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  1. 1. ISLAMIC WEALTH MANAGEMENT & WORLD VIEW ©Prof. Dr. Mohd. Ma’sum Billah1 INTRODUCTION Wealth plays an important role in human life. It is the subject matter of trade and other business transactions such as sales. Wealth can be in many forms. It can be in the form of money to some people and to other it can be in the form of property like houses, cars and lands. In order for men to obtain this wealth he has to work hard 2 because it does not come like that, even though some times it can be inherited. In Islam wealth is known as “mal”. In Islam something can be recognized as mal or wealth only when it satisfies the following conditions that are only when you 1 Professor of Islamic Financial Regulations, King Abdul Aziz University, Jeddah. Professor of Islamic Financial Applications, University of Camden, USA. Assoc. Professor of Law (Insurance, Takaful, Islamic Banking, Finance & E-Commerce), Faculty of Economics and Management Sciences, International Islamic University Malaysia. He is also an Adviser and Consultant to several Companies and Institutions (Internationally & Locally ) on Insurance, Banking, Financial and IT regulations, Wealth & Asset Management, Islamic Bond Market, Gold Dinar and so on under both modern principles and Shari’ah Discipline. Also the author of http// E-mail: 2 Allah s.w.t says in the Quran: “That man can have nothing but he strives for” (53:39)
  2. 2. possessed, secured it or stored it. For example, the birds in the sky, the minerals underground and the fish in the river are not recognized as wealth in the Islamic perspective. Only when you have possessed, secured and stored these things can they be recognized as wealth. It is different from the conventional point if view which wealth is recognized even if it has not been possessed secured and stored. In conventional perspective wealth is totally owned by man. Man can use the wealth in any way he feels like using it. They utilize their wealth only for this world purposes without concerning about the Hereafter. This way of thinking is totally contrast with what Islam thought. It is stated in the Holy Quran that wealth in all its forms is a thing created by Almighty Allah as a trust for man. Thus, man only have right to uses the wealth only according to the shariah. Allah s.w.t said in the Holy Quran: “Give to them from the property of Allah which he has bestowed upon you” (24:33) At this point we can bring in the management. Wealth management is an important aspect in Islam. Since we are not the absolute owners of the wealth in this world, we have the duty or responsibility to manage it in the best way we can. Absolute ownership is to the Almighty Allah. We have only been entrusted upon this wealth. As I said above, our responsibility is to manage it accordance to shariah. By managing wealth according to the shariah, we also can seek our reward in hereafter, for example paying zakat. Management of wealth is quite complicated because you have to look at someone intentions, how the wealth is earned, how it’s grown, how it’s spent and the right of the poor and needy. As we know, in Islam money is not an end in itself, it is a means to higher values. These means that if it is earned, invested and spend in the right way, it brings rewards or ‘barakah’ to not only the individual but also his family and the ummah as a whole. With that thinking in mind, we now can safely say that in Islam, any human undertaking of which wealth management is one is guided by certain beliefs. These beliefs are described as philosophic foundations in an Islamic society. According to Kurshid Ahmad3, they include the following: 1. Tawhid – belief in the oneness of Allah 2. Rubbubiyah – divine guidelines for striving towards all is good 3 Cited by Aidit bin Al – Ghazali and Syed Omar bin Syed Agil 1989 p.85
  3. 3. 3. Khalifah – the role of man as the vicegerent of God 4. Tazkiyah – achieving purity and growth 5. Accountability – the belief that man will be answerable for his actions in this world on the Judgments Day. From the above beliefs, an economics agent in Islam learns that the existence in this world is not from without, and thus, he has to conduct himself and administer his wealth in line with divine arrangement. Being God’s vicegerent on earth is an opportunity to function normally – and direct his activities for the betterment of his life and of those around him. Wealth management in Islam can be looked from different perspectives. These include the zakat management, inheritance, wills and testaments, estate planning, managing cash and saving, managing of tax and state duty, and different business transactions. In this paper we will discuss some of the above scope of Islamic wealth management. CENTRAL IDEA This project is centered upon gaining an understanding of how wealth is managed from an Islamic frame, work together with the worldview of Islam. While the former looks at the human behavior actions undertaken in dealing with the problem choose, the latter looks at the different stages of human existence in Islamic in addition to the concept of God, religion and prophet hood. The consideration of the worldview in Islamic in our discussion helped outline a clear distinction between managing wealth from Islamic perspective and a conventional perspective. Take a capabilities notion for instance, ownership of resources is absolute, and can be utilized in any manner deemed right in one’s own good and best interest in this world. This is not so in Islamic perspective where ownership is regarded as a trust
