ABDUL KARIM JUMA FIQH ONOMICS OF - ISLAMIC FINANCIAL ENGINEERING WHEN TECH MEETS FAITH - GIFR 2019
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ABDUL KARIM JUMA DIRECTOR ISLAMIC BANKING RAKBANK FIQH-ONOMICS OF ISLAMIC FINANCIAL ENGINEERING WHEN TECH MEETS FAITH
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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
NOTE FROM THE
EDITOR IN
CHIEF
We are well into the new year and things are looking bright for the Islamic finance industry. Many new developments
are taking place, especially in the realm of sustainability and innovation. As Indonesia has now sealed its spot as a
global leader in Islamic finance, a new sleeping giant has emerged - Bangladesh. My recent visit to the country as
part of our intelligence gathering activities has served to reinforce my views on how Islamic finance is making strides
and gaining popularity in Bangladesh.
Islamic banking accounts for more than 25% of total banking assets in Bangladesh, with a potential to grow up to
50%. Just recently, the central bank announced the approval of 2 new full-fledged Islamic banks, making the total
10. The government will be announcing its first sovereign sukuk issuance mid of this year. 2020 promises to be an
exciting year for Islamic banking in Bangladesh! I was also impressed when I visited the new Corporate Head Office
building of Shahjalal Islami Bank Limited. This 17 stories building is said to be the first Green Building in the banking
sector that is gold certified by USGBC.
Our cover story of this issue features Abdul Karim Juma, Director of Islamic Banking at RAKBANK, who is at the
forefront of propagating Islamic banking in the UAE. In his interview, Abdul Karim Juma shares the strategic position
in which RAKislamic has managed to put itself vis-à-vis its competitors and how the bank intends to leverage on
technology to provide customers with seamless digital banking solutions and platforms.
Fintech will continue to dominate discussions and news in 2020 as more and more Islamic banks are accelerating
their digitalisation drive. Islamic Fintech has the potential to make Islamic finance more applicable to a global
Muslim audience and beyond and addressing socio-economic issues such as poverty, financial exclusion and income
disparity. In this issue, we have lined up several interesting articles on Islamic Fintech.
Articles like ‘The New Age Fintech Islamic/Halal Finance and Opportunity for OBOR & CPEC’ and ‘Fiqh-onomics of Islamic
Financial Engineering’ brings to light the challenges and opportunities presented by this new segment of Islamic
finance. ‘The Sharing Economy for Muslims – Islamic Crowdfunding Is The Next Big Thing’ talks about the potential of
crowdfunding and what it means for Muslims and the Islamic economy.
Another insightful article, ‘Key Evolving and Emerging Regulatory Issues in Islamic Fintech: A Global Perspective’ discusses
the importance of developing an effective regulatory framework for Islamic Fintech. The author stressed the need
for regulators to comply with fundamentals such as standardisation, financial stability, innovation with Maqasid al-
Shari’a, cyber-security, consumers’ protection and capacity building.
As always, we hope you enjoy our articles, and we hope this year brings out the good in all of us.
Happy Reading!
Dr. Sofiza Azmi
Editor-in-Chief
ISSN 2049-1905
An official publication of Cambridge Institute of Islamic Finance
FOUNDER
Professor Humayon Dar
EDITOR-IN-CHIEF
Dr. Sofiza Azmi
EDITORIAL ASSOCIATE
TABLE OF
Tabinda Hussain
INTERNATIONAL EDITORIAL BOARD
Stella Cox CBE
CONTENTS
Chairman of the International Advisory Board
Professor Mehmet Asutay
Durham University
Professor Dr. Mehmet Bulut
Istanbul Sabahattin Zaim University, Turkey
Dr. Jamshaid Anwar Chattha
Risk Management and Banking Supervision
Expert for Islamic Finance ISFIRE COVER STORY
Dato’ Dr. Asyraf Wajdi Dusuki 12 ABDUL KARIM JUMA
Islamic Finance Expert
DIRECTOR OF ISLAMIC BANKING, RAKBANK
Professor Joseph Falzon
University of Malta
Dr. Mian Farooq Haq
State Bank of Pakistan TALKING POINTS
Professor Kabir Hassan 22 ISLAMIC SOCIAL ENTERPRISE FOR COMMUNITY
University of New Orleans
EMPOWERMENT AND ECONOMIC ENHANCEMENT
Dr. Hylmun Izhar
Islamic Development Bank MUHAMMAD IQMAL HISHAM KAMARUDDIN
Dr. Rizwan Malik
Islamic Finance Expert 38 THE NEW AGE FINTECH ISLAMIC/HALAL FINANCE
Moinuddin Malim AND OPPORTUNITY FOR OBOR & CPEC
Alternative International Management MUGHEES SHAUKAT
Services
Dr. Aishath Muneeza
INCEIF 76 WOMENPRENEUR: THE MILLENNIAL DIMENSION
Dr. Asmadi Mohamed Naim SUE KAMAL
Universiti Utara Malaysia
Professor Muhamad Rahimi Osman
Universiti Teknologi MARA
M. Saleem Ahmed Ranjha
ISFIRE REVIEW
Wan Miana Rural Development Programme 26 SMART REGULATIONS FOR ISLAMIC FINTECH
Dr. Irum Saba
Institute of Business Administration, Karachi
66 KEY EVOLVING AND EMERGING REGULATORY ISSUES IN
Dr. Mughees Shaukat
College of Banking and Financial Studies, ISLAMIC FINANCE: A GLOBAL PERSPECTIVE
Muscat DR. JAMSHAID ANWAR CHATTHA
Dr. Usamah Ahmed Uthman
King Fahd University of Petroleum & Minerals
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20 ISLAMIC FINANCE AND THE ECONOMIC
COOPERATION AMONGST THE COUNTRIES
66
COMPRISING THE BELT AND ROAD INITIATIVE
PROF. HUMAYON DAR
ISFIRE INTERVIEW
30 DATUK MUHAMAD UMER SWIFT
CHIEF EXECUTIVE OFFICER, BURSA MALAYSIA BERHAD
POINT OF VIEW
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42 THE SHARING ECONOMY FOR MUSLIMS – ISLAMIC
CROWDFUNDING IS THE NEXT BIG THING
UMAR MUNSHI
48 FIQH-ONOMICS OF ISLAMIC FINANCIAL
ENGINEERING
DR. HYLMUN IZHAR
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78 WHEN TECH MEETS FAITH
NAMIRA SAMIR
82 THE THREE SKILLS OF SUCCESSFUL SHARI’A
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other supporters of the publication do not assume responsibility for any damage resulting from decisions
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COVER STORY
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COVER STORY
ABDUL KARIM JUMA
DIRECTOR OF
ISLAMIC BANKING, RAKBANK
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COVER STORY
RAKislamic, the Islamic banking window of RAKBANK, Overall, throughout the years it is evident that RAKislamic is
offers a wide range of Islamic financial services in the UAE. constantly improving and ultimately aiming to offer a wide
