaa

Qatar

3G Advocacy & Commitment to Corporate Governance Award 2018

Dubai Electricity & Water Authority (DEWA)

UAE

3G Excellence in Corporate Governance Award 2018

Dubai Electricity & Water Authority (DEWA)

UAE

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

ISFIRE REPORT

Bangchak Corporation

Kahramaa received two awards for its Tarsheed National Program, and was honoured with 3G Best Green Initiative Award 2018 and 3G Creativity & Innovation Award 2018. Dubai Electricity & Water Authority (DEWA) received two prestigious awards, namely 3G Advocacy & Commitment to Corporate Governance Award 2018 and 3G Excellence in Corporate Governance Award 2018 (see Table 1). Last year, only one power producer received a 3G Award, where ENEL was honoured for its best corporate governance reporting initiatives.

Ms. Nelofar Al Bastaki, Charge d'Affaires, UAE Embassy in Kuala Lumpur receiving awards on behalf of Dubai Electricity & Water Authority (DEWA) & Friends of Cancer Patients (FoCP)

43

ISFIRE REPORT

2016 2017 2018 Table: 2

Winner : Novo Nordisc Industry : Pharmaceutical Country : Norway

Winner : Abu Dhabi Commercial Bank Industry : Financial Country : UAE

Winner : Bangchak Corporation Industry : Utilities (Energy) Country : Thailand

44

ISLAMIC FINANCE REVIEW | JUNE 2018

An Example of Global Dimension of Competition in 3G Awards It is also interesting to note that how competitive various award categories have turned out to be over the last three years. As Table 2 suggests, the 3G CSR Award 2016 was won by Novo Nordics, a pharmaceutical firm from Norway.

Last year, Abu Dhabi Commercial Bank (ADCB), a UAE-based financial sector firm, won the prestigious award.

This year, this award has gone to a power company in Thailand, i.e., Bangchak Corporation. This means that players from a very wide range of manufacturing and service sectors have to compete for a single award category.

This makes 3G Awards arguably the toughest awards programme in the world, unlike industry specific awards wherein players in one chosen industry compete for different award categories.

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

ISFIRE REPORT

Representation of Universities and Institutions of Higher Learning at 3G Awards Over the last three years, 3G Awards have provided adequate representation to the education sector. In the inaugural 3G Awards in 2016: • 3G Education Award was presented to Eastern Public School, a not-for-profit school located in the central Indian city of Bhopal; • 3G Excellence in Higher Education Award was presented to Higher Education Commission of Pakistan; • Professor Mehmet Bulut, President of Istanbul Sabahattin Zaim University, received the 3G Special Award for Service to Higher Education; • 3G Critics’ Choice Good Governance Award in Education was presented to Academy of Contemporary Islamic Studies at the Universiti Teknologi MARA (UiTM), Malaysia; and • 3G Critics’ Choice Literacy and Female Education Award was awarded to Taleem Foundation, Pakistan.

In the 3G Awards 2017, the following winners emerged from the education sector: • Higher Education Commission of Pakistan won 3G Governance of Higher Education Award; and • Accounting Research Institute at Universiti Teknologi MARA was awarded the 3G Excellence in Higher Education Award;

This year’s 3G Awards brought a special focus on higher education.

• Professor Dr. Mukhtar Ahmed, Chairman of Higher Education Commission of Pakistan, was chosen to receive 3G Civil Service Award 2018 for his services to promotion and governance of higher education in Pakistan. This prestigious award has on previous occasions was awarded to a financial sector regulator, Dr. Muliaman Hadad, Chairman of Indonesian Financial Services Authority (2016), and to Teten Masduki, Chief of Staff at the Executive Office of the President of Indonesia (2017).

• Higher Education Commission of Pakistan, for the second year in a row, was the recipient of the 3G Governance of Higher Education Award.

• 3G Research Excellence Award 2018 was won by COMSATS University, Pakistan.

• 3G Excellence in Higher Education Award 2018 was awarded to a new entrant to the family of 3G winners, namely, Hanyang University, South Korea (see the Box).

• 3G Social Responsibility in Higher Education Award 2018 was presented to Minhaj University Lahore.

45

ISLAMIC FINANCE REVIEW | JUNE 2018

ISFIRE REPORT

Nestle Malaysia

Yayasan Pahang

CTFKL

PERMATA Programme

The Budimas Charitable Foundation

East Coast Economic Region Development Council (ECERDC)

46

Britnaire Limited

Dato’ Dr. Zubir Harun, Executive Chairman of AIM

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

ISFIRE REPORT

Malaysian Success Stories It was natural for this year’s 3G Awards to have more representation from the ASEAN region, given that the awards ceremony took place in Kuala Lumpur, which allowed logistic ease for many nominees to

participate in the event. One country that has consistently performed best is Malaysia, irrespective of where the 3G Awards took place. Table 3 lists the winners from Malaysia in all the three editions of 3G Awards.

