Session 6
The Significance of Islamic Investment Principles
- Empirical Evidence from International Investment Funds
En. Mohd Syukry Mohd Saidein, Assistant Vice President,
Wealth Management, Bank Rakyat
The Islamic asset management industry has enormous growth potential
Ernst and Young Report:
Global Islamic finance assets to be at US$1.8 trillion in 2013
Islamic asset management expected to grow from around US$300 billion to US$500 billion
Conventional asset management is at US$58 trillion
…as the evolution continues, Asia and the MENA region will be growth engines for the Islamic asset management industry
Source: TR Global Islamic Asset Management Report 2014
Wealth and The Quran
And when the prayer has been concluded, disperse within the land and seek
from the bounty of Allah, and remember Allah often that you may succeed.
(Aayah No. 10, Surah Al-Jumuah, Chapter No. 62, Holy Quran)
He said, "My Lord, forgive me and grant me a kingdom such as will not
belong to anyone after me. Indeed, You are the Bestower."
(Aayah No. 35, Surah Saad, Chapter No. 38, Holy Quran)
Islamic Investment Principles
Prohibition of Riba Prohibition of Gharar Prohibition of Maysir
Prohibition of forbidden
commodities
Sharing of profits and risks
Riba and The Quran
Those who consume interest cannot stand [on the Day of Resurrection]
except as one stands who is being beaten by Satan into insanity. That is
because they say, "Trade is [just] like interest." But Allah has permitted trade
and has forbidden interest. So whoever has received an admonition from his
Lord and desists may have what is past, and his affair rests with Allah. But
whoever returns to [dealing in interest or usury] - those are the companions
of the Fire; they will abide eternally therein.
(Aayah No. 275, Surah Al-Baqarah, Chapter No. 2, Holy Quran)
Riba and The Quran
O you who have believed, fear Allah and give up what remains [due to you]
of interest, if you should be believers.
And if you do not, then be informed of a war [against you] from Allah and
His Messenger. But if you repent, you may have your principal - [thus] you
do no wrong, nor are you wronged.
(Aayah No. 278-279, Surah Al-Baqarah, Chapter No. 2, Holy Quran)
Riba and The Quran
O you who have believed, do not consume usury, doubled and multiplied,
but fear Allah that you may be successful.
(Aayah No. 130, Surah Ali-Imran, Chapter No. 3, Holy Quran)
And [for] their taking of usury while they had been forbidden from it, and
their consuming of the people's wealth unjustly. And we have prepared for
the disbelievers among them a painful punishment.
(Aayah No. 161, Surah An-Nisa, Chapter No. 4, Holy Quran)
Riba and The Sunnah
From Jabir (ra): The Prophet (pbuh) cursed the receiver and the payer of riba, the one who records it and the two witnesses to the transaction and said: "They are all alike [in guilt]." [Sahih al-Muslim, Sahih Al-Bukhari, Tirmidhi, Ibn
Majah, Bahiqi and Musnad Ahmad]
From Abu Hurayrah (ra): The Prophet (pbuh) said: "On the night of Ascension I came upon people whose stomachs were like houses with snakes visible from the outside. I asked Gabriel who they were. He replied that they were people who had received riba." [Ibn Majah, Kitab al-
Tijarat, Bab al-taghlizi fi al-riba; also in Musnad Ahmad]
From Abu Hurayrah (ra): The Prophet (pbuh) said: "There will certainly come a time for mankind when everyone will take riba and if a man does not do so, its dust will reach him." [Abu Dawud, Kitab al Buyu, Bab fi ijtinabi al
shubuhat; Ibn Majah]
Why Prohibit Riba?
Social Corruption Unjustified
Misappropriation Negative Effect on
Growth
Diminishes Humanity
Defy al-kharaj bi al-daman
Unjust
Why Prohibit Riba?