  4. 4. from God, and thus, can be used with the intention of obtaining the pleasure of God. Knowing that the concept of ownership is limited in Islam, human behavior thus directed at seeking prosperity in this world and in the Hereafter. This entails the maximum utilization of natural resources and human capabilities leading to higher productivity, which in turn brings about success, happiness and growth to the individual and the society at large. The project paper is designed to discuss shariah rulings and the framework that governs wealth management in Islam. Among other issues, these rulings touch on the utilization and administration in different circumstances pertaining to the question of ‘how to utilize the wealth?’ and ‘who is capable of administrating the wealth?’ These shariah rulings act as a benchmark against which efforts at managing wealth are measured, and thus, ascertain that those involved in managing wealth do so in line with the Quran and Sunnah. In order to have a clear picture of the topic, we have included practical assertion applicable in different situations of wealth management in Islam. Following thus is a plan to provide room for further improvement through research on the practicalities of managing wealth, and recommendations. We hope that this paper is beneficial to all of us and that it is an avenue towards a better tomorrow where wealth management is concerned. SHARIAH RULINGS Shariah rulings provide a basic upon which guidelines and instructions of a course of action or undertaking are formulated and implemented. Despite cleat rulings on the use and management of wealth, the Quran is not devoid of hypotheses in general about wealth and its consequences, how man views wealth, and words of wisdoms for man with regards to wealth. The following are some of the examples: 1.
  5. 5. “Fair in the eyes of men is the love of things they covet: woman and sons; heaped – up hoards of gold and silver; horses branded (for blood and excellence); and (wealth of) cattle and well – tilled land. Such are the possessions of this world’s life; bit in nearness to Allah is the best of the goals (to return to)” (3:14) 2. “And violent is he in his love of wealth” (100:8) The above verses indicate man’s desire for wealth in different forms – gold and silver, horses, cattle and lands, which vary, includes all kinds of machines in our contemporary world. 3. “If I had knowledge of the unseen, I should have multiplied all goods, and no evil should have touch me” (7:188) 4. “Nor does anyone know what it is that he will earn on the morrow.” (31:34) These two verses indicate among other things, the uncertainty in the future pertaining to out present doings. ‘No man knows what the morrow may bring forth’4. 4 Commentary 3626.The meaning of the Holy Quran by Abdullah Yusof Ali, new edition with new translation and commentary, p.104.
  6. 6. This is another distinction between the conventional and Islamic point of view in the sense that the former answer ‘perfect foresight’5 in some theories. 5. “If Allah were to enlarge the provisions for His Servants, they would transgress beyond all bounds through the earth. But He sends (it) down in due measures as the please. For He is with His servants well – acquainted, watchful” (42:27) 6. “Nay, but man does transgress all bounds, in the looks upon himself as self – sufficient” (96: 6 – 7) In the above verse God indicates the consequences of increased wealth on man. This verses as a warning to those with bestowed with wealth looking beyond the riches of the world. While God has subjected all that is in the earth for the use of man as His vicegerent on earth, He has bestowed His favors more freely on some, than on others. In these are tests from God. In the Quran man is advised to seek his sustenance and remember God so that he attains success in this world and in the Hereafter. Allah s.w.t says: “And when the prayer is finished, then may ye disperse through the land, and seek the bounty of Allah: and celebrate the Praise of God often (and without stint): that ye may prosper.” (62:10) 5 Aidit bin Ghazali and Syed Omar bin Syed Agil 1989 p.25