Dato' Dr. Zubir Harun, Executive Chairman of AIM, receiving the 3G Championship Award

47

ISLAMIC FINANCE REVIEW | JUNE 2018

ISFIRE REPORT

Malaysian Winners of the 3G Awards (2016-2018) Category

Winner

Country

3G Children Welfare Award

PERMATA Programme

2016

The Budimas Charitable Foundation

2017, 2018

3G Best Public Sector Reforms Programme Award

National Transformation Programme, The Performance Management and Delivery Unit (PEMANDU)

2016, 2017

3G Financial Services Award

Agrobank

2016, 2017

3G Women Empowerment Award

Amanah Ikhtiar Malaysia

2016, 2018

3G Critics’ Choice Good Governance Award in Education

Academy of Contemporary Islamic Studies, UiTM

2016

3G Best Economic Transformation Programme Award

East Coast Economic Region Development Council (ECERDC)

2017, 2018

3G Sustainability of Performance Award 2018

Accounting Research Institute, UiTM

2017

3G Social Media Award

AirAsia

2017

3G Special Award for Advocacy of Financial Inclusion

Dato’ Dr. Zubir Harun, Executive Chairman of AIM

2017

3G Championship Award

Dato’ Dr. Zubir Harun, Executive Chairman of AIM

2018

3G Best Public Sector Initiative/Programme

SME Corp. Malaysia

2018

3G Talent Development Award

Maybank

2018

3G Environmental Responsibility Award

Nestle Malaysia

2018

3G Charity of the Year Award

PERMATA Programme

2018

3G Capacity Building Award

Yayasan Pahang

2018

3G Good Cause of the Year Award

CTFKL

2018

Total Awards (2016-18)

48

Table : 3

Total : 22

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

ISFIRE REPORT

Hanyang University

A New 3G Success Story from South Korea Social Innovation Centre at Hanyang University Hanyang University is a private research university in South Korea.

Its Social Innovation Centre was chosen to receive 3G Excellence in Higher Education Award 2018 for its volunteering programme that has now evolved into a full fledged bachelor’s degree.

The 3G Awards 2018 ceremony was as a huge success, with excellent media coverage and participation from all over the world. The recognition of the likes of Kenya Vision 2030 with the 3G Best Economic Transformation Programme in Africa 2018 was appreciated by the global stakeholders in good governance.

Similarly, Soho Properties (a Manhattan-based asset management company specializing in the US property), was represented by its CEO, Sharif El-Gamal, who travelled all the way from New York to receive the 3G Responsible Investment Award 2018. Doha Bank received the 3G Financial Services Award this year, following the footsteps of Agrobank that won the award for

the previous two occasions. The 3G Financial Inclusion Award 2018 was presented to Grassroot Microfinance Bank, Nigeria. It was not just the big boys in government & politics, corporate sector and notfor-profit organisations, who won the awards. It was small and medium size companies like Britnaire Limited (from London) that also celebrated their success. Jamil Akhtar, CEO of Britnaire Limited, was pleased to grab 3G Customer Care Award 2018 for hiscompany’s success in serving its customers from different parts of the world.

49

ISFIRE NOTE

ISLAMIC FINANCE REVIEW | JUNE 2018

Dr. Hylmun Izhar

Senior Economist at IRTI, IDB Group

50

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

ISFIRE NOTE

The unprecedented hype of cryptocurrency over the past few years coupled with an increasing prominence of digital economy should not go unnoticed. For sure, the rapid emergence of such phenomenon has considerably altered the landscape of financial transactions and the methods by which the global economy would grow. More importantly, it will potentially change the way economic agents interact in a great deal.

Islamic finance as a growing and niche industry must timely respond to this. Various attempts have been made by different enthusiasts and advocates of Islamic finance to address this topical issue. One central question being constantly discussed is whether investing in cryptocurrency through block chain technology is Shari’a compliant.

To be able to answer this question, the fundamental aspect to dig out is to ensure.

The nature of Cryptocurrency 51

ISFIRE NOTE

Why it matters?

Cryptocurrencies: A Brief Introduction

Because this will determine whether an investment in cryptocurrency is justified from Shari’a point of view. As many advocates of Islamic finance would unanimously agree, the structure by which a contractual agreement is assembled and the type of items being transacted can determine the validity and permissibility of any financial transactions. On this, Shari’a through its abundant fiqh interpretations provides guiding principles and a variety of avenues for Shari’a-compliant financial activities.

Cryptocurrencies are digital or virtual currencies that are encrypted (secured) using cryptography.

Cryptography refers to the use of encryption techniques to secure and verify the transfer of transactions. Bitcoin represents the first decentralized cryptocurrency, which is powered by a public ledger that records and validates all transactions chronologically, called the Blockchain.

With respect to investing in cryptocurrency, there hasn’t been any undivided answer until now, but there are characteristically four opinions:

OPINION Cryptocurrency cannot be considered as mal (wealth); it is purely speculative, hence it is not Shari’a-compliant

2

OPINION

Cryptocurrency is money/currency

3

OPINION

Cryptocurrency is an asset

4

OPINION

Cryptocurrency is a security This article, therefore, is an attempt to investigate the possible DNA of crypto currency. The word ‘possible’ is used deliberately since the analysis or opinion articulated in this article; could, in no way be considered as a final statement, let alone a verdict. Rather, it is an endeavor to further stimulate the discussion on this emerging topic. The authoritative bodies to come up with a verdict, in the author’s opinion, would be A AOIFI Shari’a Council and OIC Islamic Fiqh Academy.