Would you care to share with our readers the strategic range of Shari’a-compliant products, services and solutions
position in which RAKislamic has managed to put itself spanning across the Bank’s verticals from Personal Banking,
vis-à-vis its competitors, especially the other Islamic Bancassurance (Takaful) and Business Banking to Wholesale
banking windows in the country? Banking as well as Treasury, and the most recent Financial
We, at RAKBANK, recognised the increasing demand in the Institutions Group.
market for Islamic financing products and started venturing
in with a retail proposition under the brand name “Amal”,
marking the beginning of our journey in 2013. During
RAKBANK, and of course as a result of this, RAKislamic
the following year, we expanded our Islamic offerings by
has developed itself as a specialist in the provision of SME
introducing home-financing solutions and in 2015 we
Financing. Admittedly, many banks shy away from this
entered the business and corporate banking realm, offering
segment of the market because it is a difficult area. What
Shari’a-compliant commercial property finance and asset-
made you focus on SME Financing?
based financing solutions. In line with industry best practices,
Many banks and financial institutions have shied away from
we decided to rebrand our “Amal” Islamic financing solutions
the SMEs sector after they performed poorly in 2015 and
into RAKislamic, incorporating our customer-centric
2016. However, SMEs are a part of RAKBANK’s DNA and
approach, the Bank’s strategy and most importantly, building
this is why we are considered the leading SME bank in the
a unified brand proposition and image for the Islamic division.
country. Our whole approach at RAKBANK was to stick with
In 2017, the Bank began implementing a strategy that the existing SME business, but change the way we lend to
focused on diversifying the Business Banking and Wholesale SMEs and focus on reducing the associated risk element.
Banking portfolio, which also translated into the launch of a This also translated into our RAKislamic portfolio of Shari’a-
complete trade proposition for our RAKislamic customers. compliant products and services that were introduced to
Similarly, RAKislamic offered a first-of-its-kind Shari’a- cater directly to our SME customer base.
compliant Term Structured Deposit, based on the Murabaha
This strategy and approach have been very successful and to
contract called “Fawrun”, allowing customers to receive
be very frank we’ve probably benefited from the fact that a
their due profit upfront upon deposit placement instead of
number of other banks exited the space, which has allowed
waiting until the maturity date. This was followed by the
us to operate within a set of parameters that we are more
integration of Treasury and Financial Institutions Shari’a-
comfortable with. Additionally, this led to the recent award
compliant financial services and solutions.
received that named RAKislamic the Best SME Bank in UAE
by the Islamic Business and Finance magazine.
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COVER STORY
The beautiful thing about learning and
knowledge is that it cannot stop unless
you want it to. I believe that one must
continuously evolve and find a purpose
to move forward, whether it involves
banking or something else.
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COVER STORY
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COVER STORY
RAKBANK and RAKislamic have developed an impressive digital banking platform.
Needless to say, that adoption of technology has huge cost implications for any bank. Do
you think that the commitment to adopting state-of-the-art technology has helped the
bank in winning more business?
Technology is becoming the main focus of the banking sector, especially at RAKBANK.
We understand the importance of operating efficiently, effectively and seamlessly and the
influence it has on how we are perceived by our customers and the market as a whole.
Innovation is at the forefront of our Bank’s strategy and our focus has been to support and
implement new technology initiatives and/or transform existing ones, in order to serve our
customers through smart applications that save time and require minimal paperwork.
Furthermore, in the case of fintech, we’ve partnered up with a number of companies. Our
approach is to work with different fintech companies and various other parties as and when
we see value in doing so. We are also in touch with international players in different advanced
markets to explore and adopt new and innovative practices that can help us reach our targets.
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COVER STORY
A related question is about the effect of technology on the Back in 2017, RAKBANK adopted a bank-wide diversification
growth of Islamic banking and finance. In your view, how strategy focusing on the portfolio that was also implemented
has technology helped you, as Director of RAKislamic, to in the Islamic banking window. The emphasis shifted from
win more business for the Islamic franchise of RAKBANK? Islamic cards and auto finance to become a full-fledged Islamic
Technology has helped us to understand our customers finance service provider, covering a full spectrum that ranges
and the market. This has allowed us to come up with new from Islamic cards, mortgages, all the way to SME business
services and value-added products offered through multiple finance and trade finance solutions. Our diversification
channels. Through our partnership with fintech companies, strategy proved to be successful and RAKislamic contributed
we were able to attract a large segment of personal and significantly to the overall year-on-year profit growth.
business banking customers who prefer technology-based
banking over traditional banking, while still enjoying our Furthermore, our focus this past year for RAKislamic has
Shari’a-compliant product suite. This holds especially true been to finance leading industries that are vital to the Islamic
with millennials, thus expanding our customer base who economy such as the halal food industry, family-friendly
seek convenience and instant Shari’a-compliant financial tourism, digital economy, fashion, arts and design, economic
solutions via our apps and digital solutions. education, and lastly implement industry standards and attain
certifications.