  7. 7. One of the ways by which wealth is managed in Islam is trade. This helps transfer of goods and services from one to another to satisfy different wants. In addition, it helps minimize, if not eliminate the possibility of excessive wealth remaining in the hands of selected few. In the regards, the Quran says: “In order that it may not (merely) make a circuit between wealthy among you” (59:7) Moderation in expenditures is commended in Islam, and excesses, waste and extravagances denounced. The Quran equates such doings to the works of the devil, as in the following: “Verily spendthrifts are brothers of the Evil Ones and the Evil Ones to his Lord (Himself) ungrateful” (17:27) “… eat and drinks: but waste not by excess, for Allah loves not the wasters” (7:31) Aside prohibiting extravagance and spendthrift ness, Islam too has no place for meanness and stinginess. If recommends striking a balance, and to this effect, the Quran says:
  8. 8. “Make not thy hand tied (like a niggard’s) to they neck, nor stretch it forth to its utmost reach, so that thou become blameworthy and distillate” (17:29) “Those who, when they spend, are not extravagant and not niggardly, but hold a just (balance) between those (extreme)” (25:67) “For Allah loves not arrogant, the vainglorious; - (nor) those who are niggardly, or enjoin niggardliness on others, or hide the bounties which Allah has bestowed on them….” (4: 36 – 37) Another example by which wealth is managed in Islam is through zakat and sadaqat, commonly referred to as almsgiving. The donor may give the latter directly to the recipient or through the state government collectively. The former is usually administered through the treasury, knows as Baitul Mal. Here is what the Quran says in this regard: “So give what is due to kindred, the needy, and the wayfarer. That is the best for those who seek the countenance of Allah, and it is they who will prosper” (30:38)
  9. 9. “And in their wealth and possessions (was remembered) the right of the (needy), him who asked, and him who (some reasons) was prevented (from asking)” (51:19) In order to wind up the discussions in shariah rulings – though we primarily looked at the Quran injunctions here, we will consider both the Quran and the Sunnah as we talk about practical scenarios of individual cases of wealth management – let us look at the following verse of Quran: “But seek, with the (wealth) which Allah has bestowed on thee, the home of the Hereafter, nor forget thy portion in this world: but do thou good, as Allah has been good to thee, and seek not (occasions for) mischief in the land: fro Allah loves not those who mischief” (28:77) In the above verse are many implications concerning wealth and its management in Islam. These can be outlined as in the following sense: 1. Wealth is entrusted upon man by Allah 2. The management of this wealth should be directed at seeking the pleasure of God in other world (Hereafter). 3. Being a trust from God, wealth need be used and exploited in accordance to God’s commandments. 4. Being the owner of wealth, God has the right command on man to use wealth for the good of other as He has done well on him, and prohibit man using wealth in a manner that is likely to cause harm on earth.
  10. 10. From these implications of the verse, we see a distinction between the Islamic point of view and the socialist and capitalist point of view. While capitalism propagates ‘an absolute and unconditional right to private property and socialism totally denies the right to private property’6, Islam poses a balance by allowing the right to private property but from that angle of it being a trust. PRACTICAL SCENARIOS AND APPLICATIONS ZAKAT PLANNING Another important issue that can be brought about in the management of wealth in Islam is the paying of Zakat. Every Muslim who has the ability to pay the Zakat is obliged to do so. It is one of the five pillars of Islam. So now, you can see the great importance of paying the Zakat. Mostly in Islam Zakat is paid by the wealthy Muslims. Allah made the paying of Zakat compulsory for a reason. This was in order to help the poor and the needy Muslims or the Muslims who are completely unable to support themselves. I say paying the Zakat is a form of wealth management because the wealthy Muslims will be able to deliver some of there wealth to other needy Muslims. Therefore, in doing so the wealthier will not become more and more wealthy, but moderate. This is why God (Allah) made some people in this world rich and some poor. Wealth can be a very dangerous element because once a human being becomes possessed with this wealth. He will forget about his religion and God altogether. In order to get rid of this, Allah made compulsory for every Muslim to pay the Zakat. However if you look at the conventional or the capitalist advocates, you will discover that most people have became inclined to their wealth that they do not have or 6 Iqra, the real nature of wealth and property, March 2002.