52

ISLAMIC FINANCE REVIEW | JUNE 2018

Physical tokens have been and are still being used as means of payment (e.g. gold coins, bank notes). In such setting, a direct exchange of sellers' goods and buyers' tokens allows them to achieve an immediate and final settlement. This option is unavailable, however, when the two parties are not present in the same location, necessitating the usage of digital tokens. In a digital currency system, the means of payment is simply a string of bits. This poses a problem, as these strings of bits, as any other digital record, can easily be copied and re-used for payment. Essentially, the digital token can be counterfeited by using it twice which is the so-called double-spending problem.

Cryptocurrencies such as Bitcoin go a step further by removing the need for a trusted third-party. Instead, they rely on a decentralized network of (possibly anonymous) validators to maintain and update copies of the ledger. This necessitates that consensus between the validators is maintained about the correct record of transactions so that the users can be sure to receive and keep ownership of balances. But such a consensus ultimately requires that users do not double-spend the currency and that users can trust the validators to accurately update the ledger.

How do cryptocurrencies such as Bitcoin tackle these challenges? Trust in the currency is based on a blockchain, which ensures the distributed verification, updating and storage of the record of transaction histories. This is done by forming a blockchain. A block is a set of transactions that have been conducted between the users of the cryptocurrency. A chain is created from these blocks containing the history of past transactions that allows one to create a ledger where one can publicly verify the amount of balances or currency a user owns.

Hence, a blockchain is like a book containing the ledger of all past transactions with a block being a new page recording all the current transactions.

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

To ensure consensus, validators compete for the right to update the chain with a new block. This competition can take various forms. In Bitcoin, it happens through a process called mining. Miners (i.e. transaction validators) compete to solve a computationally costly problem which is called proof-of-work (PoW). The winner of this mining process has the right to update the chain with a new block. The consensus protocol prescribes then that the longest history will be accepted as the trusted public record.

Why is cryptocurrency deemed speculative; is it a mal (wealth) after all?

The proponents of this view opine that cryptocurrencies, such as Bitcoins are just numbers with digital entries on a cryptic block chain. They have no intrinsic function.

Yet, they are just numbers, which are fluctuating in value due to pure speculation. There is no real substance or underlying asset; it is just speculation on the fluctuation of numbers. This can result in cryptocurrencies being non-compliant and a form of maysir and prohibited speculation. This group of proponents liken Bitcoin or any other type of cryptocurrencies to solely settling price differences, where the objective is purely the fluctuation of price.

It is important to note that for something to be the subject of a contract, it must be mutaqawwam, meaning that its use is lawful under the Shari’a. Wealth (mal) is an essential building block of Islamic contract law. Mal is defined as tangible things to which human nature inclines. Nazih Hammad, a contemporary jurist in his article in 2007 argues that the entire community of Islamic jurists — Shafi’ites, Malikites, Hanafites and Hanbalites — are of the opinion that there are three elements of wealth; which when present will lead to the conclusion that the obligation has value and from Shari’a perspective, can be exchange for a counter value.

Those three elements are: (1) that the obligation be an intended usufruct, or contain the same; (2) that the usufruct has a monetary value in commercial practice or custom; and (3) that the usufruct be lawful from a Shari’a perspective. Based on this proposition, although there is no issue in crypto currencies being mutaqawwam, it cannot be classified as mal; as inherently it does not have usufruct to be benefited by contracting parties. Its value can only materialize when it is cashed-in using fiat money that backs it up.

ISFIRE NOTE

Is Cryptocurrency a Currency?

In the literature of classic jurisprudence, what the modern society calls now as money was at that time termed as nuqud or ‘umlah. While nuqud refers to money being widely accepted by a large society, the specific meaning of ‘umlah is a type of currency that is only valid in a certain jurisdiction and may not be widely accepted (see a detailed discussion on this distinction by Hasan Mahmud al Shafii in “al Umlah wa Tarikhuha” on page 197).

The principles of monetary economics theory on money suggest that anything to be considered as money or currency should fulfill the following primary functions — unit of account, medium of exchange, and store of value.

While at the outset, different types of cryptocurrency, such as bitcoin, etherum etc may fulfill these functions; such currency lacks of the fourth fundamental customary condition, namely a legal tender issued by government or financial authority such as a central bank.

This fourth condition, coincidentally is also put forward

by Muhammad Rawas Qal’ah Ji in his “al Mu’amalat alMaliyah al Mu’ashirah fi Dhau’ al Fiqh wa al-Shar’iyyah on page 23.

Interestingly, traditional jurists state that for anything to qualify as money or currency, it must have a thamaniyyah component that covers dual functions, namely an independent standard of value and unit of account. On this note, it is argued that the current phenomenon of cryptocurrency demonstrates that it does not serve as an independent measure of value.

