2. 1. The Islamic financial industry is a comprehensive financial system that adheres
to Islamic principles. It was the financial system of the known world developed
under the reign of the Muawiyad and the Abbasid empires from the year 6612. 850.
It continued to be a vibrant and significant financial system of the known
world spearheaded by great Islamic empires in Andalusia (Spain) until 1031,
in Granada until 1492, in the Malacca Sultanate until 1511 and in the Ottoman
(Turkey) until 1918. It is a system which has existed for the last 1,426 years
and we are only relearning what is available under the system in the last 40
years. It broadly refers to financial market transactions, operations and
services that comply with Islamic rules, principles and codes of practices.
The laws and rules of the religion require certain types of activities, risks or
rewards to be either prohibited or promoted. The evolution of the Islamic
financial market is contributed by the introduction of a competitive and
comprehensive product and service offerings.

3. 3. The world Muslim population today is estimated at about 1.8 billion, representing a
sizeable 28% of total world population of 6.6 billion. Islamic banking and finance
ha Islamic banking and finance has become a force to be reckoned with in the
global economic scenario. It often forms part of the equation in international
finance whether on a govern- ment to government basis or at the private sector
levels. The global Islamic banking sector is growing at an average of 15%-20% per
4. annum.
Currently, there are 300 Islamic financial institutions operating in about 100
countries worldwide; with more than 300 Islamic equity funds managing assets in
excess of US$5 billion. Total assets of the Islamic banking sector now stands at
US$750 billion and will reach US$1 trillion by 2010. (McKinsey) The size of Islamic
mutual funds assets are estimated at US$800 billion where US$50 billion to US$70
billion are in actively managed products. (Eurekahedge, Key Trends in Islamic
5. Funds, 2006) is recognised as having growth potential in established
Islamic finance
conventional financial centres. The market is expected to grow to US$3 trillion
to US$4 trillion in the next four to five years. With the emergence of Islamic
banking and finance today, wealth management is no longer an unfamiliar
jargon. Wealth management is a management strategy whereby a person uses it
as a tool; be it as a financial instrument or non-financial instrument.

4. 6. Islamic finance is recognised as having growth potential in established
conventional financial centres. The market is expected to grow to US$3 trillion to
US$4 trillion in the next four to five years. With the emergence of Islamic banking
and finance today, wealth management is no longer an unfamiliar jargon. Wealth
management is a management strategy whereby a person uses it as a tool; be it as
a financial instrument or non-financial instrument.
7. The reason why a person needs all these tools in order to manage their wealth
prudently is because wealth comes in many forms – some in “liquid form” and the
others in “illiquid form”.Liquid wealth can be assets such as cash in fixed deposit
account, savings account, gold account or any other forms of investment that can
be immediately converted into cash when needed. Illiquid wealth is assets which
cannot be converted into cash as immediate as the former and this takes the form
of landed properties, shares and rights.
8. Accumulating wealth is not a problem; rather managing it can be troublesome
if one does not have the correct tools to do so. In the lifetime of a person, he or
she will be accumulating wealth and protecting it. This can be seen around
us, whereby everybody is working hard to accumulate their wealth and will
spend some and save some. The saved money will later be invested in all kinds
of investment vehicles available to generate return without the person actively
working to earn it. This can be done through investing into unit trust, landed
property or gold.

6. 9. A person’s wealth will grow when the invested unit trust pays dividend or
appreciate in value; or if the landed property’s value increases; or if the gold
value increases with time. This will eventually help the person to overcome
inflation and keep pace with the decreasing value of money over time. If the
person does not manage their wealth properly, they will end up realising that
their wealth is actually depreciating with time.
10. In conventional wealth management, the objectives will be to ensure that a
person’s wealth will be able to give as much returns as it can without
considering the investment being invested in vehicles that gains interest. In
Islamic wealth management, however, the objective helps to ensure that a
person’s wealth is managed in such a way that it will improve or give a much
better return with the said investment using all sorts of investment vehicles.

9. 11. The difference here is that the investment vehicles must comply with the sharia
law in which the vehicle must avoid any investment that involves gambling,
interest earning or if the purpose of the said investment vehicles is unclear. The
investment must also avoid any businesses that are involved in pork and liquor,
be it manufacturing, transporting, packaging or selling them.
12. Being compliant to shariah law does not limit a person’s opportunity to invest as
it actually helps a person to make ethical investment whereby the chosen
business will be involved in ethical practice. When the investment only deals
with ethical vehicles which avoid businesses prohibited by shariah law, social
responsibility of a person is upheld and the ethical business in which it is
invested will normally generate better returns and create a better society by
promoting a healthy business environment and ambience.
13. Another important part of wealth management is wealth protection.
Conventional wealth management ensures that a person’s wealth will be
protected against loses or depreciation in value due to uncertainties in life such as
legal lawsuit or illness that will force the person to use all the available wealth to
pay those cost. Among the vehicles which are normally used is life insurance,
medical insurance, critical illness insurance, professional liabilities or third party
liability insurance. This is to ensure that the insurance company will pay for the
cost for every loss to avoid a person’s assets from being depleted.