  11. 11. follow any religion. In short they have become pagans. They also do not believe in the hereafter. This is so, because there is no form of wealth management such as paying the Zakat to the needy people around the world. This is why, the capitalist always concentrate on material satisfaction and not spiritual. They only seek material satisfaction and think of maximizing there wealth through all the means available, weather the right or wrong way. They also have this misconception of saying that their scarce resources and unlimited needs in the world. It is like saying that God did not know what he was doing. Because God created this world and made sure that people would be satisfied with whatever there is available.” The imposition of Zakat is to purify oneself as well as one’s own property.”7 “Islam believes if a wealthy person is accustomed to paying Zakat, his infatuation for wealth will be softened and it will be a source of advantage to him and the society in the end.”8 “Alms are for the poor and the needy and those employed to administer the (funds); for those whose hearts have been (recently) reconciled (to the truth); for those in bandage and indebt; in the cause of Allah; and for the wayfarer: (thus is it) ordained by Allah and Allah in full of knowledge and wisdom”. (9: 60) Prophet Muhammad (PBUH) is reported to have said, “Zakat is not permissible for someone who is not in need except in five cases; someone fighting in the way of Allah, someone who collects Zakat, someone who has suffered (financial) loss (at the hands of debtors), someone who buys it with his own money, and someone who has a poor neighbor who receives some Zakat and gives some as a present to the one who is not in need.”9 Zakat is obligatory on all Muslims capable of paying it. Capability is referred to as nisab, a taxable minimum. It is used for specific purpose and paid to specific groups of people or individuals. The Quran lists eight (8) recipients as in the above verse. The role that Zakat plays in the distribution of wealth and income is, without doubt, very important. It reduces the gap between the haves and the have-nots, and induces saving and consumption behaviors in addition to the fact that it helps mobilize income for redistribution. Islam discourages funds to remain idle, simply because there is no interest, as compared to the conventional system which makes up for earned income with no effort involved. If we look at the saving decision, we notice that idle savings in Islam are penalized because a Muslim is expected to pay Zakat. At the end of the day he remains worse off because for every RM100 that he saves, he loses RM2.50 (2.5% Zakat ratio). 7 Nik Mustapha Bin Hj. Nik Hassan 8 Nik Mustapha Bin Hj. Nik Hassan 9 Muwatta, Translated by Aisha Abdurrahman Bewley, p.103
  12. 12. Hence, his rational option would be to incorporate investment expectations into his savings decisions. Assuming he sees no light in the direction of investment expectations, he might cut savings and increase consumption in the process, which does not go along with the poor investment expectations. Thus, inclusion of these expectations in the savings decision paves way for a balanced system. Zakat allows a minimum living standard for all residents in an Islamic society, unlike in the capitalist system where the savings of the haves double and multiply through interest, and the have-nots have no social insurance because there is no Zakat. In a capitalist system an individual might give out part of his wealth if and only when he denies to do so with out clear guidelines as to what, how, and how much he should give, because there is a possession kind of ownership. In an Islamic framework, Zakat illustrates a utilization kind of ownership and not that of a possession kind. The former kind of ownership accrues when wealth is utilized for its purpose and benefits derived from that wealth, else, the right of ownership is withdrawn, more especially in the case of land ownership. Islam on the other hand, has clear guidelines as to what should be given out as Zakat, who should give out Zakat and how much he should give out (see Zakat at a glance). Zakat is obligatory on every eligible Muslim male or female, and is given for the pleasure of god and to earn his grace. On the things liable for Zakat, the prophet (PBUH) is reported to have said, “There is no Zakat on less than five Awsaq10 of dates, there is no Zakat on less than five awsaq’ of silver and there is no Zakat on less than five camels.”11 And in another Hadith, the prophet (PBUH) is reported to have said, “On’ land that is watered by rain or springs or any natural means there is (Zakat to pay of) a tenth. On irrigated land, there is (Zakat of) a twentieth (to pay).”12 10 Plural of wasq, which is a measure of volume equal to 60 Sa’s. 11 Muwatta, p.93 12 Ibid, p.104
  13. 13. ZAKAT AT A GLANCE Criteria for Recipients of Zakatable items Zakatability Zakat Major kinds of wealth The poor 200 Dirhams for stock items at 2.5% The Needy Livestock, inventory of trade, gold and silver Those employed to administer the funds 20 Dinar 5 heads of 40 heads of Income embodied in the Those whose hearts each of Camels sheep major kinds of wealth have been reconciled gold to the truth Income saved in Watered by the form of any Those in bondage 300 Sa’ (about 653kg) for rivers, canals, major kinds of agricultural products at 10% or rain wealth Those in debt Agricultural products Those in the cause of 20% of found treasures Allah Found treasures 5% for the produce of irrigated land The wayfarer
  14. 14. Exempted Items Human Skills and Resources Income for consumption Items of wealth for personal and family use Horses, slaves, weapons, residence Trivial things not meant as trade Laborers Tools Inventory.