Rather, it is the value of fiat currencies that is being used to determine the value of any form of cryptocurrency.

Hence, cryptocurrency does not fulfil a thamaniyyah condition that requires a currency to have an independent reference of value.

53

ISFIRE NOTE

Is it an Asset?

An asset maybe divided into fungible (mithliyyat) and non-fungibles (qimiyyat), and into movables and immovable. Asset is owned as either ‘ayn or dayn. ‘Ayn is specific existing thing, considered as a unique object and not merely as a member of a certain category. Dayn is any property, not an ‘ayn, that a debtor owes, either now or in the future; or it can refer to such property only when due in the future.

Some would argue that mithliyyat product possesses a certain degree of thamaniyyah component due to its nature in potentially creating debt (dayn’) when being transacted on a deferred method. This is a unique feature that qimiyyat product does not possess.

Consequently, a subtle characterization of mithliyyat comes along, i.e. it cannot be leased-out since the nature of its material is perishable or consumable.

Having described what constitutes an asset, one would immediately notice that a profound feature of an asset is that it should possess an intrinsic value from which people can directly benefit. And cryptocurrency in any of its forms fails to fulfill this condition.

54

ISLAMIC FINANCE REVIEW | JUNE 2018

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

ISFIRE NOTE

Can It be Considered as a Security?

Conclusion

While no court or government agency has yet opined on whether cryptocurrency is a security. But based on an analysis of a case law applying the definition of “security” under the Securities Act in the United States of America, it appears that cryptocurrency is not a security. Let us take an example of Bitcoin. Bitcoin does not fall within the definition of any common type of security. In addition, Bitcoin does not appear to fall within the broad definition of “investment contract”.

As the digital economy era is increasingly embraced by larger societies, what if cryptocurrencies are also gaining its momentum and eventually are accepted to become means of payment? Could we in the future consider cryptocurrencies as a currency? The answer is: it is possible of course. Nonetheless, its trading will be guided by the rules of Sarf.

A sale of Bitcoin is not an investment contract because a purchase of Bitcoin is not an investment in a common enterprise and purchasers should not expect to receive profits from their purchase based on the efforts of the seller. In a nutshell, a crypto currency transaction does not reflect an ownership right that can be enforced, over which future economic benefits may flow to the owner. From fiqh muamalah point of view, a technical detailed analysis in what constitutes financial securities, commercial paper and investment contracts, readers are advised to consult A AOIFI Shari’a Standards no 16 and 17.

What about trading in cryptocurrencies with a main objective of taking advantage of their price differences?

As I stated earlier, I wouldn’t be convinced with its permissibility from a fiqh muamalah stand point. As it is now, the fiqh-compliant twist would perhaps be to find a way to demonstrate that the values of cryptocurrencies represent the values of tangible assets, usufruct or ownership over projects.

A New Era: Tokenisation So, what is the DNA of a cryptocurrency then? In my view, crypto currency is nothing but a token that is created through a process called tokenisation. So, essentially cryptocurrency is none other than a platform. Tokens have no representation of an asset, either physical or intangible, and are by definition confined to the chain in which they exist. I wouldn’t come up with a final statement, let alone a verdict with regard to investing in cryptocurrency as I am not in a position to do so. But I must admit that I failed to find an argument supporting it from Shari’a point of view.

The prime example of this is Bitcoin. When we own Bitcoin, we do not own any claims on anything that belongs in the non digital world. There is no collateral behind each Bitcoin, we cannot redeem them for an underlying asset, and it does not give us any rights to claim anything against it. Yes, we may be able to use Bitcoin to purchase a cup of coffee, but the merchant accepts your Bitcoins at their own discretion since they have no legal obligation to take our Bitcoin and give us coffee. Bitcoin, therefore, is a soft token as it is confined to its own chain and has no rights outside the block chain.

With the way current cryptocurrencies is structured right now coupled with the exuberance in investing in them, I’m afraid this would worsen the debt creation culture that has overwhelmed the financialisation of our global economy.

55

ISLAMIC FINANCE REVIEW | JUNE 2018

PAUSE FOR THOUGHT

FOR THOUGHT

W

e receive a number of manuscripts with requests for consideration for including in our various publications on IBF, namely Global Islamic Finance Report (GIFR), Islamic Wealth Management Report (IWMR) and our bi-monthly magazine, ISFIRE. While some of these contributions are written in excellent styles, based on in-depth analyses, and extremely thought-provoking ideas, most other contributions are inadequately written, with flimsy analysis and thinking and with no real substance. Unfortunately, the latter come from the academic community. These include some otherwise accomplished professors whose writings are no less than a nightmare to edit.

This Pause for Thought does not intend to embarrass, humiliate or intimidate anyone but, on the contrary, it aims at highlighting a serious issue that IBF community faces – lack of adequate expression (in English). Many of these professors write very well in their mother tongues. English, unfortunately, is not their cup of tea. But, alas, they have to teach and publish their research in English language.