RAKBANK reported nearly 25% year-on-year growth in
net profits by the end of 2019. How much did RAKislamic The UAE is a very dynamic banking and financial market,
contribute to this growth? How much value did the top with a number of mergers and acquisitions in the recent
management at the Group level attach to the Islamic past. With the ever-changing banking landscape in the
business? country, how does RAKislamic aim to maintain its distinct
value proposition to remain competitive?
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COVER STORY
The recent mergers occurring amongst Islamic banks have supporting his vision in developing a thriving economy in the
created some giants, but what RAKBANK offers is agility. We UAE. Secondly, HH Sheikh Saud bin Saqr al Qasimi, Ruler of
may not be the largest Islamic banking provider, however, Ras Al Khaimah and member of the Supreme Council, and of
our Shari’a-compliant solutions span across all of the Bank’s course, HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice
six verticals from Personal Banking, Business Banking, President and Prime Minister of the UAE and Ruler of Dubai.
Insurance (Takaful), Treasury, Wholesale Banking and the
recently set up Financial Institutions Group. They have inspired me with their dedication to constantly
find ways to make our country more diverse, successful and
Our approach is to develop Islamic banking products and renowned worldwide as a tourist and business destination.
services at the same pace as RAKBANK’s conventional ones, Lastly, Elon Musk who marches tirelessly towards creating
including access to seamless digital banking solutions and new innovative ideas and technologies, and his ability
platforms. to envision a modern world that is yet to exist. His ideas,
launches and initiatives focus on building a better and more
energy-efficient world.
On a personal level, how did you get attracted to Islamic
banking? Was it a deliberate choice or circumstances led
you to become an Islamic banker? What would be your advice to the younger generation of
Islamic banking was created to supply banking solutions and Islamic bankers?
financing for customers who seek Shari’a-compliant banking. The beautiful thing about learning and knowledge is that it
Personally, it was a faith-driven decision and I continuously cannot stop unless you want it to. I believe that one must
strive to increase my knowledge base in Shari’a financing continuously evolve and find a purpose to move forward,
and aspire Insha’ Allah to attain knowledge and wisdom whether it involves banking or something else. Facing
to become a Shari’a scholar. Knowing the ins and outs of challanges helps create resilience, and as long as they are
Shari’a financing will help me achieve my goals on a personal passionate and dedicated they will achieve their career goals
level and also help built a strong foundation to make sound within the Islamic financing world.
decisions that will help RAKislamic constantly improve within
this ever-changing sector. Personally, my passion for Islamic banking and the efforts
to promote its ethical financing solutions drives me to press
forward at all times, because I believe in it wholeheartedly. I
also want to play a role in the developments and advancements
In your experience and observation, is it more difficult for that are happening in the Islamic banking world.
an Islamic banker to work in an Islamic banking window
of a conventional bank rather than working for a fully-
fledged Islamic bank?
It has its challenges but it is not an impossible task. These What is the future of Islamic banking and finance in the
challenges motivate us to utilise every resources available UAE and worldwide?
to promote Islamic finance across our wide customer base. Islamic banking and finance is a growing industry that is
RAKislamic is one of RAKBANK’s diverse solutions that continuously evolving with the help of progressive Shari’a
directly caters to a range of customers from different beliefs scholars guided by Islamic economics. There are ongoing
and backgrounds who ultimately seek access to a suite of efforts in the UAE to achieve HH Sheikh Mohammed bin
Shari’a-compliant products and services that will support Rashid Al Maktoum’s (Prime Minister of the UAE) vision of
them in carrying out their day-to-day banking activities and transforming Dubai into a capital for Islamic banking with
help achieve their financial goals. the establishment of the Higher Sharia Authority to regulate
the industry as well as the adoption of the Accounting and
Auditing Organization for Islamic Financial Institutions
(AAOIFI) as a standard for Islamic finance.
A number of personalities must have influenced you
throughout your career. Whom amongst them you would At RAKBANK we are constantly striving to keep up to date
consider as your greatest mentor or inspiration? with the international and regional developments and best
First and foremost is HH Sheikh Zayed bin Sultan Al Nahyan practices that are changing at an extremely rapid pace within
(may his soul rest in peace). I am honoured to continue the Islamic finance space.
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PAUSE FOR
THOUGHT
THOUGHT
PROF. HUMAYON DAR
ISLAMIC FINANCE AND THE
ECONOMIC COOPERATION
AMONGST THE COUNTRIES COMPRISING
THE BELT AND ROAD INITIATIVE
This article summarises a keynote speech delivered by Professor Humayon Dar at the 4th China-UAE Conference on Islamic
Banking and Finance (CUCIBF IV) held at Chengdu (China) on January 7-8, 2020. He highlighted some interesting opportunities
that may mutually benefit Islamic finance and China, the main sponsor of the Belt and Road Initiative. These are presented in this
Pause for Thought for the benefit of those who have interest in this field.