  15. 15. EXAMPLES ZAKAT IN CASE TWO PERIODS ARE ASSESSED TOGETHER Assuming one capable of paying Zakat does not pay in one period until the next period when the calculation of Zakat will involve two periods, it is a procedure that the assessment of Zakat is based on what the person is currently capable of paying regardless of his previous condition of wealth. If, for example, after the assessment of Zakat on his wealth he is unable to pay in the event his wealth is reduced below nisab (the minimum requirement), he is not liable to pay Zakat for the period that has passed. As reported by Yahya, Malik said, “The position with us concerning a man who has Zakat to pay on one hundred camels but then the Zakat collector does not come to him until Zakat is due for a second time and by that time all his camels have died except five, is that the Zakat collector assesses the two amounts of Zakat that are due from the owner of the animals from the five camels, which in this case is only two sheep, one for each year. This is because the only Zakat which an owner of livestock has to pay is what is due from him on the day that the Zakat is (actually) assessed. His livestock may have died or it may have increased, and the Zakat collector only assesses the Zakat on what he (actually) finds in his possession, and if his livestock has died, or several payments of Zakat are due from him and nothing is taken until all his livestock has died, or has been reduced to an amount below that on which he has to pay Zakat, then he does not have to pay any zakat, and there is no liability (on him) for what has died or for the years that have passed.”13 ZAKAT ON SEEDS AND OLIVES This presents a scenario of the application of Zakat as to what are the Zakatable items, how much is Zakatable and when it is Zakatable. This clearly illustrates the management of wealth in Islam not prevalent in the conventional approach. Malik said,” The tenth that is taken from olives is taken after they have been pressed and the olives must come to a minimum amount of five awsaq and there must be at least five awsaq of olives. If there are less than five awsaq of olives, no Zakat has to be paid. Olive trees are like date palms in so far as there is a tenth on whatever is watered by rain or springs or any natural means, and a twentieth on whatever is irrigated. However, olives are not estimated while on the tree. The sunna with us as far as grains and seeds which people store and eat is concerned is that a tenth is taken from whatever has been watered by rain or springs or any natural means, and a twentieth from whatever has been irrigated, that is, as long as the amount comes from five awsaq or more using the aforementioned Sa’, that 13 Muwatta, p.102
  16. 16. is the Sa’ of the prophet, may Allah bless him and grant him peace. Zakat must be paid on anything above five awsaq according to the amount involved.”14 BUSINESS TRANSACTIONS Business transactions in an Islamic framework come in various ways and cater to different parties or groups of people in various circumstances and situations. This might involve a Mudarabah agreement, where one party, say a bank, provides capital and another entrepreneurship; a Mudarabah transaction, which briefly can be described as a partnership between investors and borrowers in a profit-sharing agreement involving re- sales; Al-ijarah contract, which is literally, a contract of letting; and Qirad, which is wealth entrusted upon an agent by an investor for commercial use. All of these transactions indicate how wealth in its various forms is used or managed from an Islamic point of view. Here is a look at the application of some of the above. MUDARABAH AND MUSHARAKAH MODE OF FINANCING Banking institutions have a unique way of managing wealth. Banks manage wealth through their various modes of financing such as Mudarabah, Musharakah, and Murabaha e.t.c. Let as for example the Mudarabah mode of financing. As we know Mudarabah involves two or more parties coming together and agreeing upon, one party contributing labor and the party contributing the wealth (capital) to carry out a business. So through this definition you will discover or find out that there is sharing of wealth, effort and responsibility. If one party or person has the effort but not the means, he can go to the bank and obtain Al-qard-hasanah and start a business, which at the end of the day will involve the sharing of profits. Therefore, banks indirectly manage wealth by giving Al-qard-hasanah to the needy people who have the ability but not the means to carry out the business without funds. Unlike the conventional banks, were they give loans and charge interest (Riba) upon the borrower. This is not called managing wealth or helping the needy, but it is called exploiting the borrower. The borrower has to pay on top of the money that he/she has got a fixed amount of interest, in which Islam has forbid this. That’s why is Islam it is stated that absolute ownership of wealth is towards the almighty Allah and we are merely entrusted upon it. Therefore man cannot do whatever pleases him 14 Ibid, p.105