2,391,102,204,613,620,000,000,000,000,000,000,000,000,000
60,806,303,788,323,700,000,000,000,000,000
1,546,318,920,731,950,000,000 1000
1500
2000
$1 borrowed at 5% in Year 1
Gharar
The word Gharar appeared 27 times in The Quran
Literally: negative elements e.g. deceit, fraud, uncertainty,
danger, risk, hazard
Technically: excessive uncertainty over the substance
or attributes of the object of sale or doubt over its existence and availability at the time of
contract
“… are speculative transactions that are harmful to society”
Gharar and The Quran
And do not consume one another's wealth unjustly or send it [in bribery] to
the rulers in order that [they might aid] you [to] consume a portion of the
wealth of the people in sin, while you know [it is unlawful].
(Aayah No. 188, Surah Al-Baqarah, Chapter No. 2, Holy Quran)
O you who have believed, do not consume one another's wealth unjustly but
only [in lawful] business by mutual consent. And do not kill yourselves [or
one another]. Indeed, Allah is to you ever Merciful.
(Aayah No. 29, Surah An-Nisa, Chapter No. 4, Holy Quran)
Gharar and The Sunnah
From Abu Said al-Khudriy (ra): The Prophet (pbuh) has forbidden the purchase of the unborn animal in its mother’s womb, the sale of the milk in the udder without measurement, the purchase of spoils of war prior to their distribution, the purchase of charities prior to their receipt, and the purchase of the catch of a diver. [Ibn Majah and Musnad Ahmad]
From Jabir (ra): The Prophet (pbuh) is reported to have forbade the sale of a heap of dates, with the weight of which is unknown, in accordance with the known weight of dates. [Sahih al-Muslim]
Why Prohibit Gharar?
To ensure certainty; improve
disclosure and
transparency
Certainty begets
consent
Without consent,
contract is void
Protects against
information asymmetry
Maysir
The winner will take the entire bet and the loser will lose his
bet
Games of pure chance where any party might gain at the
expense of the loss of the other party
“… acquisition of wealth by chance, whether or not it deprives right of other’s.”
Maysir and The Quran
O you who have believed, indeed, intoxicants, gambling, [sacrificing on]
stone alters [to other than Allah], and divining arrows are but defilement
from the work of Satan, so avoid it that you may be successful.
(Aayah No. 90, Surah Al-Maidah, Chapter No. 5, Holy Quran)
Maysir and The Quran
They ask you about wine and gambling. Say, "In them is great sin and [yet,
some] benefit for people. But their sin is greater than their benefit." And
they ask you what they should spend. Say, "The excess [beyond needs]."
Thus Allah makes clear to you the verses [of revelation] that you might give
thought.
(Aayah No. 219, Surah Al-Baqarah, Chapter No. 2, Holy Quran)
Why Prohibit Maysir?
High risk present in these types of transactions
Lead to greater financial and societal problems
Unnecessary for society; not contributing to societal wealth
Prohibition of Dealing in Forbidden Commodities
Alcohol, drugs and pork etc.
Also activities such as excessive entertainment
Neither individual Muslims nor institutions owned by Muslims can trade, invest in or finance
enterprises that deal in forbidden items
Sharing of Profits and Risks
Equally distribute the risk of business and investment,
consistent with sharing of the capital contributed
Mudarabah, Musharakah
Islamic Investment Principles in Action
Higher moral and ethical values
Shariah supervision Higher real investment
Higher growth rates Extensive evaluation
on risk and return
Source: TR Global Islamic Asset Management Report 2014
Source: TR Global Islamic Asset Management Report 2014
Source: TR Global Islamic Asset Management Report 2014
Source: TR Global Islamic Asset Management Report 2014
Source: TR Global Islamic Asset Management Report 2014
The Trial of Wealth
Indeed, We have made that which is on the earth adornment for it that We
may test them [as to] which of them is best in deed.
(Aayah No. 7, Surah Al-Kahf, Chapter No. 18, Holy Quran)
Wealth, while one of the greatest blessings that mankind has been given, is at the same time one of the greatest trials and temptations.
“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.” ― Franklin D. Roosevelt
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