Islamic finance is at the brink of the US$3 billion mark1. capital injection is required into the global Islamic financial
Although present in almost 135 countries in one form or services industry.
another, it has yet to achieve a meaningful size beyond the
50 countries where it is recognised as a viable opportunity. The One Belt and One Road (OBOR), or just the Belt & Road
Out of these 50, about a third are considered as systemically Initiative (BRI), attempts to resurrect the old Silk Road through
significant markets with respect to Islamic finance2. The which China had beneficially plugged itself into the world
potential of Islamic banking and finance (IBF) is almost three trade system of the past. It has 65 signatories so far, with a
times more than its current size. However, according to number of other countries showing an interest to join. About
some estimates, it will take the industry more than 30 years half of these are the countries where IBF is an important
to fill the gap between the potential and actual size of the sector, with about 11 countries that may be classified under
industry3. For this gap to be filled efficiently, large additional the IMF’s systematically significant Islamic financial markets.
According to the Global Islamic Finance Report 2019, the Islamic financial assets stood at US$2.59 trillion spreading in all the activities that
1
may be summarised under the rubric of Islamic banking and finance.
2
International Monetary Fund classifies a country systemically significant with respect to Islamic finance if the share of Islamic banking and
finance in that country is 15% or more of the national financial sector.
3
Global Islamic Finance Report 2018.
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THOUGHT
As trade and logistics are central to the BRI, it has great of China, may help capital-deficit countries like Pakistan that
relevance to IBF that itself has thrived as a trade-based has an ambitious China-Pakistan Economic Corridor (CPEC)
financial system. In this respect, the role of the International as part of the BRI. The likes of AIIB must be lured into using
Islamic Trade Finance Corporation (ITFC), a subsidiary of Pakistan as a domicile for the issuing of its Sukuk programme,
Islamic Development Bank (IsDB) should be explored. The something that it has contemplated since 2015, with a focus
Asian Infrastructure Investment Bank (AIIB) has already on Hong Kong.
initiated a dialogue with the Islamic Development Bank
(IsDB) to provide infrastructure financing in the IsDB The new political regime in Pakistan must focus on Islamic
member countries. finance to use it as a major tool to carry out its engagements
under CPEC. This is perhaps the most credible opportunity
In addition to the massive potential that infrastructure for the government to use Islamic finance as a tool for
projects may have, there is an opportunity for China and economic development and for attracting foreign capital
other influential countries participating in the BRI to into the country. The Asian Development Bank (ADB) has
develop trade-based infrastructure in the OBOR region. A issued a number of Technical Assistance (TA) programmes to
commodity-based liquidity management solution needs to help the countries in the BRI region improve their capacity
be developed, which should be an improvement over the for Islamic banking and finance. The likes of Pakistan,
existing arrangements based on commodity Murabaha. Afghanistan, Tajikistan, Kazakhstan and the Kyrgyz Republic
London has played a central role in this respect, and this may have benefitted from such TAs. All these countries have
very well be the time for China to develop an alternative relevance to the BRI and its success.
infrastructure in Beijing or Shanghai.
If Pakistan decides to miss this opportunity to become a
China should also delineate a detailed plan to help the global champion of Islamic finance on the back of BRI, it is
member countries develop economically. It should also work bound to lick its wounds afterwards, as other countries have
on encouraging economic cooperation amongst the OBOR shown serious interest in this proposition. Further delaying
countries. The basic features of this are already in place, but its commitment, Pakistan will be a big-time loser in Islamic
there is a need to link it to IBF, especially in the countries finance. Kazakhstan is an important contender for this
where it is a significant activity. role, as its Astana International Financial Centre (AIFC) is
aggressively pursuing an Islamic finance agenda.
Although Chinese government may not need to borrow
from outside the country or may have no further appetite With a market share of 16%, the Pakistani banking sector
for external borrowing (given some recent focus on its can further be boosted by the recently constituted CPEC
burgeoning debt), it is nevertheless important to develop a Authority in Pakistan. It must immediately set up a specialised
vibrant Islamic capital market, with a special focus on Sukuk, department of Islamic finance within its jurisdiction to assess
for the benefit of the participating countries. For example, the role Islamic finance can play in achieving the goals of the
a multi-billion dollar Sukuk issued by a corporate or a economic development policy in the country.
sovereign within the BRI block, backed by the government
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POINTS
ISLAMIC SOCIAL
ENTERPRISE
FOR COMMUNITY
EMPOWERMENT
AND
ENHANCEMENT
MUHAMMAD IQMAL HISHAM KAMARUDDIN
UNIVERSITI SAINS ISLAM MALAYSIA
Islamic Social Enterprise (ISE) is increasingly gaining attention due to its flexibility to perform trading activities
for income generation while at the same time offering societal contributions. The role of ISE is greatly viewed
from a value-based perspective, where ISE’s objective is to support the Islamic third sector economy in easing
the needs of those unfortunate and middle-class citizens.
In this regard, ISE plays a crucial functional role in generating wealth for societal purpose, either in the form of
small independent entities, wing of non-government organisations (NGOs), and local or international bodies.
An example would be Islamic Relief, a worldwide Islamic NGO which has its own ISE outlets known as Charity
Shoppe. Others that fall under the same criteria include, Waqf Annur Clinics in Malaysia, Baitul-Mukarram
Complex in Bangladesh and Baitul Maal wat Tamwil (BMT) in Indonesia.
There are increasing numbers of ISE with varieties of services offered; including education, healthcare,
hospitality services and consumer goods trading. These type of institutions are established from capital (in
the form of goods or money) that is collected via donations and almsgiving. ISE fulfils the needs of the needy
by offering goods and services at an affordable price, while at the same time generating income for its own
sustainability. Although there are some understandings on what constitutes ISE, there is still a great deal of
uncertainty and imprecision with regards to the definition of ISE.