56

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

No one is questioning the knowledge of IBF many of these professors may otherwise possess; rather it is their writing skills that are focus of this Pause for Thought. Because of inadequacy of their writing styles, many of these academicians end up having a co-author from the Western world where English is either first language of the academicians therein or they have better English than the academicians involved in IBF. These co-authors are at best ‘free riders’ who prey on otherwise wonderful ideas that the IBF academicians can put forward only in a crude way. They just polish up their language and improve upon their writing styles and expression, and end up being co-authors of the papers they help them to publish in academic journals.

Good English and an impressive expression (both oral and written) are in some cases the only two assets many Westerners, employed in the Middle East and Asia, have. We don’t mind them working in IBF and benefitting from it.

This should be debated on another occasion. We would like to highlight herein how painful it is to proofread and edit manuscripts of those with the first language other than English.

Looking into the problem, one may find out that it is not just a philological issue; rather it has cultural relevance. There are some other important factors that must be taken into account while studying such manuscripts. Some of these are briefly discussed below.

Academic style: Academicians are expected to write in an academic style. It is a default position, consistent with their training and experience. However, we have found that academic style defines the overall look of a written piece of research and not its main contents. An academically rigorous piece of work cannot be deemed as bad. We have classified many of the manuscripts as poorly written not because of their academic style but because of something else. It just happens to be the case that most of badly-written contributions have been submitted by academicians.

No or limited exposure to the practice of IBF: Many university professors have very limited exposure to the actual practice of IBF. Consequently, they end up writing about something based on theoretical and in many cases out-dated information one comes across in books and academic journals. In social sciences, academic journals publish research which is based on no less than five-year old data. The

PAUSE FOR THOUGHT

books have an even extended gap. Besides, most of the proposed innovations by academicians are very Utopian in nature. Some of them are actually very novel but again carelessly-written and hence do not catch people’s attention.

Technical language: A number of academicians are restricted to the degree of disability to write in plain English. The heavy use of jargon and technical terms makes their manuscripts inaccessible. We deem them unsuitable, especially for ISFIRE, which is a popular magazine aiming for wider stakeholders in IBF. Boring: Most of the badly-written articles are actually boring, i.e., they don’t have a story to tell. An otherwise academically rigorous analysis utilising data on millions of companies for one hundred years and for all countries of the world is actually boring if it has only to reiterate the statement that private businesses maximise profits. Similarly, an academic piece of research loses its relevance to practitioners if it doesn’t have a relevant story for the market. When we receive such a manuscript, we find it extremely difficult to carve out an interesting and credible story out of it. At times, we may succeed in sharing a story with our readers, but we feel that it is actually our story and not the one the author intended to share. It is really frustrating as an editor.

The above factors are important but the most frustrating aspect of editing manuscripts remains poor English. It is, therefore, absolutely imperative that non-English speaking academicians get formal training in writing skills. Unfortunately, this is not the case in most instances. Although one may argue that writing a PhD thesis should have provided them an opportunity to learn how to write effectively, but in most cases this does not happen. PhD supervisors at the Western and other universities end up either editing these dissertations by themselves or they merely recommend their students to get their theses edited and proof-red by professionals. While this helps in producing theses of sufficiently high quality in terms of English language requirements, it is not enough to expose the PhD scholars to acquire good writing skills.

At the end, it must be stressed that not all the manuscripts written by academicians are entirely ludicrous. We have had the pleasure of editing some extremely well-written pieces of research that have contributed to the quality of contents of our publications.

57

Committed to Excellence!

Promoting and Advocating Ethical Values Inherent in Islamic Finance Edbiz Consulting is a truly unique, international Islamic financial advisory firm, committed to engendering the value proposition that Islamic finance serves to offer in the global financial markets. Edbiz Consulting provides multiple services that balance the dual purpose of developing thought leadership in this niche industry and strengthening the Islamic finance capacity for businesses and banks. Our client base is diverse and includes financial institutions, governments, education providers, established businesses and entrepreneurs.

We are proud of our international network that spans five continents and includes leading names within and beyond the industry. Our aim is simple: to push the Islamic finance industry forward through dedication, collaboration and innovative thinking.

info@edbizconsulting.com | www.edbizconsulting.com

Introduction: Islamic Bankers Association (IBA) is a new international industry representative body for practitioners of Islamic banking and finance. It is officially incorporated in United Kingdom, with its registered office in London. The IBA membership is open to individuals and corporates, and aims to become the largest industry representative body for Islamic banking and finance in the world.

Membership categories include: Corporate Membership: For all Islamic banks and the institutions offering Islamic financial services – IIFS (Annual Fee: £3,500) Associate Corporate Membership: For all businesses that offer their services to Islamic banks and IIFS (Annual Fee: £5,000) Individual Membership: For all the employees of Islamic banks and IIFS, with work experience of a period of five years or more (Annual Fee: £100) Young Professional Membership: For all the employees of Islamic banks and IIFS, with work experience of a period of less than five years (Annual Fee: £50) Associate Individual Membership: For any professional whose application is endorsed by at least one existing member of IBA (Annual Fee: £100) Islamic Bankers Association is a non-profit organisation, registered in England and Wales as a company limited by guarantee, and does not offer any financial products and as such is not regulated by Financial Conduct Authority.

