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Jamaliah Abdul Thahir

Waqf literally means holding or preserving certain property that continuously benefits specified beneficiaries for religious and charitable purposes as recognized by the Shariah. The aim here is to seek the pleasure of God to perpetuate good deeds by using wealth. In the contemporary environment, waqf can be incorporated under foundation laws that allows for dynamic wealth transfer, dynastic planning and inheritance management protected within a tax-efficient legal entity. This chapter provides details on the setting up of behest at the Labuan International waqf Foundation (LIWF) as an Islamic foundation to hold and manage properties for identified beneficiaries. The advantages of managing properties under this foundation, using the different types of waqfs under the LIWC, their economic potential and dispute resolution mechanism are in place to safeguard the behest from challenges.

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Zulkarnain M. Sori, Shamsher Mohamad and M. Eskandar Shah Rasid

What are the issues of governance is discussed in this chapter. We describe the practices of world’s first Shariah Governance Framework mandated by the Malaysia Central Bank to enhance the effectiveness and efficiency of financial institutions in that country. Four main functions of Shariah boards are discussed with respect to Risk Management, Review, Research and Audit, each of which has its own board. The perceptions were sought through structured interviews in 2016 of 16 members of the committee on the mandated governance framework. Though most of them perceived this framework as an important mechanism to monitor the interest of diverse stakeholders such as depositors, investment account holders and shareholders, there were also concerns on effective enforcement mechanisms as well as the need to refine continuous improvements in place to achieve the desired effect of this initiative.

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Islamic Wealth Management

Theory and Practice

Edited by Mohamed Ariff and Shamsher Mohamad

From an Islamic perspective, although the ownership of wealth is with God, humans are gifted with wealth to manage it with the objective of benefiting the human society. Such guidance means that wealth management is a process involving the accumulation, generation, purification, preservation and distribution of wealth, all to be conducted carefully in permissible ways. This book is the first to lay out a coherent framework on how wealth management should be conducted in compliance with guiding principles from edicts of a major world religion.
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Mohamed Ariff and Shamsher Mohamad

Zakat is charity payable each year on the excess wealth beyond that needed for one’s station in life. This is mandated as a duty of believers to give to charity a small portion ranging from as low as 2.5% on the excess to 7% (in the case of ornaments of precious items). It is given voluntarily by the faithful to whoever they wish to give and that includes the poor among the family. The sum is unknown and it is thought to be very large because these sums of money are supporting mosques, education, hospitals, and orphanages and support for the needy. Zakat is to be paid first before the balance of wealth could be invested to earn more wealth, which in turn will mandate further zakat payments in the ensuing year. This is pertinent to wealth management because the faithful is to have professional advice on how to compute this amount each year. We believe this is part of wealth management advisory services.

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Magda I.A. Mohsin and Shaikh H.A. Razak

To earn God’s pleasure, the faithful are urged to deploy wealth as bequests (waqf) to promote good deeds that benefits the community at large. The importance of such institutions that have existed for over 1,400 years is highlighted in this chapter. Its main goal is to be a charitable endowment that helps redistribute wealth to bridge the gap between the have-plenty and the have-not. The erosion of this admirable institutions during the 20-th century under secular government actions has led to losses of wealth and damages to assets put under endowments. In the last two decades, these institutions have begun to revive its role, and are starting to engage in beneficial socio-economic role for the communities. Through new financial modes, the old and idle properties have been successfully redeveloped to provide rewards not only for the founders, but also to benefit the society at large in terms of healthcare, job opportunities, expansion of business sector, to shelter the masses in hard times, and educating the needy besides providing food for the poor and the needy. This aspect is the last of the five parts of Islamic wealth management.

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Edited by Mohamed Ariff and Shamsher Mohamad

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Saiful A. Rosly

The concept of trading/commerce (al-bay) as opposed to trading in money with usury (riba) requires Islamic banks to take ownership of goods it intends to sell on credit. However, doing so will result in higher capital charges and tax overheads that could adversely affect banking profitability. Due to these rigidities in the modern financial infrastructure, Islamic banks have avoided taking ownership risk in the credit sale transaction which can expose them to Shariah non-compliance risk. The landmark court judgement in 2008 was one critical milestone, where true sale bearing property rights by way of ownership transfer was found non-existent in a credit sale contract: a violation of Sale Agreement. Several pre-emptive actions were sought by regulators to contain the problem including the cancellation of the inter-conditionality clause in credit sales, the tightening of shariah governance process and imposition of monetary penalties for non-compliance transactions. With the introduction of an amendment in investment account rule in IFSA 2014, ownership risk from credit sale contracts become absorbed by the investment account holders, thus relieving Islamic banks from the unwarranted stress on capital.

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Shamsher Mohamad, Zulkarnain M. Sori and M. Eskandar Shah Rasid

This chapter explains the contemporary structure of Shariah Supervisory Board in banks in an effort to ensure these banks meet the mandatory compliance requirement for all processes involved in providing products and services. The issue arose as a result of a rapid growth of Islamic finance in recent years that has attracted many financial institutions (including mainstream ones) to offer Islamic banking products and some had retrofitted conventional financial products to become compliant. Since it is relatively time consuming and costly to develop shariah-compliant product from scratch, also needing marketing efforts, so it is expedient to offer relabelled financial products as ‘compliant’ so long as it meets the compliance requirements. The approval of Shariah committees or boards are mandatory for these institutions to ensure compliance requirements. However, these committees are faced with practical challenges within the institutions in performing their responsibilities. The authors of this chapter discuss these challenges, and provide possible objective solutions to these challenges.

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John Farrar and Mohamed Ariff

Wealth of people is now also found collected at the government level as SWF and Reserves. Truly these are wealth belonging to the peoples of the countries which have set up sovereign funds to manage the people’s wealth at the state level. Some 44 countries have a total of some US$ 5 trillion while the people’s foreign reserves managed by governments amount to some US$12 trillion. We note that these funds often give the countries some leverage in accessing investments in third countries disproportionate to the size of the countries having this SWF. The regulatory and management challenges of these funds are explored in this chapter.

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Farrukh Habib and Abbas Mirakhor

Several of the biggest SWF are found in Islamic majority countries. These wealth is from setting aside proceeds from energy resources from these countries. Under the aim of replacing a portion of the depleting values, several governments have set up huge wealth under government management. The author of this chapter examine the mode of management of such wealth, and found it wanting in several aspects.