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What is ISE? Hence, ISE may be defined as “An Islamic-based
ISE is derived from the concept of Social Enterprise entity that gained funding (in the forms of monetary
(SE), which has been identified as one of the solutions and non-monetary assets) from Islamic charitable
to societal challenges related to inequality caused sources (through waqf, sadaqah, hibah, and qard) and
by the gap between the rich and the poor. SE channelled them into businesses activities (goods and
practices foster the empowerment of communities services) for the purpose to contribute to the needy
in a sustainable manner through the promotion of and at the same time sustain this contribution in a
local innovation and support of entrepreneurship long term.”
in rural communities. The term ‘social enterprise’
is often used interchangeably with several related Based on this definition, ISE comprises of four main
terms such as volunteerism, social work, welfare and elements:
entrepreneurship. The terms infer two areas, namely
• objective of ISE as an Islamic-based entity
social and entrepreneurship. These two areas are then
combined to form SE. • Islamic charitable contracts as a source of capital
Although derived from the concept of SE, ISE • activities and
operates on Islamic principles with additional values.
There are three important Islamic concepts that are • income generation and distribution.
closely related to every Islamic organisation, including
the ISEs: This definition excludes other Islamic-based entities
that directly accept charities and distribute them to
i. al-falah (success in this world and hereafter) the needy, without accumulating those funds.
ii. maslahah (public interest) and
iii. ’maqasid shari’a (Islamic objectives)
In order to achieve the objectives of al-falah and
maslahah, ISE must operate based on maqasid-e-
shari’a. For this, there are five basic elements under
maqasid-e-shari’a that needs to be considered for
every activity and decision made by ISE:
(i) preservation of faith
(ii) preservation of life
(iii) preservation of intellect
(iv) preservation of posterity and
(v) preservation of wealth
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Selection of Charitable Contracts for ISE as a from donors can be utilised for various business needs
Source of Capital and activities such as trading of goods and providing
Understanding the features of each charitable contract services in areas that fulfil the needs of the poor and
allows us to better recognise what constitutes ISE related customers. Rather than confining ISE activities
and provides a more solid definition. In addition, within a limited scope, this article includes ISE’s
understanding these contracts can help participants activities that are in line with ISE’s social business
(managers) fulfil their obligations in dealing and activities. As discussed above; sadaqah, waqf, qard
managing the funds. As the basic characteristic of hasan and hibah can be utilised by ISE to generate
ISE is related to income generation, some Islamic continuous income through businesses, rather than
charitable contracts are excluded from the definition solely distributing these funds directly to recipients,
of ISE. In this case, ISE is seen as a non-profit due to their flexibility nature.
organisation that collects Islamic alms such as zakat,
infaq, sadaqah, and waqf while at the same time fulfils The main characteristic that differentiates ISE from
the social enterprise criteria. other types of institutions has to be its establishment
as an economic unit that generates income, where
Taking into consideration that these contracts have capital is contributed through eligible almsgiving
different characteristics from Shari’a viewpoint, their contracts. The distribution of income is made to the
definitions although inclusive, are relatively conflicting recipients (depending on the types of contracts) after
with some of the contract’s requirement. For example, deducting all relevant expenses. For instance, for zakat
zakat contract requires that collections from donors collection, the distribution should be specified only
be distributed to eight types of recipients post- for asnaf. Meanwhile, for waqf-based source, the net
collection. In this case, the collection cannot be kept income should be distributed to the recipients that are
and used by the management to generate income, specifically named by the donor, except for waqf am
thus leading to restrictions in the usage of funds. where it is opened to all. In the case of sadaqah, on
the other hand, net income can be distributed to the
However, waqf with its uniqueness and limitations poor and needy without any limitations.
provides huge potential to be used by ISE in the
form of capital as long as the requirements on the
perpetuity of the original assets are put in place.
Comparing all these contracts, sadaqah and hibah Conclusion
are considered as the most flexible contracts since In essence, ISE is distinctively different from other
they do not impose any limitations and restrictions in institutions due to its wealth-generating properties
managing capital. This enables ISE to expand capital and such ISE should aim for al-falah and be guided
without any restrictions. by maqasid-e-shari’a. ISE contributes to society
in several forms. In addition to providing donors
As ISE is also involved in social business, Islamic with opportunities to give in ways that reflect their
charity funds should be managed properly and interests and offer affordable goods and services to
prudently based on trust. Islamic charity funds can the niche segment of the society, ISE also serves the
be reinvested for future benefits. Investment of funds local community by creating jobs opportunities.
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SMART
REGULATIONS
FOR
ISLAMIC FINTECH
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I slamic Fintech has a potentially transformative
impact on the economy, and as such, authorities and
regulators need to carefully nurture a policy regime that
promotes innovation and growth of Islamic Fintech companies
and startups. In this era of digitalisation, traditional rules and
regulations will not be sufficient for the existing and new
complicated and time-consuming. This is also one of the
critical reasons for the lack of Islamic Fintech as compared
with conventional Fintech companies.
In this context, standardisation means the establishment
of universal Shari’a standards by the flexible codification of
entrants in the financial industry. Increasing commoditisation Shari’a principles, which would ultimately reduce the shortage
of technologies such as artificial intelligence and machine of Shari’a scholars and also help promote unity among the
learning produce new pandora boxes for regulators.1 Smart different schools of fiqh.3 This signifies that a universally
regulations are fundamental to the future of the Islamic recognised Islamic manuscript or standard should be issued
Fintech sector. to harmonise differences in fiqh opinions concerning Islamic
finance in order to further enhance product development and
Smart regulations minimise the obstacles to Islamic financial reduce Shari’a non- compliance risk.
markets including Islamic Fintech while maintaining control.