  17. 17. As you can see the above manner in which wealth is distributed is a form of wealth of management. This is because the needy or the have-nots are assisted by providing them with the needed funds to start a business. Firstly, money or wealth is not left lying idle and secondly the wealthier people do not become more and more wealth. They share their wealth with the have-nots. The same goes with the other form or mode of financing which is Musharakah. Where two or more people come together to carry out a business and the profits are shared in equal proportions at the end of the day. Let me provide with an example, so that you can get a clear picture of how Musharakah is a form of wealth management element. For example a person is interested in starting a business of selling books. That business needs a capital of RM 200,000. This person interested in that business has not that kind of money. He has RM 100,000 which not sufficient enough to start that business. So he goes and sees his fellow friend asks him if he is interested in that type of business. Let’s say the friend’s response to the request is positive. So he tells the friend that he has only RM 100,000 and needs another RM 100,000 to get started with the business. So the other friend would provide the other hundred to start the business. In this way they of formed what we call a partnership in conventional terms and Musharakah in Islam. But in Islam Musharakah can be made between Banks, institutions and other normal businessmen. Unlike in the conventional were it can be done between institutions only and between businessmen and not a mixture of both. This is a mode of financing and a form of wealth management. AL-IJARAH FACILITY Al-ijarah, also known as Al-kira’ refers to rent, lease or usage. In an Islamic financial system, Al-ijarah is a contract of selling of benefits or use or service for a fixed price or rent. Technically, Al-ijarah in fiqh is used “to express the sale (Bay’) of a known benefit in return for its known equivalent” (The Majelle Art.405). Being a contract like that of sale, Al-ijarah is concluded with offer and acceptance. CONCEPT With the Ijarah facility, the main idea behind the contract is the transfer of usage or benefit and not ownership. For this contract to be legally operational, the following guiding principles are required: 1) The usage/benefit must be clarified with regards to the period of lease and the types of usage.
  18. 18. 2) The lessee is capable of utilizing the benefit of the lease fully.CONDITIONS Al-ijarah facility can only be valid if it meets the following conditions from an Islamic perspective. 1) The owner of the asset or lesser 2) The user or holder of the asset or lessee 3) The asset/equipment 4) Benefit/service 5) The rent/price 6) Offer and acceptance Have all been stated clearly in the contract of Al-ijarah. FEARTURES 1) Al-ijarah financing extends from short to medium financing in equipment, motor vehicles, machines, computers, and consumer goods among other things. 2) The usage of the asset should not contain any elements of Haram (forbidden). 3) A consideration of the used industrial equipment markets, second hand value and capital allowance when extending Al-ijarah financing to the customer. MODE OF OPERATION The banks manner of financing Al-ijarah contract generally follows the following procedures: 1) Determination of the needs of the customer where the equipment and the lease period is concerned under the shariah principles. 2) Purchasing the required equipment by the Bank. 3) Leasing the equipment to the customer at an agreed price and period. The total lease rental of the Bank is a combination of the cost of the equipment and the margins of profit for the Banks. As mentioned earlier, the purpose of this kind of contract is the transfer of usage or benefit, but the bank retains the ownership of the asset. In the event the customer dishonors the agreement, the Bank can repossess the equipment immediately. For instance, if a horse is hired to be ridden by someone and it happens that someone else other than the person who hired the horse rides it, this can invalidate the contract. 15 However, the lesser can also not rescind the contract anytime he wishes to. The Mejelle (Art. 441) says, “After a contract has been completed which is a lawful letting, if another 15 “If there is a difference by a change of the person using anything, effect is given to a restriction” (Mejelle Art .427).