If interested in becoming a member, please get in touch with Khuram Shehzad on:

+44 (0) 20 3617 1089 or kshehzad@edbizconsulting.com

ISLAMIC FINANCE REVIEW | JUNE 2018

TECHNICAL NOTE

ISL AMIC ECONOMIC S,

In the August 2016 issue of ISFIRE, we started with a one-pager to introduce standardisation of natation in Islamic economics, banking and finance (IEBF). We have now issued 8 notes (including the latest one on Riba (“ISFIRE Note on Riba�) being reported for the first time in this issue of ISFIRE).

Prior to this, we issued the following notes:

August 2016

October 2016

December 2016

February 2017

October 2017

February 2018

April 2018

ISFIRE Note on Murabaha

ISFIRE Note on Salam

ISFIRE Note on Mudaraba

ISFIRE Note on Ijara

ISFIRE Note on Musharaka

ISFIRE Note on Bai

ISFIRE Note on Istisna'

We believe that standardisation of notation will help develop consistent pedagogical tools to be used for education and training in IEBF. We aim to hold a special workshop on Standardisation of Notation in IEBF in 2018 to finalise all these standards and more in a formal way. In this respect a Board on Standardisation of Notation in Islamic Economics, Banking and Finance is under formation. The interested individuals are invited to submit their expressions of interests to Dr. Sofiza Azmi by emailing on sazmi@cambridge-ifa.net.

60

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

TECHNICAL NOTE

ISFIRE Note on Bai’ [First issued in February 2018] (A.X.B; P) represents a spot sale contract between A (seller) and B (buyer) to buy/sell a commodity X for the price P. Both the object of sale, X, and price, P, must be exchanged on spot. A variant of this contract may be notated as (A.X.B; P|T 0), explicitly mentioning the time, T0 , when the exchange of object of sale and its price be exchanged.

(A.X.B; P|T1, T 0) represents a sale contract between A (seller) and B (buyer) to buy/sell a commodity X for the deferred price P|T1 to be paid by B at a later time T1, allowing the buyer to receive the commodity upfront at time T 0 .

(A.X.B; P|T 0 , T1) represents a sale contract between A (seller) and B (buyer) to buy/sell a commodity X for the a price P|T0 to be paid upfront by B at time T0 , allowing the seller to deliver the commodity during time period T or on a specific date at the end of T1.

We aim to hold a special workshop on Standardisation of Notation in IEBF in 2018...

61

ISLAMIC FINANCE REVIEW | JUNE 2018

TECHNICAL NOTE

alam [First issued in October 2016]

urabaha

ISFIRE Notes on

[First issued in August 2016] (A.X.B; PMUR, ∏MUR, T) represents a classical murabaha arrangement between A (seller) and B (buyer) to buy/ sell a commodity X for the murabaha price PMUR and murabaha profit of ∏MUR for T as the date of payment of price.

(A.X[1].B; P MUR , ∏ MUR , T) represents a commodity murabaha arrangement between A (financier) and B (financee) arranged by a single commodity broker 1; whereby P MUR is the murabaha price, ∏ MUR is the murabaha profit, and T is the duration of the financing period (in years, months, or days, etc.).

(A.X[1.2]X.B; P MUR , ∏ MUR , T) represents a commodity murabaha with two commodity brokers, 1 and 2.

(A.X[1].B; P MUR , ∏ MUR , T, D(.), R(.)) represents a commodity murabaha arrangement between A (financier) and B (financee) arranged by a single commodity broker 1; whereby P MUR is the murabaha price, ∏ MUR is the murabaha profit, and T is the duration of the financing period (in years, months, or days, etc.); D(.) and R(.) represent default and rebate clauses, respectively, such that:

(A.X.B; P SAL |T 0 , T) represents a classical salam contract between A (seller) and B (buyer) to buy/sell a commodity X for the salam price P SAL |T0 to be paid upfront by B at time T0 , allowing the seller to deliver the commodity during time period T or on a specific date at the end of T. ([A.X.B; P SAL1|T 0], [B.X.C; P SAL2 |T1], T) represents a salamparallel-salam arrangement, involving three independent parties, A , B and C, whereby A sells a commodity X to B for a salam price, P SAL1|T 0 , paid by B upfront at T0 , to receive the delivery during time period T or on a specific date at the end of T. The salam-parallel-salam arrangement also involves B selling the commodity X to another independent party C that pays salam price, P SAL 2 |T1, to B at the time of entering into the salam contract, i.e., at T1 T0 ≠ T1, to deliver the commodity X during time period T or on a specific date at the end of T. (A.X.B.X.C; P SAL1|T i , P SAL2 |T j , T) represents a threepartite salam-parallel-salam contract, whereby A sells a commodity X to B for a salam price, P SAL1|T i , paid by B upfront at T i , and B sells on the commodity X to C for a salam price, P SAL 2 |T j , whether T i = T j or T i ≠ T j ; the deliveries take place during time period T or on a specific date at the end of T. This is a null and void contract that does not fulfil the requirement of independence of the two salam transactions.