Regulators through smart regulations can test and experiment The best solution provided in the matter of standardisation
with the new service providers. They can also monitor their is by Dr. Muhammad Tahir ul Qadri. He suggested that the
performance and be flexible in issuing them with a license, solution to this problem lays in the adoption of the theory
which should be improved subsequently. Innovation office, of Taqlid-al-Madhahib "Neo-Juristic approach of inclusive
regulatory sandboxes and RegTech can together be very accommodation and flexibility”, which is based on strong
supportive for regulators instead of depending on only one Islamic legal foundations. He is of the view that, with
approach that may leave pitfalls and room for inaccuracy.2 the application of this approach, the uncertainty in post-
default resolution mechanism in Islamic finance matters will
In formulating an effective regulatory framework for Islamic be eliminated.4 This will subsequently enhance investors'
Fintech, regulators have to comply with fundamentals such confidence, resulting in transparency and appropriate risk
as standardisation, financial stability, innovation with Maqasid management.
al-Shari’a, cyber-security, consumers’ protection and capacity
building. These essential features are indispensable for the
growth, development and sustainability of Islamic Fintech
given the unique nature of Islamic finance itself. These 2. Innovation with Maqasid Al-Shari'a
features are discussed below. Standardisation without innovation does not guarantee the
sustainability of Islamic Fintech. Without a doubt, innovation
is imperative for the development of the Islamic Fintech
sector. But at the same time, achieving Maqasid al-Shari’a
1. Standardisation should be the primary objective. Without attaining this goal,
A prerequisite for the rapid growth of Islamic finance in Islamic Fintech cannot compensate and fill the gaps left by
general and Islamic Fintech in particular, is standardisation of the Islamic finance industry. Financial innovation in Islamic
Shari’a interpretations and legal documentations. This would finance must be within the Shari’a parameters and tested
fuel growth by streamlining the whole process, which is still against the Maqasid al-Shari’a, both in form and substance,
1
Zetzsche, D. A., Buckley, R. P., Barberis, J. N., & Arner, D. W. (2017). Regulating a revolution: From regulatory sandboxes to smart regulation.
Fordham J. Corp. & Fin. L., 23, 31.
2
Arner, D. W., Barberis, J., & Buckey, R. P. (2016). FinTech, RegTech, and The Reconceptualization of Financial Regulation. Nw. J. Int’l L. & Bus.,
37, 371.
3
McMillen, M. J. (2011). Islamic capital markets: market developments and conceptual evolution in the first thirteen years. Available at SSRN
1781112. Retrieved from https://s3.amazonaws. com/academia.edu.documents/39679977/
4
Qadri, T. ul. (2018). Standardization in the Islamic Banking & Financial System (Taqlid Al- Madhahib) (Vol. 1). Minhaj ul Quran International.
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where the primary objective is the realisation of benefits to
the people.5 When formulating regulations for the Islamic
Fintech sector, authorities and regulators should aim to fulfil
Maqasid al-Shari’a through two main objectives: financial
stability and sustainable development.
3. Financial Stability
Fintech is changing the landscape of financial services,
providing more opportunities to seek financing and increasing
financial inclusion. Regulators are responsible to provide
a framework that supports the sustainable development
of the industry while protecting consumers and ensuring
financial stability. The Financial Stability Board (FSB) recently
published a report on Fintech and its implications and the risk
to financial stability. The report concludes that, while there
are no irresistible financial stability hazards and risks from
emerging Fintech innovations given the relatively small size
of the Fintech industry relative to the global financial system,
experience depicts that they can flourish quickly if left
neglected.6 It also underscores the demand for international
bodies and national authorities to pay attention to Fintech in
their risk assessments, monitoring and regulatory frameworks.
The mixture of greater efficiency and better use of big data
could give essential support to financial stability if the linked
risks are appropriately managed, especially those related to
pro- cyclicality and excess volatility. Fintech has enormous
potential to expand access to financial services for both
businesses and individual households. This could increase
sustainable and inclusive growth, provided that the associated
risks are managed to keep trust in the system and to avoid a
build-up of risks that could result in financial instability.
4. Cyber Security and Customers’ Protection
Although there are many opportunities connected with
Fintech, the risks and potential vulnerabilities emerging
from new Fintech solutions cannot be overlooked. New
risks emerging from Fintech include risk of cyber-crimes,
data breaching, data theft, etc. These risks may be due to
uncertainties in regulation, lack of required technological
skills, smart workers, heavy compliance costs and issues of
scalability in handling the massive volume of unstructured
and structured data. In this scenario, customers’ protection
is an important point that has to be considered appropriately
while enforcing regulations.7
The combined use of blockchain, big data and artificial
5
IFSB, IRTI, IDB (2010). Islamic Finance and Global Financial Stability. Retrieved from http:// www.ifsb.org/docs/IFSB-IRTI-IDB2010.pdf
6
Financial Stability Board (2017). Financial Stability Implications from FinTech - Financial Stability Board. Retrieved from http://www.fsb.
org/2017/06/financial-stability-implications- from-fintech/
7
Ng, A. W., & Kwok, B. K. (2017). Emergence of Fintech and cybersecurity in a global financial centre: Strategic approach by a regulator. Journal
of Financial Regulation and Compliance, 25(4), 422–434.
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intelligence can lead to a better, more sophisticated and
integrated cyber security system, which are adaptable and
effective. In addition, one of the major challenges from
the end users is lack of awareness of cyber or digital risks
or also their negligence in taking precautionary measures
while accessing financial services through digital channels.
Awareness programmes to educate users may be helpful to
manage the cybersecurity risks. Another big challenge for
policymakers and regulators is protecting customers from
cyber risks and at the same time allowing them the usage of
digital channel to access financial services.