  19. 19. person offers additional rent, however much it may be, the lesser cannot for this alone annul the letting.” AL-IJARAH OPERATION (3) The Bank leases the asset to the customer CUSTOMER BANKS (LESSEE) (LESSER) (4) The customer pays back. (1) The (2) The customer banks finds the purchases the asset he asset from wants the vendor VENDOR OF ASSET
  20. 20. EXAMPLE Assuming the Banks purchases equipment for RM 30,000 and leases it to a customer for a period of 5years at 8% rate of profit per annum; we can calculate the following: Total Lease Rentals (TLR) = CF + (CF * I * n), where CF = Cost of Financing I = Rate of Return per Annum (Flat) n = Period of financing in years Hence, TLR = 30,000 + (30,000* 8% * 5) = RM 42,000 Monthly Lease Rental = RM 42,000/ (5 * 12) = RM 42,000/ 60 = RM 700 Amount of Profit = RM 42,000 – RM 30,000 = RM 12,000 TERMINATION (1) Being a finance lease, Al-ijarah contract is non-cancelable. In the event this happens, say due to the involuntary of the asset, the lesser will have to be compensated. (2) According to the Income Tax Act 1967 schedule 3 para 7116 , there is no allowance for plant and machinery if held for less than 2years. (3) Early termination of the lease is classified into 2: (a) Within 24months from the commencement of the lease date. (b) After 24 months from the start of the lease date. (4) The Income Tax Act 1967 under para 71 provides indemnity for the lesser by the lessee against any balancing charge incurred by the lesser if the lease contract is terminated within 2 years. (5) The rate of tax indemnity is at 33% per annum. 16 The 3rd international integrated course on Islamic Banking and Finance, Module 2, BIMB, Al-ijarah, p.16
  21. 21. UNIT TRUST Unit trust is investment instruments in which many investors who share similar investment objectives pool their resources together which are then invested by specified fund managers in specified or authorized securities. There is no profit sharing between the fund manager and the investors but a fee known as ujrah is incurred by the investor for the professional services under Al-wakalah contract. In the Islamic unit trust, there is usually a shariah panel (shariah supervisory board) which decides which share to fund by using the Activity or Structure Method. Aside al – Wakalah agreement, Islamic unit trust also involves on indirect Musharakah system (equal to unequal share partnership) between investor and companies trading stocks or bonds. Capital gains and dividends are for investor but every purchase or sale of units, the company (fund manager) receives a fee. Any losses incurred due to adverse market conditions do not affect the shareholders wealth. There is a sharii and tabii dimension to the Islamic unit trust. The former inculcates akhlaq (ethic) in the agreement following the concept of Tawhid. This helps weigh actions from the reasoning point of view as well as spiritual values. The latter is a brainchild of natural and common sense. For the fact that the management receive a fee, if it is incumbent on the conduct research and use fundamental and technical analysis in the stock selection; so that the element of gharar (uncertainty) and maisir (gambling), among others are eliminated. Fund managers are expected to follow price changes as caused by company performances so that losses are minimized and capital gains achieved.
  22. 22. CAPITAL MARKET BOND EQUITY Open Venture trading in Closed Capital KLSE Unit Trust How mutual funds work Has 2 Mutual Dimensions INVESTORS Fund Pool their Monies (Inv. Co) In Tabi’i Purchases Shar’i Natural and Capital common Structure sense Diversified Activity Portfolio Of Securities Fundamental Technical Analysis Analysis ITT GM IBM SONY
  23. 23. INHERITENCE Another way or means by which Islam manages wealth on a small scale is by inheritance. We say on a small scale because this is done at the family level. As you know inheritance is the acquiring of the wealth or property left by the deceased parent. This wealth is to be divided among immediate family members in an appropriate manner stated in the Quran and Sunnah. Allah s.w.t has already stated the shares that are to be given to the immediate family members. Allah knows if He hadn’t done so there would be lot problems that would have come up. Some people would have been treated unfairly by giving or offering them a little or none of the wealth they deserve to get. In the conventional there is no proper laid down manner in which the wealth is to be inherited. Although the deceased leaves behind a will to who suppose the wealth goes, but it still some weaknesses or injustice occurred. The weakness is that it has no room for the distribution of income sometime. For example, if the rich only marry the rich and the poor also marry the poor, the wealth will just circulate among the rich and the poor will remain poorer. Therefore it has no room for the distribution of income or wealth. But if this looked into and across manages take place like the rich marry the poor then this would be a better way to distribute wealth among the people. The Holy Quran has given a line out on how the wealth should be managed in the verse 10 – 12 surah An – Nisa. Allah s.w.t says:
  24. 24. “Those who unjustly eat up the property of orphans, eat up a fire into their own bodies: They will soon be enduring a blazing fire. (10) God (thus) directs you as regard your children’s (inheritance): to the male, a portion equal to that of two females: if only daughters, two or more, their share is two- thirds of the inheritance; if only one, her share is a half. For parents, a sixth share of the inheritance to each, if deceased left children; if no children, and the parents are (only) heirs, the mother has a third; if the deceased left brothers (or sister) the mother has sixth. (The distribution in all cases) after the payment of legacies and debts. You know not whether your parents or your children are nearest to you in benefit. These are settled portions ordained by God; and God is All – Knowing and All – Wise. (11)
  25. 25. In what your wines leave, your share is half, if they left a child, you got fourth; after payment of legacies and debts. In what you leave, its share is a fourth, if you leave no child; but if you leave a child, they get an eighth; after payment of legacies and debts. If the man or woman whose inheritance is in question, has left neither ascendants nor descendants, but has left a brother or a sister, each one of the two gets sixth; but if more that two, they share in a third; after payment of legacies and debts; so that no loss is caused (to any one). Thus is it ordained by God; and God is All – Knowing, Most Forbearing. (12)” RECOMMENDATIONS If goes beyond the reasonable doubt that zakat clearly illustrates the manner of wealth managements in Islamic framework. What is required then is proper vehicle through which zakat funds can be channeled. This involves knowing not only by the nature of zakat, the criteria of zakat, but also the zakatable items in our modern day Muslim societies, minding the changing circumstances. Kahf (1989) suggest a reconsideration of the fiqh views where the actual implementation of zakat is concerned. He however places much emphasis on the social and economics justice together with its impact on development. Hence, we are tempted to suggest further research on the administration of zakat and what actually constitutes the elements of zakat in our contemporary Muslim societies, which may not have been suggested in the period of Prophet Muhammad s.a.w. Since Malaysian’s system of government is secular in nature, the zakat system has not been seriously taken into consideration. In short it has fallen on deft ears and got no response. As paying zakat is one of the five pillars of Islam, it is of great important that the government Malaysia has to look into it. It is not only an individual responsibility but also a nationwide responsibility to see to it that zakat is paid by the able Muslim. Therefore, here is some recommendation that could put in place an effect zakat system in Malaysia: 1. Is to educate the massage of people in Malaysia both publicly and privately about the important of paying zakat. In order for this effective, we should start from those people who are at the top. This can be done holding seminars and regular talks on zakat. 2. They should also try to incorporate the zakat system into the countries fiscal policy. If the paying of government taxes by the people to the federal and state government is effectively working, why can’t the payment of zakat be imposed as a law by the government? Through this, we think that more people will be well informed of the zakat payment.
  26. 26. 3. The government should also put in place a centralized zakat institution where people can get information and pay zakat. Try to avoid any differences among the states in terms of implementation of zakat. By this, we can prevent any misunderstanding and confusion between people. CONCLUSION Wealth management from an Islamic perspective follows proper guidance principle of shariah, which, to a large extent, take a different route from the conventional point of view. Throughout the paper, there was an intention to show that distinction. Any shortcomings on that purposes is owing to the technical know – how on the part of authors. However, the paper sought to convey that owning wealth in Islam does not make anybody the absolute owner of that wealth. Wealth is merely entrusted upon us by God and thus, it has to be used and arranged in accordance with God’s approval as stated in shariah rulings. Ownership can be acquired through many ways as in a sale contract or gift; making someone the successor of another as in inheritance, and the acquiring of a thing which free for the public use. In all of these circumstances, Islam has a way in managing wealth. Man as the vicegerent on this world is expected to seek this wealth and use it in manner that will help him obtain the pleasure of God in this world and hereafter. With that, the paper provided some practical scenarios as to how wealth can be used in Islam for this purposes. It was therefore illustrated in zakat planning, al – Ijarah financing and Islamic unit trust. The main purpose is to show the approach to wealth management in Islam not prevalent in the conventional way. Then the paper looked at some recommendations as a vehicle for further improvement, particularly on zakat activities.