Default Penalty = a X i ; and Rebate amount = b X j whereby X i = amount outstanding at the time of default; X j = amount outstanding at the time of early settlement date; and 0 ≤ a ≤ 1 and 0 ≤ b ≤ 1.

(A.X[1].B; P MUR , ∏ MUR , P MUR IK, T / N, P EX ) represents a commodity murabaha based Islamic mezzanine financing arrangement between A (financier) and B (financee) arranged by a single commodity broker 1; whereby P MUR is the murabaha price, ∏ MUR is the murabaha profit, P MUR IK is the payment in kind (oneoff balloon payment at the end of the financing period) and T is the duration of the financing period (in years, months, or days, etc.); N is the number of shares that B promises to sell to A in the event of default for an agreed price P EX .

udaraba [First issued in December 2016] (A.K.B; ∏, α; -∏, 1; T) is a simple mudaraba contract between a Party A (capital provider) and a Party B (the managing party) in such a way that A receives α percentage of the profit, ∏, if any. K is the capital contribution (money) by A; while T is the mudaraba time period. In case of loss, i.e., -∏, A shall have to bear it with α = 1.

(A.K.B; ∏ 0 , α; ∏1 , 0; -∏, 1; T) is a mudaraba contract that stipulates that the capital providing party (Party A) will receive a percentage of the profit if the realised profit is up to a threshold level of profit, ∏ 0 ; any profit over and above this threshold, i.e., ∏1 , will be retained by the managing party, i.e., the share of A will be zero (0).

However, in case of the loss, -∏, A shall have to bear it with α = 1.

If a mudaraba contract is notated with (A.K.B; α, T), it shall always be deemed as a short version of (A.K.B; ∏, α; -∏, 1; T).

62

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

TECHNICAL NOTE

jara [First issued in February 2017]

(A , X, B; R = r 1 + r 2 + ... + r t , T; P 1 , P 2 ) represents an ijara wa iqtina’ contract between A (lessor) who leases an asset X to B (lessee) for a total rental value of R to be paid in instalments of r 1 , r 2 , ..., r t , for a period of T; with an understanding that B will have to buy the asset for a price, P 1 , should it happens to default on rental payment during the term of the lease, and if that (event of default) does not occur B will buy the asset X at the end of the lease period for a price, P 2 .

(A , Y, B; R = r 1 + r 2 +...+ r 3 , T) represents an ijara mausufa dzimma contract between A (lessor) who leases an asset Y (which has yet to come into existence) for a total rental value of R to be paid in instalments of r 1 , r 2 , ..., r t , for a period of T (which may coincide with the time that Y must take to come into existence).

If an ijara contracts is notated with (A , X, B; R, T), it shall be deemed as an ijara that requires a lump-sum amount of rental either at the start of the lease period or at the end of it.

An ijara contract notated with (A , X, B; R 0 , T) shall imply that the rental amount is required to be paid in lump- sum at the start of the lease period; and an ijara contract notated with (A , X, B; R t , T) shall imply that the rental amount is required to be paid in lump-sum at a specific time in future, which may include the end of the lease period.

usharaka [First issued in October 2017] (A.K A .K B .B, Π, α; -Π, β i ; T) is a musharaka contract between a Party A and a Party B whereby both parties contribute capital, K A and K B , respectively, to a venture, in such a way that A receives α percentage of the profit, Π, if any, and B therefore receives (1-α) percentage of the profit, Π. In case of loss, i.e., -Π, both parties shall bear loss in accordance with β i , whereby i = A or B; β A = K A /K and β B = K B /K, and K = K A + K B . T is the time period for musharaka; and α and β may differ.

stisna’ [First issued in April 2018] 1. (A .X.B; P 1|T 1 , P 2 |T 2 , … P n |Tn ; P IST=∑ i=1P i ,Tn )

represents an istisna’ contract between A (seller) and B (buyer) to buy/sell a commodity X (which may be manufactured by A during the contract period) for total price of P IST, payable in instalments P 1 , P 2 , … P n , until the time of the delivery Tn , by when the whole price must have been paid.

2. ([A.X.B; P 1|T1 , P 2 |T 2 , … P n |Tn ; P IST1=∑ i=1 P i ,Tn], [B.X.C; P 1|T1 , P 2 |T 2 , … P n |Tm ; P IST2=∑ j=1 P i ,Tm]) represents an istisna’-parallel-istisna’ arrangement, involving three independent parties, A , B and C, whereby A sells a commodity X to B for price, P IST1 , paid by B in instalments, to receive the delivery on a specific date at the end of T. The istisna’-parallelistisna’ arrangement also involves B selling the commodity X to another independent party C that pays price P IST2 , to B in instalments i ≠ j and/or P IST2 ≥P IST1 , to receive the commodity X on a specific date at the end of T Tm≥Tn .