5. Capacity Building
Islamic Fintech is still at its infancy with only 93 Islamic
Fintech established world over. One of the factors behind
the slow growth and meagre number of Islamic Fintech is the
lack of skilled human resources.8 Regulators have to play their
role in this vital element of capacity building to ensure the
sustainable growth of the Islamic Fintech sector. Regulators in
different countries are adopting the approach of integration
and collaboration with new entrants in Fintech in terms of
their trainings, especially on regulatory matters. Different
hackathon programmes have been developed by regulators
to enhance awareness among the new entrants
Conclusion
Digital transformation of the Islamic Fintech sector is vital in
this era of digitalisation and smart regulations are essential
to enhance its development. Islamic Fintech can be a tool
to reach out to the masses, which are not currently served
by the Islamic finance industry, especially Islamic banks. The
numerous opportunities provided by Islamic Fintech such as
financial inclusion, empowerment of underserved consumers
and the achievement of Maqasid al-Shari’a; will become
apparent when regulators' concern for financial stability,
consumers' protection, innovation and capacity building are
assured. Standardisation and harmonisation in regulations
have great significance and act as catalysts in the growth and
sustainability of the Islamic finance industry.
This article is an excerpt of Chapter 10 on The Emerging
Landscape of Islamic FinTech Regulation from the Global
Islamic Finance Report 2019. Chapter 10 was contributed by
Dr. Hussain Mohi-ud-Din Qadri, President of Minhaj-ul-Quran
International (MQI) and Deputy Chairman of the Board of
Governors, Minhaj University Lahore.
8
Todorof, M. (2018). Shariah-compliant fintech in the banking industry. In ERA Forum (pp. 1–17). Springer.
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29ISFIRE
INTERVIEW
Datuk
Muhamad
Umar Swift
Chief Executive Officer
Bursa Malaysia Berhad
Malaysia is globally known as the premier
Islamic finance market, and is currently
the lead in promoting Sustainable and
Responsible Investing (SRI) proposition
based on its shared values with Islamic
finance. What role is Bursa Malaysia
playing to champion this?
At Bursa Malaysia, we strongly believe
the convergence of Shari’a investing
and SRI has a vital contributing role to
play in driving a dynamic and vibrant
marketplace. There is so much potential
within this space for further development,
and vast opportunities for stakeholders.
Shari’a investing, beyond being a faith-
related choice, is closely related to
SRI that looks into ESG (Environment,
Social, Governance) factors. Just as it
is with SRI, Shari’a-compliant products
and services promote good socio-
economic values, and attract those who
see value in sustainable, inclusive and
responsible investing. Shari’a investing
allows investors to generate social and/or
environmental benefits alongside financial
returns, creating a win-win situation for
investors, investee companies and the
society at large.
If you look at some of the most successful
businesses in the world, you will find that
they tend to have strong principles at their
very core. They have tangible benefits,
create progress, are transparent about
their dealings, and are also sustainable
businesses that show steady growth with
dependable profits. In this day and age,
investors around the world seek these
opportunities to diversify their portfolios
and grow value.
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With this in mind, we continually endeavour to provide a its next phase of growth while enhancing its global
range of products and services catered to SRI. Notably, competitiveness?
the rapid rise of interest in SRI complements the growth As capital markets continue to evolve and become more
of Shari’a-compliant investing, leveraging our end-to- sophisticated, Bursa Malaysia faces increasing challenges
end Shari’a-compliant platform, Bursa Malaysia-i. The from both regional and international exchanges. The
convergence of sustainability, SRI and Shari’a investing plays emergence of new technologies and greater interconnectivity
a significant role in facilitating and delivering our unique in the global financial markets have further intensified the
proposition to further build our strength and competitive competitive pressure we face. But at the same time, they
edge in the Islamic capital market space. have also amplified the opportunities available.
As an Exchange and a PLC, Bursa Malaysia is proud to have One of the biggest challenges in promoting Islamic capital
championed a number of firsts in this area and has been market and Shari’a-compliant offerings is to attract non-
recognised internationally for our efforts. Back in 2014, Muslim investors. The majority of non-Muslim investors
we were the first emerging market to launch the globally do not really look at the Shari’a-compliance of securities.
benchmarked FTSE4Good Bursa Malaysia (F4GBM) Index to What matters most to these investors is the performance of
measure the performance of Malaysia’s PLCs demonstrating the securities or the investment portfolio itself. They view
strong ESG practices. As a reflection of the increasing quality investing in Shari’a-compliant securities as an alternative
and strength of issuers in this respect, we have managed to investment option. We would like to shift this perception. We
grow the number of constituents from the initial 24 to 69 want investors to look at Shari’a investing as part of ethical
as at December 2019 due to improved ESG disclosure and and responsible investing.
practices. Currently, 49 out of 69 (71.0%) of the F4GBM
Index constituents are both ESG and Shari’a-compliant. Bursa Malaysia, as an exchange, plays a very important
role as the Islamic capital marketplace that provides unique
In 2018, we became the first exchange in the world to opportunity and a trusted environment for companies and
introduce a one-stop knowledge portal on corporate investors to grow. To enhance the ecosystem of SRI, we
governance, sustainability and responsible investing; known are committed to changing the mindset and perception of
as BursaSustain. We also became the first Exchange in investors by highlighting the values of Shari’a-compliant
ASEAN to adopt the Taskforce on Climate Related Financial investment as part of ethical and sustainable investing.