10. 14. In Islamic wealth management, the same objective of protecting the wealth of a
person in case of lawsuits or illnesses applies but there are differences in treatment
whereby in Islamic wealth manage- ment, insurance cannot be used as tools.
Insurance is prohibited due to three reasons. One of it is the involvement of riba or
usury which can be seen when the payment is delayed (riba al-nas) and in interestbased transaction (riba al-fadl).
15. Insurance is considered gambling or maysir in the sense that game of chances
happens when a person purchase a policy. The insurance company will only pay
the claims once an event strikes as stated in the policy. If the said event did not
happen, the policy owner will not get anything. An insurance contract is a contract
of uncertainty (gharar). With the existence of riba, maysir and gharar, the
insurance contract is considered haram or prohibited. Therefore, a person cannot
use an insurance contract as a tool in his or her wealth protection planning.

11. 16. Instead of insurance, Islamic wealth management makes use of the takaful
contract. Takaful is a contract involving a takaful company as a representative to
manage the tabarru’ fund. The Tabarru’ is a fund that is contributed by participants
or certificate holders. Participants contribute their money into the fund to enable it
to be used to help any participant whom may be involved in unfortunate
circumstances such as early death, critical illness and lawsuits.The takaful company
involved will only be managing the fund on behalf of the participant as a
representative and will charge a wakala fee. The tabarru’ fund will never be placed
into any business that is involved in riba earnings, gharar or maysir activities.
17. The last part of wealth management concerns the distribution of wealth upon
the death of a person. The deciding factor here is on the person’s religion as
stated in the Malaysian law. If the person or the owner of the wealth is a Muslim,
the distribution will depends on the verdict by the Sharia Court but if the person
is a non-Muslim, the distribution will be justified by the Civil Court. In
conventional wealth management or Islamic wealth management, the two
processes stated above are applicable to both. The distribution process in
conventional wealth manage- ment will prioritised paying a person’s debts,
including taxes. The balance will be distributed according to the court verdict.

12. 18. For a non-Muslim with a will, the assets shall be distributed to the party with
names stated in the will and if there is no will, the Distribution Act will
decide. For a Muslim, after debts, taxes and zakat deduction, he or she can
only put into will the maximum of one third of his or her estate. The other two
third portion must be distributed using the faraid (Islamic distribution
ruling). For a Muslim, Islamic wealth management practice is mandatory as it
is a sin to leave a problem upon death without resolving it during the lifetime
when he or she is in the capacity to resolve it.
19. The pivotal point in a Muslim’s path towards Al-Falah (success) is that Islamic
wealth management will also look into other types of debt, which includes the
Hajj or pilgrimage and unperformed fast during fasting month or any other
commitments in which the person has commit- ted and did not performed
20. during his settled, only then the balance will be placed into the next level
After all is or her life.
whereby if there is a will, the amount equivalent to the stated qualifying amount
will be distributed as stated in the will. After the will is settled (this part
depends on which state law in Malaysia governs since this differs among the
different states), the Harta Sepencarian will distribute up to half of the balance
of the estate to the person’s spouse. The final faraid distribution will only take
place once everything is settled.

13. 21. A Muslim needs to practise Islamic wealth management. This is because each
individual Muslim needs to ensure that he or she accumulated his or her wealth
with accordance to shariah principles and to ensure that it is halal. A Muslim
person, therefore, needs to protect it in the way that it is permissible in shariah
to avoid a person commit- ting sin while protecting their wealth. But Islamic
wealth management is not only for the Muslims.
22. It is actually a really useful tool for everyone, including non-Muslims since the
ethical value instilled in the processes involved will insure a person even
though he or she as a non-Muslim will get a better deal in the accumulating
part of the Islamic wealth.
23. Non-Muslims will get a better deal in the protection part as the way it is
managed enables also the non-Muslim to be a part of the tabarru’ fund managed
by a takaful company. The most important point of Islamic wealth management
will be it helps to ensure a non-Muslim to avoid their estate from being depleted
even though they did not plan their estate distribution from the very beginning.
In a nutshell, Islamic wealth management practice is not only beneficial for
Muslims but also helps non-Muslims to manage their wealth prudently.