3. A short version of the istisna’ contract stated in (1) can be written as IST(A.X.B; P IST=∑ i =1 P i ,Tn ).

4. A short version of the istisna’-parallel-istisna’ arrangement stated in (2) can be written as

(IST1(A .X.B; P IST1=∑ i =1 P i ,Tn ), IST 2 (A .X.B; P IST2=∑ j=1 )P i ,Tm ).

ISFIRE Notes on

(A , X, B; R = r 1+ r 2 + ... + r t , T) represents a simple ijara contract between A (lessor) who leases an asset X to another person B (lessee) for a total rental value of R to be paid in instalments of r 1 , r 2 , ..., r t , for a period of T.

(A.K A .K B .B, Π, β i ; T) is a simple musharaka contract between a Party A and a Party B whereby both parties contribute capital, K A and K B , respectively, to a venture, in such a way that A receives β A percentage of the profit, Π, whether positive or negative, and B receives β B percentage of the profit. In other words, β = α.

If a musharaka contract is notated with (A.K A .K B .B; α, β; T), it shall always be deemed as a short version of (A.K A .

K B .B, Π, α; -Π, β i ; T).

63

ISLAMIC FINANCE REVIEW | JUNE 2018

TECHNICAL NOTE

iba

ISFIRE Notes on

[First issued in June 2018] (A.X.B) represents an (unconsidered) exchange of an asset X between two parties, A and B, whereby A transfers ownership of X to B, without any reference to a consideration or price.

This may also be known as an exchange of gift.

(A.X.B; B.X.A) represents exchange of an asset X between A and B, whereby A transfers ownership of (an amount of) X to B, while B also simultaneously transfers ownership of (an amount of) X to A. (A.X.B; B.X.A |T 0 , T1 ) represents exchange of an asset X between A and B, whereby A transfers ownership of (an amount of) X to B at time T 0 , and B transfers ownership of (an amount of) X to A at time T1 .

(A.X 1 ,B; B.X 2 .A) represents exchange of an asset X between A and B, whereby A transfers ownership of an amount X 1 of X to B, while B also simultaneously transfers and amount X 2 of X to A; such that X 1 = X 2 or X 1 ≠ X 2 .

(A.X 1 ,B; B.X 2 .A) is an agreement between two independent parties, A and B, which may lead to riba if A transfers ownership of an amount X 1 of X to B who also transfers and amount X 2 of X to A; such that X 1 ≠ X 2 .

(A.X 1 ,B; B.X 2 .A |T 0 ) is an agreement between two independent parties, A and B, which may lead to riba if A transfers ownership of an amount X 1 of X to B who also simultaneously (at time T 0 ) transfers and amount X 2 of X to A; such that X 1 ≠ X 2 .

(A.X 1 ,B; B.X 2 .A |T 0 , T1 ) is an agreement between two independent parties, A and B, which may lead to riba if A transfers ownership of an amount X 1 of X to B at time T 0 , and B transfers and amount X 2 of X to A at another time T1 ; such that X 1 ≠ X 2 .

(A.X 1 ,B |B.X 2 .A |T 0 , T1 ) is definitely and unambiguously a riba agreement between two independent parties, A and B, if A transfers ownership of an amount X 1 of X to B in exchange for B transferring and amount X 2 of X to A , such that X 1 ≠ X 2 , irrespective of whether T 0 = T1 or T 0 ≠ T1 .

64

GIFA MILLION DOLLAR CAMPAIGN “Edbiz Corporation is pleased to announce GIFA Million Dollar Campaign to set up an Islamic Finance Scholarship Programme to support studies and research in Islamic banking and finance“

gifa@gifaawards.com www.gifaawards.com

CAMBRIDGE

4th

MBRID

CAMBRIDGE

GE

CA

I N T E R N AT I O N A L F I N A N C I A L A DV I S O R Y

ISLAMIC FINANCE

IFLP

LEADERSHIP PROGRAMME

JULY 29 AUGUST 03, 2018

C L A R E COL L E G E , C A M BR I D G E

Leadership Talks Leadership Activities

The Cambridge Islamic Finance Leadership Programme (Cambridge-IFLP) aims to prepare the next generation of

Leadership Interviews

Social Activities

outstanding leaders in Islamic banking & finance by providing them with unique mentoring leadership

opportunities, training

from

rigorous

leaders, and industry-specific perspectives through case studies specifically written for this programme.

Cambridge Cases

renowned

Leadership Workshops

Independent fiduciary and administration solutions

It’s as simple as... knowing what matters to you VG’s award-winning Islamic finance team has deep cultural and financial understanding of the Muslim world that we translate into creating and managing Shariah-compliant structures for corporates and successful individuals and families.

GLOBAL ISLAMIC FINANCE AWARDS

Winner – Best Islamic Trust Formation Services at the Global Islamic Finance Awards (GIFA) 2016 and 2017

www.vg.je

Talk to us

Trevor Norman Director T +44 (0)1534 500418 E tnorman@vg.je

Ashley Le Feuvre Director – VG Funds T +44 (0)1534 500417 E alefeuvre@vg.je

Dominic Coyne Manager T +44 (0)1534 500402 E dcoyne@vg.je For details of the legal and regulatory status of VG, please visit www.vg.je