Disclosures (TCFD) recommendations into our reporting Looking at the tremendous growth of the global and
guidance (Bursa Sustainability Report) in 2018. At the same domestic Islamic funds industry following the increase in the
time we led by example by being the first Malaysian PLC to number of high-net-worth individuals globally and the rising
adopt the TCFD recommendations. demand for Shari’a-compliant instruments; Bursa Malaysia
has developed a strategy roadmap and identified strategic
Bursa Malaysia is now classified as a Shari’a-compliant
focus areas in our pursuit to become a vibrant trading centre
counter on the Exchange, and effectively also becoming an
for Islamic-based capital market offerings. This also entails
ESG and Shari’a-compliant constituent of the F4GBM Index.
expanding our domestic and foreign client base to remain the
This was pursuant to the updated list of Shari’a-compliant
leading exchange in the Islamic capital market.
securities released by the Securities Commission Malaysia’s
(SC) on May 31, 2019; following approval of its Shari’a In terms of performance, the growth of Shari'a market
Advisory Council (SAC). Achieving Shari’a-compliant status capitalisation and Average Daily Trading Value (ADV) of
fulfils a long-held aspiration of Bursa Malaysia, and reinforces Shari'a-compliant securities from 2010 to 2019 grew 38.9%
Malaysia’s standing as a global leader in the Islamic market. and 34.8%, respectively. As a leading emerging market
Our Shari’a-compliant status further strengthens Bursa exchange that offers a good breadth of Shari’a-compliant
Malaysia’s commitment to continue offering an even wider securities and with more than 70% of listed companies
and more innovative range of Shari’a-compliant products to categorised as Shari’a-compliant, Bursa Malaysia has a solid
the market. This will contribute towards attracting a larger foundation to continue to develop its niche in the Islamic
Shari’a investor base as well as new classes of investors capital market.
interested in SRI that share similar principles with Shari’a
investing, ultimately enhancing the vibrancy and liquidity of Shari’a indices have consistently outperformed its
the market. conventional counterparts over the past ten years, indicating
Islamic investment is an attractive source of value for
investors. The FTSE Bursa Malaysia Hijrah Shari’a Index,
comprising of the 30 largest Shari’a-compliant companies
What is, in your view, the greatest challenge faced by Bursa
on the FTSE Bursa Malaysia EMAS Index, has consistently
Malaysia in the development of the Malaysian capital
outperformed the FTSE Bursa Malaysia KLCI, growing about
market in general and Islamic capital market in particular?
26.4% from 2010 to December 2019. This positive trend is
What are your plans to spearhead Bursa Malaysia towards
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expected to continue on the back of the continuous growth complement our business strategies and strengths, and
in Islamic funds. encourage a growth mindset to enable our people to meet
current and future challenges.
The continued development of the market ecosystem is a
top priority and crucial for Bursa Malaysia as it is the key to
unlocking the sustainable long-term value of our marketplace In terms of innovation, Bursa Malaysia has championed a
and transforming us into a robust developed market. We number of world’s first innovative Islamic financial market
continue to enhance our market ecosystem based on our instruments and trading alternatives. What are the key
initiatives with a focus on expanding our range of products focus areas for growth to fuel Islamic finance and Islamic
and services, deepening market liquidity and growing our capital market in the near future?
investor base to instil greater resilience and dynamism into
Bursa Malaysia is a global leader in Islamic capital market
our market as a whole.
innovations, and has pioneered several initiatives catering
We will strengthen our business growth and competitiveness to the requirements of discerning investors, including
through innovation and technology. We see technology Bursa Malaysia-i (world’s first end-to-end Shari’a-compliant
as a positive disruption – creating new fields of economic investing platform); Bursa Suq-Al-Sila’ or BSAS (world’s first
endeavour, driving efficiencies in operations, accelerating Shari’a-compliant commodity trading platform); as well as
our innovative capacities and providing healthy competitive Islamic Securities Selling and Buying Negotiated Transaction
pressures. For Bursa Malaysia, technology is helping us grow or ISSBNT (world’s first Shari’a-compliant alternative to
our capabilities, including the breadth and depth of our securities borrowing and lending). These innovations reflect
services and offerings. our strength in being ahead of the curve in Islamic capital
market services and infrastructure.
Some of the key drivers in this area is the offering of e-CDS,
the digital delivery of a personalised, easily accessible, at- With the increasing demand of Shari’a-compliant instruments,
your-fingertips e-services experience for investors on Bursa we are also expanding our market with new products and
Malaysia, as well as an ongoing project to modernise core services creation to cater to the needs of investors, be it
systems that form the backbone of our business. Enterprise retailers or institutions. Our priority remains to position
wide, we are also focusing our efforts to become a data- Malaysia as a center of Shari’a-compliant investment and
driven organisation. fundraising in the region. This will require more foreign
participation across our markets as well as greater linkages
Besides that, we have also introduced “Shari’a mode” on with our regional and global counterparts, which are
our Bursa Marketplace website, which is the first-of-its-kind especially important in view of heightened competition
virtual marketplace that brings a unique experience to all and increased globalisation. Bursa Malaysia will leverage on
investors, especially new investors. The introduction of the existing strategic partnerships while fostering new or budding
Shari’a mode enables investors who seek end-to-end Shari’a relationships to build the Exchange’s regional connectivity.
investing to filter the market, indices, stocks and other
products to be Shari’a-compliant to ease their investing In the next few years, we expect to enter into more of such
journey. collaborations to better reach investors in key markets. We
endeavour to remain as the leading exchange in the Islamic
At the same time, we are leveraging the robustness of capital market and expand the global reach of our innovative
our high performance organisation culture to focus on Bursa Malaysia-i platform to capitalise on the growing demand
collaborations and partnerships with organisations that for asset diversification or socially responsible investing.
We endeavour to continue to be the leading exchange in
the Islamic capital market and expand the global reach of
our innovative Bursa Malaysia-i platform to capitalise on
the growing demand for asset diversification or socially
responsible investing.
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